Registration number:
DNACO Limited
for the Year Ended 31 December 2021
DNACO Limited
Contents
Company Information |
|
Strategic Report |
|
Directors' Report |
|
Statement of Directors' Responsibilities |
|
Independent Auditor's Report |
|
Consolidated Profit and Loss Account |
|
Consolidated Statement of Comprehensive Income |
|
Consolidated Balance Sheet |
|
Balance Sheet |
|
Consolidated Statement of Changes in Equity |
|
Statement of Changes in Equity |
|
Consolidated Statement of Cash Flows |
|
Notes to the Financial Statements |
DNACO Limited
Company Information
Directors |
G J Miller D J Hartshorne |
Registered office |
|
Auditors |
|
DNACO Limited
Strategic Report for the Year Ended 31 December 2021
Strategic Management
DNACO Limited ('DNACO' and ‘the Group’) is a non-trading Group Holding Company that was incorporated on 25th July 2018 in order to purchase Orchid Cellmark Limited (‘OCL’ and ‘the Company') in August of that year. Established in 1987, the OCL business is primarily focused on the provision of high-quality DNA testing and forensic services and is one of the UK's largest Forensic Science Providers, contracted by the majority of police forces in England and Wales.
The initial strategic objective of DNACO was to return the OCL business to profitability and then to ensure sustainable profits and seek growth opportunities through service development and acquisition.
Business Environment
Following a significant financial loss in 2018, DNACO’s OCL business returned a profit before tax in 2019 of £308k, in part due to increased funding for police out-sourced forensic testing following a Home Office review and a House of Lords Inquiry which recognised the importance of sustainable forensic science provision to the Criminal Justice Sector. However, in 2020 the OCL business was impacted by the COVID-19 pandemic and the two national lock-downs; profit was reduced to £40k from a turnover which was 4.1% lower than the prior year. In 2021 the pandemic continued to impact the sales mix, the cost of certain laboratory supplies and the operational productivity of the OCL business.
Business review
The audited financial statements for the year ended 31 December 2021 are set out on pages 10-32. The Group recorded a loss before tax and before negative goodwill write-backs of £794k (2020 profit: £40k) from a turnover of £30.115m (2020: £28.900m). Loss after tax but before negative goodwill write-backs was £1,114k ((2020 profit after tax: £137k).
In the 2020 Strategic Report the Directors forecasted a breakeven position for 2021, similar to 2020, given the ongoing impact of the COVID-19 pandemic which had lowered sales revenue and therefore profitability in a number of the Company’s businesses sectors. Indeed, there was a third national lockdown in the initial months of 2021 and government directed restrictions continued in one form or another throughout the year. The Company did end 2021 in a roughly break-even position, before accounting for certain one-off adjustments in respect of tax and provisions. Some sectors returned to pre-pandemic levels in 2021 but revenue from several of the Company’s key business activities continued to be depressed. This was successfully offset by increased levels of COVID-19 PCR testing services.
Just as in 2020, the Company continued to operate all services throughout the year, including during the period of lockdown, with the Company’s forensic activities classified by the government as critical services, essential to the Justice System. The business was affected by reduced submission volumes in some of its core forensic services as well as increases in the cost of certain laboratory consumables and PPE, while productivity continued to be impacted by the effect of the pandemic restrictions on working practices. However, the Company’s relationship testing and forensic defence businesses recovered as the court system, solicitors and a number of government departments returned to more routine working.
The COVID-19 PCR testing service that the Company launched in June 2020 delivered strong growth in 2021 with work carried out to support the Government’s testing programme as well as a number of commercial customers. While this contributed to funding overhead and allowed the Company to retain staffing levels in anticipation of post-pandemic recovery in other business sectors, overall there was a small decrease in margin compared to 2020.
2022 was forecast to be an even more difficult year with the loss of revenue from COVID-19 testing and the slow return of volume from certain core forensic activities. In addition, a significant proportion of the forensic work outsourced by the police forces in England and Wales was due for re-tender in 2022, with the timing of contract implementations having a significant impact on workload and profitability. However, after a challenging 2022, OCL’s success in the police forensic tenders means that the outlook is positive, as described in the Directors’ Report.
At the end of 2021 the Group’s cash position remained stable with no borrowings other than that in specific asset finance.
DNACO Limited
Strategic Report for the Year Ended 31 December 2021
Financial key performance indicators
The Directors monitor the progress of the Company in meeting its strategic objectives by reference to a range of financial and non-financial key performance indicators. The top-level financial performance indicators used are set out below:
Unit |
2021 |
2020 |
|
Group turnover |
£m |
30.10 |
28.90 |
Group gross profit / (loss) margin |
% |
17.30 |
19.70 |
Group operating profit / (loss) margin before negative goodwill write-back |
% |
(2.60) |
.10 |
Principal risks and uncertainties
The Directors regularly review risks and uncertainties that impact the Group. The principal risks for the Group concern a number of factors, some of which the Group can influence and other that we are unable to control, including; pricing and the impact of pressure on public sector expenditure; matching capacity with the uncertainty of demand; the achievement of performance targets in ongoing contracts; continuing to win new work; changes in criminal activity and the policing response to the investigation of crime; changes in government policy and public health incidents; and rising costs associated with inflation. A key risk is that a significant proportion of the Group's work is concentrated in one core market.
Financial risk management objectives and policies
The Group seeks to manage financial risk by ensuring sufficient cash resources are available to meet foreseeable needs but there are some risks inherent with the Group’s liquid resources and mitigation of these is summarised:
Interest rate risk
The Group currently finances its operations through retained profits and working capital. When the Group is cash positive the exposure to interest rate risk is limited to the effect of interest rates on income received on credit balances.
Credit risk
The Group's principal financial assets are cash and trade debtors. The credit risk associated with cash is limited, the principal credit risk therefore arises from its trade debtors. A significant proportion of the debt is from UK Government agencies but the remainder is managed through a diversified customer base such that no one customer represents a significant proportion of the Group's trade.
Currency risk
A small proportion of the Group's purchases are from continental Europe. The Group is exposed to foreign exchange risk in this respect. The Group manages this risk by monitoring exchange rates at the time of purchase and by maintaining Euro and Dollar accounts.
Non-financial and sustainability information
Environmental and Social Matters
The Directors comply with their corporate and social responsibility obligations across the Group’s business activities. For environmental matters the Company’s sustainability policies and activities are recognised through OCL’s certification to ISO14001 (Environmental Management). For employee issues OCL operates a professional Human Resources department with extensive HR policies; employee salary and benefits packages which exceed minimum wage requirements; staff training and development structures; employee wellbeing programmes and mental health support systems. For social, community and human rights matters the Group operates corporate responsibility policies including Anti-corruption and International Trade Law Compliance; an Ethical Labour and Anti-Human Trafficking Policy; a Code of Conduct and Ethics; policies and procedures to prevent discrimination and ensure equal opportunities for all in the workplace; and actively supports environmental and social responsibility activities and initiatives.
DNACO Limited
Strategic Report for the Year Ended 31 December 2021
Approved by the
.........................................
Director
DNACO Limited
Directors' Report for the Year Ended 31 December 2021
The Directors present their report and the for the year ended 31 December 2021.
Directors of the Group
The Directors who held office during the year were as follows:
Principal activity
DNACO was formed in order to purchase Orchid Cellmark Limited (‘OCL’) from LabCorp Inc on 7th August 2018. Currently the principal activity of DNACO is to act as a Group Holding Company for OCL, which trades as Cellmark, Cellmark Forensic Services and Keith Borer Consultants. The Company is planning growth through service development and acquisition.
Dividends
Losses for the Group in the year to 31 December 2021 were £0.534m (profit of £1.298m in the previous period) largely impacted by the write back of negative goodwill (apportioned over the periods in which the non-monetary assets are recovered).
No dividend was declared for this period.
Compliance with Financial regulations and Social responsibility requirements
The Group works with quality standards, pension advisers and UK auditors to ensure it complies with all relevant financial regulation and accounting standards by means of regular audit and reviews.
The Group is a Real Living Wage and Equal Opportunity Employer and does not discriminate on the basis of race, national origin, religion, colour, gender, sexual orientation, age, non-disqualifying physical or mental disability or any other basis covered by law. Employment decisions are based solely on qualifications, merit and business need. The Group seeks to ensure that employees with disabilities are considered for promotion according to their abilities and qualifications, and that any employee who becomes disabled will receive continued employment and training by making any reasonable adjustments necessary to do so. The Group monitors gender diversity within OCL and publishes results in line with government requirements.
Going concern
Following a breakeven year in 2020 (before goodwill write-backs) the Group returned a small trading loss in 2021 (before accounting for certain one-off adjustments in respect of tax and provisions, and before goodwill write-backs) in the face of challenges as well as opportunities associated with the Coronavirus pandemic. The Group continually met all its liabilities throughout 2021.
The business incurred more significant losses in 2022. This was in part because certain revenue streams were slow to recover to pre-pandemic levels while the COVID-19 testing revenue which had compensated for this in 2021 came to an end early in the year. It was also because of temporary restrictions in toxicology output in the first part of the year, as well as the impact of a staggered implementation of new forensic contracts awarded by police forces in England and Wales in 2022.
In anticipation that these would have a negative effect on cash, the Directors put in place an invoice discounting facility and reduced stocks to free up working capital.
Success in the 2022 police tenders resulted in an overall increase in revenue, secured for multiple years with index linked contracts, with the last group of contracts starting in April 2023. This enabled the Directors to forecast not only a return to profit in 2023 (borne out by trading on budget for the first 5 months of 2023 and a resulting improvement in cashflow) but also continued profitability in the following years due to the length of awarded contracts as well as the investment made in other areas of the business, especially toxicology and veterinary testing, delivering increased efficiency and revenue growth.
For these reasons, the Directors consider the business to be a going concern generating a sustainable profit and positive cashflow in 2023 and beyond.
Information included in the Strategic Report
DNACO Limited
Directors' Report for the Year Ended 31 December 2021
The Directors have set out the Group's financial management risk objectives and policies in the strategic report rather than the Director's report.
Disclosure of information to the auditor
Each Director has taken steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information. The Directors confirm that there is no relevant information that they know of and of which they know the auditor is unaware.
Approved by the
.........................................
Director
DNACO Limited
Statement of Directors' Responsibilities
The Directors acknowledge their responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have 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 Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to:
• |
select suitable accounting policies and 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 financial statements; and |
• |
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. |
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
DNACO Limited
Independent Auditor's Report to the Members of DNACO Limited
Opinion
We have audited the financial statements of DNACO Limited (the 'parent Company') and its subsidiaries (the 'Group') for the year ended 31 December 2021, which comprise the Consolidated Profit and Loss Account, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Balance Sheet, Consolidated Statement of Changes in Equity, Statement of Changes in Equity, Consolidated Statement of Cash Flows, and Notes to the Financial Statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including 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 loss for the year then ended; |
• | have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and |
• | have been prepared in accordance with the requirements of the Companies Act 2006. |
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor responsibilities for the audit of the financial statements section of our report. We are independent of the Group 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 ability to continue as a going concern for a period of at least twelve months from when the original financial statements were authorised for issue.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• |
the information given in the Strategic Report and Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and |
DNACO Limited
Independent Auditor's Report to the Members of DNACO Limited
• |
the Strategic Report and Directors' Report have been prepared in accordance with applicable legal requirements. |
Matters on which we are required to report by exception
In the light of our knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report and the Directors' Report.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• | adequate accounting records have not been kept 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. |
Responsibilities of Directors
As explained more fully in the Statement of Directors' Responsibilities [set out on page 7], the Directors are 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 Directors determine 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 Directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Auditor Responsibilities for the audit of the financial statements
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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
Based on our understanding of the company and the industry in which it operates, we identified the principal risks of non-compliance with laws and regulations including fraud, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to inflated revenue and profit. Audit procedures performed included: comparison of the financial statement disclosures to underlying supporting documentation, enquiries of management, and testing of journals and evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
DNACO Limited
Independent Auditor's Report to the Members of DNACO Limited
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.
......................................
For and on behalf of
Suite I Windrush Court
Abingdon Business Park
Oxfordshire
OX14 1SY
DNACO Limited
Consolidated Profit and Loss Account for the Year Ended 31 December 2021
Note |
2021 |
2020 |
|
Turnover |
|
|
|
Cost of sales |
( |
( |
|
Gross profit |
|
|
|
Administrative expenses |
( |
( |
|
Other operating income |
|
|
|
Operating (loss)/profit |
( |
|
|
Negative goodwill written back |
580 |
1,161 |
|
Other interest receivable and similar income |
- |
|
|
580 |
1,163 |
||
(Loss)/profit before tax |
( |
|
|
Taxation |
( |
|
|
(Loss)/profit for the financial year |
( |
|
|
Profit/(loss) attributable to: |
|||
Owners of the company |
( |
|
The Group has no recognised gains or losses for the year other than the results above.
The loss shown is after writing back £580,000 of negative goodwill which arose from the acquisition of Orchid Cellmark Limited.
Without this write back the Group made a loss before tax of £794,000.
DNACO Limited
Consolidated Statement of Comprehensive Income for the Year Ended 31 December 2021
2021 |
2020 |
|
(Loss)/profit for the year |
( |
|
Total comprehensive income for the year |
( |
|
Total comprehensive income attributable to: |
||
Owners of the Company |
( |
|
DNACO Limited
(Registration number: 11484025)
Consolidated Balance Sheet as at 31 December 2021
Note |
2021 |
2020 |
|
Fixed assets |
|||
Negative goodwill |
( |
( |
|
Intangible assets not including goodwill |
|
- |
|
Tangible assets |
|
|
|
|
|
||
Current assets |
|||
Stocks |
|
|
|
Debtors |
|
|
|
Cash at bank and in hand |
|
|
|
|
|
||
Creditors: Amounts falling due within one year |
( |
( |
|
Net current assets |
|
|
|
Total assets less current liabilities |
|
|
|
Creditors: Amounts falling due after more than one year |
( |
( |
|
Provisions for liabilities |
( |
( |
|
Net assets |
|
|
|
Capital and reserves |
|||
Retained earnings |
5,747 |
6,281 |
|
Shareholders' funds |
5,747 |
6,281 |
Approved and authorised by the
.........................................
Director
DNACO Limited
(Registration number: 11484025)
Balance Sheet as at 31 December 2021
Note |
2021 |
2020 |
|
Fixed assets |
|||
Investments |
- |
- |
|
Capital and reserves |
|||
Called up share capital |
- |
- |
|
Total equity |
- |
- |
The company made a loss after tax for the financial year of £- (2020 - loss of £-).
Investments
At 31 December 2021 the investments of the Company amounted to £1 (2020: £1) - the investment in 100% of the share capital of Orchid Cellmark Limited.
Due to the rounding in £000s this is not displayed on the face of the balance sheet.
Called up share capital
At 31 December 2021 the called up share capital of the Company amounted to £5.50 consisting of 5,500 shares of £0.001 each which were issued in the period to 31 December 2019.
Due to the rounding in £000s this is not displayed on the face of the balance sheet.
Approved and authorised by the
.........................................
Director
DNACO Limited
Consolidated Statement of Changes in Equity for the Year Ended 31 December 2021
Equity attributable to the parent company
Retained earnings |
Total |
Total equity |
|
At 1 January 2020 |
|
|
|
Profit for the year |
|
|
|
At 31 December 2020 |
|
|
|
Retained earnings |
Total |
Total equity |
|
At 1 January 2021 |
|
|
|
Loss for the year |
( |
( |
( |
At 31 December 2021 |
|
|
|
DNACO Limited
Statement of Changes in Equity for the Year Ended 31 December 2021
Share capital |
Profit and loss account |
Total |
|
At 31 December 2020 |
- |
- |
- |
Share capital |
Profit and loss account |
Total |
|
At 31 December 2021 |
- |
- |
- |
DNACO Limited
Consolidated Statement of Cash Flows for the Year Ended 31 December 2021
Note |
2021 |
2020 |
|
Cash flows from operating activities |
|||
(Loss)/profit for the year |
( |
|
|
Adjustments to cash flows from non-cash items |
|||
Depreciation and amortisation |
|
|
|
Loss on disposal of tangible assets |
|
- |
|
Finance income |
- |
( |
|
Income tax expense |
|
( |
|
Negative goodwill written back |
(580) |
(1,161) |
|
( |
|
||
Working capital adjustments |
|||
Decrease/(increase) in stocks |
|
( |
|
Decrease in trade debtors |
|
|
|
(Decrease)/increase in trade creditors |
( |
|
|
Decrease in provisions |
( |
( |
|
Cash generated from operations |
( |
|
|
Income taxes (paid)/received |
( |
|
|
Net cash flow from operating activities |
( |
|
|
Cash flows from investing activities |
|||
Interest received |
- |
|
|
Acquisitions of tangible assets |
( |
( |
|
Proceeds from sale of tangible assets |
( |
- |
|
Intangible asset additions - internally generated |
(312) |
- |
|
Net cash flows from investing activities |
( |
( |
|
Cash flows from financing activities |
|||
Payments to finance lease creditors |
|
|
|
Net (decrease)/increase in cash and cash equivalents |
( |
|
|
Cash and cash equivalents at 1 January |
|
|
|
Cash and cash equivalents at 31 December |
1,144 |
2,184 |
DNACO Limited
Notes to the Financial Statements for the Year Ended 31 December 2021
General information |
The Company is a private company limited by share capital, incorporated in England and Wales.
The address of its registered office is:
These financial statements were authorised for issue by the
Accounting policies |
Summary of significant accounting policies and key accounting estimates
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
Statement of compliance
These financial statements were prepared in accordance with Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland and the Companies Act 2006'.
Basis of preparation
These financial statements have been prepared using the historical cost convention except that as disclosed in the accounting policies certain items are shown at fair value.
The financial statements are presented in Sterling (£) which is the functional currency of the company and rounded to the nearest £000 for presentation purposes.
Basis of consolidation
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.
DNACO Limited
Notes to the Financial Statements for the Year Ended 31 December 2021
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 as 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 issued 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.
Going concern
The financial statements have been prepared on a going concern basis.
Following a breakeven year in 2020 (before goodwill write-backs) the Group returned a small trading loss in 2021 (before accounting for certain one-off adjustments in respect of tax and provisions, and before goodwill write-backs) in the face of challenges as well as opportunities associated with the Coronavirus pandemic. The Group continually met all its liabilities throughout 2021.
The business incurred more significant losses in 2022. This was in part because certain revenue streams were slow to recover to pre-pandemic levels while the COVID-19 testing revenue which had compensated for this in 2021 came to an end early in the year. It was also because of temporary restrictions in toxicology output in the first part of the year, as well as the impact of a staggered implementation of new forensic contracts awarded by police forces in England and Wales in 2022.
In anticipation that these would have a negative effect on cash, the Directors put in place an invoice discounting facility and reduced stocks to free up working capital.
Success in the 2022 police tenders resulted in an overall increase in revenue, secured for multiple years with index linked contracts, with the last group of contracts starting in April 2023. This enabled the Directors to forecast not only a return to profit in 2023 (borne out by trading on budget for the first 5 months of 2023 and a resulting improvement in cashflow) but also continued profitability in the following years due to the length of awarded contracts as well as the investment made in other areas of the business, especially toxicology and veterinary testing, delivering increased efficiency and revenue growth.
For these reasons, the Directors consider the business to be a going concern generating a sustainable profit and positive cashflow in 2023 and beyond.
DNACO Limited
Notes to the Financial Statements for the Year Ended 31 December 2021
Judgements
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported in the profit and loss account for the year. However, the nature of estimation means that actual outcomes could differ from those estimates. The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements: |
Operating lease commitments: The Group has entered into operating leases as a lessee. The classification of such leases as operating or finance leases requires the company to determine, based on an evaluation of the terms and conditions of the arrangements, whether it acquires the significant risks and rewards of ownership of these assets and accordingly whether the lease requires an asset and liabilities to be recognised in the balance sheet. |
The following are the Group's key sources of estimation uncertainty: |
Goodwill and intangible assets: The Group establishes a reliable estimate of the useful life of goodwill and intangible assets arising on business combinations. The estimate is based on a variety of factors such as the expected use of the acquired business, any legal, regulatory or contractual provision that can limit useful life and assumptions that market participants would consider in respect of similar business. |
Dilapidation provisions: The Group has made provisions for dilapidation in respect of its leasehold properties. The provision requires the cost of returning the properties to their original state at the end of the lease to be estimated and the actual costs incurred may differ from the original estimate. |
Revenue recognition
Turnover comprises the fair value of the consideration received or receivable for the sale of goods and provision of services in the ordinary course of the Company’s activities. Turnover is shown net of sales/value added tax, returns, rebates and discounts.
Revenue is recognised on the submission of a report of results of an analysis to the customer.
Foreign currency 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 with ‘finance income or costs’. All other foreign exchange gains and losses are presented in the Profit and Loss Account within ‘other operating income’.
Tax
The tax expense for the period comprises current tax payable.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the Group operates and generates taxable income.
DNACO Limited
Notes to the Financial Statements for the Year Ended 31 December 2021
Tangible assets
Tangible assets are stated in the balance sheet at cost, less any subsequent accumulated depreciation and subsequent accumulated impairment losses.
The cost of tangible assets includes directly attributable incremental costs incurred in their acquisition and installation.
Depreciation
Depreciation is charged so as to write off the cost of assets, other than land and properties under construction over their estimated useful lives, as follows:
Asset class |
Depreciation method and rate |
Leasehold improvements |
life of lease |
Plant and machinery |
2 to 5 years |
Business combinations
Business combinations are accounted for using the purchase method. The consideration for each acquisition is measured at the aggregate of the fair values at acquisition date of assets given, liabilities incurred or assumed, and equity instruments issued by the group in exchange for control of the acquired, plus any costs directly attributable to the business combination. When a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the group includes the estimated amount of that adjustment in the cost of the combination at the acquisition date if the adjustment is probable and can be measured reliably.
Goodwill
Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less accumulated amortisation and accumulated impairment losses. Goodwill is held in the currency of the acquired entity and revalued to the closing rate at each reporting period date. Goodwill is amortised over its useful life, which shall not exceed ten years if a reliable estimate of the useful life cannot be made.
Negative goodwill
Negative goodwill arising on an acquisition is recognised on the face of the balance sheet on the acquisition date and subsequently the excess up to the fair value of non-monetary assets acquired is recognised in profit or loss in the periods in which the non-monetary assets are recovered.
Amortisation
Amortisation is provided on intangible assets so as to write off the cost, less any estimated residual value, over their useful life as follows:
Asset class |
Amortisation method and rate |
Goodwill |
5 years straight line |
Investments
Investments in equity shares which are publicly traded or where the fair value can be measured reliably are initially measured at fair value, with changes in fair value recognised in profit or loss. Investments in equity shares which are not publicly traded and where fair value cannot be measured reliably are measured at cost less impairment.
Interest income on debt securities, where applicable, is recognised in income using the effective interest method. Dividends on equity securities are recognised in income when receivable.
DNACO Limited
Notes to the Financial Statements for the Year Ended 31 December 2021
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and call deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value.
Trade debtors
Trade debtors are amounts due from customers for merchandise sold or services performed in the ordinary course of business.
Stocks
Stocks are stated at the lower of cost and estimated selling price less costs to complete and sell.
Trade creditors
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers.
Borrowings
Interest-bearing borrowings are initially recorded at fair value, net of transaction costs. Interest-bearing borrowings are subsequently carried at amortised cost, with the difference between the proceeds, net of transaction costs, and the amount due on redemption being recognised as a charge to the Profit and Loss Account over the period of the relevant borrowing.
Interest expense is recognised on the basis of the effective interest method and is included in interest payable and similar charges.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.
Provisions
Provisions are recognised when the Group has an obligation at the reporting date as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.
Leases
Leases in which substantially all the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to profit or loss on a straight-line basis over the period of the lease.
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.
Assets held under finance leases are recognised at the lower of their fair value at inception of the lease and the present value of the minimum lease payments. These assets are depreciated on a straight-line basis over the shorter of the useful life of the asset and the lease term. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.
Lease payments are apportioned between finance costs in the profit and loss account and reduction of the lease obligation so as to achieve a constant periodic rate of interest on the remaining balance of the liability.
Share capital
Ordinary shares are classified as equity. Equity instruments are measured at the fair value of the cash or other resources received or receivable, net of the direct costs of issuing the equity instruments. If payment is deferred and the time value of money is material, the initial measurement is on a present value basis.
DNACO Limited
Notes to the Financial Statements for the Year Ended 31 December 2021
Defined contribution pension obligation
A defined contribution plan is a pension plan under which fixed contributions are paid into a pension fund and the Group has no legal or constructive obligation to pay further contributions even if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
Contributions to defined contribution plans are recognised as employee benefit expense when they are due. If contribution payments exceed the contribution due for service, the excess is recognised as a prepayment.
Financial instruments
Classification
Debt instruments (other than those wholly repayable or receivable within on year), including loans and other accounts receivable and payable, are initially measured at present value of the future cash flows and are subsequently at amortised cost using the effective interest method. Debt instruments that are payable or receivable within one year, typically trade payables or receivables, 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 short-term instruments constitute a financing transaction, like the payment of a trade debt deferred beyond normal business terms or financed at a rate of interest that is not a market rate or in case of an out-right short-term loan not at market rate, the financial asset or liability is measured, initially, at the present value of the future cash flows discounted at a market rate of interest for a similar debt instrument and subsequently at amortised cost.
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 or impairment is found, an impairment loss is recognised in the Profit and Loss Account.
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, which is an approximation of the amount that the company would receive for the asset if it were to be sold at the reporting 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.
Turnover |
The analysis of the Group's Turnover for the year by market is as follows:
2021 |
2020 |
|
UK |
|
|
Europe |
|
|
Rest of world |
|
|
|
|
DNACO Limited
Notes to the Financial Statements for the Year Ended 31 December 2021
Other operating income |
The analysis of the Group's other operating income for the year is as follows:
2021 |
2020 |
|
Government grants |
|
|
Other gains and losses |
The analysis of the group's other gains and losses for the year is as follows:
2021 |
2020 |
|
Gain/loss on disposal of property, plant and equipment |
( |
- |
Negative goodwill written back |
580 |
1,161 |
578 |
1,161 |
Operating (loss)/profit |
Arrived at after charging/(crediting)
2021 |
2020 |
|
Depreciation expense |
|
|
Amortisation expense |
- |
|
Research and development cost |
|
|
Operating lease expense - property |
|
|
Loss on disposal of property, plant and equipment |
|
- |
Other interest receivable and similar income |
2021 |
2020 |
|
Interest income on bank deposits |
- |
|
Staff costs |
The aggregate payroll costs (including Directors' remuneration) were as follows:
2021 |
2020 |
|
Wages and salaries |
|
|
Social security costs |
|
|
Pension costs, defined contribution scheme |
|
|
|
|
The average number of persons employed by the group (including directors) during the year, analysed by category was as follows:
DNACO Limited
Notes to the Financial Statements for the Year Ended 31 December 2021
2021 |
2020 |
|
Technician |
|
|
Administration and support |
|
|
|
|
Directors' remuneration |
The Directors' remuneration for the year was as follows:
2021 |
2020 |
|
Remuneration |
|
|
Contributions paid to money purchase schemes |
|
|
Sums paid to third parties for directors' services |
|
|
295 |
351 |
During the year the number of Directors who were receiving benefits and share incentives was as follows:
2021 |
2020 |
|
Accruing benefits under money purchase pension scheme |
|
|
In respect of the highest paid Director:
2021 |
2020 |
|
Remuneration |
|
|
Auditors' remuneration |
2021 |
2020 |
|
Audit of these financial statements |
25 |
25 |
DNACO Limited
Notes to the Financial Statements for the Year Ended 31 December 2021
Taxation |
Tax charged/(credited) in the consolidated profit and loss account
2021 |
2020 |
|
Current taxation |
||
UK corporation tax |
|
( |
The tax on profit before tax for the year is higher than the standard rate of corporation tax in the UK (2020 - lower than the standard rate of corporation tax in the UK) of
The differences are reconciled below:
2021 |
2020 |
|
(Loss)/profit before tax |
( |
|
Corporation tax at standard rate |
( |
|
Increase (decrease) in UK and foreign current tax from adjustment for prior periods |
23 |
(128) |
Effect of tax losses |
448 |
(57) |
Effect of expense not deductible in determining taxable profit (tax loss) |
(110) |
(140) |
Total tax charge/(credit) |
|
( |
Deferred tax
The Group has a deferred tax asset arising from unutilised losses carried forward of £247,000 which is included in the income tax debtor in note 17 (2020: £484,000). The asset has been included to the extent it is considered recoverable via future years' profitability. There remains an unprovided asset in respect of losses over which recoverability is uncertain, amounting to £499,000 (2020: £nil).
There is an unprovided asset in respect of depreciation in excess of capital allowances of £84,000 (2020: £107,000).
The remainder of the debtor amounting to £234,000 relates to R&D tax claims.
DNACO Limited
Notes to the Financial Statements for the Year Ended 31 December 2021
Intangible assets |
Group
Goodwill |
Internally generated software development costs |
Total |
|
Cost or valuation |
|||
At 1 January 2021 |
|
- |
|
Additions internally developed |
- |
|
|
At 31 December 2021 |
|
|
|
Amortisation |
|||
At 1 January 2021 |
|
- |
|
At 31 December 2021 |
|
- |
|
Carrying amount |
|||
At 31 December 2021 |
- |
|
|
The carrying value of goodwill represents goodwill on the acquisition of Keith Borer Consultants by Orchid Cellmark Limited in 2015 and is being amortised over its estimated useful economic life of five years.
The carrying value of development costs represents two internal development projects for which there is visible future income generation: (1) LIMS system upgrade; (2) Canine DNA Database Project.
The aggregate amount of research and development expenditure recognised as an expense during the period is £
Negative goodwill |
2021 |
At 1 January 2021 |
( |
Recognised in profit or loss |
|
At 31 December 2021 |
( |
|
DNACO Limited
Notes to the Financial Statements for the Year Ended 31 December 2021
Tangible assets |
Group
Land and buildings |
Furniture, fittings and equipment |
Total |
|
Cost or valuation |
|||
At 1 January 2021 |
|
|
|
Additions |
|
|
|
Disposals |
- |
( |
( |
At 31 December 2021 |
|
|
|
Depreciation |
|||
At 1 January 2021 |
|
|
|
Charge for the year |
|
|
|
Eliminated on disposal |
- |
( |
( |
At 31 December 2021 |
|
|
|
Carrying amount |
|||
At 31 December 2021 |
|
|
|
At 31 December 2020 |
|
|
|
Included within the net book value of land and buildings above is £185,000 (2020 - £263,000) in respect of short leasehold land and buildings.
Assets held under finance leases and hire purchase contracts
The net carrying amount of tangible assets includes the following amounts in respect of assets held under finance leases and hire purchase contracts:
2021 |
2020 |
|
Plant and machinery |
35 |
46 |
DNACO Limited
Notes to the Financial Statements for the Year Ended 31 December 2021
Investments |
Company
In view of the substantial losses incurred in 2017 and 2018 with resultant liabilities, LabCorp Inc. sold 100% of the share capital (£100 nominal value) in Orchid Cellmark Limited to DNACO Limited for £1 and this is the value the investment is held on the company's balance sheet.
Details of undertakings
Details of the investments (including principal place of business of unincorporated entities) in which the Company holds 20% or more of the nominal value of any class of share capital are as follows:
Undertaking |
Registered office |
Holding |
Proportion of voting rights and shares held |
|
2021 |
2020 |
|||
Subsidiary undertakings |
||||
|
16 Blacklands Way, Abingdon, Oxon, OX14 1DY |
|
|
|
Subsidiary undertakings |
Orchid Cellmark Limited The principal activity of Orchid Cellmark Limited is |
Business combinations |
The acquisition of Orchid Cellmark Limited in the prior period resulted in the creation of negative goodwill of £9,671,000.
The negative goodwill of £9,671,000 is being recognised in the profit and loss in the periods in which the non-monetary assets are recovered.
In the year to 31 December 2020 the amount recognised as negative goodwill written back in the profit and loss was £580,000.
The detail of the non-monetary assets recovered is shown below:
Non-monetary assets brought forward |
Non-monetary assets recovered |
Non-monetary assets carried forward |
|
Tangible assets acquired |
364,000 |
(249,000) |
115,000 |
Of the non-monetary assets acquired amounting to £3,837,000, 6% of these or £249,000 were recovered in the year.
The negative goodwill (£9,671,000) is recognised to the extent that the non-monetary assets have been recovered (6%) giving the write back of negative goodwill in the profit and loss account of £580,000.
DNACO Limited
Notes to the Financial Statements for the Year Ended 31 December 2021
Stocks |
Group |
Company |
|||
2021 |
2020 |
2021 |
2020 |
|
Raw materials and consumables |
|
|
- |
- |
Work in progress |
|
|
- |
- |
|
|
- |
- |
Group
Debtors |
Group |
Company |
||||
Current |
Note |
2021 |
2020 |
2021 |
2020 |
Trade debtors |
|
|
- |
- |
|
Other debtors |
|
|
- |
- |
|
Prepayments |
|
|
- |
- |
|
Income tax asset |
|
|
- |
- |
|
|
|
- |
- |
Cash and cash equivalents |
Group |
Company |
|||
2021 |
2020 |
2021 |
2020 |
|
Cash at bank |
|
|
- |
- |
Creditors |
Group |
Company |
||||
Note |
2021 |
2020 |
2021 |
2020 |
|
Due within one year |
|||||
Loans and borrowings |
|
|
- |
- |
|
Trade creditors |
|
|
- |
- |
|
Social security and other taxes |
|
|
- |
- |
|
Outstanding defined contribution pension costs |
|
|
- |
- |
|
Other payables |
( |
( |
- |
- |
|
Accruals |
|
|
- |
- |
|
|
|
- |
- |
||
Due after one year |
|||||
Loans and borrowings |
|
|
- |
- |
DNACO Limited
Notes to the Financial Statements for the Year Ended 31 December 2021
Provisions for liabilities |
Group
Dilapidations |
Total |
|
At 1 January 2021 |
|
|
Increase (decrease) in existing provisions |
( |
( |
At 31 December 2021 |
|
|
|
Pension and other schemes |
Defined contribution pension scheme
The Group operates a defined contribution pension scheme. The pension cost charge for the year represents contributions payable by the Group to the scheme and amounted to £
Contributions totalling £
Share capital |
Allotted, called up and fully paid shares
2021 |
2020 |
|||
No. |
£ |
No. |
£ |
|
|
|
5.50 |
|
5.50 |
Rights, preferences and restrictions
A ordinary shares have the following rights, preferences and restrictions: |
DNACO Limited
Notes to the Financial Statements for the Year Ended 31 December 2021
Loans and borrowings |
Group |
Company |
|||
2021 |
2020 |
2021 |
2020 |
|
Non-current loans and borrowings |
||||
Hire purchase contracts |
|
|
- |
- |
Group |
Company |
|||
2021 |
2020 |
2021 |
2020 |
|
Current loans and borrowings |
||||
Hire purchase contracts |
|
|
- |
- |
Obligations under leases and hire purchase contracts |
Group
Operating leases
The total of future minimum lease payments is as follows:
2021 |
2020 |
|
Not later than one year |
|
|
Later than one year and not later than five years |
|
|
Later than five years |
|
|
|
|
The amount of non-cancellable operating lease payments recognised as an expense during the year was £
Commitments |
Group
Capital commitments
The total amount contracted for but not provided in the financial statements was £
DNACO Limited
Notes to the Financial Statements for the Year Ended 31 December 2021
Related party transactions |
Group
Summary of transactions with key management
Key management personnel are considered to be senior management. During the year key management personnel compensation was £682,000 (2020: £723,000).
Parent and ultimate parent undertaking |
The ultimate controlling party is
Non adjusting events after the financial period |
|