The directors present their annual report and financial statements for the year ended 31 March 2024.
The results for the year are set out on page 15.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
Veterinary medicine is a rapidly evolving field of science and The Ralph's specialists are continually seeking to improve canine and feline health care and welfare, by quickly developing technological solutions and new applications of emerging research.
During the accounting period under review, the team at The Ralph embarked on a large variety of R&D activities including significant efforts in improving clinical outcomes through developing and extending scientific knowledge in diagnostics, medical and surgical approaches, protocols and techniques. In addition, they have sought to leverage and integrate the outcomes of emerging technologies and research in clinical practice to expand the scope of services offered and remain competitive in a fast-moving industry.
This is the fifth full year of trading since The Ralph commenced seeing patients in February 2019. The Ralph has made remarkable progress in establishing its reputation as a World Class Veterinary Referral hospital, recruiting a team of c.250 specialists and support staff, embedding the values and ethos of the company and developing and nurturing awareness amongst first opinion vets. This has led to a steady increase in cases referred, in turnover and a first-class reputation.
On behalf of the Board, I would like to thank all members of Team Ralph who have worked incredibly hard and been hugely supportive while also providing the very best care to our patients and their human carers.
Financial Performance
The Ralph generated revenue of £17.1M (2023: £15.3M), a 12% year-on-year increase. This is steady improvement as the company continues to mature and build resilience in all its disciplines. The rebuilding of the Neurology department has continued apace, and this discipline has now become a leading discipline of the hospital.
Costs have also increased mainly due to an increase in staff numbers. The Ralph has had to invest in additional staff to build resilience in several disciplines to ensure consistency of service – to cover holidays, time off for Continuing Professional Development, etc. Furthermore, some investment in infrastructure was required to improve resilience, clinical standards and efficiency.
Unfortunately, The Ralph experienced a marked reduction in referrals during the first quarter of 2024, (which is also the last quarter of our financial year) that had a material impact on its results. We believe this downturn in the first quarter of 2024, was experienced by many referral hospitals.
Hence, despite significant improvements in efficiencies, the above led to The Ralph recording a pre-tax loss of £402K (2023: £364K) which was disappointing.
As a response to this performance:
the Executive Directors have taken a 10% pay cut until The Ralph records a profitable year.
there is a keen focus on costs with very selective recruitment - mostly on a replacement basis.
the Community Engagement team has intensified and significantly expanded its outreach to referring practices under the stewardship of the CEO; and
expansion into the mezzanine has been put on hold until the Board has confidence that demand will be there on a consistent basis
Post year-end, The Ralph has had a step change improvement in turnover and profitability as all four months since the start of the new financial year on 1 April 2024 have been profitable with July being a record month for both turnover and profitability.
One of the most important objectives for the current financial year is for the company to be consistently profitable which would enhance its value.
Fundraising
The company did not raise any equity funds during the year (except for the exercise price of EMI share options exercised by members of staff). This is due to the cash benefit received from the R&D tax credits claimed.
Structural shifts in the sector
Covid-19 caused a material increase in demand which led to competitors making investments to increase capacity. This increase in capacity has come onstream just as demand has dropped off which has caused some corporate groups to restructure and consolidate their staffing.
The decrease in demand has also generated price competition in some disciplines. The most notable being in Orthopaedics where several specialist hospitals are now competing on price on some common procedures. In addition, First Opinion Practices are engaging Peripatetic Certificate holders to carry out these procedures inhouse thus retaining this revenue. Consequently, there is a significant reduction in routine Orthopaedic procedures being referred and specialist hospitals that are mainly dependent on this work are having to scale back their staffing levels. Fortunately, the impact on The Ralph has been manageable where its strong reputation in Orthopaedics continues to attract referrals, particularly for more complex cases.
In addition to the above, the recently announced review of the sector by the Competition and Markets Authority (CMA) is likely to have a negative impact on capital investment into the wider veterinary sector and therefore to the valuations within it.
Exit planning for shareholders
The Board is conscious that it has been several years that shareholders have been invested in The Ralph and some shareholders may wish to exit due to their personal circumstances and their EIS holding period now met. The Board is also conscious there are many shareholders who wish to remain invested for the medium/long term.
The Board has been in various discussions to find a solution. However, with The Ralph not having had a profitable financial year yet and the CMA conducting a review into the sector, any potential value that may be assigned to shares currently would not reflect the true value of The Ralph. We hope we will be in a much better position once these two constraints have eased in the next year or two.
AGM
The AGM will be held on 18 September 2024 at 11:00am at the offices of the Company. For shareholders who cannot attend physically but would like to follow the presentations virtually, the Board has once again decided to stream the AGM using the Zoom platform. Please note that attendance virtually will not count towards a quorum. Hence, all shareholders are encouraged to submit their proxy forms electronically at least two days in advance of the meeting. Further details have been provided in the cover letter.
Finally, on behalf of the Board, I would like to thank all shareholders for their trust, patience and support; and members of Team Ralph who have worked incredibly hard and been hugely supportive while also providing the very best care to our patients and their human carers.
Iqbal Dhanji
Chairman of the Board
19 August 2024
The Ralph Veterinary Referral Centre Plc (The Ralph) is an established, state-of-the-art, multidisciplinary, small animal specialist veterinary referral hospital based in Marlow, Buckinghamshire.
The Ralph opened in February 2019 with a clear mission – to set the standard for small animal referral veterinary care with an ethical conscience - and in the space of 5 years, it has become the largest independent (non-corporate, non-university), specialist referral hospital in the Country with one of the largest Emergency and Critical Care (ECC) services in the United Kingdom alongside key specialist clinical services.
Its clinical staff are led by Board-certified Diplomates, supported by Advanced Practitioners, Residents and Interns, together with a team of physiotherapists, nurses, patient care assistants and support staff in customer care, finance, community engagement and administration. As of 31 July 2024, The Ralph had 247 team members.
The Ralph is a top tier tertiary referral centre on a par with, and indeed at times exceeding both University-grade small animal hospitals and a very small number of other comparable referral centres. Geographically, other than a small referral hospital located about five miles away that offers some similar disciplines and a new multidisciplinary referral hospital that has recently opened in West London, the nearest comparable multidisciplinary referral hospitals considered to be significant competitors are an hour’s drive away.
Wider Veterinary Sector
Various reports indicate there are 16-17 million pet-owning homes across the UK with consumer expenditure on vets and other services for pets estimated to be c.£4 billion.
A major development in the veterinary sector over the last 10 years has been the rapid, significant, and ongoing growth of a few large corporate suppliers. There are around 5,000 First Opinion vet practices (FOPs) in the UK. In 2013, around 10% of these practices belonged to large groups, but this share is now almost 60%. Many of the large corporate groups have expressed an intention to continue expanding through acquisition of independent practices.
Mindful of competition concerns and following a review of the sector in September 2023, the Competition and Markets Authority (CMA) announced in May 2024, it would be conducting a full market investigation into veterinary services for household pets (which is expected to take 18-24 months). Please see the CEO Reflections and the section on Principal Risks below where this is discussed in more detail.
In the referral space, to the best of our knowledge, The Ralph is the only remaining large independent multidisciplinary referral centre for small animals in the United Kingdom. It is well placed to serve the needs of not only first opinion care vets who prefer to support the independent segment of this sector but also corporate owned practices that may not have a referral hospital that is part of the same corporate group in their proximity, or where such a referral centre does not have the appropriate specialists or capacity to see their patients in a timely manner.
Business Performance
This has been The Ralph’s fifth full year of operation since opening. This fifth year has been all about consolidation, improving efficiency and building resilience, including:
Improving service availability, operational systems and processes, and team performance.
Optimising patient safety.
Deepening the foundations of The Ralph culture and embedding the core values.
The Ralph has made considerable progress on all the above.
Key Performance Indicators (KPIs)
The Directors monitor several KPIs which they consider are effective in measuring delivery of their strategy and which assist in the management of the business. The main KPIs are:
Turnover – £17.1M (2023 - £15.31M) – an increase of 11.7%
Gross profit - £3.95 (2023 - £4.36M) – a decrease of 9.4%
Pre-tax loss – £0.40M (2023 - £0.36M) – an increase of 11.1%
Cash - £1.024M (2023 - £0.96M) – an increase of 6.7%
Debt (incl. finance leases) £0.51M (2022: £0.82M) – a decrease of 37.8%
Staff numbers – For a hospital that provides 24/7/365 cover, a key KPI is to ensure we have the appropriate number people/staff to safely deliver a quality service to our patients across all clinical disciplines consistently. The growth in staff numbers shown below demonstrates how we have achieved this goal.
| March 2021 | March 2022 | March 2023 | March 2024 |
Referral Clinicians | 32 | 35 | 41 | 47 |
Other vets including Residents and Interns | 15 | 15 | 24 | 28 |
Nurses | 55 | 74 | 76 | 83 |
Patient Care Assistants and Other Clinical Staff | 19 | 28 | 43 | 56 |
Customer Care Team | 11 | 14 | 11 | 12 |
Management and other Admin Staff | 19 | 24 | 25 | 27 |
Total | 151 | 190 | 220 | 253 |
The Ralph has now achieved critical mass of its people and with the facilities in place, it is now focussed on improving workflow and operational systems and processes, to achieve profitability and positive operational cashflow on a month-by-month basis.
The financial results for the four months post year-end have been encouraging as The Ralph has achieved profitability and service availability in most disciplines on a consistent basis.
The current financial year is focussed on the following key priorities:
Continuing to drive turnover, control costs and achieving sustained profitability
Improving team performance and efficiency with an increased emphasis on sustainability
Being cashflow positive from day-to-day operations
Continually improving the operational infrastructure (systems, processes, facilities), both clinical & non-clinical
Optimising patient safety
Expanding Team Ralph selectively, in line with our needs
Deepening the foundations of our culture and core values
Financials
The trading results for the year and the company’s financial position at the end of the year are shown in the attached financial statements. The Directors report a pre-tax loss of £401,640 (2023: £364,017).
Directors’ Duties
The directors of the company, as those of all UK companies must act in accordance with a set of general duties. These duties are detailed in section 172 of the UK Companies Act 2006 which is summarised as follows:
‘A director of a company must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its shareholders as a whole and, in doing so have regard (amongst other matters) to:
The likely consequences of any decisions in the long-term
The interest of the company’s employees
The need to foster the company’s business relationships with suppliers, customers and others
The impact of the company’s operations on the community and environment
The desirability of the company to maintain a reputation for high standards of business conduct; and
The need to act fairly as between shareholders of the company.’
The following paragraphs summarise how the Directors fulfil their duties:
Risk management – the Board maintains a Risk Register that it reviews regularly. The major identified risks are disclosed in more detail in the section under ‘principal risks’ later in this Strategic Report.
Our people – are what make The Ralph successful. Without them and their dedication, The Ralph would not be able to make the progress it has done so far. Their welfare and alignment to the vision of The Ralph are paramount to the long-term success of The Ralph. We have structured training programmes for their development and support systems for their well-being. Their alignment with the vision of The Ralph is discussed further within the ‘principal risks’ section below under ‘recruitment and retention of staff’.
Business relationships – with our referring community, with suppliers and other stakeholders, are crucial to the long-term success of The Ralph. One of the principal risks identified is the loss of reputation which would impact the referrals The Ralph gets from first opinion vets, and this is discussed within the relevant section under principal risks below. The Ralph ensures it keeps to agreed credit terms with suppliers to ensure we get the best service and price for materials and services.
Community – The Ralph has a dedicated Community Engagement team whose sole responsibility is to engage with, respond to and seek feedback from our referral community of vet practices. The team also provide updates to carers of their pets who are inpatients.
Shareholders – The Ralph engages regularly with shareholders via Investor Updates, publication of the Annual Report and Accounts, hosting the Annual General Meeting and welcomes contact by email, with the Chairman.
Environmental Social Governance
The Ralph seeks to conduct its affairs responsibly and to consider environmental, human rights, social and community issues. No penalties were imposed on the company for failure to comply with any regulatory or human rights issues.
In consideration of the environment, various steps have been taken to improve inventory management and reduce waste with an increased emphasis on sustainability.
On social governance, The Ralph has developed a strong culture on team member interactions, with support structures to create good working conditions for all staff.
Principal Risks
The Directors have identified several principal risks facing The Ralph and have strategies to mitigate them.
Loss of reputation
A key risk to the Company is the loss of reputation related to clinical performance and standards of patient care. The Clinical Director and all the senior clinicians are acutely aware of this risk and monitor this closely. This risk is mitigated by frequent internal reviews, on-going continuous improvement processes and with all employed staff being awarded Enterprise Management Incentive (EMI) share options to ensure they have a vested interest in the success of the hospital. The hospital has also built a reputation for its acts of kindness and compassion.
Recruitment and retention of staff
The success of The Ralph is dependent on recruiting, supporting and retaining appropriate personnel. To that end, The Ralph has a recruitment process that is complemented by a comprehensive on-boarding procedure once an employee commences work together with a social contract on how team members interact with each other. This is to ensure all employees understand the core values and culture of The Ralph. In addition, The Ralph provides excellent working conditions, support structures and processes for staff wellbeing, and all employees are awarded EMI share options that can be exercised from the end of year four to year ten from the date they are granted. Some members of staff have taken the opportunity to exercise their share options becoming shareholders.
The Ralph employs veterinary surgeons, nurses and other members of staff that are citizens of other EU countries. Implementation of the new Immigration legislation with new salary thresholds for recruiting veterinary professionals from abroad needing visa sponsorship and removing veterinary surgeons from the occupation shortage list is making recruitment of specialists-in-training (interns and residents) much more challenging. There is therefore a risk of a shortage of skilled staff in the future particularly with referral hospitals being set up in the EU, attracting qualified EU staff from the UK.
Financial
Credit risk - The Ralph operates a debtor’s policy with the majority of debtors covered by pet insurance which is on average settled within 15 days of a claim being raised with the relevant insurance company.
Where carers do not have insurance for their pets, they either pay the full invoice for treatment at the end of a course of treatment or apply for credit finance from a finance company we have made arrangements with. In the rare instances where carers do not have pet insurance or do not qualify for a credit facility, carers are encouraged to find alternative means of meeting their bills.
Liquidity and cashflow risks - the Management of the Company monitor the cashflow position regularly. The Board meets monthly to discuss the Management Accounts and reviews the cashflow forecast on a regular basis. Where required, capital expenditure has mostly been funded either through the Company’s own cash resources or through asset finance, while the working capital requirements to fund the growth of The Ralph as it moves towards profitability has been funded by equity and R&D tax credits.
Continuity of referrals
The long-term success and viability of The Ralph is dependent on first opinion vets continuing to refer cases to The Ralph. To this end, relationships with first opinion vets and staff will continue to be developed and nurtured through professional support, hosting Continuing Professional Development (CPD) sessions and providing excellent care, communication and acts of kindness. This continued relationship building, support and care is creating a strong foundation for the long-term success of The Ralph.
Financial hardship due to the cost-of-living crisis and inflation
Although the Covid-19 pandemic encouraged many households to take the plunge and adopt a pet, the return to work, cost of living crisis with high interest rates and inflation has led to an increase in euthanasia, an increase in pets in rescue centres and a drop in affordability leading to a decrease in caseload/turnover. This has caused several corporate groups to recently announce restructuring and consolidation of their staffing. We do not believe this is necessary at The Ralph, nevertheless, the Directors will continue to monitor demand for The Ralph’s services and take action as appropriate.
The original thesis for The Ralph remains that even during times of uncertainty, pets will continue to receive the very best care from their carers. Post year-end, The Ralph has been busier than ever, and the Directors continue to look for selective growth opportunities.
Competitions and Market Authority (CMA) review
The CMA announced on 23 May 2024 that it would be conducting a full-blown review of the sector. Previously, the CMA had identified five critical concerns that it proposed to investigate further as follows:
Consumers may not be given enough information to enable them to choose the best veterinary practice or the right treatment for their needs.
Concentrated local markets, in part driven by sector consolidation, may be leading to weak competition in some areas.
Large corporate groups may have incentives to act in ways which reduce choice and weaken competition.
Pet owners might be overpaying for medicines or prescriptions.
The regulatory framework is outdated and may no longer be fit for purpose.
From The Ralph’s perspective – there is nothing here about which we should be unduly concerned about as The Ralph is an Independent, single site tertiary hospital (not a first opinion practice). We are happy to assist the CMA in any way.
Nevertheless, a formal CMA investigation is likely to have a negative impact on capital investment into the wider veterinary sector and therefore to the valuations within it.
This report was approved by the Board on 19 August 2014 and signed by its order.
Iqbal Dhanji
Chairman
Welcome to this year’s CEO Reflections. I’d like to thank all our shareholders, Team Ralph, our referring practice community and the families we have served over the last twelve months for your support and trust. We celebrated The Ralph’s fifth anniversary on 14th February 2024 - we could not have got here without you! The Ralph's mission is "to set the standard for small animal referral veterinary care with an ethical conscience". The last year has been one of consolidation and maturation as we continue to pursue this mission in a financially positive and sustainable way as the UK’s largest independent (non-corporate, non-university) multidisciplinary specialist referral centre. This period has also thrown up new challenges for the UK veterinary sector and, therefore, for The Ralph.
Over the last twelve months, our top and interrelated objectives have been to become consistently profitable and improve our operations in clinical and non-clinical areas, focusing on workflow efficiency and cashflow, respectively. It takes a variable amount of time for a startup to reach a tipping point where profitability is achieved and sustained. Myriad factors influence this period, and it is difficult to predict with certainty, especially in a large, complex healthcare business like The Ralph. At the end of May 2023, Team Ralph comprised approximately 230 members with various employment arrangements and working patterns. This number grew by less than 10% over the subsequent twelve months, our slowest rate of team expansion to date. At the same time, this period has seen the business set new weekly and monthly highs for turnover and new patient referrals. We have built depth in our clinical teams to provide service capacity more predictably than in our earlier years with less dependency on locum cover. Since the start of the new financial year, The Ralph has seen our most extended period of consistent profitability, a trend that we are working hard to secure. This progress has been in part due to the ongoing growth of our Neurology & Neurosurgery service, our thriving Internal Medicine service, and an increased focus on accepting emergency referrals across all disciplines. If this trend continues, we will have achieved sustained profitability in a little over five years. This will be an excellent outcome given that The Ralph opened as the largest UK startup referral centre ever and has had to navigate considerable challenges as an independent business, both foreseeable (e.g. veterinary workforce crisis, corporate consolidation) and much less so (e.g. the Covid-19 pandemic, rapid cost inflation and interest from the Competition and Markets Authority (CMA)).
Over the last six months, one key focus area has been improving inventory management and waste reduction. Our new Pharmacy & Inventory Co-Leads and Inventory Taskforce have overseen this activity. This focus has not only improved the control of our costs but also contributed to an increased emphasis on sustainability. The building works for The Ralph was undertaken in 2018 and early 2019. Additional work has been completed since then, and the facilities have certainly been put through their paces as our team and patient caseload have grown significantly over this period. Overall, the hospital has performed well under this use, especially considering the budget available for the initial development. Various parts of the infrastructure have undergone scheduled five-year reviews without significant concerns. Our Maintenance team is in the process of touching up and refreshing many parts of the hospital. We have also installed an on-site generator to mitigate the risks of power outages to patient safety and workflow. In 2023, we undertook an initial internal consultation and preliminary discussions about expanding our facilities and service capacity by developing the unused mezzanine area at the back of the first floor (Project REACH). We subsequently put these discussions on hold in light of the sector developments described below so we could continue to monitor events while focusing on the business’s financial performance.
The second half of 2023 and the first half of 2024 saw significant changes in the UK veterinary sector. The CMA announced an initial sector review in September 2023 and published its initial findings in March 2024. After further consultation, it announced in May that it would be undertaking a full investigation into the sector. The CMA intends to publish its initial report for feedback in Q1 2025 and its final report in Q4 2025. Key areas of consideration include adequate local choice and treatment information for pet carers, weakened competition through corporate business practices, and transparency regarding prices (especially of medications), fees and ownership. The Ralph is a single-site referral practice that is not part of a large group and considers ethical practice one of our key tenets. As such, the CMA investigation is not a cause of concern. We can and have made some minor improvements in light of the CMA’s critical review areas. Their investigation undoubtedly shines a light on a sector that has already been struggling with many challenges in recent years, including but not limited to workforce recruitment and retention, mental wellbeing challenges and burnout. Notwithstanding these concerns, my perspective is that the CMA investigation is, on balance, a positive development in light of the trends in the UK veterinary sector over the last decade or more.
The Ralph stands ready to assist the CMA with enquiries and our pet carer community with any questions that may arise while supporting Team Ralph and shielding them from any backlash, as we always seek to do.
The aforementioned 12-month period also saw increased macroeconomic financial pressure on UK pet carers. The pet care industry is defensible, meaning consumers will protect expenditures on their beloved animal companions over and above other expenses. Nonetheless, this is finite, and the veterinary sector has come under increasing economic pressure. The period between 2012 and 2022 saw something of a bubble form in the UK animal companion veterinary sector concerning practice valuations and, to some extent, specialist salaries and locum rates. Corporate acquisitions, competition for consolidation, and increasing consumer spending as animal companions have increasingly become part of the family unit fuelled this bubble. At the time of this report, the bubble has popped or, at the very least, is leaking. Acquisitions are at a standstill, large groups have announced non-clinical and clinical redundancies, specialist recruitment has significantly slowed, and locum rates have reduced.
There is also a trend towards new primary care and referral practices opening or being in the planning stages for future openings. These practices range from ‘traditional independent’ setups to practices opened by veterinary professionals in partnership with new private equity and similar funders entering the veterinary market for the first time. In the last couple of years, several announcements have been made about new employee ownership trusts as some independent practices seek to safeguard their future succession. The Ralph was ahead of its time in the sector, implementing an employee share option scheme as part of the founding model in 2019. After the mandatory four years of employment, some Ralphers have since taken the opportunity to exercise their options becoming shareholders. It is heartwarming to see other practices engaging with employee ownership and, perhaps, going beyond what we are in a position to do. Another noteworthy development in 2024 has been the implementation of new Immigration legislation with new salary thresholds for recruiting veterinary professionals from abroad needing visa sponsorship and removing veterinary surgeons from the occupation shortage list. This new legislation has made recruiting specialists-in-training (interns, residents) from abroad much more challenging.
The next few years will be very interesting in the UK animal companion veterinary sector in light of macroeconomic developments, the CMA’s investigation, the leaking bubble and the trend towards new practices. The Ralph is uniquely positioned as the largest multidisciplinary specialist referral centre in the UK that is not part of a large group, especially in light of our reputation for kindness, compassion, and genuinely caring for our patients and people. Suppose our current financial performance indeed heralds a trend of sustainable profitability. In that case, we will be making decisions about the future of the business, including expanding our facilities through Project REACH, and seeking to ensure that any shareholders wishing to realise their investment can do so.
I’d like to end by reiterating my gratitude to our shareholders, Team Ralph, and our referral and pet carer communities. I hope we show our appreciation to our patients for the opportunity to care for them through the compassionate, individually tailored care that we deliver “as if they are our own”. As the Founder, CEO and Clinical Director, the many examples of this care I encounter daily fuel the ongoing journey that began more than ten years ago and lighten the weight of the responsibilities. When all is said, it is first and foremost about the patients. The Ralph has a unique and generational opportunity to serve as a beacon of patient- and people-centric ethical business practices whilst being a profitable and progressive company.
Shailen
Shailen Jasani MA VetMB MRCVS DACVECC
Founder, CEO & Clinical Director
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' 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 company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' responsibilities statement, 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.
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 specific procedures for this engagement and the extent to which these are capable of detecting irregularities, including fraud are detailed below.
Identifying and assessing risks related to irregularities:
We assessed the susceptibility of the company’s financial statements to material misstatement and how fraud might occur, including through discussions with the directors, discussions within our audit team planning meeting, updating our record of internal controls and ensuring these controls operated as intended. We evaluated possible incentives and opportunities for fraudulent manipulation of the financial statements. We identified laws and regulations that are of significance in the context of the company by discussions with directors and updating our understanding of the sector in which the company operates.
Laws and regulations of direct significance in the context of the company include The Companies Act 2006, UK Tax legislation, and The Misuse of Drugs Act 1971.
Audit response to risks identified:
We considered the extent of compliance with these laws and regulations as part of our audit procedures on the related financial statement items including a review of financial statement disclosures. We reviewed the company’s records of breaches of laws and regulations, minutes of meetings and correspondence with relevant authorities to identify potential material misstatements arising. We discussed the company’s policies and procedures for compliance with laws and regulations with members of management responsible for compliance.
During the planning meeting with the audit team, the engagement partner drew attention to the key areas which might involve non-compliance with laws and regulations or fraud. We enquired of management whether they were aware of any instances of non-compliance with laws and regulations or knowledge of any actual, suspected or alleged fraud. We addressed the risk of fraud through management override of controls by testing the appropriateness of journal entries and identifying any significant transactions that were unusual or outside the normal course of business. We assessed whether judgements made in making accounting estimates gave rise to a possible indication of management bias. At the completion stage of the audit, the engagement partner’s review included ensuring that the team had approached their work with appropriate professional scepticism and thus the capacity to identify non-compliance with laws and regulations and 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: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to 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.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
The Ralph Veterinary Referral Centre Plc is a private company limited by shares incorporated in England and Wales. The registered office is Fourth Avenue, Globe Business Park, MARLOW, SL7 1YG.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Basic financial liabilities
Basic financial liabilities, including trade and other creditors and bank loans, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 2 (2023 - 2).
The actual credit for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.
Interest on Bank loans range from 3.3% to 6.9%. Amounts pursuant to these loans are secured on the assets to which they relate and with personal guarantees from the Executive Directors of the Company. The remaining term range between 12 and 44 months.
Interest on Hire purchase agreements range from 3% to 5.4%. Amounts borrowed pursuant to these loans are secured on the assets to which the relate and with personal guarantees from the Executive Directors of the Company. The remaining term range between 12 and 34 months.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
The deferred tax asset set out above partly relates to the utilisation of tax losses against future expected profits. The asset is expected to reverse over the next 24-36 months based on directors forecasts.
The deferred tax asset also partly relates to accelerated capital allowances, forming a deferred tax liability netted off against the above asset relating to tax losses. These accelerated capital allowances arise on the acquisition of fixed assets, and are expected to crystallise over the estimated useful economic life of the assets.
The rate at which deferred tax is calculated is 25% (2023 - 25%).
The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.
On 25 February 2019, the company granted options over 1,396,000 shares through a tax-advantaged Enterprise Management Incentives employee share option scheme to a total of 49 employees on an all-employee basis at an option price of £0.001 per A Ordinary Share. The period over which the outstanding options are capable of subsisting is the period from February 2019 to February 2029. The period over which the outstanding options are capable of being exercised is the period from February 2023 to February 2029 during the period of employment of the scheme participants or at an exit event at any time in the ten-year period.
On 12 July 2019, the company granted options over 508,000 shares through a tax-advantaged Enterprise Management Incentives employee share option scheme to a total of 21 employees on an all-employee basis at an option price of £0.001 per A Ordinary Share. The period over which the outstanding options are capable of subsisting is the period from July 2019 to July 2029. The period over which the outstanding options are capable of being exercised is the period from July 2023 to July 2029 during the period of employment of the scheme participants or at an exit event at any time in the ten-year period.
On 12 December 2019, the company granted options over 455,000 shares through a tax-advantaged Enterprise Management Incentives employee share option scheme to a total of 19 employees on an all-employee basis at an option price of £0.001 per A Ordinary Share. The period over which the outstanding options are capable of subsisting is the period from December 2019 to December 2029. The period over which the outstanding options are capable of being exercised is the period from December 2023 to December 2029 during the period of employment of the scheme participants or at an exit event at any time in the ten-year period.
The arrangements for an employee on leaving the company are as follows:
Leaving through Resignation
If the employee ceases to hold office or employment within the company as a consequence of resignation before exercising the option, then the employee is not allowed to exercise the option and the option lapses immediately at the date of leaving.
Leaving through Dismissal
If the employee ceases to hold office or employment within the company as a consequence of dismissal through gross misconduct or actively engaging in competition against the company or committing a material breach of either the Articles of Association or any shareholders agreement that is in existence at the time, then the employee is not allowed to exercise the option and the option lapses immediately at the date of leaving.
Leaving for a reason other than Resignation or Dismissal before Fourth Anniversary
If the employee leaves the employment of the company before the expiry of the fourth anniversary of the date of grant of the option for any reason other than resignation or dismissal, then the exercise of the option by the employee is fully at the discretion of the board of directors who must notify the employee of their decision within three months of the date of leaving and in the event that the board of directors does not give its permission to exercise the option then the Option will lapse immediately following the decision.
Leaving for a reason other than Resignation or Dismissal after Fourth Anniversary
If the employee leaves the employment of the company at any time after the fourth anniversary of the date of grant and has already exercised the option, thereby ensuring ownership of the shares, then the employee will be allowed to retain ownership of the shares, whatever the reason for leaving.
Death in Service
If the employee dies whilst holding employment within the company before exercising the option, then at the discretion of the board of directors the personal representative will be allowed to exercise the option within the period of twelve months of the date of death.
The expense calculation for the options granted on 25 February 2019, 12 July 2019, 12 December 2019, 28 August 2020, 22 November 2021, 15 August 2022 and 1 September 2023 using the Black-Scholes option-pricing valuation model, is based on the following assumptions:
Assumptions
| 2019 Grant 25.02.2019
| 2019 Grant 12.07.2019
| 2019 Grant 12.12.2019
| 2020 Grant 28.08.2020
| 2021 Grant 22.11.2021 | 2022 Grant 15.08.2022 | 2023 Grant 01.09.2023 |
Expected volatility
| 20% | 20% | 20% | 20% | 20% | 20% | 20% |
Expected dividend yield
| 0% | 0% | 0% | 0% | 0% | 0% | 0% |
Exercise price
| £0.001 | £0.001 | £0.001 | £0.001 | £0.001 | £0.001 | £0.001 |
Market value
| £0.10 | £0.10 | £0.125 | £0.125 | £0.125 | £0.125 | £0.125 |
Expected life
| 4 years | 4 years | 4 years | 4 years | 4 years | 4 years | 4 years |
Risk-free rate
| 1.0% | 1.0% | 1.0% | 1.0% | 1.0% | 4.0% | 4.0% |
The outstanding options at the end of the year:
Shares over which Options granted
| 2019 Grant 25.02.2019
| 2019 Grant 12.07.2019
| 2019 Grant 12.12.2019
| 2020 Grant 28.08.2020
| 2021 Grant 22.11.2021 | 2022 Grant 15.08.2022 | 2023 Grant 01.09.2023 | All Grants of Options |
Original Grants
| 1,396,000 | 508,000 | 455,000 | 348,000 | 980,000 | 656,750 | 535,000 | 4,878,750 |
Forfeited during the year to 31.03.2019 (leavers)
| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Forfeited during the year to 31.03.2020 (leavers)
| 185,000 | 55,000 | 25,000 | 0 | 0 | 0 | 0 | 265,000 |
Forfeited during the year to 31.03.2021 (leavers)
| 215,000 | 55,000 | 82,000 | 0 | 0 | 0 | 0 | 352,000 |
Forfeited during the year to 31.03.2022 (leavers)
| 43,000 | 49,000 | 15,000 | 135,000 | 30,000 | 0 | 0 | 272,000 |
Forfeited during the year to 31.03.2023 (leavers)
| 65,000 | 0 | 30,000 | 23,000 | 100,000 | 0
| 0 | 218,000 |
Forfeited during the year to 31.03.2024 (leavers)
| 25,000 | 2,500 | 10,000 | 25,000 | 125,000 | 123,750 | 0 | 311,250 |
Exercises during the year to 31.03.2024
| 457,500 | 292,500 | 120,000 | 0 | 0 | 0 | 0 | 870,000 |
Outstanding at the end of the year
| 405,500 | 54,000 | 173,000 | 165,000 | 725,000 | 533,000 | 535,000 | 2,590,500 |
The involvement of the executives and employees in the employee share schemes:
| Shares subject to options: year to 31.03.2019 | Shares subject to options: year to 31.03.2020 | Shares subject to options: year to 31.03.2021 | Shares subject to options: year to 31.03.2022 | Shares subject to options: year to 31.03.2023 | Shares subject to options: year to 31.03.2024 |
Outstanding at the start of the year
| 0 | 1,396,000 | 2,094,000 | 2,090,000 | 2,798,000 | 3,236,750 |
Granted during the year
| 1,396,000 | 963,000 | 348,000 | 980,000 | 656,750 | 535,000 |
Forfeited during the year (leavers)
| 0 | 265,000 | 352,000 | 272,000 | 218,000 | 311,250 |
Exercised during the year
| 0 | 0 | 0 | 0 | 0 | 870,000 |
Expired or lapsed during the year
| 0 | 0 | 0 | 0 | 0 | 0 |
Outstanding at the end of the year
| 1,396,000 | 2,094,000 | 2,090,000 | 2,798,000 | 3,236,750 | 2,590,500 |
The A & B Ordinary shares entitle the holder to full voting rights and to participate fully in any dividend or capital distributions. The A & B shares are not redeemable.
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: