Development Bank of Wales loses £1.2m as medical appliances firm goes under
Nearly £1.2m has been lost by the Welsh Government-owned Development Bank of Wales following the crash of a medical appliances firm that wrongly believed it could survive the pandemic.
Snowdrop Independent Living was founded in Haverfordwest in 2018 and never made a profit.
Its key funder was the Development Bank, which invests public money in businesses that are expected to grow.
But after a liquidator’s statement of affairs showed the bank was owed £1,180,346.31 and there was no prospect of recovering any of it, questions are being asked about whether due diligence was undertaken before money was advanced to the company, which specialised in the sale of mobility products for the old and disabled.
Other creditors include HMRC, which is owed more than £96,000.
In total, the firm’s deficiency amounts to nearly £1.36m.
A business source aware of the business told us: “There were warning signs from the outset about this company’s performance and yet the Development Bank continued to plough money into it. Public money has been lost needlessly.”
In the company’s first annual report covering the period November 2018 to January 2020, chairman Kevin Bounds gave an upbeat assessment of its prospects.
He wrote:: “The business has traded successfully in its first 11 months of operation. While the accounts show a loss of £77k, this is struck after accounting for acquisition costs, other one-off costs and funding costs.
“At the trading level we operated profitably as expected and we are confident in the future success of the business.
“During the year we have also completed the acquisition of another branch at Whitchurch, Cardiff as an opportunistic purchase. I am delighted to say that this acquisition was successfully integrated and rapidly became a key part of the Snowdrop retail group.
“The business continues to provide excellent customer service, and we differentiate ourselves from our competitors by providing high quality advice to customers, professional management and being at the forefront of industry developments.
“As a result of these acquisitions our headcount has grown significantly and we have increased resources in marketing, engineering and business development, reflecting our ambition for the business.
“Since the year-end, there have been two major developments worthy of noting. In February 2020 we acquired three retail stores in the Midlands. These were rapidly integrated into the Snowdrop business, and the staff have reacted with enthusiasm and commitment to the new ownership structure. We are delighted to welcome them and are committed to developing business in this area and expanding it further when opportunities arise.”
The report went on to make the point that like most businesses, Snowdrop had been affected by the pandemic and had to adjust its business model accordingly, but added: “We are confident that our business is robust and well-capitalised and we have a supportive lender in the Development Bank of Wales.
“We have established an online sales capability and at the time of writing have reduced operating hours in our stores, but we are still providing essential products to our customers. While we are not complacent we are confident that we will emerge from this in a strong position, and we have continued to service our customers and provide additional support wherever possible.
“Throughout the year we have been in regular contact with the Development Bank of Wales and I am delighted to say that they have been incredibly supportive of the business, both in the provision of finance and advice. We are very fortunate to have such a good relationship with the key lender and this has certainly been the case in the post year-end period when additional funding has been made available to us to cope with the impact of the coronavirus on our business.”
However, the second trading year saw an increase in losses to £233k. Mr Bounds stated in the annual report that despite including the lockdown, “As a business that supports vulnerable customers, we remained open with reduced hours throughout this period since it was the right thing to do, even though we were not regarded as an essential industry. This was not the most financially advantageous course of action, but it reflects our values. While we benefitted from the furlough scheme when we could, this put profitability and capital under pressure.”
But Mr Bounds said the three additional branches in the Midlands would add significantly to the firm’s revenues, adding: “Fortunately we have an excellent relationship with our main lender, the Development Bank of Wales, as evidenced by a further loan to acquire these branches.
“While not complacent we remain convinced we have a viable business with excellent growth potential.”
The average headcount over the year increased from 25 to 47.
The third trading year, to January 2022, saw a loss virtually identical to the previous year at £232k. The chairman’s report said the pandemic had resulted in reduced footfall in the stores as customers shielded; a reduction in the ability of councils and housing associations to carry out site surveys, leading to less orders for the company; the end of the furlough scheme; suppliers imposing tighter payment conditions; and supply chain problems resulting in a lack of available stock.
Mr Bounds added: “We lobbied the Welsh Government for assistance to the sector, but none was forthcoming, although we continue to benefit from a strong and supportive relationship with the Development Bank of Wales who are both a shareholder and a lender. Additional financing was secured after the year-end to fund our increasing working capital needs.”
Nevertheless, he stated: “We are confident that we can exploit an upturn in the market, particularly the return of engineering work to normal levels, and this will result in an improved financial performance.
“The directors monitor the financial position closely and acted after the year-end to obtain additional loans to fund the increased working capital needs, and with these in place are confident that the company will prosper in the future.”
Nevertheless in March this year a liquidator had to be appointed.
A spokeswoman for the Development Bank of Wales said: “The Development Bank of Wales invested in Snowdrop Independent Living in 2019, alongside the new management, to support the buy-out of this profitable, established business.
“A retailer of mobility products, the company was heavily impacted by the Covid pandemic in 2020, and despite concerted efforts, including the introduction of specialist turnaround advisors, entered administration in early 2023.
“The Development Bank is awaiting the outcome of the liquidation process and does not expect to recover the investment.”
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