The directors present their annual report and audited financial statements for the year ended 31 December 2022.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
In accordance with the Company's articles, a resolution proposing that PricewaterhouseCoopers LLP be reappointed as auditors of the Company will be put at a General Meeting.
The Company is exposed to financial risks such as price risk, foreign currency risk, market risk, credit risk and liquidity risk, and the monitoring of these risks is detailed in note 12 to the financial statements.
Financial support for renewable energy
There is a risk that changes could be applied to renewable energy policy which could impact subsidies available to renewable energy operations. If applied retrospectively to current operating projects, this could adversely impact the market price for renewable energy or the green benefits earned from generating renewable energy. Specifically: The Renewable Obligation scheme or other embedded benefits.
The Manager mitigates this through keeping itself abreast of developments in international support for renewable energy and will assess the impact of any changes and, where possible, respond to these changes when and if they happen. The UK has committed to the concept of grandfathering existing projects with subsidy support i.e., it cannot change support.
Physical risks
There are a number of physical risks which could impact the Company’s investments, including flooding and extreme weather events such as droughts.
To mitigate this risk, flood and weather patterns are assessed on a site-specific basis through competent consultants and equipment providers at the development stage.
The Company has net assets amounting to £7,165,715 (2021: £8,430,737) and incurred a loss for the year amounting to £1,265,022 (2021: £2,069,263). The Company continues to meet its liquidity requirements through its resources which are managed via the distributions received from its investments. The directors have reviewed investee company forecasts and trading performance, as well as considered adverse scenarios, which have shown that the company has sufficient financial resources to meet its current obligations as they fall due for a period of at least 12 months from the date of approval of this report.
The parent company has indicated their willingness to support the company as required by providing the company with a letter of support. The letter of support also confirms the Parent has no intent to recall the loans due for at least 12 months from the date of the approval of these financial statements, unless adequate alternative financing has been secured by the borrower.
On this basis, the board have reasonable expectation that the company has adequate resources to continue in operational existence for at least 12 months from the date of approval of this report. Accordingly, they continue to adopt the going concern basis in preparing these financial statements.
In preparing the report, the Directors have taken advantage of the small companies exemptions provided by section 415A of the Companies Act 2006. The directors have also taken advantage of small company exemptions provided by section 414B of the Companies Act 2006 and have not prepared a Strategic Report.
In preparing the financial statements, the directors chose to apply paragraph 1B(1) of Schedule 1 to the Small Companies Regulations 19 and 20 and adapted the FRS 102 balance sheet formats disclosing the assets and liabilities as current and non-current.
Basis for opinion
Conclusions relating to going concern
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.
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.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the company's ability to continue as a going concern.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Reporting on other information
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of directors' responsibilities in respect of the financial statements, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
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 auditors’ 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 industry, we identified that the principal risks of non-compliance with laws and regulations related to data protection, 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 financial statements such as the Companies Act 2006 and tax legislation. 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 posting inappropriate journal entries to the Statement of comprehensive income, or through management bias in manipulation of accounting estimates with the aim of improving performance. Audit procedures performed by the engagement team included:
Inquiry of management and those charged with governance around actual and potential litigation claims;
Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations;
Identifying and testing journal entries, in particular any journal entries with unusual account combinations; and
Challenging assumptions and judgements made by management in their significant accounting estimates in particular regarding the valuation on investments.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. 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 for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
we have not obtained all the information and explanations we require for our audit; or
adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or
certain disclosures of directors’ remuneration specified by law are not made; or
the financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Entitlement to exemptions
Under the Companies Act 2006 we are required to report to you if, in our opinion, the directors were not entitled to: prepare financial statements in accordance with the small companies regime; take advantage of the small companies exemption in preparing the Directors' Report; and take advantage of the small companies exemption from preparing a strategic report. We have no exceptions to report arising from this responsibility.
The income statement has been prepared on the basis that all operations are continuing operations.
The notes on pages 11 to 20 form part of these financial statements.
The notes on pages 11 to 20 form part of these financial statements.
The notes on pages 11 to 20 form part of these financial statements.
Tramroad Recycling Limited is a private company limited by shares incorporated in England and Wales. The registered office is 5 The Peak, Wilton Road, London, Greater London, England, SW1V 1AN.
The Company was incorporated on 15 January 2021 and the comparative period presented within these financial statements is from this date to 31 December 2021. The current year to 31 December 2022 represents a longer period and as such may not be entirely comparable.
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 Directors have concluded that the Company’s subsidiaries should be excluded from consolidation as the interests in subsidiaries are held as part of an investment portfolio as defined in paragraph 9.9 (b) of FRS 102 and are measured at fair value with movements in fair value recognised in the Statement of Comprehensive Income in the year in which they arise.
The Company has net assets amounting to £7,165,715 (2021: £8,430,737) and incurred a loss for the year amounting to £1,265,022 (2021: £2,069,263). The Company continues to meet its liquidity requirements through its resources which are managed via the distributions received from its investments. The directors have reviewed investee company forecasts and trading performance, as well as considered adverse scenarios, which have shown that the company has sufficient financial resources to meet its current obligations as they fall due for a period of at least 12 months from the date of approval of this report.
The parent company has indicated their willingness to support the company as required by providing the company with a letter of support. The letter of support also confirms the Parent has no intent to recall the loans due for at least 12 months from the date of the approval of these financial statements, unless adequate alternative financing has been secured by the borrower.
On this basis, the board have reasonable expectation that the company has adequate resources to continue in operational existence for at least 12 months from the date of approval of this report. Accordingly, they continue to adopt the going concern basis in preparing these financial statements.
Financial liabilities are classified according to the substance of contractual agreements entered into and are recorded on the date on which the Company becomes party to such contractual requirements of the financial liability.
All loans and borrowings are initially recognised at cost, being fair value of consideration received, net of any incurred transaction costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Loan balances as at the year-end have not been discounted to reflect amortised cost, as the amounts are not materially different from the outstanding balances. The Company’s other financial liabilities measured at amortised cost include trade and other payables and other short-term monetary liabilities which are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method.
A financial liability (in whole or in part) is derecognised when the Company has extinguished its contractual obligations, it expires, or it is cancelled. Any gain or loss on derecognition is taken to the Statement of Comprehensive Income.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
Investment income
Interest income on shareholder loan investments are accounted for on an accruals basis using the effective interest rate method. Income in respect of the provision of management services to the SPVs is recognised on an accruals basis. Provisions are made against income where recovery is considered doubtful.
Interest payable and expenses
Interest payable and expenses are accounted for on an accruals basis.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods. The estimates and judgements which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
The estimates and assumptions that may have a significant impact on the carrying value of assets and liabilities are those used to determine the fair value of the investments. The fair value of investments is based on the discounted values of expected future cash flows, which are subject to certain key assumptions including the useful life of assets, the discount factors, the rate of inflation, the recycling rates and market demand.
Assumptions about useful lives of assets are based on the Manager’s estimates of the period over which the assets will generate revenue. These assumptions are periodically reviewed for continued appropriateness. The actual useful life of any specified asset may be shorter or longer depending on the actual operating conditions experienced by this asset.
Management also considers the capital expenditure required to maintain the life cycle of the assets as subjective due to the actual timing and quantum of the spend. At each reporting date this is being monitored to ensure the spend is in line with managements best estimates and forecasts.
The discount factors are subjective. It is feasible that a reasonable alternative assumption could be used that would result in a different value. Discount rates are periodically reviewed taking into account any recent market transactions of a similar nature.
The revenues and expenditure of investee company are frequently, partly or wholly subject to indexation, typically with reference to the Consumer Price Index (CPI) or Retail Price Index (RPI). From a financial modelling perspective, an assumption is usually made that the inflation index will increase at a long-term rate.
Management estimate the expected volume of materials that will be processed by the investment SPVs on a daily, monthly, and annual basis. Taking into account factors such as offtake demand and operational efficiency.
The pricing for the (solid recovered fuel ("SRF") materials that will be processed by the SPVs is typically contracted with key offtake suppliers and are contracted in the medium term.
The pricing of other recycled materials (e.g., paper, plastic, metal) are based on market rates and vary based on location. Management analyse market trends and demand for recycled materials, factors such as changes in commodity prices, government policies, and environmental regulations may impact the demand and pricing of recycled materials. There is inherent uncertainty in future recyclate price forecasts.
Estimates and judgements are continually evaluated and are based on historical experience of the Manager and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Best judgement is used in estimating the fair value of investments, there are inherent limitations in any estimation techniques. Future events could also affect the estimates of fair value. The effect of such events on the estimates of fair value, including the ultimate liquidation of investments, could be material to the financial statements.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.
The directors determined based on the criteria in FRS 102 para. 9.9 (b), that the investee companies outlined in note 7 shall be excluded from consolidation and thus recognised at fair value. The classification of investee companies as being held exclusively with a view to subsequent resale is a key judgement.
In preparing the financial statements, the directors assessed that the Company intends to realise its investments beyond 12 months of the balance sheet date and so all investments have been classified as noncurrent assets.
The average monthly number of persons (including directors) employed by the Company during the year was nil (2021: nil).
The directors do not receive emoluments in relation to services to this entity.
Fair value measurements
FRS 102 requires disclosure of fair value measurement by level. The level of fair value hierarchy within the financial assets or financial liabilities is determined on the basis of the lowest level input that is significant to the fair value measurement. Financial assets and financial liabilities are classified in their entirety into only one of the following three levels:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 - inputs for assets or liabilities that are not based on observable market data (unobservable inputs).
The determination of what constitutes ‘observable’ requires judgement by the Company. The Company considers observable data to be market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The only financial instruments held at fair value are the instruments held by the Company in the SPVs, which are fair valued at each reporting date. The Company’s investments have been classified within level 3 as the investments are not traded and contain unobservable inputs. Due to the nature of the investments, they are always expected to be classified as level 3. There have been no transfers between levels during the year ended 31 December 2022 or period ended 31 December 2021.
Details of the Company's subsidiaries at both 31 December 2022 and 31 December 2021 were as follows:
Amounts owed to group undertakings are interest free, unsecured and repayable on demand.
The loan relates to a number of loan notes issued by the parent company NatWest Pension Fund Limited. The loans attract interest rates ranging between 6% and 9% per annum and are repayable in 2041 and 2051. Interest is payable quarterly, on 31 March, 30 June, 30 September and 31 December. Any unpaid interest is capitalised on those dates.
During the year ended 31 December 2022, £3,223,959 (2021: £1,903,535) of interest was accrued cumulatively across all loans, of which £637,430 (2021: £563,619) was paid. As at 31 December 2022, the loan balance was £42,444,015 (2021: £39,857,486), there was no loan interest loan interest outstanding at the year end (2021: nil).
The Company received capital contributions from its shareholder during the period ended 31 December 2021. These contributions are classified as equity within other reserves.
The Company’s activities expose it to a variety of financial risks: market risk (including, interest rate risk and foreign currency risk), credit risk and liquidity risk. An explanation of those risks is set out below.
Price risk
Price risk is defined as the risk that the fair value of a financial instrument held by the Company will fluctuate. Investments are measured at fair value through profit or loss and are valued on an unlevered, discounted cashflow basis. Therefore, the value of the investments will be (amongst other risk factors, as per note 2) a function of the discounted value of their expected cashflows and, as such, will vary with movements in interest rates and competition for such assets.
The discount factors are subjective and therefore it is feasible that a reasonable alternative assumption may be used resulting in a different valuation for these investments.
Interest rate risk
Interest rate risk is the risk that the fair value or future cashflows of a financial instrument will fluctuate because of changes in market interest rates. The Board considers that the shareholder loan investments and shareholder loan payable do not carry any interest rate risk as they bear interest at a fixed rate, thereby mitigating the risks associated with the variability of cash flows arising from interest rate fluctuations.
Foreign currency risk
Foreign currency risk is defined as the risk that the fair values of future cashflows will fluctuate because of changes in foreign exchange rates. The Company’s financial assets and liabilities are denominated in GBP and substantially all of its revenues and expenses are in GBP. The Company is not considered to be materially exposed to foreign currency risk.
The Company is 100% owned by NatWest Pension Trustee Limited (“the trustee”). The ultimate controlling party is the NatWest Group Pension Fund ("the Fund"). The Pension Trustee (NatWest Pension Trustee Limited) holds the shares on behalf of the fund.
There were no material subsequent events.
As at 31 December 2022, the Company had shareholder loans owing from its subsidiary, Oakleaf Recycling Limited, totalling £14,701,827 (2021: £14,701,827). Interest of £882,110 (2021: £565,447) was charged in the year, at 6% per annum (2021: 6%).
As at 31 December 2022, the Company had shareholder loans owing from its subsidiary, Hywel NMP Limited, totalling £19,577,064 (2021: £17,909,948). Interest of £1,667,116 (2021: £592,460) was charged in the year, at 9% per annum (2021: 9%).
As at 31 December 2022, the Company had loans owing to its ultimate controlling party, NatWest Group Pension Fund, totalling £42,444,015 (2021: £39,857,486). Interest of £3,223,959 (2021: £1,903,535) was charged to the Company in the year. The loans attract interest rates of 6% and 9% and are collectively repayable in 2051.
As at 31 December 2022, the Company owed £382,790 (2021: £8,445,210) to Hywel NMP Limited and £6,018 (2021: £5,994) to Oakleaf Recycling Limited. These balances relate to loan drawdowns held by the Company on Hwyel NMP's behalf which has been reduced by making project construction costs on Hywel NMP's behalf. These balances bear no interest, are unsecured and are repayable on demand, as detailed in note 8.