Company registration number 06938326 (England and Wales)
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2023
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
COMPANY INFORMATION
Directors
KA Cunningham
CJ Marsh
JS Gordon
PR Hepburn
Secretary
Resolis Limited
Company number
06938326
Registered office
1 Park Row
Leeds
United Kingdom
LS1 5AB
Auditor
Johnston Carmichael LLP
7-11 Melville Street
Edinburgh
EH3 7PE
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
CONTENTS
Page
Directors' report
1 - 2
Independent auditors' report
3 - 6
Statement of comprehensive income
7
Balance sheet
8
Statement of changes in equity
9
Notes to the financial statements
10 - 18
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
DIRECTORS' REPORT
FOR THE YEAR ENDED 30 SEPTEMBER 2023
- 1 -
The directors present their annual report and financial statements for the year ended 30 September 2023.
Principal activities
The Company was formed to enter into a Private Finance Initiative (PFI) concession to design, build, finance and operate educational establishments in Sandwell, for the Borough Council of Sandwell. Contract negotiations were successfully completed on 31 July 2009 and construction commenced immediately, building Rowley Learning Campus, with the final handover in June 2011. The contract will run until 2036.
There have not been any changes in the Company's activities in the year under review, and the directors are not aware, at the date of this report, of any changes in activity for the foreseeable future. In the reporting year, the Company made a profit of £250,622 (2022: £90,821)
Going concern
The going concern disclosure for the Company can be found in note 1.2 of the financial statements.
Results and dividends
The results of the Company are as set out in the statement of comprehensive income on page 7.
The total distribution of dividends in the year ended 30 September 2023 was £141,103 (2022: £52,000).
Directors
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
KA Cunningham
CJ Marsh
JS Gordon
PR Hepburn
Qualifying third party indemnity provisions
The Company has made qualifying third party indemnity provisions for the benefit of its directors during the year. These provisions remain in force at the reporting date.
Auditor
Pursuant to Section 487(2) of the Companies Act 2006, the auditor Johnston Carmichael is deemed to be reappointed.
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2023
- 2 -
Statement of directors' responsibilities
The directors are responsible 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 company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
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 company’s transactions and disclose with reasonable accuracy at any time the financial position of 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 company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Statement of disclosure to auditor
So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the Company’s auditor is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the Company’s auditor is aware of that information.
Small companies exemption
This report has been prepared in accordance with the provisions applicable to companies entitled to the small companies exemption.
On behalf of the board
KA Cunningham
Director
12 March 2024
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
INDEPENDENT AUDITORS' REPORT
TO THE MEMBERS OF ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
- 3 -
Opinion
We have audited the financial statements of Environments for Learning Sandwell PFI One Limited (the 'company') for the year ended 30 September 2023 which comprise the statement of comprehensive income, the balance sheet, the statement of changes in equity and notes to the financial statements, including 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:
In our opinion the financial statements:
give a true and fair view of the state of the company's affairs as at 30 September 2023 and of its profit 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.
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 Auditors' responsibilities for the audit of the financial statements section of our report. We are independent of the company 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
Material uncertainty relating to going concern.
We draw attention to note 1.2 in the financial statements which indicates that there have been Events of Default (EoDs) under the Credit Agreement, Project Agreement and Facilities Management Subcontract Agreement. The company does not have a Parent Company Guarantee (“PCG”) due to the liquidation of Interserve Group Limited. As a consequence of this, the combined Construction and Facilities Management is terminable which in turn triggers a technical default in the Loan Facilities Agreement meaning the lender can recall the senior loan on demand.
As stated within note 1.2 these events or conditions, along with other matters as set forth in note 1.2 indicate that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
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.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
The other information comprises the information included in the annual report other than the financial statements and our auditors' report thereon. The directors are responsible for the other information contained within the annual report. 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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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.
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
INDEPENDENT AUDITORS' REPORT (CONTINUED)
TO THE MEMBERS OF ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
- 4 -
Opinions on other matters 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 Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
The 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 the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the Directors’ Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
Adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
The financial statements are not in agreement with the accounting records and returns; or
Certain disclosures of irectors’ remuneration specified by law are not made; or
We have not received all the information and explanations we require for our audit.
T
Responsibilities of directors
As explained more fully in the statement of directors’ responsibilities set out on page 1, 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.
Auditors' 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 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.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Extent the audit was considered capable of detecting irregularities, including fraud
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.
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
INDEPENDENT AUDITORS' REPORT (CONTINUED)
TO THE MEMBERS OF ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
- 5 -
We assessed whether the engagement team collectively had the appropriate competence and capabilities to identify or recognise non-compliance with laws and regulations by considering their experience, past performance and support available.
All engagement team members were briefed on relevant identified laws and regulations and potential fraud risks at the planning stage of the audit. Engagement team members were reminded to remain alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
We obtained an understanding of the legal and regulatory frameworks that are applicable to company and the sector in which it operates, focusing on provisions that had a direct effect on the determination of material amounts and disclosures in the financial statements. The most relevant frameworks we identified include:
We gained an understanding of how the company is complying with these laws and regulations by making enquiries of management and those charged with governance. We corroborated these enquiries through are review of board meeting minutes.
We assessed the susceptibility of the financial statements to material misstatement, including how fraud might occur, by meeting with management and those charged with governance to understand where it was considered there was susceptibility to fraud. This evaluation also considered how management and those charged with governance were remunerated and whether this provided an incentive for fraudulent activity. We considered the overall control environment and how management and those charged with governance oversee the implementation and operation of controls. We identified a heightened fraud risk in relation to:
In addition to the above, the following procedures were performed to provide reasonable assurance that the financial statements were free of material fraud or error:
Recalculating the unitary charge received by taking the base charge per the project agreement and uplifting for RPI;
Agreeing a sample of months' income receipts to invoice and bank statements;
Performing an assessment on the service margins used in the year and agreeing margins used to the active financial models;
Reconciling the finance income and amortisation to the finance debtor reconciliation to ensure allocation methodology is in line with contractual terms and relevant accounting standards;
Reviewing minutes of meetings of those charged with governance for reference to: breaches of laws and regulation or for any indication of any potential litigation and claims; and events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud;
Reviewing the level of and reasoning behind the company’s procurement of legal and professional services;
Performing audit work procedures over the risk of management override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business and reviewing judgements made by management in their calculation of accounting estimates for potential management bias;
Completion of appropriate checklists and use of our experience to assess the Company’s compliance with the Companies Act 2006; and
Agreement of the financial statement disclosures to supporting documentation.
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
INDEPENDENT AUDITORS' REPORT (CONTINUED)
TO THE MEMBERS OF ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
- 6 -
Our audit procedures were designed to respond to the risk of material misstatements in the financial statements, recognising that 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 intentional concealment, forgery, collusion, omission or misrepresentation. There are inherent limitations in the audit procedures performed 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 are to become aware of it.
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 auditors' 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.
Grant Roger
Senior Statutory Auditor
For and on behalf of Johnston Carmichael LLP
12 March 2024
Chartered Accountants
Statutory Auditor
7-11 Melville Street
Edinburgh
EH3 7PE
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 SEPTEMBER 2023
- 7 -
2023
2022
Notes
£'000
£'000
Turnover
3
3,878
3,251
Cost of sales
(3,087)
(2,447)
Gross profit
791
804
Administrative expenses
(461)
(418)
Operating profit
4
330
386
Interest receivable and similar income
3,190
3,091
Interest payable and similar expenses
(3,198)
(3,363)
Profit before taxation
322
114
Tax on profit
(71)
(23)
Profit for the financial year
251
91
Other comprehensive income
Cash flow hedges (loss)/gain arising in the year
(172)
4,878
Tax relating to other comprehensive income
43
(1,219)
Total comprehensive income for the year
122
3,750
The profit and loss account has been prepared on the basis that all operations are continuing operations.
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
BALANCE SHEET
AS AT
30 SEPTEMBER 2023
30 September 2023
- 8 -
2023
2022
Notes
£'000
£'000
£'000
£'000
Current assets
Debtors
6
36,073
37,657
Cash at bank and in hand
6,102
6,225
42,175
43,882
Creditors: amounts falling due within one year
7
(36,796)
(7,843)
Net current assets
5,379
36,039
Creditors: amounts falling due after more than one year
8
(5,407)
(36,048)
Net liabilities
(28)
(9)
Capital and reserves
Called up share capital
10
10
Hedging reserve
(209)
(80)
Profit and loss reserves
171
61
Total equity
(28)
(9)
The notes on pages 10 to 18 form part of these financial statements.
These financial statements have been prepared in accordance with the provisions applicable to companies subject to the small companies regime.
The financial statements were approved by the board of directors and authorised for issue on 12 March 2024 and are signed on its behalf by:
KA Cunningham
Director
Company registration number 06938326 (England and Wales)
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 SEPTEMBER 2023
- 9 -
Share capital
Hedging reserve
Profit and loss reserves
Total
Notes
£'000
£'000
£'000
£'000
Balance at 1 October 2021
10
(3,739)
22
(3,707)
Year ended 30 September 2022:
Profit
-
-
91
91
Other comprehensive income:
Cash flow hedges gains
-
4,878
-
4,878
Tax relating to other comprehensive income
-
(1,219)
(1,219)
Total comprehensive income
-
3,659
91
3,750
Dividends
-
-
(52)
(52)
Balance at 30 September 2022
10
(80)
61
(9)
Year ended 30 September 2023:
Profit
-
-
251
251
Other comprehensive income:
Cash flow hedges gains
-
(172)
-
(172)
Tax relating to other comprehensive income
-
43
43
Total comprehensive income
-
(129)
251
122
Dividends
-
-
(141)
(141)
Balance at 30 September 2023
10
(209)
171
(28)
The notes on pages 10 to 18 form part of these financial statements.
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2023
- 10 -
1
Accounting policies
Company information
Environments for Learning Sandwell PFI One Limited is a private company limited by shares incorporated in England and Wales. The registered office is 1 Park Row, Leeds, United Kingdom, LS1 5AB.
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 £'000.
The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.
1.1
Accounting convention
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
1.2
Going concern
These financial statements are prepared on the going concern basis. The Directors have a reasonable expectation that the Company will continue in operational existence for the foreseeable future. However, the Directors are aware of certain matters which may impact the performance of the Company in future.
The Directors have reviewed detailed model forecasts, which forecast financial performance through to project completion (in March 20236 ), incorporating relevant terms of the Project Agreements, subcontracts and Credit Agreements and reasonable, prudent economic assumptions. These forecasts are updated semi-annually and predict that the Company will be profitable and will have sufficient cashflow to meet its liabilities as they fall due through to the end of their concession.
Design and build projects have business models that are reviewed annually and updated to include relevant ongoing works. These are conducted on a breakeven or "cost plus margin" basis and the Company is expected to break even or be profitable to the end of their life.
The Company has negative net assets but has net current assets. This is due to events of defaults ("EoDs") occurring subsequent to the yearend resulting in senior debt facilities being classified as current.
The Company does not have a Parent Company Guarantee due to the liquidation of Interserve Group Limited. This has led to technical defaults in the Loan Facilities Agreements which means that the lender could recall the senior debt from these Company on demand.
At the date of signing the financial statements no proceedings had commenced to recall the senior debt earlier than repayment by instalments. The Directors acknowledge that there are significant risks surrounding the EoD which could impact the Company's ability to continue as a going concern and the future financial performance of the Company. However, appropriate actions are being taken to mitigate these risks and the likelihood of the default resulting in the Company no longer being able to continue is remote.
The Directors confirm that there are no plans that would change the future operations of the Company. Consequently, the Directors have prepared the financial statements on a going concern basis however they acknowledge the EoD gives rise to a material uncertainty which may cause significant doubt about the Company's ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.
Event of default
The Company has failed to have an effective Parent Company Guarantee (“PCG”) in place as a result of the liquidation of Interserve Group Limited which has led to the combined Construction and FM Contract becoming terminable as well as triggering technical defaults in the Loan Facilities Agreements.
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2023
1
Accounting policies
(Continued)
- 11 -
An EoD was triggered when Interserve PLC went into administration on 15 March 2019 as it was parent company guarantor for Interserve (Facilities Management) Ltd and Interserve Construction Limited. Waivers were signed in 2020 accepting the PCG of Interserve Group Limited meaning the Subsidiaries were no longer in default.
On 5 October 2023 Interserve Group Limited ("IGL") appointed liquidators under a Creditors Voluntary Liquidation. IGL is a Major Project Party as it provides a PCG for Tilbury Douglas Construction Limited ("TDCL") in relation to the Construction and FM Contract (combined contract) between the Company and TDCL. Therefore, as a result of IGL's liquidation, the combined Construction and FM Contracts have become terminable. This insolvency event has also triggered a technical default in the Loan Facilities Agreements of the Company. This has been known for some time and the Company has been working with ICG, TDCL, Mitie FM and the Lenders to find a resolution. The FM services are being carried out by Mitie via a contract with the Company contractor (TDCL), and a PCG is being sought from them.
The Company issued a Reservations of Rights letter to IGL and a notice of this was issued to the lenders in October 2023 in respect of the technical default. The Directors believe this is highly unlikely to cause going concern issues but technically whilst the EoD subsists, there is a risk that the lenders could technically accelerate senior debt repayments.
From 5 October 2023 to the date of signing there has been no formal waiver put in place from the lenders relating to the events of default. From Directors and management discussions with the lender there is no evidence that they intend to recall the debt earlier than the repayment terms that would otherwise prevail without an event of default. However, under the Loan Facilities Agreement it is within the lender's control to recall the outstanding loan balance. The Company's cash position and future cash flow forecasts evidence that it would not be possible for the Company to meet its liabilities if the debts were recalled for repayment in full rather than instalments. Despite this course of action being available to the lenders, the Directors consider the possibility to be so remote that they deem the application of the going concern basis of preparation of the financial statements to be appropriate.
1.3
Finance asset receivable
Under the terms of the contract, substantially all risks and rewards of ownership of the property remain with the Authority, Sandwell Metropolitan Borough Council.
During the period of construction, costs incurred as a direct consequence of financing, designing and constructing the facilities, including finance costs, are capitalised and shown as work in progress. On completion of the construction, credit is taken for the deemed sale, which is recorded within turnover. The construction expenditure and associated costs are reallocated to cost of sales. Amounts receivable are classified as a financial asset receivable (PFI debtor).
Revenues received from the customer are apportioned between:
capital repayments;
finance income; and
operating revenue.
1.4
Cash and cash equivalents
Cash Investments are stated at cost excluding any accrued interest and with no provision for impairment in value.
Restricted cash
The Company is obligated to keep separate cash reserves in respect of requirements in the Company's funding agreements. This restricted cash balance, which is shown on the balance sheet within the "cash at bank and in hand" balance, amounts to £3,843,148 at the year end (2022: £3,684,920).
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2023
1
Accounting policies
(Continued)
- 12 -
1.5
Financial instruments
The company has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the company's balance sheet when the company becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset, with the net amounts presented in the financial statements, when there is a legally 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.
Basic financial assets
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.
Other financial assets
Loans and receivables
Trade debtors, loans and other receivables that have fixed or determinable payments that are not quoted in
an active market are classified as 'loans and receivables'. Loans and receivables are measured at
amortised cost using the effective interest method, less any impairment.
Interest is recognised by applying the effective interest rate, except for short-term receivables when the
recognition of the interest would be immaterial. The effective interest method is a method of calculating the
amortised cost of a debt instrument and of allocating the interest income over the relevant period. The
effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the debt instrument to net carrying amount on initial recognition.
Impairment of financial assets
Financial assets, other than those held at fair value through profit and loss are assessed for indicators of
impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events
that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected.
The impairment loss is recognised in profit or loss.
Derecognition of financial assets
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire,
or when it transfers the financial asset and substantially all the risks and rewards of ownership to another entity.
Classification of financial liabilities
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2023
1
Accounting policies
(Continued)
- 13 -
Basic financial liabilities
Basic financial liabilities, including creditors, bank loans and loans from fellow group companies, 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.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Other financial liabilities
Derivatives, including interest rate swaps, are not basic financial instruments. Derivatives are initially
recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured
at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs
or finance income as appropriate, unless they are included in a hedging arrangement.
1.6
Hedge accounting
Where a derivative financial instrument is designated as a hedge of the variability in the cash flows of a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the fair value of the derivative financial instrument is recognised directly in the statement of comprehensive income as other comprehensive income or expense. Any ineffective portion of the hedge is recognised immediately in profit or loss.
Where hedge accounting recognises a liability then an associated deferred tax asset is also recognised.
Cash flow hedges
The effective portion of the changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit and loss in the periods in which the hedged item affects profit or loss, or when the hedging relationship ends.
Hedge accounting is discontinued when the entity revokes the hedging relationship, the hedging
instrument expires or is sold, terminated, exercised or no longer qualifies for hedge accounting. Any gain or loss accumulated in equity at the time is reclassified to profit or loss when the hedged item is recognised in profit or loss. When a forecast transaction is no longer expected to occur any gain or loss that was recognised in other comprehensive income is reclassified immediately to profit or loss.
1.7
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2023
1
Accounting policies
(Continued)
- 14 -
Deferred tax
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
1.8
Under the terms of the PFI contract, the company has a programme of expenditure for the maintenance of and replacement of non-moveable assets in the facilities. The company recognises such expenses as incurred, with any committed expenditure at the balance sheet dates being appropriately accrued for with the associated expense recognised through the Statement of Comprehensive Income.
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2023
- 15 -
2
Judgements and key sources of estimation uncertainty
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.
Key sources of estimation uncertainty
Accounting for the service concession contract and financial assets require and estimation of the service margins, financial assets, interest rates and associated amortisation profile which is based on forecast results of the PFI contract detailed below.
Accounting for service concessions and PFI contracts
The Company has been established to provide services under certain private finance agreements with Borough Council of Sandwell. Under the terms of these agreements, the Council (as grantor) controls the services to be provided by the company over the contract term. Based on the contractual arrangements the company has classified the project as a service concession arrangement, and has accounted for the principal asset, of, and income streams from, the project in accordance with FRS 102, Section 34.12 Service Concession Arrangements.
The Company has chosen to adopt the transitional arrangements available within FRS 102, Section 35.10(i) and as such the service concession arrangement has continued to be accounted for using the same accounting policies being applied at the date of transition to FRS 102 (1 October 2014). The nature of the asset has therefore not changed.
Under the terms of the arrangement, the Company has the right to receive a baseline contractual payment stream for the provision of the services from or at the direction of the grantor (the Council), and as such the asset is accounted for as a financial asset. The financial asset has initially been recognised at the fair value of the consideration received, based on the fair value of the construction (or upgrade) services, plus any directly attributable transaction costs, provided in line with FRS 102.
Revenue is recognised from the supply of services, which represents the timing of services provided under contracts to the extent that there is a right to consideration and is recorded at the fair value of the consideration received or receivable.
Critical judgements in applying the company's accounting policies
Derivative financial instruments
The Company holds derivative financial instruments which have the effect of fixing the interest rate payable on bank borrowings. Amounts payable or receivable in respect of interest rate derivatives are recognised as adjustments to interest over the period of the contract.
Hedge accounting
Where a derivative financial instrument is designated as a hedge of the variability in the cash flows of a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the fair value of the derivative financial instrument is recognised directly in the statement of comprehensive income as other comprehensive income or expense. Any derivative porting of the hedge is recognised immediately in statement of comprehensive income.
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2023
- 16 -
3
Turnover and other revenue
2023
2022
£'000
£'000
Turnover analysed by class of business
Turnover from operations
2,852
2,909
Pass through income
1,026
342
3,878
3,251
2023
2022
£'000
£'000
Other revenue
Interest income
3,190
3,091
Turnover, which is stated net of value added tax, represents amounts invoiced for services provided, and is recognised each year as the applicable portions of the amounts receivable relating to finance and operating costs calculated on a consistent basis (see accounting policies).
Turnover is attributable to one geographic market, the United Kingdom. Turnover from pass throughs in the current year and previous year relate to deductions and variations.
4
Operating profit
2023
2022
Operating profit for the year is stated after charging:
£'000
£'000
Fees payable to the company's auditor for the audit of the company's financial statements
22
21
Tax compliance services
5
5
5
Employees
The Company had no employees (2022: nil) during the period. Emoluments paid to third parties for directors' services to the Company were: £nil (2022: £nil).
6
Debtors
2023
2022
Amounts falling due within one year:
£'000
£'000
Trade debtors
5
102
Finance debtor
1,742
1,609
Prepayments and accrued income
318
239
2,065
1,950
Deferred tax asset
6
5
2,071
1,955
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2023
6
Debtors
(Continued)
- 17 -
2023
2022
Amounts falling due after more than one year:
£'000
£'000
Finance debtor
33,938
35,680
Deferred tax asset
64
22
34,002
35,702
Total debtors
36,073
37,657
7
Creditors: amounts falling due within one year
2023
2022
£'000
£'000
Bank loans
30,722
1,670
Trade creditors
396
353
Subordinated loans
23
649
Corporation tax
71
22
Other taxation and social security
209
268
Interest rate swap
24
15
Accruals and deferred income
5,351
4,866
36,796
7,843
The senior secured loan represents amounts borrowed under a facility agreement with Barclays and Nationwide. The loan bears interest at a margin over SONIA of 2.5% during the construction phase, 2.4% to tenth anniversary, 2.55% from tenth to twentieth and 2.65% from twentieth to the final repayment date and is repayable in instalments between 2011 and 2035. The loan is secured by fixed and floating charges over the undertaking, property, assets and rights of the Company, and has certain covenants attached.
In order to hedge against interest variations on the loan, the Company has entered into an interest rate swap agreement with a bank whereby at bi-annual sums are exchanged reflecting the difference between floating and fixed interest rates, calculated on a predetermined notional principal amount.
The subordinated loan payable bears interest at a fixed rate of 13% and is repayable in instalments between 2011 and 2036.
8
Creditors: amounts falling due after more than one year
2023
2022
£'000
£'000
Bank loans
30,723
Subordinated loans
5,152
5,233
Interest rate swap
255
92
5,407
36,048
ENVIRONMENTS FOR LEARNING SANDWELL PFI ONE LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2023
8
Creditors: amounts falling due after more than one year
(Continued)
- 18 -
Creditors which fall due after five years are as follows:
2023
2022
£'000
£'000
Payable by instalments
4,805
27,056
9
Related party transactions
The Company has taken advantage of exemption, under the small companies regime, not to disclose related party transactions that have been concluded under normal market conditions.
10
Ultimate parent company
The Company is wholly owned by Environments for Learning Sandwell PFI Holdco One Limited, a company which is registered in England and having the same registered office as the Company. In the opinion of the Directors, there is no ultimate controlling party.
The smallest and largest group in which the Company’s results are consolidated is Environments for Learning Limited, a company registered in England. Copies of the consolidated accounts are available from Companies House.
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