The directors present their audited annual report and the financial statements of Ravensbourne Health Services Limited ("the Company") for the year ended 31 March 2024.
The results for the year are set out on page 9.
The profit for the financial year, after taxation, amounted to £1,741,986 (2023: £1,322,479).
The directors are satisfied with the overall performance of the Company and do not foresee any significant change in the Company's activities in the coming financial year.
Ordinary dividends were paid amounting to £2,044,000 (2023: £nil). The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of approval of the financial statements were as follows:
Due to the nature of the Company's business, the financial risks the directors consider relevant to this Company is credit, interest rate, cash flow and liquidity risk. The credit risk is not considered significant as the client is a quasi governmental organisation.
Many of the cash flow risks are addressed by means of contractual provisions. The Company's liquidity risk is principally managed through the Company by means of long term borrowings.
The financial risk management objectives of the Company are to ensure that financial risks are mitigated by the use of financial instruments. The Company uses interest rate swaps to reduce its exposure to interest rate movements. Financial instruments are not used for speculative purposes.
The Company has considered whether it is exposed to additional risks as a result of climate change and has not identified any risks that would significantly impact the Company. This is primarily due to nature of the operations of the project, where the majority of work is performed by sub-contractors who are responsible for the associated risks. Whilst, the Company is subject to SPV costs through the provision and maintenance of facilities including, for instance, heating systems, the Company's contractual protections are expected to protect the Company from changes in law that result in any longer term pricing risk associated with climate change.
Lifecycle risk
The Company's lifecycle risk is held by the SPV. In order to ensure costs are recorded in the year in which they are incurred, routine monitoring is carried out on lifecycle costs, this compares actual spend to a pre-approved plan.
The Company will continue to provide support to the Health Trust in its operation of the hospital under the PFI scheme.
The auditors, Johnston Carmichael LLP, are deemed to be reappointed under section 487(2) of the Companies Act 2006.
The performance of the Company from a cash perspective is assessed six monthly by the testing of the covenants of the senior debt provider. The key indicator being the debt service cover ratio. The Company has been performing well and has been compliant with the covenants laid out in the loan agreement.
Climate change
The directors recognise that it is important to disclose their view of the impact of climate change on the Company. The Company's key operational contracts are long-term and with a small number of known counterparties. In most cases, the cashflows from these contracts can be predicted with reasonable certainty for at least the medium-term. Having considered the Company's operations, its contracted rights and obligations and forecast cash flows, there is not expected to be a significant impact upon the Company's operational or financial performance arising from climate change.
Latent defects were identified prior to the expiration period of the guarantee for repairing latent defects of 2 November 2018. As the Constructing Party to the contract, Carillion JM Limited ("CJML") and its Performance Guarantor, Carillion PLC ("Carillion") had entered into compulsory liquidation in January 2018, the project became liable for these repairs.
A programme of works was identified and a plan put in place to ensure these were completed within agreed timescales. A provision was included within the financial statements at 31 March 2018 for £1,763,000, representing the best estimate of the costs of the programme of works to rectify the defects. The main body of works were completed during the year and the provision was fully spent in the year to 31 March 2021.
Prior to 31 March 2021 it was identified that further work would be required as a result of a failure within the programme of works previously performed and work has continued during the years ended 31 March 2022, 31 March 2023 and 31 March 2024 to identify a programme of works to rectify these failures.
A provision of £274,039 (2023: £42,525) has been recognised based on known and estimated costs that have been incurred since the year end and up to the date of signing. See note 14 for further detail.
Going concern
These financial statements have been prepared on the going concern basis for the reasons set out in the Accounting Policies.
This report has been prepared in accordance with the special provisions applicable to small companies within Part 15 of the Companies Act 2006. Exemption has also been taken from the requirement to prepare a Strategic Report.
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 prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", 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 the financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
state whether applicable United Kingdom Accounting Standards, comprising FRS102 have been followed, subject to any material departures disclosed and explained in the financial statements;
make judgements and accounting estimates that are reasonable and prudent; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
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.
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.
The financial statements were approved and signed by the director and authorised for issue on 29 July 2024
William Morris
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 Directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the Directors' report has 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 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 is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors' report.
Extent to which 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.
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 the company and the sector in which it operates, focusing on those 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:
United Kingdom Generally Accepted Accounting Practice, including FRS 102;
UK Companies Act 2006;
Corporation Tax legislation; and
VAT legislation.
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 our review of relevant correspondence with regulatory bodies and 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. In areas of the financial statements where the risks were considered to be higher, we performed procedures to address each identified risk. We identified a heightened fraud risk in relation to:
Management override of controls
Revenue recognition
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 using the method and assumptions set out in the Project Agreement;
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 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.
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 would become aware of it.
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 member those matters we are required to state to the member 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 member, for our audit work, for this report, or for the opinions we have formed.
This income statement has been prepared on the basis that all operations are continuing operations.
The notes on pages 12 to 25 form part of these financial statements.
The notes on pages 12 to 25 form part of these financial statements.
The notes on pages 12 to 25 form part of these financial statements.
Ravensbourne Health Services Limited ("the Company") is a private company limited by shares incorporated in the United Kingdom and is registered in England and Wales. The registered office is located at Cannon Place, 78 Cannon Street, London, EC4N 6AF.
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 £.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues: Interest income/expense and net gains/losses for financial instruments not measured at fair value; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;
Section 33 ‘Related Party Disclosures’: Not to disclose transactions with wholly owned members of a group.
The financial statements of the company are consolidated in the financial statements of Ravensbourne Health Services (Holdings) Limited. These consolidated financial statements are available from its registered office Cannon Place, 78 Cannon Street, London, EC4N 6AF.
The financial statements are prepared on a going concern basis which the directors believe to be appropriate for the following reasons;
The Company had net liabilities of £10,834,347 as at 31 March 2024 (2023: £11,631,995) and generated a profit for the year then ended of £1,741,986 (2023: £1,322,479). This is primarily a result of the Interest rate and RPI swaps, which are significantly out of the money, creating a large liability in the Statement of Financial Position. It is not the intention to close out these instruments before their maturity date, therefore there is no impact on the Company's ability to meet its liabilities as they fall due.
The Directors have prepared cash flow forecasts covering a period of at least 12 months from the date of approval of these financial statements which indicate that the Company will have sufficient funds to meet its liabilities as they fall due for that period and to operate within the covenants on its borrowings.
The Company was able to meet the financial covenants as at 31 March 2024 and 31 March 2023, and is forecast to meet them for the foreseeable future.
Taking into account reasonable possible risks in operations to the Company, the fact the obligations of the Company's sole customer are underwritten by the Secretary of State for Health, the Directors have a reasonable expectation that the Company will be able to settle its liabilities as they fall due in the foreseeable future. It is therefore appropriate to prepare these financial statements on the going concern basis.
Basic financial assets, which include debtors, cash and bank balances, are initially measured at transaction price including transaction costs and debtors 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.
Other financial instruments are subsequently measured at fair value, with any changes recognised in the Statement of Comprehensive Income, with the exception of hedging instruments in a designated hedging relationship.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
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.
Basic financial liabilities, including Creditors, bank loans, loans from fellow group 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.
Derivatives, including interest rate swaps and forward foreign exchange contracts, 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 at each reporting date. The fair values of the derivatives have been calculated by discounting the fixed cash flows at forecasted forward interest rates over the term of the financial instrument. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
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.
The Company has entered into an arrangement with third parties that is designed to hedge future cash flows arising on variable rate interest loan arrangements, with the net effect of exchanging the cash flows arising under those arrangements for a stream of fixed interest cash flows ("interest rate swaps").
The Company has also entered into an arrangement with third parties that is designed to hedge future cash receipts arising from its principal activity ("RPI swaps"). The Company has designated that this arrangement is a hedge of another (non-derivative) financial instrument, to mitigate the impact of potential volatility on the Company's net cash flows.
To qualify for hedge accounting, documentation is prepared specifying the hedging strategy, the component transactions and methodology used for effectiveness measurement. Changes in the carrying value of financial instruments that are designated and effective as hedges of future cash flows ("cash flow hedges") are recognised directly in a hedging reserve in equity and any ineffective portion is recognised immediately in the Statement of Comprehensive Income. Amounts deferred in equity in respect of cash flow hedges are subsequently recognised in the Statement of Comprehensive Income in the same period in which the hedged item affects net profit or loss or the hedging relationship is terminated and the underlying position being hedged has been extinguished.
Borrowings
Borrowings are recognised at amortised cost using the effective interest rate method. Under the effective interest rate method, any transaction fees, costs, discounts and premiums directly related to the borrowings are recognised in the Statement of Comprehensive Income over the life of the borrowings. Borrowings with maturities greater than twelve months after the reporting date are classified as non-current liabilities.
Service concession arrangements
The Agreement is for a term of 30 years and was entered into with Lewisham & Greenwich NHS Trust (the "Authority") to construct, operate and maintain the facilities at the University Hospital, Lewisham. At 31 March 2024 it is in year 18 of the project term.
Operation and maintenance of the facilities are outsourced to a third party (the "Sub-contractor") under contractual arrangements that provide certainty over the level of costs to be incurred by the Company. However, the maintenance risk ultimately lies with the Company. The timing and extent of the major maintenance works is a key assumption that will affect the cashflows of the company, further information is shown in note 2. The sub-contractor for the Company is Bouygues Energies & Services FM UK Ltd. The base fee per the sub-contractor contract is fixed and allows for an inflationary increase each year.
The unitary charge per the agreement with the Authority is a fixed base fee and allows for an inflationary increase each year.
Under the Agreement, when the actual insurance premiums paid fall under certain thresholds compared to the cost assumptions used during financial close, a saving is realised. The Authority is entitled to a share of those savings, as required under SOPC 4 requirements.
The Authority is also entitled under the Agreement to voluntarily terminate the contract by providing a six months' written notice to the Company. On termination, the Company is entitled to a termination compensation as defined within the Agreement.
The Company entered into swap agreements with the sole purpose to hedge against the risk of changing interest rates and RPI rates. The purpose of the interest rate hedge is to generate highly certain cash inflows so that the Company can meet its obligations under the terms of its borrowing arrangements. The purpose of the RPI hedge is to limit the cash flow variability to the Company due to changes in inflation. Further information can be found at note 16 (Financial Instruments).
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 assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows:
The carrying value of those assets recorded in the Company's Statement of Financial Position, at amortised cost less any impairment losses, could be materially reduced where circumstances exist which might indicate that an asset has been impaired and an impairment review is performed. Impairment reviews consider the fair value and/or value in use of the potentially impaired asset or assets and compare that with the carrying value of the asset or assets in the Statement of Financial Position. Any reduction in value arising from such a review would be recorded in the Statement of Comprehensive Income. Impairment reviews involve the significant use of assumptions. Consideration has to be given as to the price that could be obtained for the asset or assets, or in relation to a consideration of value in use, estimates of the future cash flows that could be generated by the potentially impaired asset or assets, together with a consideration of an appropriate discount rate to apply to those cash flows.
The Company uses derivative financial instruments to hedge certain economic exposures in relation to movements in interest rates and movements in RPI as compared with the position that was expected at the date the underlying transaction being hedged was entered into. The Company fair values its derivative financial instruments and records the fair value of those instruments on its Statement of Financial Position. No market prices are available for these instruments and consequently the fair values are derived using financial models developed by shareholders based on counterparty information that is independent of the Company, but use observable market data in respect of RPI and interest rates as an input to valuing those derivative financial instruments. There is also a judgment on whether an economic hedge relationship exists in order to achieve hedge accounting. Appropriate documentation has been prepared detailing the economic relationship between the hedging instrument and the underlying loan being hedged.
Accounting for the service concession contract and finance debtor requires an estimation of service margins, finance debtor interest rates and associated amortisation profile which is based on forecasted results of the service concession contract. Lifecycle costs are a significant proportion of future expenditure. Given the length of the Company's service concession contract, the forecast of lifecycle costs is subject to significant estimation uncertainty and changes in the amount and timing of of expenditure could have material impacts. As a result, there is significant level of judgment applied in estimating future lifecycle costs. To reduce the risk of misstatement, future estimates of lifecycle expenditure are prepared by maintenance experts on an asset by asset basis and periodic technical evaluations of the physical condition of the facilities are undertaken. In addition, comparisons of actual expenditure are compared to the lifecycle forecast. If total forecast lifecycle costs were to to increase or decrease by 1%, this would not result in a material decrease or increase on profit in the current year.
The whole of the turnover is attributable to the principal activity of the Company wholly undertaken in the United Kingdom.
Audit fees payable to Johnston Carmichael LLP.
The average number of persons employed by the Company during the financial year, including the directors, amounted to nil (2023: nil). The directors did not receive any remuneration from the Company during the year (2023: £nil).
During the year the Company was invoiced £121,551 (2023: £106,778) by Infrastructure Investments General Partner Limited, a related entity, for qualifying services by three directors. £60,775 (2023: £53,389) was outstanding at the year end.
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
There is a deferred tax asset relating to the interest rate derivative, calculated at 25%, which will unwind over the term of the hedging arrangement. All movements in this deferred tax asset have been recognised in other comprehensive income.
Dividends paid during the year (excluding those for which a liability existed at the end of the prior year).
The bank loans are stated net of debt issue costs of £26,341 (2023: £33,675).
The amounts owed to Group undertakings relates to accrued interest on loan notes of £226,923 (2023: £225,315) less £22 (2023: £22) due from the parent company, Ravensbourne Health Services (Holdings) Limited, in relation to historic bank transactions. The balance is unsecured, bears no interest and is repayable on demand.
Included within Accruals and deferred income is a balance of £60,775 (2023: £53,389) relating to fees payable to the shareholders for the provision of directors' services.
The bank loans and other borrowings (amounts owed to group undertakings) are stated net of debt issue costs of £554,085 (2023: £556,919).
The bank loan bears interest at SONIA plus 0.85% per annum. The loan is repaid in six-monthly instalments commencing September 2007 until March 2035. The Company has completed negotiations with lender, effective from 24 March 2022, to replace the LIBOR reference in the loan and swap agreements with SONIA, adjusted for a historic credit adjustment of 0.2766% per annum.
The Company's secured creditors have the benefit of first ranking charges granted by the Company over the whole of its investments, undertaking, property, assets, insurances and rights under certain contracts, both present and future, together with a first ranking charge over all of the ordinary shares of the Company and the Company's subordinated loan stock and those of its holding Company, Ravensbourne Health Services (Holdings) Limited.
Amounts owed to Group undertakings include Unsecured Loan Notes issued on 7 July 2004 between the Company and Ravensbourne Health Services (Holdings) Limited. These Loan Notes total £7,500,000 on issue and are unsecured. Interest is payable on the Loan Notes at 10% per annum and this loan falls due for repayment in the full in 2035.
Under the terms of the Equity Subscription Agreement dated 7 July 2004, the shareholders of the holding company subscribed for the Loan Notes of Ravensbourne Health Services (Holdings) Limited of £7,500,000 on the due date of January 2007. Ravensbourne Health Services (Holdings) Limited has in turn subscribed for the Loan Notes of the company. The proceeds of the Loan Note issues are being used by the Company to finance its obligations under its Project Agreement with Lewisham & Greenwich NHS Trust.
During the year to 31 March 2018, a number of latent defects were identified with the original construction. As the Construction Party to the contract, CJML and its Performance Guarantor, Carillion, had entered into compulsory liquidation in January 2018, the project became liable for these repairs.
A programme of works was identified and the main body of these works were completed in the year ending 31 March 2021. Prior to 31 March 2021 it was identified that further work would be required as a result of a failure within the programme of works previously performed and work to rectify these failures has continued during the year ended 31 March 2022 and 31 March 2023.
As at 31 March 2023 a provision was recognised based on known and estimated costs that were incurred since the year end and up to the date of signing. Defect works were completed ahead of signing and it was believed that while there may be additional future costs, the provision was materially correct.
In November 2023 it was discovered that the remediation works had failed and a further programme of works is being implemented.
As at 31 March 2024 the works to rectify the issues are still ongoing and are expected to continue until September 2024. A provision has been recognised based on known and estimated costs that have been incurred since the year end and up to the date of signing.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
The deferred tax asset expected to reverse in 2025 is £37,541. This primarily relates to the reversal of timing differences on capital allowances and short term timing differences.
Derivatives are financial instruments that derive their value from the price of an underlying item, such as interest rates or other indices. The Company's use of derivative financial instruments is described below.
Interest rate swaps
On 7 July 2004 the Company entered into two interest rate swaps with third parties for the notional amount of the Company's variable rate borrowings with banks which has the commercial effect of swapping the variable rate interest coupon on those loans for a fixed rate coupon of 5.37%. The bank loans and related interest rate swaps amortise at the same rate over the life of the loan/swap arrangements. Cash flows on both the loan and the interest rate swaps are paid semi-annually on 31 March and 30 September each year and expire on 31 October 2034.
The directors believe that the hedging relationship between the interest rate swaps and related variable rate bank loans meet the criteria set out in FRS 102 section 12.18 and as a consequence have concluded that these derivatives meet the definition of a cash flow hedge and have formally designated them as such.
RPI swaps
On 7 July 2004 the Company also entered into two arrangements with third parties for the purpose of exchanging the vast majority of variable cash inflows arising from the operation of the Company's service concession asset in exchange for a pre-determined stream of cash inflows from these third parties. These arrangements meet the definition to be classified as derivative financial instruments.
Under the terms of the project agreements, the Company is permitted to charge its principal customer, The Lewisham and Greenwich NHS Trust, an agreed amount for the services it provides. This amount is uplifted each year commencing 1 April using the current RPI for February against the base date RPI. These derivative arrangements (RPI swaps) have the effect of exchanging variable cash inflows (impacted by changes in RPI) in exchange for a known and predetermined stream of cash flows expected to arise over the same period. Cash flows on the revenue is received on a monthly basis whilst cash flows on the RPI swaps are paid on a semiannual basis on 31 March and 30 September each year and expire on 2 November 2036.
The directors believe that the use of these RPI swaps is consistent with the Company's risk management objective and strategy for undertaking these hedges. The vast majority of the Company's cash outflows relate to borrowings (after interest rate swaps - see above) that carry a fixed coupon so that both the principal repayments, and coupon payments (after interest rate swaps - see above) are predetermined. The purpose of these hedges is to generate highly certain cash inflows so that the Company can meet its obligations under the terms of its borrowing arrangements.
The directors believe that the hedging relationship meet the criteria set out in FRS 102 section 12.18 and that the forecast cash inflows are highly probable and as a consequence have concluded that the RPI swap derivatives meet the definition of a cash flow hedge and have formally designated them as such.
Carrying value of all derivative financial instruments
All of the Company's derivative financial instruments are carried at fair value. The net carrying value of all derivative financial instruments at 31 March 2024 amounted to net liabilities of £15,656,942 (2023: £17,123,158) comprising liabilities of £12,230,346 for RPI swaps (2023: £12,788,474) and liabilities of £3,426,596 for interest rate swaps (2023: £4,334,684). The effective portion of the movements in the fair value of these derivative financial instruments has been recorded in the cash flow hedge reserve amounting to a debit of £1,466,216 (2023: £7,196,179). There is no ineffective portion.
The company is wholly owned by Ravensbourne Health Services (Holdings) Limited and has taken advantage of the exemption in section 33 of FRS 102 'Related Party Disclosures', that allows it not to disclose transactions with wholly owned members of a group.
Details of balances outstanding with wholly owned members of the group at the year end can be found in notes 11, 12 and 13. Details of fees payable to the shareholders for the provision of directors' services during the year can be found in note 5.
The immediate parent undertaking is Ravensbourne Health Services (Holdings) Limited, which is also the smallest and largest group in which the Company's results are consolidated. The accounts of Ravensbourne Health Services (Holdings) Limited registered at Cannon Place, 78 Cannon Street, London, EC4N 6AF can be obtained from the Registrar of Companies.
The ultimate parent and controlling entity is undertaking is HICL Infrastructure Plc, a company listed on the London Stock Exchange and registered at One Bartholomew Close, Barts Square, London, England, EC1A 7BL.