The directors present their report and the audited annual report and the financial statements of Ravensbourne Health Services (Holdings) Limited ("the Company") for the year ended 31 March 2024.
The results for the year are set out on page 9.
The group's 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 Group and do not foresee any significant change in the Group'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 signature of the financial statements were as follows:
Due to the nature of the Group's business, the financial risks the directors consider relevant to this Group 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 Group's liquidity risk is principally managed through financing the Group by means of long term borrowings.
The financial risk management objectives of the Group are to ensure that financial risks are mitigated by the use of financial instruments. The Group uses interest rate swaps to reduce its exposure to interest rate movements. Financial instruments are not used for speculative purposes.
The Group 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 Group is subject to SPV costs through the provision and maintenance of facilities including, for instance, heating systems, the Group's contractual protections are expected to protect the Group from changes in law that result in any longer term pricing risk associated with climate change.
Lifecycle risk
The Project'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 Group 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 Group 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 Group has been performing well and has been compliant, and is forecast to remain compliant with the covenants laid out in the Group loan agreement.
Climate change
The directors recognise that it is important to disclose their view of the impact of climate change on the company. As a holding company, the Company itself does not trade. Through the subsidiary, the Group holds key operational contracts which are long-term and with a small number of known counterparties. In most cases, the cash flows from these contracts can be predicted with reasonable certainty for at least the medium-term. Having considered the Company's and the Group's operations, their contracted rights and obligations and forecast cash flows, there is not expected to be a significant impact upon the Company's or the Group's operational or financial performance arising from climate change.
Latent defects
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 16 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 consolidated 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 or 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 group or parent 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
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.
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.
In the light of the knowledge and understanding of the group and parent company and their 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 by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit; or
the directors were not entitled to prepare the financial statements in accordance with the small companies regime and take advantage of the small companies' exemption in preparing the directors' report and from the requirement to prepare a strategic report.
As explained more fully in the Directors’ responsibilities statement set out on page 4, 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 group’s and parent 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 group or parent 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 group and the parent company and the sector in which they operate, 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 group’s and parent company’s 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 group’s and parent 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 group’s and parent 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 parent 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 parent company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the parent company and the parent company’s members as a body, 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 15 to 31 form part of these financial statements.
The notes on pages 15 to 31 form part of these financial statements.
The notes on pages 15 to 31 form part of these financial statements.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s profit for the year was £2,044,000 (2023: £nil).
Included in the fair value movement on cash flow hedging instrument is £45,081 (2023: £1,405,116) that was recycled through interest payable in the Statement of Comprehensive Income.
The notes on pages 15 to 31 form part of these financial statements.
The notes on pages 15 to 31 form part of these financial statements.
The notes on pages 15 to 31 form part of these financial statements.
Ravensbourne Health Services (Holdings) Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Cannon Place, 78 Cannon Street, London, EC4N 6AF.
The Group consists of Ravensbourne Health Services (Holdings) Limited and all of its subsidiaries.
The principal activity of the Company during the year is that of a holding company for the investment in its subsidiary undertaking Ravensbourne Health Services Limited. The principal activity of Ravensbourne Health Services Limited during the year was that of a Private Finance Initiative (PFI) Concessionaire for the Ravensbourne Health Services Hospital Project, under the terms of a Project Agreement. The Agreement is for a term of 30 years and was entered into with Lewisham & Greenwich NHS Trust (the authority), providing additional facilities at the University Hospital, Lewisham.
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.
The financial statements are prepared in sterling, which is the functional currency of the company and the group. Monetary amounts in these financial statements are rounded to the nearest £.
These financial statements are prepared on a going concern basis, under the historical cost convention, except that the following assets and liabilities are stated at their fair value: derivative financial instruments.
The principal accounting policies adopted are set out below and have been consistently applied to the years presented, unless otherwise stated.
The Company has taken advantage of the following exemptions:
from preparing a statement of cash flows, on the basis that it is a qualifying entity and the consolidated statement of cash flows, included in these financial statements, includes the Company's cash flows.
including disclosures in respect of financial instruments, on the basis that it is a qualifying entity and the consolidated financial instruments disclosures, included in these financial statements, includes the Company's financial instrument disclosure.
The consolidated financial statements include the Company and all its subsidiary undertakings. Where subsidiary undertakings are acquired during the period their results are included in the consolidated financial statements from the date of acquisition up to the date of the financial period end.
The parent company has applied the exemption contained in section 408 of the Companies Act 2006 and has not included its individual Statement of Comprehensive Income.
At the time of approving the financial statements, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.
The financial statements are prepared on a going concern basis which the directors believe to be appropriate for the following reasons;
The Group had net liabilities of £10,833,347 as at 31 March 2024 (2023: £11,630,995) 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 Consolidated 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 Group'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 Group 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 Group 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 Group, the fact the obligations of the Group's sole customer are underwritten by the Secretary of State for Health, the Directors have a reasonable expectation that the Group 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.
Turnover represents the services' share of the management services income received by the Group for the provision of a PFI (Private Finance Initiative) asset to the customer. This income is received over the life of the concession period. Management service income is allocated between turnover, finance debtor interest and reimbursement of the finance debtor so as to generate a constant rate of return in respect of the finance debtor over the life of the contract.
Interests in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses. The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in or .
A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
The group 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 group's statement of financial position when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and 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, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
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, 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. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group 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 group after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, 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. 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 group's contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the group 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 group.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement 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 group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
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 income statement, 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 if, and only if, there is 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.
The Group is an operator of a PFI contract. The Group entered into its service concession arrangement before the date of transition to this FRS. Therefore its service concession arrangements have continued to be accounted for using the same accounting policies being applied at the date of transition to this FRS. The underlying asset is not deemed to be an asset of the Group under old UK GAAP, because the risks and rewards of ownership as set out in that Standard are deemed to lie principally with the Authority.
During the construction phase of the project, all attributable expenditure was included in amounts recoverable on contracts and turnover. Upon becoming operational, the costs were transferred to the finance debtor. During the operational phase income is allocated between interest receivable and the finance debtor using a project specific interest rate. The remainder of the PFI unitary charge income is included within turnover in accordance with FRS102 section 23. The Group recognises income in respect of the services provided as it fulfils its contractual obligations in respect of those services and in line with the fair value of the consideration receivable in respect of those services.
Major maintenance costs are recognised on a contractual basis and the revenue in respect of these services is recognised when these services are performed.
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 18 (Financial Instruments).
Hedge accounting
The Group 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 Group 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 Group has designated that this arrangement is a hedge of another (non-derivative) financial instrument, to mitigate the impact of potential volatility on the Groups'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.
In the application of the group’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 Group'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 Group 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 Group 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 Group, 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 Group'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 group 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 Group 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).
Details of the company's subsidiaries at 31 March 2024 are as follows:
The directors acknowledge the investment is in net liabilities, the cause of this is due to the derivative financial instruments being significantly out of the money. The directors have reviewed the investments forecasts and projections and have reasonable expectation that no impairment indicators exist and the investment will continue in operation existence for the foreseeable future.
The amounts owed by group undertakings within one year relates to accrued interest on loan notes of £226,923 (2023: £225,315) less £22 due to the subsidiary, Ravensbourne Health Services Limited, in relation to historic bank transactions. The balance is non interest bearing and repayable on demand.
The amounts owed by group undertakings greater than one year represent Unsecured Loan Notes which bear interest at 10% and fall for repayment in 2034.
Group and Company
The amounts owed to group undertakings relates to accrued interest on loan notes of £226,923 (2023: £225,315). 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 director's services.
The bank loans are stated net of debt issue costs of £26,341 (2023: £33,675).
Group and Company
The bank loans and other borrowings (amounts owed to group undertakings) are stated net of debt issue costs of £554,085 (2023: £556,919).
Group
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 Group 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 Group's secured creditors have the benefit of first ranking charges granted by the Group 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 Group and the Group's subordinated loan stock.
Amounts owed to Group undertakings include Unsecured Loan Notes issued on 7 July 2004, 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 full in 2035.
Company
On 7 July 2004 the Company and Ravensbourne Health Services Limited created £7,500,000 unsecured Loan Notes 2034, constituted under Deed Polls entered into on the same date. Under the terms of an Equity Subscription Agreement dated 7 July 2004, the company's shareholders have subscribed for Loan Stock of Ravensbourne Health Services (Holdings) Limited of £7,500,000. Ravensbourne Health Services (Holdings) Limited has in turn subscribed for £7,500,000 Loan Stock of Ravensbourne Health Services Limited. The proceeds of the stock issue are being used by the group to finance its obligations under its Project Agreement with the Lewisham & Greenwich NHS Trust.
Interest is payable on the Loan Notes at 10% per annum. The principal falls due for payment in 2035.
The Company does not have any provisions.
Group
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 years 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 up and 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 group and company, and movements thereon:
The deferred tax asset expected to reverse in 2024 is £37,541. This primarily relates to the reversal of timing differences on capital allowances and short term timing differences.
Hedge accounting
Derivatives are financial instruments that derive their value from the price of an underlying item, such as interest rates or other indices. The Group's use of derivative financial instruments is described below.
Interest rate swaps
On 7 July 2004 the Group entered into two interest rate swaps with third parties for the notional amount as all of the Group'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 semiannually 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 Group 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 Group'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 Group 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 Group's risk management objective and strategy for undertaking these hedges. The vast majority of the Group'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 Group'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 have been recorded in the cash flow hedge reserve amounting to a debit of £1,466,216 (2023: debit of £7,196,179). There is no ineffective portion.
Company
The Company is wholly owned by Infrastructure Investments (Portal) Limited Partnership and Infrastructure Investments (Portal) 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 13, 14 and 15. Details of fees payable to the shareholders for the provision of directors' services during the year can be found in note 5.
The Company is jointly owned by Infrastructure Investments (Portal) Limited Partnership and Infrastructure Investments (Portal) Limited, both registered at One Bartholomew Close, Barts Square, London, England, EC1A 7BL.
The ultimate parent undertaking is HICL Infrastructure Plc, a company listed on the London Stock Exchange and registered at One Barthololew Close, Barts Square, London, England, EC1A 7BL.