Company registration number 05986479 (England and Wales)
FORTH HEALTH LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
FORTH HEALTH LIMITED
COMPANY INFORMATION
Directors
JS Gordon
K O'Brien
M Templeton
Secretary
Resolis Limited
Company number
05986479
Registered office
1 Park Row
Leeds
United Kingdom
LS1 5AB
Auditor
Johnston Carmichael LLP
Bishop's Court
29 Albyn Place
Aberdeen
AB10 1YL
FORTH HEALTH LIMITED
CONTENTS
Page
Strategic report
1 - 2
Directors' report
3 - 4
Directors' responsibilities statement
5
Independent auditors' report
6 - 9
Statement of comprehensive income
10
Balance sheet
11
Statement of changes in equity
12
Notes to the financial statements
13 - 25
FORTH HEALTH LIMITED
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2023
- 1 -

The directors present the strategic report for the year ended 31 December 2023.

Business Review

Forth Health Limited achieved Financial Close with NHS Forth Valley to design, build, finance and operate "The New Acute Hospital for Forth Valley" on 15 May 2007. Forth Health Holdings Limited, which wholly owns Forth Health Limited, is wholly owned by Palio (No 11) Limited. The Funders to the project are a syndicate of five corporate lenders and European Investment Bank (EIB).

 

The Company's profit after taxation for the year is £1,744,000 (2022: £860,000) and the net liabilities of the Company are £77,875,000 (2022: £76,852,000). The hospital operated in line with expectations during the year. The Directors do not consider there to be any associated risk to future performance of the Company.

 

The hospital is fully operational and running with no major issues to report.

Principal risks and uncertainties

The Company's activities expose it to a number of financial risks including liquidity risk, interest rate risk, credit risk and lifecycle risk. These risks are further explained in the Directors' Report.

 

The concession relies on complex contractual arrangements. There is a risk that the contracts do not operate as intended or are subject to interpretation contrary to our expectations and therefore do not underpin the cashflows of the Company as expected.

Development and performance

The Directors are not aware, at the date of this report, of any major changes in the Company's activities in the next year.

Key performance indicators

The key performance indicator for the Company is the level of performance and unavailability deductions levied by the client, since this reflects the quality of the service being provided. During the period, the Company suffered nominal deductions.

 

Financial performance indicators for the company are compliance with its debt covenants set out in the Facilities Agreement with the Lender. These were compliant during 2023 and the latest financial forecast indicates that there are no anticipated future breaches.

FORTH HEALTH LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 2 -
Statement in respect of Section 172(1) of the Companies Act 2006

The board of directors of the company, both individually and collectively, consider they have acted appropriately and in such a way as to promote the long-term success of the company for the benefit of its members.

 

The company has no direct employees as the company is managed under a Managed Service Agreement. The board of Directors is satisfied that those people employed under the MSA are appropriately qualified and have the support systems in place to carry out their role. The directors are engaged with each team under the MSA to ensure the ongoing management of the underlying contracts of the company and they work collaboratively with the teams to achieve success.

 

The company is a special purpose company which has a finite lifespan with a defined set of obligations under Concession Agreements. The company delivers its objectives through effective relationships with its stakeholders including suppliers and customers. This is affected by regular reporting and reviews with suppliers and customers to ensure delivery of the company's objectives, whilst considering those stakeholders' needs. The directors of the company meet regularly to review strategies for effective risk mitigation and service delivery in the context of its impact on all stakeholder interests, including shareholders, suppliers, customers and the wider community.

 

Due to the nature of the company's operations, their impact on the community and environment is of paramount importance to the company's success. Operating safely is the company's primary objective and is as such integrated in everything the company undertakes. A safe environment is managed through effective leadership, implementation of robust policies, procedures and instructions, safety management review processes both internally and externally with relevant stakeholders, reporting, audit and monitoring.

 

The company delivers contracts to support essential services to the public sector and takes its responsibility for ensuring that an appropriate environment is managed and maintained extremely seriously, ensuring the highest quality service is delivered from the assets under the company's management.

 

The company uses less than 40,000 kWh of energy in a year and on that basis it is exempt from making the detailed energy and carbon reporting disclosures.

On behalf of the board

K O'Brien
Director
1 July 2024
FORTH HEALTH LIMITED
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 2023
- 3 -

The directors present their annual report and financial statements for the year ended 31 December 2023.

Principal activities

The Company is principally engaged with the performance of a PFI contract with NHS Forth Valley for the design, build and operation of the Forth Valley Royal Hospital.

 

There have not been any significant changes in the Company's principal activities in the year under review.

 

Results and dividends

The results for the year are set out on page 10.

The total distribution of dividends for the year ended 31 December 2023 were £1,698,000 (2022: £nil).

Directors

The directors who held office during the year and up to the date of signature of the financial statements were as follows:

JS Gordon
K O'Brien
M Templeton

Going concern

The latest financial model forecasts estimated future costs and demonstrates that the company can continue to meet its debts as they fall due. In the prior year, a technical breach of the funding arrangements occurred which resulted in the lenders having the right to call for the immediate repayment of outstanding loan amounts. A waiver of this breach was signed by the lenders in 2023 and the matter is now resolved.

The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis in preparing the annual financial statements. Further details regarding the adoption of the going concern basis can be found in accounting policy note 1.2 in the notes to the financial statements.

Financial risk management objectives and policies

Liquidity Risk

The Company manages its cash and borrowing requirements in order to maximise interest income and minimise interest expense, whilst ensuring the Company has sufficient liquid resources to meet the operating needs of the business. At the start of the PFI contract, the Company negotiated debt facilities with an external party to ensure that the Company has sufficient funds over the life of the PFI concession.

Credit Risk

The Company’s principal financial assets are cash, financial assets and trade and other receivables. The Company’s credit risk is primarily attributable to its trade receivables which are with one counterparty, although in the opinion of the board of directors this risk is limited as the receivables are with a local government authority.

Interest Rate Risk

The Company’s borrowings expose it to cash flow risk primarily due to the financial risks of changes in interest rates. The Company uses interest rate swaps to manage the risk and reduce its exposure to changes in interest rates.

FORTH HEALTH LIMITED
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 4 -

Lifecycle Risk

Lifecycle expenditure is the main risk to the business. The risk being that the allowance for lifecycle costs factored into the financial model is insufficient to cover future lifecycle expenditure, thus resulting in lower profitability and reduced distributions. This is mitigated by regular lifecycle reviews undertaken by the management services provider and a detailed lifecycle review performed every five years. The Company is also exposed to inflation risk in respect of lifecycle costs. The Company's income is linked to the Retail Price Index (RPI) therefore this risk is materially hedged other than the timing of actual lifecycle spend and differences between construction cost inflation and RPI.

Future developments

The Directors are not aware, at the date of this report, of any major changes in the Company's activities in the next year.

Qualifying third party indemnity provisions

The company has made qualifying third party indemnity provisions for the benefit of its directors during the year. These provisions remain in force at the reporting date.

Auditor

Pursuant to Section 487 of the Companies Act 2006, the auditors will be deemed to be reappointed and Johnston Carmichael LLP will therefore continue in office.

Statement of disclosure to auditor

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the company’s auditor is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the company’s auditor is aware of that information.

On behalf of the board
K O'Brien
Director
1 July 2024
FORTH HEALTH LIMITED
DIRECTORS' RESPONSIBILITIES STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2023
- 5 -

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

 

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

 

 

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

FORTH HEALTH LIMITED
INDEPENDENT AUDITORS' REPORT
TO THE MEMBERS OF FORTH HEALTH LIMITED
- 6 -
Opinion

We have audited the financial statements of Forth Health Limited (‘the company’) for the year ended 31 December 2023, which comprise the Statement of Comprehensive Income, Balance sheet, Statement of Changes in Equity, and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

In our opinion the financial statements:

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

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 auditor’s 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 the audit:

FORTH HEALTH LIMITED
INDEPENDENT AUDITORS' REPORT (CONTINUED)
TO THE MEMBERS OF FORTH HEALTH LIMITED
- 7 -
Matters on which we are required to report by exception

In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or 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:

Responsibilities of directors

As explained more fully in the Directors’ responsibilities statement set out on page 5, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditors' responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

 

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Extent the audit was considered capable of detecting irregularities, including fraud

 

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

We assessed whether the engagement team collectively had the appropriate competence and capabilities to identify or recognise non-compliance with laws and regulations by considering their experience, past performance and support available.

 

All engagement team members were briefed on relevant identified laws and regulations and potential fraud risks at the planning stage of the audit. Engagement team members were reminded to remain alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

We obtained an understanding of the legal and regulatory frameworks that are applicable to company and the sector in which it operates, focusing on 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:

FORTH HEALTH LIMITED
INDEPENDENT AUDITORS' REPORT (CONTINUED)
TO THE MEMBERS OF FORTH HEALTH LIMITED
- 8 -

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. We identified a heightened fraud risk in relation to:

In addition to the above, the following procedures were performed to provide reasonable assurance that the financial statements were free of material fraud or error:

 

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.

FORTH HEALTH LIMITED
INDEPENDENT AUDITORS' REPORT (CONTINUED)
TO THE MEMBERS OF FORTH HEALTH LIMITED
- 9 -

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 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 company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Jenny Junnier (Senior Statutory Auditor)
For and on behalf of Johnston Carmichael LLP
1 July 2024
Chartered Accountants
Statutory Auditor
Bishop's Court
29 Albyn Place
Aberdeen
AB10 1YL
FORTH HEALTH LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2023
- 10 -
2023
2022
Notes
£'000
£'000
Turnover
3
48,065
42,593
Cost of sales
(40,058)
(35,656)
Gross profit
8,007
6,937
Administrative expenses
(1,525)
(1,155)
Operating profit
4
6,482
5,782
Other interest receivable and similar income
6
15,653
15,402
Interest payable and similar expenses
7
(19,896)
(20,092)
Profit before taxation
2,239
1,092
Tax on profit
8
(495)
(232)
Profit for the financial year
1,744
860
Other comprehensive income
Cash flow hedges (loss)/gain arising in the year
(1,425)
55,774
Tax relating to other comprehensive income
356
(13,608)
Total comprehensive income for the year
675
43,026
FORTH HEALTH LIMITED
BALANCE SHEET
AS AT 31 DECEMBER 2023
31 December 2023
- 11 -
2023
2022
Notes
£'000
£'000
£'000
£'000
Current assets
Debtors falling due after more than one year
9
323,649
331,201
Debtors: amounts falling due within one year
9
24,801
23,725
Cash at bank and in hand
19,055
21,276
367,505
376,202
Creditors: amounts falling due within one year
10
(22,315)
(316,476)
Net current assets
345,190
59,726
Creditors: amounts falling due after more than one year
11
(423,065)
(136,578)
Net liabilities
(77,875)
(76,852)
Capital and reserves
Called up share capital
14
27
27
Hedging reserve
(84,157)
(83,088)
Profit and loss reserves
15
6,255
6,209
Total equity
(77,875)
(76,852)
The financial statements were approved by the board of directors and authorised for issue on 1 July 2024 and are signed on its behalf by:
K O'Brien
Director
Company Registration No. 05986479
FORTH HEALTH LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2023
- 12 -
Share capital
Hedging reserve
Profit and loss reserves
Total
Notes
£'000
£'000
£'000
£'000
Balance at 1 January 2022
27
(125,254)
5,349
(119,878)
Year ended 31 December 2022:
Profit for the year
-
-
860
860
Other comprehensive income:
55,774
55,774
Tax relating to other comprehensive income
-
(13,608)
-
0
(13,608)
Total comprehensive income for the year
-
0
42,166
860
43,026
Balance at 31 December 2022
27
(83,088)
6,209
(76,852)
Year ended 31 December 2023:
Profit for the year
-
-
1,744
1,744
Other comprehensive income:
Revaluation of tangible fixed assets
-
(1,425)
-
(1,425)
Tax relating to other comprehensive income
-
356
-
0
356
Total comprehensive income for the year
-
0
(1,069)
1,744
675
Dividends
-
-
(1,698)
(1,698)
Balance at 31 December 2023
27
(84,157)
6,255
(77,875)
FORTH HEALTH LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
- 13 -
1
Accounting policies
Company information

Forth Health Limited is a private company limited by shares incorporated in England and Wales. The registered office is 1 Park Row, Leeds, United Kingdom, LS1 5AB.

1.1
Accounting convention

These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.

The presentational currency of the financial statements is pounds sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £'000.

The financial statements have been prepared on the going concern basis under the historical cost convention. The principal accounting policies adopted are set out below.

1.2
Going concern

The latest financial model forecasts estimated future costs and demonstrates that the company can continue to meet its debts as they fall due. In the prior year, a technical breach of the funding arrangements occurred which resulted in the lenders having the right to call for the immediate repayment of outstanding loan amounts. A waiver of this breach was signed by the lenders in 2023 and the matter is now resolved. true

The Company is in a net liabilities position as at 31 December 2023 due to the fair value of the interest rate and RPI swaps. The Directors have reviewed the Company's forecasts and projections, taking into account future cash requirements and forecast receipts, which show that the Company can continue to meet its debt covenants and debts as they fall due.

The Company’s operating cash inflows are largely dependent on the unitary charge receipts and the Directors expect these amounts to be received even in severe, but plausible possible downside scenarios. The Company continues to provide the assets in accordance with the contract and are available to be used. As a result the Company does not believe there is any likelihood of a material impact to the unitary payment.

The Directors therefore, at the time of approving the financial statements, have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future .Thus they continue to adopt the going concern basis of accounting in preparing the financial statements.

1.3

Disclosure exemptions

The entity satisfies the criteria of being a qualifying entity as defined in FRS 102. Its financial statements are consolidated into the financial statements of Forth Health Holdings Limited which can obtained from 1 Park Row, Leeds, United Kingdom LS1 5AB. As such, advantage has been taken of the following disclosure exemptions available under paragraph 1.12 of FRS 102:

 

a)    No cash flow statement has been presented for the Company.

b)    The disclosures required by Sections 11 and 12 of FRS 102 (Basic Financial Instruments and Other Financial Instruments Issues respectively) in respect of financial instruments not falling within the fair value accounting rules of Paragraph 36(4) of Schedule 1.

 

The company 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.

FORTH HEALTH LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 14 -
1.4
Revenue recognition

Turnover is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes.

Income received in respect of the service concession is allocated between revenue and capital repayment of, and interest income on, the PFI financial asset using the effective interest rate method. Service revenue is recognised as a margin on non-pass-through operating and maintenance costs.

Pass through income represents the direct pass through of recoverable costs, as specified in the Project Agreement.

Variation income relates to the recharge of costs incurred for the alteration of the facilities or the services provided, requested by the Authority.

1.5
Cash and cash equivalents

Cash and cash equivalents are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

Restricted cash

Cash at bank includes £10,544,000 (2022: £7,534,000) restricted from use in the business, being held in the Company’s reserve accounts under the terms of its Senior Loan facility.

 

1.6
Financial instruments

The Company has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the Company's statement of financial position when the Company becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset, with the net amounts presented in the financial statements , when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Basic financial assets

Basic financial assets, which include debtors, 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 assets

Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.

FORTH HEALTH LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 15 -

Loan and receivables

Trade debtors , loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment.

 

Interest is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the debt instrument to the net carrying amount on initial recognition.

 

Service concession

The Company is a special purpose entity that has been established to provide services under certain private finance agreements with NHS Forth Valley. Under the terms of these Agreements, NHS Forth Valley (as grantor) controls the services to be provided by the Company over the contract term. Based on the contractual arrangements the Company has classified the project as a service concession arrangement, and has accounted for the principal assets of, and income streams from, the project in accordance with FRS 102, Section 34.12 Service Concession Arrangements.

 

The Company has chosen to adopt the transitional arrangements available within FRS 102, Section 35.10 (i) and as such the service concession arrangement has continued to be accounted for using the same accounting policies being applied at the date of transition to FRS 102 (1 January 2014). The nature of the asset has therefore not changed; however, there has been a change in the description from Finance Debtor to Financial Asset.

 

Under the terms of the arrangement, the Company has the right to receive baseline contractual payment stream for the provision of the services from or at the direction of the grantor (NHS Forth Valley), and as such the asset is accounted for as a financial asset. The financial asset has initially been recognised at the fair value of the consideration received, based on the fair value of the construction (or upgrade) services, plus any directly attributable transaction costs, provided in line with FRS 102.

 

Impairment of financial assets

Financial assets 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.

Derecognition of financial assets

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

Classification of financial liabilities

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.

FORTH HEALTH LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 16 -
Basic financial liabilities

Basic financial liabilities, including creditors, bank loans, and loans from fellow group companies are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of t he future payment s 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. The effective interest rate method is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument.

 

Trade creditors are obligations to pay for goods or services that have been acquired i n 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 a s non-current liabilities. Trade creditors a re recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Other financial liabilities

Derivatives, including interest rate swaps and RPI swaps, a re 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.

Derecognition of financial liabilities

Financial liabilities are derecognised when the Company’s contractual obligations expire or are discharged or cancelled.

1.7
Equity instruments

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.

1.8
Derivatives

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to fair value at each reporting end date. The resulting gain or loss is recognised in t he statement of comprehensive income immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the statement of comprehensive income depends on the nature of the hedge relationship.

 

A derivative with a positive fair value is recognised as a financial asset, whereas a derivative with a negative fair value is recognised as a financial liability.

 

The Company does not hold or issue derivative financial instruments for speculative purposes.

FORTH HEALTH LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 17 -
1.9
Hedge accounting

The Company designates certain hedging instruments, including derivatives, as either fair value hedges or cash flow hedges.

 

At the inception of the hedge relationship, the Company documents the relationship between the hedging instrument and the hedged item along with risk management objectives and strategy for undertaking various hedge transactions. At the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.

 

Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income.

 

The gain or loss relating to the ineffective portion is recognised immediately in the statement of comprehensive income and is included in the 'other gains and losses' line.

 

Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to the statement of comprehensive income in the periods when the hedged item is recognised in the statement of comprehensive income in the same line as the recognised hedged item. However when the forecast transaction that is hedged results in the recognition of a non-financial asset or liability, the gains and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability concerned.

 

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

1.10
Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

FORTH HEALTH LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 18 -
Deferred tax

Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

 

The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

FORTH HEALTH LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 19 -
2
Judgements and key sources of estimation uncertainty

In the application of the Company’s accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.

 

Critical judgements

The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.

 

Hedge accounting

The Directors consider the Company to have met the criteria for cash flow hedge accounting; the Company has therefore recognised fair value movements on derivatives in effective hedging relationships through other comprehensive income as well as the deferred tax thereon.

 

The fair value of the swaps recorded in the accounts are based on Mark to Market estimates provided by the Bank, utilising the new SONIA benchmark.

 

Key sources of estimation uncertainty

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:

 

Valuation of derivative financial instruments

The Directors use their judgement in selecting a suitable valuation technique for derivative financial instruments. All derivative financial instruments are valued at the mark to market valuation provided by the derivative counterparty. In these cases, the Company uses valuation techniques to assess the reasonableness of the valuation provided by the derivative counterparty. These techniques use a discounted cash flow analysis based on market observable inputs derived from similar instruments in similar and active markets. The fair value of derivative financial instruments at the balance sheet date was a liability of £112,209,000 (2022: £110,784,000 liability). The Directors do not consider the impact of own credit risk to be material.

 

Service concession arrangement

As disclosed in Note 1, the Company accounts for the project as a service concession arrangement. The Directors use their judgement in selecting the appropriate financial asset rate to be applied in order to allocate the income received between revenue, and capital repayment of and interest income on the financial asset; and also the service margin that is used to recognise service revenue. The Directors have also used their judgement in assessing the appropriateness of the future maintenance costs that are included in the Company’s forecasts. The Directors will continue to monitor the condition of the assets and undertake a regular review of maintenance spend.

 

FORTH HEALTH LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 20 -
3
Turnover and other revenue
2023
2022
£'000
£'000
Turnover analysed by class of business
Service Fee Income
38,564
33,959
Pass-through Income
4,172
4,677
Variation Income
5,194
3,794
Rental Income
135
163
Other Income
-
-
48,065
42,593

The whole of the turnover is attributable to the principal activity of the Company wholly undertaken in the United Kingdom.

4
Operating profit
2023
2022
Operating profit for the year is stated after charging:
£'000
£'000
Fees payable for the audit of the annual report and financial statements
17
16
5
Employees

The average monthly number of persons employed by the company during the year was nil (2022: nil). The directors did not receive any remuneration from the Company during the year (2022: £nil).

6
Interest receivable and similar income
2023
2022
£'000
£'000
Interest income
Interest on bank deposits
837
142
Interest receivable on finance debtor
14,816
15,260
Total income
15,653
15,402
7
Interest payable and similar expenses
2023
2022
£'000
£'000
Interest on financial liabilities measured at amortised cost:
Interest on bank overdrafts and loans
16,071
16,319
Interest payable to parent undertakings
3,825
3,773
19,896
20,092
FORTH HEALTH LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 21 -
8
Taxation
2023
2022
£'000
£'000
Current tax
UK corporation tax on profits for the current period
254
104
Deferred tax
Origination and reversal of timing differences
241
128
Total tax charge
495
232

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:

2023
2022
£'000
£'000
Profit before taxation
2,239
1,092
Expected tax charge based on the standard rate of corporation tax in the UK of 25% (2022: 19%)
560
207
Unutilised tax losses carried forward
(306)
(103)
Change in unrecognised deferred tax assets
241
128
Taxation charge for the year
495
232

Following the enactment of the Finance Act 2021 on 10 June 2021, deferred tax for temporary/timing differences that are forecast to unwind or after 1 April 2023 have been re-measured and recognised at 25%.

FORTH HEALTH LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 22 -
9
Debtors
2023
2022
Amounts falling due within one year:
£'000
£'000
Trade debtors
6,777
7,078
Corporation tax recoverable
48
575
Prepayments and accrued income
-
0
501
Finance debtor
8,554
8,158
Other financial assets
8,700
6,700
24,079
23,012
Deferred tax asset
722
713
24,801
23,725
2023
2022
Amounts falling due after more than one year:
£'000
£'000
Finance debtor
251,570
260,124
Unitary charge control account
44,309
43,413
295,879
303,537
Deferred tax asset
27,770
27,664
323,649
331,201
Total debtors
348,450
354,926

Other financial assets include amounts held within deposit accounts with a maturity of not less than three months from the initial deposit.

10
Creditors: amounts falling due within one year
2023
2022
Notes
£'000
£'000
Bank loans
5,222
295,379
Accruals and deferred income
4,081
4,332
Trade creditors
3,362
4,284
Amounts owed to parent undertakings
874
4,036
Derivative financial instruments
3,768
3,720
Other taxation
1,029
698
Bank loan interest accrual
3,979
4,027
22,315
316,476
FORTH HEALTH LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 23 -
11
Creditors: amounts falling due after more than one year
2023
2022
£'000
£'000
Bank loans
285,110
-
0
Amounts owed to parent undertaking
29,514
29,514
Derivative financial instruments
108,441
107,064
423,065
136,578

Derivative financial instruments

The interest and RPI swaps have a fixed rate of 5.001% and 3.06% and expire on 2041 and 2042 respectively. The swaps settle on a semi-annual basis. The floating rate on the interest rate swap is six months’ SONIA and on the RPI swap is 12 month RPI. The Company will settle the difference between the fixed and floating rates on a net basis.

 

All interest rate swap contracts are designated as hedges of variable interest rate risk of the Company’s floating rate borrowings. The hedged cash flows are expected to occur and to affect profit or loss over the period to maturity of the interest rate swaps. All RPI swap contracts are designated as hedges of variable RPI risk of a portion of the Company’s income. The hedged cash flows are expected to occur and to affect profit or loss over the period to maturity of the RPI swaps.

 

The fair value of the derivative financial instruments above comprises the fair value of the interest rate and RPI swaps designated in an effective hedging relationship. The change in fair value of the interest rate and RPI swaps that was recognised in other comprehensive income in the period was a loss of £1,425,000 (2022: profit of £55,774,000).

 

12
Loans and overdrafts
2023
2022
£'000
£'000
Bank loans
290,332
295,379
Loans from group undertakings and related parties
29,514
29,514
319,846
324,893
Payable within one year
5,222
295,379
Payable after one year
314,624
29,514
319,846
324,893
FORTH HEALTH LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
12
Loans and overdrafts
(Continued)
- 24 -

The loans are secured by a fixed and floating charge over all the assets of the Company and a charge over the shares of the Company.

 

Bank loans

The Company has loans provided by Halifax Bank of Scotland and European Investment Bank in order to finance the construction of the project. Under the funding arrangements, the loans are repayable in instalments by 2041 based on an agreed percentage amount of the total facilities per annum. During the previous financial year, a technical breach of the funding arrangements allowed the lenders the right to call for the immediate repayment of outstanding loan amounts. This breach continued for the period of those statements only being resolved in June 2023, post the Balance Sheet date.

 

Interest on the facility is charged at rates linked to SONIA. The Company has entered into fixed interest rate swaps to mitigate its interest rate exposure. The fixed interest rate on the facility, after taking into consideration the swap and including all margins, is 5.06%.

 

Subordinated debt

At the year end, the Company owed £29,514,000 (2022: £29,514,000) in loans to the immediate parent company, Forth Health Holdings Limited. The subordinated debt is unsecured and is subject to interest at 12%. The debt is repayable by instalments from surplus funds to 2041. Accrued interest of £874,000 (2022: £4,036,000) is outstanding as at 31 December 2023.

13
Deferred taxation
The deferred tax included in the Statement of Financial Position is as follows:
Assets
Assets
2023
2022
Balances:
£'000
£'000
Tax losses
440
681
Deferred tax on interest rate and RPI swap fair value
28,052
27,696
28,492
28,377
The deferred tax account consists of the tax effect of short term timing differences.
2023
Movements in the year:
£'000
Opening balance
(28,377)
Charge to profit or loss
241
Movement through the statement of comprehensive income
(356)
Closing balance
(28,492)

The deferred tax asset in relation to the interest rate and RPI swap liability is expected to affect profit or loss over the period to maturity of the interest rate and RPI swap.

FORTH HEALTH LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 25 -
14
Called up share capital
2023
2022
2023
2022
Ordinary share capital
Number
Number
£'000
£'000
Issued and fully paid
Ordinary shares of £1 each
27,000
27,000
27
27
15
Other reserves

Retained earnings records retained earnings and accumulated losses.

 

The hedging reserve represents the cumulative portion of gains and losses on hedging instruments deemed effective in hedging variable interest rate risk of recognised financial instruments. Amounts accumulated in this reserve are reclassified to profit or loss in the periods in which the hedged item affects profit or loss or when the hedging relationship ends.

16
Related party transactions
The company has taken advantage of FRS 102 para 33.1A which allows it not to disclose transactions with wholly owned members of a group.
17
Controlling party

The Company's immediate parent undertaking is Forth Health Holdings Limited, a company incorporated in Great Britain and registered in England and Wales, with a registered address of 8 White Oak Square,London Road, Swanley, Kent, BR8 7AG. The smallest and largest group in which its results are consolidated is Forth Health Holdings Limited. Copies of the consolidated accounts are available from Companies House.

The Company's ultimate parent is Jura Acquisition Limited, a Guernsey registered company, subsidiary of Jura Holdings Limited owned by a consortium jointly-led by funds managed by Dalmore Capital Limited and Equitix Investment Management Limited. The Directors regard Jura Holdings Limited as the ultimate parent of the Company. The Directors consider that there is no ultimate controlling entity.

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