Company registration number 05347462 (England and Wales)
MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
COMPANY INFORMATION
Directors
PR Hepburn
JS Gordon
PK Johnstone
(Appointed 20 December 2023)
Secretary
Resolis Limited
Company number
05347462
Registered office
1 Park Row
Leeds
United Kingdom
LS1 5AB
Auditor
Johnston Carmichael LLP
7-11 Melville Street
Edinburgh
EH3 7PE
MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
CONTENTS
Page
Directors' report
1 - 2
Directors' responsibilities statement
3
Independent auditors' report
4 - 7
Statement of comprehensive income
8
Balance sheet
9
Statement of changes in equity
10
Notes to the financial statements
11 - 18
MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 MARCH 2024
- 1 -

The directors present their annual report and financial statements for the year ended 31 March 2024.

Principal activities

The principal activities of the company are the design, build, finance, operation and maintenance of five schools through an agreement with Redcar & Cleveland Borough Council. The agreement was entered into under the Government's Private Finance Initiative Scheme.

Results and dividends

Dividends of £931,703 (2023: £1,174,523) were paid during the year. The directors do not propose the payment of a final dividend.

Directors

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

PR Hepburn
J McDonagh
(Resigned 20 December 2023)
JS Gordon
PK Johnstone
(Appointed 20 December 2023)
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

The auditor, Johnston Carmichael LLP, are deemed to have been re-appointed in accordance with Section 487 of the Companies Act 2006.

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.

Key Performance Indicators

The performance of the company from a cash perspective is assessed six monthly by the testing of the covenants of the senior debt provider, the key indicator being the debt service cover ratio. The company has been performing well and is compliant with the covenants laid out in the senior debt loan agreement. At the year end this ratio was 1.275 (2023: 1.284).

Going concern

The company prepares cash flow forecasts covering the expected life of the asset and so including the 12 month period from the date the financial statements are signed. In drawing up these forecasts, the directors have made assumptions based upon their view of the current and future economic conditions that will prevail over the forecast period. Based on these forecasts the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future and meet its debt covenants as they fall due. The company's operating cash flows are largely dependent on the unitary charge receipts and the directors expect these amounts will be received even in severe, but plausible, downside scenarios.

 

In light of this, the directors continue to adopt the going concern basis of accounting in preparing the company's annual financial statements.

Small companies exemption

This report has been prepared in accordance with the provisions applicable to companies entitled to the small companies exemption.

MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2024
- 2 -
On behalf of the board
PR Hepburn
Director
25 September 2024
MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
DIRECTORS' RESPONSIBILITIES STATEMENT
FOR THE YEAR ENDED 31 MARCH 2024
- 3 -

The directors are responsible for preparing the directors' 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 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 to 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.

MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
INDEPENDENT AUDITORS' REPORT
TO THE MEMBER OF MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
- 4 -
Opinion

We have audited the financial statements of Modern Schools (Redcar and Cleveland) Limited (the 'company') for the year ended 31 March 2024 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 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 our audit:

MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
INDEPENDENT AUDITORS' REPORT (CONTINUED)
TO THE MEMBER OF MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
- 5 -
Matters on which we are required to report by exception

In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the directors' report.

 

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

 

Responsibilities of directors

As explained more fully in the directors' responsibilities statement set out on page 3, 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.

Auditor 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 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.

MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
INDEPENDENT AUDITORS' REPORT (CONTINUED)
TO THE MEMBER OF MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
- 6 -

We obtained an understanding of the legal and regulatory frameworks that are applicable to the company and the sector in which it operates, focusing on those provisions that had a direct effect on the determination of material amounts and disclosures in the financial statements. The most relevant frameworks we identified include:

 

 

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 are to become aware of it.

MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
INDEPENDENT AUDITORS' REPORT (CONTINUED)
TO THE MEMBER OF MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
- 7 -
Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's member those matters we are required to state to 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.

 

Fiona Munro (Senior Statutory Auditor)
For and on behalf of Johnston Carmichael LLP
25 September 2024
Statutory Auditor
7-11 Melville Street
Edinburgh
EH3 7PE
MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2024
- 8 -
2024
2023
£
£
Turnover
5,048,933
5,575,683
Cost of sales
(3,380,943)
(4,112,835)
Gross profit
1,667,990
1,462,848
Administrative expenses
(778,193)
(538,231)
Operating profit
889,797
924,617
Interest receivable and similar income
2,637,030
2,547,379
Interest payable and similar expenses
(1,260,026)
(1,348,421)
Profit before taxation
2,266,801
2,123,575
Tax on profit
(581,378)
(409,298)
Profit for the financial year
1,685,423
1,714,277
Other comprehensive income
Cash flow hedges gain arising in the year
288,496
1,882,451
Total comprehensive income for the year
1,973,919
3,596,728

The profit and loss account has been prepared on the basis that all operations are continuing operations.

MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
BALANCE SHEET
AS AT 31 MARCH 2024
31 March 2024
- 9 -
2024
2023
Notes
£
£
£
£
Current assets
Debtors falling due after more than one year
4
32,652,934
34,995,671
Debtors falling due within one year
4
3,072,138
3,060,018
Cash at bank and in hand
8,931,593
5,543,207
44,656,665
43,598,896
Creditors: amounts falling due within one year
6
(21,248,935)
(19,025,001)
Net current assets
23,407,730
24,573,895
Creditors: amounts falling due after more than one year
7
(18,441,392)
(20,649,773)
Net assets
4,966,338
3,924,122
Capital and reserves
Called up share capital
9
50,000
50,000
Hedging reserve
(562,482)
(850,978)
Profit and loss reserves
10
5,478,820
4,725,100
Total equity
4,966,338
3,924,122

These financial statements have been prepared in accordance with the provisions applicable to companies subject to the small companies regime.

The financial statements were approved by the board of directors and authorised for issue on 25 September 2024 and are signed on its behalf by:
PR Hepburn
Director
Company registration number 05347462 (England and Wales)
MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2024
- 10 -
Share capital
Hedging reserve
Profit and loss reserves
Total
£
£
£
£
Balance at 1 April 2022
50,000
(2,733,429)
4,185,346
1,501,917
Year ended 31 March 2023:
Profit for the year
-
-
1,714,277
1,714,277
Other comprehensive income:
Cash flow hedges gains
-
1,882,451
-
1,882,451
Total comprehensive income for the year
-
1,882,451
1,714,277
3,596,728
Dividends
-
-
(1,174,523)
(1,174,523)
Balance at 31 March 2023
50,000
(850,978)
4,725,100
3,924,122
Year ended 31 March 2024:
Profit for the year
-
-
1,685,423
1,685,423
Other comprehensive income:
Cash flow hedges gains
-
288,496
-
288,496
Total comprehensive income for the year
-
288,496
1,685,423
1,973,919
Dividends
-
-
(931,703)
(931,703)
Balance at 31 March 2024
50,000
(562,482)
5,478,820
4,966,338
MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
- 11 -
1
Accounting policies
Company information

Modern Schools (Redcar and Cleveland) 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 as applicable to companies subject to the small companies regime. The disclosure requirements of section 1A of FRS 102 have been applied other than where additional disclosure is required to show a true and fair view.

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

The financial statements have been prepared under the historical cost convention, modified to include certain financial instruments at fair value. The principal accounting policies adopted are set out below.

The company has taken advantage of the exemption in FRS 102 Section 7 'Statement of Cash Flows' part 1B, which states that a small company is not required to prepare a cash flow statement.

 

The company has also taken advantage of the exemption in Section 33 of FRS 102 'Related Party Disclosures' which allows it to not disclose transactions with wholly owned members of a group.

1.2
Going concern

The company prepares cash flow forecasts covering the expected life of the asset and so including the 12 month period from the date the financial statements are signed. In drawing up these forecasts, the directors have made assumptions based upon their view of the current and future economic conditions that will prevail over the forecast period. Based on these forecasts the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future and meet its debt covenants as they fall due. The company's operating cash flows are largely dependent on the unitary charge receipts and the directors expect these amounts will be received even in severe, but plausible, downside scenarios.

 

In light of this, the directors continue to adopt the going concern basis of accounting in preparing the company's annual financial statements.

1.3
Turnover

Turnover represents the services' share of the management services income received by the company 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 finance debtor so as to generate a constant rate of return in respect of the finance debtor over the life of the contract.

1.4
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.

 

The company is obligated to keep cash reserves as at the balance sheet date and 30 September in respect of requirements in the company's funding agreements. This restricted cash balance, which is shown within the "cash at bank and in hand balance", amounts to £5,512,785 (2023: £4,478,295) as at the balance sheet date.

MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2024
1
Accounting policies
(Continued)
- 12 -
1.5
Financial instruments

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

 

Financial instruments are recognised in the company's balance sheet when the company becomes party to the contractual provisions of the instrument.

 

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

Basic financial assets

Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.

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.

Basic financial 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.

1.6
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.

1.7
Hedge accounting

The company designates certain hedging instruments, including derivatives, embedded derivatives and non-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.

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.

MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2024
1
Accounting policies
(Continued)
- 13 -

For derivatives that are designated and qualify as cash flow hedges, the effective portion of changes in the fair value of the hedge is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss.

 

Any gain or loss previously recognised in other comprehensive income is reclassified to profit or loss when the hedge relationship ends. This occurs when the hedging instrument expires or no longer meets the hedging criteria, the forecast transaction is no longer highly probable, the hedged debt instrument is derecognised, or the hedging instrument is terminated.

1.8
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.

Deferred tax

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

 

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

1.9

Finance debtor

The company has taken the transition exemption in FRS 102 Section 35.10(i) which allows the company to continue the service concession arrangement accounting policies from previous UK GAAP.

 

The company is accounting for the concession asset based on the ability to substantially transfer all the risks and rewards of ownership to the customer. With this arrangement the costs incurred by the company on the design and construction of the assets have been treated as a finance debtor within these financial statements.

1.10

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 classed as non-current liabilities.

MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2024
1
Accounting policies
(Continued)
- 14 -
1.11

Lifecycle

Lifecycle costs are a significant portion of future expenditure. Given the length of the company's service concession contract, the forecast of lifecycle costs is subject to estimation, uncertainty and changes in the amount and timing of expenditure that could have material impacts. The risk here is mitigated by future estimates of lifecycle expenditure being prepared by maintenance experts on an asset by asset basis and periodic technical evaluations of the physical condition of the facilities are undertaken. Lifecycle costs borne by the company are recognised as they are incurred and estimated over the remaining contract period.

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 and consideration of the fair value of derivative financial instruments

The company uses derivative financial instruments to hedge certain economic exposures in relation to movements in interest rates as compared with the position that was expected at the date the underlying transaction being hedged was entered into. The company fair values its derivative financial instruments and records the fair value of those instruments on its balance sheet. No market prices are available for these instruments and consequently the fair values are determined by calculating the present value of the estimated future cashflows based on observable yield curves. There is also a judgement 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.

Deferred taxation

Deferred tax is recognised on all timing differences at the reporting date except for certain exceptions. Judgement is required in the case of the recognition of deferred taxation assets; the directors have to form an opinion as to whether it is probable that the deferred taxation asset recognised is recoverable against future taxable profits arising. This exercise of judgement requires the directors to consider forecast information over a long time horizon having regard to the risks that the forecasts may not be achieved and then form a reasonable opinion as to the recoverability of the deferred taxation asset.

MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2024
2
Judgements and key sources of estimation uncertainty
(Continued)
- 15 -
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.

Impairment of assets

The carrying value of those assets recorded in the company's balance sheet, at amortised cost, 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 compares that with the carrying value of the asset or assets in the balance sheet. 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.

Accounting for service concession arrangements

Accounting for the service concession contract and finance debtors requires estimation of service margins, finance debtor interest rates and associated amortisation profile which is based on forecast results of the contract. These were forecast initially within the operating model at financial close and are closely monitored throughout the duration of the project.

3
Employees

The average monthly number of persons (including directors) employed by the company during the year, including directors, amounted to nil (2023: nil). The directors, who are also key management personnel, did not receive any remuneration from the company during the year (2023: £nil). Directors' fees are paid to Elgin Infrastructure Limited.

 

4
Debtors
2024
2023
Amounts falling due within one year:
£
£
Trade debtors
2,500
74,935
Finance Asset receivable
837,545
893,233
Other debtors
2,232,093
2,091,850
3,072,138
3,060,018
2024
2023
Amounts falling due after more than one year:
£
£
Deferred tax
201,974
312,617
Other debtors
32,450,960
34,683,054
32,652,934
34,995,671
Total debtors
35,725,072
38,055,689
MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2024
- 16 -
5
Financial instruments
Carrying amount of financial liabilities
Measured at fair value through profit or loss
- Derivative financial instruments
749,977
1,134,638
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 company's use of derivative financial instruments is described below.

Interest rate swaps

The company has entered into interest rate swaps with third parties, for the same notional amount as all of its 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. The bank loans and related party interest rate swaps amortise at the same rate over the life of the loan/swap arrangements.

 

On 31 March 2020, the interest rate swap was novated from Dexia Credit Local to Sumitomo Mitsui Banking corporation. This novation event led to consideration as to whether this was a derecognition event of the hedging instrument and therefore a discontinuation of the hedge relationship, since under FRS 102.12.25 a hedge relationship discontinues if the hedging relationship expires. The directors have concluded that since FRS 102.12.25 does not provide specific guidance as to whether a novation to a different counterparty is a derecognition event, and that the hedge relationship otherwise continues under the same terms, since the novations did not alter any terms or conditions of the swap arrangement, that the the novation does not result in any discontinuation of the existing hedging relationship. The interest rate swaps carry a base rate of 4.995% and expire in March 2033.

 

The directors believe that the hedging relationship between the interest rate swaps and related variable rate bank loans is highly effective and as a consequence have concluded that these derivatives meet the definition of a cash flow hedge and have formally designated them as such.

 

The company's derivative financial instruments are carried at fair value. The net carrying value of all derivative financial instruments at 31 March 2024 amounted to net liabilities of £749,977 (2023: £1,134,638). All of the movements during the year in the fair value net of deferred tax of these derivative financial instruments have been recorded in the cash flow hedge reserve, amounting to a credit of £288,496 (2023: £1,882,451).

6
Creditors: amounts falling due within one year
2024
2023
£
£
Bank loans
1,795,131
1,798,744
Trade creditors
2,000,832
266,556
Corporation tax
122,114
106,615
Other taxation and social security
325,545
292,947
Other creditors
17,005,313
16,560,139
21,248,935
19,025,001

Included within other creditors falling due within one year is an amount of £16,655,884 (2023: £15,951,326) relating to the unitary charge control account. Also, included is £nil (2023: £21,406) of subordinated debt provided by Elgin Infrastructure Limited.

MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2024
- 17 -
7
Creditors: amounts falling due after more than one year
2024
2023
£
£
Bank loans and overdrafts
17,691,415
19,515,135
Derivative financial instruments
749,977
1,134,638
18,441,392
20,649,773

Included within creditors falling due after more than one year is an amount of £9,733,934 (2023: £11,238,394) in respect of liabilities payable or payable by instalments which fall due after more than five years from the reporting date.

 

The senior debt due to Dexia Public Finance Bank is secured by a bond and floating charge over the assets and undertakings of the company and its parent company. The loan bears interest at 4.995% per annum under a swap agreement entered into by the company. The swap rate is fixed for the duration of the loan. The loan is stated net of issue costs of £281,258 (2023: £288,146) and is repayable in semi-annual instalments which commenced in March 2007. The final repayment is due in 2033.

 

Included within Other creditors falling due after more than one year is £nil (2023: nil) of subordinated debt provided by Elgin Infrastructure Limited. This bears interest at 12.75% and is repaid on a semi-annual basis with the final instalment being paid in 2023.

8
Deferred taxation
The deferred tax account consists of the tax effect of timing differences. The deferred tax included in the balance sheet is as follows:
Assets
Assets
2024
2023
Balances:
£
£
Short term timing differences
14,480
28,958
Derivative financial instruments
187,494
283,659
Included in debtors (note 4)
201,974
312,617
2024
Movements in the year:
£
Opening balance at 01 April 2023
312,617
Movement through the Statement of Comprehensive Income
(110,643)
Closing balance at 31 March 2024
201,974
MODERN SCHOOLS (REDCAR AND CLEVELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2024
- 18 -
9
Called up share capital
2024
2023
2024
2023
Ordinary share capital
Number
Number
£
£
Issued and fully paid
Ordinary shares of £1 each
50,000
50,000
50,000
50,000
10
Profit and loss reserves

Hedging reserve - this reserve records fair value movements on cash flow hedging instruments.

 

Retained earnings - this reserve records retained earnings and accumulated losses.

11
Related party transactions

The company is wholly owned by Modern Schools (Redcar and Cleveland) Holdings Limited and has taken advantage of the exemption in section 33 of FRS 102 'Related Party Disclosures' that allows it not to disclose transactions with wholly owned members of a group.

12
Parent company

The immediate parent undertaking is Modern Schools (Redcar and Cleveland) Holdings Limited, a limited company incorporated in Scotland. The accounts for Modern Schools (Redcar and Cleveland) Holdings Limited can be obtained from C/O Resolis Limited Exchange Tower, 11th Floor, 19 Canning Street, Edinburgh, Scotland, EH3 8EG.

 

Modern Schools (Redcar and Cleveland) Holdings Limited is owned 100% by Elgin Infrastructure Limited, which is jointly owned between Cobalt Project Investments Limited and Ednastone Project Investments Limited. There is no ultimate controlling party.

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