The directors present their annual report and financial statements for the year ended 31 December 2023.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
Johnston Carmichael LLP were appointed as auditor to the company and in accordance with section 485 of the Companies Act 2006. Johnston Carmichael LLP are deemed to be reappointed under section 487(2) of the Companies Act 2006.
The directors have prepared the financial statements as a going concern with disclosures relating to the existence of a material uncertainty . Full details can be found in note 1.2 of the financial statements.
This report has been prepared in accordance with the provisions applicable to companies entitled to the small companies exemption.
Basis for opinion
Material uncertainty related to going concern
We draw attention to note 1.2 in the financial statements, which indicates that an event of default has been triggered under the Common Terms Agreement to the company’s loans related to the thresholds for service failure points incurred by the facilities management contractor in the year and in previous years dating back to 2018. As stated in note 1.2, these events or conditions, along with other matters as set forth in note 1.2 to the financial statements, indicate that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
The information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
The Directors’ Report have been prepared in accordance with applicable legal requirements.
As explained more fully in the Statement of Directors' responsibilities set out in the Directors report, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an 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.
We obtained an understanding of the legal and regulatory frameworks that are applicable to the company and the sector in which it operates, focusing on those provisions that had a direct effect on the determination of material amounts and disclosures in the financial statements. The most relevant frameworks we identified include:
United Kingdom Generally Accepted Accounting Practice, including FRS 102;
UK Companies Act 2006;
UK Corporation Tax legislation; and
VAT legislation.
We gained an understanding of how the company is complying with these laws and regulations by making enquiries of management and those charged with governance. We corroborated these enquiries through our review of relevant correspondence with regulatory bodies and board meeting minutes.
We assessed the susceptibility of the financial statements to material misstatement, including how fraud might occur, by meeting with management and those charged with governance to understand where it was considered there was susceptibility to fraud. This evaluation also considered how management and those charged with governance were remunerated and whether this provided an incentive for fraudulent activity. We considered the overall control environment and how management and those charged with governance oversee the implementation and operation of controls. In areas of the financial statements where the risks were considered to be higher, we performed procedures to address each identified risk. We identified a heightened fraud risk in relation to:
Revenue recognition; and
Management override of controls
In addition to the above, the following procedures were performed to provide reasonable assurance that the financial statements were free of material fraud or error:
Recalculating the unitary charge received by taking the base charge per the project agreement and uplifting for RPI;
Agreeing a sample of months’ income receipts to invoice and bank statements;
Performing an assessment on the service margins used in the year and agreeing margins used to the active financial models;
Reconciling the finance income and amortisation to the finance debtor reconciliation to ensure allocation methodology is in line with contractual terms and relevant accounting standards;
Reviewing minutes of meetings of those charged with governance for reference to: breaches of laws and regulation or for any indication of any potential litigation and claims; and events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud;
Reviewing the level of and reasoning behind the company’s procurement of legal and professional services
Performing audit work procedures over the risk of management override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business and reviewing judgements made by management in their calculation of accounting estimates for potential management bias;
Completion of appropriate checklists and use of our experience to assess the company’s compliance with the Companies Act 2006; and
Agreement of the financial statement disclosures to supporting documentation.
Our audit procedures were designed to respond to the risk of material misstatements in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve intentional concealment, forgery, collusion, omission or misrepresentation. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s 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.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
NIHG South West Health Partnership Limited is a private company limited by shares incorporated in Northern Ireland. The registered office is C/O Tughans Llp, The Ewart, 3 Bedford Square, Belfast, Northern Ireland, BT2 7EP.
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 £.
These financial statements for the year ended 31 December 2023 are the first financial statements of NIHG South West Health Partnership Limited prepared in accordance with FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland. The date of transition to FRS 102 was 1 January 2023. The reported financial position and financial performance for the previous period are not affected by the transition to FRS 102.
The last date covered by the previous accounting financial reporting framework was 31 December 2022. Transition has not materially impacted accounting policies. FRS 102 was deemed to provide suitable reliability and additional relevance in regards to information disclosed.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues: Interest income/expense and net gains/losses for financial instruments not measured at fair value; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The financial statements of the company are consolidated in the financial statements of NIHG Limited. These consolidated financial statements are available on Companies House.
The Company currently has £142,477,476 (2022: £146,802,115) of total debt. The Company's forecasts and projections, taking account of reasonably possible changes in trading performance, show that it should be able to operate within the level of its current facilities for at least the next twelve months from the date of these Financial Statements.
The Company's revenues have largely been in line with expectations, with very few deductions applied for non-availability of the assets. Any such deductions are generally passed down to the subcontractors so there is usually no direct financial consequence to the Company. Sustained non-availability can lead to contract termination however the Company has not reached such termination trigger points.
The Company is in a net liability position due to the inclusion of the hedge reserve on the statement of financial position and this will unwind completely over the term of the hedge. The Company's forecasts and projections, taking in to account these factors and reasonably possible changes in trading performance, show that it should be able to operate within the level of its current facilities.
The Company has considerable financial resources together with long-term contracts with the South Western Health and Social Care Trust. As a consequence, the directors believe that the Company is well placed to manage its business risks successfully.
During the year ended 31 December 2023 and since 2018 there have been a number of issues in respect of service failure points accrued under the payment mechanism provisions in the Company's agreement with the South Western Health and Social Care Trust and Lenders which breach certain thresholds within the Company's lending agreements. The breach gives the lenders the right to recall the loan on demand and restricts the company from making any dividend distributions until such time as the Event of Default have been satisfied or waived to the satisfaction of the lenders’ Agent. The Lenders legal right to recall the Senior Debt on demand is deemed a factor that indicates the existence of a material uncertainty. This is because the business will not be able to meet its liabilities as they fall due if the lenders recalled the loan on demand. At the year end and at the date of signing, there are no formal waivers in place from the lenders relating to the event of default.
The Trust and the directors are working towards amending agreements that will increase the base level of the SFPs to realistic operational levels. The directors believe that the lenders have no intention to terminate the loan agreements and will continue to manage the situation as they have for the past 6 years we this is deemed a low risk default which has limited impact on the recovery of their loan balance.
The directors have specifically considered the matters above in respect of the Event of Default under the terms of the Common Term Agreement. The directors are working on finding a resolution to the Event of Default under the Common Term Agreement. Any waiver of the Event of Default or variation to the terms of the Common Terms Agreement are subject to approval by the lenders.
The directors consider that despite the Event of Default attached to the existing financing the Company can maintain sufficient liquidity over the next 12 months, and that it is accordingly appropriate to adopt a going concern basis for the preparation of these financial statements. The directors acknowledge that the nonwaiver of the Event of Default indicates the existence of a material uncertainty, which may cast significant doubt on the Company's ability to continue as a going concern.
The directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least the next twelve months from the date of signing of these financial statements. Accordingly, they continue to adopt the going concern basis in preparing the annual report and Financial Statements.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial 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.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership to another entity.
On derecognition of a financial asset measured at amortised cost, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans and loans from fellow group companies that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives, including interest rate swaps and RPI swaps, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when, and only when, the company’s obligations are discharged, cancelled, or they expire.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
The Company designates its derivatives as hedging instruments in respect of interest rate risk in fair value hedges and RPI hedges.
At the inception of the hedge relationship, the Company documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk, which is when the hedging relationships meet all of the following hedge effectiveness requirements:
there is an economic relationship between the hedged item and the hedging instrument;
the effect of credit risk does not dominate the value changes that result from that economic relationship; and
the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Company actually hedges and the quantity of the hedging instrument that the Company actually uses to hedge that quantity of hedged item.
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management objective for that designated hedging relationship remains the same, the Company adjusts the hedge ratio of the hedging relationship (i.e. rebalances the hedge) so that it meets the qualifying criteria again.
The effective portion of changes in the fair value of derivatives and other qualifying hedging instruments that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging reserve, limited to the cumulative change in fair value of the hedged item from inception of the hedge. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the 'other gains and losses' line item.
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognised hedged item. However, when the hedged forecast transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognised in other comprehensive income and accumulated in equity are removed from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability. This transfer does not affect other comprehensive income. Furthermore, if the Company expects that some or all of the loss accumulated in the cash flow hedging reserve will not be recovered in the future, that amount is immediately reclassified to profit or loss.
The Company discontinues hedge accounting only when the hedging relationship (or a part thereof) ceases to meet the qualifying criteria (after rebalancing, if applicable). This includes instances when the hedging instrument expires or is sold, terminated or exercised. The discontinuation is accounted for prospectively. Any gain or loss recognised in other comprehensive income and accumulated in cash flow hedge reserve at that time remains in equity and is reclassified to profit or loss when the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in cash flow hedge reserve is reclassified immediately to profit or loss.
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.
There are no critical judgements that the directors have made in the process of applying the Company's accounting policies or that have a significant effect on the amounts recognised in financial statements.
The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
The company carries its derivative financial instruments in its statement of financial position at fair value. No market prices are available for these instruments and consequently the fair values are derived using financial models developed by a third party that is independent of the company but use observable market data in respect of interest rates as an input to valuing those derivative financial instruments.
The Company has been established to provide services under certain private finance agreements with the South Western Health and Social Care Trust. Under the terms of these agreements, the Council (as grantor) controls the services to be provided by the company over the contract term. Based on the contractual arrangements the company has classified the project as a service concession arrangement, and has accounted for the principal asset, of, and income streams from, the project in accordance with FRS 102, Section 34.12 Service Concession Arrangements.
The Company has chosen to adopt the transitional arrangements available within FRS 102, Section 35.10(i) and as such the service concession arrangement has continued to be accounted for using the same accounting policies being applied at the date of transition to FRS 102. The nature of the asset has therefore not changed.
Under the terms of the arrangement, the Company has the right to receive a baseline contractual payment stream for the provision of the services from or at the direction of the grantor (the Council), and as such the asset is accounted for as a financial asset. The financial asset has initially been recognised at the fair value of the consideration received, based on the fair value of the construction (or upgrade) services, plus any directly attributable transaction costs, provided in line with FRS 102.
Revenue is recognised from the supply of services, which represents the timing of services provided under contracts to the extent that there is a right to consideration and is recorded at the fair value of the consideration received or receivable.
Estimating lifecycle spend in a PFI project involves predicting the costs required to maintain, repair, and renew the physical assets over the life of the project to meet contractual standards. Lifecycle spend includes both planned maintenance and unexpected repairs or replacements as the asset ages. The project team develops a long-term maintenance schedule, which includes planned activities such as routine inspections, repairs, replacements, and overhauls which is approved by the Board.
The accounting for lifecycle costs in a PFI project company depends on whether the company or FM provider bears risk. The key differences between these two risk profiles primarily relate to how lifecycle costs are recognised, estimated, and accounted for in the financial statements. In the case of NIHG South West Health Partnership Limited lifecycle risk sits with the SPV. When an SPV holds lifecycle risk it is unlikely to have significant provisions for lifecycle maintenance in its financial statements.
Turnover, which is stated net of value added tax, represents amounts invoiced for services provided, and is recognised each year as the applicable portions of the amounts receivable relating to finance and operating costs calculated on a consistent basis (see accounting policies).
Turnover is attributable to one geographic market, the United Kingdom.
All audit fees for the Group are borne by the Company. The Group comprises this Company and its parent, NIHG Limited.
The Company had no employees (2022: nil) during the period.
Emoluments paid to third parties for directors' services to the Company were: £192,027 (2022: £172,978).
The first bank loan is from European Investment Bank, and was agreed on 19 May 2009. It was drawn down during the Construction Phase between May 2009 and May 2012. It is repayable in unequal bi-annual instalments having commenced on 31 May 2012 and ending on 31 March 2039. The Company hedges the loan for interest rate risk via an interest rate swap exchanging the variable rate interest for fixed rate interest. The outstanding balance is adjusted for the fair value movement in the hedged risk, being movements in the 1 months' SONIA rate. Interest on the bank loan is charged at 1.4% above SONIA. The loan balance is £61,135,783 (2022: £63,253,597) at year end.
The second bank loan is from Bank of Ireland, Barclays Bank and Nord Bank, and was agreed on 19 May 2009. It was drawn down during the Construction Phase between May 2009 and May 2012. It commenced on 31 May 2012, ending on 19 May 2039. The Company hedges the loan for interest rate risk via an interest rate swap exchanging the variable rate interest for fixed rate interest. The outstanding balance is adjusted for the fair value movement in the hedged risk, being movements in the 1 months' SONIA rate. Interest on the bank loan is charged at 2.40% above SONIA. The loan balance is £62,360,480 (2022: £64,497,666) at year end. The loan balance is owed equally between Bank of Ireland, Barclays Bank and Nord Bank.
Bank loans are deemed repayable on demand as an event of default is present at the year end and have therefore been classified as due within 1 year, note 1.2.
Other borrowing are unsecured loan notes borrowed under the loan note agreements with the shareholders. The loan notes bear interest at a rate of 12.019% per annum. Unpaid interest bears interest at a rate of 14.019% per annum. Unpaid loan note interest within accruals is £26,947,883.(2022: £21,384,429) at year end.
In line with the exemption conferred by section 33.11(b) of FRS 102, NIHG South West Health Partnership Limited has chosen not to disclose transactions with its parent undertaking on the basis that it is a wholly owned subsidiary where consolidated accounts are publicly available.
The Company is wholly owned by NIHG Limited, a company which is registered in Northern Ireland and having the same registered office as the Company. In the opinion of the Directors, there is no ultimate controlling party.
The smallest and largest group in which the Company’s results are consolidated is NIHG Limited, a company registered in Northern Ireland. Copies of the consolidated accounts are available from Companies House.