The directors present their annual report and the audited financial statements of FCC (East Ayrshire) Limited ("the Company") for the year ended 31 December 2024.
The results for the year are set out on page 8.
The profit for the financial year, after taxation, amounted to £530,399 (2023: profit of £706,068).
The directors are satisfied with the overall performance of the Company and do not foresee any significant change in the Company's activities in the coming financial year.
Ordinary dividends were paid amounting to £1,809,000 (2023: £nil). The directors do not recommend payment of a further dividend.
The directors who held office during the year and up to the date of approval of the financial statements were as follows:
Many of the cash flow risks are addressed by means of contractual provisions. The Company's liquidity risk is principally managed through the Company by means of long term borrowings.
The financial risk management objectives of the Company are to ensure that financial risks are mitigated by the use of financial instruments. The Company uses interest rate swaps to reduce its exposure to interest rate movements. Financial instruments are not used for speculative purposes.
The independent auditors, PricewaterhouseCoopers LLP, are deemed to be reappointed under section 487(2) of the Companies Act 2006.
The performance of the Company from a cash perspective is assessed six monthly by the testing of the covenants of the senior debt provider. The key indicator being the debt service cover ratio. The Company has been performing well and has been compliant with the covenants laid out in the Group loan agreement.
Climate change
The directors recognise that it is important to disclose their view of the impact of climate change on the Company. The Company's key operational contracts are long-term and with a small number of known counterparties. In most cases, the cashflows from these contracts can be predicted with reasonable certainty for at least the medium-term. Having considered the Company's operations, its contracted rights and obligations and forecast cash flows, there is not expected to be a significant impact upon the Company's operational or financial performance arising from climate change.
These financial statements have been prepared on the going concern basis for the reasons set out in the Accounting Policies.
This report has been prepared in accordance with the special provisions applicable to small companies within Part 15 of the Companies Act 2006. Exemption has also been taken from the requirement to prepare a Strategic Report.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and applicable law).
Under company law, 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:
select suitable accounting policies and then apply them consistently;
state whether applicable United Kingdom Accounting Standards, comprising FRS102 have been followed, subject to any material departures disclosed and explained in the financial statements;
make judgements and accounting estimates that are reasonable and prudent; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
They are responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006.
The financial statements were approved and signed by the director and authorised for issue on 27 March 2025
Carl Dix
Director
Basis for opinion
Conclusions relating to going concern
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.
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.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the company's ability to continue as a going concern.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Reporting on other information
Directors' report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Directors' report for the year ended 31 December 2024 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we did not identify any material misstatements in the Directors' report.
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.
Based on our understanding of the company and industry, we identified that the principal risks of non-compliance with laws and regulations related to Companies Act 2006 and UK tax legislation, and we considered the extent to which non-compliance might have a material effect on the financial statements. We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to inappropriate journal entries and the risk of management bias in accounting estimates. Audit procedures performed by the engagement team included:
Enquiries of management around known or suspected instances of non-compliance with laws and regulations, claims and litigation, and instances of fraud;
Understanding of management's controls designed to prevent and detect irregularities;
Review of board minutes;
Challenging management on assumptions and judgements made in their significant accounting estimates, in particular in relation to the fair value of derivative financial instruments;
Testing journal entries to assess whether any appeared unusual, in particular any affecting revenue or distributable reserves;
Reviewing financial statement disclosures and testing to supporting documentation, where appropriate, to assess compliance with applicable laws and regulations.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, 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 deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors' report.
Use of this report
This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
we have not obtained all the information and explanations we require for our audit; or
adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or
certain disclosures of directors' remuneration specified by law are not made; or
the financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Entitlement to exemptions
Under the Companies Act 2006 we are required to report to you if, in our opinion, the directors were not entitled to: prepare financial statements in accordance with the small companies regime; take advantage of the small companies exemption in preparing the Directors' report; and take advantage of the small companies exemption from preparing a strategic report. We have no exceptions to report arising from this responsibility.
All the activities of the company are from continuing operations.
The notes on pages 11 to 22 form part of these financial statements.
The notes on pages 11 to 22 form part of these financial statements.
The notes on pages 11 to 22 form part of these financial statements.
FCC (East Ayrshire) Limited ("the Company") is a private company limited by shares incorporated in the United Kingdom and is registered in Scotland. The registered office is located at 2nd Floor, Drum Suite, Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2EN.
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 Company has taken advantage of the exemption in FRS 102 from the following disclosure requirements:
Section 7 'Statement of Cash Flows' part 1B, which states that a small company is not required to prepare a cash flow statement;
Section 33 'Related Party Disclosures': Not to disclose transactions with wholly owned members of a group.
The entity has taken advantage of the option not to prepare consolidated financial statements contained in Section 399 of the Companies Act 2006 on the basis that the entity and its subsidiary undertakings comprise a small group.
The financial statements are prepared on a going concern basis notwithstanding net liabilities of £9,548,462 (2023: £11,408,816) which the directors believe to be appropriate for the following reasons.
The directors acknowledge that the Company is in net liabilities, however, this is a result of the interest rate and RPI swaps, which are significantly out of the money, being included on the Statement of Financial Position. It is not the Company's intention to close these instruments before their maturity date in 30 September 2037, therefore there is no impact on the Company's ability to meet its liabilities as they fall due.
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.
In light of this, the directors continue to adopt the going concern basis of accounting in preparing the Company's annual financial statements.
Basic financial assets, which include debtors , cash and bank balances, are initially measured at transaction price including transaction costs and debtors are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial instruments are subsequently measured at fair value, with any changes recognised in the Statement of Comprehensive Income, with the exception of hedging instruments in a designated hedging relationship.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including Creditors, bank loans, loans from fellow group are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value at each reporting date. The fair values of the derivatives have been calculated by discounting the fixed cash flows at forecasted forward interest rates over the term of the financial instrument. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
The Company has entered into an arrangement with third parties that is designed to hedge future cash flows arising on variable rate interest loan arrangements, with the net effect of exchanging the cash flows arising under those arrangements for a stream of fixed interest cash flows ("interest rate swaps").
To qualify for hedge accounting, documentation is prepared specifying the hedging strategy, the component transactions and methodology used for effectiveness measurement. Changes in the carrying value of financial instruments that are designated and effective as hedges of future cash flows ("cash flow hedges") are recognised directly in a hedging reserve in equity and any ineffective portion is recognised immediately in the Statement of Comprehensive Income. Amounts deferred in equity in respect of cash flow hedges are subsequently recognised in the Statement of Comprehensive Income in the same period in which the hedged item affects net profit or loss or the hedging relationship is terminated and the underlying position being hedged has been extinguished.
As described in note 13, the Company's, borrowings and hedge agreements are linked to SONIA.
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.
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.
Fair values for derivative contracts are based on mark-to-market valuations provided by the contract
counterparty. Whilst these can be tested for reasonableness, the exact valuation methodology and forecast
assumptions for future interest rates or inflation rates are specific to the counterparty
Accounting for the service concession contract and finance debtor requires estimation of service margin,
finance debtor interest rates and associated amortisation profile which is based on projected trading results to
the end of the contract.
The whole of the turnover is attributable to the principal activity of the Company wholly undertaken in the United Kingdom.
Included in the fee above is £2,770 (2023: £2,660) for the audit of the immediate parent entity FCC (East Ayrshire) Holdings Limited.
The average number of persons employed by the Company during the financial year amounted to nil (2023: nil). The directors are not employed by the Company and receive remuneration from another company for their services as directors of this entity and a number of fellow subsidiaries. It is not possible to make an accurate apportionment of their remuneration in respect of each of the subsidiaries.
In 2021 an increase in the corporation tax rate to 25% with effect from 1 April 2023 was substantively enacted. The 23.52% rate used above reflects 9 months of this new rate and 3 months of the previous rate of 19%.
Dividends paid during the year (excluding those for which a liability existed at the end of the prior year).
Amounts owed to Group undertakings includes accrued interest of £279,842 (2023: £172,181) charged on fixed rate unsecured loan stock .
Also included in amounts owed to Group undertakings includes Group Relief of £110,688 (2023: £nil).
The bank loan is secured by a bond and floating charge over all the assets, rights and undertakings of the Company. The loan is repayable under an instalment scheme whereby small repayments are made in the first few years of the loan, the final repayment is due on 30 September 2037. The loan bears interest at SONIA plus 1.0%, however the Company has an interest rate swap arrangement receiving SONIA and paying interest fixed at 4.770% for the full amount of the loan drawn, hence fixing the total interest payable on the bank loan to 5.770%. The full amount of loan drawdowns at 31 December 2024 is £54,646,843 (2023: £56,869,644). Issue costs of £48,933 (2023: £73,533) have been set off against the total loan drawdowns.
Other borrowings in Note 11 and 12 relate to loans from Group undertakings - On 31 March 2011, the Company issued a £8,445,000 fixed rate unsecured loan stock bearing investment sum to its immediate parent FCC Services (East Ayrshire) Holdings Limited. The investment bears a rate of 9% per annum and principal repayments commenced on 31 March 2011 and will be repaid in full by September 2037. The rate on the principal amount accrues daily and is payable in cash on 30 September and 31 March each year. Interest not settled by cash on these dates is added to the principal and the Coupon accrues on this uplifted amount in the next period. Interest settled in the year was £nil (2023: £nil). The investment sum was advanced under a subordinated loan agreement and is therefore unsecured and would rank alongside ordinary creditors in the event of a winding up.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
The net deferred tax liability expected to reverse in 2025 is £nil (2024: £4,592). This relates to the reversal of short term timing differences.
There is a single class of ordinary share. There are no restrictions on the distribution of dividends and the repayment of capital.
The fair values of the interest rate swap have been calculated by discounting the fixed cash flows at forecasted forward interest rates over the term of the financial instrument. The bank borrowing and finance debtor are both held at amortised cost.
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 the Company's variable rate borrowings with banks which has the commercial effect of swapping the variable rate interest coupon on those loans for a fixed rate coupon. The bank loans and related interest rate swaps amortise at the same rate over the life of the loan/swap arrangements. The interest rate swaps were entered into on 27 July 2006 and amended on 20 April 2007 and expire on 30 September 2037. 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.
RPI swaps
The Company has entered into arrangements with third parties for the purpose of exchanging the vast majority of variable cash inflows arising from the operation of the Company's service concession asset in exchange for a pre-determined stream of cash inflows from these third parties. These arrangements meet the definition to be classified as derivative financial instruments. The Company entered into these derivative arrangements on 27 July 2006 and expire on 30 September 2037.
Under the terms of the project agreements, the Company is permitted to charge its principal customer, East Ayrshire Council an agreed amount for the services it provides. This amount is uplifted each year commencing 1 April using the current RPI for January against the base date RPI by an amount computed by reference to the average movement in RPI over the previous 12- month period measured from 1 April through to 31 March. This derivative arrangement (RPI swap) has the effect of exchanging variable cash inflows (impacted by changes in RPI) in exchange for a known and predetermined stream of cash flows expected to arise over the same period.
The Directors believe that the use of these RPI swaps is consistent with the Company's risk management objective and strategy for undertaking these hedges. The vast majority of the Company's cash outflows relate to borrowings (after interest rate swaps - see above) that carry a fixed coupon so that both the principal repayments, and coupon payments (after interest rate swaps - see above) are predetermined. The purpose of these hedges is to generate highly certain cash inflows so that the Company can meet its obligations under the terms of its borrowing arrangements. The Directors believe that the hedging relationship is highly effective and that the forecast cash inflows are highly probable and as a consequence have concluded that the RPI swap derivatives meet the definition of a cash flow hedge and have formally designated them as such.
Carrying value of all derivative financial instruments
All of the Company's derivative financial instruments are carried at fair value. The net carrying value of all derivative financial instruments at 31 December 2024 amounted to net liabilities of £13,090,975 (2023: £17,276,248) comprising liabilities of £11,638,538 for RPI swaps (2023: £12,608,410 ) and liabilities of £1,452,437 for interest rate swaps (2023: £4,667,838). All of the movements during the year in the fair value of these derivative financial instruments have been recorded in the cashflow hedge reserve amounting to a debit of £3,138,955 (2023: credit of £845,343).
The company is wholly owned by FCC (East Ayrshire) 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.
The following disclosures are with entities in the group that are not wholly owned:
The company paid £147,488 (2023: £123,259) to BIIF Bidco Limited and its subsidiaries for the provision of 2 directors and the provision of management services.
The company paid £nil (2023: £22,206) to Nord/LB Project Holding Limited for the provision of 2 directors. At year end, fees of £22,514 (2023: £nil) have been accrued. Also during the year £19,643 (2023: £24,898) was paid to Norddeutsche Landesbank Gironzentrale, in respect of commitment fees and £3,577,831 (2023: £3,144,535) in respect of term loan interest on a loan facility provided by them.
The company paid £nil (2023: £nil) to Infrastructure Investors Limited for the provision of 2 directors. At year end, fees of £84,487 were outstanding (2023: £nil).
The directors have agreed with the company's auditors that the auditors' liability to damages for breach of duty in relation to the audit of the company's financial statements for the year to 31 December 2024 should be limited to the greater of £5 million or 5 times the auditor's fees, and that in any event the auditors' liability for damages should be limited to that part of any loss suffered by the company as is just and equitable having regard to the extent to which the auditors, the company and any third parties are responsible for the loss in question. The shareholders approved this limited liability agreement, as required by the Companies Act 2006, by a resolution dated 28 November 2024.