The directors present the strategic report for the year ended 31 March 2025.
These financial statements have been prepared under FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland".
Company objectives
The objectives of the Company are to successfully design, construct, finance and operate communication facilities at the Ministry of Defence, Basil Hill, Corsham for a period of 25 years through a contract with the Ministry of Defence under the government's Private Finance Initiative (the PFI contract).
Company's strategy
To ensure that the Company achieves its objective, the strategy is to implement processes, policies and procedures to comply with the control matrices stipulated in the project documentation committed to at the inception of the project. This includes minimising performance and availability deductions, cash monitoring and maintenance of good working relationships between all stakeholders.
Ownership
The Company is owned by Inteq Services (Holdings) Ltd which is owned by its parent companies Coral Project Investments LP and Dalmore Capital Fund LP, acting by their general manager, Dalmore Capital Limited, and operates in the United Kingdom.
The Company declared dividends in the year of £637,000 (2024: £1,240,000).
The profit for the financial year is £919,000 (2024: £1,159,000).
At the year end the Company had net liabilities of £1,392,000 (2024: £2,595,000).
The Company's operations are managed under the supervision of its shareholders and lender and are largely determined by the detailed terms of the PFI contract. For this reason, the Company's Directors believe no other key performance indicators are necessary or appropriate to understand the performance and financial position of the Company.
The PFI contract and related subcontracts are fixed for the life of the contract and this enables the Company to have reasonable certainty over its income and expenditure for this period. In addition, the Company has a Facilities Agreement in place with its lender which fixes the levels of borrowing and repayments due until the loans are fully repaid in 2033.
General
As the project is currently in its operational phase, operational risks are monitored closely. This takes the form of full-time representation on site through the Company's management services agent, periodic reporting by an independent Technical Assessor, and regular dialogue with the executive team of The Ministry of Defence.
Whilst the main elements of cash flow (unitary payments, facility management costs and lifecycle costs) are contractually linked to the RPI index, a relatively small proportion of total costs is not. A rise in these costs above the general rate of inflation would reduce debt service cover ratios. The most significant of these costs is insurance. The Company’s claims history so far is good, and recent policy renewals have led only to moderate premium increases. In addition, there are mechanisms under the terms of the PFI contract to share with The Ministry of Defence any extreme changes in policy premiums.
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 passed down to the subcontractors so there is no direct financial consequence to the Company. Sustained non-availability can lead to contract termination but the Company is not anywhere close to such termination trigger points. Compliance with the detailed and complex operational requirements of the PFI contract remains a key risk given the potential termination consequences. Directors receive regular reports on actual performance compared to termination trigger thresholds.
Another risk is the continued funding from the public sector counterparties to the PFI contract, especially as these counterparties are under pressure to make savings on their operational PFI contracts. To date, most of the pressure to make such cost savings has fallen on the sub-contractors to the PFI project companies rather than on the PFI project companies themselves. Furthermore, it is understood that current policy from central government is not to encourage voluntary termination of PFI projects.
The operational activity is closely monitored throughout the year. This takes several forms: regular site visits by Directors, full-time representation on site through the Company’s management services agent, an annual report by the Lender's technical advisor and quarterly reporting by the management services agent.
The Company made a pre-tax profit of £1,225,000 compared to a pre-tax profit of £1,545,000 in 2024, largely due to higher operating costs in 2025.
The delivery of operational services is generally running well and is expected to continue to do so.
The Company's operations are managed under the supervision of its shareholders and lender and are largely determined by the detailed terms of the PFI contract.
The level of performance and availability deductions arising from failures to achieve specified levels of contract service is a key performance indicator. These are reported quarterly to the Board and have been extremely small in relation to total unitary payments.
Another key indicator is the ratio of operating cash flow to the senior debt service amount. This ratio is tested at six-monthly intervals and each time it has been to the satisfaction of the lender.
The Company currently has £70,909,000 of total debt (2024: £77,427,000). Whilst it has net liabilities of £1,392,000 in 2025 (2024: £2,595,000), this is as a result of accounting for the fair value of an interest rate swap agreement, the majority of which does not crystallise as liabilities for a number of years and as such 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.
Therefore, the directors, having considered the financial position of the company and its expected future cash flows for at least 12 months from the date of signing the financial statements, and have prepared the financial statements on a going concern basis. The directors confirm that they do not intend to liquidate the company or cease trading. At the time of approving the financial statements, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future.
Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.
The directors of the Company consider they have acted appropriately and in such a way as to promote the long term success of the Company for the benefit of its members as a whole.
The Company has no direct employees as it is managed under a Managed Service Agreement (MSA). The directors are satisfied that those people employed under the MSA are appropriately qualified and have the support systems in place to carry out their role. The directors are engaged with each team under the MSA to ensure the ongoing management of the underlying contracts of the Company and they work collaboratively with the teams to achieve success.
The Company is a special purpose company which has a finite lifespan with a defined set of obligations under Concession Agreements. The Company delivers its objectives through effective relationships with its stakeholders including suppliers and customers. This is affected by regular reporting and reviews with suppliers and customers to ensure delivery of the Company's objectives, whilst considering those stakeholders' needs. The directors of the Company meet regularly to review strategies for effective risk mitigation and service delivery in the context of its impact on all stakeholder interests, including shareholders, suppliers, customers and the wider community.
Due to the nature of the Company's operations, their impact on the community and environment is of paramount importance to the Company's success. Operating safely is the Company's primary objective and is as such integrated in everything the Company undertakes. A safe environment is managed through effective leadership, implementation of robust policies, procedures and instructions, safety management review processes both internally and externally with relevant stakeholders, reporting, audit and monitoring. An independent safety advisor is appointed by each of the companies within the Group, who reports directly to the Board of Directors.
The Company delivers contracts to support essential services to the public sector and takes its responsibility for ensuring that an appropriate environment is managed and maintained extremely seriously, ensuring the highest quality service is delivered from the assets under the Company's management.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 March 2025.
Strategic report
The information that fulfils the Companies Act requirements of the business review is included in the strategic report. This includes a review of the development of the business of the Company during the year, of its position at the end of the year including a going concern statement, principal risks and uncertainties, and of the likely future developments in its business.
Environment
The Company recognises the importance of its environmental responsibilities, monitors its impact on the environment, and implements policies via its subcontractors to reduce any damage that might be caused by the Company's activities.
The results for the year are set out on page 11.
Ordinary dividends were paid amounting to £637,000 (2024: £1,240,000).
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The Company is exposed to fair value interest rate risk on its fixed rate borrowings and cash flow interest rate risk on floating rate deposits and loans. The company uses interest rate derivatives to manage the mix of fixed and variable rate debt so as to reduce its exposure to changes in interest rates.
The Company holds or issues financial instruments for the purpose of financing its construction activity. In addition, various financial instruments - for example, trade debtors, trade creditors, accruals and prepayments - arise directly from the Company's operations.
The main risks arising from the Company's financial instruments are interest rate risk and liquidity risk. The board reviews and agrees policies for managing each of these risks and they are summarised below.
The latest financial forecasts show that unitary payment receivable under the PFI contract will be sufficient to repay all senior loan payments as they fall due.
The Company hedged its interest rate risk at the inception of the project by swapping its variable rate debt into a fixed rate by the use of an interest rate swap.
The Company places excess funds on fixed term deposit until required to service its debt.
The Company receives the majority of its income from The Ministry of Defence and is not exposed to significant credit risk.
Cash investments and the interest rate swap arrangements are with institutions of a suitable credit quality.
The Company's project revenue and most of its costs were linked to inflation at the inception of the project, resulting in the project being largely insensitive to inflation.
Pursuant to section 487 of the Companies Act 2006, the auditor will be deemed to be reappointed and Johnston Carmichael LLP will therefore continue in office.
We have audited the financial statements of Inteq Services Ltd. (the 'company') for the year ended 31 March 2025 which comprise the statement of comprehensive income, the balance sheet, the 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).
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the 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
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 Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
The Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
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:
Companies Act 2006;
UK Corporation Tax legislation;
VAT legislation; and
United Kingdom Generally Accepted Accounting Practice.
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 submitted returns 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:
Management override of controls; and
Revenue recognition
In addition to the above, the following procedures were performed to provide reasonable assurance that the financial statements were free of material fraud or error:
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 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 assessing judgements made by management in their calculation of accounting estimates for potential management bias;
Recalculating the unitary charge received by taking the base charge per the project agreement and uplifting for RPI;
Agreeing a sample of monthly income receipts to supporting documents 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;
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.
The notes on pages 14 to 27 form part of these financial statements.
The notes on pages 14 to 27 form part of these financial statements.
Inteq Services Ltd. is a private company limited by shares incorporated in England and Wales. The registered office is 1 Park Row, Leeds, United Kingdom, LS1 5AB.
The financial statements are prepared in Pound Sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £'000.
These financial statements are prepared on a going concern basis, under the historical cost convention, as modified by the revaluation of certain financial assets and liabilities.
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.
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 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.
Derivatives, including interest rate 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 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.
Finance Debtor
The Company has taken advantage of the transition exemption in FRS 102 Section 35.10(i) that 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.
The underlying finance asset is not deemed to be an asset of the Company under FRS102 section 34C, because the risks and rewards of ownership as set out in that Standard are deemed to lie principally with The Ministry of Defence. Under 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.
The balance of Management service income received, after accounting for the finance debtor interest and amortisation components (which together sum to a constant figure in each period, as in a lease) is accounted for as turnover. This figure is adjusted in each period to ensure that income recognised more accurately reflects the value of economic benefits provided to the public sector client in each period, and is necessary due to the inflationary nature of the Management service income payments. As a consequence of this adjustment to turnover, which is generally positive in the first half of the concession and negative in the second half (and must net out over the whole concession), a unitary payment control account debtor or creditor is recorded on the balance sheet.
Lifecycle
Under the terms of the PFI contract, the company has a programme of expenditure for the maintenance of and replacement of non-moveable assets in the facilities. The company recognises such expenses as incurred, with any committed expenditure at the balance sheet dates being appropriately accrued for with the associated expense recognised through the Statement of Comprehensive Income.
The preparation of the financial statements in conformity with FRS 102 requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based upon historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which form the basis of making judgements about carrying values of assets and liabilities that are not readily available from other sources. 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 if the revision affects only that period or in the period of revision and future periods if the revision affects both current and future periods.
The Company’s borrowings are linked to SONlA and the Company has entered into interest rate swaps to restrict its exposure to future interest rate fluctuations.
In assessing whether the company is entitled to apply cash flow hedge accounting, the directors must apply judgment in considering whether there is appropriate matching between the hedged item (the loan balance) and the hedging instrument (the interest rate swap). The directors must prepare documentation to demonstrate this consideration.
In the director’s judgment, the Company has met the criteria for cash flow hedge accounting, accordingly the Company has therefore recognised fair value movements on derivatives in effective hedging relationships through other comprehensive income as well as deferred taxation thereon.
The Company was established to provide services under certain private finance agreements with the Ministry of Defence. Under the terms of these Agreements, the Ministry of Defence (as grantor) controls the services to be provided by the Company over the contract term. Based on the contractual arrangements the Company has classified the project as a service concession arrangement, and has accounted for the principal assets, of and income streams from, the project in accordance with FRS 102, Section 34.12 Service 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.
Derivative financial instruments are carried at fair value, which required estimation of various factors including future interest rates and credit risk.
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.
The turnover and profit before tax arose entirely within the United Kingdom and through one principal activity.
Auditor's remuneration is payable to Johnston Carmichael LLP.
The average monthly number of persons (including directors) employed by the company during the year was nil (2024: nil)
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
In addition to the amount charged to the profit and loss account, the following amounts relating to tax have been recognised directly in other comprehensive income:
Factors that may affect future tax charges
Corporation tax was 19% until 31 March 2023. Thereafter, the main rate increased to 25% for business profits of over £250,000 made by the Company. A small profit rate (SPR) was also introduced for companies with profits of £50,000 or less so that they continue to pay corporation tax at 19%. Companies with profits between £50,000 and £250,000 pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective corporation tax rate. The Company has assessed the impact of this change and consider the full rate of 25% applies.
There is a deferred tax asset relating to the interest rate derivative, calculated at 25%, which will unwind over the term of the hedging arrangement. All movements in the deferred tax have been recognised in other comprehensive income.
The secured senior loan represents amounts borrowed under the Facility Agreement with Commerzbank.
The loan bears interest at a 0.9% margin over SONIA and is repayable in six-monthly instalments between 2012 and 2033. The loan is secured by fixed and floating charges over the property, assets and rights of Inteq Services Ltd, and has certain covenants attached.
In order to hedge against interest variations on the loan, the Company has entered into an interest rate swap agreement with the bank whereby at six monthly intervals sums are exchanged reflecting the difference between floating and fixed interest rates, calculated on a predetermined notional principal amount.
The subordinated unsecured loan stock was subscribed by the shareholders on 25 October 2011 and bears interest at 12% per annum payable six-monthly in March and September each year. The stock is subordinated until all of the secured obligations of the Company have been repaid or discharged in full. Loans from group undertakings are unsecured.
Terms and debt repayment schedule
The senior loan is secured by a fixed and floating charge over the assets of the Company.
The subordinated unsecured loan stock was subscribed by the shareholders on 25 October 2011 and bears interest at 12% per annum payable six-monthly in March and September each year. The stock is subordinated until all of the secured obligations of the Company have been repaid or discharged in full. Loans from group undertakings are unsecured.
The Company also has a Working Capital Facility of £250,000 (2024: £250,000), Change in Law Facility of £2,408,686 (2024: £2,408,686) and Service Reserve Facility of £6,469,526 (2024: £6,469,526) with CommerzBank which bears a rate of 0.4% paid semi annually. This has not been drawn down.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
The deferred tax asset set out above relates to the interest rate derivative which will unwind over the term of the hedging arrangement.
Post year end, an interim dividend of £812,000 was declared and paid. At the time that this interim dividend was declared there were understood to have been sufficient retained earnings to justify its payment, under the requirements of the Companies Act 2006 Part 23, including Sections 836 and 838. However, post declaration and payment, accounting adjustments identified reduced retained earnings brought forward such that there were no longer sufficient realised reserves to cover £490,000 of the declared and paid dividend.
The company has confirmed its intention to waive and release any and all claims which it may have against its shareholders and directors in connection with this distribution. The directors acknowledge that no further distributions can be made until there are sufficient profits available for that purpose. The company remains profitable, and anticipates a return to positive retained earnings within six months following the year end.
The Company has taken advantage of exemption, under the terms of Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', not to disclose related party transactions with wholly owned subsidiaries within the group.