The directors present the strategic report for Discovery Education (Holdings) Limited ("the Company") and its subsidiaries (collectively "the Group") for the year ended 31 March 2025.
On 27 February 2007 Discovery Education plc, a wholly owned subsidiary of the Group, entered into a contract with Dundee City Council to design, construct, finance and operate six primary schools and two secondary schools in Dundee under the Government's Private Finance Initiative Scheme. Construction of the final two schools was completed in April 2009.
At 31 March 2025, the Group had retained losses of £5,747,773 (2024: £6,991,007). In the current year the Group made a profit of £1,243,234 (2024: Loss of £2,332,865) primarily as a result of inflation stabilising, decreasing the index-linked movement on bond expense and related interest payments relative to the prior year.
The Group uses Key Performance Indicators to provide analysis of the development, performance and position of the Group.
There were service deductions of £7,239 (2024: £10,043) during the year. These were passed on in full to the facilities management provider.
The Group has exposures to a variety of financial and non-financial risks which are managed with the purpose of minimising any potential adverse effect on the Group's performance. The board has established risk management policies for managing each of these risks and they are summarised below:
Interest rate risk and Inflation risk
The Group mitigated its interest rate risk at the inception of the project by ensuring that the majority of its debt is at a fixed rate or a fixed rate uplifted by RPI increases. The Group's exposure to interest and inflationary fluctuations will continue to be monitored. The Group's project revenue and most of its costs were linked to inflation at the inception of the project.
Contract Performance risk
The Group's contract performance risk is mostly mitigated as facilities management services and lifecycle risk has been subcontracted to a third party provider. The performance of the subcontractor is being monitored every month to ensure that it stays at the required standard.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group adopts a prudent approach to liquidity management by maintaining sufficient cash and liquid resources to meet its obligations. The nature of the project is such that cash flows are reasonably predictable. Surplus cash is placed on deposit with institutions of a suitable credit quality.
Credit risk
Credit risk is the risk of financial loss to the Group if a counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers. The Group receives its revenue from Dundee City Council. The directors monitor amounts due carefully and do not consider there to be a significant credit risk. The Group does not undertake financial instrument transactions which are speculative or unrelated to the Group's trading activities. Board approval is required for the use of any new financial instruments.
Solvency and performance of sub-contractors
The solvency and performance of key subcontractors is regularly monitored by the directors.
The performance of the Group 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, which is the ratio of the Group's net cash inflows available for debt service relative to actual debt service payments. At the year end this ratio was 1.32 (2024: 1.32). The Group has been performing well and has been compliant with the covenants laid out in the group loan agreement.
Financial Instruments
The Group's principal financial instruments comprise index-linked bonds, which are listed on the London Stock Exchange main market, subordinated debt, cash at bank and short term deposits in Guaranteed Investment Contracts. The main purpose of these financial instruments is to ensure, via the terms of the various financial instruments, that the profile of the debt service costs is tailored to match expected revenues arising from the concession contract.
The Group has issued £86,800,000 of 1.948% Guaranteed Secured Index-Linked Bonds. The bonds are repayable in instalments from 2010 until the final repayment in 2037.
On behalf of the board
The directors present their report and the audited report and consolidated financial statements of Discovery Education (Holdings) Limited for the year ended 31 March 2025.
The profit for the year, after taxation, amounted to £1,243,234 (2024: Loss of £2,332,865) and the group had net liabilities as at 31 March 2025 of £5,273,773 (2024: £6,517,007). A review of the Group performance is set out in the Strategic Report.
The directors do not recommend the payment of a dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
Details of the financial instruments are noted in the Strategic Report.
No significant changes are expected to the Group's activities, as set out in the Strategic Report, in the foreseeable future.
A resolution to reappoint Johnston Carmichael LLP as auditor will be proposed at the Annual General Meeting.
We have audited the financial statements of Discovery Education (Holdings) Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 March 2025 which comprise the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows 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 group's and parent company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our 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 group and parent company and the sector in which they operate, 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; and
UK Generally Accepted Accounting Practice.
We gained an understanding of how the group and parent company are complying with these laws and regulations by making enquiries of management and those charged with governance. We corroborated these enquiries through our review of any relevant correspondence with regulatory bodies and board meeting minutes.
We assessed the susceptibility of the group's and parent company's 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
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 group’s and parent 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 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;
Completion of appropriate checklists and use of our experience to assess the group’s and parent 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.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s profit for the year was £0 (2024 - £0 profit).
Discovery Education (Holdings) Limited is a private company limited by shares and is incorporated and domiciled in Scotland. The address of its registered office is Exchange Tower, 11th Floor, 19 Canning Street, Edinburgh, Scotland, EH3 8EG.
The principal activity of the Group during the year was the provision and operation of six primary schools and two secondary schools in Dundee under the Government's Private Finance Initiative Scheme.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling, which is the functional currency of the group. Monetary amounts in these financial statements are rounded to the nearest £.
These financial statements are prepared on a going concern basis, under the historical cost convention.
The preparation of financial statements in conformity with FRS 102 requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed further in the accounting policies.
The accounting policies stated below have been consistently applied to the years presented, unless otherwise stated.
The parent company satisfies the criteria of being a qualifying entity as defined in FRS 102. As such, advantage has been taken of the following reduced disclosures available under FRS 102:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 33 'Related Party Disclosures': Compensation for key management personnel.
The consolidated financial statements include the Company and all its subsidiary undertakings. Where subsidiary undertakings are acquired during the period their results are included in the consolidated financial statements from the date of acquisition up to the date of the financial period end.
The Parent Company has applied the exemption contained in section 408 of the Companies Act 2006 and has not included its individual Statement of Comprehensive Income.
At 31 March 2025 the group had retained losses of £5,747,773 (2024: £6,991,007). In the current year the project company made a profit of £1,243,234 (2024: Loss of £2,332,865) primarily as a result of inflation stabilising, decreasing the index-linked movement on bond expense and related interest payments relative to the prior year.
The group prepares a detailed financial model semi-annually which forecasts cashflows, financial results and the financial position of the project company through to the end of the concession. In preparing these financial models, the directors include assumptions based upon expected future economic conditions, including forecast inflation and interest rates, and include costs profiled on known and expected expenditure. The group's operating cash flows are largely dependent upon unitary charge receipts from Dundee City Council and the directors expect these amounts to be recovered even under the most severe economic conditions.
Based on these forecasts, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements and continue to meet debt covenants and debt repayments as they fall due. In light of this, the directors continue to adopt the going concern basis of accounting in preparing the group's annual financial statements.
Upon the project becoming operational, all construction costs were transferred to a finance debtor. Cash receipts have subsequently been allocated between the finance debtor and interest receivable using a project specific interest rate. The company then releases the finance debtor to turnover in line with the fair value of services provided under the PFI agreements such as to recognise a constant rate of return for the company. The income is recognised, net of VAT, over the life of the concession period.
Fixed asset investments are initially recorded at cost, and subsequently stated at cost less any accumulated impairment losses.
The group 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 group's balance sheet when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and 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 instruments are initially recognised at the transaction price and subsequently at amortised cost, unless the arrangement constitutes a financing transaction, where it is recognised at the present value of the future payments discounted at a market rate of interest for a similar debt instrument.
Debt instruments are initially recognised at the present value of cash payable to the lender and are subsequently measured at amortised cost using the effective interest rate method. Where a bond contains cash flows that are inflation linked, the effective interest rate at initial recognition is determined as the rate that sets the estimated future cash flows to be paid on the bond, based on the expected level of the inflation index over the expected term of the bond to equal the fair value of the bond. Where in subsequent periods there is a change in inflation expectations, the changes are reflected by adjusting both the expected future cash flows on the debt and the effective interest rate. Therefore no adjustment to the carrying amount of the debt and no gain or loss is recognised. The effective interest rate amortisation is included in interest payable and similar charges in the Statement of Comprehensive Income. Fees paid on establishment of the bond have been capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.
Other financial instruments are subsequently measured at fair value, with any changes recognised in the Statement of Comprehensive Income.
Financial assets that are measured at cost or amortised cost are reviewed for objective evidence of impairment at the end of each reporting date. If there is objective evidence of impairment, an impairment loss is recognised in the Statement of Comprehensive Income immediately.
For all equity instruments regardless of significance, and other financial assets that are individually significant, these are assessed individually for impairment. Other financial assets are either assessed individually or grouped on the basis of similar credit risk characteristics.
Any reversals of impairment are recognised in the Statement of Comprehensive Income immediately, to the extent that the reversal does not result in a carrying amount of the financial asset that exceeds what the carrying amount would have been had the impairment not previously been recognised. 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 entity after deducting all of its financial liabilities.
Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented as such in the Balance Sheet. Finance costs and gains or losses relating to financial liabilities are included in the Statement of Comprehensive Income. Finance costs are calculated so as to produce a constant rate of return on the outstanding liability.
Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument. Dividends and distributions relating to equity instruments are debited direct to equity.
The tax expense represents the sum of the tax currently payable and deferred 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 group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
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 if, and only if, there is 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.
Finance debtor
The Group has taken the transition exemption in FRS 102 Section 35.10(i) that allows the Group to continue the service concession arrangement accounting policies from previous UK GAAP.
The Group 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 Group on the design and construction of the assets have been treated as a finance debtor within these financial statements.
Lifecycle
The Group is responsible for the lifecycle costs associated with its principal activity, however risk here is mitigated by passing on lifecycle risk to a third party facilities management company. Lifecycle costs are accounted for on an accrual basis as disclosed in the indicative lifecycle works program or lifecycle tracker as used by all parties through the operating phase of the concession period, with any underspend included within accruals and creditors due less than one year.
The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the amounts reported. These estimates and judgments are continually reviewed and are based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Key sources of estimation uncertainty
Accounting estimates and assumptions are made concerning the future and, by their nature, will rarely equal the related actual outcome. Actual results may therefore subsequently differ from these estimates. The key assumptions and other sources of estimation uncertainty are as follows:
i) 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 updated on a six monthly basis throughout the duration of the project.
The whole of the turnover is attributable to the principal activity of the group wholly undertaken in the United Kingdom.
Included in the fee above are costs borne for the audit of the parent Company entity Discovery Education (Holdings) Limited. Auditor's remuneration is payable to Johnston Carmichael LLP.
Particulars of Employees and Directors
The directors did not receive any remuneration directly from the Group during the year (2024: £nil). There were no employees in the financial year other than the directors (2024: nil).
Elgin Infrastructure Limited, one of the shareholders received fees of £16,883 (2024: £16,152) from the Group during the year in respect of Director services.
Crimson Project Investments Ltd, one of the shareholders received fees of £16,883 (2024: £16,152) from the Group during the year in respect of Director services
The actual charge/(credit) for the year can be reconciled to the expected charge/(credit) for the year based on the profit or loss and the standard rate of tax as follows:
As disclosed in the Deferred Tax note, losses carried forward in the current year are expected to reverse within 36 months of the year end.
The Company owns 100% of the share capital of Discovery Education (Nominee) Limited and 99.9% of Discovery Education plc. The remaining share capital of Discovery Education plc is owned by Discovery Education (Nominee) Limited and, as such, Discovery Education plc is wholly owned by the Group.
Included in prepayments and accrued income is £16,798,294 (2024: £17,462,279) relating to the unitary charge control account, of which £16,738,411 (2024: £16,168,990) is forecast to be received within the next 12 months via Unitary Charge receipts with amounts received being offset by service concession accounting adjustments.
The finance debtor represents payments due from Dundee City Council in respect of the Project Agreement. These payments are received over the remaining life of the agreement. There were no receivables past due (and no allowance for impairment of receivables) at the reporting date.
The movement in the finance debtor reconciles as £62,342,563 at beginning of year (2024: £65,424,095); £3,227,598 amortisation (2024: £3,081,532); and £59,114,965 at the end of the year (2024: £62,342,563).
Included within accruals and deferred income are amounts recognised in respect of future payments due on lifecycle underspends of £8,091,536 (2024: £8,324,482), the timings of which are uncertain.
The Index-Linked Senior Guaranteed Secured Bonds, which are listed on the London Stock Exchange main market, have a nominal value of £86,800,000 and mature on 31 March 2037. Capital repayments are such that they pay down a percentage of each bond note in issue rather than the individual bond notes in their entirety and at the year end £41,256,000 of the nominal value of the bonds issued had been repaid. The bonds are the subject of and have the benefit of a bond trust deed dated 27 February 2007 between the Group, Ambac Assurance UK Limited and Prudential Trustee Company Limited in its capacity as bond trustee. The bonds are index-linked, assume a base RPI index of 198.5 and attract interest at 1.948% per annum. Repayment of the bond including indexation is half yearly and commenced on 31 March 2010. The bonds are held at amortised cost.
Prudential Trustee Company Limited has a floating charge over all the assets of the Group for all present or future, actual or contingent obligations.
Other borrowings relates to subordinated debt due to group undertakings. The subordinated debt is unsecured and attracts an effective interest at 14% per annum payable half yearly. The debt will be fully repaid by 31 March 2038. There is no formal repayment schedule. The subordinated debt is held at amortised cost.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
The deferred tax asset set out above is expected to reverse within 3-4 years and relates to the utilisation of tax losses against future expected profits of the same period.
A Shares are voting shares. There are no restrictions on the distribution of dividends and the repayment of capital.
B Shares are non voting shares. They are not entitled to any distributions and any return of capital is restricted to the par value of each B Share.
Group
The directors consider the material transactions undertaken by the Group during the year with related parties were as follows:
Discovery Education (Holdings) Limited is owned 49.25% by Elgin Infrastructure Limited. The Group paid £16,883 (2024: £16,152) to Elgin Infrastructure Limited for the provision of directors. £nil (2024: £nil) remained outstanding at the year end.
During the year interest of £290,464 (2024: £386,946) was payable from the Group to Elgin Infrastructure Limited. Interest of £nil (2024: £nil) was due to Elgin Infrastructure Limited at the year end. £273,500 (2024: £360,422) relating to subordinated debt principal was paid to Elgin Infrastructure Limited. Subordinated debt due to Elgin Infrastructure Limited at the year end was £1,865,579 (2024: £2,131,615).
Discovery Education (Holdings) Limited is owned 49.25% by Crimson Project Investments Limited. The Group paid £16,883 (2024: £16,152) to Crimson Project Investments Limited for the provision of directors. £nil (2024: £nil) remained outstanding at the year end.
During the year interest of £290,464 (2024: £386,946) was payable from the Group to Crimson Project Investments Limited. Interest of £nil (2024: £nil) was due to Crimson Project Investments Limited at the year end. £273,500 (2024: £360,421) relating to subordinated debt principal was paid to Crimson Project Investments Limited. Subordinated debt due to Crimson Project Investments Limited at the year end was £1,865,578 (2024: £2,131,614).
At the year end Discovery Education (Holdings) Limited is owned 49.25% by Elgin Infrastructure Limited, which is a joint venture between Cobalt Project Investments Limited and Ednaston Project Investments Limited, and 49.25% by Crimson Projects Investments Limited and 1.5% by Dundee City Council. As no one company has overriding control, it is deemed that there is no ultimate controlling party.
The accounts of Discovery Education (Holdings) Limited can be obtained from Exchange Tower, 11th Floor, 19 Canning Street, Edinburgh, EH3 8EG.
Profit and Loss Reserves - This reserve records accumulated profits and losses.