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Octagon Healthcare (48DB)

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Tuesday 07 August, 2007

Octagon Healthcare

Final Results

Octagon Healthcare Funding PLC
07 August 2007




Octagon Healthcare Funding PLC
Directors' report and financial statements
31 December 2006
Registered number: 4870001



Contents

Company information                                                            1
Directors' report                                                              2
Statement of directors' responsibilities                                       4
Independent auditors' report to the members of Octagon Healthcare Funding PLC  5
Profit and loss account                                                        7
Balance sheet                                                                  8
Notes                                                                          9


Company information

Directors

M Baybutt    (Alt for IJ Wells)
A Bell
WR Doughty            (Alt for BS Williams)
WW McNaught
JM Sisson      (Chairman)
JW Ward
IJ Wells
BS Williams

Secretary
DC Howe

Registered office

The Norfolk & Norwich University Hospital
Colney Lane
Norwich
NR4 7UY



Auditors

KPMG Audit Plc
8 Salisbury Square
London EC4Y 8BB
United Kingdom


Directors' report

The directors present their report and the audited financial statements for the
year ended 31 December 2006.

Principal activity

The principal activity of the Company is the raising of finance through the bond
market and its onward loan to a related party, Octagon Healthcare Limited,
during the refinancing of that company's operations in December 2003.

Business review

In December 2003 Octagon Healthcare Limited, a related company involved in the
finance, construction and part operation of the Norfolk and Norwich University
Hospital under the Government's Private Finance Initiative, refinanced its
operations and negotiated an extension of the initial contract term with the
Norfolk and Norwich University Hospital NHS Trust (The Trust) to 35 years.
Octagon Healthcare Funding PLC raised funds for that refinancing through the
bond market (the Bond) and on loaned them to Octagon Healthcare Limited.

Key performance indicators (KPIs)

1.        Performance deductions under the service contract

The Company is required to pay interest and repay a proportion of the capital
raised by the Bond on specified dates during the year. The ability to meet these
requirements is dependant upon the performance of a related company, Octagon
Healthcare Limited. Financial penalties are levied against Octagon Healthcare
Limited by The Trust in the event of performance standards not being achieved or
parts of the hospital becoming unavailable for their anticipated use in
accordance with the detailed criteria set out in the Project Documents. Where
appropriate deductions are passed on to the service provider but the quantum is
an indication of that company's performance. For the year ending 31 December
2006 no deductions had been levied against the Octagon Healthcare Limited (2005:
£Nil) and therefore the Company met all obligations to make the required
payments under terms of the Bond.

2.     Financial performance

The Company has modelled the anticipated financial outcome of the project across
the term of the agreement up to the date of the first break option; this option
is exercisable by The Trust in 2037. The Company monitors actual financial
performance against this anticipated performance. As at 31 December 2006, the
Company's performance against this measure was satisfactory.

Position of the Company at the year end

The Company is continuing to provide finance to Octagon Healthcare Limited which
in turn is continuing to provide a satisfactory facilities management service at
the Norfolk and Norwich University Hospital.

Principal risks and uncertainties

The Norfolk and Norwich University Hospital NHS Trust (The Trust) is the sole
client of Octagon Healthcare but the directors consider that no risk arises from
such a small client base since the Secretary for Health has underwritten The
Trust's obligations.

Performance risk under the Project Agreement and related contracts entered into
by Octagon Healthcare Limited is passed on to the service provider. The
obligations of its subcontractor are underwritten by a parent company guarantee.

Financial risk management policies and objectives

The Company's principal financial instruments comprises of a fixed rate bond
details of which are given in Note 13.

Dividends

The directors do not recommend the payment of a dividend (2005: £Nil).


Directors

The directors who held office during the year were as follows:

M Baybutt          (Alt for IJ Wells) Appointed 12 September 2006
A Bell             Appointed 21 February 2007
ME Black           Resigned 21 February 2007
WR Doughty         Alt for BS Williams
RW Jewson          Resigned 1 August 2006
WW McNaught
GA Neville         Resigned 12 September 2006
JM Sisson          Appointed 1 August 2006
JW Ward
IJ Wells           Appointed 12 September 2006
BS Williams


None of the directors who held office at the end of the financial year had any
disclosable interest in the shares of the group companies.

Financial instruments

The financial risk management objectives and policies of the Company, together
with an analysis of the exposure to such risks, as required under the Companies
Act are set out in Note 13 of the Notes on the financial statements.

Disclosure of information to auditors

The directors who held office at the date of approval of this directors' report
confirm that, so far as they are each aware, there is no relevant audit
information of which the Company's auditors are unaware; and each director has
taken all the steps that they ought to have taken as a director to make
themselves aware of any relevant audit information and to establish that the
Company's auditors are aware of that information.

Policy on payment of creditors

It is policy to comply with the payment terms agreed with suppliers. Where
payment terms are not negotiated the Company endeavours to adhere with suppliers
standard terms.

Auditors

During the year KPMG Audit Plc were re-appointed as auditors of the company. In
accordance with Section 385 of the Companies Act 1985, a resolution to reappoint
KPMG Audit Plc as auditors is to be proposed at the next Annual General meeting.

By order of the board


DC Howe                                                        The Norfolk & Norwich University Hospital
Secretary                                                                                    Colney Lane
Date:4 July 2007                                                                                 Norwich
                                                                                                 NR4 7UY




Statement of directors' responsibilities in respect of the directors' report and
the financial statements

The directors are responsible for preparing the Directors' Report and the
financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each
financial year.  Under that law they have elected to prepare the financial
statements in accordance with UK Accounting Standards and applicable law (UK
Generally Accepted Accounting Practice).

The financial statements are required by law to 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;

•    make judgments and estimates that are reasonable and prudent;

•    state whether applicable UK Accounting Standards have been followed, 
     subject to any material departures disclosed and explained in the financial
     statements; and

•    prepare the financial statements on the going concern basis unless it
     is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
company and enable them to ensure that its financial statements comply with the
Companies Act 1985.  They have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the company and to
prevent and detect fraud and other irregularities.



Independent auditors' report to the members of Octagon Healthcare Funding PLC

We have audited the financial statements of Octagon Healthcare Funding Plc for
the year ended 31 December 2006 which comprise the Profit and Loss Account, the
Balance Sheet, and the related notes.  These financial statements have been
prepared under the accounting policies set out therein.

This report is made solely to the company's members, as a body, in accordance
with section 235 of the Companies Act 1985.  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.

Respective responsibilities of directors and auditors

The directors' responsibilities for preparing the financial statements in
accordance with applicable law and UK Accounting Standards (UK Generally
Accepted Accounting Practice) are set out in the Statement of Directors'
Responsibilities on page 4.

Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with the Companies Act
1985.  We also report to you whether in our opinion the information given in the
Directors' Report is consistent with the financial statements.

In addition we report to you if, in our opinion, the company has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law regarding
directors' remuneration and other transactions is not disclosed.

We read the Directors' Report and consider the implications for our report if we
become aware of any apparent misstatements within it.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board.  An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements.  It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the company's circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error.  In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.


Independent auditors' report to the members of Octagon Healthcare Funding PLC
(continued)


Opinion

In our opinion:
     
•    the financial statements give a true and fair view, in accordance with UK 
     Generally Accepted Accounting Practice, of the state of the company's 
     affairs as at 31 December 2006 and of its profit for the year then ended;

•    the financial statements have been properly prepared in accordance with
     the Companies Act 1985; and

•    the information given in the Directors' Report is consistent with the
     financial statements.



KPMG Audit Plc            (Date)
Chartered Accountants


Profit and loss account
for the year ended 31 December 2005

                                                          Note 2006              2005
                                                               £                £

Turnover                                                       -                -
Net operating costs                                          2 (13,154)         (49)

Operating loss                                                 (13,154)         (49)
Interest payable and similar charges                         3 (16,219,746)     (16,287,488)
Other interest receivable and similar income                 4 16,251,190       16,318,513

Profit on ordinary activity before taxation                    18,290           30,976
Taxation on profit on ordinary activity                      5 (3,475)          (2,494)

Profit for the financial year                                  14,815           28,482


There were no other recognised gains and losses for the year other than the
profit stated above. There is no difference between the historical cost profit
and the profit stated above. All of the results relate to continuing activities.

Movements on reserves are shown in note 11.
The notes on pages 9 to 14 form part of these financial statements.


Balance sheet

at 31 December 2006

                                                              Note 2006            2005
                                                                   £               £
Current asset
Debtors (£299,769,518 (2005:
£302,419,255) due after more than
one year)                                                        6 302,513,882     313,455,912
Cash at bank and in  hand                                          81,282          31,690

                                                                   302,595,164     313,487,602

Creditors: amounts falling due                                   8 (2,710,765)     (10,968,281)
within one year

Net current assets                                                 299,884,399     302,519,321

Creditors: amounts falling due                                   9 (299,769,518)   (302,419,255)
after more than one year

Net assets                                                         114,881         100,066

Capital and reserves
Called up share capital                                         10 50,000          50,000
Profit and loss account                                         11 64,881          50,066

Equity shareholders' funds                                      12 114,881         100,066


These financial statements were approved by the board of directors on 20 March
2007 and were signed on its behalf by:







WR Doughty
Director


The notes on pages 9 to 14 form part of these financial statements.





 Notes

(forming part of the financial statements)



1              Accounting policies

(i)           Basis of preparation of the accounts

The financial statements have been prepared in accordance with applicable
accounting standards and under historical accounting rules.

Under Financial Reporting Standard 1 the Company is exempt from the requirement
to prepare a cash flow statement on the grounds of that a parent undertaking
includes the company in its own published consolidated financial statements.

As the company is a subsidiary of Octagon Healthcare Group Limited, the company
has taken advantage of the exemption contained in FRS 8 and has therefore not
disclosed transactions or balances with entities which form part of the group
(or investees of the group qualifying as related parties).  The consolidated
financial statements of Octagon Healthcare Group Limited, within which this
company is included, can be obtained from the address given in note 14.

(ii)         Taxation

Deferred taxation is recognised without discounting, in respect of all timing
differences between the treatment of certain items for taxation and accounting
purposes which have arisen but not reversed by the balance sheet date, except as
otherwise required by FRS 19.

     
2    Net operating cost

                                                                      2006              2005
                                                                      £                 £

Other charges, net of recovery                                        13,154            49

     
3    Interest payable and similar charges

                                                                      2006              2005
                                                                      £                 £

Interest on bonds                                                     16,219,746        16,287,307
Other interest payable                                                -                 181
                                                                      _______           _______
                                                                      16,219,746        16,287,488


Notes (continued)
     
4    Other interest receivable and similar income

                                                                   2006              2005
                                                                   £                 £

Interest receivable on inter group loans                           16,250,160        16,317,844
Interest receivable on bank deposits                               1,030             669

                                                                   16,251,190        16,318,513


5              Taxation

 Analysis of charge in year
                                                           2006             2005
                                                           £                £
UK corporation tax
Current tax on income for the year
@ 19% (2005:19%)                                           3,475            5,885
Adjustments in respect of prior                            -                (3,391)
periods

Tax on profit on ordinary                                  3,475            2,494
activities




Factors affecting the tax charge for the current year

The current tax charge for the year is the same (2005: lower) as the standard
rate of corporation tax in the UK 19% (2005: 19%). The differences are explained
below.
                                                          2006             2005
                                                          £                £
Current tax reconciliation
Profit on ordinary activities before tax                  18,290           30,976

Current tax at 19% (2005: 19%)                            3,475            5,885

Effects of:
Adjustments in respect of prior periods                   -                (3,391)

Total current tax charge (see above)                      3,475            2,494


It has been announced that the corporation tax rate applicable to the Company is
expected to change from 30% to 28% from 1 April 2008.

Notes (continued)



6        Debtors

                                                                        2006           2005
                                                                        £              £

Inter group loan (note 7)                                               302,419,255    305,197,650
Amounts receivable from other group members                             50,000         65,302
Prepayments and accrued income                                          44,627         8,192,960
                                                                        _______        _______
                                                                        302,513,882    313,455,912


7              Debtors: amounts falling due after more than one year

                                                                        2006           2005
                                                                        £              £
Inter group loan:
Instalments due          within 1 year                                  2,649,737      2,778,395
                                  1-2 years                             1,939,056      2,649,737
                                  2-5 years                             10,896,087     6,317,491
                                  Over 5 years                          286,934,375    293,452,027

                                                                        302,419,255    305,197,650
Less: Amount due within 1 year                                          2,649,738      2,778,395

                                                                        299,769,517    302,419,255


The inter group loan is repayable in half yearly instalments and is subject to a
fixed rate of interest of 5.343% calculated on a half yearly basis.

8         Creditors: amounts falling due within one year

                                                                         2006          2005
                                                                         £             £

Bond proceeds (note 9)                                                   2,649,737     2,778,395
Corporation tax                                                          3,361         5,885
Accruals and deferred income                                             44,544        8,184,001
Inter group balances                                                     13,123        -


                                                                         2,710,765     10,968,281




Notes (continued)



9              Creditors: amounts falling due after more than one year


                                                                         2006          2005
                                                                         £             £
Bond proceeds
Instalments due          within 1 year                                   2,649,737     2,778,395
                                  1-2 years                              1,939,056     2,649,737
                                  2-5 years                              10,896,087    6,317,491
                                  Over 5 years                           286,934,375   293,452,027


                                                                         302,419,255   305,197,650
Less: Amount due within 1 year                                           2,649,737     2,778,395


                                                                         299,769,518   302,419,255



The bonds are secured by a fixed and floating charge over the assets of the
Company. The bond is repayable in half-yearly instalments and is subject to an
interest rate of 5.333% calculated on a half yearly basis.



10       Called up share capital

                                                                         2006          2005
Equity                                                                   £             £
Authorised
50,000 shares of £1 each                                                 50,000        50,000


Called up and fully paid
50,000 shares of £1 each                                                 50,000        50,000



11           Reserves

                                                                                       Profit
                                                                                       and loss
                                                                                       account
                                                                                       2005
                                                                                       £

At beginning of the year                                                               50,066
Retained profit for the year                                                           14,815


At end of the year                                                                     64,881


12           Reconciliation of movements in equity shareholders' funds

                                                                      2006           2005
                                                                      £              £

Profit for the year                                                   14,815         28,482
Opening equity shareholders' funds                                    100,066        71,584

Closing equity shareholders' funds                                    114,881        100,066


Notes (continued)



13           Financial instruments



Exposure to credit and interest rate risks arise in the normal course of the
Company's business.

Credit policy

Although The Norfolk and Norwich University Hospital NHS Trust (The Trust) is
the only client of the Octagon Healthcare Group the directors are satisfied that
The Trust will be able to fulfil its collateral obligations under the PFI
contract that are in turn underwritten by the Secretary of State for Health.

Effective interest rates and repricing analysis

In respect of income-earning financial assets and interest-bearing financial
liabilities, the following table indicates their effective interest rates at the
balance sheet date and the period in which they reprice:

 
                                              2006                             
                         Effective   Total     One   1 - 2      2 - 5  5 years
                                           year or   years      years  or more
                          Interest                                      
                              rate            less                           
                                     £'000   £'000   £'000     £',000   £'000  
                                                                               
Cash                           2%       81      81       -        -         -  
Inter group loans          5.343%  302,419   2,649   1,939   10,896   286,934  
Bonds                      5.333% (302,419) (2,649) (1,939) (10,896) (286,934)
                                     ______  ______  ______   ______    ______
                                        81      81       -        -         -  
                                      ----    ----    ----     ----      ----  



                                                 2005                              
                          Effective    Total      One    1 - 2    2 - 5   5 years
                           Interest           Year or    years    years   or more
                               rate              less                            
                                       £'000    £'000    £'000    £'000     £'000  
                                                                                   
Cash                             2%       32       32        -        -         -  
Inter group loans            5.343%  305,198    2,778    2,650    6,318   293,452  
Bonds                        5.333%  (305,198) (2,778)  (2,650)  (6,318)  (293,452)
                                       ______   ______   ______   ______    ______
                                           32      32        -        -         -  
                                         ----     ----     ----     ----      ----  



Notes (continued)



13    Financial instruments (continued)

Fair values

The fair values together with the carrying amounts shown in the balance sheet of
all financial assets and financial liabilities are as follows:

                                2006           2006           2005           2005
                                Carrying       Fair value     Carrying       Fair value
                                amount                        Amount
                                £              £              £              £

Cash                            81,282         81,282         31,690         31,690
Inter group loans               302,419,255    299,688,334    305,197,650    317,339,832
Bonds                           (302,419,255)  (314,044,251)  (305,197,650)  (338,555,753)


                                81,282         (14,274,635)   31,690         (21,184,231)



Estimation of fair values

The following summarises the major methods and assumptions used in estimating
the fair values of financial instruments reflected in the table.
     
•    Fair value of the bonds is the quoted price of the bonds.

•    Fair value of the inter-group loans is calculated based upon discounted 
     expected future principal and interest cash flows. Where fair values have 
     been assessed by discounting carrying amounts of future principal and
     interest cash values, the discount rates used are 5.0625% (2005: 5.0625%) 
     pa.

Sensitivity analysis

Since the Company has offsetting fixed rate financial assets and liabilities, a
general increase of one percentage point in interest rates would not
significantly impact the profits of the Company.

14   Utimate parent company and parent undertaking of larger group of which the 
     company is a member

The Company is a subsidiary undertaking of Octagon Healthcare Group Limited
incorporated in the United Kingdom.

The largest and smallest group in which the results of the Company are
consolidated is that headed by Octagon Healthcare Group Limited. The
consolidated account of the group is available to the public and may be obtained
from The Norfolk and Norwich University Hospital, Colney Lane, Norwich, NR4 7UY.
     
15   Profit on ordinary activities before taxation

Auditors' remuneration of the Company is borne by a related party.

The directors of the company did not receive any emoluments from the company
during the year (2005: £Nil).

Apart from the directors there were no other employees of the company during the
year (2005: Nil).


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