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Transform Sch NL Fd (73GD)

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Tuesday 30 April, 2019

Transform Sch NL Fd

Annual Financial Report

RNS Number : 6381X
Transform Schools (N.Lanarks)FdgPLC
30 April 2019
 

Company Registration No. 05358471 (England and Wales)

 

TRANSFORM SCHOOLS (NORTH LANARKSHIRE) FUNDING PLC

 

ANNUAL REPORT AND FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31 DECEMBER 2018


Directors

Mr D Brooking

 

 

Miss K O'Brien

 

 

Mr R Gillespie

 

 

Mr C James

(Appointed 1 October 2018)

 

Secretary

HCP Social Infrastructure (UK) Limited

 

Company number

05358471

 

Registered office

8 White Oak Square

 

London Road

 

Swanley

 

Kent

 

BR8 7AG

 

Auditor

KPMG LLP

 

66 Queen Square

 

Bristol

 

BS1 4BE


 

Page

 

Strategic report

1 - 2

 

Directors' report

3 - 5

 

Directors' responsibilities statement

6

 

Independent auditor's report to the members of Transform Schools (North Lanarkshire) Funding plc

7 - 11

 

Statement of income and retained earnings

12

 

Balance sheet

13

 

Notes to the financial statements

14 - 22


The directors present the strategic report for the year ended 31 December 2018.

 

 

Fair review of the business

The principal activity of the company is raising of finance through bank loans, the bond market, and subordinated debt and their onward loan to a related party, Transform Schools (North Lanarkshire) Limited (a fellow subsidiary of Transform Schools (North Lanarkshire) Holdings Limited) in 2005. Transform Schools (North Lanarkshire) Limited is a company which has entered into a PFI concession contract with North Lanarkshire Council to design, build, finance and provide services within twenty-four primary and secondary schools. The concession contract finishes on 31 March 2037.

 

 

Financial performance and financial position

During the year the Company was able to fully service all of its debt requirements and therefore the Directors consider that the performance of the Company was satisfactory. The company's purpose is to finance the operating company (Transform Schools (North Lanarkshire) Limited), and therefore debt service is considered the key performance indicator.

 

The result for the year after taxation amounted to £nil (2017: £nil).

 

Financial covenants have been met during the year, and having considered the anticipated future performance and position of the Company, the directors are of the opinion that the covenants will continue to be met in the future. This has been considered based on the operating model for the group, which forecasts cashflows for the concession, to 2037.

 

The Company is reliant on Transform Schools (North Lanarkshire) Limited to manage its risks and to meet its debt repayments. The principal risk borne by Transform Schools (North Lanarkshire) Limited is that lifecycle costs exceed those forecast in the financial model agreed at financial close. This risk is mitigated by future estimates of lifecycle expenditure being prepared by maintenance experts on an asset by asset basis and by the periodic technical evaluations of the physical condition of the facilities. In addition, actual expenditure is compared to the lifecycle forecast.

 

Other risks borne by Transform Schools (North Lanarkshire) Limited include a failure to achieve the forecast levels of availability; poor performance resulting in the Council having the right to terminate the Project Agreement; and the failure of the service provider. The directors consider that there are appropriate mitigations in place against these and hence the likelihood of all of these risks occurring is considered to be low.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Key performance indicators

 

On behalf of the board

 

 

..............................

Mr R Gillespie

Director

.........................


The directors present their annual report and financial statements for the year ended 31 December 2018.

 

 

Principal activities

The Company's principal activity is the financing of a Private Finance Initiative (PFI) concession contract with North Lanarkshire Council.

 

On 8 June 2005, the Company issued £87,796,000 index-linked bonds and took out an index-linked loan of £70,000,000.  The proceeds less issue costs were loaned on the same terms to a fellow subsidiary of Transform Schools (North Lanarkshire) Holdings Limited, Transform Schools (North Lanarkshire) Limited.

 

The Directors expect the activities to continue on this basis.

 

 

Results and dividends

The results for the year are set out on page 12.

 

 

No ordinary dividends were paid. The directors do not recommend payment of a final dividend.

 

 

Directors

The directors who held office during the year and up to the date of signature of the financial statements were as follows:

 

 

Mr D Brooking

 

Miss K O'Brien

 

Mr R Sheehan

(Resigned 1 October 2018)

Mr R Gillespie

 

Mr C James

(Appointed 1 October 2018)

 

Qualifying third party indemnity provisions

The company has made qualifying third party indemnity provisions for the benefit of its directors during the year. These provisions remain in force at the reporting date.

 

 

Financial instruments

The Company's financial instruments include borrowings. The main purpose of these financial instruments is to raise finance for the Transform Schools (North Lanarkshire) Group operations. The Company has not entered into derivative transactions. It is, and has been throughout the period under review, the Company's policy that no trading in financial instruments be undertaken. 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. These policies have remained unchanged throughout the period.

 

 

Principal risks and uncertainties

 

The Company recognises that effective risk management is fundamental to achieving its business objectives in order to meet its commitments in financing the PFI contract. Risk management contributes to the success of the business by identifying opportunities and anticipating risks in order to improve business performance and fulfil the Company's contractual obligations.

 

 

Liquidity risk

The Company's policy throughout the year has been that, to ensure continuity of funding, all of its borrowings should be matched by amounts owing from Transform Schools (North Lanarkshire) Limited with the same maturity.

 


Interest rate risk / Inflation risk

The Company's exposure to adverse movements in interest rates and inflation on its borrowings is matched by an equal but opposite exposure on amounts owing from Transform Schools (North Lanarkshire) Limited with the same maturity.

 

 

Capital risk management

The Company manages its capital to ensure it is able to continue as a going concern and to maintain an optimal capital structure to reduce the cost of capital. The capital structure of the Company comprises equity attributable to equity holders consisting of ordinary share capital, reserves and retained earnings as disclosed in Note 12.

 

 

Credit risk

The Company's credit risk is primarily attributable to its other receivables however this is mitigated as the counterparties are all related parties. In addition, the PFI concession contract and associated receivables of the Company's sole customer, Transform School (North Lanarkshire) Limited, are underwritten by the Secretary of State.

 

 

Financial risk management objectives and policies

The Company has outsourced the financial reporting function to HCP Social Infrastructure (UK) Limited (HCP). Authorities remain vested in the board members of the Company. HCP reports regularly to the board of the Company. The Board receives regular reports from HCP which specifically summarise and address the financial, contractual and commercial risks that the company is exposed to, and are pertinent to the industry in which the Company operates.

 

The Board also receives quarterly management accounts with explanations of variances from annual budgets and forecasts, which are in turn compared to the Financial Model, which represents the long term business plan of the Company and outlines its ability to comply with its debt obligations and covenants. Material deviations from the business plan are investigated and reported on. Supporting this process, HCP evaluates its performance under the framework of an Internal Audit and Assessment programme which sits within its own Corporate Governance framework.

 

This process ensures that the project remains robust and viable throughout the life of the contract.

 

The board does not believe an audit committee is required for the following reasons:

The board itself fulfils the responsibilities and requirements of an audit committee, through reviewing the financial controls and considering the appropriateness of the internal control and risk management systems, It also controls the appointment of the auditor, considers their independence and sets auditor remuneration.

 

 

Going concern

The Company believes that future economic benefits will cover the obligations that arose from the financing of the concession contract held by Transform Schools (North Lanarkshire) Limited.

 

The Directors have reviewed the cash flow forecasts. The Company is dependent on Transform Schools (North Lanarkshire) Limited generating sufficient cashflows to settle the payments of principal and interest on the onward loan of the funding which the Company raised. Taking into account reasonable possible risks in operations to the Company and Transform Schools (North Lanarkshire) Limited and the fact the obligations of Transform Schools (North Lanarkshire) Limited's sole customer are underwritten by the Secretary of State for Education the Directors believe that the company will be able to settle it's liabilities as they fall due for the foreseeable future and therefore it is appropriate to prepare these financial statements on the going concern basis.

 

 

Auditor

Pursuant to Section 487 of the Companies Act 2006, the auditor will be deemed to be reappointed and KPMG LLP will therefore continue in office.

 


Statement of disclosure to auditor

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the company's auditor is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the company's auditor is aware of that information.

 

 

Responsibility statement of the directors in respect of the annual financial report 

The directors confirm that: (a) the financial statements, prepared in accordance with UK Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and (b) the Strategic report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face.

 

 

Registered office

The Company's Registered Office is 8 White Oak Square, Swanley, Kent, BR8 7AG.

 

 

On behalf of the board

 

..............................

Mr R Gillespie

Director

.........................


The directors are responsible for preparing the Strategic Report, 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), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that period.  In preparing the financial statements, the directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      make judgements 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;

·      assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

·      use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006.  They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and 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.

Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report and a Directors' Report that complies with that law and those regulations.

 


1 Our opinion is unmodified

We have audited the financial statements of Transform Schools (North Lanarkshire) Funding Plc ("the Company") for the year ended 31 December 2018 which comprise the Statement of Income and Retained Earnings, the Balance Sheet and the related notes, including the accounting policies in note 1.

 

In our opinion the financial statements:

·      give a true and fair view of the state of the Company's affairs as at 31 December 2018 and of its result for the year then ended;

·      have been properly prepared in accordance with UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland; and

·      have been prepared in accordance with the requirements of the Companies Act 2006.

 

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law.  Our responsibilities are described below.  We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.  Our audit opinion is consistent with our report to the audit committee.

 

We were appointed as auditor by the directors during the year ended 31 December 2014.  The period of total uninterrupted engagement is for the 5 financial years ended 31 December 2018.  We have fulfilled our ethical responsibilities under, and we remain independent of the Company in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities.  No non-audit services prohibited by that standard were provided.

 

2 Key audit matters: our assessment of risks of material misstatement

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.  We summarise below the key audit matter (unchanged from 2017), in arriving at our audit opinion above, together with our key audit procedures to address this matter and, as required for public interest entities, our results from those procedures.  This matter was addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on this matter.

 

Intra-group receivables

(£172.6 million; 2017: £175.5 million)

Refer to page 15 (accounting policy) and page 19 (financial disclosures).

 

Recoverability of intra-group receivables balances

The carrying amount of the Company's intra-group receivables balances, held at amortised cost less impairment represents 100% (2017: 100%) of the Company's total assets.

 

We do not consider the recoverable amount of these receivables to be at a high risk of significant misstatement, or to be subject to a significant level of judgement. However, due to their materiality in the context of the Company financial statements as a whole, this is considered to be the area which had the greatest effect on our overall audit strategy and allocation of resources in planning and completing our company audit.

 

 


Our response

Our procedures included:

·      Tests of detail: Comparing the carrying amount of the intra-group receivable with the respective net asset values of the counterparty (the intra-group related party), excluding the intra-group liability to Transform School (North Lanarkshire) Funding Plc, to identify whether the remaining net asset values of the counterparty, are sufficient to repay the intra-group receivables.

·      Forecast review: Reviewing the counterparty (the intra-group related party) forecasts, to identify whether it is appropriate to consider it likely that sufficient cash will be generated to allow the repayment of the debt, when it falls due. As part of assessing the forecast cash inflows we have inspected the agreement with North Lanarkshire Council guaranteeing the unitary charge income until 2037, subject to meeting performance requirements, and assessed that forecast cash flows are in line with our own expectations based on our knowledge of the entity and experience of the industry in which it operates.

 

Our results

The results of our testing were satisfactory and we considered the amount of the intra-group receivables to be acceptable (2017: acceptable).

 

3 Our application of materiality and an overview of the scope of our audit

Materiality for the financial statements as a whole was set at £1.70 million (2017: £1.76 million), determined with reference to a benchmark of total assets of £172.6 million (2017: £175.5 million) of which it represents 1% (2017: 1%).

 

We agreed to report to the Board of Directors any corrected or uncorrected identified misstatements exceeding £85,000 (2017: £85,000), in addition to other identified misstatements that warranted reporting on qualitative grounds.

 

Our audit of the Company was undertaken to the materiality level specified above.

 

4 We have nothing to report on going concern

The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or to cease its operations, and as they have concluded that the Company's financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over its ability to continue as a going concern for at least a year from the date of approval of the financial statements ("the going concern period").

 

Our responsibility is to conclude on the appropriateness of the Directors' conclusions and, had there been a material uncertainty related to going concern, to make reference to that in this audit report. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor's report is not a guarantee that the Company will continue in operation.

 

In our evaluation of the Directors' conclusions, we considered the inherent risks to the Company's business model, including the impact of Brexit, and analysed how those risks might affect the Company's financial resources or ability to continue operations over the going concern period.  We evaluated those risks and concluded that they were not significant enough to require us to perform additional audit procedures.

 

Based on this work, we are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least a year from the date of approval of the financial statements.

 

We have nothing to report in these respects, and we did not identify going concern as a key audit matter.

 

 


5 We have nothing to report on the strategic report and the directors' report

The directors are responsible for the strategic report and the directors' report.  Our opinion on the financial statements does not cover those reports and we do not express an audit opinion thereon.

 

Our responsibility is to read the strategic report and the directors' report and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge.  Based solely on that work:

 

·      we have not identified material misstatements in the strategic report and the directors' report;

·      in our opinion the information given in those reports for the financial year is consistent with the financial statements; and

·      in our opinion those reports have been prepared in accordance with the Companies Act 2006.

 

6 We have nothing to report on the other matters on which we are required to report by exception

Under the Companies Act 2006, we are required to report to you if, in our opinion:

·      adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or

·      the financial statements are not in agreement with the accounting records and returns; or

·      certain disclosures of directors' remuneration specified by law are not made; or

·      we have not received all the information and explanations we require for our audit.

 

We have nothing to report in these respects.

 


7 Respective responsibilities

Directors' responsibilities

As explained more fully in their statement set out on page 6, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

 

 

Auditor's responsibilities

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor's report.  Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.  Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

 

A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities.

 

Irregularities - ability to detect

We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience, through discussion with the directors and other management (as required by auditing standards), and from inspection of the Company's regulatory and legal correspondence and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations.  We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit.

 

The potential effect of these laws and regulations on the financial statements varies considerably.

The Company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related company legislation) and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.

 

Whilst the company is subject to many other laws and regulations, we did not identify any others where the consequences of non-compliance alone could have a material effect on amounts or disclosures in the financial statements.

 

Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.  In addition, as with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.

 


8 The purpose of our audit work and to whom we owe our responsibilities

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.

 

 

Huw Brown (Senior Statutory Auditor)

for and on behalf of KPMG LLP, Statutory Auditor

 

Chartered Accountants

66 Queen Square

Bristol

BS1 4BE

 

.........................


 

2018

 

2017

 

 

Notes

 

£'000

 

£'000

 

 

Interest receivable and similar income

4

 

9,883

 

9,818

 

Interest payable and similar expenses

5

 

(9,883)

 

(9,818)

 

 

 

 

 

 

 

Result before taxation

-

 

-

 

 

Taxation

6

 

-

 

-

 

 

 

 

 

 

 

 

Result for the financial year

 

 

-

 

-

 

 

 

 

 

 

 

 

The Statement of Income and Retained Earnings has been prepared on the basis that all operations are continuing operations.

 

The accompanying notes form an integral part of the financial statements.

 

 


 

2018

 

2017

 

 

Notes

£'000

£'000

£'000

£'000

 

 

Current assets

 

Debtors falling due after more than one year

8

163,454

 

166,765

 

Debtors falling due within one year

8

9,162

 

8,704

 

 

 

 

 

 

 

 

 

172,616

 

175,469

 

Creditors: amounts falling due within one year

10

 

(9,162)

 

(8,704)

 

 

 

 

 

 

 

 

Net current assets

163,454

 

166,765

 

 

Creditors: amounts falling due after more than one year

11

 

(163,404)

 

(166,715)

 

 

 

 

 

 

 

Net assets

 

50

 

50

 

 

 

 

 

 

 

 

Capital and reserves

 

Called up share capital

12

 

50

 

50

 

 

 

 

 

 

 

 

The financial statements were approved by the board of directors and authorised for issue on ......................... and are signed on its behalf by:

 

 

..............................

 

Mr R Gillespie

 

Director

 

 

Company Registration No. 05358471

 

 

The accompanying notes form an integral part of the financial statements.

 


1

Accounting policies

 

 

Company information

 

Transform Schools (North Lanarkshire) Funding plc is a private company limited by shares incorporated in England and Wales. The registered office is 8 White Oak Square, London Road, Swanley, Kent, BR8 7AG.

 

 

1.1

Accounting convention

 

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 presentation currency of these financial statements is sterling. All amounts in the financial statements have been rounded to the nearest £1,000.

 

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements.

 

 

 

The Company's parent undertaking, Transform Schools (North Lanarkshire) Holdings Limited includes the Company in its consolidated financial statements. The consolidated financial statements of Transform Schools (North Lanarkshire) Holdings Limited are prepared in accordance with FRS102 and are available to the public and may be obtained from Companies House, Crown Way, Cardiff, CF14 3UZ.

 

In these financial statements, the company is considered to be a qualifying entity (for the purposes of this FRS) and has applied the exemptions available under FRS 102 in respect of the following disclosures:

·      Reconciliation of number of shares outstanding from the beginning to the end of the period;

·      Cash flow statement and related notes; and

·      Key management personnel compensation.

 

 

1.2

Going concern

 

The directors have reviewed the cash flow forecasts. The Company is dependent on Transform Schools (North Lanarkshire) Limited generating sufficient cashflows to settle the payments of principal and interest on the onward loan of the funding which the Company raised. Taking into account reasonable possible risks in operations to the Company and Transform Schools (North Lanarkshire) Limited and the fact the obligations of Transform Schools (North Lanarkshire) Limited's sole customer are underwritten by the Secretary of State for Education the Directors believe that the Company will be able to settle it's liabilities as they fall due for the foreseeable future and therefore it is appropriate to prepare these financial statements on the going concern basis.

 


1

Accounting policies

 

1.3

Financial instruments

 

The Company has elected to apply the provisions of Section 11 "Basic Financial Instruments" of FRS102 to all of its financial instruments. Financial instruments are recognised in the Company's statement of financial position when the company becomes party to the contractual provisions of the instrument.

 

Financial assets and liabilities are offset with 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.

 

Trade and other debtors / creditors

 

Trade and other debtors are recognised initially at transaction price plus attributable transaction costs. Trade and other creditors are recognised initially at transaction price less attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses in the case of trade debtors.  If the arrangement constitutes a financing transaction, for example if payment is deferred beyond normal business terms, then it is measured at the present value of future payments discounted at a market rate of instrument for a similar debt instrument.

 

Interest-bearing borrowings classified as basic financial instruments

 

Index-linked bonds and index-linked loans are initially stated at the amount of the net proceeds after deduction of related issue costs.  The carrying amount is increased by the finance cost in respect of the accounting period and reduced by payments made in that period.  The index-linked secured bonds and index-linked secured term loan are each carried at amortised cost, using the effective interest rate method, taking account of projected indexation across the term of the liability.

 

Subordinated loans are initially stated at the amount of the net proceeds after deduction of related issue costs. The carrying amount is increased by the finance cost in respect of the accounting period and reduced by payments made in that period.

 

 

 

Other financial assets

 

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.

 

 

 

Impairment of financial assets

 

Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.

 

Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset's original effective interest rate. The impairment loss is recognised in profit or loss.

 

If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.

 


1

Accounting policies

 

1.3

Financial instruments (continued)

 

 

Derecognition of financial assets

 

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.

 

 

 

Derecognition of financial liabilities

 

Financial liabilities are derecognised when the company's contractual obligations expire or are discharged or cancelled.

 

 

1.4

Equity instruments

 

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.

 

 

2

Auditor's remuneration

 

 

2018

2017

 

Fees payable to the company's auditor and associates:

£'000

£'000

 

 

For audit services

 

 

Audit of the financial statements of the company

3

3

 

 

 

 

 

 

 

The auditor remuneration was borne by Transform Schools (North Lanarkshire) Limited.

 

 

 

3

Employees

 

There were no employees during the year (2017: none).

 

 

4

Interest receivable and similar income

 

 

2018

2017

 

Notes

£'000

£'000

 

 

Interest on the loans to Transform Schools (North Lanarkshire) Limited

8

9,883

9,818

 

 

 

 

 


5

Interest payable and similar expenses

 

 

2018

2017

 

£'000

£'000

 

Interest on financial liabilities measured at amortised cost:

 

 

Interest on bank overdrafts and loans

5,848

5,814

 

Interest on bonds

2,116

2,130

 

Other finance charges

255

262

 

Interest on subordinated loans

1,438

1,393

 

Amortisation of finance arrangement costs

226

219

 

 

 

 

 

 

 

Total interest payable and similar expenses

9,883

9,818

 

 

 

 

 

 

6

Taxation

 

 

The results for the year do not give rise to a tax charge (2017: £nil).

 


7

Financial instruments

 

 

 

The Company's financial instruments include borrowings. The main purpose of these financial instruments is to raise finance for the Transform Schools (North Lanarkshire) Group operations. The Company has not entered into derivative transactions. It is, and has been throughout the period under review, the Company's policy that no trading in financial instruments be undertaken.  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.  These policies have remained unchanged throughout the period.

 

Interest rate risk / Inflation risk

 

The Company's exposure to adverse movements in interest rates and inflation on its borrowings is matched by an equal but opposite exposure on amounts owing from Transform Schools (North Lanarkshire) Limited with the same maturity.

 

Capital risk management

 

The Company manages its capital to ensure it is able to continue as a going concern and to maintain an optimal capital structure to reduce the cost of capital. The capital structure of the Company comprises equity attributable to equity holders consisting of ordinary share capital, reserves and retained earnings as disclosed in Notes 12.

 

Liquidity risk

 

The Company's policy throughout the year has been that, to ensure continuity of funding, all of its borrowings should be matched by amounts owing from Transform Schools (North Lanarkshire) Limited with the same maturity.

 

Credit risk

 

The Company's credit risk is primarily attributable to its other receivables however this is mitigated as the counterparties are all related parties. In addition, the PFI concession contract and associated receivables of the Company's sole customer, Transform School (North Lanarkshire) Limited, are underwritten by the Secretary of State.

 

 

 

Interest rate profile

 

The index-linked bonds have interest payable at a rate of 2.343% plus RPI indexation on a principal amount that is also subject to RPI indexation.

 

The bank term loan has interest payable at a rate of 1.950% plus RPI indexation on a principal amount that is also subject to RPI indexation.

 

The loan stock has interest payable at a rate of 7.550% above the six month LIBOR rate.

 

Borrowing facilities

 

The Company had no more undrawn committed borrowing facilities at 31 December 2018 (2017: £nil).

 

 

 

Fair values

 

The fair values of the index-linked loan, index-linked bond and the subordinated debt have been calculated by discounting the expected future cash flows at prevailing interest rates.  Expected future cash flows have been calculated assuming that future increases in the Retail Price Index are constant at 2.5%.  The UK gilt yield curve and an assumed credit spread of 1% for the index-linked loan, 1% for the index-linked bond and 1% for the subordinated debt, have been used as appropriate discount rates.

 


7

Financial instruments

 

 

 

2018

 

2017

 

 

Book value

Fair value

Book value

Fair value

 

£'000

£'000

£'000

£'000

 

 

Index-linked bonds

 

86,092

108,536

87,078

105,858

 

Index-linked loans

68,138

80,663

70,009

79,250

 

Subordinated loan stock

17,084

31,052

17,084

30,006

 

 

 

 

 

 

 

 

 

 

 

171,314

220,251

174,171

215,114

 

 

 

 

 

 

 

 

 

 

8

Debtors

 

 

2018

2017

 

Amounts falling due within one year:

 

£'000

£'000

 

 

Amounts due from Transform Schools (North Lanarkshire) Limited

9,162

8,704

 

 

 

 

 

 

 

Amounts falling due after one year:

 

 

 

Amounts due from Transform Schools (North Lanarkshire) Limited

163,454

166,765

 

 

 

 

 

 

 

Total debtors

 

172,616

175,469

 

 

 

 

 

 

 

Amounts owing from Transform Schools (North Lanarkshire) Limited comprise a loan which is made up of the proceeds of £87,796,000 index-linked secured bonds, a £70,000,000 loan from European Investment Bank, £17,194,683 subordinated loan stock and a £50,000 direct loan. The balance is stated after the deduction of amortised issue costs of £3,645,385 (2017: £3,864,727). The terms and conditions applicable to the amounts owing from Transform Schools (North Lanarkshire) Limited are the same as those applicable to the borrowings of Transform Schools (North Lanarkshire) Funding plc (see Note 9).

 

·     

 

 


9

Borrowings

 

 

2018

2017

 

£'000

£'000

 

 

Index-linked loans

68,138

69,706

 

Index-linked bonds

86,092

87,379

 

Subordinated loans

17,084

17,084

 

 

 

 

 

 

 

171,314

174,171

 

 

 

 

 

 

 

Payable within one year

7,910

7,456

 

Payable after one year

163,404

166,715

 

 

 

 

 

 

 

Amounts included above which fall due after five years:

 

 

138,202

138,202

 

 

 

 

 

 

 

The index-linked secured bonds due 2036 of £87,796,000 were created on 8 June 2005, all of which were issued and sold.  Interest on the bonds is payable semi-annually at a rate of 2.343% plus RPI indexation, commencing on 30 September 2005.  Unless previously redeemed or purchased and cancelled, the bonds will mature on 31 March 2036. The principal amount outstanding of the bonds is adjusted semi-annually for RPI indexation. The indexation ratio is calculated as the RPI for the month, eight months prior to the payment date compared against the same month in the preceding year.

 

The index linked bank secured term loan is from the European Investment Bank with repayments commencing September 2008 and semi-annually thereafter until September 2034.  The loan bears interest at a rate of 1.950% plus RPI indexation. The capital amount outstanding of the loan is adjusted semi-annually for RPI indexation. The indexation ratio is calculated as the RPI for the month, eight months prior to the payment date compared against the same month in the preceding year.

 

The bank loan has attached certain covenants regarding, inter alia, performance of the company and Transform Schools (North Lanarkshire) Limited of financial and non-financial obligations under the PFI contracts. In the current and prior years, the company was fully compliant with all covenants.

 

The above borrowings are secured by a fixed and floating charge over the whole of the Company's and Group's undertaking and assets.

 

The secured subordinated loan stock bears interest at 7.550% above the six month LIBOR rate, and is repayable in instalments between 2009 and 2033.  It is secured by second fixed and floating charges over the undertaking, property, assets and rights of the Company.

 

 


10

Creditors: amounts falling due within one year

 

 

2018

2017

 

Notes

£'000

£'000

 

 

Loans and overdrafts

9

7,910

7,456

 

Amounts owed to group undertakings

 

355

355

 

Accrued interest

 

897

893

 

 

 

 

 

 

 

9,162

8,704

 

 

 

 

 

 

 

All of the financial liabilities included above are held at amortised cost.

 

 

11

Creditors: amounts falling due after more than one year

 

 

2018

2017

 

Notes

£'000

£'000

 

 

Loans and overdrafts

9

163,404

166,715

 

 

 

 

 

 

 

All of the financial liabilities included above are held at amortised cost.

 

 

12

Share capital

 

 

2018

2017

 

£'000

£'000

 

Ordinary share capital

 

 

 

Issued and fully paid

 

 

50,000 Ordinary of £1 each

50

50

 

 

 

 

 

 

13

Related party transactions

 

 

At 31 December 2018, the subordinated loan stock totalled £17,084,000, divided between Equitix Education 2 Limited, £8,542,000 (2017: £8,542,000) and Innisfree Nominees Limited £8,542,000 (2017: £8,542,000) split between Innisfree PFI Secondary Fund LP (ISF) and Innisfree PFI Secondary Fund 2 LP (ISF2) in the ratio 16% to 34% respectively.

 

Subordinated debt interest accrued at 31 December 2018 totalled £372,0000 (2017: £355,000), divided between Equitix Education 2 Limited for £186,000 and Innisfree Nominees Limited for £186,000 split between ISF and ISF2 in the ratio noted above.

 

During the year, the Company was under the management of HCP Social Infrastructure (UK) Limited under a management services agreement. HCP is beneficially owned by Innisfree M&G PPP LP and is therefore a related party to Innisfree Limited, which is a nominee shareholder of the Transform Schools (North Lanarkshire) group.

 

As a wholly-owned subsidiary of Transform Schools (North Lanarkshire) Holdings Limited, the company has taken advantage of the exemption in Section 33 of FRS102 'Related party disclosures' from disclosing related party transactions with other group companies within these financial statements.

 


14

Controlling party

 

 

The Company is a subsidiary of Transform Schools (North Lanarkshire) Holdings Limited, which is incorporated in Great Britain and registered in England and Wales.  The ultimate parent undertakings of Transform Schools (North Lanarkshire) Holdings Ltd are Equitix Education 2 (50%) and two limited partnerships, Innisfree PFI Secondary Fund (16%) and Innisfree PFI Secondary Fund 2 LP (34%), managed by Innisfree. The Company has no ultimate controlling party.

 

The only company in which the result of Transform Schools (North Lanarkshire) Funding plc is consolidated is Transform Schools (North Lanarkshire) Holdings Limited.  Copies of the financial statements are available from the registered office at 8 White Oak Square, London Road, Swanley, Kent, London BR8 7AG.

 

 


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