The directors present their annual report and financial statements for the year ended 31 March 2022.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
GRT Nottingham LIFT Project Company (No.2) Limited has adopted Articles of Association, the provisions of which do not require the directors to retire by rotation or to retire at the first Annual General Meeting after their appointment.
The auditor, UHY Hacker Young, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
The directors are responsible for preparing the annual 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 the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). 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 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 judgements and accounting estimates that are reasonable and prudent;
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 adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The company has net liabilities of £ 5,741k (202 1 : £ 4,995k ) which includes the negative fair value of the interest rate swaps of £ 5,525k (202 1 : £ 8,336k ) and negative fair value of RPI swaps of £ 3,219k (202 1 : positive fair value £ 435k ) within liabilities and net current assets of £ 26,569k (202 1 : £2 7,164k ), including cash of £ 1,965k (202 1 : £2, 398k ) at 31 March 202 2 .
The directors have considered the available funding facilities, cash flow forecasts and financial projections that are agreed as part of the twenty-five-year business plan model agreed at each financial close. In addition, the company has in place SWAP arrangements with the funders that protect against Retail Price Index and interest rate fluctuations. After considering these matters and in the light of the recent forecasts of the company, the directors consider it appropriate to continue to adopt the going concern basis in preparing the financial statements.
The directors have considered the potential impact to the business from the effects of the current economic climate and have put in place plans to mitigate the currently known, and potential risks to business continuity. As income is guaranteed through the 25 year Lease Plus Agreements, and the content of a Government Procurement Policy Note indicates that public bodies will continue to pay their suppliers, the directors do not believe that there is any material risk to income or cashflows.
On this basis, the directors anticipate that the company will continue to be able to meet its business obligations as they fall due over the coming twelve months. the directors therefore consider it appropriate to continue to prepare the financial statements on a going concern basis.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit :
the information given in the directors' r eport for the financial year for which the financial statements are prepared is consistent with the financial statements ; and
the directors' report has been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' r esponsibilities s tatement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements , the directors are responsible for 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 the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
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 error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements .
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below .
Based on our understanding of the company and the industry in which it operates, we identified that the principal risks of non-compliance with laws and regulations related to the acts by the company, which were contrary to applicable laws and regulations including fraud, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to inflated revenue and profit.
Audit procedures performed included: review of the financial statement disclosures to underlying supporting documentation, review of correspondence with and reports to Nottinghamshire County Council, including correspondence with legal advisors, enquiries of management and review of the financial model and related audit reports in so far as they relate to the financial statements, and testing of journals and evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud .
There are inherent limitations in the audit procedures described above 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. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
The notes on pages 11 to 24 form part of these financial statements.
GRT Nottingham LIFT Project Company (No.2) Limited is a private company limited by shares incorporated in England and Wales . The registered office is Unit G1 Ash Tree Court, Nottingham Business Park, Nottingham, NG8 6PY.
The financial statements are prepared in sterling , which is the functional currency of the company. Monetary a mounts in these financial statements are rounded to the nearest £000.
The financial statements have been prepared under the historical cost convention, [modified to include the revaluation of freehold properties and to include investment properties and certain financial instruments at fair value]. The principal accounting policies adopted are set out below.
The company has net liabilities of £ 5,741k (202 1 : £ 4,995k ) which includes the negative fair value of the interest rate swaps of £ 5,525k (202 1 : £ 8,336k ) and negative fair value of RPI swaps of £ 3,219k (202 1 : positive fair value £ 435k ) within liabilities and net current assets of £ 26,569k (202 1 : £2 7,164k ), including cash of £ 1,965k (202 1 : £2, 398k ) at 31 March 202 2 .
The directors have considered the available funding facilities, cash flow forecasts and financial projections that are agreed as part of the twenty-five-year business plan model agreed at each financial close. In addition, the company has in place SWAP arrangements with the funders that protect against Retail Price Index and interest rate fluctuations. After considering these matters and in the light of the recent forecasts of the company, the directors consider it appropriate to continue to adopt the going concern basis in preparing the financial statements.
The directors have considered the potential impact to the business from the effects of the current economic climate and have put in place plans to mitigate the currently known, and potential risks to business continuity. As income is guaranteed through the 25 year Lease Plus Agreements, and the content of a Government Procurement Policy Note indicates that public bodies will continue to pay their suppliers, the directors do not believe that there is any material risk to income or cashflows.
On this basis, the directors anticipate that the company will continue to be able to meet its business obligations as they fall due over the coming twelve months. the directors therefore consider it appropriate to continue to prepare the financial statements on a going concern basis.
c. Other revenue items
Rental income from operating leases is recognised on a straight-line basis over the lease term.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors , bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future paymen ts discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. A m ounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
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. There is no requirement to pay dividends unless approved by the shareholders by way of written resolution where there is sufficient cash to meet current liabilities, and without written detriment to senior debt covenants, if applicable.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to fair value at each reporting end date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognised as a financial asset, whereas a derivative with a negative fair value is recognised as a financial liability.
The company designates certain hedging instruments, including derivatives, embedded derivatives and non-derivatives, as either fair value hedges or cash flow hedges. At the inception of the hedge relationship, the company documents the relationship between the hedging instrument and the hedged item along with risk management objectives and strategy for undertaking various hedge transactions. At the inception of the hedge and on an ongoing basis, the company documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
For derivatives that are designated and qualify as cash flow hedges, the effective portion of changes in the fair value of the hedge is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss.
Any gain or loss previously recognised in other comprehensive income is reclassified to profit or loss when the hedge relationship ends. This occurs when the hedging instrument expires or no longer meets the hedging criteria, the forecast transaction is no longer highly probable, the hedged debt instrument is derecognised, or the hedging instrument is terminated.
Loan arrangement fees
Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument. The capitalised fees are then released to the statement of comprehensive income on a straight line basis over the term of the loan.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
The concession arrangements undertaken by the c ompany are considered to fall within the scope of section 34 of FRS 102 "Service Concession Arrangements", as described in the turnover note. This judgement has been based on a consideration of the nature and terms of the agreements and, in all contracts, the existence of an option for the grantor to purchase the properties at the end of the contract,
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
The calculation of the amortised cost of the financial asset requires an estimate of the residual value of the property at the end of the lease term. This estimate has been based on the residual value allocated to the contract in the financial models, which form the bass for the calculation of rent charged to the lessees.
The financial asset interest income is based on the WACC of the project and is applied to the carrying value of the financial asset on a quarterly basis. The interest rate used in 2022 is 7.21% (2021: 7.21%) per annum.
After the property is constructed, the company provides property management services. The remuneration for these services is recognised at cost plus an estimated mark up for profit on property management services. The service margin rate used in 2022 is 68.52% (2021: 61.28%) per annum. It is the policy of the directors that the service margin is reviewed annually on 1 April each year to generate a new service margin rate, which is to be applied in the proceeding financial year.
The audit fee for the company amounted to £nil (2021: £nil). This has been borne by the parent company.
The company had no employees during the year or the previous year.
The directors did not receive any remuneration from the company for their services to the company during the year or the previous year. The directors are remunerated by the shareholding companies for their services to the group as a whole. It is not practicable to apportion their remuneration for their services to this company.
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
In addition to the amount charged to the profit and loss account, the following amounts relating to tax have been recognised directly in other comprehensive income:
Derivative financial instruments designated as hedges of variable interest rate risk comprise interest rate swaps and RPI swaps.
The fair values of the interest rate swaps have been determined by reference to prices available from the markets on which the instruments involved are traded.
Financial assets measured at amortised cost comprise financial assets, cash at bank and in hand, amounts owed by related parties, trade debtors and accrued income.
Financial liabilities measured at amortised cost comprise bank loans, amounts owed to related parties, amounts owed to group undertakings, trade creditors and accruals.
Historically, the company borrowed funds from its bankers under two term loans of £21,900,000 and £6,400,000, which are repayable in 2036.
To hedge the potential volatility in future interest cash flows arising from movements in LIBOR, the company has entered into floating to fixed interest rate swaps with a nominal value equal to the initial borrowings, the same term as the loans and interest re-pricing dates identical to those of the variable rate loans. These result in the company paying 4.53% and 4.82% per annum, for the Amortising and Bullet loans, respectively, and receiving LIBOR (though cash flows are settled on a net basis). The company pays LIBOR, plus margins of 2.0% and 2.25%, respectively, effectively fixing the total interest cost on loans and interest rate swaps at 6.53% and 7.07% per annum.
The derivatives are accounted for as a hedge of variable rate interest rate risks, in accordance with FRS 102 and had a negative fair value of £5,525,000 (2021: £8,336,000) at the reporting date. The cash flows arising from the interest rate swaps will continue until their maturity in 2036, coincidental with the repayment of the term loans. The change in fair value in the period was an decrease of £2,811,000 (2021: £2,384,000 increase), with the entire charge being recognised in other comprehensive income as the swaps were 100% effective hedges.
In 2010, the company entered into two LPA agreements having fixed contractual terms which cause their revenue to increase with RPI on a yearly basis.
To hedge the potential volatility in future revenue cash flows arising from movements in RPI, the company has entered into RPI swaps with a nominal value below that of the LPA contract but having the same term as the LPA contract and RPI re-pricing dates identical to those of the LPA contract. These result in the company effectively fixing the inflation on a determined portion of the LPA contract.
The derivatives are accounted for as a hedge of variable rate RPI rate risks, in accordance with FRS 102 and had a negative fair value of £3,219,000 (2021: £435,000 positive) at the reporting date. The cash flows arising from the interest rate swap will continue until their maturity in March 2035, coincidental with the LPA contractual terms. The change in fair value in the period was a decrease of £3,654,000 (2021: £612,000 decrease), with the entire charge being recognised in other comprehensive income as the swaps were 100% effective hedges.
After the balance sheet date, the company signed agreements with the Lender and SWAP provider to transition the floating interest rates from LIBOR to SONIA. The SONIA rate will be determined five business days before the end of each six month calculation period, the transition commenced on 1st April 2022.
Included in cash at bank and in hand is cash of £1,965k (2021: £2,398k), which is restricted for use in pre-described circumstances by the bank.
The amounts shown in accruals and deferred income include interest on loans on the subordinated and mezzanine debts of £11,000 (2021: £27,000). The amounts owed to related parties shown above relate to the subordinated and mezzanine debts.
Bank borrowings relate to a Senior Debt Facility granted by Royal Bank of Scotland Plc.
The amounts drawn under the Senior Debt Facility are repayable on an agreed repayment profile commencing on 31 March 2012 and ending on 30 November 2036, together with bullet instalment totalling £6,400,000 payable on 31 December 2036.
The company has entered into an interest rate swap agreement whereby it pays a fixed rate of 4.53% per annum in respect of amounts drawn under the Amortising Senior Debt Facility, and receives LIBOR. The company has also entered into an interest rate swap agreement whereby it pays a fixed rate of 4.82% per annum in respect of amounts drawn under the Bullet Senior Debt Facility, and receives LIBOR. The swaps expire on 31 December 2036.
The Senior Debt Facility is secured by fixed and floating charges on the assets of the company.
Issue costs of the debt have been offset against the bank loan and will be amortised over the duration of the facilities.
The subordinated loan notes carry a coupon of 12.5% and are repayable in pre-determined semi-annual instalments commencing on 30 June 2013 and ending on 31 March 2037. The loans are unsecured.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
The company has taken advantage of the exemption provided in FRS 102 not to disclose transactions with companies within the group of which it is a member, where these transactions occur between entities which are 100% owned members of that group.
During the year the company entered into the following transactions with related parties:
The company is a wholly owned subsidiary of GRT Nottingham LIFT Midco (No.2) Limited, which is in turn a wholly owned subsidiary of GRT Nottingham LIFT Company Limited. Both are registered in England and Wales. GRT Nottingham LIFT Company Limited is owned by Primary Plus Holdings Limited (60%), Nottingham City Council (4%) and Community Health Partnerships Limited (36%), which are all registered in England and Wales.
The directors are of the opinion that there is no ultimate parent undertaking or controlling party by virtue of the company's joint ownership and control.