TIDM80UC
RNS Number : 6462U
Connect M77/GSO
30 July 2020
Registration number: 04698798
Connect M77/GSO plc
Annual Report and Financial Statements
for the Year Ended 31 March 2020
Connect M77/GSO plc
Contents
1 to
Strategic Report 3
4 to
Directors' Report 5
Statement of Directors' Responsibilities 6
7 to
Independent Auditor's Report 11
Profit and Loss Account 12
Balance Sheet 13
Statement of Changes in Equity 14
15 to
Notes to the Financial Statements 27
Connect M77/GSO plc
Strategic Report for the Year Ended 31 March 2020
The Directors present their strategic report for the year ended
31 March 2020.
Principal activity
The Company is incorporated in Great Britain, registered in
England and Wales and domiciled in the United Kingdom.
On 7 May 2003 Connect M77/GSO plc signed a contract with East
Renfrewshire Council (the "Contracting Authority") (on behalf of
the Scottish Government for the M77 and South Lanarkshire Council
and East Renfrewshire Council for the Glasgow Southern Orbital
(GSO)) to design, build, finance and operate the M77 from Fenwick
to Malletsheugh and the GSO from Malletsheugh to Philipshill, East
Kilbride and sections of the A726 and to maintain these roads under
a licence over a 32 year period as well as modify certain sections
of the A77 (the "Concession Agreement"). In accordance with the
Concession Agreement the Company is responsible for operating the
roads together with carrying out all of the routine and major life
cycle maintenance for the life of the concession.
The new road sections were opened to the public in April 2005
and the final completion certificate was issued in September
2005.
There have been no changes to the Company's activities in the
year under review and none are currently contemplated.
Review of business
The results for the year are set out on page 12. The profit for
the year before taxation was GBP242k (2019: loss of GBP14k) and the
net liabilities position as at 31 March 2020 was GBP29,057k (2019:
GBP29,139k) for the Company.
The Directors expect the Company to continue its operations for
the foreseeable future and the Directors are not aware, at the date
of this report, of any major changes in the Company's activities in
the next year.
Key performance indicators
As part of the stewardship of the project the Directors
regularly consider Board reports related to the performance of the
Company and the information and Key Performance Indicators
("KPI's") contained therein. These include, amongst other things,
variance against budget in the financial statements and forward
cash flow forecasting and other qualitative and quantitative
indicators of performance that, as a whole, provide the basis for
the management of the Company.
The Company has set specific business objectives, which are
monitored using a number of KPI's. The relevant KPI's for this
report are detailed below.
2020 2019
GBP 000 GBP 000
Turnover 2,763 2,926
Profit/(loss) after taxation 82 (12)
Net liabilities (29,057) (29,139)
======== ========
Despite the Company showing net liabilities, the Company's
projections, taking account of reasonably possible counterparty
performance, show that the Company expects to be able to continue
to operate for the foreseeable future. Accordingly, they continue
to adopt the going concern basis in preparing the annual report and
financial statements.
Connect M77/GSO plc
Strategic Report for the Year Ended 31 March 2020
(continued)
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 fulfilling the Private Finance Initiative
("PFI") contract and in delivering a safe and efficient service.
Risk management contributes to the success of the business by
identifying opportunities and anticipating risks in order to
improve business performance and fulfil our contractual
obligations.
Credit and cash flow risk
The relevant financial risks to the Company are credit and cash
flow risks, which arise from its primary client, East Renfrewshire
Council. The credit and cash flow risks are not considered
significant as the client is a government organisation.
Interest rate risk
The financial risk management objective of the Company is to
ensure that financial risks are mitigated by the use of financial
instruments where they cannot be addressed by means of contractual
provisions. There are no derivatives, risk is mitigated through a
fixed rate loan instrument. Financial instruments are not used for
speculative purposes.
Liquidity risk
The Company's liquidity risk is principally managed through
financing the Company by means of long-term borrowings, with an
amortisation profile that matches the expected availability of
funds from the Company's operating activities. In addition, the
Company maintains reserve bank accounts to provide short-term
liquidity against future debt service and other expenditure
requirements.
The Company has a net liability position which is caused by the
rolled up subordinated debt interest and principal amounts due to
the shareholders. This does not cause an issue for going concern
since the shareholders have waived their rights to receive interest
for the year to 31 March 2021. As such the Company has the required
funds to meet debt obligations as they fall due for the following
year.
Contractual relationships
The Company operates within a contractual relationship with its
primary customer, East Renfrewshire Council. A significant
impairment of this relationship could have a direct and detrimental
effect on the Company's results and could ultimately result in
termination of the concession.
To manage this risk the Company has regular meetings with East
Renfrewshire Council including discussions on performance, project
progress, future plans and customer requirements.
The Directors do not believe that the Company is exposed to any
significant Financial Risk. The Company's principal activity as
detailed above is low risk as all relationships with the customer,
funders and sub-contractors within the Company in which it sits are
determined by the terms of the respective contracts.
Brexit
The Directors have considered the potential consequences to the
Company of the United Kingdom leaving the European Union and, as at
the date of signing the report, do not anticipate that this will
have a significant impact on the Company. This is primarily because
the Company's contractual agreements, including those which cover
its financing, are unlikely to be affected.
Connect M77/GSO plc
Strategic Report for the Year Ended 31 March 2020
(continued)
COVID-19
The Directors have considered the potential impacts on the
Company of the COVID-19 emergency and, as at the date of signing
the report, do not anticipate that this will have a significant
impact on the Company's ability to continue as a going concern.
In making this assessment the Directors have considered the
Government Guidance, as issued on 2 April 2020: "Supporting vital
service provision in PFI/PF2 (and related) contracts during the
COVID-19 emergency".
The Directors expect that the Contracting Authority will adhere
to the guidance as issued, and therefore the unitary charge
payments will be maintained, and the cash flows of the company are
unlikely to be affected. Additionally, the Directors have
considered the contingency plans that the Company's supply chain
has in place and consider that, in conjunction with the government
guidance and taking account of reasonably possible counterparty
performance, this will enable services to be maintained.
Accordingly, the Directors continue to adopt the going concern
basis in preparing the annual report and financial statements.
Future developments
The Directors expect the general level of activity to remain
stable in the forthcoming year. There have been no other changes to
the Company's activities in the year under review and no others are
currently contemplated.
Approved by the Board on 29 July 2020 and signed on its behalf
by:
.........................................
M P Mageean
Director
Connect M77/GSO plc
Directors' Report for the Year Ended 31 March 2020
The Directors present their report and the financial statements
for the year ended 31 March 2020.
The following information has been disclosed in the Strategic
Report:
-- Principal activities and business review
-- Key performance indicators
-- Principal risk management
-- Indication of likely future developments in the business
Going concern
The current economic conditions create some general uncertainty.
The Directors have reviewed the Company's supply chain and do not
believe that any specific risk has been identified. The Directors
have also considered the ability of the Contracting Authority to
continue to pay unitary fees due under the concession contract to
the Company and do not consider this to be a material risk. The
Company's forecasts and projections, taking account of reasonably
possible counterparty performance, show the Company expects to be
able to continue to operate for the full term of the
concession.
After making enquiries, as further elaborated in the Strategic
Report, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence
for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the financial statements.
Results and dividends
The audited financial statements for the year ended 31 March
2020 are set out on pages 12 to 26. The profit for the year after
tax was GBP82k (2019: loss of GBP12k).
The Directors declared and paid dividends of GBPNil (2019:
GBPNil) The Directors expect the Company to continue its operations
for the foreseeable future.
Directors of the Company
The directors who held office during the year were as
follows:
D G Blanchard (resigned 27 September 2019)
D W Bowler (until 21 July 2020)
M J Edwards
M P Mageean
The following director was appointed after the year end:
A M Mughal (appointed 7 May 2020)
Disclosure of information to the 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
Auditor is unaware; and each Director has taken all steps that they
ought to have taken to make himself/herself aware of any relevant
audit information and to establish that the Company's Auditor is
aware of that information.
Connect M77/GSO plc
Directors' Report for the Year Ended 31 March 2020
(continued)
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.
Approved by the Board on 29 July 2020 and signed on its behalf
by:
.........................................
M P Mageean
Director
Registered office
6th Floor
350 Euston Road
Regent's Place
London
NW1 3AX
Connect M77/GSO plc
Statement of Directors' Responsibilities in respect of the
Annual Report and the Financial Statements
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 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 the profit or
loss for that period. In preparing these financial statements, the
Directors are required to:
-- select suitable accounting policies and 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
the 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.
Connect M77/GSO plc
Independent Auditor's Report to the Members of Connect M77/GSO
plc
1. Our opinion is unmodified
We have audited the financial statements of Connect M77/GSO plc
(the 'Company') for the year ended 31 March 2020, which comprise
the Profit and Loss Account, Balance Sheet, Statement of Changes in
Equity, and 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 March 2020 and of its profit 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
Directors.
We were first appointed as auditor by the directors on 17
October 2016. The period of total uninterrupted engagement is for
the 4 financial years ended 31 March 2020. 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
judgement, 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. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In arriving at our
audit opinion above, the key audit matter was as follows:
Service revenue recognition
(GBP2,763k; 2019: GBP2,926k)
Refer to page 16 (accounting policy) and page 20 (financial
disclosures).
The risk
Service revenue recognition
The amount of service revenue recognised is calculated via a
mark-up being applied to costs incurred during the year. The
mark-up is determined from a long term financial model which acts
as a long term forecast of the revenues and costs to be incurred on
the project. A significant portion of the service provision and the
associated performance risk, are outsourced to subcontractors with
costs contractually agreed over the life of the contract. Lifecycle
replacement risk remains with the Company and is a significant
estimate.
A fraud risk exists as management could manipulate the amount of
revenue recognised either through amending the future forecast
assumptions, particularly through the lifecycle costs which are a
key estimate (see note 2 for details) and hence change the mark-up
applied to the costs on which revenue is recognised or by applying
the mark-up to costs which are not related to the provision of the
services under the concession contract.
Connect M77/GSO plc
Independent Auditor's Report to the Members of Connect M77/GSO
plc (continued)
Our response
Our procedures included:
-- Service revenue recalculation: We recalculated service revenue
based upon the costs incurred which relate to provision of
services under the concession contract using the mark-up determined
in the financial forecasts and compared this to the amounts
recorded.
-- Comparing forecasts : We challenged the appropriateness of
cost estimates and assessed whether or not estimates showed
any evidence of management bias. Our challenge was based upon
our assessment of historical accuracy of the Company's forecasts
through comparison of current year actual costs, a sample
of which have been verified to supplier invoices, versus prior
year forecast, comparison of forecast cost estimates in current
year versus the prior year and expectations based on our knowledge
of the Company and experience of the industry in which it
operates.
Going concern
Risk vs 2019:
Refer to page 16 (accounting policy).
The risk
Disclosure quality
The financial statements explain how the Board has formed a
judgement that it is appropriate to adopt the going concern basis
of preparation for the Company.
That judgement is based on an evaluation of the inherent risks
to the Company's business model and how those risks might affect
the Company's financial resources or ability to continue operations
over a period of at least 12 months from the date of approval of
the financial statements.
The risks most likely to adversely affect the Company's
available financial resources over this period is the impact of
COVID-19 on contract performance, subcontractor failure and
compliance with borrowing covenants.
Our response
Our procedures included:
-- Our sector experience: We critically assessed the directors'
going concern assessment, including the reasonableness of
the key assumptions used in cash flow forecasts and the level
of downside sensitivities applied using our knowledge of COVID-19
scenarios being applied by other entities in the same sector.
-- Evaluating directors' intent: We evaluated the achievability
of the actions the Directors consider they would take to improve
the position should the risks materialise.
-- Assessing transparency: We assessed the accuracy and completeness
of the matters covered in the going concern disclosure.
Our results
We found the going concern disclosure without any material
uncertainty to be acceptable.
3. Our application of materiality and an overview of the scope
of our audit
Materiality for the statutory financial statements as a whole
was set at GBP1,400,000 (2019: GBP1,410,000) determined with
reference to a benchmark of total assets, of which it represents 1%
(2019: 1%).
We reported to the directors any corrected or uncorrected
identified misstatements exceeding GBP70,000 (2019: GBP70,000) in
addition to other identified misstatements that warranted reporting
on qualitative grounds.
The audit was performed using the materiality levels set out
above, covering 100% of the profit before taxation and total assets
held.
Connect M77/GSO plc
Independent Auditor's Report to the Members of Connect M77/GSO
plc (continued)
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.
We identified going concern as a key audit matter (see section 2
of this report). Based on the work described in our response to
that key audit matter, 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.
5. We have nothing to report on the Strategic Report and
Directors' Report
The Directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not cover
the other information and, accordingly, we do not express an audit
opinion or, except as explicitly stated below, any form of
assurance conclusion thereon.
Our responsibility is to read the other information 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 other information.
Strategic Report and Directors' Report
Based solely on our work on the other information:
-- 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, 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.
Connect M77/GSO plc
Independent Auditor's Report to the Members of Connect M77/GSO
plc (continued)
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 and
through discussion with the directors and other management (as
required by auditing standards), 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 companies legislation),
distributable profits 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.
Connect M77/GSO plc
Independent Auditor's Report to the Members of Connect M77/GSO
plc (continued)
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.
......................................
Tom Eve (Senior Statutory Auditor)
For and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
29 July 2020
Connect M77/GSO plc
Profit and Loss Account for the Year Ended 31 March 2020
2020 2019
Note GBP 000 GBP 000
Turnover 6 2,763 2,926
Cost of sales (2,566) (2,448)
-------- --------
Gross profit 197 478
Administrative expenses (65) (346)
-------- --------
Operating profit 132 132
Interest receivable and similar income 7 9,469 9,532
Interest payable and similar expenses 8 (9,359) (9,678)
-------- --------
Profit/(loss) before tax 242 (14)
Taxation 9 (160) 2
-------- --------
Profit/(loss) for the financial year 82 (12)
======== ========
The above results were derived from continuing operations.
The Company has no recognised gains or losses for the year other
than the results above. Accordingly no statement of comprehensive
income is presented.
Connect M77/GSO plc
(Registration number: 04698798)
Balance Sheet as at 31 March 2020
2020 2019
Note GBP 000 GBP 000
Non current assets
Financial asset 11 117,292 120,695
Current assets
Debtors 12 1,683 1,676
Investments 13 - 16,688
Financial assets 11 2,960 1,759
Cash at bank and in hand 18,702 1,908
--------- ---------
23,345 22,031
Creditors : Amounts falling due within
one year 14 (7,523) (7,196)
--------- ---------
Net current assets 15,822 14,835
--------- ---------
Total assets less current liabilities 133,114 135,530
Creditors : Amounts falling due after
more than one year 14 (160,557) (163,119)
Deferred tax liabilities 10 (1,614) (1,550)
--------- ---------
Net liabilities (29,057) (29,139)
========= =========
Capital and reserves
Called up share capital 17 50 50
Profit and loss account (29,107) (29,189)
--------- ---------
Total equity (29,057) (29,139)
========= =========
Approved and authorised by the Board on 29 July 2020 and signed
on its behalf by:
.........................................
M P Mageean
Director
Connect M77/GSO plc
Statement of Changes in Equity for the Year Ended 31 March
2020
Called up Profit and
share capital loss account Total
GBP 000 GBP 000 GBP 000
At 1 April 2018 50 (29,177) (29,127)
Total comprehensive income - (12) (12)
-------------- ------------- --------
At 31 March 2019 50 (29,189) (29,139)
============== ============= ========
Called up Profit and
share capital loss account Total
GBP 000 GBP 000 GBP 000
At 1 April 2019 50 (29,189) (29,139)
Total comprehensive income - 82 82
-------------- ------------- --------
At 31 March 2020 50 (29,107) (29,057)
============== ============= ========
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2020
1 Accounting policies
Connect M77/GSO plc (the 'Company') is a company limited by
shares and incorporated, domiciled and registered in England and
Wales in the UK. The registered number is 04698798 and the
registered address is 6th Floor, 350 Euston Road, Regent's Place,
London , NW1 3AX .
A summary of the principal accounting policies of the Company,
all of which have been applied consistently throughout the current
and preceding year, is set out below.
Basis of preparation
These financial statements were prepared in accordance with
Financial Reporting Standard 102 The Financial Reporting Standard
applicable in the UK and Republic of Ireland ("FRS 102") and 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 GBP1,000, unless otherwise
stated.
The Company's immediate parent undertaking, Connect M77/GSO
Holdings Limited, includes the Company in its consolidated
financial statements. The consolidated financial statements of
Connect M77/GSO Holdings Limited are available to the public and
may be obtained from the address in note 19.
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:
-- Cash Flow Statement and related notes; and
-- Key Management Personnel compensation.
As the consolidated financial statements of Connect M77/GSO
Holdings Limited include the equivalent disclosures, the Company
has also taken the exemptions under FRS 102 available in respect of
the following disclosures:
-- Certain disclosures required by FRS 102.26 Share Based Payments;
and
-- Certain disclosures required by FRS 102.11 Basic Financial
Instruments and FRS 102.12 Other Financial Instrument Issues
in respect of financial instruments not falling within the
fair value accounting rules of Paragraph 36(4) of Schedule
1 of the Companies Act 2006.
Judgements made by the Directors, in the application of these
accounting policies that have significant effect on the financial
statements and estimates with a significant risk of material
adjustment in the next year are discussed in note 2.
Measurement convention
The financial statements are prepared on the historical cost
basis, except that financial instruments classified as fair value
through profit or loss are stated at their fair value.
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2020 (continued)
1 Accounting policies (continued)
Going concern
The Company's business activities, together with the factors
likely to affect its future development and position, are set out
in the Strategic Report and Directors' Report.
The financial statements have been prepared on a going concern
basis which the Directors consider to be appropriate for the
following reasons.
The Directors have prepared cash flow forecasts covering a
period of 15 months from the date of approval of these financial
statements which indicate that, taking account of severe but
plausible possible downsides, the Company will have sufficient
funds to meet its liabilities as they fall due for that period.
Those forecasts are dependent on the underlying customer continuing
to meet its obligations under the Project Agreement which are
underwritten by The Cabinet Ministers.
In making this assessment the Directors have considered the
potential impact of the emergence and spread of COVID-19.
The Company's operating cash inflows are largely dependent on
unitary charge receipts receivable from East Renfrewshire Council
and the Directors expect these amounts to be received even in
severe but plausible possible downside scenarios. The Company's
unitary charge receipts due in April 2020 to June 2020 were
received on time in the normal fashion from East Renfrewshire
Council.
The contract is an availability-based project. The Company
continues to provide the asset in accordance with the contract and
the asset is available to be used. As a result, the Company does
not believe there is any likelihood of a material impact to the
unitary payment.
The Directors have assessed the viability of its main
sub-contractors and reviewed the contingency plans of the
sub-contractors and are satisfied in their ability to provide the
services in line with the contract without significant additional
costs to the Company, even in downside scenarios, due to the
underlying contractual terms. To date, there has been no adverse
impact on the services provided by the Company or its
sub-contractors arising from COVID-19. However, in the unlikely
event of a subcontractor failure, the Company has its own business
continuity plans to ensure that service provision will
continue.
The Directors believe the Company has sufficient funding in
place and expect the Company to be in compliance with its debt
covenants even in severe but plausible downside scenarios.
Consequently, the Directors are confident that the Company will
have sufficient funds to continue to meet its liabilities as they
fall due for at least 12 months from the date of approval of the
financial statements and therefore have prepared the financial
statements on a going concern basis.
Turnover
In the operational phase, revenue is recognised by allocating a
proportion of total unitary income receivable over the life of the
project to service costs by means of a deemed constant rate of
return on these costs. Revenue is recognised by applying a 5%
mark-up on the operational costs, representing the fair value of
operational services.
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2020 (continued)
1 Accounting policies (continued)
Financial asset
Classification
Trade and other debtors are recognised initially at transaction
price less attributable transaction costs. Trade and other
creditors are recognised initially at transaction price plus
attributable transaction costs. Subsequent to initial recognition
they are measured at amortised cost using the effective interest
method, reduced by allowances for estimated irrecoverable amounts
and expected credit losses in the case of trade debtors.
Interest-bearing borrowings are recognised initially at the
present value of future payments discounted at a market rate of
interest. Subsequent to initial recognition, interest-bearing
borrowings are stated at amortised cost using the effective
interest method, less any impairment losses.
Term 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 the period.
Secured subordinated debt is 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.
Investments realisable within one year held by the Company
represent amounts held on deposit with a financial institution
which are not available for withdrawal without penalty in under 24
hours. Investments realisable within one year are stated at
amortised cost with the interest receivable being recognised at a
constant rate over the life of the investment.
Cash and cash equivalents comprise cash balances and call
deposits.
Impairment
A financial asset not carried at fair value through profit or
loss is assessed at each reporting date to determine whether there
is objective evidence that it is impaired. A financial asset is
impaired if objective evidence indicates that a loss event has
occurred after the initial recognition of the asset, and that the
loss event had a negative effect on the estimated future cash flows
of that asset that can be estimated reliably.
An impairment loss in respect of a financial asset measured at
amortised cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows
discounted at the asset's original effective interest rate. For
financial instruments measured at cost less impairment an
impairment is calculated as the difference between its carrying
amount and the best estimate of the amount that the Company would
receive for the asset if it were to be sold at the reporting date.
Interest on the impaired asset continues to be recognised through
the unwinding of the discount. Impairment losses are recognised in
profit or loss. When a subsequent event causes the amount of
impairment loss to decrease, the decrease in impairment loss is
reversed through profit or loss.
Finance costs
Finance costs in relation to the fixed rate senior secured bonds
and the secured loan stock are recognised using the effective
interest rate method under FRS 102 whereby expected interest over
the life of the project is spread and recognised in each
period.
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2020 (continued)
1 Accounting policies (continued)
Tax
Current tax is provided at amounts expected to be paid (or
recovered) using the tax rates and laws that have been enacted or
substantively enacted by the balance sheet date. The tax currently
payable is based on taxable profit
for the year. Taxable profit differs from net profit as reported
in the income statement because it excludes items of income or
expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
balance sheet liability method.
Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from the initial recognition of
goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised based on tax laws and rates that have been enacted or
substantively enacted at the balance
sheet date.
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2020 (continued)
2 Critical accounting estimates and judgements
Judgements
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.
Key sources of estimation uncertainty
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.
Service concession arrangement
The Company accounts for the project as a service concession
arrangement. The directors have used their judgement in selecting
the appropriate accounting basis for the concession. The directors
use their judgement in selecting the appropriate financial asset
rate to be applied in order to allocate the income received between
revenue, and capital repayment of and interest income on the
financial asset; and also the service margin currently 5% that is
used to recognise service revenue. The directors have also used
their judgement in assessing the appropriateness of the future
maintenance costs that are included in the Company's forecasts. The
directors will continue to monitor the condition of the assets and
undertake a regular review of maintenance spend.
3 Auditors' remuneration
The audit fee for the Company amounted to GBP24k (2019:
GBP18k).
There were no non-audit fees (2019: GBPnil).
4 Directors' remuneration
The Directors received an insignificant amount of salary, fees,
or other benefits in the performance of their duties in respect of
the Company in the current and prior year.
5 Staff costs
All staff costs are borne by Balfour Beatty Investments Limited,
which seconds its employees to the Company and charges related
service costs. The Company had no employees during the year.
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2020 (continued)
6 Analysis of turnover
Turnover by origin and destination from the Company's principal
activity
2020 2019
GBP 000 GBP 000
UK 2,763 2,926
=================== ===================
7 Interest receivable and similar income
2020 2019
GBP 000 GBP 000
Interest income on financial assets 9,377 9,493
Interest on bank accounts and deposits 92 39
------------------- -------------------
9,469 9,532
=================== ===================
8 Interest payable and other expenses
2020 2019
GBP 000 GBP 000
Secured bond interest 7,298 7,522
Secured loan stock interest 2,061 2,156
------------------- -------------------
9,359 9,678
=================== ===================
9 Taxation
Tax charged/(credited) in the income statement
2020 2019
GBP 000 GBP 000
Current taxation
UK corporation tax 96 -
Deferred taxation
Arising from origination and reversal of
timing differences (51) (2)
Arising from changes in tax rates and laws 182 -
Arising from adjustments to prior periods (67) -
-------- --------
Total deferred taxation 64 (2)
-------- --------
Tax expense/(receipt) in the income statement 160 (2)
======== ========
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2020 (continued)
9 Taxation (continued)
The tax on profit before tax for the year is higher than the
standard rate of corporation tax in the UK (2019 - higher than the
standard rate of corporation tax in the UK) of 19% (2019 -
19%).
The differences are reconciled below:
2020 2019
GBP 000 GBP 000
Profit/(loss) before tax 242 (14)
======== ========
Corporation tax at standard rate 46 (3)
Effect of expense not deductible in determining
taxable profit (tax loss) (1) 1
Deferred tax expense relating to changes
in tax rates or laws 182 -
Deferred tax credit from temporary difference
from a prior period (67) -
-------- --------
Total tax charge/(credit) 160 (2)
======== ========
The Company earns its results primarily in the UK, therefore the
tax rate used for tax on profit on ordinary activities is the
current UK corporation tax rate of 19% (2019: 19%).
For the year end 31 March 2020, a corporation tax rate of 19%
has been applied in line with rates enacted by the Finance Act
2016. The Finance Act 2016, which was substantively enacted on 6
September 2016, provided for a reduction in the main rate of UK
corporation tax to 19% effective from 1 April 2016 and a further
reduction to 17% from 1 April 2020. However, the Finance Bill 2020
substantively enacted on 17 March 2020 supersedes this, and states,
that the UK corporation tax rate will remain at 19% for the
financial years ended 2020 and 2021.
10 Deferred tax asset/(liability)
2020 2019
GBP 000 GBP 000
At 1 April (1,550) (1,552)
Charged to income statement (64) 2
--------------- ---------------
(1,614) (1,550)
=============== ===============
Capitalised
Trading losses interest
GBP 000 GBP 000
At 1 April 17 (1,567)
Movement (17) (47)
-------------- -----------
At 31 March - (1,614)
============== ===========
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2020 (continued)
10 Deferred tax asset/(liability) (continued)
The deferred tax balances in the financial statements were
measured at the future rate of 17% in the prior period, in line
with the Finance Act 2016 which was substantively enacted on 6
September 2016. The Finance Bill 2020 which was substantively
enacted on 17 March 2020 stated that the UK corporation tax rate
will remain at 19% for the financial years ended 2020 and 2021. The
prior year closing deferred tax balances were recognised at 17%.
The deferred tax balances recognised in the accounts for the year
ended 31 March 2020, have been recalculated and recognised at 19%.
The impact of recalculating the deferred tax balances at 19% as at
31 March 2020, gives rise to a charge to the profit and loss of
GBP182k.
11 Financial asset
2020 2019
GBP 000 GBP 000
Balance brought forward 122,454 123,893
Service income received in the year (14,955) (14,557)
Operating revenues 2,589 2,786
Lifecycle replacement costs 787 839
Notional interest 9,377 9,493
-------- --------
Balance carried forward 120,252 122,454
======== ========
Financial asset comprising:
2020 2019
GBP 000 GBP 000
Amounts falling due within one year 2,960 1,759
Amounts falling due after more than one
year 117,292 120,695
-------- --------
120,252 122,454
======== ========
12 Debtors
2020 2019
GBP 000 GBP 000
Trade debtors 1,515 1,461
Prepayments and accrued income 168 215
-------- --------
1,683 1,676
======== ========
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2020 (continued)
13 Current asset investments
The following current asset investments include restricted cash
which cannot be used to fund the on-going operations of the
Company:
2020 2019
GBP 000 GBP 000
Debt service reserve - 8,679
Tax reserve account - 8,009
-------- --------
- 16,688
======== ========
The cash balance increased in the current year due to maturity
of time deposit amounts on 25 March 2020. Therefore the outstanding
balance on deposit accounts was reclassified to cash from
investments balances in the prior year. The cash balance as at 31
March 2020 GBP18,702k includes restricted cash of GBP17,786k that
is required to be restricted per the Collateral Deed. This
restricted cash was placed on time deposit subsequently on 1 April
2020 and recognised as an investment balance from this date until
time deposit maturity.
14 Creditors
2020 2019
GBP 000 GBP 000
Due within one year
Fixed rate senior secured bonds 4,808 4,344
Trade creditors - 479
Accruals and deferred income 1,999 1,994
VAT payable 652 202
Corporate tax liability 64 177
-------- --------
7,523 7,196
======== ========
Due after one year
Fixed rate senior secured bonds 117,718 122,342
Secured loan stock 14,865 14,865
Secured loan stock interest 27,974 25,912
-------- --------
160,557 163,119
======== ========
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2020 (continued)
14 Creditors (continued)
Fixed rate guaranteed senior secured bonds due 2034 of
GBP152,429k were issued on 7 May 2003. The bonds have been
unconditionally and irrevocably guaranteed by Syncora Guarantee
(UK) Limited (formerly XL Capital Assurance (UK) Limited) for
payment of principal and interest.
Interest on the bonds is payable semi-annually in arrears on 31
March and 30 September in each year at a fixed rate of 5.404% per
annum commencing on 30 September 2003.
Unless previously redeemed or purchased and cancelled, the bonds
will mature on 31 March 2034 and are subject to redemption in part
from, and including, 30 September 2006 in accordance with the
amortisation schedule set out in the bonds offering circular.
The secured loan stock bears interest at 12.1% per annum and
accrues from the date of final completion. It is redeemable in
instalments between 2015 and 2035, or as the Company elects, but
subject to certain restrictions in the collateral deed. The secured
loan stock issued by the Company is held by the Company's immediate
parent companies. The Company's immediate parent companies have
waived their rights to receive interest within 12 months for the
years ending 31 March 2019 and 31 March 2020.
All borrowings contain either a fixed or varying security
interest over the assets of the Company, as defined by an
intercreditor agreement. The bonds have certain covenants
attached.
Fixed rate guaranteed senior secured bonds are stated net of
unamortised issue costs of GBP1,806k (2019: GBP1,989k). The Company
incurred total issue costs of GBP4,403,000 in respect of the fixed
rate bonds. These costs, together with the interest expense, are
allocated to the profit and loss amount over the term of the bonds.
Interest is calculated using the effective interest rate
method.
The Company has committed borrowing facilities available of
GBP167,294k which have been fully drawn as at 31 March 2020 (2019 -
GBP167,294k).
15 Loans and borrowings
Loans not wholly repayable within five years:
2020 2019
GBP 000 GBP 000
Fixed rate guaranteed senior secured bonds 124,332 128,676
Secured loan stock 14,865 14,865
-------- --------
139,197 143,541
======== ========
Analysis of maturity of debt:
2020 2019
GBP 000 GBP 000
Within one year or on demand 4,808 4,344
Between one and two years 5,306 4,808
Between two and five years 18,807 17,256
After five years 110,276 117,133
-------- --------
139,197 143,541
======== ========
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2020 (continued)
16 Financial instruments
Capital risk management
The Company manages its capital to ensure its ability to
continue as a going concern, to meet the requirements of its
collateral deed 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 and profit and loss account and cash and
cash equivalents and borrowings. The Company has complied with
capital requirements imposed by the collateral deed throughout the
year. There have been no changes in the Company's management of
capital from previous years.
The principal risks and uncertainties faced are highlighted in
the strategic report on page 2.
The Company has the following financial instruments:
2020 2019
GBP 000 GBP 000
Due on demand or within one year 11,571 11,459
Due within one to two years 11,897 11,674
Due within two to five years 36,663 36,098
Due after more than five years 164,328 178,044
-------- --------
224,459 237,275
======== ========
17 Share capital
Allotted, called up and fully paid shares
2020 2019
No. GBP No. GBP
Ordinary shares of GBP1
each 50,000 50,000 50,000 50,000
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of the Company.
The Company's other reserves are as follows:
-- The profit and loss reserve represents cumulative profits
or losses, net of dividends paid.
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2020 (continued)
18 Related party transactions
Transactions during the year
2020
GBP 000
Balfour Beatty Civil Engineering - operation and
maintenance 3,824
Balfour Beatty Investments - staff secondment charges 241
--------
4,065
========
2019
GBP 000
Balfour Beatty Civil Engineering - operation and
maintenance 3,759
Balfour Beatty Investments - staff secondment charges 234
--------
3,993
========
Outstanding balances at the end of the year
2020
GBP 000
Balfour Beatty Civil Engineering - operation and
maintenance 203
Balfour Beatty Investments - staff secondment charges 1,035
--------------------------------------
1,238
======================================
2019
GBP 000
Balfour Beatty Civil Engineering - operation and
maintenance 202
Balfour Beatty Investments - staff secondment charges 1,047
--------------------------------------
1,249
======================================
19 Parent and ultimate parent undertaking
The Company's immediate parent is Connect M77/GSO Holdings
Limited, incorporated in United Kingdom and registered in England
and Wales, with registered office of Level 6, 350 Euston Road,
London, NW1 3AX.
The ultimate parents are Balfour Beatty plc and BIIF LP (acting
by its manager, 3i BIFM Investments Ltd), incorporated in United
Kingdom and registered in England and Wales.
The largest and smallest group in which the results of Connect
M77/GSO plc are consolidated is Connect M77/GSO Holdings Limited,
copies of whose financial statements are available from Level 6,
350 Euston Road, London, NW1 3AX.
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2020 (continued)
20 Subsequent events
The Directors are aware that following the maturity of
restricted cash GBP17,786k from time deposit on 25 March 2020. This
has been subsequently been placed on time deposit on 1 April and is
recognised as an investment balance from this date until time
deposit maturity. This is a non adjusting for year ended 31 March
2020.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EAFXEDLAEEFA
(END) Dow Jones Newswires
July 30, 2020 07:49 ET (11:49 GMT)
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