TIDM80UC
RNS Number : 1521H
Connect M77/GSO
30 July 2021
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Connect M77/GSO plc
Annual Report and Financial Statements
for the Year Ended 31 March 2021
Registration number: 04698798
Connect M77/GSO plc
Contents
Strategic Report 1 to 4
Directors' Report 5 to 6
Statement of Directors' Responsibilities 7
Independent Auditor's Report 8 to 13
Profit and Loss Account 14
Balance Sheet 15
Statement of Changes in Equity 16
Notes to the Financial Statements 17 to 28
Connect M77/GSO plc
Strategic Report for the Year Ended 31 March 2021
The Directors present their strategic report for the year ended
31 March 2021.
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 "Client") (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 14. The profit for
the year before taxation was GBP231k (2020: GBP242k) and the net
liabilities position as at 31 March 2021 was GBP28,880k (2020 :
GBP29,057k) 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
A s 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.
2021 GBP 000
Page 1
Connect M77/GSO plc
Strategic Report for the Year Ended 31 March 2021
(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 Client. 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 2022. A s 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
Client. 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 the
Client 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 consequences to the Company of
the United Kingdom having exited the European Union and, as at the
date of signing the report, this has not had a significant impact
on the Company and it is not anticipated that this will have a
significant impact in the future. This is primarily because the
Company's contractual agreements, including those which cover its
financing, are unlikely to be affected.
Page 2
Connect M77/GSO plc
Strategic Report for the Year Ended 31 March 2021
(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 Client 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.
Section 172 Companies Act 2006 Statement
The Directors have a duty to promote the success of the Company
for the benefit of the shareholders as a whole and to describe how
this duty has been performed with regard to those matters set out
in Section 172 of the Companies Act 2006 ("Section 172").
The Directors have identified the Company's main stakeholders as
the following:
-- The Company's shareholders, bondholders and credit providers
Principal considerations of the board are to ensure that the
Company is meeting shareholder, credit provider and bondholder
expectations regarding its ability to meet its financing
obligations. These are discussed at all project board meetings,
which are held regularly throughout the year. The board regularly
discusses the obligations under the financing contracts, and how to
ensure these are fulfilled. In addition, regular meetings are held
with the funders, and attended by Directors, to keep them updated
on matters as required.
Page 3
Connect M77/GSO plc
Strategic Report for the Year Ended 31 March 2021
(continued)
Throughout the year the board has given due consideration during
its discussions and decision-making of the matters set out in
Section 172 and below is a description of how the Directors have
had regard to these matters when performing their duties:
a) the likely consequences of any decision in the long term
The communication and reporting provided ensure that the board
is fully informed and able to make
appropriate decisions.
b) the interests of the Company's employees,
The Company has no employees. The Company does, however, pay due
regard to the interests and safety of those wh o perform services
on its behalf.
c) the need to foster the Company's business relationships with suppliers, customers and others
The Company has regular meetings with the Client, including
discussions on performance, project processes,
future plans and customer requirements. The Company ensures that
regular communication is maintained between the parties to ensure
that all obligations are met.
d) the impact of the Company's operations on the community and the environment
The Company is committed to minimising environmental disruption
from its activities.
e) the desirability of the Company maintaining a reputation for
high standards of business conduct
The Company is committed in its day to day activities and
dealings with all parties to uphold the highest
standard of business conduct and integrity.
f) the need to act fairly as between members of the Company
The members of the Company are represented at board meetings by
their appointed directors. Conflicts on matters to be discussed are
identified at each meeting of the board. Directors representing a
member with a conflict of interest may therefore be excluded from
any discussion or vote in regard to it.
The Directors are cognisant of their duty under Section 172 in
their deliberation as a board on all matters. Decisions made by the
board consider the interest of all the Company's key stakeholders
and reflect the board's belief that the long-term sustainable
success of the Company is linked directly to its key
stakeholders.
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 .................... and signed on its
behalf by:
......................................... M P Mageean
Director
Page 4
Connect M77/GSO plc
Directors' Report for the Year Ended 31 March 2021
The Directors present their annual report together with the
audited financial statements for the year ended 31 March 2021.
The following information has been disclosed in the Strategic
Report:
-- Principal activities and business review
-- Key performance indicators
-- Principal risks and uncertainties
-- 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 Client 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
2021 are set out on pages 14 to 28. The profit for the year after
tax was GBP177k (2020: GBP82k).
The Directors declared and paid dividends of GBPNil (2020:
GBPNil) The Directors expect the Company to continue its operations
for the foreseeable future.
Directors of the Company
The directors wh o held office during the year were as
follows:
D W Bowler (until 21 July 2020)
M J Edwards
M P Mageean
A M Mughal (appointed 7 May 2020)
Disclosure of information to the auditors
The Directors wh o 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.
Page 5
Connect M77/GSO plc
Directors' Report for the Year Ended 31 March 2021
(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 .................... and signed on its
behalf by:
.........................................
M P Mageean
Director
Registered office 6th Floor
350 Euston Road
Regent's Place London
NW1 3AX
Page 6
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.
Under applicable law and regulations, the directors are also
responsible for preparing a Strategic Report, and Directors' Report
that complies with that law and those regulations.
Page 7
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 2021, 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 2021 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 w e 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 five financial years ended 31 March 2021 . We have fulfilled
our ethical responsibilities under, and w e 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. We summarise below
the key audit matters (unchanged from 2020), in decreasing order of
audit significance, in arriving at our audit opinion above,
together with our key audit procedures to address those matters
and, as required for public interest entities, our results from
those procedures. These matters were 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 w e 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
Risk vs 2020:
(GBP3,637k; 2020: GBP2,763k)
Refer to page 19 (accounting policy) and page 22 (financial
disclosures).
The risk
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.
Page 8
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 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.
We performed the tests above rather than seeking to rely on any
of the company's controls because the nature of the balance meant
that detailed testing is inherently the most effective means of
obtaining audit evidence.
Our results
The results of our testing were satisfactory, and we considered
the amount of revenue recognised to be acceptable (2020:
acceptable).
Going concern
Risk vs 2020:
Refer to page 18 (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 m onths 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.
-- Evaluating directors' intent: We evaluated the achievability
of the actions the Directors consider they
w ould 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 (2020 result: acceptable).
Page 9
Connect M77/GSO plc
Independent Auditor's Report to the Members of Connect M77/GSO
plc (continued)
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
GBP1,380,000 (2020: GBP1,400,000) determined with reference to a
benchmark of total assets, of which it represents 1% (2020:
1%).
In line with our audit methodology, our procedures on individual
account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an
acceptable level the risk that individually immaterial
misstatements in individual account balances add up to a material
amount across the financial statements as a whole.
Performance materiality was set at 75% (2020: 75%) of
materiality for the financial statements as a whole, which equates
to GBP1,035,000 (2020: GBP1,050,000).
We agreed to report to the Board of Directors any corrected or
uncorrected identified misstatements exceeding GBP69,000 (2020:
GBP70,000), in addition to other identified misstatements that
warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level
set out above and was performed remotely.
4. 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").
A n explanation of how w e evaluated management's assessment of
going concern is set out in the related key audit matter in section
2 of this report.
Our conclusions based on this work:
-- w e consider that the Directors' use of the going concern
basis of accounting in the preparation of the
financial statements is appropriate;
-- w e have not identified, and concur with the Directors'
assessment that there is not, a material uncertainty
related to events or conditions that, individually or
collectively, may cast significant doubt on the Company's ability
to continue as a going concern for the going concern period.
However, as w e 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 above conclusions are not a guarantee that the
Company will continue in operation.
5 Fraud and breaches of laws and regulations - ability to
detect
Identifying and responding to risks of material misstatement due
to fraud
To identify risks of material misstatement due to fraud (fraud
risks) w e assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity to
commit fraud. Our risk assessment procedures included:
-- Enquiring of directors and management as to the Company's
high-level policies and procedures to prevent
and detect fraud, and the Company's channel for whistleblowing,
as well as whether they have knowledge of any actual, suspected or
alleged fraud;
-- Reading Board meeting minutes; and
-- Using analytic procedures to identify unusual or unexpected relationships.
Page 10
Connect M77/GSO plc
Independent Auditor's Report to the Members of Connect M77/GSO
plc (continued)
We communicated identified fraud risks throughout the audit team
and remained alert to any indications of fraud throughout the
audit.
A s required by auditing standards, we
perform procedures to address the risk of management
override of controls and the risk of fraudulent revenue
recognition, the risk that management may be in a position to make
inappropriate accounting entries and the risk of bias in accounting
estimates and judgements such as cash flow assumptions in the
operating model.
We did not identify any additional fraud risks.
We performed procedures including:
-- Identifying journal entries and other adjustments to test
based on risk criteria and comparing the identified
entries to supporting documentation. These included those posted
to seldom used accounts, unusual accounts combinations and period
end adjustments; and
-- Assessing significant accounting estimates for bias.
Identifying and responding to risks of material misstatement due
to non-compliance with laws and regulations
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 w
e 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, w e 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.
Context of the ability of the audit to detect fraud or breaches
of law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that w e may not have detected some material
misstatements in the Financial Statements, even though w e have
properly planned and performed our audit in accordance with
auditing standards. For example, the further removed non-compliance
with laws and regulations 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 fraud, as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Page 11
Connect M77/GSO plc
Independent Auditor's Report to the Members of Connect M77/GSO
plc (continued)
6. We have nothing to report on the other information in the
Annual 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, w
e 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 w e have not identified material misstatements in the other information.
Strategic Report and Directors' Report
Based solely on our work on the other information:
-- w e 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.
7. We have nothing to report on the other matters on which we
are required to report by exception
Under the Companies Act 2006 w e 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
-- w e have not received all the information and explanations w e require for our audit.
We have nothing to report in these respects.
8. Respective responsibilities
Directors' responsibilities
A s explained more fully in their statement set out on page 7,
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 .
Page 12
Connect M77/GSO plc
Independent Auditor's Report to the Members of Connect M77/GSO
plc (continued)
9. 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 w e might state to the
Company's members those matters w e are required to state to them
in an auditor's report and for no other purpose. To the fullest
extent permitted by law, w e 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 w e
have formed.
......................................
Tom Eve (Senior Statutory Auditor)
For and on behalf of KPMG LLP, Statutory Auditor Chartered
Accountants
15 Canada Square
London
E14 5GL
Date:.............................
Page 13
Connect M77/GSO plc
Profit and Loss Account for the Year Ended 31 March 2021
2020 GBP 000
Turnover
6 3,637 2,763 Cost of sales
(3,128) (2,566) Gross profit
509 197 Administrative expenses
(379) (65) Operating profit
130
132 Interest receivable and similar income 7
9,128 9,469 Interest payable and similar expenses
8 (9,027) (9,359) Profit before tax 231 242 Taxation 9 (54) (160) Profit for the financial year 177 82
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.
The notes on pages 17 to 28 form an integral part of these
financial statements. Page 14
Connect M77/GSO plc
(Registration number: 04698798) Balance Sheet as at 31 March
2021
Note
2021 GBP 000
2020 GBP 000
Non current assets
Financial asset 11 113,735 117,292 Current assets
Debtors 12 292 1,683 Financial assets 11 3,119 2,960 Cash at
bank and in hand 20,851 18,702
24,262 23,345 Creditors : Amounts falling due within one year 13
(7,894) (7,523)
Net current assets
16,368 15,822 Total assets less current liabilities
130,103 133,114 Creditors : Amounts falling due after more than
one year 13 (157,413) (160,557) Deferred tax liabilities 10 (1,570)
(1,614) Net liabilities (28,880) (29,057)
Capital and reserves
Called up share capital 16 50 50 Profit and loss account
(28,930) (29,107) Total equity (28,880) (29,057)
Approved and authorised by the Board on .................... and
signed on its behalf by:
......................................... M P Mageean
Director
The notes on pages 17 to 28 form an integral part of these
financial statements. Page 15
Total GBP 000
A t 1 April 2019 50 (29,189) (29,139) Total comprehensive income
- 82 82 A t 31 March 2020 50 (29,107) (29,057)
Called up share capital GBP 000
The notes on pages 17 to 28 form an integral part of these
financial statements. Page 16
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2021
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 18.
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.
A s 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.
Page 17
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2021 (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 a period of at
least 12 months from the date of approval of the financial
statement (the going concern 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 receipts due since the start of the pandemic in March 2020
to date have been 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. A s 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 ow n 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.
Page 18
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2021 (continued)
1 Accounting policies (continued)
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.
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.
Tax
The tax expense for the period comprises current and deferred
tax. Tax is recognised in profit or loss, except that a change
attributable to an item of income or expense recognised as other
comprehensive income is also recognised directly in other
comprehensive income.
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.
Page 19
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2021 (continued)
1 Accounting policies (continued)
Financial instruments
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.
A n 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 w ould
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.
Page 20
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2021 (continued)
2 Critical accounting estimates and judgem ents
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 GBP28k (2020:
GBP24k).
There were no non-audit fees (2020: 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 or 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 current or
prior year.
Page 21
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2021 (continued)
6 Analysis of turnover
Turnover by origin and destination from the Company's principal
activity
2020 GBP 000
UK 3,637 2,763
7 Interest receivable and similar incom e
2020 GBP 000
Interest income on financial assets 9,119 9,377 Interest on bank
accounts and deposits 9 92 9,128 9,469
8 Interest payable and other expenses
2020 GBP 000
Secured bond interest 7,049 7,298 Secured loan stock interest
1,978 2,061 9,027 9,359
9 Taxation
Tax charged/(credited) in the income statement
2021 GBP 000
2020 GBP 000
Current taxation
UK corporation tax 98 96 Deferred taxation
Arising from origination and reversal of timing differences
(54) (51) Arising from changes in tax rates and laws
- 182 Arising from adjustments to prior periods 10 (67) Total
deferred taxation (44) 64 Tax expense in the income statement 54
160
Page 22
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2021 (continued)
9 Taxation (continued)
2020 GBP 000
Profit before tax
231 242 Corporation tax at standard rate 44 46 Effect of expense
not deductible in determining taxable profit (tax loss) - (1)
Deferred tax expense relating to changes in tax rates or laws - 182
Deferred tax expense/(credit) from recognised temporary
difference
from a prior period 10 (67) Total tax charge 54 160
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% (2020: 19%).
For the year end 31 March 2021, a corporation tax rate of 19%
has been applied in line with rates enacted by the Finance Act 2020
which was enacted on 22 July 2020.
10 Deferred tax asset/(liability)
2020 GBP 000
A t 1 April (1,614) (1,550) Credited / (Charged) to income
statement 44 (64) A t 31 March (1,570) (1,614)
The deferred tax balance relates to capitalised interest.
On 4 March 2021 the UK Government announced an intention to
increase the rate of corporation tax to 25% with effect from 1
April 2023. This was substantively enacted on 24 May 2021 and hence
the Company's deferred tax balances will be reassessed at that
time. The impact of this rate change would have been an increase of
around GBP496k to the Company's deferred tax liabilities as at 31
March 2021 if the tax increase had been substantively enacted by
that date.
Page 23
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2021 (continued)
11 Financial asset
2020 GBP 000
Balance brought forward
120,252 122,454 Service income received in the year
(16,005) (14,955) Operating revenues 2,891 2,589 Lifecycle replacement costs 597 787 Notional interest 9,119 9,377
Balance carried forward 116,854 120,252
Financial asset comprising:
2021 GBP 000
12 Debtors
2020 GBP 000
Trade debtors 103 1,515 Prepayments and accrued income 189
168
292 1,683
13 Creditors
2021 GBP 000
2020 GBP 000
Due within one year
Fixed rate senior secured bonds
5,306 4,808 Accruals and deferred income 2,337 1,999 VAT payable
231 652 Corporate tax liability 20 64
7,894 7,523
Due after one year
Fixed rate senior secured bonds 112,596 117,718 Secured loan
stock 14,865 14,865 Secured loan stock interest 29,952 27,974
157,413 160,557
Page 24
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2021 (continued)
13 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, with the final
instalment due in 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
company. The Company's immediate parent company has waived its
right to receive interest within 12 months for the years ending 31
March 2020 and 31 March 2021.
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 GBP1,622k (2020: GBP1,806k). The Company
incurred total issue costs of GBP4,403k 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 draw n as at 31 March 2021 (2020
: GBP167,294k).
Page 25
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2021 (continued)
14 Loans and borrowings
Loans not wholly repayable within five years:
2020 GBP 000
Fixed rate guaranteed senior secured bonds 119,524 124,332
Secured loan stock 14,865 14,865
134,389 139,197
Analysis of maturity of debt:
2021 GBP 000
15 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:
2021 GBP 000
Page 26
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2021 (continued)
16 Share capital
Allotted, called up and fully paid shares
2021 2020 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.
17 Related party transactions Transactions during the year
2021 GBP 000
Balfour Beatty Civil Engineering - operation and maintenance
3,617 Balfour Beatty Investments - staff secondment charges 243
3,860 2020
GBP 000 Balfour Beatty Civil Engineering - operation and
maintenance 3,824 Balfour Beatty Investments - staff secondment
charges 241
4,065
2021 GBP 000
Balfour Beatty Civil Engineering - operation and maintenance 263
Balfour Beatty Investments - staff secondment charges 1,277
1,540 2020
GBP 000 Balfour Beatty Civil Engineering - operation and
maintenance 203 Balfour Beatty Investments - staff secondment
charges 1,035
1,238
Page 27
Connect M77/GSO plc
Notes to the Financial Statements for the Year Ended 31 March
2021 (continued)
18 Parent and ultimate parent undertaking
The company's immediate parent is Connect M77/GSO Holdings
Limited, incorporated in the United Kingdom and registered in
England and Wales.
The ultimate parent is Balfour Beatty plc and BIIF LP (acting by
its manager, 3i BIFM Investments Ltd), incorporated in the 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.
19 Subsequent events
A s at the date of the approval of these accounts, there were no
material post balance sheet events arising after the reporting
date.
Page 28
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Connect 5.404% (LSE:80UC)
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