Inhoco 3363 Limited Annual Report and Accounts 2008 Contents
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Company Number: 5982873 Inhoco 3363 Limited Annual Report and Accounts 2008 Contents Directors’ Report 3 Independent Auditors’ Report 8 to the Members of Enterprise Group Holdings Limited Group Income Statement 10 Group Balance Sheet 11 Group Statement of 12 Recognised Income and Expense Group Cash Flow Statement 13 Notes to the Financial Statements 14 Company Balance Sheet 50 Notes to the Company 51 Financial Statements Company Directory 55 2 Inhoco 3363 Limited | Annual Report and Accounts 2008 Directors’ Report The directors submit their report together with the audited financial statements of the Company and of the Group for the period from 1 January 2008 to 31 December 2008. Principal activities Inhoco 3363 Limited is an intermediate holding company within the Enterprise Group Holdings Limited group of companies (‘Enterprise Group’). The Group is engaged principally in the provision of support services to utility companies and the public sector in the UK. Acquisitions A subsidiary company, Kirk Newco plc, made two acquisitions in the prior period. On 11 May 2007, the acquisition of the entire issued share capital of Enterprise plc was completed. On 20 September 2007, the acquisition of the entire issued share capital of Accord plc was completed. Details of these acquisitions are detailed in note 31 to the financial statements. During 2008, the Group finalised the fair value of the assets and liabilities acquired in 2007 to reflect conditions which existed at the acquisition date. This resulted in adjustments of £53m. In addition, management have reviewed the valuation methodology, and in particular the assumptions in respect of discount rates, growth rate and assumed margins used to calculate the value of intangibles acquired with the Enterprise and Accord businesses and as a consequence have adjusted the value of these relevant issues acquired by £145m net of deferred tax. Business Review The Group’s results are shown in the Group income statement. The group made a loss after tax for the year to 31 December 2008 of £46.9m (period from incorporation to 31 December 2007 – loss of £29.4m). No dividends can be paid (2007 – same). The balance sheet of the group and company are shown on pages 11 and 50 respectively. The performance of the Group is discussed further in the Enterprise Group’s Annual Report which does not form part of this report. Principal risks and uncertainties affecting the business are set out below. Key performance indicators To assist the Board’s management of the business and to provide evidence of achieving the Group strategy the Board monitors a number of financial and non-financial Key Performance Indicators (KPIs). To the extent that these are applicable the KPIs are used to determine bonus and other reward mechanisms in the Group. The KPIs which the Board examines on a monthly basis are as follows 2008 £m Group Operating cash flow 41.4 Total shareholder interests 197.4 Adjusted operating profit * 71.4 Health and Safety Notifiable accidents 116.0 Incidents per £m revenue 0.1 *operating profit before amortisation of intangible fixed assets and share of tax of jointly controlled entities The non-financial KPIs shown here demonstrate the importance to the Group of health and safety. The Board has re-launched its successful “TargetZero” safety awareness campaign, which was first launched in 2003, to encourage and support employees to avoid the unsafe acts and unsafe conditions that give rise ultimately to accidents and incidents. Achieving the lowest possible rate of accidents is our goal and staff and management are incentivised to achieve year on year improvements in health and safety. Enterprise | maintaining the infrastructure of the UK 3 Directors’ Report continued Health and Safety, Quality and Environment The Group undertakes work at the centre of people’s lives, in and around their homes and neighbourhoods, either with utility supplies or public services. This makes the health and safety of employees and the general public of paramount importance and this is why it is one of the Group’s driving principles. The implementation of the Group’s health and safety management systems, policies and the adoption of the TargetZero initiative have assisted the Group to minimise accidents and incidents within the workplace. This achievement has again been recognised by RoSPA (Royal Society for the Prevention of Accidents) which awarded the Company its Gold Medal Award for 2008, the Group’s third consecutive award within this category having held the RoSPA Gold Award for the previous five consecutive years. Health, safety and the environment are also two key areas of the Group’s corporate responsibility report which can be seen in the recently published report. Principal Risks and Uncertainties Financial Risks As part of its ordinary activities, the Group is exposed to a number of financial risks, including liquidity, credit, interest rate and currency risks. The Group has adequate policies and procedures in place to monitor and manage these risks. Liquidity risk relates to the Group’s ability to meet the cash flow requirements of the operations, while avoiding excessive levels of debt and/or breach of its debt covenants. The Group’s borrowings are principally medium term loans which were drawn down fully to fund the MBO and Accord acquisitions. In addition, the Group has a revolving credit facility. Credit risk relates principally to invoiced trade receivables from customers. We assess all customers before trading commences and have detailed policies and procedures to monitor each situation. The nature of our customer base is such that we have limited exposure to bad debts. Interest rate risk is a key factor monitored by management. To mitigate this risk 90% of the Groups cash pay debt, has been hedged by way of swap and cap agreements. These instruments enable management to improve forecasting the cash outflow in respect of interest over the medium term. Currency risk is limited in its impact due to the relatively low level of transactions which we undertake outside of the UK. Commercial Relationships The Group has significant commercial relationships with a number of Utility services companies and Government Authorities. The loss of a contractual commercial relationship could have an adverse impact on the Group’s future profitability and cash flows. The size and scale of the group is such that whilst the loss of a single contract exposes the organisation financially it should not expose the company to an adverse movement in profits and cashflow. The risk is managed through regular reviews and contact with the senior management of these customers in order that we respond to their needs and deliver the expected service, thereby maximising our chances of retaining those contracts. We ensure that we have sufficient alternative contract opportunities so that we can replace swiftly and loss of work. All of our main contracts are with organisations that face a lower risk of bankruptcy or the inability to pay us for agreed essential services. The Group also has strong commercial relationships with a number of suppliers and Direct Service Providers. We have policies in place to ensure that these relationships are sustained and, wherever possible, ensure that the failure of one or more supplier does not jeopardise our service delivery to customers. The financial health of all suppliers is monitored closely and alternative sources of supply are available at all times. Competitor Risk There are a number of other companies that provide services that are similar to those of the Group. They compete with us in our chosen markets and could succeed in displacing us on contracts resulting in loss of revenue and/or pressure on operating margins. This is the normal competitive environment in which most companies operate. We undertake a regular review of all our markets and the activities of competitors are closely monitored. The development of innovative products and services and building close relationships with our customers are seen as key activities to maintain our competitive advantage. Through the integration of services, the re-engineering of operations and at least cost we believe that we are maintaining a competitive edge. 4 Inhoco 3363 Limited | Annual Report and Accounts 2008 Directors The Directors of the company during the year ended 31 December 2008 and to the date of this report were: Owen McLaughlin Chief Executive Neil Kirkby Group Managing Director Corporate Governance The company is not obliged to follow the 2006 FRC Combined Code (“the 2006 code”). The Board’s policy however is to embrace the Principles of Good Governance as set out in the 2006 code where appropriate and practical. Full details of the Enterprise Group’s corporate governance policies and procedures are included in the director’s report of the ultimate parent company, Enterprise Group Holdings Limited. Employment It is the Enterprise Group’s policy to provide employees with relevant information on a regular basis and to seek their views on matters that concern them. The Enterprise Group’s aims, objectives and financial performance are communicated through management briefings and other less formal communications. The Enterprise Group’s policy is to provide, whenever possible, employment opportunities for disabled people to encourage and assist their recruitment, training, career development and promotion, and to retain employees who become disabled. The group also operates an equal opportunities policy. Environment The Enterprise Group recognises the importance of its environmental responsibilities, monitors its impact on the environment, and designs and implements policies to reduce the damage that might be caused by the Enterprise Group’s activities. The company operates within the group’s policies, which are described in the Enterprise Group’s Annual Report and do not form part of this report. Incentives designed to minimise the company’s impact on the environment include recycling and reducing energy consumption.