The directors present the strategic report for the year ended 31 August 2021.
The Group operates and manages therapeutic care homes for children. SC Topco is the parent company of the Sandcastle Care Group, comprising wholly owned subsidiaries SC Bidco Limited, Sandcastle Care Holdings Limited, Sandcastle Care Limited, Natabra Properties Limited and Portixol UK Limited.
During the period ended 31 August 2021, the Group acquired and opened a significant number of new homes which will contribute a full year of financial performance in the subsequent financial year, as well as consolidated the performance of the homes bought and opened in the prior year.
The Group operates in a highly regulated sector, with regular scrutiny from Ofsted. The Group’s continued compliance with relevant regulations is key to continued successful operation of children’s care homes. Upon inspection a home can be rated as Outstanding, Good, Requires Improvement or Inadequate. A rating of Inadequate, or a significant number of Requires Improvement ratings can result in adverse reputational impacts to the Group, and an Inadequate rating can result in the relevant home being closed. The risk of poor regulatory ratings is mitigated by an internal compliance and quality function and the continued use of external auditors to monitor regulatory compliance on an ongoing basis, as well as continued commitment to training and support of frontline staff. The success of this approach is reflected in the regulatory reports received from Ofsted. At the start of the period, the group had 35 homes rated by Ofsted, with 34 Outstanding or Good and one rated as Requires Improvement to be Good. At the end of the period the group had 44 homes rated by Ofsted, with 42 being Outstanding or Good and two as Requires Improvement to be Good. The Group has never had a home rated as Inadequate. Homes rated as Requires Improvement to be Good are the subject of improvement plans which are monitored regularly by the management team.
The Group’s revenue is entirely from local authorities. Whilst funding for the services provided is presently ring-fenced, any significant change to how local authorities provide care to children and/or how this care is funded could have a negative impact on the Group’s performance. This risk is mitigated by the standard of care provided to children, which is reflected in the regulatory reports received, and also in regular review meetings with key local authorities. The management team monitors the volume of referral requests received from local authorities each month to ensure there is no oversupply of relevant therapeutic care provisions by the Group. The monthly volume of requests from local authorities has increased throughout the year, indicating that there is still significant demand for the services provided.
The Group is partly financed by bank loans with floating interest rates. There is a risk that a material increase in borrowing rates could impact cash available to fund continued growth of the Group if interest costs were to increase significantly. This risk is monitored regularly by the Directors, and options to mitigate any such changes are discussed in regular meetings with funding partners.
The directors monitor a number of non-financial indicators of operational performance of the Group. These indicators are number of homes open, occupancy of open homes, and quality of open homes. At the start of the period, the group had 35 homes rated by Ofsted, with 34 Outstanding or Good and one rated as Requires Improvement to be Good. At the end of the period the group had 44 homes rated by Ofsted, with 42 being Outstanding or Good and two as Requires Improvement to be Good. The Group has never had a home rated as Inadequate.
This is in line with the expectations of the directors. Throughout the period, home occupancy was in line with internal targets.
Companies Act s.172 reporting
ln making strategic decisions, the Board take into account the potential long term implications of these decisions. Company representatives meet regularly with our significant external stakeholders, being financing partners, regulators and local authority representatives.
Internally, department representatives report regularly into the Board which ensures the views and needs of our colleagues are taken into account in our planning and decision making. This is a core component of the group's strategic planning process and has been critical in managing the operational risks emerging in the period specifically as a result of Covid-19.
Development of our people is a key focus of the Board, which is reflected in the fact that 23 of our managerial level positions progressed from entry level positions to their current role.
We work to consider the impact of our actions on both the community and environment. The nature of our operations is such that our community impact is at the forefront of every key strategic decision made.
The Directors also work to ensure the group maintain strong business relationships with local and regulatory bodies, which is reflected in our quality ratings at each location. We strive to maintain a reputation for the highest standards of operational conduct.
The Directors recognise the need to act fairly between members of the group. Where a conflict or potential conflict arises, the Board takes independent legal and professional advice to ensure that members are treated fairly.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 August 2021.
The results for the year are set out on page 8.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The directors are not expecting to make any significant changes to the nature of the business in the near future.
Azets Audit Services were appointed as auditor to the company and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.
Details of the company's financial risk management objectives and policies are included in the Strategic Report.
The company has chosen in accordance with Companies Act 2006, s. 414C(11) to set out in the company 's strategic report information required by Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, Sch. 7 to be contained in the directors' report. It has done so in respect of future outlook .
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit :
the information given in the strategic report and the directors' r eport for the financial year for which the financial statements are prepared is consistent with the financial statements ; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' r esponsibilities s tatement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements , the directors are responsible for assessing the company ' s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements .
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above and on the Financial Reporting Council’s website, to detect material misstatements in respect of irregularities, including fraud.
We obtain and update our understanding of the entity, its activities, its control environment, and likely future developments, including in relation to the legal and regulatory framework applicable and how the entity is complying with that framework. Based on this understanding, we identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. This includes consideration of the risk of acts by the entity that were contrary to applicable laws and regulations, including fraud.
In response to the risk of irregularities and non-compliance with laws and regulations, including fraud, we designed procedures which included:
Enquiry of management and those charged with governance around actual and potential litigation and claims as well as actual, suspected and alleged fraud;
Reviewing minutes of meetings of those charged with governance;
Assessing the extent of compliance with the laws and regulations considered to have a direct material effect on the financial statements or the operations of the company through enquiry and inspection;
Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations;
Performing audit work over the risk of management bias and override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business and reviewing accounting estimates for indicators of potential bias.
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members, as a body, for our audit work, for this report, or for the opinions we have formed.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
SC Bidco Limited is a private company limited by shares incorporated in England and Wales . The registered office is 49 Whitegate Drive, Blackpool, Lancashire, United Kingdom, FY3 9DG.
The financial statements are prepared in sterling , which is the functional currency of the company. Monetary a mounts in these financial statements are rounded to the nearest £.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements , including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group . T he company has therefore taken advantage of e xemptions from the following disclosure requirements:
Section 4 ‘Statement of Financial Position’: Reconciliation of the opening and closing number of shares;
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues’ : Carrying amounts, interest income/expense and net gains/losses for each category of financial instrument; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income ;
Section 26 ‘Share based Payment’ : Share-based payment expense charged to profit or loss, reconciliation of opening and closing number and weighted average exercise price of share options, how the fair value of options granted was measured, measurement and carrying amount of liabilities for cash-settled share-based payments, explanation of modifications to arrangements ;
Section 33 ‘Related Party Disclosures’ : Compensation for key management personnel .
The financial statements of the company are consolidated in the financial statements of SC Topco Limited. These consolidated financial statements are available from its registered office , 49 Whitegate Drive, Blackpool, Lancashire, FY3 9DG.
The company has taken advantage of the exemption under section 400 of the Companies Act 2006 not to prepare and deliver consolidated accounts. The financial statements present information about the company as an individual entity and not about its group .
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss , except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors , bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future paymen ts discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. A m ounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are s ubsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value th r ough profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The average monthly number of persons (including directors) employed by the company during the year was:
The actual charge for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
Details of the company's subsidiaries at 31 August 2021 are as follows:
Registered office address:
* Shares held by Sandcastle Care Holdings Limited
** Shares held by Sandcastle Care Limited
Creditors due after more than 5 years relate to a loan and loan notes .
The loan notes of £ 2, 734 , 875 are repayable in 2026 and in terest on the loan notes accrues at a rate of 8% per annum. The loan notes are owed to the immediate parent undertaking, SC Topco Limited.
The l oan of £41 , 25 0,000 is fully repayable on termination with one facility repayable in December 2025 and the other facilities repayable in December 2026.
Creditors includes a bank loan totalling £41 , 25 0,000 owed to Glas Trust Corporation Limited . The creditor is secured by fixed and floating charges over the assets and undertakings of SC Topco Limited, Sandcastle Care Holdings Limited, Sandcastle Care Limited, Natabra Properties Limited and Portixol Limited.
During the year the company entered into the following transactions with related parties:
The following amounts were outstanding at the reporting end date:
No interest was charged on amounts owed to the parent undertaking totalling £16,819,957 (2020: £16,839,357).
No interest was charged on amounts owed by group undertakings totalling £27,753,088 (2020: £29,023,030).
Interest was charged at 8% per annum on debentures owed to group companies totalling £2,734,875 (2020: £2,528,948).
The company has taken advantage of the exemption contained in Section 33 of Financial Reporting Standard 102 'Related Party Disclosures' from disclosing transactions entered into between two or more members of a group, where the entity is wholly owned and included within the consolidated financial statements which are publicly available.
The ultimate parent undertaking is Waterland Private Equity Investments BV, a company registered in the Netherlands. The immediate parent undertaking is SC Topco Limited, a company registered in England and Wales.
The largest and smallest group in which the results of the company are consolidated is that headed by SC Topco Limited. The consolidated accounts for SC Topco Limited are available to the public and a copy may be obtained from the registered office of the company, 49 Whitegate Drive, Blackpool, Lancashire, FY3 9DG.
There is no ultimate controlling party.