Registered number 01668247 30 September
NOTES TO THE FINANCIAL STATEMENTS
23. FINANCIAL INSTRUMENTS (a) Embedded derivatives
In accordance with IAS 39 “Financial Instruments: Recognition and Measurement”, the group has reviewed all contracts for embedded derivatives that are required to be separately accounted for if they do not meet certain requirements set out in the standard. No such derivatives were identified as a result of the review.
(b) Fair value of financial assets and liabilities
The fair values together with the carrying amounts shown in the balance sheet are as follows. Items have been excluded where their book value approximates their fair value.
2011 2010
Group Notes Carrying amount value Fair Carrying amount value Fair
£m £m £m £m
Other financial assets ...10 43.8 29.6 66.0 47.3 Cash and cash equivalents ... 14 40.2 40.2 26.2 26.2 Amounts owed to parent undertakings ...16 (161.1) (208.1) (165.2) (184.4) Finance lease liabilities ... 16 (0.1) (0.1) (0.1) (0.1) Deferred Government grants ...18 (2.9) (1.6) (3.3) (2.1)
2011 2010
Company Notes Carrying amount value Fair Carrying amount value Fair
£m £m £m £m
Cash and cash equivalents ... 14 31.0 31.0 10.8 10.8 Bank overdrafts ...16 — — (35.8) (35.8) Amounts owed by subsidiary
undertakings ...13 147.1 150.8 180.7 180.4 Amounts owed to parent undertakings ...16 (161.1) (208.1) (165.2) (184.4)
The following summarises the major methods and assumptions used in estimating the fair values of the financial instruments reflected in the above tables:
F-92 Trade and other receivables/payables
For receivables/payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value. All other receivables/payables are discounted to determine the fair value.
Interest-bearing loans and borrowings
Fair value is calculated based on discounted expected future principal and interest cash flows. Finance lease liabilities
The fair value is estimated as the present value of future cash flows, discounted at market interest rates for homogenous lease agreements. The estimated fair values reflect changes in the interest rates.
Interest rates for determining fair value
Unless specified on the previous page, the group uses the Government yield curve as of 30 September 2011 plus an adequate constant spread to discount financial instruments. The interest rates used are as follows:
2011 2010
% %
Leases ... 13.9 13.9 Receivables ... 8.8 9.8 Intercompany receivables and payables ... 8.8 9.8
24. PENSIONS
The group has established a number of pension schemes, both defined contribution and defined benefit, covering a number of its employees.
(a) Defined contribution plan
The group has a defined contribution group personal pension plan. Contributions to this scheme are charged to the statement of comprehensive performance as they fall due. The assets of this scheme are held separately from those of the group in independently administered funds.
Pension costs for defined contribution schemes are as follows:
2011 2010
£m £m
Defined contribution schemes ... 1.1 0.9 As at 30 September 2011 contributions amounting to £nil (2010: £nil) were payable to the scheme.
(b) Defined benefit plans
As a result of contractual arrangements with a small number of public sector customers, the group contributes to six defined benefit schemes. These schemes provide pension benefits based on final pensionable pay.
F-93
The schemes are funded by payments to independently managed funds, the assets of which are held separately from those of the group. The funds are administered by trustees as a separate legal entity. The trustees of the fund are required to act in the best interest of the fund’s beneficiaries. The appointment of trustees is determined by the schemes’ trust documentation.
Contributions to the defined benefit pension schemes are charged to the statement of comprehensive performance so as to spread the cost of pensions over employees’ estimated working lives with the group. The contributions are determined by qualified actuaries on the basis of triennial valuations using the projected unit method.
The liabilities of the defined benefit schemes are measured by discounting the best estimate of future cash flows to be paid out by the schemes using the projected unit method. This is the amount, after taking into consideration reimbursement assets, which is reflected in the deficit in the balance sheet. The projected unit method is an accrued benefits valuation method in which the scheme liabilities make allowance for projected earnings.
Details of the four larger schemes are given below. Care UK LG Pension Scheme
The most recent valuation was at 1 April 2009. At the date of the actuarial valuation the market value of the schemes assets was £3.9m and the actuarial value of those assets represented 69% of the benefits that had accrued to members, after allowing for expected future increases in earnings. Following the valuation the employer contribution rates changed with effect from 1 April 2010 from 26.3% to 23.0% for standard members and from 39.5% to 65.5% for Mental Health Officers with special retirement benefits. The group will monitor funding levels on an annual basis. The next triennial valuation report will be 1 April 2012. The Trustees have agreed with the employer an additional amount of £20,400 per month as part of a 10 year funding plan.
Employer contributions amounted to £1.5m (2010: £0.8m) for the year ended 30 September 2011.
The scheme obtains approval by the Government Actuarial Department when new members join the scheme.
The Trustee Board has four Trustees nominated by the employer and there are two vacancies available to be nominated by the scheme members.
Dorset County Council Pension Fund
The group is an admitted body of the Dorset County Council Local Government pension fund. This is a closed scheme and no new members can be admitted. During the year ended 30 September 2006 a number of employees transferred to the group but continued to be members of Dorset County Council pension fund.
Under the rules of the admission agreement, the associated pension fund assets and liabilities are separately identifiable and segregated for funding purposes.
Under the terms of the group’s contract with Poole Borough Council, the group is indemnified for any shortfall in scheme assets and for any increase in contributions required by any future actuarial valuation; hence the group has no constructive or legal obligation to fund a deficit on the associated segregated portion of the scheme. Accordingly, the group has recognised an asset equal to the current deficit on the segregated portion of the scheme. This reimbursement asset has been presented as offsetting the current scheme deficit on the segregated portion of the scheme and is therefore included within retirement benefit obligations.
F-94
The most recent valuation of this scheme was as at 31 March 2010. As at the date of the latest actuarial valuation, the segregated portion of the scheme showed that the value of the scheme’s assets represented 96% of the benefits that had accrued to members, after allowing for expected future increases in earnings.
Employer contributions amounted to £0.1m (2010: £0.1m) for the year ended 30 September 2011. Contribution rates from April 2011 were 18.5% rising to 19.0% in April 2012 (2010: 14.6%) of total pensionable salary.
London Borough of Harrow Pension Scheme
The group is an admitted body of the London Borough of Harrow pension scheme. This is a closed scheme and no new members can be admitted. During the year ended 30 September 2008 a number of employees transferred to the group but continued to be members of the London Borough of Harrow pension scheme.
Under the rules of the admission agreement, the associated pension fund assets and liabilities are separately identifiable and segregated for funding purposes.
Under the terms of the group’s contract with the London Borough of Harrow, the group has a risk sharing obligation in relation to non standard costs. Funding obligations exist for Care UK in respect of ill health early retirements, redundancies etc. There have been no additional funding requirements since inception of the contract in 2006.
Employer contributions amounted to £0.1m (2010: £0.1m) for the year ended 30 September 2011. Contribution rates in respect of next year are expected to be approximately 22.3% (2010: 19.5%) of total pensionable salary. A triennial valuation of the London Borough of Harrow pension scheme as at 31 March 2010 has not yet been finalised.
Royal County of Berkshire Pension Fund
The group is an admitted body of the Royal County of Berkshire pension fund. This is a closed scheme and no new members can be admitted. During the year ended 30 September 2009 a number of employees transferred to the group but continued to be members of the Royal County of Berkshire pension fund.
Under the rules of the admission agreement, the associated pension fund assets and liabilities are separately identifiable and segregated for funding purposes.
Under the terms of the group’s contract with the Slough Borough Council, the group has a risk sharing obligation in relation to non standard costs. Funding obligations exist for Care UK in respect of ill health early retirements, redundancies etc. There have been no additional funding requirements since inception of the contract in 2009. Costs for this scheme are not considered material as only 11 staff are members of this scheme.
A valuation of this scheme was undertaken as at 1 April 2009, the date of transfer of obligations. As at the date of the actuarial valuation, the segregated portion of the scheme showed that the value of the scheme’s assets was equal to that of the benefits that had accrued to members, after allowing for expected future increases in earnings.
Employer contributions amounted to £0.1m (2010: £0.1m) for the year to 30 September 2011. Contribution rates in respect of next year are expected to be 21.0% (2010: 21.0%) of total pensionable salary.
F-95 Aggregated scheme disclosures
The principal assumptions made by the actuaries were:
2011 2010
% %
Rate of increase of pensionable salaries ... 1.0-4.1 4.2-4.8 Rate of increase in pensions in payment and deferred pensions ...2.3-3.3 2.7-3.3 Discount rate ...5.0-5.1 4.9 Inflation assumptions ... 3.1-3.3 3.2-3.3 Expected return on plan assets ...3.0-8.0 3.0-8.0 The derivation of the overall expected return on assets reflects the actual asset allocation at the measurement date combined with an expected return for each asset class. The bond return is based on the prevailing return available on high quality (AA or similar) corporate bonds. The returns on equities and property are based on a number of factors including the income yield at the measurement date, the long term growth prospects for the economy in general, the long term relationship between each asset class and the bond returns and the movement in market indices since the previous measurement date. The actual loss on plan assets was £0.2m (2010 gain: £0.1m).
The assumed life expectancy at age 65 is:
Care UK LG Pension
Scheme Other
2011 2010 2011 2010
Years Years Years Years
Current pensioners — males ...89.0 88.8 86.4 85.8 — females ...91.0 90.9 89.3 88.9 Prospective pensioners — males ...91.0 90.9 88.4 86.8 — females ...92.2 92.1 91.4 89.8
The amounts recognised in the balance sheet are determined as follows:
2011 2010
£m £m
Present value of funded obligations ...(13.2) (10.8) Fair value of plan assets ... 11.4 7.6 Reimbursement assets ... 0.5 0.8 Fair value of plan assets ... 11.9 8.4 Net liability ... (1.3) (2.4)
None of the pension schemes own any shares in the company.
The major categories of plan assets as a percentage of total plan assets are as follows:
2011 2010
% %
Equities ... 53 50 Gilts, other bonds and cash ... 37 36 Property and other assets ... 5 4 Reimbursement assets ... 5 10
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The amounts recognised in the statement of comprehensive performance are as follows: 2011 2010
£m £m
Current service cost ... 1.6 0.8 Interest cost ... 0.5 0.3 Expected return on plan assets ... (0.5) (0.2) Total included within staff employee benefits expense ... 1.6 0.9
The total charge was included in cost of sales.
Changes in the present value of the defined benefit obligations are as follows:
2011 2010
£m £m
Present value of obligations at 1 October ... 10.8 8.2 Movement in respect of reimbursement assets ... (0.3) 0.3 Transfer of obligations ... 2.6 — Current service cost ... 1.6 0.8 Interest cost ... 0.5 0.3 Plan participants’ contributions ... 0.3 0.1 Benefits paid ... (0.1) (0.3) Actuarial (gain)/loss ... (2.2) 1.4 Present value of obligations at 30 September ... 13.2 10.8
Changes in the fair value of the plan assets are as follows:
2011 2010
£m £m
Fair value of plan assets at 1 October ... 8.4 7.1 Movement in respect of reimbursement assets ... (0.3) 0.3 Transfer of assets ... 2.3 — Expected return on plan assets ... 0.5 0.2 Employer contributions ... 1.5 0.9 Plan participants’ contributions ... 0.3 0.1 Benefits paid ... (0.1) (0.3) Actuarial (loss)/gain ... (0.7) 0.1 Fair value of plan assets at 30 September ... 11.9 8.4
Analysis of the movement in the balance sheet liability:
2011 2010
£m £m
Balance sheet liability at 1 October... (2.4) (1.1) Transfer of deficit ... (0.3) — Total expense as above ... (1.6) (0.9) Employer contributions ... 1.5 0.9 Net actuarial gain/(loss) recognised in the year ... 1.5 (1.3) Balance sheet liability at 30 September ... (1.3) (2.4)
F-97
Cumulative actuarial gains and losses recognised in equity are as follows:
2011 2010
£m £m
At 1 October ... (2.0) (0.7) Net actuarial gain/(loss) recognised in the year ... 1.5 (1.3) At 30 September ... (0.5) (2.0)
History of experience of gains and losses:
2011 2010 2009 2008 2007
Experience adjustments arising on scheme assets
— amount ...£(0.7)m £0.1m £0.2m £(0.4)m £0.2m — percentage of scheme assets ... (6)% 1% 3% (7)% 4% Experience adjustments arising on scheme
liabilities
— amount ... £2.2m £(1.4)m £(1.5)m £(0.3)m £(1.2)m — percentage of present value of the scheme liabilities .... 17% (13)% (18)% (6)% (22)% Present value of the scheme liabilities ...£13.2m £10.8m £8.2m £5.4m £5.3m Fair value of the scheme assets ...£11.9m £8.4m £7.1m £5.4m £5.2m Deficit ...£(1.3)m £(2.4)m £(1.1)m — £(0.1)m The contributions expected to be paid during the financial year ending 30 September 2012 amounts to £2.3m.
25. COMMITMENTS UNDER OPERATING LEASES
Future minimum lease payments under non-cancellable operating leases are as follows:
2011 2010
Group Land and buildings Other Land and buildings Other
£m £m £m £m
— within one year... 11.5 1.4 8.4 2.9 — within two to five years ...32.1 2.0 21.9 5.8 — after five years... 88.6 — 53.7 —
132.2 3.4 84.0 8.7
Company
— within one year... 0.8 0.2 0.9 0.2 — within two to five years ...1.9 0.4 2.8 0.9 — after five years... 1.4 — 1.7 —
4.1 0.6 5.4 1.1
The group and company lease various offices and operational facilities under non-cancellable operating lease agreements. The leases have various terms, escalation clauses and renewal rights. The group also leases plant and machinery under non-cancellable operating lease agreements.
F-98 26. CAPITAL COMMITMENTS
Group Company
2011 2010 2011 2010
£m £m £m £m
Contracted for, but not provided...8.9 3.7 — —