Extracts from 2014 Halcrow Holdings Annual Report
Page 5 of the Halcrow Holdings Annual Report contains the following statement:
Going concern
Whilst the Board considers that significant improvements in the operating performance of the Group have continued during the last financial year (in part through additional restructuring), and are optimistic that its trading position can continue to be improved, it is not certain that it will improve sufficiently to service its finance and pension costs or to restore the balance sheet to a position that enables the Group to repay debt owed to its parent and meet the pension liability. Further details. of the Directors' assessment of the Company and the Group and its ability to continue as a going concern can be found in Note 1(c) to the financial statements.
The Auditor's Report on page 9 states:
Emphasis of Matter - going concern
In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosures made in note 1 to the financial statements concerning the group's and the Company's ability to continue as a going concern. At 31 December 2014 after a pension liability of £295.6m (2013 £242.0m) and funding, due on demand, to its ultimate parent of £119.4m (2013 £107.6m), the Group had net liabilities of £361.2m (2013 £291.9m). It also had net current liabilities. Given its balance sheet position, the ultimate parent is considering inter alia whether to continue to fund the Group. This matter, along with the other matters explained in note 1, indicate the existence of material uncertainty that may cast significant doubt on the Group's and Company's ability to continue as a going concern. The financial statements do not include any adjustments that would arise from the going concern basis not being appropriate.
Note 1c on pages 16 and 17 states:
(c) Going concern
The financial statements are prepared on a going concern basis, which the directors believe to be appropriate for the following reasons.
The Group recorded operating profit, before one-off costs, of £16.3m (2013, £18.0m). After one-off costs, restructuring costs, significant ongoing finance costs of £15. 7m (2013, £15.3m) arising almost wholly on funding from CH2M HILL and on the group's significant net pension liabilities, and after tax, the Group recorded a loss of £8.5m (2013 profit of £9.4m). The Group's net liabilities increased to £361.2m (2013 £291.9m) due to an increase of £59.7m on the pension deficit, increasing that deficit to £295.6m (2013 £242.0m). It also had net current liabilities of £71.4m (2013 £56.2m).
Whilst the Board considers that significant improvements in the operating performance of the Group have continued during the last financial year (in part through additional restructuring), and are optimistic that its trading position can continue to be improved, it is not certain that it will improve sufficiently to service its finance and pension costs or to restore the balance sheet to a position that enables the Group to repay debt owed to its parent and meet the pension liability. Further, other than available cash balances and its ability to manage working capital, the Group and Company have no immediate access to funding other than the secured and unsecured loan funding provided by its ultimate parent. At the date of approving these financial statements that funding due was £111.3m (31 December 2014 £119.4m, 2013 £107.6m) and is repayable on demand.
The Board is considering what further actions might be taken to improve the trading results further and to address the Group's financial position. The ultimate parent, CH2M HILL, having previously indicated that it required a restructuring of certain of the Group's obligations, continues to analyse its options going forward. The, Board believe that the Group's operations can bring long-term economic value to CH2M Hill, which is committed to the business operated by the Company and the Group as an important part of its global strategy. However, the ultimate parent has indicated that this is constrained by the obligations of the Company and the Group, in particular its pension liabilities. If those obligations cannot be restructured in a mutually beneficial way, then one option for the ultimate parent would be withdraw its funding for the Company and Group.
These circumstances represent a material uncertainty that may cast significant doubt on the Group's and Company's ability to continue as 'a going concern and, therefore, to continue realising their assets and discharging their liabilities in the normal course of business. The financial statements do not include any adjustments that would arise from the going concern basis not being appropriate.