Care Homes 1 Limited Annual Report and Financial Statements for the Year Ended 31 December 2016

EDINBURGH, Scotland--()--Regulatory News:

Company Registered No: 05771789

CARE HOMES 1 LIMITED

ANNUAL REPORT AND FINANCIAL STATEMENTS

For the year ended 31 December 2016

CARE HOMES 1 LIMITED 05771789

CONTENTS   Page
 
OFFICERS AND PROFESSIONAL ADVISERS 1
 
DIRECTORS' REPORT 2
 
INDEPENDENT AUDITOR’S REPORT 6
 
PROFIT AND LOSS ACCOUNT 8
 
STATEMENT OF COMPREHENSIVE INCOME 9
 
BALANCE SHEET 10
 
STATEMENT OF CHANGES IN EQUITY 11
 
NOTES TO THE FINANCIAL STATEMENTS 12

CARE HOMES 1 LIMITED 05771789

OFFICERS AND PROFESSIONAL ADVISERS

DIRECTORS:

    D A Duke    
L E Roberts
 

SECRETARY:

RBS Secretarial Services Limited
 

REGISTERED OFFICE:

250 Bishopsgate
London
England
EC2M 4AA
 

INDEPENDENT AUDITOR:

Ernst & Young LLP
Statutory Auditor
25 Churchill Place
Canary Wharf
London
E14 5EY

Registered in England and Wales

CARE HOMES 1 LIMITED 05771789

DIRECTORS’ REPORT

The directors of Care Homes 1 Limited (“the Company”) present their annual report together with the audited financial statements for the year ended 31 December 2016.

CHANGE OF REGISTERED OFFICE

On 11th April 2017, the Registered Office of the Company changed from 135 Bishopsgate London, EC2M 3UR to 250 Bishopsgate London, EC2M 4AA.

ACTIVITIES AND BUSINESS REVIEW

The Directors' Report has been prepared in accordance with the special provisions available to companies entitled to the small companies exemption and therefore does not include a Strategic Report.

Principal activity

The principal activity of the Company continues to be that of an investment business.

The directors do not anticipate any material change in either the type or level of activities of the Company.

The Company is a subsidiary of The Royal Bank of Scotland Group plc which provides the Company with direction and access to all central resources it needs and determines policies in all key areas such as finance, risk, human resources or environment. For this reason, the directors believe that performance indicators specific to the Company are not necessary or appropriate for an understanding of the development, performance or position of the business. The annual reports of The Royal Bank of Scotland Group plc review these matters on a group basis. Copies can be obtained from Corporate Governance and Regulatory Affairs, The Royal Bank of Scotland Group plc, Gogarburn, Edinburgh, EH12 1HQ, the Registrar of Companies or at www.rbs.com.

FINANCIAL PERFORMANCE

The Company’s financial performance is presented in the Profit and Loss Account on page 8.

The operating loss before taxation for the year was £223,418 (2015: loss of £96,067). The retained loss for the year was £223,418 (2015: loss of £96,067).

At the end of the year total assets were £134,252,590 (2015: £136,660,819).

Dividends

The directors do not recommend the payment of a dividend (2015: £nil).

PRINCIPAL RISKS AND UNCERTAINTIES

The Company seeks to minimise its exposure to financial risks.

Management focuses on both the overall balance sheet structure and the control, within prudent limits, of risk arising from mismatches, including currency, maturity, interest rate and liquidity. It is undertaken within limits and other policy parameters set by the RBS Asset and Liability Management Committee (RBS ALCO).

The principal risks associated with the company are as follows:

Operational risk

Operational risks are inherent in the Company’s business. Operational risk losses occur as the result of fraud, human error, missing or inadequately designed processes, failed systems, damage to physical assets, improper behaviour or from external events. The key mitigating processes and controls include risk and control assessment, scenario analysis, loss data collection, new product approval process, key risk indicators, notifiable events process and the self certification process. The implementation of these processes and controls is facilitated and overseen by operational risk teams, with internal audit providing independent evaluation of the control framework.

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

Liquidity risk

Liquidity risk arises where assets and liabilities have different contractual maturities.

Management focuses on risk arising from the mismatch of maturities across the balance sheet and from undrawn commitments and other contingent obligations.

The expected maturity of the Company’s material liabilities is shown in note 11.

Credit risk

The objective of credit risk management is to enable the Company to achieve appropriate risk versus reward performance whilst maintaining credit risk exposure in line with approved appetite for the risk that customers will be unable to meet their obligations to the Company.

The key principles of the group’s Credit Risk Management Framework are set out below:

  • approval of all credit exposure is granted prior to any advance or extension of credit;
  • an appropriate credit risk assessment of the customer and credit facilities is undertaken prior to approval of credit exposure. This includes a review of, amongst other things, the purpose of credit and sources of repayment, compliance with affordability tests, repayment history, capacity to repay, sensitivity to economic and market developments and risk-adjusted return;
  • credit risk authority is delegated by the Board and specifically granted in writing to all individuals involved in the granting of credit approval. In exercising credit authority, the individuals act independently of any related business revenue origination; and
  • all credit exposures, once approved, are effectively monitored and managed and reviewed periodically against approved limits. Lower quality exposures are subject to a greater frequency of analysis and assessment.

The Company’s exposure to credit risk is not considered to be material as all significant credit exposures are with RBS companies.

Market risk

Market risk is the potential for loss as a result of adverse changes in risk factors including interest rates and equity prices together with related parameters such as market volatilities.

The Company is exposed to market risk as a result of the assets and liabilities contained within the Company’s balance sheet. There has been no change to the nature of the Company’s exposure to market risks or the manner in which it manages and measures the risk.

The main component of market risk that the Company faces is interest rate risk. The Company manages interest rate risk by monitoring the interest rate profile of its assets and liabilities.

Market risk – sensitivity analysis

The sensitivity analysis below has been determined based on the Company’s assets and liabilities present in the balance sheet as at the balance sheet date and by reference to a movement in market interest rates reasonably possible in the Company’s next financial reporting period.

If interest rates for the current year had been 100 basis points lower and this movement applied to the assets and liabilities as at the balance sheet date, the pre-tax loss for the year would have been £2,304 higher (2015: £1,668). This would have mainly resulted from lower interest income on variable rate assets and lower interest expense on derivative financial instruments.

The converse is equally true if interest rates had been 100 basis points higher.

GOING CONCERN

The directors, having a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future, have prepared the financial statements on a going concern basis.

DIRECTORS AND SECRETARY

The present directors and secretary, who have served throughout the year except where noted below, are listed on page 1.

From 1 January 2016 to date the following changes have taken place:

 

Appointed

  Resigned

Directors

S J Caterer - 31 January 2017
N J Nunn - 31 March 2017
D A Duke 01 April 2017 -
L E Roberts 06 April 2017 -

DIRECTORS' RESPONSIBILITIES STATEMENT

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable laws and regulations.

Company law requires the directors to prepare a Directors’ Report and financial statements for each financial year. Under that law, the directors have elected to prepare the financial statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101), and must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs at the end of the year and the profit or loss of the Company for that period. In preparing these financial statements, the directors are required to:

  • select suitable accounting policies and then apply them consistently;
  • make judgements and estimates that are reasonable and prudent;
  • state whether FRS 101 has been followed; and
  • make an assessment of the Company’s ability to continue as a going concern.

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 to enable them to ensure that Directors’ Report and financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

To the best of our knowledge, the financial statements for the year ending 31 December 2016 for the issuer (“Care Homes 1 Limited”) have been prepared in accordance Financial Reporting Standards 101 Reduced Disclosure Framework, and give a true and fair view of the assets, liabilities, financial position and profit of Care Homes 1 Limited. We can also confirm that the Directors’ Report includes a fair review of the development and performance of the business and the position of Care Homes 1 Limited, together with a description of the principal risks and uncertainties that it faces.

This statement addresses section 4.a. (i) of the circular issued by the Commission de Surveillance du Secteur Financier, Luxembourg.

DISCLOSURE OF INFORMATION TO AUDITOR

Each of the directors at the date of approval of this report confirms that:

  • so far as they are aware, there is no relevant audit information of which the Company’s auditor is unaware; and
  • the directors have taken all the steps that they ought to have taken to make themselves aware of any relevant audit information, and to establish that the Company’s auditor is aware of that information.

This confirmation is given and shall be interpreted in accordance with the provisions of section 418 of the Companies Act 2006.

INDEPENDENT AUDITOR

The Royal Bank of Scotland Group plc has appointed Ernst & Young LLP as the company’s auditor for the year ending 31 December 2016.

Approved by the Board of Directors and signed on its behalf:

Director

Date: 2017

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CARE HOMES 1 LIMITED

We have audited the financial statements of Care Homes 1 Limited (“the Company”) for the year ended 31 December 2016 which comprise the Profit and Loss Account, the Statement of Comprehensive Income, the Balance Sheet, the Statement of Changes in Equity and the related notes 1 to 15. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (united Kingdom Generally Accepted Accounting Practice) Financial Reporting Standard 101 Reduced Disclosure Framework.

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.

Respective responsibilities of directors and auditor

As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the financial statements:

  • give a true and fair view of the state of the Company’s affairs as at 31 December 2016 and of its loss for the year then ended;
  • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 101 Reduced Disclosure Framework; and
  • have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us 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
  • we have not received all the information and explanations we require for our audit; or
  • the directors were not entitled to take advantage of the small companies’ exemption from preparing the Strategic Report.

(Senior Statutory Auditor)

for and on behalf of Ernst & Young LLP

Statutory Auditor

2017

CARE HOMES 1 LIMITED 05771789

PROFIT AND LOSS ACCOUNT      
for the year ended 31 December 2016
 
2016 2015
Continuing operations Notes £ £
 
Revenue 3 5,446,273 5,559,507
Finance costs 5 (5,616,054) (5,602,431)
Administrative expenses   (53,637) (53,143)
Operating loss before tax (223,418) (96,067)
 
Tax charge 6 - -
Loss for the financial year (223,418) (96,067)

The accompanying notes form an integral part of these financial statements.

STATEMENT OF COMPREHENSIVE INCOME    
for the year ended 31 December 2016
 
2016 2015
  £ £
Loss for the financial year (223,418) (96,067)
 
Items that will be reclassified subsequently to profit or loss:
Movement on cash flow hedges 399,135 (3,699,848)
Other comprehensive income/(loss) before tax 399,135 (3,699,848)
 
Tax credit 103,612 739,970
Other comprehensive income/(loss) after tax 502,747 (2,959,878)
 
Total comprehensive income/(loss) for the year 279,329 (3,055,945)

The accompanying notes form an integral part of these financial statements.

BALANCE SHEET      
as at 31 December 2016
 
2016 2015
  Notes £ £
Current assets
Derivative financial instruments 12 19,465,358 19,039,436
Loans and receivables 7 114,784,201 117,617,676
Cash at bank 8 3,031 3,707
Total assets 134,252,590 136,660,819
 
Creditors: amounts falling due within one year
Deferred tax liability 9 3,485,353 3,588,965
3,485,353 3,588,965
Creditors: amounts falling due after more than one year
Debt securities in issue 10 112,942,987 115,526,933
Total liabilities 116,428,340 119,115,898
 
Equity: capital and reserves
Called up share capital 13 10,000 10,000
Cash flow hedge reserve 14,858,608 14,355,861
Profit and loss account   2,955,642 3,179,060
Total shareholders’ funds 17,824,250 17,544,921
 
Total liabilities and shareholders’ funds 134,252,590 136,660,819

The accompanying notes form an integral part of these financial statements.

The financial statements of the Company were approved by the Board of Directors on 2017 and signed on it’s behalf by:

Director

STATEMENT OF CHANGES IN EQUITY    
for the year ended 31 December 2016
   
Share capital Cash flow hedge reserve Profit

and loss account

Total
  £ £ £ £
At 1 January 2015 10,000 17,315,739 3,275,127 20,600,866
Loss for the year - - (96,067) (96,067)
Loss on cash flow hedge - (3,699,848) - (3,699,848)
Deferred tax - 739,970 - 739,970
At 31 December 2015 10,000 14,355,861 3,179,060 17,544,921
Loss for the year - - (223,418) (223,418)
Profit on cash flow hedge - 399,135 - 399,135
Deferred tax - 103,612 - 103,612
At 31 December 2016 10,000 14,858,608 2,955,642 17,824,250

Total comprehensive income for the year of £279,329 (2015:loss of £3,055,945) was wholly attributable to the equity holders of the Company.

The accompanying notes form an integral part of these financial statements.

CARE HOMES 1 LIMITED 05771789

NOTES TO THE FINANCIAL STATEMENTS

1. Accounting policies

a) Preparation and presentation of financial statements

These financial statements are prepared:

  • on a going concern basis;
  • under Financial Reporting Standard (FRS) 101 Reduced Disclosure Framework in accordance with the recognition and measurement principles of International Financial Reporting Standards issued by the IASB and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB as adopted by the EU (together IFRS); and
  • on the historical cost basis except that the following assets and liabilities are stated at their fair value: available for sale financial instruments, derivative financial instruments and investment property.

The Company meets the definition of a qualifying entity under FRS 100 Application of Financial Reporting Requirements issued by the Financial Reporting Council.

The Company is incorporated in the UK and registered in England and Wales and the financial statements are presented:

  • in accordance with the Companies Act 2006:
  • in Sterling which is the functional currency of the Company: and
  • with the benefit of the disclosure exemptions permitted by FRS 101 with regard to:
    • comparative information in respect of certain assets;
    • cash-flow statement;
    • standards not yet effective;
    • related party transactions; and
    • disclosure requirements of IFRS 7 ‘’Financial Instruments: Disclosure and IFRS 13 ‘’Fair value measurement’’.

Where required, equivalent disclosures are given in the group accounts of The Royal Bank of Scotland Group plc, these accounts are available to the public and can be obtained as set out in note 15.

The few changes to IFRS that were effective from 1 January 2016 have had no material effect on the Company’s financial statements for the year ended 31 December 2016.

b) Revenue recognition

Interest income on financial assets that are classified as loans and receivables and interest expense on financial liabilities other than those at fair value are determined using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liabilities and of allocating the interest income or interest expense over the expected life of the asset or liability. The effective interest rate is the rate that exactly discounts estimated future cash flows to the instrument's initial carrying amount. Calculation of the effective interest rate takes into account fees payable or receivable, that are an integral part of the instrument's yield, premiums or discounts on acquisition or issue, early redemption fees and transaction costs. All contractual terms of a financial instrument are considered when estimating future cash flows.

Gains and losses on financial assets that are designated as at fair value through profit or loss are recognised in comprehensive income as they arise.

Fees in respect of services are recognised as the right to consideration accrues through the provisions of services to customers. The arrangements are generally contractual and the cost of providing the service is incurred as the service is rendered. The price is usually fixed and always determinable. Fees charged for managing investments are recognised as revenue as the services are provided. Incremental costs that are directly attributable to securing an investment management contract are deferred and charged as expense as the related revenue is recognised.

c) Taxation

Income tax expense or income, comprising current tax and deferred tax, is recorded in the Profit and Loss Account except income tax on items recognised outside profit or loss which is credited or charged to other comprehensive income or to equity as appropriate.

1. Accounting policies (continued)

c) Taxation (continued)

Current tax is income tax payable or recoverable in respect of the taxable profit or loss for the year arising in income or in equity. Provision is made for current tax at rates enacted or substantively enacted at the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable in respect of temporary differences between the carrying amount of an asset or liability for accounting purposes and its carrying amount for tax purposes. 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 they will be recovered. Deferred tax is not recognised on temporary differences that arise from initial recognition of an asset or liability in a transaction (other than a business combination) that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is calculated using tax rates expected to apply in the periods when the assets will be realised or the liabilities settled, based on tax rates and laws enacted, or substantively enacted, at the balance sheet date.

d) Cash at bank

Cash at bank comprises interest bearing deposits held with banks.

e) Financial assets

On initial recognition, financial assets are classified into loans and receivables and designated at fair value through profit or loss.

Loans and receivables

Loans and receivables are initially recognised at fair value plus directly related transaction costs. They are subsequently measured at amortised cost using the effective interest method (see accounting policy 1(b)) less any impairment losses.

f) Derivative financial instruments and hedging

The Company uses derivative financial instruments to manage interest rate risk. Such contracts are initially recognised and subsequently measured at fair value.

Any resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

The Company designates its derivatives as hedges of highly probable forecast transactions (cash flow hedges). Changes in fair values of derivative financial instruments which are designated and effective as hedges of cash flows are recognised directly in equity at each balance sheet date and the ineffective portion is recognised immediately in the Profit and Loss Account.

At the inception of the hedge relationship, the Company documented the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking the hedge transaction. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective in offsetting changes in cash flows of the hedged item.

Note 12 sets out details of the fair values of the derivative instrument used for hedging purposes. Movements in the hedging reserve in equity are shown in the Statement of Changes in Equity.

g) Financial liabilities

On initial recognition financial liabilities are recognised at fair value and are subsequently measured at amortised cost using the effective interest method (see accounting policy 1(b)).

2. Critical accounting policies and key sources of estimation uncertainty

The reported results of the Company are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of its financial statements. UK company law and IFRS require the directors, in preparing the Company’s financial statements, to select suitable accounting policies, apply them consistently and make judgements and estimates that are reasonable and prudent. In the absence of an applicable standard or interpretation, IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors', requires management to develop and apply an accounting policy that results in relevant and reliable information in the light of the requirements and guidance in IFRS dealing with similar and related issues and the IASB's Framework for the Preparation and Presentation of Financial Statements. The judgements and assumptions involved in the Company’s accounting policies that are considered by the directors to be the most important to the portrayal of its financial condition are discussed below. The use of estimates, assumptions or models that differ from those adopted by the Company would affect its reported results.

Fair value - financial instruments

Derivative financial instruments are recognised in the financial statements at fair value. Any gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

3. Revenue
   
2016 2015
  £ £
Interest income 676,546 690,288
Interest rate swap income 4,769,727 4,869,219
5,446,273 5,559,507

4. Operating expenses

Staff costs, number of employees and directors’ emoluments

All staff and directors were employed by group companies and the accounts of The Royal Bank of Scotland Group plc which contain full disclosure of employee benefit expenses incurred in the period including share based payments and pensions. The Company has no employees and pays a management fee for services provided by other group companies. The Company does not remunerate directors nor can remuneration from elsewhere in the group be apportioned meaningfully in respect of their services to the Company.

The auditor’s remuneration for statutory audit work of £7,000 (2015: £7,000) for the Company was borne by The Royal Bank of Scotland plc. Remuneration paid to the auditor for non-audit work for the Company was £nil (2015: £nil).

5. Finance costs    
 
2016 2015
  £ £
Interest expense on debt securities in issue 8,202,259 8,181,570
Bond amortisation (2,586,205) (2,579,139)
5,616,054 5,602,431
6. Tax    
 
2016 2015
  £ £
Current tax:
UK corporation tax charge for the year - -
 
The actual tax charge/(credit) differs from the expected tax credit computed by applying the blended rate of UK corporation tax of 20% (2015: 20.25%) as follows:
 
2016 2015
  £ £
Loss on ordinary activities before tax (223,418) (96,067)
 
Expected tax credit (44,684) (19,450)
Non taxable items from amortisation of premiums on debt securities issued (517,241) (522,188)
Group relief surrendered for nil consideration 561,925 541,638
Actual tax charge for the year - -

In recent years the UK Government has steadily reduced the rate of UK Corporation tax, with latest rates substantively enacted at the balance sheet date now standing at 20% with effect from 1 April 2015, 19% from 1 April 2017 and 17% from 1 April 2020. The closing deferred tax assets and liabilities have been calculated taking into account that existing temporary differences may unwind in periods subject to the reduced rates.

7. Loans and receivables    
 
2016 2015
  £ £
Amounts due from Group undertakings - immediate parent company 114,784,201 117,617,676

Loans and receivables consist of a £114m 6 months deposit with a residual maturity of less than 5 months (2015: £117m 6 months deposit with a residual maturity of less than 5 months).

8. Cash at bank    
 
2016 2015
  £ £
Cash at bank - Group 3,031 3,707
9. Deferred tax  
 
The following represents the deferred tax liabilities recognised by the Company, and the movements thereon.
Cash flow hedge reserve
 
  £
At 1 January 2015 4,328,935
Release to equity (739,970)
At 31 December 2015 3,588,965
Release to equity (103,612)
At 31 December 2016 3,485,353
10. Debt securities in issue    
 
2016 2015
  £ £
Debt securities in issue 137,061,117 137,069,199
Amortisation to date (26,010,438) (23,424,233)
Accrued interest 1,892,308 1,881,967
112,942,987 115,526,933

On 4 December 2006 Care Homes 1 Limited became an obligor in respect of certain debt securities by means of a novation from NHP Group.

Each of these debt securities is denominated in sterling and carries a fixed rate of interest as follows, £60m Class A1 at 8.0% due in 2021, and £40m Class A2 at 8.5% due in 2021. As at the balance sheet date, the total fair value of the debt securities in issue was £128.2m (2015: £125.1m). These debt securities are listed on the Luxembourg Stock Exchange. The debt securities in issue fall within level 2 of the valuation hierarchy methodologies as set out on page 17.

The consideration received on novation was equal to the fair value of these obligations as at the date of novation and was paid in cash by the NHP Group.

11. Financial instruments

Categories of Financial instrument

The following tables analyse the Company’s financial assets and liabilities in accordance with the categories of financial instruments in IAS 39 “Financial Instruments, Recognition and Measurement”. Assets and liabilities outside the scope of IAS 39 are shown separately.

  Hedging derivatives   Loans and receivables   At amortised cost   Non financial assets/ liabilities   Total
2016 £ £ £ £ £
Assets
Derivative financial instruments 19,465,358 19,465,358
Loans and receivables - 114,784,201 - - 114,784,201
Cash at bank - 3,031 - - 3,031
19,465,358 114,787,232 - - 134,252,590
Liabilities
Deferred tax - - - 3,485,353 3,485,353
Debt securities in issue - - 112,942,987 - 112,942,987
- - 112,942,987 3,485,353 116,428,340
Equity         17,824,250
134,252,590
11. Financial instruments (continued)
         
Hedging derivatives Loans and receivables At amortised cost Non financial assets/ liabilities Total
2015 £ £ £ £ £
Assets
Derivative financial instruments 19,039,436 - - - 19,039,436
Loans and receivables - 117,617,676 - - 117,617,676
Cash at bank - 3,707 - - 3,707
19,039,436 117,621,383 - - 136,660,819
Liabilities
Deferred tax - - - 3,588,965 3,588,965
Debt securities in issue - - 115,526,933 - 115,526,933
- - 115,526,933 3,588,965 119,115,898
Equity         17,544,921
136,660,819

The directors consider that, with the exception of debt securities in issue (note 10), the carrying amounts of financial assets and financial liabilities recognised in the financial statements approximate to their fair values. Where the financial instruments are of short maturity, the carrying value is equal to the fair value.

The company's cash at bank and loans and receivables are short term (having a maturity of six months or less); consequently carrying amount approximates fair value.

Valuation hierarchy        
The following tables show the financial instruments carried at fair value by hierarchy – level 1, level 2 and level 3:
 
 
Level 1 Level 2 Level 3 Total
2016 £ £ £ £
Assets
Derivative financial instruments - 19,465,358 - 19,465,358
 
Level 1 Level 2 Level 3 Total
2015 £ £ £ £
Assets
Derivative financial instruments - 19,039,436 - 19,039,436

Financial assets and liabilities have been classified above according to a valuation hierarchy that reflects the valuation techniques used to determine fair value.

Level 1: valued by reference to unadjusted quoted prices in active markets for identical

assets and liabilities

Level 2: valued by reference to observable market data, other than quoted market prices

Level 3: valuation is based on inputs other than observable market data

11. Financial instruments (continued)

The derivative financial instruments recorded at fair value for the Company are all considered Level 2 being valued using pricing models. Inputs for these models are usually observed directly in the market, or derived from observed prices.

The type of instruments that trade in markets that are not considered to be active, but are based on quoted market prices, broker dealer quotations or alternative pricing sources with reasonable levels of price transparency and those instruments values using techniques include most government securities, investment-grade corporate bonds, certain bank and bridge loans, repos and reverse repos, less liquid equities, state and municipal obligations, most physical commodities, certain money market securities and loan commitments and most OTC derivatives.

Financial Liabilities          
The following table shows by contractual maturity the undiscounted cash flows payable from the balance sheet date including future interest payments
 
0-3

months

3-12

months

1-3

years

3-5

years

5+ years
2016 £'000 £'000 £'000 £'000 £'000
 
Debt securities in issue - 8,200 16,400 112,300 -
 
0-3

months

3-12

months

1-3

years

3-5

years

5+ years
2015 £'000 £'000 £'000 £'000 £'000
 
Debt securities in issue - 8,200 16,400 16,400 104,100

12. Derivative financial instruments

The Company is party to an interest rate swap transaction to hedge exposure to variability in cash flows arising from its floating rate deposits. As at the balance sheet date, the contract had a nominal value of £114.4m (2015: £117.3m) which amortises over time in line with the asset it hedges. The swap entitles the Company to receive fixed cash flows (based on a rate of 4.8049%) in exchange for variable cash flows based on six month sterling LIBOR. The swap matures in April 2021 and at the balance sheet date had a fair value of £19.4m (2015: £19m). The fair value of the interest rate swap at the reporting date is determined by discounting the future cash flows using the curves at the reporting date. This derivative is designated as a cash flow hedge of the Company’s variable cash flows. The derivative counter-party is RBS.

13. Share capital    
 
2016 2015
  £ £
Authorised:
10,000 Ordinary shares of £1 each 10,000 10,000
 
Allotted, called up and fully paid:
10,000 Ordinary shares of £1 each 10,000 10,000
 
The Company has one class of ordinary shares which carry no right to fixed income.

14. Capital resources

The Company’s capital consists of equity comprising issued share capital, retained earnings and loans from Group undertakings. The Company is a member of The Royal Bank of Scotland Group of companies which has regulatory disciplines over the use of capital. In the management of capital resources, the Company is governed by the Group’s policy which is to maintain a strong capital base. The Company is separately regulated and has complied with the FSA’s capital requirements throughout the year. As part of the governance of the Company the capital position is actively managed and regularly reviewed with necessary action taken as required.

15. Related parties

UK Government

The UK Government through HM Treasury is the ultimate controlling party of The Royal Bank of Scotland Group plc. Its shareholding is managed by UK Financial Investments Limited, a company it wholly-owns and as a result, the UK Government and UK Government controlled bodies are related parties of the Company.

The Company enters into transactions with these bodies on an arms’ length basis; they include the payment of: taxes including UK corporation tax and value added tax; national insurance contributions; local authority rates; and regulatory fees and levies; together with banking transactions such as loans and deposits undertaken in the normal course of banker-customer relationships.

Group undertakings

The Company’s immediate parent company is Care Homes Holdings Limited, a company incorporated in the UK and registered in England and Wales.

As at 31 December 2016 The Royal Bank of Scotland plc heads the smallest group in which the Company is consolidated, a company incorporated in the UK and registered in Scotland. Copies of the consolidated financial statements may be obtained from Corporate Governance and Regulatory Affairs, Gogarburn, PO Box 1000, Edinburgh EH12 1HQ.

The Company’s ultimate holding company is The Royal Bank of Scotland Group plc, a company incorporated in the UK. As at 31 December 2016, The Royal Bank of Scotland Group plc heads the largest group in which the Company is consolidated. Copies of the consolidated financial statements may be obtained from Corporate Governance and Regulatory Affairs, Gogarburn, PO Box 1000, Edinburgh EH12 1HQ.

Capital Support Deed

The Company, together with other members of The Royal Bank of Scotland Group plc, is party to a capital support deed (CSD). Under the terms of the CSD, the Company may be required, if compatible with its legal obligations, to make distributions on, or repurchase or redeem, its ordinary shares. The amount of this obligation is limited to the Company’s capital resources in excess of the capital and financial resources needed to meet its regulatory requirements. The Company may also be obliged to make onward distribution to its ordinary shareholders of dividends or other capital distributions received from subsidiaries that are party to the CSD. The CSD also provides that, in certain circumstances, funding received by the Company from other parties to the CSD becomes immediately repayable, such repayment being limited to the Company’s available resources.

Contacts

CARE HOMES 1 LIMITED

Contacts

CARE HOMES 1 LIMITED