LONDON--(BUSINESS WIRE)--Regulatory News:
Company Registered No: 05771789
CONTENTS |
Page |
|
|
OFFICERS AND PROFESSIONAL ADVISERS |
1 |
|
|
DIRECTORS' REPORT |
2 |
|
|
INDEPENDENT AUDITOR’S REPORT |
5 |
|
|
PROFIT AND LOSS ACCOUNT |
10 |
|
|
STATEMENT OF COMPREHENSIVE INCOME |
11 |
|
|
BALANCE SHEET |
12 |
|
|
STATEMENT OF CHANGES IN EQUITY |
13 |
|
|
NOTES TO THE FINANCIAL STATEMENTS |
14 |
OFFICERS AND PROFESSIONAL ADVISERS |
|
DIRECTORS: |
K D Pereira |
|
L E Roberts |
COMPANY SECRETARY: |
NatWest Markets 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 |
|
DIRECTORS’ REPORT
ACTIVITIES AND BUSINESS REVIEW
The Directors' report has been prepared in accordance with the provisions available to companies entitled to the small companies‘ exemption and therefore does not include a Strategic report.
Activity
The former principal activity of Care Homes 1 Limited (“the Company”) was that of investments. The directors of the Company do not have any plan to make new investments in the future.
The Company is a part of NatWest Group plc (formerly known as The Royal Bank of Scotland Group plc (RBSG 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 NatWest Group plc review these matters on a group basis. Copies may be requested from Legal, Governance and Regulatory Affairs, NatWest Group plc, Gogarburn, Edinburgh, PO Box 1000 EH12 1HQ, the Registrar of Companies or at www.natwestgroup.com.
Review of the year
Business review
The intention of the Board of Directors is to liquidate the Company within the next 12 months from the date of approval of financial statements. International Accounting Standard (IAS) 1 “Presentation of Financial Statements” requires the financial statements in such circumstances to be prepared on a basis other than going concern. The Directors do not consider that this has affected the recognition and measurement of the assets at recoverable amount and liabilities at settlement value of the Company. Any cost of the liquidation will be borne by the Company. The directors are satisfied that the Company has sufficient resources to meet the expected costs to liquidate the Company.
Financial performance
The Company’s financial performance is presented on pages 10 to 13.
Turnover decreased by £160,309 (2019: £110,636) and expenses decreased by £153,592 (2019: £147,867). After impairment provisions of £133,424 (2019 release of impairment provisions: £46,775), the loss for the year was £211,489 (2019: £24,573).
An interim dividend of £nil was paid during the year (2019: £nil).
At the end of the year, the balance sheet showed total assets of £104,371,360 (2019: £111,838,640) including income-generating assets comprising amounts due from group companies of £101,970,855 (2019: £105,637,752) together representing a decrease of 6.68%. Total shareholders’ funds were £1,312,333 (2019: £4,711,728).
Principal risks and uncertainties
The Company seeks to minimise its exposure to financial risks other than credit risk.
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 NatWest Markets Group Asset and Liability Management Committee (NWM ALCO).
The Company is funded by facilities from NatWest Markets Plc. These are denominated in sterling which is the functional currency and carry no significant financial risk.
The Company’s assets mainly comprise Derivatives and loans which would expose it to interest, credit, liquidity and market risk except that the counterparties are group companies and credit risk is not considered significant.
Principal risks and uncertainties (continued)
The principal risks associated with the company are as follows:
Interest rate risk
Structural interest rate risk arises where assets and liabilities have different repricing maturities.
The Company manages interest rate risk by monitoring the consistency in the interest rate profile of its assets and liabilities, and limiting any re-pricing mismatches.
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.
Credit risk
Credit risk is the risk that companies, financial institutions, individuals and other counterparties will be unable to meet their obligations to the Company.
All material loans receivable are with NatWest Group companies. Although credit risk arises this is not considered to be significant and no amounts are past due.
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 principal market risk to which the Company is exposed to is interest rate risk, and is mitigated by monitoring the interest rate profile of its assets and liabilities.
Operational risk
Operational risk is the risk of unexpected losses attributable to human error, systems failures, fraud or inadequate internal financial controls and procedures. The Company manages this risk, in line with NatWest group framework, through systems and procedures to monitor transactions and positions, the documentation of transactions and periodic review by internal audit. The Company also maintains contingency facilities to support operations in the event of disasters.
Going concern
These financial statements are prepared on other than going concern basis see note 1(a) on page 14.
DIRECTORS AND SECRETARY
The present directors and secretary, who have served throughout the year are listed on page 1.
There have been no changes to the directors and secretary since the last reporting period.
DIRECTORS' RESPONSIBILITIES STATEMENT
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law 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 (FRS) 101 Reduced Disclosure Framework, 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. For the reasons stated in the Directors’ Report and Note 1(a), the financial statements have been prepared on a basis other than 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.
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
- 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.
AUDITOR
Ernst & Young LLP has expressed its willingness to continue in office as auditor.
Approved by the Board of Directors and signed on its behalf:
The accounts have been prepared in accordance with the provisions applicable to companies subject to the small companies’ regime.
Director
Date:
Opinion
We have audited the financial statements of Care Homes 1 Limited (“the Company”) for the year ended 31 December 2020 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 including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
In our opinion, the financial statements:
- give a true and fair view of the Company’s affairs as at 31 December 2020 and of its loss for the year then ended;
- have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
- have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Emphasis of Matter – financial statements prepared on a basis other than going concern
We draw attention to note 1(a) to the financial statements which explains that the directors intend to liquidate the Company and therefore do not consider it to be appropriate to adopt the going concern basis of accounting in preparing the financial statements. Accordingly, the financial statements have been prepared on a basis other than going concern as described in note 1(a). Our opinion is not modified in respect of this matter.
Overview of our audit approach
Key audit matters |
|
Materiality |
|
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for the company. This enables us to form an opinion on the financial statements. We take into account size, risk profile, the organisation of the company and effectiveness of controls, including controls and changes in the business environment when assessing the level of work to be performed.
All audit work was performed directly by the audit engagement team, except for the valuation of the derivative asset at year end, in which we have been supported by our valuation specialists in the independent revaluation of the derivative asset.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included
those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
| Risk | Our response to the risk |
Key observations communicated to those charged with governance |
Inappropriate valuation of derivative, associated income and the related movement in cash flow hedging reserves (£2,400,295, 2019: £6,200,693) Refer to Accounting policies (page 16); and Note 11 of the Financial Statements (page 19) As per Note 9 to the financial statements, the Company has £102m securitisation debt which was assumed by the entity from a historical transaction when NatWest Markets Plc acquired the Nursing Homes Property group of companies. The Company then entered into a floating rate deposit and a swap agreement with NatWest Markets Plc that would enable the Company to meet the ongoing interest obligations and ultimate repayment obligations under the bonds. A derivative asset is recognised in the financial statements from this transaction. The valuation of the derivative instruments involves significant judgment in estimating the fair value of the instrument and movements in the cashflow hedge reserves. This can involve complex valuation models and significant fair value adjustments both of which may be reliant on data inputs where there is limited market observability. The risk has neither increased or decreased since the prior year.
|
As part of the NatWest Group (NWG) audit, we performed trade life-cycle product walkthroughs to confirm our understanding of NWG’s process and controls around revenue recognition relating to financial instruments. We tested the design and operating effectiveness of the NWG’s controls over financial instrument valuations, including independent price verification, model approval/review, collateral management, and income statement analysis and reporting. We obtained the underlying trade contract and verified the existence and ownership of the one recorded derivative as well as the underlying terms of the instruments and we engaged our derivative valuation experts to test the fair value of derivative and the appropriate recording in the financial statements in accordance with the Company’s accounting policies and UK GAAP including FRS 101. With the support from our internal financial instrument valuation specialists, we performed an independent valuation of the interest rate derivative. We evaluated the hedging relationship and verified that all conditions for the cash flow hedging relationships are in accordance with the entity's accounting policies and the UK GAAP including FRS 101. We further ensured that cashflow hedge reserve carried forward from prior periods and movements in the year are appropriate by independently recalculating the loss on cashflow hedge reserve. We evaluated the adequacy of disclosures in the financial statements and the data included in the disclosures to assess whether they complied with the accounting standards. |
Based on the procedures performed, we concluded that the derivative assets, associated interest income and the related cash flow hedge reserves as at 31 December 2020 are fairly stated and have been appropriately accounted for under UK GAAP including FRS 101. |
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the company to be £1,043,714 (2019: £1,118,386), which is 1% of Total Assets (2019: 1% of Total Assets). The reason for selecting this measure as the basis for our audit materiality is that NatWest Markets Plc fully owns and funds the entity and that the entity’s assets are designed to fund the obligations arising on the bond issuance, which has been fully acquired by NatWest Markets Plc. We therefore consider that the assets are the primary focus to the users of the financial statements.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
Based on our risk assessments, together with our assessment of the company’s overall control environment, our judgement was that performance materiality was 50% (2019: 50%) of our planning materiality, namely £521,857 (2019: £559,193). We had set performance materiality at this percentage due to the conclusions of risk assessment for the Company as moderate and additional considerations of other than going concern basis of accounting.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with those charged with governance that we would report to them all uncorrected audit differences exceeding £52,186 (2019: £55,919), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and considering other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
- the information given in the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
- the directors’ report has been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the directors’ report.
We have nothing to report in respect of the following matters in relation to which 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
- the directors were not entitled to take advantage of the small companies' exemption from the requirement to prepare a strategic report.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 2 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.
Auditor’s responsibilities for the audit of the financial statements
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.
Explanation as to what extent 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, to detect material misstatements in respect of irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the company and management.
- We obtained an understanding of the legal and regulatory frameworks that are applicable to the company and determined that the most significant are the Companies Act 2006, the reporting framework UK GAAP including FRS 101, and the regulations by the Luxembourg Stock Exchange.
- We understood how the Company is complying with those frameworks by making inquiries of management and those charged with governance. We also reviewed correspondence between the Company and stock exchange; reviewed minutes of the Board; and gained an understanding of the Company’s governance framework.
- We assessed the susceptibility of the Company’s financial statements to material misstatement, including how fraud might occur by considering the controls that the Company has established to address fraud risks identified, or that otherwise seek to prevent, deter or detect fraud.
- Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved inquiries with the management and the directors. We also reviewed correspondence between the Company and stock exchange and with tax authorities and reviewed minutes of the Board meetings.
- The Company operates in the capital market industry. As such, the Senior Statutory Auditor considered the experience and expertise of the engagement team to ensure that the team had the appropriate competence and capabilities, involving specialists where appropriate.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
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.
Jean-Philippe Faillat (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London, United Kingdom
Date:
PROFIT AND LOSS ACCOUNT
for the year ended 31 December 2020 |
|||
2020 |
2019 |
||
Income from discontinuing operations |
Notes |
£ |
£ |
Turnover |
3 |
4,763,641 |
4,923,950 |
Interest payable |
4 |
(4,785,641) |
(4,940,205) |
Operating expenses |
|
(56,065) |
(55,093) |
Operating loss before impairment |
|
(78,065) |
(71,348) |
Impairment (provision)/release |
7 |
(133,424) |
46,775 |
Operating loss before tax |
|
(211,489) |
(24,573) |
|
|||
Tax credit/(charge) |
6 |
- |
- |
Loss for the financial year |
(211,489) |
(24,573) |
The accompanying notes form an integral part of these financial statements.
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2020 |
|||
2020 |
2019 |
||
Notes |
£ |
£ |
|
Loss for the financial year |
|
(211,489) |
(24,573) |
|
|||
Other comprehensive loss subject to reclassification |
|
||
Movement on cash flow hedges |
|
(3,841,132) |
(3,257,361) |
Other comprehensive loss before tax |
|
(3,841,132) |
(3,257,361) |
|
|||
Tax credit |
6 |
653,226 |
695,487 |
Other comprehensive loss after tax |
|
(3,187,906) |
(2,561,874) |
|
|||
Total comprehensive loss for the year |
|
(3,399,395) |
(2,586,447) |
The accompanying notes form an integral part of these financial statements.
BALANCE SHEET
as at 31 December 2020 |
|||
2020 |
2019 |
||
Notes |
£ |
£ |
|
Current assets |
|
||
Amounts due from group companies |
7 |
101,970,855 |
105,637,752 |
Derivative financial instruments |
11 |
2,400,295 |
6,200,693 |
Cash at bank |
8 |
210 |
195 |
Total assets |
|
104,371,360 |
111,838,640 |
|
|||
Current liabilities |
|
||
Debt securities in issue |
9 |
101,746,426 |
- |
Accruals, deferred income and other liabilities |
10 |
1,072,291 |
1,081,217 |
Deferred tax liabilities |
|
240,310 |
- |
|
103,059,027 |
1,081,217 |
|
|
|||
Non-current liabilities |
|
||
Debt securities in issue |
9 |
- |
105,152,159 |
Deferred tax liabilities |
|
- |
893,536 |
Total liabilities |
|
103,059,027 |
107,126,912 |
|
|||
Equity |
|
||
Called up share capital |
12 |
10,000 |
10,000 |
Cash flow hedge reserve |
|
1,024,477 |
4,212,383 |
Profit & loss account |
|
277,856 |
489,345 |
Total equity |
|
1,312,333 |
4,711,728 |
|
|||
Total liabilities and equity |
|
104,371,360 |
111,838,640 |
The accompanying notes form an integral part of these financial statements.
The financial statements were approved by the Board of Directors on and signed on it’s behalf by:
Director
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2020 |
||||
Cash flow |
Profit and |
|||
Share capital |
hedge reserve |
loss account |
Total |
|
£ |
£ |
£ |
£ |
|
At 1 January 2019 |
10,000 |
6,774,257 |
513,918 |
7,298,175 |
Loss for the year |
- |
- |
(24,573) |
(24,573) |
Loss on cash flow hedge |
- |
(3,257,361) |
- |
(3,257,361) |
Deferred tax credit |
- |
695,487 |
- |
695,487 |
Balance as at 31 December 2019 |
10,000 |
4,212,383 |
489,345 |
4,711,728 |
Loss for the year |
- |
- |
(211,489) |
(211,489) |
Loss on cash flow hedge |
- |
(3,841,132) |
- |
(3,841,132) |
Deferred tax credit |
- |
653,226 |
- |
653,226 |
Balance as at 31 December 2020 |
10,000 |
1,024,477 |
277,856 |
1,312,333 |
Total comprehensive loss for the year of £3,399,395 (2019: £2,586,447) was wholly attributable to the owners of the Company.
The accompanying notes form an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
a. Preparation and presentation of financial statements
These financial statements are prepared:
- on other than going concern basis; Under this basis, the assets have been measured at recoverable values and liabilities at settlement/transfer values. The directors, having regard to their intention to place the Company in liquidation within next 12 months from the date of approval of financial statements, have prepared the accounts on a basis other than as a going concern. The directors do not consider that this basis affects the measurement of the assets or the liabilities of the Company. Any cost of the liquidation will be borne by the Company. The directors are satisfied that the Company has sufficient resources to meet the expected costs to liquidate the Company.
The directors have considered the impact of Covid-19 on the Company and, given the decision to place the Company in liquidation next 12 months from the date of approval of financial statements, the directors do not consider that the Covid-19 pandemic will have a material impact on the Company in the future.
- under United Kingdom Accounting Standards including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice) as issued by the Financial Reporting Council.
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 NatWest Group plc, these accounts are available to the public and can be obtained as set out in note 14.
On 09 April 2021, all outstanding notes were redeemed, derivative financial instruments settled and amounts due from group companies repaid. From this date, the Company effectively ceases to trade, and it is the intention of the Board of Directors to liquidate the Company within the next 12 months from date of approval of financial statements. International Accounting Standard (IAS) 1 “Presentation of Financial Statements” requires the financial statements in such circumstances to be prepared on a basis other than going concern. The Directors do not consider that this has affected the recognition and measurement of the assets at recoverable amount and liabilities at settlement value of the Company.
The changes to IFRS that were effective from 1 January 2020 have had no material effect on the Company’s financial statements for the year ended 31 December 2020.
b. Foreign currencies
Transactions in foreign currencies are translated into Sterling at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Foreign exchange differences arising on translation are reported in profit or loss.
c. Revenue recognition
Interest income or expense relates to financial instruments measured using the effective interest method, the effective part of any related accounting hedging instruments recognised at a constant periodic rate of return before tax on the net investment.
Other interest relating to financial instruments measured at fair value is recognised as part of the movement in fair value.
Fees in respect of services are recognised as the right to consideration accrues through the performance of each distinct service obligation to the customer. 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.
d. 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.
Current tax is income tax payable or recoverable in respect of the taxable profit or loss for the year arising in income, other comprehensive 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.
e. Financial instruments
Financial instruments are classified either by product, by business model or by reference to the IFRS default classification.
Classification by product relies on specific designation criteria which are applicable to certain classes of financial assets or circumstances where accounting mismatches would otherwise arise. Classification by business model reflects how the Company manages its financial assets to generate cash flows. A business model assessment determines if cash flows result from holding financial assets to collect the contractual cash flows; from selling those financial assets; or both.
The product classifications apply to financial assets that are at fair value through other comprehensive income (FVOCI). In all other instances, fair value through profit or loss (MFVTPL) is the default classification and measurement category for financial assets
Regular way purchases of financial assets classified as amortised cost, are recognised on the settlement date; all other regular way transactions in financial assets are recognised on the trade date.
All financial instruments are measured at fair value on initial recognition.
All liabilities not subsequently measured at fair value are measured at amortised cost.
Most financial assets are held to collect the contractual cash flows that comprise solely payments of principal and interest and are measured at amortised cost.
Amounts due from group companies and debt securities in issue are measured at amortised cost.
1. Accounting policies (continued)
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.
Hedge relationships are formally designated and documented at inception in line with the requirements of IAS 39 Financial instruments – Recognition and measurement. 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 11 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. Impairment of financial assets
At each balance sheet date each financial asset or portfolio of loans measured at amortised cost or at fair value through other comprehensive income, issued financial guarantee and loan commitment is assessed for impairment. Loss allowances are forward looking, based on 12 month expected credit losses where there has not been a significant increase in credit risk rating, otherwise allowances are based on lifetime expected losses.
Expected credit losses are a probability-weighted estimate of credit losses. The probability is determined by the risk of default which is applied to the cash flow estimates. In the absence of a change in credit rating, allowances are recognised when there is reduction in the net present value of expected cash flows. On a significant increase in credit risk, allowances are recognised without a change in the expected cash flows, although typically expected cash flows do also change; and expected credit losses are rebased from 12 month to lifetime expectations.
The costs of loss allowances on assets held at amortised cost are presented as impairments in the income statement.
h. Derecognition
A financial asset is derecognised when the contractual right to receive cash flows from the asset has expired or when it has been transferred and the transfer qualifies for derecognition in accordance with IFRS 9 “Financial Instruments”.
A financial liability is removed from the balance sheet when the obligation is discharged, cancelled or expires.
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. In accordance with their responsibilities for these financial statements, the factors the directors consider most important to the portrayal of the Company’s performance and financial condition are discussed below.
Fair value - financial instruments
Financial instruments classified as fair value through other comprehensive income are recognised in the Financial Statements at fair value. Unrealised gains and losses are recognised directly in equity unless an impairment loss is recognised.
Financial instruments classified at fair value through profit or loss are recognised in the financial statements at fair value. Changes in fair value are recognised in profit or loss as they arise 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. Turnover |
|||
2020 |
2019 |
||
£ |
£ |
||
Interest income from group companies |
506,332 |
839,647 |
|
Interest rate swap income |
4,359,259 |
4,168,995 |
|
Hedging ineffectiveness |
(101,950) |
(84,692) |
|
4,763,641 |
4,923,950 |
4. Interest payable |
|||
2020 |
2019 |
||
£ |
£ |
||
Interest expense on debt securities in issue |
4,785,641 |
4,940,205 |
5. Operating expenses
The auditor’s remuneration for statutory audit work of £35,500 (2019: £35,500) for the Company was borne by NatWest Markets Plc. Remuneration paid to the auditor for non-audit work for the Company was £nil (2019: £nil).
Directors’ emoluments
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. There are no other staff.
6. Taxation |
|||
2020 |
2019 |
||
£ |
£ |
||
Current tax: |
|||
UK Corporation tax charge for the year |
- |
- |
The actual tax (credit)/charge differs from the expected tax (credit)/charge computed by applying the standard rate of UK corporation tax of 19% (2019: standard tax rate 19%) as follows: |
2020 |
2019 |
||
£ |
£ |
||
Loss on ordinary activities before tax |
(211,489) |
(24,573) |
|
Expected tax credit |
(40,183) |
(4,669) |
|
Non-Deductible items |
137,810 |
75,766 |
|
Income not taxable for tax purposes |
(615,944) |
(470,299) |
|
Group relief surrendered for nil consideration |
518,316 |
399,202 |
|
Actual tax credit/(charge) |
- |
- |
|
Deferred tax |
|||
The following represents the deferred tax liabilities recognised by the Company, and the movements thereon. |
|||
Cash flow hedge reserve |
|||
£ |
|||
At 1 January 2019 |
1,589,023 |
||
Release to equity |
(695,487) |
||
At 31 December 2019 |
893,536 |
||
Release to equity |
(653,226) |
||
At 31 December 2020 |
240,310 |
||
In the current period, the substantively enacted UK Corporation tax rate applicable to the company from 1 April 2020 was increased from 17% to 19%. The closing deferred tax assets and liabilities have been calculated at 19% and accordingly a rate change adjustment has arisen as the opening deferred tax balance had been calculated taking into account the previously enacted rate of 17%.
Since the balance sheet date, it was announced in the UK Government’s Budget on 3 March 2021 that the main UK corporation tax rate will increase to 25% from 1 April 2023. This change has not yet been substantively enacted. As a result, existing temporary differences on which deferred tax has been provided may unwind in periods subject to the 19%/25% rates. The impact of the post balance sheet date change in tax rate is not expected to be material.
7. Amounts due from group companies |
|||
2020 |
2019 |
||
£ |
£ |
||
Due within one year: |
|||
Amount due from Group company - NatWest Market Plc |
102,105,895 |
105,639,368 |
|
IFRS 9 impairment provision |
(135,040) |
(1,616) |
|
101,970,855 |
105,637,752 |
Amounts due from group companies consist of a £102m 6 months deposit with a residual maturity of less than 5 months (2019: £106m 6 months deposit with a residual maturity of less than 5 months).
The valuation of the loan includes an ECL provision, as per IFRS9 requirements. The provision referring to 2020 is £135,040 (2019: £1,616).
8. Cash at bank |
|||
2020 |
2019 |
||
£ |
£ |
||
Cash at bank - RBS Plc |
210 |
195 |
9. Debt securities in issue |
|||
2020 |
2019 |
||
£ |
£ |
||
Due within one year: |
|||
Debt securities in issue - NatWest Market Plc |
101,746,426 |
105,152,159 |
On 4 December 2006 Care Homes 1 Limited became an obligor in respect of certain debt securities by means of a novation from the Nursing Home Property (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.
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.
10. Accruals, deferred income and other liabilities |
|||
2020 |
2019 |
||
£ |
£ |
||
Accrued interest - NatWest Market Plc |
1,072,291 |
1,081,217 |
11. 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 £101.8m (2019: £105.2m) which amortizes 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 £2.4m (2019: £6.2m). 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 NatWest Market Plc.
12. Share capital |
|||
2020 |
2019 |
||
£ |
£ |
||
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.
13. Contingent Liabilities
The Company, together with certain other subsidiaries of “NatWest Markets Plc”, is party to a capital support deed (CSD) relevant to NatWest Markets Group. 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 immediately accessible funds or assets, rights, facilities or other resources that, using best efforts, are reasonably capable of being converted to cleared, immediately available funds (the Company’s available resources) {together with any amounts distributed to it by its subsidiaries pursuant 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.
14. Related parties
UK Government
The UK Government through HM Treasury is the ultimate controlling party of NatWest Group plc. Its shareholding is managed by UK Government 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; regulatory fees and levies; together with banking loans and deposits undertaken in the normal course of banker-customer relationships.
Group companies |
|
At 31 December 2020 |
|
The Company's immediate parent was: |
Care Homes Holdings Limited |
The smallest consolidated accounts including the company were prepared by: |
NatWest Markets Plc |
The ultimate parent company was: |
NatWest Group plc |
Group undertakings
The amount of related party balances are shown in note 7, 8, 9, 10 and 11.
All parent companies are incorporated in the UK. Copies of their accounts may be requested from Legal, Governance and Regulatory Affairs, NatWest Group plc, Gogarburn, PO Box 1000, Edinburgh EH12 1HQ.
On 22 July 2020 The Royal Bank of Scotland Group plc changed its name to NatWest Group plc.
15. Post balance sheet events
On 09 April 2021, all outstanding notes were redeemed, derivative financial instruments settled and amounts due from group companies repaid. From this date, the Company effectively ceases to trade, and it is the intention of the Board of Directors to liquidate the Company within the next 12 months from date of approval of financial statements.