Care Homes 1 Limited Annual Report and Financial Statements
For the year ended 31 December 2020
LONDON–(BUSINESS WIRE)–Regulatory News:
Company Registered No: 05771789
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| OFFICERS AND PROFESSIONAL ADVISERS | 1 |
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| DIRECTORS’ REPORT | 2 |
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| INDEPENDENT AUDITOR’S REPORT | 5 |
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| PROFIT AND LOSS ACCOUNT | 10 |
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| STATEMENT OF COMPREHENSIVE INCOME | 11 |
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| BALANCE SHEET | 12 |
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| STATEMENT OF CHANGES IN EQUITY | 13 |
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| NOTES TO THE FINANCIAL STATEMENTS | 14 |
| OFFICERS AND PROFESSIONAL ADVISERS | |
| DIRECTORS: | K D Pereira |
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| L E Roberts |
| COMPANY SECRETARY: | NatWest Markets Secretarial Services Limited |
| REGISTERED OFFICE: | 250 Bishopsgate |
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| London |
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| England |
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| EC2M 4AA |
| INDEPENDENT AUDITOR: | Ernst & Young LLP |
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| Statutory Auditor |
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| 25 Churchill Place |
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| Canary Wharf |
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| London |
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| 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 |
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| Materiality |
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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.
Contacts
Caron Norman
Tel: +44 (0) 207 085 5984
