TIDM31PE
RNS Number : 2733O
Canary Wharf Finance II PLC
28 May 2020
CANARY WHARF FINANCE II PLC
28 MAY 2020
PUBLICATION OF THE ANNUAL FINANCIAL REPORT FOR THE YEARED 31
DECEMBER 2019
Pursuant to sections 4.1 and 6.3.5 of the Disclosure and
Transparency Rules, the board of Canary Wharf Finance II plc is
pleased to announce the publication of its annual financial report
for the year ended 31 December 2019, which will shortly be
available from www.canarywharf.com/Investor Relations.
The information contained within this announcement, which was
approved by the board of directors on 28 May 2020, does not
comprise statutory accounts within the meaning of the Companies Act
2006 and is provided in accordance with section 6.3.5(2)(b) of the
Disclosure and Transparency Rules.
In compliance with the Listing Rule 9.6.1, a copy of the 31
December 2019 annual financial report will be submitted to the UK
Listing Authority via the National Storage Mechanism and will
shortly be available to the public for inspection at
www.hemscott.com/nsm.do.
Dated: 28 May 2020
Contact for queries:
J R Garwood
Company Secretary
Canary Wharf Finance II plc
Telephone: 020 7418 2000
STRATEGIC REPORT
for the year ended 31 December 2019
The directors, in preparing this Strategic Report, have complied
with section 414C of the Companies Act 2006.
This Strategic Report has been prepared for the company and not
for the group of which it is a member and therefore focuses only on
matters which are significant to the company.
BUSINESS MODEL
The company is a wholly owned subsidiary of Canary Wharf Group
plc and its ultimate parent undertaking is Stork HoldCo LP.
The company is a finance vehicle that issues securities which
are backed by commercial mortgages over properties within the
Canary Wharf Estate. The company is engaged in the provision of
finance to the Canary Wharf group, comprising Canary Wharf Group
plc and its subsidiaries ('the group'). All activities take place
within the United Kingdom.
BUSINESS REVIEW
At 31 December 2019, the company had GBP1,443,512,520 (2018 -
GBP1,472,837,720) of notes listed on the London Stock Exchange and
had lent the proceeds to a fellow subsidiary undertaking, CW
Lending II Limited ('the Borrower'), under a loan agreement ('the
Intercompany Loan Agreement'). The notes are secured on a pool of
properties at Canary Wharf, owned by fellow subsidiary
undertakings, and the rental income therefrom.
The securitisation has the benefit of an agreement with AIG
which covers the rent in the event of a default by the tenant of 33
Canada Square over the entire term of its lease. AIG has posted
GBP136,586,799 (2018 - GBP154,332,009) as cash collateral in
respect of this obligation.
The company also has the benefit of a GBP300.0m liquidity
facility provided by Lloyds Bank plc, under which drawings may be
made in the event of a cash flow shortage under the
securitisation.
The ratings of the notes are as follows:
Class Moody's Fitch S&P
A1 Aaa AAA A+
A3 Aaa AAA A+
A7 Aaa AAA A+
B Aa3 AA A+
B3 Aa3 AA A+
C2 A3 A A
D2 Baa3 BBB A-
KEY PERFORMANCE INDICATORS
Following the adoption of the IFRS 9 measurement option (see
Note 15), the floating rate securitised notes are measured at fair
value and so no hedging relationships are possible. The changes in
the fair value of the derivative instruments are recognised in the
income statement.
2019 2018
GBP GBP
--------------
Securitised debt 1,443,512,520 1,472,837,720
Financing cost (before adjustment for
fair value) 86,643,107 88,467,105
Total comprehensive income 136,956 151,674
Weighted average maturity of debt 12.3 years 13.1 years
Weighted average interest rate 6.1% 6.1%
FUTURE DEVELOPMENTS
Since 31 December 2019, the UK economy has been significantly
impacted by the Covid-19 virus which has caused widespread
disruption and economic uncertainty. This is considered to be a non
adjusting post balance sheet event and accordingly the valuation of
assets and liabilities at the balance sheet date have not been
adjusted for the subsequent uncertainty caused by these events.
This does however create uncertainty around the future valuation
of investment property and the impact on the company's loan to
value covenant. At the date of approval of the financial statements
however, the directors do not consider that this is likely to give
rise to a breach of covenant within the next 12 months.
The directors have a reasonable expectation that the company
will have adequate resources to continue its operation for the
foreseeable future. Accordingly they continue to adopt going
concern basis in preparing the financial statements.
STRATEGY & OBJECTIVES
Exposure management
The mark-to-market positions of all the company's derivatives
are reported to the Group Treasurer on a monthly basis and to the
directors on a quarterly basis. The Group Treasurer monitors
hedging activity on an ongoing basis, in order to notify the
directors of any over hedging that may potentially occur and
proposals to deal with such events.
Hedging instruments and transaction authorisation
Instruments that may be used for hedging interest rate exposure
include:
-- Interest rate swaps
-- Interest rate caps, collars
and floors
-- Gilt locks
No hedging activity is undertaken without explicit authority of
the board.
Transaction accounting
All derivatives are required to be measured on balance sheet at
fair value (mark-to-market).
Credit risk
The group's policies restrict the counterparties with which
derivative transactions can be contracted and cash balances
deposited. This ensures that exposure is spread across a number of
approved financial institutions with high credit ratings.
All other debtors are receivable from other group
undertakings.
PRINCIPAL RISKS AND UNCERTAINTIES
The risks and uncertainties facing the business are monitored
through continuous assessment, regular formal reviews and
discussion at the Canary Wharf Group Investment Holdings plc audit
committee and board. Such discussion focuses on the risks
identified as part of the system of internal control which
highlights key risks faced by the Group and allocates specific day
to day monitoring and control responsibilities as appropriate. As a
member of Canary Wharf Group, the current key risks of the company
include the cyclical nature of the property market, Brexit,
concentration risk and financing risk.
Cyclical nature of the property market
The valuation of the Company and Group's assets are subject to
many external economic and market factors. Following, uncertainty
in the Eurozone experienced in recent years, the implications of UK
withdrawal from the EU, a General Election and renewed turmoil in
the financial markets following the spread of the coronavirus, the
London real estate market has had to cope with fluctuations in
demand. The full impact of the coronavirus is not yet possible to
predict. A sustained global epidemic will however inevitably effect
short and medium term economic performance and confidence, with
adverse implications for the property market. The real estate
market has to date, however, been assisted by the depreciation of
sterling since the EU referendum and the continuing presence of
overseas investors attracted by the relative transparency of the
real estate market in London which is still viewed as both
relatively stable and secure. Although previous Government
announcements, in particular the changes to stamp duty in the
residential property market, have contributed to a slowing of
residential land prices the residential market has been underpinned
by continuing demand. Sales in the residential buildings at Wood
Wharf and Southbank Place have accordingly remained relatively
strong despite continuing uncertainties which are unhelpful to
confidence across the wider real estate sector.
Departure from the EU
Since the EU referendum in 2016, considerable uncertainty has
been experienced across the whole of the UK economy. Although the
UK has now formally withdrawn from the EU the impact of this
withdrawal on trade and immigration is currently being negotiated
and considerable uncertainty therefore remains. In the real estate
and construction sectors issues arising from withdrawal from the EU
have been experienced through currency risk, in particular the
20.0% depreciation in the aftermath of the EU referendum which has
been followed by continued relatively low levels of sterling
against most currencies. Although depreciation has helped to
maintain overseas demand for UK real estate, in the construction
sector it has also led to increased cost pressures on materials
throughout the supply chain. The Company and Group have been
relatively sheltered from this risk by the forward placing of
contracts in the course of long running construction projects and
where feasible the forward purchasing of some supplies. As a result
of the depreciation of sterling and also as a result of change in
the perceived attraction of the UK as a destination for workers
from the EU, staff working in construction trades are increasingly
being attracted to work on projects in Euro denominated countries.
Although only about 8.0% of the Group's employees hold EU
passports, the availability of labour in the construction industry
is likely to be adversely affected by uncertainty over the status
of EU nationals and recent Government proposals for the
introduction of a points based system of immigration. The final
terms for the departure of the UK from the EU are not yet known but
in the event it leads to a sudden fall in
confidence and demand, there could be a drop in residential
values and a sustained weakness of demand.
The Board believes the Company is relatively well placed to
weather the impact of an EU departure linked economic downturn or
change in London's competitive environment. Most tenants at Canary
Wharf are on relatively long lease and in the Group's portfolio
there is a low vacancy rate particularly in retail. The business
has diversified into residential sales and lettings and initial
sales in residential buildings at Wood Wharf and Southbank Place
have been very strong. There has also been a successful move to
attract TMT companies to take space at Canary Wharf and in the new
Wood Wharf district which has further diversified the office
portfolio away from financial services.
Concentration risk
The majority of the Group's real estate assets are currently
located on or adjacent to the Estate. Although a majority of
tenants have traditionally been linked to the financial services
industry, this proportion has now fallen to around only 50.0% of
tenants. Wherever possible steps are still taken to mitigate or
avoid material consequences arising from this concentration.
Although the focus of the Group has been on and around the Estate,
where value can be added the Group will also consider opportunities
elsewhere. The Group is involved as construction manager and joint
development manager in the joint venture with Qatari Diar to
redevelop the Shell Centre in London's South Bank. The Group has
also reviewed current consents for development to react to changes
in the market. This review has led to an increased focus on
residential development as reflected in the revised composition of
the proposed master plan for the mixed use development on land
immediately east of the Estate known as Wood Wharf.
Financing risk
The broader economic cycle inevitably leads to movement in
inflation, interest rates and bond yields.
The company has issued debenture finance in sterling at both
fixed and floating rates and uses interest rate swaps to modify its
exposure to interest rate fluctuations. All of the company's
borrowings are fixed after taking account of interest rate hedges.
All borrowings are denominated in sterling and the Company has no
intention to borrow amounts in currencies other than sterling.
The company enters into derivative financial instruments solely
for the purposes of hedging its financial liabilities. No
derivatives are entered into for speculative purposes.
The company is not subject to externally imposed capital
requirements.
The company's securitisation is subject to a maximum loan minus
cash to value ('LMCTV') ratio covenant.
The maximum LMCTV ratio is 100.0%. Based on the 31 December 2019
valuations of the properties upon which the company's notes are
secured, the LMCTV ratio at the interest payment date in January
2020 was 43.0%. The securitisation is not subject to a minimum
interest coverage ratio. A breach of certain financial covenants
can be remedied by depositing eligible investments (including
cash).
CORPORATE & SOCIAL RESPONSIBILITY
Canary Wharf Group plc has adopted a formal corporate
responsibility policy including environmental and social issues
which extends to all of its wholly owned subsidiary undertakings,
including the Company. Full details of this policy together with a
copy of the latest Canary Wharf Group plc Corporate Responsibility
Report can be obtained from www.canarywharf.com.
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2019
2019 2018
Note GBP GBP
------------- -------------
Administrative expenses (8,952) (9,949)
OPERATING LOSS (8,952) (9,949)
Interest receivable from group companies 3 86,773,071 88,617,570
Bank interest receivable 3 15,944 11,158
Loan interest payable 4 (86,643,107) (88,467,105)
Hedge reserve recycling 4 (4,689,581) 568,790
Fair value movements 5 14,646,700 (12,284,696)
PROFIT/(LOSS) BEFORE TAX 10,094,075 (11,564,232)
Tax on profit/(loss) 6 - -
PROFIT/(LOSS) FOR THE FINANCIAL YEAR 10,094,075 (11,564,232)
------------- -------------
OTHER COMPREHENSIVE INCOME FOR THE YEAR
Fair value movement on effective hedging
instruments (14,646,700) 12,284,696
Hedge reserve recycling 4,689,581 (568,790)
OTHER COMPREHENSIVE INCOME FOR THE YEAR (9,957,119) 11,715,906
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 136,956 151,674
------------- -------------
The numbered notes 1 to 16 form part of these financial
statements.
STATEMENT OF FINANCIAL POSITION
as at 31 December 2019
As restated
2019 2018
Note GBP GBP
---------------- ----------------
CURRENT ASSETS
Debtors:
Amounts falling due after more than
one year 7 1,680,875,352 1,677,273,086
Amounts falling due within one year 7 48,215,880 48,763,858
Cash at bank and in hand 3,366,239 3,161,839
1,732,457,471 1,729,198,783
Creditors:
Amounts falling due within one year 8 (46,184,654) (46,665,187)
NET CURRENT ASSETS 1,686,272,817 1,682,533,596
---------------- ----------------
TOTAL ASSETS LESS CURRENT LIABILITIES 1,686,272,817 1,682,533,596
Creditors:
Amounts falling due after more than
one year 9 (1,680,875,352) (1,682,533,596)
NET ASSETS 5,397,465 5,260,509
---------------- ----------------
CAPITAL AND RESERVES
Called up share capital 12 50,000 50,000
Hedging reserve (157,005,324) (147,048,205)
Retained earnings 162,352,789 152,258,714
5,397,465 5,260,509
---------------- ----------------
The numbered notes 1 to 16 form part of these financial
statements.
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2019
Called up Hedging Retained Total
share capital reserve earnings equity
GBP GBP GBP GBP
-------------- ------------ -------------
At 1 January 2019
(as restated) 50,000 (147,048,205) 152,258,714 5,260,509
Profit for the year - - 10,094,075 10,094,075
Fair value movement
on effective hedging
instruments - (14,646,700) - (14,646,700)
Hedge reserve recycling - 4,689,581 - 4,689,581
TOTAL COMPREHENSIVE
INCOME FOR THE YEAR - (9,957,119) 10,094,075 136,956
AT 31 DECEMBER 2019 50,000 (157,005,324) 162,352,789 5,397,465
------- -------------- ------------ -------------
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2018
Called up Hedging Retained Total
share capital reserve earnings equity
GBP GBP GBP GBP
-------------- -------------- --------------
At 1 January 2018
(as previously stated) 50,000 (131,774,212) (149,159,326) (280,883,538)
Prior year adjustment - (26,989,899) 312,982,272 285,992,373
At 1 January 2018
(as restated) 50,000 (158,764,111) 163,822,946 5,108,835
Loss for the year - - (11,564,232) (11,564,232)
Fair value movement
on effective hedging
instruments - 12,284,696 - 12,284,696
Hedge reserve recycling - (568,790) - (568,790)
TOTAL COMPREHENSIVE
INCOME FOR THE YEAR - 11,715,906 (11,564,232) 151,674
AT 31 DECEMBER 2018 50,000 (147,048,205) 152,258,714 5,260,509
------- -------------- -------------- --------------
The numbered notes 1 to 16 form part of these financial
statements.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
1. GENERAL INFORMATION
Canary Wharf Finance II plc is a public company limited by
shares incorporated in the UK under the Companies Act 2006 and
registered in England and Wales at One Canada Square, Canary Wharf,
London, E14 5AB.
The nature of the company's operations and its principal
activities are set out in the Strategic Report.
2. ACCOUNTING POLICIES
2.1 Basis of preparation of financial statements
This announcement does not constitute the company's statutory
accounts for the year ended 31 December 2019 but is derived from
those accounts. The statutory accounts for the year ended 31
December 2019 will be delivered to the Registrar of Companies
following the company's annual general meeting. The auditors have
reported on those accounts and their report was unqualified, did
not contain a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying the report and did
not contain statements under sections 498(2) or (3) of the
Companies Act 2006.
This announcement has been prepared on the basis of the
accounting policies set out in the company's financial statements
for the year ended 31 December 2019 which are prepared in
accordance with United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice, including FRS 102 "the
Financial Reporting Standard applicable in the United Kingdom and
Republic of Ireland").
2.2 Going concern
At the year end, the company is in a net asset position.
Having made the requisite enquiries and assessed the resources
at the disposal of the company, the directors have a reasonable
expectation that the company will have adequate resources to
continue its operation for the foreseeable future. Accordingly,
they continue to adopt the going concern basis in preparing the
financial statements.
The impact of the CoVid-19 virus is disclosed in Note 16.
3. INTEREST RECEIVABLE AND SIMILAR INCOME
2019 2018
GBP GBP
-----------
Interest receivable from group companies 86,773,071 88,617,570
Bank interest receivable 15,944 11,158
86,789,015 88,628,728
-----------
4. INTEREST PAYABLE AND SIMILAR CHARGES
As restated
2019 2018
GBP GBP
------------
Interest payable on securitised debt
(Note 10) 86,643,107 88,467,105
Fair value adjustments (14,646,700) 12,284,696
Hedge reserve recycling 4,689,581 (568,790)
76,685,988 100,183,011
------------
5. FAIR VALUE ADJUSTMENTS
As restated
2019 2018
GBP GBP
-------------
Derivative financial instruments 17,109,613 (14,945,454)
Securitised debt 4,268,326 (30,101,910)
Loan to fellow subsidiary undertaking (36,024,639) 57,332,060
(14,646,700) 12,284,695
-------------
Unrealised fair value gains or losses on derivative financial
instruments which do not qualify for hedge accounting are
recognised in the Income Statement (Note 10).
6. TAXATION
As restated
2019 2018
GBP GBP
-----
Current tax on profits for the year - -
TAXATION ON PROFIT ON ORDINARY ACTIVITIES - -
-----
FACTORS AFFECTING TAX CHARGE FOR THE YEAR
The tax assessed for the year is different to the standard rate
of corporation tax in the UK of 19.0% (2018 - 19.0%). The
differences are explained below:
2019 2018
GBP GBP
-------------
Profit/(loss) on ordinary activities
before tax 10,094,075 (11,564,232)
------------ -------------
Profit/(loss) on ordinary activities
multiplied by standard rate of corporation
tax in the UK of 19.0% (2018 - 19.0%) 1,917,874 (2,197,204)
EFFECTS OF:
Fair value movements not subject
to tax (1,891,852) 2,226,022
Group relief (26,022) (28,818)
TOTAL TAX CHARGE FOR THE YEAR - -
------------ -------------
FACTORS THAT MAY AFFECT FUTURE TAX CHARGES
Enacted in the Finance Act (No.2) 2015 is a reduction in the
corporation tax rate for 17.0% on 1 April 2020.
Following the year end, in 2020 Budget, HM Treasury have set
their intention not to cut corporation tax beyond 19.0% on 1 April
2020.
7. DEBTORS
As restated
2019 2018
____________GBP GBP
--------------
DUE AFTER MORE THAN ONE YEAR
Loan to fellow subsidiary undertaking
due after more than one year 1,680,875,352 1,677,273,086
1,680,875,352 1,677,273,086
-------------- --------------
2019 2018
GBP GBP
------------------------------------------------------- -----------
DUE WITHIN ONE YEAR
Other amounts owed to fellow subsidiaries 2,098,450 2,150,221
Loan to fellow subsidiary undertaking
due within one year 29,325,200 29,325,200
Accrued interest on loan to fellow
subsidiary undertaking 16,792,230 17,288,437
48,215,880 48,763,858
-----------
As restated
2019 2018
GBP GBP
-------------- --------------
The loan to a fellow subsidiary undertaking
comprises:
At 1 January 1,706,598,286 1,796,448,722
Repaid in the year (29,325,200) (29,325,200)
Amortisation of issue premium (1,864,598) (1,959,964)
Movement in accrued financing expenses (1,232,575) (1,233,212)
Fair value adjustment 36,024,639 (57,332,060)
At 31 December 1,710,200,552 1,706,598,286
-------------- --------------
Comprising:
As restated
2019 2018
GBP GBP
--------------
Loan to fellow subsidiary undertaking
due after more than one year 1,680,875,352 1,677,273,086
Loan to fellow subsidiary undertaking
due within one year 29,325,200 29,325,200
1,710,200,552 1,706,598,286
--------------
The fair value of the loans to group undertakings at 31 December
2019 was GBP1,988,296,841 (2018 - GBP1,911,950,530), calculated by
reference to the fair values of the Company's financial
liabilities. In the event that the company were to realise the fair
value of the securitised debt and the derivative financial
instruments, it would have the right to recoup its losses as a
repayment premium on its loans to CW Lending II Limited. As such,
the fair value of the loans to group undertakings is calculated to
be the sum of the fair value of the securitised debt and the fair
value of the derivative financial instruments.
The loan to the company's fellow subsidiary undertaking was made
in tranches, the principal terms of which are:
Effective 2019 2018
Class Interest interest Repayment GBPm GBPm
------ --------- --------- ------------------- ------ --------
By instalment 2009
A1 6.465% 6.161% - 2033 244.2 266.5
By instalment 2032
A3 5.962% 5.824% - 2037 400.0 400.0
A7 5.409% 5.308% January 2035 220.0 222.0
By instalment 2005
B 6.810% 6.420% - 2030 134.8 141.7
B3 5.593% 5.445% January 2035 77.9 77.9
C2 6.276% 6.068% January 2035 239.7 239.7
D2 7.071% 6.753% January 2035 125.0 125.0
1,443.6 1,472.8
Unamortised premium 15.7 17.5
Accrued financing
costs 18.6 19.8
1,477.9 1,510.1
--------
In January 2017, interest on the tranche A7 loan increased to
5.409% from 5.124% and interest on the tranche B3 loan increased to
5.593% from 5.173%.
The A7, B3 and C2 tranches of the intercompany loan are carried
at fair value. The A1, A3, B and D2 tranches are carried at
amortised cost. The total fair value of the intercompany loan was
GBP1,710,200,552.
The carrying value of financial assets represents the Company's
maximum exposure to credit risk.
The maturity profile of the Company's contracted undiscounted
cash flows is as follows:
2019 2018
GBP GBP
--------------
Within one year 117,551,720 119,581,394
In one to 2 years 115,741,960 117,661,677
In 2 to 5 years 335,707,881 341,576,988
In 5 to 10 years 494,901,669 509,670,777
In 10 to 20 years 1,484,484,940 1,579,588,685
At 31 December 2,548,388,170 2,668,079,521
-------------- --------------
2019 2018
GBP GBP
--------------
Comprising:
Principal repayments 1,443,512,520 1,472,837,720
Interest repayments 1,104,875,650 1,195,241,801
At 31 December 2,548,388,170 2,668,079,521
-------------- --------------
The above table contains undiscounted cash flows (including
interest) and therefore results in a higher balance than the
carrying values of fair values of the intercompany debt.
Other amounts owed by the group undertakings are interest free
and repayable on demand.
8. CREDITORS: Amounts falling due within one year
2019 2018
GBP GBP
-----------
Securitised debt (Note 10) 29,325,200 29,325,200
Accruals and deferred income 16,859,454 17,339,987
46,184,654 46,665,187
-----------
9. CREDITORS: Amounts falling due after more than one year
As restated
2019 2018
GBP GBP
--------------
Securitised debt (Note 10) 1,331,780,063 1,359,934,112
Derivative financial instruments
(Note 11) 349,095,289 317,338,975
1,680,875,352 1,677,273,087
--------------
10. SECURITISED DEBT
The amounts at which borrowings are stated comprise:
As restated
2019 2018
GBP GBP
-------------- --------------
At 1 January 1,389,259,312 1,451,879,599
Repaid in the year (29,325,200) (29,325,200)
Amortisation of issue premium (1,864,598) (1,959,965)
Movement in accrued financing expenses (1,232,577) (1,233,212)
Fair value adjustment 4,268,326 (30,101,910)
At 31 December 1,361,105,263 1,389,259,312
-------------- --------------
As restated
2019 2018
GBP GBP
--------------
Payable within one year or on demand 29,325,200 29,325,200
Payable after more than one year 1,331,780,063 1,359,934,112
1,361,105,263 1,389,259,312
--------------
The company's securitised debt was issued in tranches, with
notes of classes A1, A3, A7, B, B3, C2 and D2 remaining
outstanding. The A1, A3 and B notes were issued at a premium which
is being amortised to the income statement over the life of the
relevant notes. At 31 December 2019 GBP15,667,363 (2018 -
GBP17,531,961) remained unamortised.
At 31 December 2019 there were accrued financing costs of
GBP18,578,262 (2018 - GBP19,810,837) relating to previous
contractual increases in margins.
The notes are secured on 6 properties at Canary Wharf, owned by
fellow subsidiary undertakings, and the rental income stream
therefrom.
The securitisation continues to have the benefit of an
arrangement with AIG which covers the rent in the event of a
default by the tenant of 33 Canada Square over the entire term of
the lease. At 31 December 2019, AIG had posted GBP136,586,799 as
cash collateral in respect of this obligation.
The company also has the benefit of a GBP300m liquidity facility
provided by Lloyds Bank plc, under which drawings may be made in
the event of a cash flow shortage under the securitisation.
At 31 December 2019 the securitised debt comprised the
following:
Market
Principal value Effective
Tranche GBPm GBPm Interest interest Repayment
-------- ------ ------ --------- --------- -------------------
By instalment 2009
A1 244.2 308.1 6.455% 6.151% - 2033
By instalment 2032
A3 400.0 590.3 5.952% 5.814% - 2037
A7 222.0 192.0 Floating 5.298% January 2035
By instalment 2005
B 134.8 174.4 6.800% 6.410% - 2030
B3 77.9 66.6 Floating 5.435% January 2035
C2 239.7 201.9 Floating 6.058% January 2035
D2 125.0 105.9 Floating 6.743% January 2035
1,443.6 1,639.2
-------------------------------------------------
At 31 December 2018 the securitised debt comprised the
following:
Market
Principal value Effective
Tranche GBPm GBPm Interest interest Repayment
-------- ---------- ------------ ---------------- --------- -------------------
By instalment 2009
A1 266.5 326.2 6.455% 6.151% - 2033
By instalment 2032
A3 400.0 531.2 5.952% 5.814% - 2037
A7 222.0 194.3 Floating 5.298% January 2035
By instalment 2005
B 141.7 173.7 6.800% 6.410% - 2030
B3 77.9 64.7 Floating 5.435% January 2035
C2 239.7 198.9 Floating 6.058% January 2035
D2 125.0 105.6 Floating 6.743% January 2035
1,472.8 1,594.6
--------------------------------------------------------------
Interest on the A1 notes, A3 notes and B notes is fixed until
maturity. Interest on the floating notes is repriced every 3
months.
Interest on the floating rate notes is at 3 month LIBOR plus a
margin. The margins on the notes are: A7 notes - 0.475% per annum;
B3 notes - 0.7% per annum; C2 notes - 1.375% per annum; and D2
notes - 2.1% per annum.
All of the notes are hedged by means of interest rate swaps and
the hedged rates plus the margins are:
A7 notes - 5.3985%; B3 notes - 5.5825%; C2 notes - 6.2666%; and
D2 notes - 7.0605%.
The effective interest rates include adjustments for the hedges
and the issue premium.
The floating rate notes are carried at FVTPL. The fixed rate
notes are carried at amortised cost. The total fair value of the
debt is GBP1,639,201,552.
The fair values of the sterling denominated notes have been
determined by reference to prices available on the markets on which
they are traded.
The maturity profile of the company's contracted undiscounted
cash flows is as follows:
2019 2018
GBP GBP
--------------
Within one year 89,809,309 93,229,006
In one to 2 years 87,713,767 92,364,070
In 2 to 5 years 254,209,302 269,150,550
In 5 to 10 years 365,735,335 394,812,770
In 10 to 20 years 1,350,476,115 1,439,235,049
At 31 December 2,147,943,828 2,288,791,445
-------------- --------------
2019 2018
GBP GBP
-------------- --------------
Comprising:
Principal repayments 1,443,512,520 1,472,837,720
Interest repayments 704,431,308 815,953,725
At 31 December 2,147,943,828 2,288,791,445
-------------- --------------
The above table contains undiscounted cash flows (including
interest) and therefore results in a higher balance than the
carrying values of air values of the borrowings.
The weighted average maturity of the debentures at 31 December
2019 was 12.4 years (2018 - 13.1 years). The debentures may be
redeemed at the option of the company in an aggregate amount of not
less than GBP1.0m on any interest payment date subject to the
current rating of the debentures not being adversely affected and
certain other conditions affecting the amount to be redeemed.
After taking into account the interest rate hedging
arrangements, the weighted average interest rate of the company at
31 December 2019 was 6.1% (2018 - 6.1%).
Details of the derivative financial instruments are set out in
Note 11.
Details of the company's risk management policy are set out in
the Strategic Report.
11. DERIVATIVE FINANCIAL INSTRUMENTS
The company uses interest rate swaps to hedge exposure to the
variability in cash flows on floating rate debt caused by movements
in market rates of interest. At 31 December 2019 the fair value of
these derivatives resulted in the recognition of a net liability of
GBP349,095,289 (2018 - GBP317,338,975).
The fair values of derivative financial instruments have been
determined by reference to market values provided by the relevant
counter party.
The terms of the derivative financial instruments correlate with
the terms of the financial instruments to which they relate.
Consequently the cash flows and effect on profit or loss are
expected to arise over the term of the financial instrument set out
above.
12. SHARE CAPITAL
2019 2018
GBP GBP
------- -------
Allotted, called up and fully paid
50,000 (2018 - 50,000) Ordinary shares
of GBP1.00 each 50,000 50,000
------- -------
13. RESERVES
The distributable reserves of the company differ from its
retained earnings as follows:
As restated
2019 2018
GBP GBP
--------------
Retained earnings 162,352,789 152,258,714
Hedging reserve (157,005,324) (147,048,205)
Distributable reserves 5,347,465 5,210,509
-------------- --------------
14. OTHER FINANCIAL COMMITMENTS
As at 31 December 2019 and 31 December 2018 the company had
given security over all its assets, including security expressed as
a first fixed charge over its bank accounts, to secure the notes
referred to in Note 10.
15. PRIOR YEAR ADJUSTMENT
In previous years the company has noted within its Strategic
Report a mismatch in the accounting treatment applied to its
financial instruments, whereby derivatives were measured at fair
value with securitised debt and intercompany loans measured at
amortised cost.
FRS 102 allows financial instruments to be measured in
accordance with IFRS 9 - Financial Instruments. Following the
adoption of IFRS 9, in the EU, the company has, on 1 July 2019,
changed its accounting policy for financial instruments to that of
the measurement criteria of IFRS 9.
The interest swaps, securitised debt and loans to a fellow
subsidiary undertaking have been designated as Fair Value through
Profit or Loss to eliminate the accounting mismatch, so providing
more reliable and relevant information.
The fixed rate securitised debt and the associated tranches of
the loan to a fellow subsidiary undertaking continue to be carried
at amortised cost as this does not cause an accounting mismatch.
IFRS 9 does not permit a designation as FVTPL under these
circumstances.
Prior to 1 July 2019, financial instruments were carried under
the measurement criteria of IAS 39. The A7 and D2 derivative
financial instruments were carried at FVTPL. The B3 and C2
derivatives financial instruments were designated as effective
hedges of the corresponding notes and carried at Fair Value through
Other Comprehensive Income. All other financial instruments were
carried at amortised cost. The hedging relationships were
terminated on 1 July 2019 with the adoption of fair value
accounting for the floating rate securitised debt. The balance in
the hedging reserve will be amortised to the income statement over
the remaining life of the corresponding notes.
Under the previous accounting policy, the fair value adjustment
resulted in the recognition of a deferred tax asset. Under the new
accounting policy, the deferred tax on the fair value movements
nets to nil.
This change in accounting policy has been applied
retrospectively and the following line items of the accounts have
been restated accordingly:
Previously reported Adjustment As restated
2018 2018 2018
GBP GBP GBP
------------- ----------------
Fair value adjustments 14,945,453 (27,230,149) (12,284,696)
Other profits and losses 720,464 - 720,464
--------------- ------------- ----------------
Profit before tax 15,665,917 (27,230,149) (11,564,232)
Tax on profit (2,637,422) 2,637,422 -
Profit for the financial
year (13,028,495) (24,592,727) (11,564,232)
--------------- ------------- ----------------
Debtors:
Amounts falling due
after more than one
year 1,534,802,943 142,470,143 1,677,273,086
Creditors:
Amounts falling due
after more than one
year (1798,194,294) 120,921,207 (1,677,273,087)
Other assets and liabilities 5,260,510 - 5,260,510
NET ASSETS/(LIABILITIES) (258,130,841) 263,391,350 5,260,509
--------------- ------------- ----------------
CAPITAL AND RESERVES
Retained earnings 127,260,519 288,389,545 152,258,714
Other reserves (122,000,010) (24,998,195) (146,998,205)
(258,130,841) 263,391,350 5,260,509
------------- ----------------
16. POST BALANCE SHEET EVENTS
Since 31 December 2019 the UK economy has been significantly
impacted by the Covid-19 virus which has caused widespread
disruption and economic uncertainty. This is considered to be a non
adjusting post balance sheet event and accordingly the valuation of
assets and liabilities at the balance sheet date have not been
adjusted for the subsequent uncertainty caused by these events.
This does however create uncertainty around the future valuation
of investment property and the impact on the company's loan to
value covenant. At the date of approval of the financial statements
however, the directors do not consider that this is likely to give
rise to a breach of covenant within the next 12 months.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SEMFIAESSEDI
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