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CARE HOMES 1 LIMITED - DIRECTORS' REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012



  CARE HOMES 1 LIMITED - DIRECTORS' REPORT AND FINANCIAL STATEMENTS FOR THE
  YEAR ENDED 31 DECEMBER 2012

Business Wire

EDINBURGH, Scotland -- June 11, 2013

Regulatory News:

Company Registered No: 05771789

CARE HOMES 1 LIMITED

DIRECTORS' REPORT AND FINANCIAL STATEMENTS

For the year ended 31 December 2012

RBS Secretariat
The Royal Bank of Scotland Group plc
Gogarburn
PO Box 1000
Edinburgh
EH12 1HQ

CARE HOMES 1 LIMITED 05771789

CONTENTS                                              Page
                                                            
                                                            
OFFICERS AND PROFESSIONAL ADVISERS                    1
                                                            
DIRECTORS' REPORT                                     2
                                                            
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CARE   5
HOMES 1 LIMITED
                                                            
STATEMENT OF COMPREHENSIVE INCOME                     6
                                                            
BALANCE SHEET                                         7
                                                            
STATEMENT OF CHANGES IN EQUITY                        8
                                                            
CASH FLOW STATEMENT                                   9
                                                            
NOTES TO THE FINANCIAL STATEMENTS                     10

OFFICERS AND PROFESSIONAL ADVISERS

DIRECTORS:           I R Luke
                     A R Rodriguez
                     A E Tobin
                                                       
                                                       
                                                       
SECRETARY:           RBS Secretarial Services Limited
                                                       
                                                       
                                                       
REGISTERED OFFICE:   135 Bishopsgate
                     London
                     EC2M 3UR
                                                       
                                                       
                                                       
AUDITOR:             Deloitte LLP
                     Hill House
                     1 Little New Street
                     London
                     EC4A 3TR

Registered in England and Wales

CARE HOMES 1 LIMITED 05771789

DIRECTORS' REPORT

The directors of Care Homes 1 Limited (“the Company”) present their report and
the audited financial statements for the year ended 31 December 2012.
ACTIVITIES AND BUSINESS REVIEW
Principal activity
The principal activity of the Company continues to be investment business.
The directors do not anticipate any material change in either the type or
level of activities of the Company.
The Company is a subsidiary of The Royal Bank of Scotland Group plc (“RBSG” or
“the Group”) which provides the Company with direction and access to all
central resources it needs and determines policies in all key areas such as
finance, risk, human resources or environment. For this reason, the directors
believe that performance indicators specific to the Company are not necessary
or appropriate for an understanding of the development, performance or
position of the business. The annual reports of The Royal Bank of Scotland
Group plc review these matters on a group basis. Copies can be obtained from
RBS Secretariat, RBS Gogarburn, Edinburgh, EH12 1HQ, the Registrar of
Companies or through the Group’s website at www.rbs.com.
Business review
The directors are satisfied with the development of the Company’s activities
during the year. The Company does not currently expect to make any further
significant investments in the foreseeable future.

Financial performance
The Company’s financial performance is presented in the Statement of
Comprehensive Income on page 6. The operating profit after taxation for the
year was £261,791 (2011: £403,518).
At the end of the year total assets were £155,714,716 (2011: £154,813,020).
Dividends
The directors do not recommend the payment of a dividend (2011: £nil).
Principal risks and uncertainties
The Company is funded by facilities from The Royal Bank of Scotland plc.
The Company's financial risk management objectives and policies regarding the
use of financial instruments are set out in notes 11, 12 and 13 to these
financial statements.

Going concern

 

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

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

 

From 1 January 2012 to date the following changes have taken place:
Directors                             Appointed             Resigned
H Henderson-Cleland                   -                     4 April 2012
                                                                              
Secretary                             Appointed             Resigned
R E Fletcher                          -                     27 April 2012
RBS Secretarial Services              27 April 2012         -
Limited

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 and the directors have elected to
prepare them in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union. Under company law the directors 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 and loss for the financial year as far as concern members of the
Company. In preparing these financial statements, under International
Accounting Standard 1, the directors are required to:

 

 

  * select suitable accounting policies and then apply them consistently;
  * present information, including accounting policies, in a manner that
    provides relevant, reliable, comparable and understandable information;
  * provide additional disclosures when compliance with the specific
    requirements in IFRS are insufficient to enable users to understand the
    impact of particular transactions, other events and conditions of the
    entity’s financial position and performance; and
  * make an assessment of the Company’s ability to continue as a going
    concern.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the Company and to
enable them to ensure that the directors' report and financial statements
comply with the requirements of the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
To the best of our knowledge, the financial statements for the year ending 31
December 2012 for the issuer (“Care Homes 1 Limited”) have been prepared in
accordance IFRS, and give a true and fair view of the assets, liabilities,
financial position and profit of Care Homes 1 Limited. We can also confirm
that the Directors’ Report includes a fair review of the development and
performance of the business and the position of Care Homes 1 Limited, together
with a description of the principal risks and uncertainties that it faces.
This statement addresses section 4.a. (i) of the circular issued by the
Commission de Surveillance du Secteur Financier, Luxembourg.

Disclosure of information to auditor
Each of the directors at the date of approval of this report confirms that:

 

 

  * in so far as they are aware, there is no relevant audit information of
    which the Company’s auditor is unaware; and
  * they have taken all the steps that he/she ought to have taken to make
    himself/herself 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
Deloitte LLP  has expressed their willingness to continue in office as
auditor.

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

I R Luke
Director
Date: 18 April 2013

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

We have audited the financial statements of Care Homes 1 Limited (‘the
Company’) for the year ended 31 December 2012 which comprise the Statement of
Comprehensive Income, the Balance Sheet, the Statement of Changes in Equity,
the Cash Flow Statement and the related notes 1 to 17. The financial reporting
framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRS) as adopted by the European
Union.

 

This report is made solely to the Company’s members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company’s members those matters we
are required to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members as a
body, for our audit work, for this report, or for the opinions we have formed.

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

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

Opinion on financial statements
In our opinion the financial statements:

 

 

  * give a true and fair view of the state of the Company’s affairs as at  31
    December 2012 and of its profit for the year then ended;
  * have been properly prepared in accordance with IFRS as adopted by the
    European Union; and
  * have been prepared in accordance with the requirements of the Companies
    Act 2006.

Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report for the
financial year for which the financial statements are prepared is consistent
with the financial statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the
Companies Act 2006 requires us to report to you if, in our opinion:

 

 

  * adequate accounting records have not been kept, or returns adequate for
    our audit have not been received from branches not visited by us; or
  * the financial statements are not in agreement with the accounting records
    and returns; or
  * certain disclosures of directors’ remuneration specified by law are not
    made; or
  * we have not received all the information and explanations we require for
    our audit.

Simon Hardy, FCA               (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor,
London, United Kingdom
18 April 2013

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2012

                                                  2012          2011
Continued operations                      Notes   £             £
Revenue                                   3       1,343,777     1,296,174
Other operating income                    3       4,584,494     4,721,827
Finance costs                             4       (5,616,023)   (5,607,614)
Administrative expenses                           (50,457)      (6,869)
Operating profit before tax                       261,791       403,518
                                                                             
Taxation                                  6       -             -
Profit for the year                               261,791       403,518
                                                                             
Other comprehensive income
Cash flow hedges                                  3,223,973     12,415,617
Other comprehensive income before tax             3,223,973     12,415,617
Tax charge                                        (155,732)     (2,861,887)
Other comprehensive income after tax              3,068,241     9,553,730
                                                                             
Total comprehensive income for the year           3,330,032     9,957,248

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

BALANCE SHEET

As at 31 December 2012

                                                   2012          2011
                                           Notes   £             £
Current assets
Derivative financial instruments           11,12   30,434,295    27,099,148
Loans and receivables                      7       125,275,726   127,701,875
Cash at bank                               7       4,695         11,997
Total assets                                       155,714,716   154,813,020
                                                                              
Current liabilities
Accruals, deferred income and other        8       3,452         3,452
liabilities
                                                                              
Non-current liabilities
Deferred taxation                          9       6,733,152     6,577,420
Debt securities in issue                   10,11   123,298,900   125,882,968
Total liabilities                                  130,035,504   132,463,840
                                                                              
Equity
Share capital                              14      10,000        10,000
Cash flow hedge reserve                            22,541,421    19,473,180
Retained earnings                                  3,127,791     2,866,000
Total equity                                       25,679,212    22,349,180
                                                                  
Total liabilities and equity                       155,714,716   154,813,020

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

The financial statements were approved by the Board of Directors on 18 April
2013 and signed on its behalf by:
I R Luke
Director

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2012

                        Share      Cash flow        Retained     Total
                        capital    hedge reserve    earnings
                        £          £                £            £
At 1 January 2011       10,000     9,919,450        2,462,482    12,391,932
                                                                              
Profit for the year     -          -                403,518      403,518
                                                                              
Other comprehensive
income for the year:
Profit on cash flow     -          12,415,617       -            12,415,617
hedge
Deferred taxation       -          (2,861,887)      -            (2,861,887)
Total comprehensive     -          9,553,730        403,518      9,957,248
income for the year
At 31 December 2011     10,000     19,473,180       2,866,000    22,349,180
                                                                              
Profit for the year     -          -                261,791      261,791
                                                                              
Other comprehensive
income for the year:
Profit on cash flow     -          3,223,973        -            3,223,973
hedge
Deferred taxation       -          (155,732)        -            (155,732)
Total comprehensive     -          3,068,241        261,791      3,330,032
income for the year
At 31 December 2012     10,000     22,541,421       3,127,791    25,679,212

The total comprehensive income for the year was fully attributable to the
ordinary shareholders of the Company.

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

CASH FLOW STATEMENT

For the year ended 31 December 2012

                                                   2012          2011
                                          Note     £             £
Operating activities
Profit for the year before tax                     261,791       403,518
                                                                              
Operating cash flows before movements in working   261,791       403,518
capital
                                                                              
(Decrease)/increase in derivative                  (111,174)     84,525
accrual
Decrease in accruals and deferred                  -             (133,359)
income
Decrease in debt securities                        (2,584,068)   (2,592,385)
Total movement in working capital                  (2,695,242)   (2,641,219)
                                                                  
Net cash flows from operating                      (2,433,451)   (2,237,701)
activities
                                                                              
Net decrease in cash and cash                      (2,433,451)   (2,237,701)
equivalents
Cash and cash equivalents at 1                     127,713,872   129,951,573
January
Cash and cash equivalents at 31           7        125,280,421   127,713,872
December

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

1. Accounting policies

a) Presentation of financial statements
The financial statements are prepared on a going concern basis and in
accordance with International Financial Reporting Standards issued by the
International Accounting Standards Board (IASB) and interpretations issued by
the International Financial Reporting Interpretations Committee of the IASB as
adopted by the European Union (EU) (together IFRS).
 
The financial statements are prepared on the historical cost basis except that
derivative financial instruments are stated at their fair value. Financial
assets which are hedged are adjusted for changes in the fair value of the
hedge.
 
The Company is incorporated in the UK and registered in England and Wales. The
Company’s financial statements are presented in accordance with the Companies
Act 2006.
 
Adoption of new and revised standards
There are a number of changes to IFRS that were effective from 1 January 2012.
They have had no material effect on the Company’s financial statements for the
year 31 December 2012.

b) Foreign currencies
The Company’s financial statements are presented in sterling which is the
functional currency of the Company.
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.

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

 

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

 

Fees in respect of services are recognised as the right to consideration
accrues through the provision of the service 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.
Fees charged for managing investments are recognised as revenue as the
services are provided. Incremental costs that are directly attributable to
securing an investment management contract are deferred and charged as expense
as the related revenue is recognised.

1. Accounting policies (continued)
d) Taxation
Income tax expense or income, comprising current tax and deferred tax, is
recorded in the income statement 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 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 a 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 assets
On initial recognition, financial assets are classified into loans and
receivables and designated hedges at fair value.
Loans and receivables
Loans and receivables are initially recognised at fair value and are
subsequently measured at amortised cost using the effective interest method
(see accounting policy (c)).

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 income statement.

 

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

 

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

g) Financial liabilities
All financial liabilities are initially recognised at fair value and are
subsequently measured at amortised cost using the effective interest method
(see accounting policy (c)).

h) Cash and cash equivalents
In the Cash Flow Statement, Cash and cash equivalents comprises cash and
demand deposits with banks together with short-term highly liquid investments
that are readily convertible to known amounts of cash and subject to
insignificant risk of change in value.

1. Accounting policies (continued)
i) Accounting developments
The IASB issued IFRS 9 ‘Financial Instruments’ in November 2009 simplifying
the classification and measurement requirements in IAS 39 in respect of
financial assets. The standard reduces the measurement categories for
financial assets to two: fair value and amortised cost. A financial asset is
classified on the basis of the entity's business model for managing the
financial asset and the contractual cash flow characteristics of the financial
asset. Only assets with contractual terms that give rise to cash flows on
specified dates that are solely payments of principal and interest on
principal and which are held within a business model whose objective is to
hold assets in order to collect contractual cash flows are classified as
amortised cost. All other financial assets are measured at fair value. Changes
in the value of financial assets measured at fair value are generally taken to
profit or loss.

 

In October 2010, IFRS 9 was updated to include requirements in respect of the
classification and measurement of liabilities. These do not differ markedly
from those in IAS 39 except for the treatment of changes in the fair value of
financial liabilities that are designated as at fair value through profit or
loss attributable to own credit; these must be presented in other
comprehensive income.

 

In December 2010, the IASB issued amendments to IFRS 9 and to IFRS 7
‘Financial Instruments: Disclosures’ delaying the effective date of IFRS 9 to
annual periods beginning on or after 1 January 2015 and introducing revised
transitional arrangements including additional transition disclosures. If an
entity implements IFRS 9 in 2012 the amendments permit it either to restate
comparative periods or to provide the additional disclosures. The additional
transition disclosures must be given if implementation takes place after 2012.

 

IFRS 9 makes major changes to the framework for the classification and
measurement of financial instruments however these will not have a significant
effect on the Company's financial statements. The Company is assessing the
effect of IFRS 9 which will depend on the outcome of the other phases of the
IASB's IAS 39 replacement project and on the outcome the IASB’s tentative
decision at its December 2011 meeting to reconsider the following topics:

 

 

  * additional application guidance to clarify how the instrument
    characteristics test was intended to be applied;
  * bifurcation of financial assets, after considering any additional guidance
    for the instrument characteristics test; and
  * expanded use of other comprehensive income or a third business model for
    some debt instruments.

‘Disclosures - Transfers of Financial Assets (Amendments to IFRS 7)’ was
published by the IASB in October 2010. This replaces IFRS 7’s existing
derecognition disclosure requirements with disclosures about (a) transferred
assets that are not derecognised in their entirety and (b) transferred assets
that are derecognised in their entirety but where an entity has continuing
involvement in the transferred asset. The amendments are effective for annual
periods beginning on or after 1 July 2011.

 

The IASB issued an amendment to IAS 12 ‘Income Taxes’ in December 2010 to
clarify that recognition of deferred tax should have regard to the expected
manner of recovery or settlement of the asset or liability. The amendment and
consequential withdrawal of SIC 21 ‘Deferred Tax: Recovery of Underlying
Assets’, effective for annual periods beginning on or after 1 January 2012, is
not expected to have a material effect on the Company.

 

In May 2011, the IASB issued six new or revised standards:

 

IFRS 10 ‘Consolidated Financial Statements’ which replaces SIC-12
‘Consolidation - Special Purpose Entities’ and the consolidation elements of
the existing IAS 27 ‘Consolidated and Separate Financial Statements’. The new
standard adopts a single definition of control: a reporting entity controls
another entity when the reporting entity has the power to direct the
activities of that other entity to generate returns for the reporting entity.

 

1. Accounting policies (continued)

 

i) Accounting developments (continued)

IAS 27 ‘Separate Financial Statements’ which comprises those parts of the
existing IAS 27 that dealt with separate financial statements.

 

IFRS 11 ‘Joint Arrangements’, which supersedes IAS 31’ Interests in Joint
Ventures’, distinguishes between joint operations and joint ventures. Joint
operations are accounted for by the investor recognising its assets and
liabilities including its share of any assets held and liabilities incurred
jointly and its share of revenues and costs. Joint ventures are accounted for
in the investor’s consolidated accounts using the equity method.

 

IAS 28 ‘Investments in Associates and Joint Ventures’ covers joint ventures as
well as associates; both must be accounted for using the equity method. The
mechanics of the equity method are unchanged.

 

IFRS 12 ‘Disclosure of Interests in Other Entities’ covers disclosures for
entities reporting under IFRS 10 and IFRS 11 replacing those in IAS 28 and IAS
27. Entities are required to disclose information that helps financial
statement readers evaluate the nature, risks and financial effects associated
with an entity’s interests in subsidiaries, in associates and joint
arrangements and in unconsolidated structured entities.

 

IFRS 13 ‘Fair Value Measurement’ which sets out a single IFRS framework for
defining and measuring fair value and requiring disclosures about fair value
measurements.

 

The standards are effective for annual periods beginning on or after 1 January
2013. Earlier application is permitted. The Company is reviewing the standards
to determine their effect on the Company’s financial reporting.

 

In June 2011, the IASB issued amendments to two standards:

 

Amendments to IAS 1 ‘Presentation of Items of Other Comprehensive Income’
require items that will never be recognised in profit or loss to be presented
separately in other comprehensive income from those that are subject to
subsequent reclassification. The amendments are effective for annual periods
beginning on or after 1 July 2012. Earlier application is permitted.

 

Amendments IAS 19 ‘Employee Benefits’ require the immediate recognition of all
actuarial gains and losses eliminating the ‘corridor approach’; interest cost
to be calculated on the net pension liability or asset at the appropriate
corporate bond rate; and all past service costs to be recognised immediately
when a scheme is curtailed or amended. The amendments are effective for annual
periods beginning on or after 1 January 2013. Earlier application is
permitted.

 

The Company is reviewing the amendments to determine their effect on the
Company’s financial reporting.

 

In December 2011, the IASB issued ’Offsetting Financial Assets and Financial
Liabilities (Amendments to IAS 32)’ and ‘Disclosures-Offsetting Financial
Assets and Financial Liabilities (Amendments to IFRS 7)’. The amendment to IAS
32 adds application guidance on the meaning of ‘a legally enforceable right to
set off’ and on simultaneous settlement. IFRS 7 is amended to require
disclosures facilitating comparisons between those entities reporting under
IFRS and those reporting under US GAAP. The amendments are effective for
annual periods beginning on or after 1 January 2014 and are required to be
applied retrospectively.

 

The IASB issued "Annual Improvements to IFRSs 2009-2011 Cycle" in May 2012
implementing minor changes to IFRSs, making non-urgent but necessary
amendments to standards, primarily to remove inconsistency and to clarify
wording. The revisions are effective for annual accounting periods beginning
on or after 1 January 2013 and are not expected to have a material effect on
the Company.

2. Critical accounting policies and key sources of estimation uncertainty
The reported results of the Company are sensitive to the accounting policies,
assumptions and estimates that underlie the preparation of its financial
statements. UK company law and IFRS require the directors, in preparing the
Company’s financial statements, to select suitable accounting policies, apply
them consistently and make judgements and estimates that are reasonable and
prudent. In the absence of an applicable standard or interpretation, IAS 8
‘Accounting Policies, Changes in Accounting Estimates and Errors', requires
management to develop and apply an accounting policy that results in relevant
and reliable information in the light of the requirements and guidance in IFRS
dealing with similar and related issues and the IASB's Framework for the
Preparation and Presentation of financial statements. The judgements and
assumptions involved in the Company’s accounting policies that are considered
by the Board to be the most important to the portrayal of its financial
condition are discussed below. The use of estimates, assumptions or models
that differ from those adopted by the Company would affect its reported
results.
Fair value - financial instruments
Derivative financial instruments are recognised in the financial statements at
fair value. Any gain or loss is recognised in profit or loss immediately
unless the derivative is designated and effective as a hedging instrument, in
which event the timing of the recognition in profit or loss depends on the
nature of the hedge relationship. Significant estimates and assumptions are
made in respect of the derivative financial instruments. These are explained
in accounting policy (f).

3. Revenue

                         2012        2011
                         £           £
Interest income          1,343,777   1,296,174
                                                
Other operating income
Interest rate swaps      4,584,494   4,721,827
                                      
Total income             5,928,271   6,018,001

4. Finance costs

                                               2012          2011
                                               £             £
Interest expense on debt securities in issue   8,202,228     8,186,753
Bond amortisation                              (2,586,205)   (2,579,139)
                                               5,616,023     5,607,614

5. Operating expenses

None of the directors received any emoluments from the Company for their
services to the Company during the current year or the prior year.
None of the directors had any material interest in any contract of
significance in relation to the business of the Company during the current
year or the prior year.
The Company did not have any employees in the current year or the prior year.
The auditor’s remuneration for statutory audit work for the Company totalling
£7,000 (2011: £7,000) was borne by The Royal Bank of Scotland Plc.
Remuneration paid to the auditor for non-audit work for the Company was £nil
(2011: £nil).

6. Taxation

                                         2012   2011
                                         £      £
Current taxation:
UK corporation tax charge for the year   -      -

The actual tax charge differs from the expected tax charge computed by
applying the blended rate of UK corporation tax of 24.5% (2011: blended rate
26.5%) as follows:
                                        2012                  2011
                                        £                     £
Operating profit before tax:            261,791               403,518
                                                                              
Expected tax charge:                    64,132                106,905
                                                                              
Non-taxable income from
amortisation of premiums on debt        (633,550)             (683,295)
securitises issued
Group relief surrendered for            569,418               576,390
£nil consideration
Actual tax charge for the year          -                     -

The blended tax rate used in the above calculation is an approximate rate for
the year.

 

Due to the increase in the hedge reserve, no thin capitalisation adjustment is
provided during the current year.

 

In recent years the UK Government has steadily reduced the rate of UK
corporation tax, with the latest enacted rate standing at 23% with effect from
1 April 2013. A further reduction of the rate to 21% with effect from 1 April
2014 was announced on 5 December 2012 but not substantively enacted at the
balance sheet date. Accordingly the closing deferred tax assets and
liabilities have been calculated at 23%.

In the wider interests of the Group, the Company has agreed to surrender any
tax losses to other Group companies and a part of this agreement may claim
losses from other Group companies for £nil consideration.

7. Cash and cash equivalents per Cash Flow Statement

                                                    2012          2011
                                                    £             £
Short-term deposits with Group undertakings –       125,275,726   127,701,875
immediate parent company
Cash at bank - Group                                4,695         11,997
                                                    125,280,421   127,713,872

8. Accruals, deferred income and other liabilities

                       2012    2011
                       £       £
                                      
Accrued fees payable   3,452   3,452

9. Deferred tax

The following represents the deferred tax liabilities recognised by the
Company, and the movements thereon.

                      Cash flow hedge reserve
                      £
                                               
At 1 January 2011     3,715,533
                                               
Charge to equity      2,861,887
At 31 December 2011   6,577,420
                                               
Charge to equity      155,732
At 31 December 2012   6,733,152

10. Debt securities in issue

                                        2012           2011
                                        £              £
Debt securities in issue                137,093,409    137,101,613
Amortisation until Balance Sheet date   (15,686,817)   (13,100,612)
Accrued interest                        1,892,308      1,881,967
                                        123,298,900    125,882,968

On 4 December 2006 Care Homes 1 Limited became an obligor in respect of
certain debt securities by means of a novation from NHP Group.
Each of these debt securities is denominated in sterling and carries a fixed
rate of interest as follows, £60million Class A1 at 8.0 per cent due in 2021,
and £40million Class A2 at 8.5 per cent due in 2021. As at the balance sheet
date, the total fair value of the debt securities in issue was £146.1m (2011:
£152.8m).
The consideration received on novation was equal to the fair value of these
obligations as at the date of novation and was paid in cash by the NHP Group.

11. Financial instruments

Financial assets are classified as loans and receivables and derivative
financial instruments in designated hedge relationships. All financial
liabilities are classified as financial liabilities at amortised cost.
The directors consider that, with the exception of debt securities in issue
(note 10), the carrying amounts of financial assets and financial liabilities
recorded at amortised cost in the financial statements approximate to their
fair values.

Valuation hierarchy
The following tables show the financial instruments carried at fair value by
hierarchy – level 1, level 2 and level 3:

11. Financial instruments (continued)

                                Level 1   Level 2       Level 3   Total
2012                            £         £             £         £
Assets:
Loans and receivables                     125,275,726             125,275,726
Derivative financial            -         30,434,295    -         30,434,295
instruments

                                Level 1   Level 2       Level 3   Total
2011                            £         £             £         £
Assets:
Loans and receivables                     127,701,875             127,701,875
Derivative financial            -         27,099,148    -         27,099,148
instruments

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

Level 1: valued by reference to unadjusted quoted prices in active markets for
         identical assets and liabilities.
Level 2: valued by reference to observable market data, other than quoted
         market prices.
Level 3: valuation is based on inputs other than observable market data.

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

Financial liabilities
The following table shows by contractual maturity the undiscounted cash flows
payable from the balance sheet date including future interest payments.

                                           1 – 3  3 – 5  5+
2012            0 - 3 months 3 - 12 months
                                           years  years  years
                £’000        £’000         £’000  £’000  £’000
                                                          
Debt securities –            8,200         16,400 16,400 128,700

                                                 1 – 3    3 – 5    5+
2011              0 - 3 months   3 - 12 months                    
                                                 years    years    years
                  £’000          £’000           £’000    £’000    £’000
                                                                            
Debt securities   –              8,200           16,400   16,400   136,900

12. Derivative financial instruments

The Company is party to an interest rate swap transaction to hedge exposure to
variability in cash flows arising from its floating rate deposits. As at the
balance sheet date, the contract had a nominal value of £124.9m (2011:
£127.3m) which amortises over time in line with the asset it hedges. The swap
entitles the Company to receive fixed cash flows (based on a rate of 4.8049%)
in exchange for variable cash flows based on 6 month sterling LIBOR. The swap
matures in April 2021 and at the balance sheet date had a fair value of £30.4m
(2011: £27.1m). 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.

13. Risk management

The Company is exposed to financial risk through its financial assets and
liabilities. The key financial risk is that the proceeds from financial assets
are not sufficient to fund the obligations arising from liabilities as they
fall due. The most important components of financial risk are credit risk,
liquidity risk and market risk.

Credit risk

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

 

Credit risk is the risk arising from the possibility that the Company will
incur losses from the failure of debtors to meet their obligations.

 

The Company’s exposure to credit risk is not considered to be significant as a
major component of its credit exposures are with related parties (note 16). As
at 31 December 2012 there were no outstanding or impaired loans due to the
Company (2011: £nil).

Liquidity risk

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

 

Management focuses on both overall balance sheet structure and the control,
within prudent limits, of risk arising from the mismatch of maturities across
the balance sheet and from undrawn commitments and other contingent
obligations. It is undertaken within limits and other policy parameters set by
Group Asset and Liability Management Committee (GALCO).

 

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

Market risk

Market risk is the risk of loss as a result of adverse changes in market
prices and foreign currency together with related parameters such as market
volatilities.

 

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

 

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

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

 

If interest rates for the current year had been 100 basis points lower and
this movement applied to the assets and liabilities as at the balance sheet
date, the pre-tax profit for the year would have been £1,379 lower (2011:
£1,067 lower). This would have mainly resulted from lower interest income on
variable rate assets and lower interest expense on derivative financial
instruments.

 

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

Currency risk

The Company has no currency risk as all transactions and balances are
denominated in Sterling.

14. Share capital

                                      2012     2011
Equity shares                         £’000    £’000
Authorised:
10,000 Ordinary Shares of £1          10,000   10,000
                                                       
Allotted, called up and fully paid:
10,000 Ordinary Shares of £1          10,000   10,000

The Company has one class of ordinary shares which carry no right to fixed
income.

15. Capital resources

The Company’s capital consists of equity comprising issued share capital and
retained earnings. The Company is a member of The Royal Bank of Scotland Group
of companies which has regulatory disciplines over the use of capital. In the
management of capital resources, the Company is governed by the Group’s policy
which is to maintain a strong capital base: it is not separately regulated.
The Group has complied with the FSA’s capital requirements throughout the
year.

16. Related parties

UK Government

The UK Government through HM Treasury is the ultimate controlling party of The
Royal Bank of Scotland Group plc. Its shareholding is managed by UK Financial
Investments Limited, a company it wholly-owns and as a result, the UK
Government and UK Government controlled bodies are related parties of the
company.
The Company enters into transactions with these bodies on an arm’s length
basis. They include the payment of: taxes including UK corporation tax and
value added tax; national insurance contributions; local authority rates;
regulatory fees and levies; together with banking loans and deposits
undertaken in the normal course of banker-customer relationships.
Group undertakings
The Company’s immediate parent company is Care Homes Holdings Limited a
company incorporated in the UK and registered in England and Wales. As at 31
December 2012, The Royal Bank of Scotland plc heads the smallest group in
which the Company is consolidated, a company incorporated in the UK and
registered in Scotland. Copies of the consolidated accounts may be obtained
from RBS Secretariat, Gogarburn, PO Box 1000, Edinburgh EH12 1HQ.
The Company’s ultimate holding company is The Royal Bank of Scotland Group
plc, a company incorporated in the UK and registered in Scotland. As at 31
December 2012, The Royal Bank of Scotland Group plc heads the largest group in
which the Company is consolidated. Copies of the consolidated accounts may be
obtained from The Secretary, The Royal Bank of Scotland Group plc, Gogarburn,
PO Box 1000, Edinburgh. EH12 1HQ.

The Company was party to various transactions with The Royal Bank of Scotland
plc. These transactions were entered into on an arm’s length basis unless
stated otherwise and include the surrender of tax losses (see note 6). The
income statement impact and outstanding balances arising from these
transactions as at 31 December 2012 are set out below:

The Royal Bank of Scotland plc              2012          2011
                                            £             £
Statement of Comprehensive Income impact:
Interest income                             1,343,777     1,296,174
Other operating income                      4,584,495     4,721,827
Finance costs                               (5,616,024)   (5,607,614)
Administrative expenses                     (50,457)      (6,869)
                                            261,791       403,518

16. Related parties (continued)

The Royal Bank of Scotland plc     2012          2011
                                   £             £
Amounts owed to the Company:
Derivative financial instruments   30,434,295    27,099,148
Short-term deposits                125,280,421   127,713,872
                                   155,714,716   154,813,020

Short-term deposits consisted of a £125m 6 month GBP LIBOR deposit with a
residual maturity of less than 5 months. (2011: £127.4m 6 month GBP LIBOR
deposit with a residual maturity of less than 5 months).

The Royal Bank of Scotland plc   2012          2011
                                 £             £
Amounts owed by the Company:
Issued debt securities           123,298,900   125,882,968
Accrued fees                     3,452         3,452
                                 123,302,352   125,886,420

The debt securities in issue have a combined nominal value of £100m, with an
effective interest rate of 5.61% and a maturity of April 2021.

Key management

The Company is a subsidiary of The Royal Bank of Scotland Group plc whose
policy is for companies to bear the costs of their full time staff. The time
and costs of executives and other staff who are primarily employed by the
Group are not specifically recharged. However, the Group recharges
subsidiaries for management fees which include an allocation of certain staff
and administrative support costs.

 

In the Company and the Group, key management comprise directors of the Company
and members of the Group Executive Management Committee. The emoluments of the
directors of the Company are met by the Group.

 

The directors of the Company do not receive remuneration for specific services
provided to the Company.

Capital Support Deed
The Company, together with other members of the Group, is party to a capital
support deed (CSD). Under the terms of the CSD, the Company may be required,
if compatible with its legal obligations, to make distributions on, or
repurchase or redeem, its Ordinary Shares. The amount of this obligation is
limited to the Company’s immediately accessible funds or assets, rights,
facilities or other resources that, using best efforts, are reasonably capable
of being converted to cleared, immediate funds (the Company’s available
resources). 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.

17. Post balance sheet events

There have been no significant events between the year end and the date of
approval of the financial statements which would require a change or
additional disclosure in the financial statements.

Contact:

CARE HOMES 1 LIMITED
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