CARE HOMES 1 LIMITED: DIRECTORS' REPORT AND FINANCIAL STATEMENTS PERIOD FROM 1 JANUARY 2013 TO 30 JUNE 2013

  CARE HOMES 1 LIMITED: DIRECTORS' REPORT AND FINANCIAL STATEMENTS PERIOD FROM
  1 JANUARY 2013 TO 30 JUNE 2013

Business Wire

EDINBURGH, Scotland -- August 30, 2013

Regulatory News:

                      Company Registration No: 05771789

                             CARE HOMES 1 LIMITED

                  DIRECTORS' REPORT AND FINANCIAL STATEMENTS

                  PERIOD FROM 1 JANUARY 2013 TO 30 JUNE 2013

RBS Secretariat

The Royal Bank of Scotland Group plc

Gogarburn

P.O. Box 1000

Edinburgh

EH12 1HQ

CARE HOMES 1 LIMITED 05771789

CONTENTS                            Page
OFFICERS AND PROFESSIONAL ADVISERS   1
DIRECTORS’ REPORT                    2 - 3
STATEMENT OF COMPREHENSIVE INCOME    4
BALANCE SHEET                        5
STATEMENT OF CHANGES IN EQUITY       6
CASH FLOW STATEMENT                  7
NOTES TO FINANCIAL STATEMENTS        8 - 20

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

Registered in England and Wales.

DIRECTORS' REPORT

The directors of Care Homes 1 Limited (“the Company”) present their report and
the unaudited financial statements for the period from 1 January 2013 to 30
June 2013.

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 rbs.com.

Business review

The directors are satisfied with the development of the Company’s activities
during the period. 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 4. The profit after taxation for the period ended
30 June 2013 amounted to £299,384 (June 2012: £148,092).

At the end of the period, the financial position showed total assets of
£147,301,232 (31 Dec 2012: £155,714,716) and equity of £20,436,361 (31 Dec
2012: £25,679,212).

Dividends

The directors do not recommend the payment of a dividend (2012: 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 have
prepared the financial statements on a going concern basis.

DIRECTORS AND SECRETARY

The present directors and secretary, who have served throughout the period are
listed on page 1.

DIRECTORS’ RESPONSIBILITIES STATEMENT

To the best of our knowledge, the financial statements for the period ending
30 June 2013 for the issuer (“Care Homes 1 Limited”) have been prepared in
accordance IFRSs, 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.

I Luke

Director

August 2013

STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD ENDED 30 JUNE 2013

                                                              
                                            Note   Period ended   Period ended
                                                   30/06/13       30/06/12
                                                   £              £
                                                                  
Revenue                                     3      575,048        735,597
Other operating income                      3      2,537,170      2,225,982
Finance costs                               4      (2,784,273)    (2,787,526)
Administrative expenses                            (28,561)       (25,961)
                                                                 
Operating Profit before tax                        299,384        148,092
                                                                  
Taxation                                    6      -              -
                                                                 
Profit for the period                              299,384        148,092
                                                                  
Other comprehensive income/(loss):
Cash flow hedges                                   (7,197,708)    1,678,484
Other comprehensive income/(loss) before           (7,197,708)    1,678,484
tax
Tax (charge)/credit                                1,655,473      (77,560)
Other comprehensive income/(loss) after            (5,542,235)    1,600,924
tax
                                                                 
                                                                  
Total comprehensive income for the period          (5,242,851)    1,749,016

The results above arose wholly from continuing operations.

The notes on pages 8 to 20 form an integral part of the financial statements.

BALANCE SHEET

AS AT 30 JUNE 2013

                                  Note  As at 30/06/13  As at 31/12/12
                                          £                £
                                                           
Current assets
Derivative financial instruments   12     23,261,026       30,434,295
Cash and cash equivalents          7      124,040,206      125,280,421
                                                          
Total assets                              147,301,232      155,714,716
                                                           
                                                           
                                                           
                                                           
                                                           
Current liabilities
Accruals and deferred income       8      (25,952)         (3,452)
                                                           
Non-current liabilities
Deferred taxation                  9      (5,077,679)      (6,733,152)
Debt securities in issue           10     (121,761,239)    (123,298,900)
                                                          
Total liabilities                         (126,864,870)    (130,035,504)
                                                           
                                                           
                                                           
Equity
Share capital                      14     10,000           10,000
Hedge reserve                             16,999,186       22,541,421
Retained earnings                         3,427,175        3,127,791
                                                          
Total equity                              20,436,361       25,679,212
                                                           
                                                          
Total liabilities and equity              147,301,232      155,714,716

The notes on pages 8 to 20 form an integral part of the financial statements.
The financial statements were approved and authorised for issue on August
2013.

I Luke
Director

STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 30 JUNE 2013

                        Equity attributable to equity holders of the Company
                         Share       Hedge reserve  Retained    Total
                         capital                      earnings
                         £            £               £            £
                                                                   
Balance at 1 January     10,000       19,473,180      2,866,000    22,349,180
2012
                                                                   
Profit for the period    -            -               148,092      148,092
                                                                   
Gain on cash flow        -            1,678,484       -            1,678,484
hedge
Deferred taxation        -            (77,560)        -            (77,560)
Other comprehensive      -            1,600,924                   1,600,924
income for the period
                                                                   
Total comprehensive      -            1,600,924       148,092      1,749,016
income for the period
                                                                
Balance at 30 June       10,000       21,074,104      3,014,092    24,098,196
2012
                                                                   
                                                                   
                                                                   
Balance at 1 January     10,000       22,541,421      3,127,791    25,679,212
2013
                                                                   
Profit for the period    -            -               299,384      299,384
                                                                   
Loss on cash flow        -            (7,197,708)     -            (7,197,708)
hedge
Deferred taxation        -            1,655,473       -            1,655,473
Other comprehensive      -            (5,542,235)     -            (5,542,235)
income for the period
                                                                   
Total comprehensive      -            (5,542,235)     299,384      (5,242,851)
income for the period
                                                                
Balance at 30 June       10,000       16,999,186      3,427,175    20,436,361
2013

STATEMENT OF CASH FLOWS

FOR THE PERIOD ENDED 30 JUNE 2013

                                                              
                                            Note   Period ended   Period ended
                                                   30/06/13       30/06/12
                                                   £              £
Operating activities
Operating profit for the year before tax           299,384        148,092
                                                                 
Operating cash flows before movements in           299,384        148,092
working capital
                                                                  
Movement in derivative accrual                     (24,438)       48,937
Movement in accruals & deferred income             22,500         22,500
Movement in debt securities                        (1,537,661)    (1,312,474)
Total movement in working capital                  (1,539,599)    (1,241,037)
                                                                  
                                                                 
Net cash flow from operating activities            (1,240,215)    (1,092,945)
                                                                  
                                                                 
Net decrease in cash and cash equivalents          (1,240215)     (1092945)
                                                                  
Cash and cash equivalents at 1 January 13          125,280,421    127,713,872
                                                                 
Cash and cash equivalents at 30 June 13     7      124,040,206    126,620,927

The notes on pages 8 to 20 form an integral part of the financial statements.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2013

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 Company is incorporated in the UK and registered in England and
      Wales.

      

      The financial statements are prepared on the historical cost basis
      except that derivative financial instruments are stated at their fair
      value. Recognised financial assets in fair value hedges are adjusted for
      changes in fair value in respect of the risk that is hedged.

      

      Adoption of new and revised standards

      There are a number of changes to IFRSs that were effective from 1
      January 2013. They have had no material effect on the Company’s
      financial statements for the period ended 30 June 2013.

 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.

 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 1c).

 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 1c).

 h) Cash and cash equivalents
     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.

 i) Accounting developments
     The IASB issued IFRS 9 ‘Financial Instruments’ in November 2009
     simplifying the classification and measurement requirements in IAS 39
     ‘Financial Instruments: Recognition and Measurement’ 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 the principal amount outstanding 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 the classification and
     measurement of liabilities. It is not markedly different from IAS 39
     except for liabilities measured at fair value where the movement is due
     to changes in credit rating of the preparer it is recognised not in
     profit or loss but in other comprehensive income.

     

     The standard is effective for annual periods beginning on or after 1
     January 2015; early application is permitted.

     

     This standard makes major changes to the framework for the classification
     and measurement of financial assets and will have a significant effect on
     the Company's financial statements. The changes relating to the
     classification and measurement of liabilities carried at fair value will
     have a less significant effect on the Company. The Company is assessing
     these impacts which are likely to depend on the outcome of the other
     phases of IASB's IAS 39 replacement project.

     

     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.

 j) 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. IFRS 11 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.

     

     These 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
     that 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.

     

     Amendments IAS 19 Employee Benefits - these 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.

     

     These amendments are effective for annual periods beginning on or after 1
     July 2012 and 1 January 2013 respectively. Earlier application is
     permitted. The Company is reviewing the amendments to determine their
     effect on the Company’s financial reporting.

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 IFRSs 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
     IFRSs 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 1f.

                              Period ended   Period ended
3.  Revenue                              
                              30/06/13       30/06/12
                              £              £
                                             
     Interest income          575,048        611,380
                                             
     Other operating income
     Interest rate swaps      2,537,170      2,385,918
                                            
                              3,112,218      2,997,298

4.  Finance costs                                Period ended  Period ended
                                                   30/06/13       30/06/12
                                                   £              £
     Interest expense on debt securities in        4,063,243      4,073,562
     issue
     Bond Amortisation                             (1,278,970)    (1,286,036)
                                                   2,784,273      2,787,526

5.  Operating expenses
     None of the directors received any emoluments from the Company for their
     services to the Company during the current period or the prior period.

     

     None of the directors had any material interest in any contract of
     significance in relation to the business of the Company during the
     current period or the prior period.

     

     The Company did not have any employees in the current period or the prior
     period.

6.  Taxation                           Period ended         Period ended
                                         30/06/13              30/06/12
                                         £                     £
     Tax expense:
     UK corporation tax                  -                     -
                                                               
     The actual tax charge differs from the expected tax charge computed by
     applying the blended rate of UK corporation tax of 23.25%, (24% FY2012):
     23%-FY2013) as follows:
                                                               
                                         Period ended          Period ended
                                         30/06/13              30/06/12
                                         £                     £
                                                               
     Profit before taxation              299,384               148,092
                                                               
     Tax charge thereon                  69,597                36,278
                                                               
     Non-taxable income from
     amortisation of
                                         (297,317)             (315,040)
     premiums on debt securities
     issued
                                                               
     Thin capitalisation
     adjustment
                                                               
     Group relief surrendered for        227,720               278,762
     nil consideration
                                                              
     UK corporation tax charge           -                     -
                                                               
     The Company is resident in the United Kingdom for tax purposes.

     

     In the wider interests of The Royal Bank of Scotland Group, the Company
     has agreed to surrender any tax losses to other group companies and as
     part of this agreement may claim tax losses from other group companies
     for nil consideration.

                                                   As at         As at
7.  Cash and cash equivalents                                
                                                   30/06/13      31/12/12
                                                   £             £
                                                                 
     Short term deposits with group undertakings   124,035,761   125,275,726
     Cash at bank                                  4,445         4,695
                                                                
                                                   124,040,206   125,280,421

                                                       As at      As at
8.  Accruals, deferred income and other liabilities           
                                                       30/06/13   31/12/12
                                                       £          £
                                                                  
     Accrued fees payable                              (25,952)   (3,452)
                                                                 
                                                       25,952     3,452

9.  Deferred tax
     
     Deferred tax on Derivative financial                  £
     instruments
                                                             
     Balance at 1 January 2012                               6,577,420
                                                             
     Release to Equity (Hedge                                77,560
     reserve)
                                                             
     Balance at 30 June 2012                                 6,654,980
                                                             
                                                             
     Balance at 1 January 2013                               6,733,152
                                                             
     Charge to Equity (Hedge                                 (1,655,473)
     reserve)
                                                             
     Balance at 30 June 2013                                 5,077,679
                                                             
     In recent years the UK Government has steadily reduced the rate of UK
     corporation tax, with the latest rates substantively enacted in July 2013
     now standing at 21% with effect from 1 April 2014 and 20% with effect
     from 1 April 2015. The closing deferred tax assets and liabilities have
     been calculated at 23% in accordance with the rates enacted at the
     balance sheet date.

      Debt securities in                As at                  As at
10.  issue                                            
                                        30/06/13               31/12/12
                                        £                      £
                                                               
      Debt securities in                121,761,239            123,298,900
      issue
                                                               
      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 £142.1m (31 December 2012: £148m).

      

      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
      instruments are 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.

                                 Level 1  Level 2     Level 3  Total
As at 30 June 2013               £        £           £        £
Liabilities:
Derivative financial              –        23,261,026  –        23,261,026
instruments

                                 Level 1  Level 2     Level 3  Total
As at 31 December 2012           £        £           £        £
Liabilities:
Derivative financial              –        30,434,295  –        30,434,295
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.

As at 30 June    0 - 3       3 - 12      1 - 3      3 – 5      5+ years
2013              months       months       years       years
                £’000       £’000       £’000      £’000      £’000
                                                                             
Debt securities   –           8,200       16,400     16,400     124,600

As at 31         0 - 3       3 - 12      1 - 3      3 – 5      5+ years
December 2012     months       months       years       years
                £’000       £’000       £’000      £’000      £’000
                                                                             
Debt securities   –           8,200       16,400     16,400     128,700

12.  Derivative financial instruments
      The Company is party to an interest rate swap transaction to hedge
      exposure to variability in cashflows arising from its floating rate
      deposits. As at the balance sheet date, the contract had a nominal value
      of £124.9m (31 December 2012: £126.1m) 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
      cashflows based on 6 month sterling LIBOR. The swap matures in April
      2021 and at the balance sheet date had a fair value of £23.2m (31
      December 2012: £30.4m). This derivative is designated as a cashflow
      hedge of the Company’s variable cashflows.

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 market risk, credit risk and liquidity 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 30 June 2013 there were no outstanding
      or impaired loans due to the Company (31 December 2012: £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
      interest rates 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
      consistency in the interest rate profile of its assets and liabilities.

13.  Risk management (continued)
      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 period 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 period would have been
      £847 lower (period ending 30 June 2012: £735 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                                
                                                      
                                                      As at      As at
                                   Number of Shares            
                                                      30/06/13   31/12/12
      Authorised                                     £          £
                                                                 
      Ordinary Shares of £1 each   10,000             10,000     10,000

                                                 As at             As at
                                                          
                                                 30/06/13          31/12/12
  Allotted, called up         Number of          £                 £
  and fully paid              Shares
                                                                   
  Ordinary Shares of £1       10,000             10,000            10,000
  each
                                                                   
  Holders of the Ordinary Shares have the right to receive notice of, to
  attend and to vote in respect of any resolution of the Company. Each
  Ordinary Share carries an equal entitlement to receive dividends out of the
  funds of the Company that are legally available for distribution.

  

  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
      PRA’s capital requirements throughout the period.

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.

      

      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 30 June 2013, 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 30 June 2013, 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 RBS Secretariat, Gogarburn,
      PO Box 1000, Edinburgh. EH12 1HQ.

      

      Transactions between the Company, and the UK Government and UK
      Government controlled bodies, consisted solely of corporation tax which
      is separately disclosed in Note 6. The Company was party to various
      transactions with The Royal Bank of Scotland plc. These transactions
      were entered into on an arms length basis unless stated otherwise and in
      respect of the surrender of tax losses (see Note 6). The income
      statement impact and outstanding balances arising from these
      transactions as at 30 June 2013 are set out below:

                                   Period ended   Period ended
 The Royal Bank of Scotland plc               
                                   30/06/13       30/06/12
                                   £              £
                                                  
  Income statement impact:
  - Interest income                575,048        735,597
  - Other operating income         2,537,170      2,225,982
  - Finance costs                  (2,784,273)    (2,787,526)
  - Administrative expenses        (28,561)       (25,961)
                                                 
                                   299,384        148,092

                                      As at                   As at

                                   30/06/13               31/12/12

                                      £                       £
                                                              
    Amounts owed to Company:
    - Derivative financial            23,261,026              30,434,295
    instruments
    - Unsecured loans                 124,040,206             125,280,421
                                                             
                                      147,301,232             155,714,716
                                                              
    Amounts owed to the Company consisted of a £124m 6 month GBP LIBOR loan
    with a residual maturity of less than 5 months (31 December 2012: £125.3m
    6 month GBP LIBOR deposit with a residual maturity of less than 5 months).
                                                              
                                      As at                   As at

                                      30/06/13                31/12/12

                                      £                       £
                                                              
    Amounts owed by the
    Company:
    - Issued debt securities          121,761,239             123,298,900
    - Derivative financial            -                       -
    instruments
    - Accrued fees                    25,952                  3,452
                                                             
                                      121,787,191             123,302,352
    
    The debt securities in issue have a combined nominal value of £100m, with
    an effective interest rate of 5.63% and a maturity of April 2021.

18.  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.

19.  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 capital resources
      in excess of the capital and financial resources needed to meet its
      regulatory requirements. {The Company may also be obliged to make onward
      distribution to its ordinary shareholders of dividends or other capital
      distributions received from subsidiaries that are party to the CSD.} The
      CSD also provides that, in certain circumstances, funding received by
      the Company from other parties to the CSD becomes immediately repayable,
      such repayment being limited to the Company’s available resources.

20.  Post balance sheet events
      There have been no significant events between the period 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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