Care Homes 1 Limited Annual Report and Financial Statements

EDINBURGH, Scotland–(BUSINESS WIRE)–Regulatory News:

Company Registered No: 05771789

CARE HOMES 1 LIMITED

ANNUAL REPORT AND FINANCIAL STATEMENTS

For the year ended 31 December 2018

OFFICERS AND PROFESSIONAL ADVISERS

Registered in England and Wales

DIRECTORS’ REPORT

The directors of Care Homes 1 Limited (“the Company”) present their
annual report together with the audited financial statements for the
year ended 31 December 2018.

ACTIVITIES AND BUSINESS REVIEW

The Directors’ report has been prepared in accordance with the
provisions available to companies entitled to the small companies
exemption and therefore does not include a Strategic report.

Activity

The principal activity of the Company continues to be that of an
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 part of The Royal Bank of Scotland Group plc (“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 Corporate Governance and Regulatory
Affairs, The Royal Bank of Scotland Group plc, Gogarburn, Edinburgh,
EH12 1HQ, the Registrar of Companies or at www.rbs.com.

Review of the year

Business review

The directors are satisfied with the Company’s performance in 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 on page 13 to 16.

The operating loss for the year was £108,579 (2017: profit of £15,415).
The retained loss for the year was £108,579 (2017: profit of £15,415).

The directors do not recommend the payment of a dividend (2017: nil).

At the end of the year the Balance Sheet showed total assets of
£118,428,761 (2017: £126,376,502) including income-generating assets
comprising loans and receivables of £108,880,182 (2017: £111,846,675)
together representing an decrease of 6.29%. Total shareholders’ funds
were £7,346,566 (2017: £11,220,242).

Principal risks and uncertainties

The Company seeks to minimise its exposure to financial risks other than
credit risk.

Management focuses on both the overall balance sheet structure and the
control, within prudent limits, of risk arising from mismatches,
including currency, maturity, interest rate and liquidity. It is
undertaken within limits and other policy parameters set by the Group
Asset and Liability Management Committee (Group ALCO).

The principal risks associated with the company are as follows:

Operational risk

Operational risks are inherent in the Company’s business. Operational
risk losses occur as the result of fraud, human error, missing or
inadequately designed processes, failed systems, damage to physical
assets, improper behaviour or from external events. The key mitigating
processes and controls include risk and control assessment, scenario
analysis, loss data collection, new product approval process, key risk
indicators, notifiable events process and the self certification
process. The implementation of these processes and controls is
facilitated and overseen by operational risk teams, with internal audit
providing independent evaluation of the control framework.

Interest rate risk

Structural interest rate risk arises where assets and liabilities have
different repricing maturities.

The Company manages interest rate risk by monitoring the consistency in
the interest rate profile of its assets and liabilities, and limiting
any re-pricing mismatches.

Liquidity risk

Liquidity risk arises where assets and liabilities have different
contractual maturities. Management focuses on risk arising from the
mismatch of maturities across the balance sheet and from undrawn
commitments and other contingent obligations.

Credit risk

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.

The key principles of the group’s Credit Risk Management Framework are
set out below:

• Approval of all credit exposure is granted prior to any advance or
  extension of credit;
• An appropriate credit risk assessment of the customer and credit
  facilities is undertaken prior to approval of credit exposure. This
  includes a review of, amongst other things, the purpose of credit and
  sources of repayment, compliance with affordability tests, repayment
  history, capacity to repay, sensitivity to economic and market
  developments and risk-adjusted return;
• Credit risk authority is delegated by the Board and specifically
  granted in writing to all individuals involved in the granting of
  credit approval. In exercising credit authority, the individuals act
  independently of any related business revenue origination; and
• All credit exposures, once approved, are effectively monitored and
  managed and reviewed periodically against approved limits. Lower
  quality exposures are subject to a greater frequency of analysis and
  assessment.

Market risk

Market risk is the potential for loss as a result of adverse changes in
risk factors including interest rates and equity prices together with
related parameters such as market volatilities.

The 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.

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 year
except where noted below, are listed on page 1.

From 1 January 2018 to date the following changes have taken place:

DIRECTORS’ RESPONSIBILITIES STATEMENT

The directors are responsible for preparing the annual report and the
financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare a Directors’ report and
financial statements for each financial year. Under that law, the
directors have elected to prepare the financial statements in accordance
with Financial Reporting Standard (FRS) 101 Reduced Disclosure
Framework, and must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs at
the end of the year and the profit or loss of the Company for that
period. In preparing these financial statements, the directors are
required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether FRS 101 has been followed; and
• make an assessment of the Company’s ability to continue as a going
  concern.

The directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of
the Company and to enable them to ensure that Directors’ report and
financial statements comply with the requirements of the Companies Act
2006. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.

To the best of our knowledge, the financial statements for the year
ending 31 December 2018 for the issuer (“Care Homes 1 Limited”) have
been prepared in accordance Financial Reporting Standards 101 Reduced
Disclosure Framework, 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:

• so far as they are aware, there is no relevant audit information of
  which the Company’s auditor is unaware; and
• directors have taken all the steps that they ought to have taken to
  make themselves aware of any relevant audit information, and to
  establish that the Company’s auditor is aware of that information.

This confirmation is given and shall be interpreted in accordance with
the provisions of section 418 of the Companies Act 2006.

AUDITOR

Ernst & Young LLP has expressed its willingness to continue in office as
auditor.

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

The accounts have been prepared in accordance with the provisions
applicable to companies subject to the small companies’ regime.

Director

Date:

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

Opinion

We have audited the financial statements of Care Homes 1 Limited for the
year ended 31 December 2018 which comprise Profit and loss account,
Statement of Comprehensive Income, Balance Sheet, Statement of Changes
in Equity and the related notes 1 to 13 including a summary of
significant accounting policies. The financial reporting framework that
has been applied in their preparation is applicable law and United
Kingdom Accounting Standards including FRS 101 “Reduced Disclosure
Framework (United Kingdom Generally Accepted Accounting Practice).

In our opinion, the financial statements:

• give a true and fair view of the company’s affairs as at 31 December
  2018 and of its loss for the year then ended;
• have been properly prepared in accordance with United Kingdom
  Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the
  Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on
Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities
for the audit of the financial statements section of our report below.
We are independent of the company in accordance with the ethical
requirements that are relevant to our audit of the financial statements
in the UK, including the FRC’s Ethical Standard as applied to listed
public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you where:

• the directors’ use of the going concern basis of accounting in the
  preparation of the financial statements is not appropriate; or
• the directors have not disclosed in the financial statements any
  identified material uncertainties that may cast significant doubt
  about the company’s ability to continue to adopt the going concern
  basis of accounting for a period of at least twelve months from the
  date when the financial statements are authorised for issue.

Overview of our audit approach

Key audit matters.

Key audit matters are those matters that, in our professional judgment,
were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements as a
whole, and in our opinion thereon, and we do not provide a separate
opinion on these matters.

An overview of the scope of our audit.

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our
allocation of performance materiality determine our audit scope for the
company. This enables us to form an opinion on the financial statements.
We consider size, risk profile, the organisation of the company and
effectiveness of controls, including controls and changes in the
business environment when assessing the level of work to be performed.

All audit work was performed directly by the audit engagement team,
except for the valuation of the derivative asset at year end, which was
valued by our valuation specialists as noted in key matters above.

Our application of materiality

We apply the concept of materiality in planning and performing the
audit, in evaluating the effect of identified misstatements on the audit
and in forming our audit opinion.

Materiality

The magnitude of an omission or misstatement that, individually or in
the aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements. Materiality provides
a basis for determining the nature and extent of our audit procedures.

We determined materiality for the company to be £1,184,288 (2017:
£112,000), which is 1% of Total Assets (2017: 1% of Equity). The reason
for selecting this measure as the basis for our audit materiality is
that NWM Plc fully owns and fund the entity and that the entity’s assets
are designed to fund the obligations arising on the bond issuance, which
has been fully acquired by NWM Plc. We therefore consider that the
assets are the primary focus to the users of the financial statements.

During the course of our audit, we reassessed initial materiality moving
from an Equity-based measure to Total Assets. This was mainly driven by
assessing the primary focus of the users of the financial statements,
being NWM Plc directors, who are focused on the assets of the entity, as
opposed to a relatively small share capital base.

Performance materiality

The application of materiality at the individual account or balance
level. It is set at an amount to reduce to an appropriately low
level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.

Based on our risk assessments, together with our assessment of the
company’s overall control environment, our judgement was that
performance materiality was 50% (2017: 50%) of our planning materiality,
namely £592,144 (2017: £56,000). We had set performance materiality at
this percentage due to audit differences identified in the prior year
audit requiring adjustments to both balances in 2017 and prior year
accounts.

Reporting threshold

An amount below which identified misstatements are considered as
being clearly trivial.

We agreed with those charged with governance that we would report to
them all uncorrected audit differences exceeding £59,214 (2017: £5,600),
which is set at 5% of planning materiality, as well as differences below
that threshold that, in our view, warranted reporting on qualitative
grounds.

We evaluate any uncorrected misstatements against both the quantitative
measures of materiality discussed above and considering other relevant
qualitative considerations in forming our opinion.

Other information

The other information comprises the information included in the
directors’ report set out on pages 2 to 5. The directors are responsible
for the other information.

Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in
this report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are
required to determine whether there is a material misstatement in the
financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that
there is a material misstatement of the other information, we are
required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken during the audit:

• the information given in the directors’ report for the financial year
  for which the financial statements are prepared is consistent with the
  financial statements; and
• the directors’ report has been prepared in accordance with applicable
  legal requirements.

Contacts

Care Homes 1 Limited

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