TIDM75TW
RNS Number : 9856M
Annington Funding PLC
27 September 2021
Annington Funding plc today announces its financial results for
the period ended 31 March 2021.
A copy is available from Annington's website and are available
for viewing. To view the full document, please see below or paste
the following URL into the address bar of your browser:
https://www.annington.co.uk/investor-relations/announcements
For further information please contact:
Stephen Leung
Chief Financial Officer
T: 020 7960 7500
Enquiries - Annington Limited
AndyMartin@annington.co.uk
Annington@brunswickgroup.com
ANNINGTON FUNDING PLC
Annual Report and Financial Statements
For the year ended 31 March 2021
STRATEGIC REPORT
The principal activity of Annington Funding plc ("the Company")
during the year was the financing of the Annington Limited group
("the Group") via an intercompany loan to Annington Homes Limited
("AHL").
BUSINESS REVIEW
The Company was incorporated on 11 May 2017. In July 2017 the
Company issued c.GBP3.0 billion of corporate, unsecured bonds, in
both euros and pound sterling. In addition, a term loan totalling
GBP400 million was drawn down. The Company then entered into an
agreement to lend GBP3.4 billion to AHL, which in turn provides
this funding to the rest of the Group.
On 26 March 2020, an agreement to amend the terms of the GBP400
million unsecured term loan was entered into. The maturity of the
term loan and the revolving credit facility was thereby extended to
March 2025, from July 2022, whilst the undrawn revolving credit
facility was reduced to GBP100 million. This agreement became
effective on 1 April 2020, with the modifications applicable from
that date.
The Company recovers its costs through interest received on the
intercompany loan, at an interest rate that is mutually agreed. It
also charges an administration fee for its services.
The Company's result for the year after taxation is a profit of
GBP0.01 million (2020: GBP0.01 million), in line with expectations,
and had net liabilities of GBP3.4 million at 31 March 2021 (2020:
net assets of GBP0.3 million). The variation in net
assets/liabilities is a result of the fluctuation in the fair
values of the cross currency swaps, which are held to hedge foreign
currency risk on Euro denominated bonds. Other Comprehensive Income
includes the fair value loss on swaps of GBP23.3 million (2020:
gain of GBP9.3 million) with the foreign exchange gain on bonds of
GBP19.5 million (2020: loss of GBP13.6 million) partially
offsetting this amount. Further information on financial risk
management can be found in Note 14 to the Financial Statements. The
directors consider profit after tax and net assets as key
indicators of the Company's performance.
PRINCIPAL RISKS AND UNCERTAINTIES
The areas of potential risks and uncertainty which face the
business are mainly related to its financial risks (credit risk,
liquidity risk, currency risk and interest rate risk). For details
of financial instruments, their related risks and the policies and
actions put in place to manage them, please refer to Note 14 to the
financial statements.
The Company also has a number of covenants that need to be
complied with under the terms of the debt issued. These are
discussed in more detail in Note 11 to the financial statements, as
well as Note 2, under "Going concern".
Statement on s172 of the Companies Act 2006
The directors consider section 172(1) factors, including the
company's business relationships with finance providers, credit
rating agencies and with AHL and the Group. The directors believe
that maintaining strong relationships with lenders, including
bondholders and banks, and with ratings agencies to be essential to
the effective running of the Company. This can be illustrated by
the successful amendment and extension of the term loan, which
extended the maturity of the GBP400 million unsecured term loan
from July 2022 to March 2025. The Company achieves strong
relationships with its stakeholders though transparent reporting
and provision of information to all stakeholders. Beyond regular
financial reporting, the Company, in association with the Group,
provide conference calls on at least an annual basis to update
stakeholders. To maintain the relationship with ratings agencies,
the directors meet with these bodies to enable the provision of
ratings services. The directors are also directors of AHL and
Annington Limited, enabling good relationships to be maintained.
The Group considers wider groups of stakeholders and a broader
section 172(1) statement is disclosed in the financial statements
of Annington Limited for the year ended 31 March 2021.
FUTURE DEVELOPMENTS
The economic impact of Britain exiting the European Union is
still subject to some degree of uncertainty. The Company has on
issue fixed interest bonds and has hedged its exposure to currency
fluctuations on its foreign currency bonds, leading to highly
predictable future cash flows on the listed debt. These factors
serve to mitigate any risks arising from Brexit.
The impact of COVID-19 has not had and is not likely to have any
significant effect on the Company in the future, given the nature
of its operations, however, the fuller impact on the economy as a
whole could impact the Company in terms of interest rate
fluctuations and hence cash flows. Interest rate sensitivities are
provided in Note 14 to the financial statements to illustrate
possible effects.
The Company and its loan issuers will be replacing GBP LIBOR
with SONIA (Sterling Overnight Index Average). The parties are in
discussions regarding the timing and mechanics of replacing GBP
LIBOR with SONIA with respect to its loan agreements. The impact of
this transition has not yet been determined and the Group will
continue to review new information as it becomes available from the
reform project.
Future developments and other factors not under the control of
the Company may impact the ongoing operations of the business,
however, the directors expect the business to continue, for the
foreseeable future, in a manner consistent with its historical
operations.
Approved by the Board of Directors and signed on behalf of the
Board
S Leung
Director
27 August 2021
REGISTERED OFFICE
1 James Street
London, United Kingdom,
W1U 1DR
DIRECTORS' REPORT
The directors present their annual report and the audited
financial statements for the year ended 31 March 2021.
Directors
The directors who served throughout the year and to the date of
this report were:
Stephen Leung (Appointed 1 April
2021)
Ian Rylatt (Appointed 7 May 2021)
Nick Vaughan
Andrew Chadd (Resigned effective
1 April 2021)
James Hopkins (Resigned effective
7 May 2021)
Audit Committee
The function of the Audit Committee of the Company is carried
out by the Audit Committee of the Annington Limited Group. The
Audit Committee includes at least two independent, non-executive
directors and two non-executive directors appointed by Terra Firma
Capital Partners Limited. Alongside other responsibilities, the
Committee considers the ongoing effectiveness of controls and
procedures operated by management and has oversight of the
financial reporting and audit process.
Dividends
No dividends have been paid or proposed during the year (2020:
GBPnil).
Going concern
After making enquiries the directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing the
financial statements.
Further details regarding the adoption of the going concern
basis are to be found in Note 2 to the financial statements.
Financial instruments and risk management policies
Financial instruments and risk management policies are addressed
in Note 14.
Internal control and risk management systems over financial
reporting
The Company has put in place systems and controls to ensure that
data integrity is maintained throughout the financial reporting
process. These include data access controls and backups and reviews
of financial data and reports by suitably qualified
individuals.
Strategic report
The areas of potential risks and uncertainty which face the
business, details of its financing and its future outlook are
addressed in the Strategic Report, as well as an indication of
likely future developments and activities in the business.
Directors' indemnities
Qualifying third party indemnity provisions are in place for all
directors of the Company for the current and preceding year.
Greenhouse gas reporting
The Company, as a member of the Annington Limited Group, is
included within the Group's reporting of greenhouse gas data, as
disclosed within Annington Limited's Directors' Report for 31 March
2021.
Auditor
Each of the persons who is a director at the date of approval of
this annual report confirms that:
-- so far as the director is aware, there is no relevant audit
information of which the Company's auditor is unaware; and
-- the director has taken all the steps that he ought to have
taken as a director to make himself aware of any relevant audit
information and to establish that the Company's auditor is aware of
that information.
--
This confirmation is given and should be interpreted in
accordance with the provisions of s418 of the Companies Act
2006.
KPMG LLP resigned from its role as statutory auditor, effective
28 January 2021. The resignation flows from the Directors of the
Company wishing to be able to engage KPMG in other non-audit
services. BDO LLP was appointed as auditor for the year ending 31
March 2021.
Approved by the Board of Directors and signed on behalf of the
Board
S Leung
Director
27 August 2021
REGISTERED OFFICE
1 James Street
London, United Kingdom
W1U 1DR
STATEMENT OF DIRECTORS' RESPONSIBILITIES
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 financial
statements for each financial year. Under that law, the directors
have elected to prepare the Company financial statements in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 as adopted by the
United Kingdom. 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 of the Company and of the profit or
loss of the Company for that year.
In preparing these financial statements, the directors are
required to:
-- select suitable accounting policies and apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with
relevant accounting standards in conformity with the requirements
of the Companies Act 2006, subject to any material departures
disclosed and explained in the financial statements;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business;
-- prepare a Directors' report and a Strategic report which
comply with the requirements of the Companies Act 2006.
--
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 enable them to ensure that
the financial statements comply with 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.
The Directors are responsible for ensuring that the annual
report and accounts, taken as a whole, are fair, balanced, and
understandable and provides the information necessary for
shareholders to assess the Company's performance, business model
and strategy.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF ANNINGTON FUNDING
PLC
Opinion on the 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 March 2021 and of the
Company's profit for the year then ended;
-- the Company's financial statements have been properly
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006;
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements of Annington Funding
Plc (the 'Company') for the year ended 31 March 2021, which
comprise the Income Statement, the Statement of Comprehensive
Income, the Balance Sheet, the Statement of Changes in Equity, the
Cash Flow Statement and notes to the financial statements,
including a summary of significant accounting policies. The
financial reporting framework that has been applied in their
preparation is applicable law and international accounting
standards in conformity with the requirements of the Companies Act
2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion. Our audit opinion is consistent with the
additional report to the audit committee.
Independence
Following the recommendation of the audit committee, we were
appointed by the board of directors on 26 April 2021 to audit the
financial statements for the year ending 31 March 2021 and
subsequent financial periods. This is our first year of
appointment. We remain 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. No non-audit services were provided to the
Company.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the Directors' assessment of the Company's ability to
continue to adopt the going concern basis of accounting
included:
We have reviewed and challenged management over the forecasts
that support the Going Concern assessment. Our work included
agreeing the Company's available borrowing facilities and the
related covenants to supporting documentation and calculations,
reviewing and re-performing the sensitivities applied by management
to the Company's financial forecasts and covenants and assessing
the accuracy of the forecasted cash flows with reference to
budgeted and historic performance and our knowledge of the client
gained from our audit work.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
entity's ability to continue as a going concern for a period of at
least twelve months from when the financial statements are
authorised for issue.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
Overview
Key audit matters 2021
KAM 1 Recoverability of
intercompany receivables
Materiality Company Financial statements as a whole
GBP34m based on 1% of Gross Assets
----------------------------------------
An overview of the scope of our audit
The audit was scoped by obtaining an understanding of the
Company and its environment, including the Company's system of
internal control, and assessing the risks of material misstatement
in the financial statements. We also addressed the risk of
management override of internal controls, including assessing
whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, 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, including 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 forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
Key audit matter How the scope of our audit addressed
the key audit matter
Recoverability The principal asset We assessed the valuation and
of intercompany on the balance sheet impairment of the loan receivable
receivables is the loan receivable held at amortised cost derived
Refer to from Annington Homes using the Effective Interest Rate
note 8 for Limited. At each (EIR). We audited the year end
accounting reporting date, disclosed value by reperforming
policy and the Directors are the amortised cost calculation.
disclosure. required to assess We challenged management's expected
the recoverability credit loss assessment, specifically
of the intercompany the assumptions and judgements
loan receivable. made, by carrying out an impairment
There is a risk assessment with reference to the
that management financial condition of the underlying
may influence the borrower based on the most recent
signi cant judgements relevant audited annual financial
and estimates in statements for the December 2019
respect of the expected financial period, unaudited financial
credit loss model information for the December 2020
in order to achieve financial period and property
an increased gross valuations, including assessing
asset position and the impact of Covid-19 on their
we considered this operations by verification of
to be a key audit valuations to available market
matter. data on similar assets.
Furthermore, we validated the
completeness, accuracy and integrity
of the amortisation schedule by
agreeing inputs to third party
documentation such as financial
information of the counterparty
as well as independent property
valuation reports.
We examined post balance sheet
events to consider whether the
impairment assessment assumptions
remained valid. In addition, we
obtained management's confirmation
that no significant post balance
sheet events had occurred which
would impact the valuation.
Key observations:
Our testing indicated no material
issues noted over the recoverability
of intercompany financial assets.
------------------------- ---------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability
that any misstatements exceed materiality, we use a lower
materiality level, performance materiality, to determine the extent
of testing needed. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole and performance materiality
as follows:
2021
Materiality GBP34m
------------------------------------------
Basis for determining 1% of total assets
materiality
------------------------------------------
Rationale for The company's principal activity is the
the benchmark provision of financing to group entities
applied and therefore we considered total assets
to be the most relevant benchmark for
users of the financial statements.
------------------------------------------
Performance GBP20.4m
materiality
------------------------------------------
Basis for determining 60% of materiality which reflects the
performance fact that this is BDO's first year as
materiality auditors.
------------------------------------------
Specific materiality
We also determined that for testing interest payable and
interest receivable, a misstatement of less than materiality for
the financial statements as a whole, specific materiality, could
influence the economic decisions of users. As a result, we
determined materiality to be GBP2.15m for these items based on 2%
of interest receivable. We further applied a performance
materiality level of 60% of specific materiality to ensure that the
risk of errors exceeding specific materiality was appropriately
mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them
all individual audit differences in excess of GBP0.68m. We also
agreed to report differences below this threshold that, in our
view, warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report and financial statements other than the financial statements
and our auditor's report thereon. Our opinion on the financial
statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express
any form of assurance conclusion thereon. Our responsibility is to
read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of 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 this gives rise to a material
misstatement in the financial statements themselves. If, based on
the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
We have nothing to report in this regard.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work
performed during the course of the audit, we are required by the
Companies Act 2006 and ISAs (UK) to report on certain opinions and
matters as described below.
Strategic In our opinion, based on the work undertaken
report and in the course of the audit:
Directors' the information given in the Strategic report
report and the Directors' report for the financial year
for which the financial statements are prepared
is consistent with the financial statements;
and
the Strategic report and the Directors' report
have been prepared in accordance with applicable
legal requirements.
In the light of the knowledge and understanding
of the Company and its environment obtained in
the course of the audit, we have not identified
material misstatements in the Strategic report
or the Directors' report.
Matters on We have nothing to report in respect of the following
which we matters in relation to which the Companies Act
are required 2006 requires us to report to you if, in our
to report opinion:
by exception adequate accounting records have not been kept
by the Company, or returns adequate for our audit
have not been received from branches not visited
by us; or
the Company financial statements to be audited
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.
------------------------------------------------------
Responsibilities of Directors
As explained more fully in statement of Directors'
responsibilities, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the
Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Extent to which the audit was capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
We evaluated management's incentives and opportunities for
fraudulent manipulation of the financial statements (including the
risk of override of controls) and determined that the principal
risks were related to management bias in respect of the
recoverability of intercompany receivables and posting
inappropriate journal entries to manipulate the fair value of the
derivative financial instrument. We performed the following audit
procedures:
We obtained an understanding of the control environment in
monitoring compliance with laws and regulations and performing our
own checks of compliance with relevant requirements including the
Companies Act 2006 and the UK Listing Rules;
We agreed the financial statement disclosures to underlying
supporting documentation to assess compliance with those laws and
regulations having an impact on the financial statements;
We enquired of management and the Audit Committee as to their
identification of any non-compliance with laws or regulations, or
any actual or potential claims;
In relation to the risk of management override of internal
controls we performed procedures to review journal entries
processed during and subsequent to the year end and evaluating
whether there was a risk of material misstatement due to fraud;
We assessed the susceptibility of the financial statements to
material misstatement, including how fraud might occur by
considering the key risks impacting the financial statements. We
identified specific fraud risks with respect to the recoverability
of the intercompany receivable, which has been included as a key
audit matter and our audit response is set out in that section of
our audit report; and
We communicated relevant identified laws and regulations and
potential fraud risks to all engagement team members and remained
alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising that
the risk of not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the further
removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less
likely we are to become aware of it.
A further description of our responsibilities is available on
the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor's report.
Use of our report
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.
Christopher Young (Senior Statutory Auditor)
For and on behalf of BDO LLP, statutory auditor
London, UK
27 August 2021
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
INCOME STATEMENT
For the year ended 31 March 2021
2020 2020
Note GBP'000 GBP'000
Finance income 6 107,640 110,919
Finance costs 6 (107,631) (110,909)
Profit before taxation 9 10
Taxation 7 - -
Profit for the year 9 10
Profit attributable to shareholder 9 10
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2021
2020 2020
Note GBP'000 GBP'000
Profit for the year 9 10
Items that may subsequently be recycled
through the income statement
Cash flow hedge:
Fair value (losses)/gains on cash flow
hedge 13 (23,252) 9,270
Reclassification of fair value gains/(losses)
included in profit and loss 6 19,509 (13,628)
Total other comprehensive loss (3,743) (4,358)
Total comprehensive loss for the year (3,734) (4,348)
Total comprehensive loss attributable to
shareholder (3,734) (4,348)
BALANCE SHEET
At 31 March 2021
2021 2020
Note GBP'000 GBP'000
Non-current assets
Receivables 8 3,383,023 3,374,690
Derivative financial instruments 13 - 4,623
3,383,023 3,379,313
Current assets
Receivables 8 25,960 26,335
Cash and cash equivalents 9 33 8,546
25,993 34,881
Total assets 3,409,016 3,414,194
Current liabilities
Payables 10 (25,954) (28,760)
Net current assets 39 6,121
Total assets less current
liabilities 3,383,062 3,385,434
Non-current liabilities
Loans and borrowings 11 (3,367,854) (3,385,121)
Derivative financial instruments 13 (18,629) -
Total liabilities (3,412,437) (3,413,881)
Net (liabilities)/assets (3,421) 313
Capital and reserves
Share capital 12 50 50
Hedging reserve (6,974) (3,231)
Retained earnings 3,503 3,494
Total equity (3,421) 313
The accompanying Notes (1 to 18) should be read in conjunction
with these financial statements. The annual financial statements of
Annington Funding plc, registered number 10765119, were authorised
for issue on 27 August 2021.
Signed on behalf of the Board of Directors
S Leung
Director
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2021
Hedging Retained
Share capital reserve earnings Total equity
GBP'000 GBP'000 GBP'000 GBP'000
At 1 April 2019 50 1,127 3,484 4,661
Profit for the year - - 10 10
Other comprehensive loss for
the year - (4,358) - (4,358)
Balance at 31 March 2020 50 (3,231) 3,494 313
Profit for the year - - 9 9
Other comprehensive loss for
the year - (3,743) - (3,743)
Balance at 31 March 2021 50 (6,974) 3,503 (3,421)
CASH FLOW STATEMENT
For the year ended 31 March 2021
Note 2021 2020
GBP'000 GBP'000
Cash generated from operations 15 - 9
Interest received from group undertakings 100,264 116,798
Interest paid (108,032) (108,329)
Net cash (outflow)/inflow from operating activities (7,768) 8,478
Investing activities
Loans to group undertakings (800) -
Net cash outflow from investing activities (800) -
Net (decrease)/increase in cash and cash equivalents (8,568) 8,478
Cash and cash equivalents at the beginning of the year 8,546 113
Effect of exchange differences on cash and cash equivalents 55 (45)
Cash and cash equivalents at the end of the year 9 33 8,546
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2021
1. CORPORATE INFORMATION
Annington Funding plc ("the Company") is a company incorporated
in the United Kingdom under the Companies Act 2006.
The Company is a private company limited by shares and is
registered in England and Wales. The address of its registered
office is 1 James Street, London W1U 1DR. Information on the
Company's ultimate parent is presented in Note 18.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The financial statements have been prepared in accordance with
the international accounting standards in conformity with the
requirements of the Companies Act 2006 as adopted by the United
Kingdom. They have been prepared in accordance with the wider
requirements of the Companies Act 2006.
The financial statements are presented in pound sterling, which
is the functional currency of the Company. All values are rounded
to the nearest thousand (GBP'000), except where otherwise
indicated. They have been prepared on the historical cost basis,
except for derivative financial instruments that are measured at
fair value at the end of each reporting period, as explained in the
accounting policy below. Historical cost is generally based on the
fair value of the consideration given in exchange for goods and
services.
Going concern
The Company's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Strategic Report and the Directors' Report,
which describe the financial position of the Company. The Company's
objectives, policies and process for managing its capital; its
financial risk management objectives and details of its financial
instruments can be found in Note 14.
The Company holds five tranches of corporate, unsecured bonds,
totalling c.GBP3.0 billion and a term loan of GBP400 million, also
unsecured. A revolving credit facility is also available to the
Company, which has never been drawn against.
On 26 March 2020, an agreement to amend the terms of the GBP400
million unsecured term loan was entered into. The maturity of the
term loan and the revolving credit facility was extended to March
2025, from July 2022, whilst the undrawn revolving credit facility
was reduced to GBP100 million from GBP300 million. This agreement
became effective on 1 April 2020, with the modifications applicable
from that date.
Critical to the Company's future as a going concern is the
ability to service and repay this debt. For the foreseeable future,
at least until the maturity of the Fixed Rate EUR Bonds in 2024,
the Company only needs to pay the interest on the debt. The debt
imposes a number of covenants that must be complied with, on a
Group basis, under both the bonds and loan facility. The covenants
attaching to the debt are:
Covenant Test Limit for Bonds Limit for Loans
Limitation on Total debt / <65% <65%
Debt Total assets
-------------------- ----------------- -----------------
Limitation on Secured debt <40% <40%
Secured Debt / Total assets
-------------------- ----------------- -----------------
Interest Cover EBITDA / Interest 1.0x (dividend 1.15x (dividend
Ratio lockup at 1.3x) lockup at 1.3x)
-------------------- ----------------- -----------------
Unencumbered Unencumbered >125% >125%
Assets assets / Unsecured
Debt
-------------------- ----------------- -----------------
The Company receives income on its loan from Annington Homes
Limited, which is sufficient to meet the Company's debt obligations
and the covenants as set out above. Additionally, this income is
guaranteed by Annington Limited and Annington Property Limited. The
Annington Limited group's forecasts do not indicate any of the
above covenants will be breached in the foreseeable future.
Further, the Group's forecasts do indicate that sufficient cash
flow will be generated to cover payments of interest on its debt
and generate significant additional free cash flows to allow for
reinvestment or potential dividends to shareholders. Further, were
this not possible, the undrawn revolving credit facility provides
additional liquidity to the Group to allow for its continued
operation for the foreseeable future.
After making enquiries, the directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. Accordingly, they
adopt the going concern basis in preparing the Annual Report and
financial statements.
Significant judgements and key estimates
The preparation of the financial statements requires management
to make judgements, estimates and assumptions that may affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and other
factors that are considered relevant. Actual results may differ
from these estimates.
Further details regarding key sources of estimation uncertainty
for the Company can be found at Note 8 regarding Loans
receivable.
Foreign currency
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
balance sheet date are retranslated to the functional currency at
the foreign exchange rate at that date. Foreign exchange
differences arising on translation are recognised in the income
statement, except for differences arising on the retranslation of
qualifying cash flow hedges, which are recognised in other
comprehensive income.
3. NEW STANDARDS, INTERPRETATIONS AND AMMENTS
New Standards, interpretations and amendments adopted as at 1
April 2020
The Company has adopted the new accounting standards, amendments
or interpretations which have become effective as at 1 April 2020.
Those that have impacted the Company's current accounting policies
are described below:
Amendment to IFRS 9 Financial instruments; Interest Rate
Benchmark ("IBOR") Reform Phase 1
The Phase 1 amendments provide relief to specific hedge
accounting requirements for hedging relationships that are affected
by the IBOR reform. The Company's GBP400 million unsecured term
loan incurs interest at a floating interest rate of LIBOR + 1.6%.
However, the Company has not entered into any interest rate hedging
relationships, therefore no new or additional disclosures are
required as a result of the reliefs provided under Phase 1 of the
reform. Phase 2 of the project will address any issues that arise
once the existing Interest Rate Benchmarks have been replaced with
an alternative rate. Phase 2 comes into effect on periods beginning
on or after 1 January 2021.
The Company and its loan issuers will be replacing GBP LIBOR
with SONIA (Sterling Overnight Index Average). The Company is in
discussions with its loan issuers regarding the timing and
mechanics of replacing GBP LIBOR with SONIA with respect to its
loan agreements. The impact of this transition has not yet been
determined and the Group will continue to review new information as
it becomes available from the reform project.
New Standards, interpretations and amendments issued not yet
effective
At the date of authorisation of these financial statements, a
number of new and revised standards and amendments have been issued
and adopted by the UKEB but are not yet effective, these
include:
Effective date
(annual periods
New/Amended Standards and Interpretations beginning on
or after)
IFRS 9, IAS 39, Interest Rate Benchmark Reform 1 January 2021
IFRS 14, IFRS Phase 2 Amendments
16, and IFRS
7 Amendments
--------------------------------- -----------------
IFRS Improvements 2018-2020 Annual Improvements 1 January 2022
Cycle
--------------------------------- -----------------
IAS 1 and IFRS Amendments to Disclosure of 1 January 2023
Practice Statement Accounting Policies
2
--------------------------------- -----------------
IAS 1 Amendments Amendments to the Classification 1 January 2023
of Liabilities as current or
Non-current
--------------------------------- -----------------
IAS 8 Amendments Amendments to definition of 1 January 2023
Accounting Estimates
--------------------------------- -----------------
IAS 12 Amendments Amendments to Deferred Tax 1 January 2023
from Single Transactions
--------------------------------- -----------------
These standards and interpretations have not been early adopted
by the Company and are not expected to have a material impact on
its financial statements in future periods.
4. OPERATING PROFIT
The auditor's remuneration was GBP42,500 (2020: GBP38,625) for
the audit of the Company's annual financial statements. No other
services were provided by the auditor to the Company. During the
year, BDO LLP was appointed as auditor of the Company. Previously
this position was held by KPMG LLP.
5. INFORMATION REGARDING DIRECTORS AND EMPLOYEES
The Company had no employees of its own during the year (2020:
none). The directors of the Company are also directors of other
Annington Limited group companies and were remunerated on a
group-wide basis. The disclosures for directors' emoluments for the
Group can be found in the Annington Limited financial statements.
No amount has been allocated to the Company in both the current and
preceding years.
6. FINANCE INCOME AND COSTS
ACCOUNTING POLICY
Interest income is recognised over time, by reference to the
principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial
asset to that asset's net carrying amount on initial
recognition.
Finance costs, including any transaction costs, are charged to
the income statement using the effective interest rate method.
2021 2020
GBP'000 GBP'000
Finance income
Interest receivable on intercompany balances 107,640 110,919
Finance costs
Interest payable on unsecured fixed rate
bonds 97,652 97,958
Amortisation of issue costs 2,438 2,483
Interest payable on term loan 7,214 9,179
Foreign exchange (gain)/loss on financing (19,564) 13,673
Transfer from/(to) equity for cash flow
hedge 19,509 (13,628)
Other finance expenses 382 1,244
Total finance costs 107,631 110,909
7. TAXATION
ACCOUNTING POLICY
The taxation expense for the year comprises current and deferred
tax. Tax is recognised in the income statement, except when they
relate to items that are recognised in other comprehensive income,
in which case, they are also recognised in other comprehensive
income.
Current tax
Current tax is measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax rates and tax
laws used to compute the amount are those that are enacted, or
substantively enacted at the balance sheet date in the countries
where the Company operates and generates taxable income. Taxable
profit differs from profit before tax as reported in the income
statement because it excludes some items of income or expense that
are taxable or deductible in other years and it further excludes
items that are never taxable or deductible.
Deferred tax
Deferred tax is provided using the liability method on temporary
differences between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes at the
balance sheet date.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised based on tax laws and rates that have been enacted or
substantively enacted at the balance sheet date.
A deferred tax asset of GBP3.5 million (2020: GBPnil) relating
to losses arising on the fair value of derivative financial
instruments of GBP18.6 million has not been recognised as it is not
probable that the Company will have sufficient future taxable
income against which this deferred tax asset can be recovered.
These losses do not expire. Deferred tax has been calculated at
19%.
The standard rate of current tax for the year, based on the UK
standard rate of corporation tax is 19% (2020: 19%). The charge for
the year can be reconciled to profit before tax as follows:
2021 2020
GBP'000 GBP'000
Profit before tax 9 10
Tax charge at the standard rate (2) (2)
Factors affecting the current tax for the
year:
Group relief claimed 2 2
Taxation for the year - -
The rate of Corporation Tax for the UK remains at 19% for the
year ended 31 March 2021. The new 25% UK Corporation Tax Rate from
April 2023 onwards was published on 11 March 2021 and completed its
scrutiny in the House of Commons on 24 May 2021, and then the
Finance Act 2021 received Royal Assent on 10 June 2021. The March
2021 calculation of current and deferred tax continues to use the
19% rate as a result of the new 25% Corporation Tax Rate not being
substantively enacted at 31 March 2021.
8. RECEIVABLES
ACCOUNTING POLICY
Receivables are initially recognised at fair value. If the
receivables fall within a "held to collect" business model and its
contractual terms give rise to cash flows that are solely payments
of principal and interest on that principal, they are subsequently
measured at amortised cost using the effective interest method,
less any impairment.
Key source of estimation uncertainty
In assessing the recoverability of loans receivable, assumptions
and estimates are required to be made regarding the future
activities and earnings of the counterparty. If these assumptions
and estimates are not accurate, this could have a significant
effect on the recoverability of the loan receivables presented
below.
2021 2020
GBP'000 GBP'000
Amounts falling due within one year
Amounts owed by group undertakings 23,025 23,181
Interest receivable on swaps 2,929 3,148
Prepayments 6 6
25,960 26,335
Amounts falling due after more than one
year
Amounts owed by group undertakings 3,383,023 3,374,690
Total receivables 3,408,983 3,401,025
Amounts due to the Company by group undertakings include:
Unsecured, interest-bearing and no fixed date
of repayment 3,406,048 3,397,871
The recoverable amount of loans receivable from related parties
are reviewed annually by reference to the borrower's balance sheet
and expected future activities, with a provision recorded to the
extent the loan is not considered recoverable. Interest is charged
on the loan at a rate of 3.2123% (2020: 3.3035%). Unpaid interest
balances are accrued within amounts owed by group undertakings;
balances expected to be received in the next 12 months are shown
separately. There are no balances past due and no impairment has
been deemed necessary.
The carrying value of receivables approximates fair value.
9. CASH AND CASH EQUIVALENTS
ACCOUNTING POLICY
Cash and cash equivalents comprise cash at bank. Cash and cash
equivalents are limited to instruments with a maturity of less than
three months.
2021 2020
GBP'000 GBP'000
Cash at bank 33 8,546
10. PAYABLES
ACCOUNTING POLICY
Payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.
2021 2020
GBP'000 GBP'000
Amounts falling due within one year
Accrued interest 25,799 26,330
Other accruals 155 2,430
25,954 28,760
The carrying value of payables approximates fair value.
11. LOANS AND BORROWINGS
ACCOUNTING POLICY
Loans and borrowings are initially recognised at fair value less
the transaction costs directly attributable to their issue. After
initial recognition, interest bearing loans and borrowings are
subsequently measured at amortised cost using the effective
interest rate method, such that discounts and costs are charged to
the income statement over the term of the borrowing at a constant
return on the carrying amount of the liability. The debt is
classified as current and non-current based on the contractual
payments required within 12 months of the balance sheet date.
Loan modifications are subject to a 10% test to determine
whether modifications are substantial. If the present values of
cash flows under the modified terms are at least 10% different to
the remaining cash flows of the liability prior to modification,
both discounted at the original effective interest rate, this is a
substantial modification and the original liability would be
derecognised, alongside the recognition of a new loan. Should the
difference be less than 10%, this is classified as a
non-substantial modification. A gain or loss on modification is
recognised in the income statement, equal to the difference between
the present values of the cash flows as previously calculated, and
adjusted for fees paid to the lender. The carrying value of the
loan is revised to reflect the new cash flows, directly
attributable transaction costs and any cash paid or received from
the counterparty, and discounted at the original effective interest
rate.
2021 2020
GBP'000 GBP'000
Amounts falling due between one and five
years
Unsecured bonds 1,132,065 528,656
Unsecured term loan 396,414 395,710
1,528,479 924,366
Amounts falling due after five years
Unsecured bonds 1,839,375 2,460,755
Total loans and borrowings 3,367,854 3,385,121
The Company holds five tranches of corporate, unsecured bonds,
totalling c.GBP3.0 billion and a term loan of GBP400 million, also
unsecured. A revolving credit facility is also available to the
Company, which has never been drawn against.
On 26 March 2020, an agreement to amend the terms of the GBP400
million unsecured term loan was entered into. The maturity of the
term loan and the revolving credit facility was extended to March
2025, from July 2022, whilst the undrawn revolving credit facility
was reduced to GBP100 million from GBP300 million. This agreement
became effective on 1 April 2020, with the modifications applicable
from that date. The additional issue costs relating to that
transaction, totalling GBP2.1 million, were capitalised in the
previous financial year in advance of the effective date as these
were incurred prior to the 31 March 2020 year end. A gain on
modification of GBP0.1 million has been recognised in the income
statement.
The Company had issued the bonds in the following denominations,
maturities and fixed interest rates:
Currency Sterling (GBP) Euro (EUR)
Principal Amount 625m 600m 625m 625m 600m
---------- ---------- ---------- ---------- -----------
Final Maturity 12-Jul-25 12-Jul-29 12-Jul-34 12-Jul-47 12-Jul-24
---------- ---------- ---------- ---------- -----------
Coupon 2.646% 3.184% 3.685% 3.935% 1.650%
---------- ---------- ---------- ---------- -----------
Cross currency swaps are in place for the EUR600 million bond,
converting the nominal balance to GBP526.26 million. These swaps
also mitigate volatility of foreign currency movements in future
interest and capital repayments. The function of these swaps
increases the effective interest rate of the Euro Tranche debt to
2.764%, fixed for the life of the bond.
The debt imposes a number of covenants that must be complied
with under both the bonds and loan facility and are calculated
based on the results and financial position of the wider Annington
group. The covenants attaching to the debt are:
Covenant Test Limit for Bonds Limit for Loans
Limitation on Total debt / <65% <65%
Debt total assets
-------------------- ----------------- -----------------
Limitation on Secured debt <40% <40%
Secured Debt / total assets
-------------------- ----------------- -----------------
Interest Cover EBITDA / interest 1.0x (dividend 1.15x (dividend
Ratio lockup at 1.3x) lockup at 1.3x)
-------------------- ----------------- -----------------
Unencumbered Unencumbered >125% >125%
Assets assets / unsecured
debt
-------------------- ----------------- -----------------
The Company's forecasts do not indicate any of these covenants
will be breached in the foreseeable future.
Reconciliation of movement
Amortisation
31 March of debt issue Foreign Exchange Gain on debt 31 March
2021 costs Revaluation adjustment modification 2020
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Fixed Rate EUR
Bonds 2024 509,543 462 (19,575) - 528,656
Fixed Rate GBP
Bonds 2025 622,522 538 - - 621,984
Fixed Rate GBP
Bonds 2029 596,975 313 - - 596,662
Fixed Rate GBP
Bonds 2034 621,412 205 - - 621,207
Fixed Rate GBP
Bonds 2047 620,988 86 - - 620,902
Term Loan 2025 396,414 834 - (130) 395,710
3,367,854 2,438 (19,575) (130) 3,385,121
12. SHARE CAPITAL
2021 2020
GBP'000 GBP'000
Allotted, called up and fully paid
50,000 ordinary shares of GBP1 each 50 50
Upon incorporation, 50,000 ordinary shares of GBP1 each were
allotted.
13. DERIVATIVE FINANCIAL INSTRUMENTS
ACCOUNTING POLICY
The Company uses derivative financial instruments to reduce
exposure to foreign exchange rate risk. The Company does not hold
or issue derivative financial instruments for speculative
purposes.
Derivatives are initially recognised at fair value at the date a
derivative contract is entered into and are subsequently remeasured
to their fair value at each balance sheet date. Changes in the fair
value are 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.
Hedge accounting
Hedges of foreign currency exchange risk on firm commitments are
accounted for as cash flow hedges. The relationship between the
hedging instrument and the hedged item, along with its risk
management objective and its strategy for undertaking hedge
transactions is documented at the inception of the hedge
relationship.
Additionally, on an ongoing basis, the Company documents whether
the hedging instrument is highly effective in offsetting changes in
fair values or cash flows of the hedged item attributed to the
hedged risk, which is when the hedging relationships meet all of
the following hedge effectiveness requirements:
-- there is an economic relationship between the hedged item and the hedging instrument;
-- the effect of credit risk does not dominate the value changes
that result from that economic relationship; and
-- the hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that the
Company actually hedges and the quantity of the hedging instrument
that the entity actually uses to hedge that quantity of hedged
item.
Cash flow hedges
The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash flow hedges is
recognised in other comprehensive income ("OCI") and accumulated in
the cash flow hedge reserve. The gain or loss relating to the
ineffective portion is recognised immediately in profit or loss,
and is included in the 'other gains and losses' line item.
Amounts previously recognised in OCI and accumulated in equity
are reclassified to profit or loss in the year when the hedged item
is recognised in profit or loss, in the same line of the income
statement as the recognised hedged item.
The Company discontinues hedge accounting only when the hedging
relationship ceases to meet the qualifying criteria.
The Company holds cross currency swaps of EUR600 million,
converting the nominal balance to GBP526.26 million. These swaps
mitigate the volatility of foreign currency movements in future
interest and capital payments on its Euro denominated bonds. The
hedge is considered highly effective as per the currency risk
assessment in Note 14 and the Company continues to apply hedge
accounting with respect to these swaps.
2021 2020
GBP'000 GBP'000
Financial asset measured at fair value
through OCI
Cross currency swaps that are in designated
hedge accounting relationships - 4,623
Financial liability measured at fair value
through OCI
Cross currency swaps that are in designated
hedge accounting relationships (18,629) -
Reconciliation of movements
Revaluation
2021 adjustment 2020
GBP'000 GBP'000 GBP'000
Cross currency swap (liability)/asset (18,629) (23,252) 4,623
Total derivative financial
instruments (18,629) (23,252) 4,623
14. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
ACCOUNTING POLICY
Financial assets and financial liabilities are recognised when
the Company becomes party to the contractual provisions of the
instrument. Financial assets and financial liabilities are
initially measured at fair value and net of directly attributable
transaction costs as appropriate.
Financial assets
Impairment of financial assets
The Company recognises a loss allowance for expected credit
losses on financial assets that are measured at amortised cost. The
loss allowance is measured at an amount equal to the lifetime
expected credit losses.
Financial liabilities
The Company's financial liabilities include trade and other
payables, loans and borrowings and derivative financial
instruments.
The Company has the following financial instruments:
2021 2020
Note GBP'000 GBP'000
Financial assets
Cash and receivables at amortised
cost:
Receivables 8 3,408,977 3,401,019
Cash and cash equivalents 9 33 8,546
Assets measured at fair value through
OCI:
Cross currency swaps 13 - 4,623
Total financial assets 3,409,010 3,414,188
Financial liabilities
Liabilities measured at amortised
cost:
Payables 10 25,954 28,760
Loans and borrowings 11 3,367,854 3,385,121
Liabilities measured at fair value
through OCI:
Cross currency swaps 13 18,629 -
Total financial liabilities 3,412,437 3,413,881
Exposure to credit, liquidity, and interest rate risks arise in
the normal course of the Company's business activities. Derivative
financial instruments are in place to manage exposure to
fluctuations in exchange rates but are not employed for speculative
purposes.
Credit Risk
The Company's principal financial assets are cash and cash
equivalents and trade and other receivables.
The Company's exposure to credit risk is assessed as low as this
is primarily attributed to its trade and other receivables, which
consists principally of an intercompany loan to AHL. AHL indirectly
holds a portfolio of c.40,000 homes, the majority of which form
part of the Retained Estate. These are homes that were originally
acquired from the Ministry of Defence of the United Kingdom ("MoD")
via 999-year leases and subsequently leased back to them on a 200
year under lease. The rent is paid in advance and the MoD does not
have a history of payment default.
Credit risk on cash and deposits is managed in accordance with
Group Treasury Policy and risk is minimised by using banks
identified as low risk according to Credit Agency ratings. The
maximum amount of funds that can be placed with any one institution
is also limited. The banks and criteria are reviewed and updated
periodically to ensure they reflect the prevailing market
conditions. Counterparty credit risk with respect to cash and
deposits is assessed as low, as cash balances are held with banks
with at least an upper medium grade rating.
The Company also holds cross currency swaps with Barclays Bank
plc, JP Morgan Securities plc, Goldman Sachs Bank USA and Banco
Santander SA (London Branch). The Company's exposure to
counterparty credit risk with respect to these derivatives is
assessed as low, as each of the counterparties holds at least an
upper medium grade rating.
The carrying amount of financial assets recorded in the
financial statements represents the Company's maximum exposure to
credit risk.
Debt Management
The Company's borrowings are through the issue of various
classes of unsecured corporate bonds as well as an unsecured term
loan.
Effective 1 April 2020, there is a GBP100 million (reduced from
GBP300 million) five year revolving borrowing facility in place to
ensure that there is no default in the repayment of the borrowing
and interest to the bondholders.
Capital Risk Management
The capital is managed at a Group level to ensure that entities
in the Group are able to continue as going concerns while
maximising the return to stakeholders through the optimisation of
the debt and equity balance.
The capital structure of the Company consists of debt and
equity. Net debt includes loans and borrowings (Note 11) and cash,
cash equivalents, and equity comprises equity attributable to
equity holders of the Company, being issued share capital, reserves
and retained earnings (Note 12).
The debt has a number of covenants to comply with under both the
bonds and loan facility. Refer to Note 11 for the covenants
attaching to the debt.
Currency risk
The Company holds a 7 year unsecured euro bond of EUR600 million
expiring July 2024. To hedge against fluctuations in the Euro to
Pound Sterling exchange rate, the Company entered into a cross
currency swap of EUR600 million, converting the nominal balance to
GBP526.26 million. These swaps mitigate the volatility of foreign
currency movements in future interest and capital payments. The
function of this swap increases the effective interest rate of Euro
Tranche debt to 2.764%. The hedge is in line with the Group
Treasury Policy whereby the Company should look to put in place
hedges covering 50-100% of the FX risk arising from foreign
currency debt, to the extent that foreign currency debt exceeds
GBP50 million in aggregate.
Currency risk sensitivity analysis
The impact of a hypothetical strengthening/weakening of pound
sterling against the Euro for both derivatives and non-derivatives,
with all other variables constant, would have increased/(decreased)
equity and pro t by the amounts shown below:
Strengthening 10% Weakening 10%
------------------------------------ -----------------------------------
Gains/(losses) Gains/(losses) Gains/(losses) Gains/(losses)
in consolidated included in consolidated included
income statement in equity income statement in equity
(GBP'000) (GBP'000) (GBP'000) (GBP'000)
------------------- --------------- ------------------ ---------------
2021 - (9,317) - 2,950
2020 - (7,074) - 6,141
Interest rate risk management
Annington Funding plc has a relatively low interest rate risk as
the majority of the Company's borrowings are at fixed interest
rates. The term loan is the only instrument that has a floating
interest rate of LIBOR + 1.6%. The term loan is for a value of
GBP400 million, originally maturing in 2022, but has been extended
to 2025, effective 1 April 2020.
Interest Rate sensitivity analysis
The sensitivity analysis below has been determined based on the
exposure to interest rates for both derivatives and non-derivative
instruments at the balance sheet date. The impact of a hypothetical
increase/decrease in interest rates with all other variables
constant, would have increased/(decreased) equity and pro t by the
amounts shown below:
50 bps increase 50 bps decrease
----------------------------------- -----------------------------------
Gains/(losses) Gains/(losses) Gains/(losses) Gains/(losses)
in consolidated included in consolidated included
income statement in equity income statement in equity
(GBP'000) (GBP'000) (GBP'000) (GBP'000)
------------------ --------------- ------------------ ---------------
2021 (2,008) (197) 719 222
2020 (696) (346) 706 345
The 50bps decrease in interest rate is subject to a floor of 0%
+ 1.6% margin.
Cash Management and Liquidity
Cash levels are monitored at a group level to ensure sufficient
resources are available to meet the individual entities and Group's
current and projected operational commitments. Annington Funding
plc provides funding to Annington Homes Limited which in turn
provides intercompany loans at fixed interest rates to other
entities in the Group.
The company holds a GBP100 million liquidity facility that was
undrawn as at 31 March 2021 (2020: GBP300 million).
Liquidity risk and financial maturity analysis
In respect of the net non-derivative financial liabilities, the
following table has been drawn up based on the undiscounted cash
flows of financial liabilities based on the earliest date on which
the Group can be required to pay or receive monies. The table
includes both interest and principal cash flows.
2021
Total Less than One to More than
GBP'000 one year five years five years
GBP'000 GBP'000 GBP'000
Non-derivative financial liabilities
Trade and other payables 155 155 - -
Loans and borrowings 4,646,806 98,191 1,907,220 2,641,395
Total non-derivative financial
liabilities 4,646,961 98,346 1,907,220 2,641,395
Net payments for derivative financial
instruments
Cross currency swaps 32,254 6,111 26,143 -
Total derivative financial instruments 32,254 6,111 26,143 -
2020
Total Less than One to More than
GBP'000 one year five years five years
GBP'000 GBP'000 GBP'000
Non-derivative financial liabilities
Trade and other payables 2,431 2,431 - -
Loans and borrowings 4,753,991 100,807 1,311,791 3,341,393
Total non-derivative financial
liabilities 4,756,422 103,238 1,311,791 3,341,393
Net payments for derivative financial
instruments
Cross currency swaps 17,175 5,788 11,387 -
Total derivative financial instruments 17,175 5,788 11,387 -
Fair values
The fair values of the Company's borrowings and interest rate
swaps are determined by a Level 2 valuation technique.
This fair value measurement hierarchy level is specified in
accordance with IFRS 13 'Fair Value Measurement'. The levels are
defined below:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: Inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
2021
Par value Balance
of debt sheet value Fair value
GBP'000 GBP'000 GBP'000
Level 2
Non-derivative financial liabilities
Unsecured bonds 3,001,260 2,971,440 3,305,205
Unsecured term loan 400,000 396,414 400,000
3,401,260 3,367,854 3,705,205
Derivative financial liability
Cross currency swap - 18,629 18,629
3,401,260 3,386,483 3,723,834
2020
Par value Balance
of debt sheet value Fair value
GBP'000 GBP'000 GBP'000
Level 2
Non-derivative financial liabilities
Unsecured bonds 3,001,260 2,989,411 2,979,678
Unsecured term loan 400,000 395,710 400,000
3,401,260 3,385,121 3,379,678
Derivative financial assets
Cross currency swaps - (4,623) (4,623)
3,401,260 3,380,498 3,375,055
Unsecured bonds
The volume of market trades of the Company's bonds is not
considered sufficient to be an active market. Therefore, listed
bonds have been fair valued by a third party valuer using a spread
to a reference gilt curve. The reference gilt curve is based upon
observable market data. The spread is determined with reference to
comparable sector bond pricing. This represents a Level 2 fair
value measurement. Further details, including covenant information
is included in Note 11.
Cross currency swaps
The fair value of derivative financial instruments is based on
valuations by an independent valuer using the present value of
estimated future cash flows, which are discounted using the
applicable yield curves derived from quoted interest rates as at 31
March 2021.
Unsecured term loan
This loan relates to a GBP400 million unsecured bank loan,
originally maturing in July 2022. On 26 March 2020, an agreement to
amend the terms of the GBP400 million unsecured term loan was
entered into to extend the maturity of the term loan to March 2025.
This agreement became effective on 1 April 2020, with the
modifications applicable from that date. Further details, including
covenant information is included in Note 11.
15. NOTES TO CASH FLOW STATEMENT
2021 2020
GBP'000 GBP'000
Profit after taxation 9 10
Adjustment for:
Finance costs 107,631 110,909
Finance income (107,640) (110,919)
Movements in working capital:
Decrease in receivables - 9
Cash generated from operations - 9
16. ANALYSIS OF CHANGES IN NET DEBT
2021 Cash flow Other 2020
GBP'000 GBP'000 non-cash GBP'000
changes
GBP'000
Cash and cash equivalents 33 (8,556) 43 8,546
Unsecured notes (2,971,440) - 17,971 (2,989,411)
Unsecured term loan (396,414) - (704) (395,710)
Net debt (3,367,821) (8,556) 17,310 (3,376,575)
Non-cash changes include amortisation of issue costs relating to
debt issuance and foreign exchange gains and losses on translation
of Euro denominated debt (see Note 11).
17. RELATED PARTY DISCLOSURES
During the year, the Company had amounts due to and owed by
group undertakings and recognised finance income related to these
balances under the terms detailed in Note 8 and 10.
The following transactions with related parties where entered
into during the year:
2021 2020
GBP'000 GBP'000
Immediate Parent - Finance income
Annington Homes Limited 107,640 110,919
The following amounts were outstanding at the balance sheet
date:
Amounts owed
by related parties
2021 2020
GBP'000 GBP'000
Immediate Parent
Annington Homes Limited 3,406,048 3,397,871
The balance outstanding from Annington Homes Limited relates to
an intercompany loan provided by Annington Funding plc with no set
redemption date and at an interest rate of 3.2123% (2020: 3.3035%)
per annum. An annual fee of GBP10,000 (2020: GBP10,000) is payable
to Annington Funding plc by Annington Homes Limited for
administration services.
18. ENTITY INFORMATION AND CONTROLLING PARTY
The Company is incorporated in the United Kingdom and the
address of its registered office is 1 James Street, London W1U
1DR.
Annington Homes Limited, a company incorporated in the United
Kingdom, is the immediate parent company.
The directors regard Terra Firma Holdings Limited, a company
registered in Guernsey, as the ultimate parent entity. The ultimate
controlling party is Guy Hands.
Annington Limited is the parent company of the largest and
smallest group of which the Company is a member and for which Group
financial statements are drawn up. The Annual Report and Financial
Statements for Annington Limited are available on request from the
registered office at 1 James Street, London W1U 1DR.
Registered Office
1 James Street
London, United Kingdom
W1U 1DR
Telephone: 020 7960 7500
www.annington.co.uk
Registered in England and Wales No 10765119
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END
ACSPPUCPBUPGPGQ
(END) Dow Jones Newswires
September 27, 2021 02:00 ET (06:00 GMT)
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