TIDM75TW

RNS Number : 4902R

Annington Funding PLC

06 July 2022

Annington Funding plc today announces its financial results for the year ended 31 March 2022.

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

Company Registration No. 10765119

ANNINGTON FUNDING PLC

Annual Report and Financial Statements

For the year ended 31 March 2022

STRATEGIC REPORT

The principal activity of Annington Funding plc ("the Company") is the financing of the Annington Limited group ("the Group") via an intercompany loan to Annington Homes Limited ("AHL"). During the year it issued two tranches of fixed rate notes of GBP400.0 million each under its GBP4 billion Euro Medium Term Note Programme and subscribed to redeemable preference shares in Annington Property Limited ("APL"), a fellow subsidiary of the Group.

BUSINESS REVIEW

The Company holds seven tranches of corporate, unsecured bonds, totalling c.GBP3.8 billion, including the issue of two new tranches referred to above, and a term loan of GBP400 million, also unsecured, maturing in March 2025. A revolving credit facility of GBP100 million is also available to the Company, which has never been drawn against.

The majority of the funding c.GBP3.4 billion, has been lent to AHL, its immediate parent, which in turn provides this funding to the rest of the Group.

In October 2021, the Company, issued two tranches of fixed rate notes of GBP400.0 million each under its GBP4 billion Euro Medium Term Note Programme. The notes mature in 2032 and 2051 and carry coupon rates of 2.308% and 2.924% respectively.

The Company used the cash raised as part of this financing to subscribe for new redeemable preference shares in APL.

The terms of the preference shares mirror the terms of the bonds in order to provide income to Annington Funding plc to service the interest payable on the bonds. Similarly, 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 recognised GBP0.1 million of finance income (2021: GBP0.1 million) and GBP0.1 million of finance costs (2021: GBP0.1 million) during the year, and ended the year with total assets of GBP4.2 billion (2021: GBP3.4 billion) and total liabilities of GBP4.2 billion (2021: GBP3.4 billion). Its result for the year after taxation is a profit of GBP0.05 million (2021: GBP0.01 million), in line with expectations. The increase in gross assets and liabilities is the result of the issue of the bonds and the purchase of redeemable preference shares as stated above. Other Comprehensive Income includes a fair value gain on swaps of GBP4.0 million (2021: loss of GBP23.3 million) with foreign exchange gains on bonds amounting to GBP4.2 million (2021: gain of GBP19.5 million). Further information on financial risk management can be found in Note 14 to the Financial Statements. The directors consider finance income in relation to finance costs as a key indicator, as well as total assets in relation to total liabilities. This is considered on a cumulative basis.

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 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, APL 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 issue of a further two tranches under the Euro Medium Term Note programme, which involved collaboration across ratings agencies, banks and various other parties. The debt issue and purchase of preference shares was approved with due consideration of sufficient covenant headroom within the current and forecast period, and the ability to meet obligations under the existing debt. 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 2022.

FUTURE DEVELOPMENTS

The Company has considered the economic impact of current events such as the war in Ukraine, rising interest rates and continuing uncertainty regarding Britain's exit from the European Union. 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 further risks arising from the aforementioned factors. Interest rate and foreign exchange sensitivities are provided in Note 14 to the financial statements to illustrate possible effects.

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.

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

30 June 2022

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 2022.

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 (Resigned effective 
  8 March 2022) 
 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 one non-executive director 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 (2021: 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 2022.

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.

BDO LLP has expressed their willingness to continue in office as auditor and arrangements have been put in place for them to be re-appointed as auditor in the absence of an Annual General Meeting.

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

S Leung

Director

30 June 2022

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 UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006. 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 UK adopted international accounting standards, 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; and

-- 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 2022 and of the Company's profit for the year then ended;

-- have been properly prepared in accordance with UK adopted international accounting standards; and

   --      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 2022 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 UK adopted international accounting standards.

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 ended 31 March 2021 and subsequent financial periods. This is our second 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 the Directors 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 the Directors to the Company's financial forecasts and covenants and assessing the accuracy of the forecasted cash flows and covenant compliance with reference to budgeted and historic performance and our knowledge of the Company and wider group 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

 
                                                         2022   2021 
   Key audit matters     Recoverability of intercompany    X      X 
                          receivables and redeemable 
                          preference shares 
                       Company Financial statements as a whole 
   Materiality          GBP42m (2021 - GBP34m) based on 1% 
                        (2021 - 1%) of Total 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. This matter was 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 this matter .

 
 Key audit matter                                How the scope of our audit addressed 
                                                  the key audit matter 
 Recoverability     The principal asset          We assessed the recoverability 
  of intercompany    on the balance sheet         of the loan receivable and redeemable 
  receivables        is the loan receivable       preference shares held at amortised 
  and redeemable     from Annington Homes         cost derived using the Effective 
  preference         Limited and the              Interest Rate (EIR) by performing 
  shares             redeemable preference        the following audit procedures: 
                     shares in Annington 
  Refer to           Property Limited.            We challenged management's expected 
  note 8 for         At each reporting            credit loss assessment, specifically 
  accounting         date, the Directors          the assumptions and judgements 
  policy and         are required to              made in relation to the borrower's 
  disclosure.        assess the recoverability    balance sheet and expected future 
                     of the intercompany          activities. We considered the 
                     loan receivable              financial condition of the underlying 
                     and redeemable preference    borrower based on the most recent 
                     shares.                      relevant draft annual financial 
                                                  statements for the year ended 
                     In respect of the            31 March 2022. We also obtained 
                     expected credit              and assessed, with reference to 
                     loss model there             available market data, the independent 
                     is a risk that management    expert's valuation reports as 
                     may influence the            at 31 March 2022 for the borrower's 
                     signi cant judgements        property portfolio. 
                     and estimates, being 
                     the borrowers expected       We examined post balance sheet 
                     future activities            events to consider whether the 
                     and financial condition,     impairment assessment assumptions 
                     in order to achieve          remained valid. In addition, we 
                     an increased total           obtained management's confirmation 
                     asset position and           that no significant post balance 
                     therefore we considered      sheet events had occurred which 
                     this to be a key             would impact the valuation. 
                     audit matter. 
                                                  Key observations: 
                                                  Based on the procedures performed 
                                                  we consider that the judgements 
                                                  and estimates made by management 
                                                  in determining the expected credit 
                                                  loss on the loan receivable and 
                                                  redeemable preference shares are 
                                                  reasonable. 
                   ---------------------------  ---------------------------------------- 
 
 

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:

 
                                      2022                              2021 
 Materiality             GBP42m                            GBP34m 
                        --------------------------------  -------------------------------- 
 Basis for determining   1% of total assets                1% of total assets 
  materiality 
                        --------------------------------  -------------------------------- 
 Rationale for           The company's principal           The company's principal 
  the benchmark           activity is the provision         activity is the provision 
  applied                 of financing to group entities    of financing to group entities 
                          and therefore we considered       and therefore we considered 
                          total assets to be the            total assets to be the 
                          most relevant benchmark           most relevant benchmark 
                          for users of the financial        for users of the financial 
                          statements.                       statements. 
                        --------------------------------  -------------------------------- 
 Performance             GBP29.4m                          GBP20.4m 
  materiality 
                        --------------------------------  -------------------------------- 
 Basis for determining   70% of materiality which          60% of materiality which 
  performance             reflects our risk assessment      reflects the fact that 
  materiality             and the impact of the 31          this is BDO's first year 
                          March 2022 being our second       as auditors. 
                          year as 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 GBP2.3m (2021 - GBP2.15m) for these items based on 2% (2021 - 2%) of finance income. We further applied a performance materiality level of 70% (2021 - 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 GBP0.84m (2021 - 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 and the 
  report                        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                 We have nothing to report in respect of the following 
  on which                matters in relation to which the Companies Act 
  we 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 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, the Directors and the Audit Committee as to their identification of any non-compliance with laws or regulations, or any actual or potential claims as well as known, suspected or alleged frauds;

-- We reviewed minutes f Board meetings throughout the period for any evidence of irregularities, including fraud:

-- 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 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

30 June 2022

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

INCOME STATEMENT

For the year ended 31 March 2022

 
                                                2022       2021 
                                     Note    GBP'000    GBP'000 
 
  Finance income                        6    118,721    107,640 
Finance costs                           6  (118,675)  (107,631) 
 
Profit before taxation                            46          9 
 
Taxation                                7          -          - 
 
  Profit for the year                             46          9 
 
 
Profit attributable to shareholder                46          9 
 
 

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 March 2022

 
                                                             2022      2021 
                                                   Note   GBP'000   GBP'000 
 
Profit for the year                                            46         9 
 
  Items that may subsequently be recycled 
   through the income statement 
  Cash flow hedge: 
  Fair value gains/(losses) on cash flow 
   hedge                                             13     4,006  (23,252) 
  Reclassification of fair value gains included 
   in profit and loss                                 6     4,218    19,509 
 
Total other comprehensive profit/(loss)                     8,224   (3,743) 
 
  Total comprehensive profit/(loss) for 
   the year                                                 8,270   (3,734) 
 
  Total comprehensive profit/(loss) attributable 
   to shareholder                                           8,270   (3,734) 
 
 
 

BALANCE SHEET

At 31 March 2022

 
                                                                    2022         2021 
                                        Note                     GBP'000      GBP'000 
Non-current assets 
  Financial assets at amortised cost       8                   4,163,738    3,383,023 
 
                                                               4,163,738    3,383,023 
 
Current assets 
  Financial assets at amortised cost       8                      46,879       25,954 
  Other receivables                                                    6            6 
Cash and cash equivalents                  9                       5,607           33 
 
                                                                  52,492       25,993 
 
Total assets                                                   4,216,230    3,409,016 
 
Current liabilities 
  Payables                                10                    (36,529)     (25,954) 
 
Net current assets                                                15,963           39 
 
Total assets less current liabilities                          4,179,701    3,383,062 
 
Non-current liabilities 
Loans and borrowings                      11                 (4,160,229)  (3,367,854) 
Derivative financial instruments          13                    (14,623)     (18,629) 
 
Total liabilities                                            (4,211,381)  (3,412,437) 
 
Net assets/(liabilities)                                           4,849      (3,421) 
 
Capital and reserves 
Share capital                             12                          50           50 
Hedging reserve                                                    1,250      (6,974) 
Retained earnings                                                  3,549        3,503 
 
Total equity                                                       4,849      (3,421) 
 
 

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 30 June 2022.

Signed on behalf of the Board of Directors

S Leung

Director

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2022

 
                                                     Share capital  Hedging reserve  Retained earnings  Total equity 
                                                           GBP'000          GBP'000            GBP'000       GBP'000 
 
           At 1 April 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) 
 
           Profit for the year                                   -                -                 46            46 
           Other comprehensive profit for the year               -            8,224                  -         8,224 
 
           Balance at 31 March 2022                             50            1,250              3,549         4,849 
 
 
 
 
 

CASH FLOW STATEMENT

For the year ended 31 March 2022

 
                                                                            2022       2021 
                                                                 Note    GBP'000    GBP'000 
 
 
Cash generated from operations                                     15      (125)          - 
Interest received from group undertakings                                110,757    100,264 
Interest paid                                                          (104,960)  (108,032) 
 
Net cash inflow/(outflow) from operating activities                        5,672    (7,768) 
 
 
Investing activities 
Purchase of preference shares                                          (793,600)          - 
Loans to group undertakings                                                    -      (800) 
 
Net cash outflow from investing activities                             (793,600)      (800) 
 
 
Financing activities 
Proceeds from new borrowings                                             800,000          - 
Debt issue costs                                                         (6,415)          - 
 
Net cash inflow from financing activities                                793,585          - 
 
 
Net increase/(decrease) in cash and cash equivalents                       5,657    (8,568) 
 
Cash and cash equivalents at the beginning of the year                        33      8,546 
 
Effect of exchange differences on cash and cash equivalents                 (83)         55 
 
Cash and cash equivalents at the end of the year                    9      5,607         33 
 
 

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2022

   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 International Financial Reporting Standards ('IFRS') and interpretations as adopted by the United Kingdom. They have also been prepared in accordance with 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 seven tranches of corporate, unsecured bonds, totalling c.GBP3.8 billion, including the issue of two new tranches referred to below, and a term loan of GBP400 million, also unsecured. A revolving credit facility of GBP100 million is also available to the Company, which has never been drawn against and expires in 2025.

On 6 October 2021, the Company, issued two tranches of fixed rate notes of GBP400.0 million each under its GBP4 billion Euro Medium Term Note Programme. These mature in October 2032 and October 2051 and carry coupon rates of 2.308% and 2.924% respectively.

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:

 
                                       Limit for         Limit for       31 March   31 March 
   Covenant            Test              Bonds              Loans          2022       2021 
  Limitation        Total debt 
    on Debt       / Total assets         <65%               <65%          46.7%      39.1% 
                -----------------  ----------------  -----------------  ---------  --------- 
  Limitation       Secured debt          <40%               <40%            -          - 
   on Secured     / Total assets 
      Debt 
                -----------------  ----------------  -----------------  ---------  --------- 
                                    1.0x (dividend    1.15x (dividend 
   Interest          EBITDA /          lockup at          lockup at 
  Cover Ratio        Interest            1.3x)              1.3x)         1.54x      1.69x 
                -----------------  ----------------  -----------------  ---------  --------- 
                   Unencumbered 
                     assets / 
 Unencumbered        Unsecured 
     Assets            Debt              >125%             >125%          212.4%     253.8% 
                -----------------  ----------------  -----------------  ---------  --------- 
 

As part of the debt raise during the year, the Company used the cash raised to subscribe for new redeemable preference shares in Annington Property Limited. The terms of the preference shares mirror the terms of the bonds in order to provide income to Annington Funding plc to service the interest payable on the bonds.

The Company also 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 of GBP100 million 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 2021

The Company has adopted the new accounting standards, amendments or interpretations which have become effective as at 1 April 2021. 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 2

Phase 2 amendments address any issues that arise once the existing Interest Rate Benchmarks have been replaced with an alternative rate. The Company has adopted the amendments relating to the IBOR reform from 1 April 2021 and transitioned from GBP LIBOR to SONIA (Sterling Overnight Index Average) during the year using the available practical expedients within the Phase 2 amendments. No adjustments were therefore required within the financial statements relating to this reform.

New Standards, interpretations and amendments issued not yet effective

At the date of authorisation of these financial statements, the following new and revised IFRSs have been issued and adopted by the UK Endorsement Board ('UKEB') but are not yet effective:

 
                                                            Effective date 
                                                             (annual periods 
   New/Amended Standards and Interpretations                 beginning on 
                                                             or after) 
  IFRS Improvements    2018-2020 Annual Improvements        1 January 2022 
                        Cycle 
                     -----------------------------------  ------------------ 
  IAS 37 Amendments    Amendments to Costs of Fulfilling    1 January 2022 
                        a Contract 
                     -----------------------------------  ------------------ 
  IFRS 9 Amendments    Amendment to Fees in the '10         1 January 2022 
                        per cent'Test for Derecognition 
                        of Financial Liabilities 
                     -----------------------------------  ------------------ 
 

The following new and revised IFRSs have been issued, but not yet endorsed by the UKEB:

 
  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 from     1 January 2023 
                          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 GBP44,800 (2021: GBP42,500) for the audit of the Company's annual financial statements. No other services were provided by the auditor to the Company.

   5.         INFORMATION REGARDING DIRECTORS AND EMPLOYEES 

The Company had no employees of its own during the year (2021: 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 

Interest income and dividends on redeemable preference shares are 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.

 
                                                             2022      2021 
                                                          GBP'000   GBP'000 
         Finance income 
         Interest receivable on intercompany balances     108,372   107,640 
         Preference dividends                              10,349         - 
 
         Total finance income                             118,721   107,640 
 
         Finance costs 
         Interest payable on unsecured fixed rate 
          bonds                                           107,988    97,652 
         Amortisation of issue costs                        2,936     2,438 
         Interest payable on term loan                      7,117     7,214 
         Foreign exchange gain on financing               (4,146)  (19,564) 
         Transfer from equity for cash flow hedge           4,218    19,509 
         Other finance expenses                               562       382 
 
         Total finance costs                              118,675   107,631 
 
 
   7.         TAXATION 

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 GBP3.7 million (2021: deferred tax asset GBP3.5 million) relating to losses arising on the fair value of derivative financial instruments of GBP14.6 million (2021: 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. Deferred tax has been calculated at 25% (2021: 19%).

The standard rate of current tax for the year, based on the UK standard rate of corporation tax is 19% (2021: 19%). The charge for the year can be reconciled to profit before tax as follows:

 
 
                                                                                   2022              2021 
                                                                                GBP'000           GBP'000 
 
         Profit before tax                                                           46                 9 
 
         Tax charge at the standard rate                                            (9)               (2) 
 
         Factors affecting the current tax for the 
          year: 
         Group relief surrendered                                               (1,957)                 2 
          Income not assessed for tax                                             1,966                 - 
 
         Taxation for the year                                                        -                 - 
 
 

The rate of Corporation Tax for the UK remains at 19% for the year ended 31 March 2022. The 25% UK Corporation Tax Rate is substantively enacted with effective from 1 April 2023.

   8.         FINANCIAL ASSETS AT AMORTISED COST 

Financial assets are initially recognised at fair value plus transaction costs. 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.

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.

 
                                                                   2022       2021 
                                                                GBP'000    GBP'000 
         Amounts falling due within one year 
         Amounts owed by group undertakings                      33,650     23,025 
         Dividends receivable on preference shares 
          - group undertakings                                   10,349          - 
         Interest receivable on swaps                             2,880      2,929 
 
                                                                 46,879     25,954 
 
         Amounts falling due after more than one 
          year 
         Amounts owed by group undertakings                   3,370,138  3,383,023 
         Redeemable preference shares - group undertakings      793,600          - 
 
                                                              4,163,738  3,383,023 
 
 
 
         Total financial assets at amortised cost             4,210,617  3,408,977 
 
 

Amounts owed by group undertakings include:

 
Unsecured, interest-bearing and no fixed date 
of repayment                                     3,403,663  3,406,048 
Short-term receivable                                  125          - 
 
                                                 3,403,788  3,406,048 
 
 
 

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. There has been no change in the estimation techniques used or increase in the lifetime expected credit losses of the financial asset in the current period. In assessing the expected credit loss the directors have considered, amongst other things, the potential impact of future interest rates and inflation within the economy and the impact of these on the borrower as well as the fact that there is no history of default. Interest is charged on the loan at a rate of 3.2322% (2021: 3.2123%). This rate is mutually agreed upon periodically. Unpaid interest balances are accrued within amounts owed by group undertakings; balances expected to be received in the next 12 months are shown separately. Short-term receivables relate to charges paid by the Company and recoverable from the counterparty. There are no balances past due and no impairment has been deemed necessary and the carrying value approximates fair value.

The Company holds 793,600,000 preference shares of GBP1 each in Annington Property Limited, a fellow subsidiary of the Annington group. These were issued in October 2021 in two tranches as set out below. Preference dividends are cumulative and are accrued at the dividend rate as shown within the table below.

 
 Par value     Final Maturity   Dividend 
  (GBP) 
 397,560,000      6-Oct-32       2.378% 
              ---------------  --------- 
 396,040,000      6-Oct-51       2.987% 
              ---------------  --------- 
 

Unpaid dividends are expected to be received within the next 12 months and are accrued within current financial assets. The investment was reviewed by reference to the issuer's balance sheet and expected future activities, with a provision only recorded to the extent the loan is not considered recoverable. No impairment has been deemed necessary.

The fair value of the redeemable preference shares has been calculated at GBP716.1 million by applying the risk adjusted market yield for the corresponding external debt to the expected cash flows of the instruments. This falls constitutes a Level 3 valuation within the fair value hierarchy as described in note 11. Discount rates of 3.239% and 3.649% were applied to the 2032 and 2051 tranches, respectively. A 1% increase/decrease in discount rates applied would have resulted in the fair value decreasing by GBP89.9 /increasing by GBP109.9 million, respectively.

   9.         CASH AND CASH EQUIVALENTS 

Cash and cash equivalents comprise cash at bank. Cash and cash equivalents are limited to instruments with a maturity of less than three months.

 
                             2022      2021 
                          GBP'000   GBP'000 
 
         Cash at bank       5,607        33 
 
 
   10.       PAYABLES 

Payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

 
                                                     2022      2021 
                                                  GBP'000   GBP'000 
         Amounts falling due within one year 
         Accrued interest                          36,370    25,799 
         Other accruals                               159       155 
 
                                                   36,529    25,954 
 
 
 

The carrying value of payables approximates fair value.

   11.       LOANS AND BORROWINGS 

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.

 
                                                          2022       2021 
                                                       GBP'000    GBP'000 
         Amounts falling due between one and five 
          years 
         Unsecured bonds                             1,128,943  1,132,065 
         Unsecured term loan                           397,564    396,414 
 
                                                     1,526,507  1,528,479 
         Amounts falling due after five years 
         Unsecured bonds                             2,633,722  1,839,375 
 
         Total loans and borrowings                  4,160,229  3,367,854 
 
 

The Company holds seven tranches of corporate, unsecured bonds, totalling c.GBP3.8 billion, including the issue of two new tranches referred to below, 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 6 October 2021, the Company, issued two tranches of fixed rate notes of GBP400.0 million each under its GBP4 billion Euro Medium Term Note Programme. These mature in October 2032 and October 2051 and carry coupon rates of 2.308% and 2.924% respectively.

The Company had issued the bonds in the following denominations, maturities and fixed interest rates:

 
 Principal   Currency    Final Maturity   Coupon 
  Amount 
   600m      EUR (EUR)     12-Jul-24       1.650%* 
            ----------  ---------------  --------- 
   625m      GBP (GBP)     12-Jul-25       2.646% 
            ----------  ---------------  --------- 
   600m      GBP (GBP)     12-Jul-29       3.184% 
            ----------  ---------------  --------- 
   400m      GBP (GBP)     06-Oct-32       2.308% 
            ----------  ---------------  --------- 
   625m      GBP (GBP)     12-Jul-34       3.685% 
            ----------  ---------------  --------- 
   625m      GBP (GBP)     12-Jul-47       3.935% 
            ----------  ---------------  --------- 
   400m      GBP (GBP)     06-Oct-51       2.924% 
            ----------  ---------------  --------- 
 

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:

 
                                       Limit for         Limit for       31 March   31 March 
   Covenant            Test              Bonds              Loans          2022       2021 
  Limitation        Total debt 
    on Debt       / Total assets         <65%               <65%          46.7%      39.1% 
                -----------------  ----------------  -----------------  ---------  --------- 
  Limitation       Secured debt          <40%               <40%            -          - 
   on Secured     / Total assets 
      Debt 
                -----------------  ----------------  -----------------  ---------  --------- 
                                    1.0x (dividend    1.15x (dividend 
   Interest          EBITDA /          lockup at          lockup at 
  Cover Ratio        Interest            1.3x)              1.3x)         1.54x      1.69x 
                -----------------  ----------------  -----------------  ---------  --------- 
                   Unencumbered 
                     assets / 
 Unencumbered        Unsecured 
     Assets            Debt              >125%             >125%          212.4%     253.8% 
                -----------------  ----------------  -----------------  ---------  --------- 
 

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                                                     31 March 
                                     2022           costs  Foreign Exchange Revaluation    Cost of new debt       2021 
                                  GBP'000         GBP'000            adjustment GBP'000             GBP'000    GBP'000 
          Fixed Rate EUR Bonds 
                          2024    505,868             471                       (4,146)                   -    509,543 
         Fixed Rate GBP Bonds 
          2025                    623,075             553                             -                   -    622,522 
         Fixed Rate GBP Bonds 
          2029                    597,299             324                             -                   -    596,975 
         Fixed Rate GBP Bonds 
          2032                    397,649              96                             -             397,553          - 
         Fixed Rate GBP Bonds 
          2034                    621,625             213                             -                   -    621,412 
         Fixed Rate GBP Bonds 
          2047                    621,077              89                             -                   -    620,988 
         Fixed Rate GBP Bonds 
          2051                    396,072              40                             -             396,032          - 
         Term Loan 2025           397,564           1,150                             -                   -    396,414 
 
                                4,160,229           2,936                       (4,146)             793,585  3,367,854 
 
 

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).

 
                                                                 2022 
                                                                  Balance 
                                                  Par value   sheet value   Fair value 
                                                    GBP'000       GBP'000      GBP'000 
         Level 2 
         Non-derivative financial liabilities 
         Unsecured bonds                        (3,801,260)   (3,762,665)  (3,717,708) 
         Unsecured term loan                      (400,000)     (397,564)    (400,000) 
 
                                                (4,201,260)   (4,160,229)  (4,117,708) 
 
         Derivative financial liability 
         Cross currency swap                              -      (14,623)     (14,623) 
 
         Total financial liabilities            (4,201,260)   (4,174,852)  (4,132,331) 
 
 
 
                                                                 2021 
                                                                  Balance 
                                                  Par value   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 assets 
         Cross currency swaps                             -      (18,629)     (18,629) 
 
         Total financial liabilities            (3,401,260)   (3,386,483)  (3,723,834) 
 
 

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.

Unsecured term loan

This loan relates to a GBP400 million unsecured bank loan, maturing in March 2025. The loan is based on a variable market-based rate and book value therefore approximates fair value.

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 2022.

   12.       SHARE CAPITAL 
 
                                                    2022      2021 
                                                 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 

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.

 
                                                       2022        2021 
                                                    GBP'000     GBP'000 
  Financial liability measured at fair value 
   through OCI 
  Cross currency swaps that are in designated 
   hedge accounting relationships                  (14,623)      (18,629) 
 
 
 

Reconciliation of movements

 
                                                     Revaluation 
                                               2022   adjustment      2021 
                                            GBP'000      GBP'000   GBP'000 
 
         Cross currency swap liability     (14,623)        4,006  (18,629) 
 
         Total derivative financial 
          instruments                      (14,623)        4,006  (18,629) 
 
 
   14.       FINANCIAL INSTRUMENTS AND RISK MANAGEMENT 

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.

The Company has the following financial instruments:

 
                                                             2022       2021 
                                              Note        GBP'000    GBP'000 
         Financial assets 
         Financial assets at amortised cost      8      4,210,617  3,408,977 
         Cash and cash equivalents               9          5,607         33 
 
         Total financial assets                         4,216,224  3,409,010 
 
         Financial liabilities 
         Liabilities measured at amortised 
          cost: 
             Payables                           10         36,529     25,954 
             Loans and borrowings               11      4,160,229  3,367,854 
         Liabilities measured at fair value 
          through OCI: 
             Cross currency swaps               13         14,623     18,629 
 
         Total financial liabilities                    4,211,381  3,412,437 
 
 
 

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 amounts due from group undertakings.

The Company's exposure to credit risk is assessed as low as this is primarily attributed to its receivables, which consists principally of an intercompany loan to AHL and redeemable preference shares in APL. 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.

There is a GBP100 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 5%                        Weakening 5% 
        ----------------------------------    ---------------------------------- 
          Gains/(losses)    Gains/(losses)      Gains/(losses)    Gains/(losses) 
               in income          included           in income          included 
               statement         in equity           statement         in equity 
                 GBP'000           GBP'000             GBP'000           GBP'000 
        ----------------  ----------------    ----------------  ---------------- 
  2022                 -           (2,382)                   -             (159) 
 
                  Strengthening 10%                       Weakening 10% 
        ----------------------------------    ---------------------------------- 
          Gains/(losses)    Gains/(losses)      Gains/(losses)    Gains/(losses) 
               in income          included           in income          included 
               statement         in equity           statement         in equity 
                 GBP'000           GBP'000             GBP'000           GBP'000 
        ----------------  ----------------    ----------------  ---------------- 
  2021                 -           (9,317)                   -             2,950 
 

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 (LIBOR + 1.6% up to December 2021 and spread adjusted SONIA + 1.6% from January 2022). The term loan is for a value of GBP400 million, maturing in 2025.

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:

 
                  100 bps increase                      100 bps decrease 
        ----------------------------------    ---------------------------------- 
          Gains/(losses)    Gains/(losses)      Gains/(losses)    Gains/(losses) 
               in income          included           in income          included 
               statement         in equity           statement         in equity 
                 GBP'000           GBP'000             GBP'000           GBP'000 
        ----------------  ----------------    ----------------  ---------------- 
  2022           (3,987)             (420)                 763              (17) 
 
                   50 bps increase                       50 bps decrease 
        ----------------------------------    ---------------------------------- 
          Gains/(losses)    Gains/(losses)      Gains/(losses)    Gains/(losses) 
               in income          included           in income          included 
               statement         in equity           statement         in equity 
                 GBP'000           GBP'000             GBP'000           GBP'000 
        ----------------  ----------------    ----------------  ---------------- 
  2021           (2,008)             (197)                 719               222 
 

The bps 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 2022 (2021: GBP100 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.

 
                                                                              2022 
                                                               Less than       One to    More than 
                                                        Total   one year   five years   five years 
                                                      GBP'000    GBP'000      GBP'000      GBP'000 
           Non-derivative financial liabilities 
           Payables                                       159        159            -            - 
           Loans and borrowings                     5,806,450    121,830    1,962,162    3,722,458 
 
           Total non-derivative financial 
            liabilities                             5,806,609    121,989    1,962,162    3,722,458 
 
 
             Net payments for derivative 
             financial instruments 
           Cross currency swaps                        30,494      6,179       24,315            - 
 
           Total derivative financial instruments      30,494      6,179       24,315            - 
 
 
 
                                                                              2021 
                                                               Less than       One to    More than 
                                                        Total   one year   five years   five years 
                                                      GBP'000    GBP'000      GBP'000      GBP'000 
           Non-derivative financial liabilities 
           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            - 
 
 
   15.       NOTES TO CASH FLOW STATEMENT 
 
                                                 2022       2021 
                                              GBP'000    GBP'000 
 
         Profit after taxation                     46          9 
         Adjustment for: 
         Finance costs                        118,675    107,631 
         Finance income                     (118,721)  (107,640) 
         Movements in working capital: 
         Increase in receivables                (125)          - 
 
         Cash generated from operations         (125)          - 
 
 
 
   16.       ANALYSIS OF CHANGES IN NET DEBT 
 
                                                                   Other 
                                                                non-cash 
                                            2022    Cash flow    changes         2021 
                                         GBP'000      GBP'000    GBP'000      GBP'000 
 
         Cash and cash equivalents         5,607        5,657       (83)           33 
 
         Unsecured notes             (3,762,665)    (793,585)      2,360  (2,971,440) 
         Unsecured term loan           (397,564)            -    (1,150)    (396,414) 
 
         Net debt                    (4,154,622)    (787,928)      1,127  (3,367,821) 
 
 
 
                                                                   Other 
                                                                non-cash 
                                            2021    Cash flow    changes         2020 
                                         GBP'000      GBP'000    GBP'000      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:

 
                                                           2022      2021 
                                                        GBP'000   GBP'000 
         Immediate Parent 
         Annington Homes Limited - finance income       108,372   107,640 
 
           Fellow subsidiary 
         Annington Property Limited - preference 
          share dividend                                 10,349         - 
 
                                                        118,721   107,640 
 
 
 

The following amounts were outstanding at the balance sheet date:

 
                                                                    Amounts owed 
                                                                  by related parties 
                                                                        2022       2021 
                                                                     GBP'000    GBP'000 
         Immediate Parent 
         Annington Homes Limited - intercompany loan               3,403,663  3,406,048 
         Annington Homes Limited - short-term receivable                 125          - 
 
           Fellow subsidiary 
         Annington Property Limited - redeemable 
         preference shares                                           793,600          - 
         Annington Property Limited - redeemable 
         preference dividend                                          10,349          - 
 
                                                                   4,207,737  3,406,048 
 
 
 
 

The intercompany loan balance outstanding from Annington Homes Limited relates to a loan provided by Annington Funding plc with no set redemption date and at an interest rate of 3.232% (2021: 3.2123%) per annum. An annual fee of GBP10,000 (2021: GBP10,000) is payable to Annington Funding plc by Annington Homes Limited for administration services. The short-term receivable relates to costs paid on Annington Homes Limited's behalf.

The Company holds 793,600,000 preference shares of GBP1 each in Annington Property Limited, a fellow subsidiary of the Annington group. These were issued in October 2021 in two tranches maturing in 2032 and 2051 and preference dividends are cumulative and are accrued at rates of 2.378% and 2.987% on par value respectively.

   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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July 06, 2022 03:01 ET (07:01 GMT)

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