TIDM75TW
RNS Number : 3360F
Annington Funding PLC
07 July 2023
7 July 2023
ANNINGTON FUNDING PLC
(incorporated with limited liability in England and Wales)
Publication of Full Year Financial Statements
Annington Funding plc today announces its financial results for
the year ended 31 March 2023.
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 2023
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 undertook a refinancing of shorter-dated bonds, which were
replaced by a new issue of GBP400 million fixed rate notes maturing
in 2033 and a tap issue of existing 2047 bonds. The GBP400 million
unsecured term loan was also extended to 2028 in the year.
BUSINESS REVIEW
The Company holds eight tranches of corporate, unsecured bonds,
totalling c.GBP3.8 billion as well as a term loan of GBP400
million, also unsecured, maturing in February 2028. 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.GBP3.8 billion, has been lent to
AHL, its immediate parent, which in turn provides this funding to
the rest of the Group.
In August 2022, the Company refinanced EUR426.7 million 2024
Euro bonds and GBP143.5 million 2025 Sterling bonds, funded by a
new GBP400 million 11 year issue maturing in 2033 with a coupon
rate of 4.75% and a GBP135 million tap issue of the existing 2047
bonds.
The Company also successfully extended its term loan and
revolving credit facilities from March 2025 to February 2028. The
terms are largely unchanged from the previous facilities and carry
a headline margin of 185bp.
The Company holds an investment of redeemable preference shares
in Annington Property Limited ("APL"), in order to provide income
to Annington Funding plc to service the interest payable on certain
of its fixed rate 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 GBP145.9 million of finance income (2022:
GBP118.7 million) and GBP148.7 million of finance costs (2022:
GBP118.7 million) during the year and ended the year with total
assets of GBP4,212.1 million (2022: GBP4,216.2 million) and total
liabilities of GBP4,211.8 million (2022: GBP4,211.4 million). Its
result for the year after taxation is a loss of GBP2.9 million
(2022: profit of GBP0.05 million). The loss incurred during the
current year reflects the difference between interest earned on
intergroup balances and the Company's costs incurred. Other
Comprehensive Income includes a fair value gain on swaps of GBP6.1
million (2022: gain of GBP4.0 million) with foreign exchange losses
on bonds amounting to GBP4.6 million (2022: gain of GBP4.2
million). An amount of GBP3.1 million (2022: GBPnil) was recycled
from the hedging reserve to profit and loss as a result of the
termination of certain of the cross-currency swaps held to hedge
interest and capital payments of the Euro-denominated bonds. This
recycled amount has been within finance income on the face of the
income statement. Further information on financial risk management
can be found in Note 15 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 15 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 refinancing of two tranches under the
Euro Medium Term Note programme and the extension of the term loan
and revolving credit facilities, which involved collaboration
across ratings agencies, banks and various other parties. These
financing transactions were 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 2023.
FUTURE DEVELOPMENTS
The Company has considered the economic impact of current events
such as the war in Ukraine, rising inflation and 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 15 to the financial
statements to illustrate possible effects.
The Company has also considered the impact of the Notices of
Enfranchisement received by APL and the subsequent judgment handed
down by the High Court of Justice on the Group's ability to service
and repay debt as it becomes due. This is discussed in more detail
in the Going Concern section set out in Note 2 to the financial
statements.
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
5 July 2023
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 2023.
Directors
The directors who served throughout the year and to the date of
this report were:
Stephen Leung
Ian Rylatt
David Tudor-Morgan (Appointed 2 May
2023)
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 (2022:
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 15.
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
2023.
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.
Deloitte 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
5 July 2023
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 MEMBER OF ANNINGTON FUNDING
PLC
Report on the audit of the financial statements
Opinion
In our opinion the financial statements of Annington Funding PLC
(the 'company'):
-- give a true and fair view of the state of the company's
affairs as at 31 March 2023 and of its loss for the year then
ended;
-- have been properly prepared in accordance with United Kingdom
adopted international accounting standards and International
Financial Reporting Standards (IFRSs) as issued by the
International Accounting Standards Board (IASB); and
-- have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
-- the income statement;
-- the statement of comprehensive income;
-- the balance sheet;
-- the statement of changes in equity;
-- the cash flow statement; and
-- the related Notes 1 to 19.
The financial reporting framework that has been applied in their
preparation is applicable law, United Kingdom adopted international
accounting standards and IFRSs as issued by the IASB.
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 are independent of the company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council's
(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. The non-audit services
provided to the company for the year are disclosed in note 4 to the
financial statements. We confirm that we have not provided any
non-audit services prohibited by the FRC's Ethical Standard to the
company.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters The key audit matter that we identified in the
current year was:
* Recoverability of receivables from group undertakings
and carrying value of investment in redeemable
preference shares.
Materiality The materiality that we used in the current year
was GBP42m which was determined on the basis of
1% of total assets.
We also apply a lower materiality of GBP2.8m based
on 2% of the finance income. This lower materiality
has been applied to transactions reported in the
Income Statement relating to finance income and
finance cost and interest receivable and payable
------------------------------------------------------------
Scoping Audit work to respond to the risks of material
misstatement was performed directly by the audit
engagement team.
------------------------------------------------------------
Significant changes This is the first year we are performing the audit
in our approach of the financial statements of the Company. There
have been no significant changes to our approach
in the current year compared to the predecessor
auditor.
------------------------------------------------------------
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:
-- Challenging of the judgements and assumptions applied in the
going concern assessment and associated forecasts of financial
performance and financial position, assessing the reasonableness of
assumptions regarding uncertain cash inflows and the timing and
quantum of cash outflows;
-- Testing of the mechanical accuracy of the model utilised;
-- Assessing the appropriateness of the sensitivities in the downside scenario;
-- Reviewing loan documentation to understand the principal
terms, including financial covenants, and assessment review of the
Company's existing and forecast compliance with these (including
testing of the mechanical accuracy of management's covenant
calculations and consistency with the contractual definitions);
-- Assessing the level of headroom available on covenants under
the base case and downside scenario; and
Evaluating the appropriateness of the disclosures in the
financial statements around going concern and the clarity of the
process undertaken by management in concluding on the
appropriateness of the assessment.
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
company'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.
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. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
Recoverability of receivables from group undertakings and
carrying value of investment in redeemable preference shares
Key audit matter Receivables from group undertakings are stated
description in the balance sheet at GBP3,406m (2022: GBP3,403m)
and investment in preference shares are stated
in the balance sheet at GBP793m (2022: GBP793m).
They are initially recognised at fair value and
if they 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 the principal, they are subsequently
measured at amortised cost using the Effective
Interest Rate (EIR) method, less any loss allowance
for Expected Credit Losses (ECL).
There is a significant level of judgement involved
in determining the recoverability of these receivables
from group undertakings and investment in preference
shares based on the financial position and future
prospects of the group undertakings. In considering
recoverability and potential impairment under
IFRS 9 "Financial Instruments", the directors
of the company must assess the respective credit
quality and liquidity of each group undertaking.
Further details are included within note 8 to
the financial statements.
How the scope We assessed the recoverability of the loan receivable
of our audit responded and redeemable preference shares held at amortised
to the key audit cost derived using the Effective Interest Rate
matter (EIR) by performing the following procedures:
* We obtained an understanding of relevant controls
over the valuation and recoverability of receivables
from group undertakings and investment in redeemable
preference shares.
* We have challenged the director's judgements
regarding the appropriateness of the carrying value
through a detailed assessment of the credit and
liquidity position of each group undertaking and by
assessing the ability of the group undertakings to
repay these amounts.
* We have assessed whether the ECL model used by
Management is appropriate, considering the changes to
the credit risk since origination of the financial
assets.
* We have examined post balance sheet events to
consider whether the impairment assessment
assumptions remain valid. In addition, we obtained
management's confirmation that post balance sheet
events would not impact the valuation.
------------------------------------------------------------
Key observations Based on the work performed we concluded that
receivables from group undertakings and investments
in redeemable preference shares are appropriately
stated.
------------------------------------------------------------
Our application of materiality
Materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Materiality GBP42m (2022: GBP42m)
GBP2.8m (2022: GBP2.3m) for transactions reported
on the Income Statement relating to finance income
and finance cost and Interest receivable and payable.
Basis for determining 1% of total assets (2022: 1% of total assets)
materiality The lower materiality was determined with reference
to 2% of the finance income (2022: 2% of the finance
income)
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Rationale for We determined materiality based on total assets
the benchmark as the key metric for the users of financial statements
applied as the company's principal activity is raising
debt and the provision of financing to group entities.
Finance income is deemed an appropriate benchmark
for items impacting the finance income and finance
cost as these are more sensitive to the users
of the financial statements.
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Performance materiality
We set performance materiality at a level lower than materiality
to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial
statements as a whole. Performance materiality was set at 70% of
materiality for the 2023 audit (2022: 70%). In determining
performance materiality, we considered the following factors:
a. the low number of corrected and uncorrected identified in
prior periods identified by the predecessor auditor
b. the quality of the control environment
c. the absence of material changes in the business.
Error reporting threshold
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of GBP2.1m (2022
GBP0.84m), as well as differences below that threshold that, in our
view, warranted reporting on qualitative grounds. We also report to
the Audit Committee on disclosure matters that we identified when
assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Scoping
Our audit was scoped by obtaining an understanding of the entity
and its environment, including internal control, and assessing the
risks of material misstatement. Audit work to respond to the risks
of material misstatement was performed directly by the audit
engagement team.
Our consideration of the control environment
From our understanding of the company and after assessing
relevant controls, we tested controls in relation to our key audit
matter. Whilst we did not take controls reliance, we obtained an
understanding of the relevant controls relating to the borrowings
process given the significance to the company. In addition, we have
obtained an understanding of the relevant controls such as those
relating to the financial reporting cycle. With the involvement of
our IT specialists, we obtained an understanding of the IT
environment. We did not test the general IT controls and we did not
place reliance on IT controls.
Other information
The other information comprises the information included in the
annual report, other than the financial statements and our
auditor's report thereon. The directors are responsible for the
other information contained within the annual report.
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.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, 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.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor's report.
Extent to which the audit was considered 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.
Identifying and assessing potential risks related to
irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
-- the nature of the industry and sector, control environment
and business performance including the design of the company's
remuneration policies, key drivers for directors' remuneration,
bonus levels and performance targets;
-- results of our enquiries of management, the directors and the
audit committee about their own identification and assessment of
the risks of irregularities, including those that are specific to
the company's sector;
-- any matters we identified having obtained and reviewed the
company's documentation of their policies and procedures relating
to:
o identifying, evaluating and complying with laws and
regulations and whether they were aware of any instances of
non-compliance;
o detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged fraud;
o the internal controls established to mitigate risks of fraud
or non-compliance with laws and regulations;
-- the matters discussed among the audit engagement team and
relevant internal specialists, including tax, financial instruments
and IT specialists regarding how and where fraud might occur in the
financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities
and incentives that may exist within the organisation for fraud. In
common with all audits under ISAs (UK), we are also required to
perform specific procedures to respond to the risk of management
override.
We also obtained an understanding of the legal and regulatory
frameworks that the company operates in, focusing on provisions of
those laws and regulations that had a direct effect on the
determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this
context included the UK Companies Act, Listing Rules and tax
legislation.
In addition, we considered provisions of other laws and
regulations that do not have a direct effect on the financial
statements but compliance with which may be fundamental to the
company's ability to operate or to avoid a material penalty.
Audit response to risks identified
As a result of performing the above, we did not identify any key
audit matters related to the potential risk of fraud or
non-compliance with laws and regulations.
Our procedures to respond to risks identified included the
following:
-- reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect
on the financial statements;
-- enquiring of management, the audit committee and external
legal counsel concerning actual and potential litigation and
claims;
-- performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
-- reading minutes of meetings of those charged with governance,
reviewing internal audit reports and reviewing correspondence with
HMRC; and
-- in addressing the risk of fraud through management override
of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members including
internal specialists, and remained alert to any indications of
fraud or non-compliance with laws and regulations throughout the
audit.
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act
2006
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the company
and its environment obtained in the course of the audit, we have
not identified any material misstatements in the strategic report
or the directors' report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
-- we have not received all the information and explanations we require for our audit; or
-- adequate accounting records have not been kept, or returns
adequate for our audit have not been received from branches not
visited by us; or
-- the financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors' remuneration
Under the Companies Act 2006 we are also required to report if
in our opinion certain disclosures of directors' remuneration have
not been made.
We have nothing to report in respect of this matter.
Other matters which we are required to address
Auditor tenure
Following the recommendation of the audit committee, we were
appointed by the directors on 24 March 2023 to audit the financial
statements for the year ending 31 March 2023 and subsequent
financial periods. The period of total uninterrupted engagement
including previous renewals and reappointments of the firm is 1
year, covering the year ending 31 March 2023.
Consistency of the audit report with the additional report to
the audit committee
Our audit opinion is consistent with the additional report to
the audit committee we are required to provide in accordance with
ISAs (UK).
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.
Jonathan Dodworth (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
5 July 2023
INCOME STATEMENT
For the year ended 31 March 2023
2023 2022
Note GBP'000 GBP'000
Finance income 6 145,944 118,721
Finance costs 6 (148,652) (118,675)
Administrative expenses (204) -
(Loss)/profit before taxation (2,912) 46
Taxation 7 - -
(Loss)/profit for the year (2,912) 46
(Loss)/profit attributable to shareholder (2,912) 46
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2023
2023 2022
Note GBP'000 GBP'000
(Loss)/profit for the year (2,912) 46
Items that may subsequently be recycled
through the income statement
Cash flow hedge:
Fair value gains on cash flow hedge 14 6,121 4,006
Reclassification of fair value (losses)/gains
included in profit and loss 6 (4,570) 4,218
Recycling of hedge reserve on termination
of swaps (3,120) -
Total other comprehensive (loss)/profit (1,569) 8,224
Total comprehensive (loss)/profit for
the year (4,481) 8,270
Total comprehensive (loss)/profit attributable
to shareholder (4,481) 8,270
BALANCE SHEET
At 31 March 2022
2023 2022
Note GBP'000 GBP'000
Non-current assets
Financial assets at amortised cost 8 4,167,081 4,163,738
Derivative financial instruments 14 475 -
4,167,556 4,163,738
Current assets
Financial assets at amortised cost 8 44,415 46,879
Other receivables 11 6
Cash and cash equivalents 9 146 5,607
44,572 52,492
Total assets 4,212,128 4,216,230
Current liabilities
Payables 10 (34,066) (36,529)
Net current assets 10,506 15,963
Total assets less current liabilities 4,178,062 4,179,701
Non-current liabilities
Loans and borrowings 11 (4,177,694) (4,160,229)
Derivative financial instruments 14 - (14,623)
Total liabilities (4,211,760) (4,211,381)
Net assets 368 4,849
Capital and reserves
Share capital 12 50 50
Hedging reserve 13 (319) 1,250
Retained earnings 637 3,549
Total equity 368 4,849
The accompanying Notes (1 to 19) 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 5 July 2023.
Signed on behalf of the Board of Directors
S Leung
Director
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2023
Retained
Share capital Hedging reserve earnings Total equity
GBP'000 GBP'000 GBP'000 GBP'000
At 1 April 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
Loss for the year - - (2,912) (2,912)
Other comprehensive loss
for the year - (1,569) - (1,569)
Balance at 31 March 2023 50 (319) 637 368
CASH FLOW STATEMENT
For the year ended 31 March 2023
2023 2022
Note GBP'000 GBP'000
Cash utilised in operations 16 (28) (125)
Finance income received from group undertakings 136,483 110,757
Finance costs paid (142,035) (104,960)
Net cash (outflow)/inflow from operating activities (5,580) 5,672
Investing activities
Purchase of preference shares - (793,600)
Net cash outflow from investing activities - (793,600)
Financing activities
Proceeds from new borrowings 515,104 800,000
Repayment of borrowings (496,935) -
Cash received on settlement of swap principal 359,275 -
Cash paid on settlement of swap principal (369,415) -
Debt issuance costs and refinancing fees (7,919) (6,415)
Net cash inflow from financing activities 110 793,585
Net (decrease)/increase in cash and cash equivalents (5,470) 5,657
Cash and cash equivalents at the beginning of the year 5,607 33
Effect of exchange differences on cash and cash equivalents 9 (83)
Cash and cash equivalents at the end of the year 9 146 5,607
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2023
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 19.
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 15.
The Company holds eight tranches of corporate, unsecured bonds,
totalling c.GBP3.8 billion, including the issue of a new tranche
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 2028.
On 8 August 2022, the Company refinanced EUR426.7 million 2024
Euro bonds and GBP143.5 million 2025 Sterling bonds, funded by a
new GBP400 million 11 year issue maturing in 2033 with a coupon
rate of 4.75%, and a GBP135 million tap issue of the 2047
bonds.
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 2023 2022
Limitation Total debt
on Debt / Total assets <65% <65% 51.2% 46.7%
----------------- ---------------- ----------------- --------- ---------
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) 1.37x 1.54x
----------------- ---------------- ----------------- --------- ---------
Unencumbered
assets /
Unencumbered Unsecured
Assets Debt >125% >125% 193.6% 212.4%
----------------- ---------------- ----------------- --------- ---------
The Company receives preference share dividends on the
redeemable preference shares issued by APL. It additionally
receives finance 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, the loan 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
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 repurchasing debt,
reinvestment or potential dividends to shareholders. Were this not
possible, cash reserves and the undrawn revolving credit facility
provides additional liquidity to the Group to allow the continued
operation for the foreseeable future. The Group is satisfied that
sufficient actions are available to mitigate any potential adverse
impact on covenant compliance. The Board has taken into account the
effects of current market conditions, including rising inflation
and interest rates, a depressed UK residential sales market and the
war in Ukraine. Possible downside effects considered included
falling house prices, falling rental values and increased arrears
from tenants. In all circumstances, cash reserves and rental
receipts from the MoD were sufficient to fund the ongoing
operations of the Group.
Subsequent to the financial year end, on 15 May 2023, the High
Court of Justice handed down its judgment in the Judicial Review
and Chancery proceedings commenced against the Ministry of Defence
by Annington Property Limited. The Judge ruled in favour of the
Ministry of Defence. The Group considers this to be a matter of
significant public importance and has sought permission to appeal
the decision. Should this appeal be granted, the legal processes
are expected to take some time to resolve. Were the appeal not to
be granted, the compensation that the MoD would have to pay is
determined by section 9 of the Leasehold Reform Act 1967. This
provides that the amount payable should be the "amount which the
property, if sold in the open market by a willing seller might be
expected to realise" but on the assumptions that the property is
not capable of enfranchisement and is otherwise broadly subject to
the same rights and obligations as the lease. If the parties cannot
agree the price, it would be determined by an independent tribunal.
No negative impacts to the Group's financial covenants are forecast
in 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 2022
The Company has adopted the new accounting standards, amendments
or interpretations which have become effective for the year ending
31 March 2023. The application of these has had no material impact
on the Group's financial statements.
New Standards, interpretations and amendments issued not yet
effective
At the date of authorisation of these financial statements, the
following new and revised IFRSs relevant to the Company 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)
IAS 1 Amendments Amendments to the Classification 1 January 2023
of Liabilities as Current or
Non-current
---------------------------------- ------------------
IAS 1 and IFRS Amendments to Disclosure of 1 January 2023
Practice Statement Accounting Policies
2
---------------------------------- ------------------
IAS 8 Amendments Amendments to the Definition 1 January 2023
of Accounting Estimates
---------------------------------- ------------------
IAS 12 Amendments Amendments to Deferred Tax from 1 January 2023
Single Transactions
---------------------------------- ------------------
IAS 1 Amendments Amendments to the Classification 1 January 2024
Effective Date of Liabilities as Current or
Non-current
---------------------------------- ------------------
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 GBP45,000 (2022: GBP44,800) for
the audit of the Company's annual financial statements. During the
year, Deloitte LLP was appointed as auditor of the Company.
Previously this position was held by BDO LLP.
Other services
An amount of GBP75,000 (2022: GBP100,000) was paid to Deloitte
LLP for non-audit assurance services in relation to transaction
related services.
5. INFORMATION REGARDING DIRECTORS AND EMPLOYEES
The Company had no employees of its own during the year (2022:
none). The directors of the Company are also directors of other
Annington Limited group companies and were remunerated on a
group-wide basis. The disclosures for directors' emoluments for the
Group can be found in the Annington Limited financial statements.
No amount has been allocated to the Company in both the current and
preceding years.
6. FINANCE INCOME AND COSTS
ACCOUNTING POLICY
Interest income 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.
2023 2022
GBP'000 GBP'000
Finance income
Interest receivable on intercompany balances 118,179 108,372
Gain on bond refinance 3,362 -
Recycle of hedge reserve on termination 3,120 -
of swaps
Preference dividends 21,283 10,349
Total finance income 145,944 118,721
Finance costs
Interest payable on unsecured fixed rate
bonds 125,222 107,988
Loss on debt modification 3,735 -
Amortisation of issue costs 2,874 2,936
Interest payable on term loan 15,665 7,117
Foreign exchange loss/(gain) on financing 5,091 (4,146)
Transfer to equity for cash flow hedge (4,570) 4,218
Other finance expenses 635 562
Total finance costs 148,652 118,675
7. TAXATION
ACCOUNTING POLICY
The taxation expense for the year comprises current and deferred
tax. Tax is recognised in the income statement, except where it is
required to be 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.
The standard rate of current tax for the year, based on the UK
standard rate of corporation tax is 19% (2022: 19%). The charge for
the year can be reconciled to profit before tax as follows:
2023 2022
GBP'000 GBP'000
(Loss)/ profit before tax (2,912) 46
Tax credit/(charge) at the standard
rate 553 (9)
Factors affecting the current tax
for the year:
Group relief surrendered (4,597) (1,957)
Income not assessed for tax 4,044 1,966
Taxation for the year - -
The rate of Corporation Tax for the UK remains at 19% for the
year ended 31 March 2023. The 25% UK Corporation Tax Rate is
substantively enacted with effect from 1 April 2023.
8. FINANCIAL ASSETS AT AMORTISED COST
ACCOUNTING POLICY
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.
The Company recognises a loss allowance for expected credit
losses on financial assets that are measured at amortised cost.
Should there be a significant increase in credit risk since
origination of the loan, the loss allowance is measured at an
amount equal to the lifetime expected credit losses, otherwise it
is measured at the expected credit losses over the next 12
months.
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.
2023 2022
GBP'000 GBP'000
Amounts falling due within one year
Amounts owed by group undertakings 33,161 33,650
Dividends receivable on preference shares
- group undertakings 10,349 10,349
Interest receivable on swaps 905 2,880
44,415 46,879
Amounts falling due after more than one
year
Amounts owed by group undertakings 3,373,481 3,370,138
Redeemable preference shares - group undertakings 793,600 793,600
4,167,081 4,163,738
Total financial assets at amortised cost 4,211,496 4,210,617
2023 2022
GBP'000 GBP'000
Amounts owed by group undertakings include:
Loan receivable - unsecured, interest-bearing
and no fixed date of repayment 3,406,642 3,403,663
Short-term receivable - 125
Redeemable preference shares 793,600 793,600
Dividends receivable on preference shares 10,349 10,349
4,210,591 4,207,737
Loan Receivable
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
3.523% (2022: 3.232%). 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 Receivable
The short-term receivable in the prior year related to charges
paid by the Company and recoverable from the counterparty. This
balance was not past due and was fully recovered in the current
year. The carrying value approximated fair value.
Redeemable Preference Shares and related dividends
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 GBP515.1 million (2022: GBP716.1 million) by applying
the risk adjusted market yield for the corresponding external debt
to the expected cash flows of the instruments. This constitutes a
Level 3 valuation within the fair value hierarchy as described in
Note 11. Discount rates of 6.080% and 6.314% (2022: 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 GBP55.6 million/ increasing by
GBP63.6 million, respectively (2022: decreasing by GBP89.9 million/
increasing by GBP109.9 million).
9. CASH AND CASH EQUIVALENTS
ACCOUNTING POLICY
Cash and cash equivalents comprise cash at bank. Cash and cash
equivalents are limited to instruments with a maturity of less than
three months.
2023 2022
GBP'000 GBP'000
Cash at bank 146 5,607
10. PAYABLES
ACCOUNTING POLICY
Payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.
2023 2022
GBP'000 GBP'000
Amounts falling due within one year
Accrued interest 33,899 36,370
Other accruals 167 159
34,066 36,529
The carrying value of payables approximates fair value.
11. LOANS AND BORROWINGS
ACCOUNTING POLICY
Loans and borrowings are initially recognised at fair value less
the transaction costs directly attributable to their issue. After
initial recognition, interest bearing loans and borrowings are
subsequently measured at amortised cost using the effective
interest rate method, such that discounts and costs are charged to
the income statement over the term of the borrowing at a constant
return on the carrying amount of the liability. The debt is
classified as current and non-current based on the contractual
payments required within 12 months of the balance sheet date.
2023 2022
GBP'000 GBP'000
Amounts falling due between one and five
years
Unsecured bonds 632,688 1,128,943
Unsecured term loan 398,833 397,564
1,031,521 1,526,507
Amounts falling due after five years
Unsecured bonds 3,146,173 2,633,722
Total loans and borrowings 4,177,694 4,160,229
The Company holds eight tranches of corporate, unsecured bonds,
totalling c.GBP3.8 billion, including the issue of a new tranche
referred to below, and the tap issue of the 2047 bonds. It also
holds an unsecured term loan of GBP400 million. A revolving credit
facility is also available to the Company, which has never been
drawn against.
On 8 August 2022, the Company refinanced EUR426.7 million 2024
Euro bonds and GBP143.5 million 2025 Sterling bonds, funded by a
new GBP400 million 11 year issue maturing in 2033 with a coupon
rate of 4.75%, and a GBP135 million tap issue of the 2047
bonds.
In February 2023, the term loan and revolving credit facilities
were extended from March 2025 to February 2028. The terms are
largely unchanged from the previous facilities and carry a headline
margin of 185bp.
The Company had issued the bonds in the following denominations,
maturities and fixed interest rates:
Principal Currency Final Maturity Coupon
Amount
173m EUR (EUR) 12-Jul-24 1.650%
---------- --------------- --------
482m 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%
---------- --------------- --------
760m GBP (GBP) 12-Jul-47 3.935%
---------- --------------- --------
400m GBP (GBP) 06-Oct-51 2.924%
---------- --------------- --------
400m GBP (GBP) 08-Aug-33 4.750%
---------- --------------- --------
Cross currency swaps are in place for the remaining EUR173.3
million bond, converting the nominal balance to GBP152.0 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 2.755% (2022: 2.764%), fixed for the remaining 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 2023 2022
Limitation Total debt
on Debt / Total assets <65% <65% 51.2% 46.7%
----------------- ---------------- ----------------- --------- ---------
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) 1.37x 1.54x
----------------- ---------------- ----------------- --------- ---------
Unencumbered
assets /
Unencumbered Unsecured
Assets Debt >125% >125% 193.6% 212.4%
----------------- ---------------- ----------------- --------- ---------
The Company's forecasts do not indicate any of these covenants
will be breached in the foreseeable future.
Reconciliation of movement
Amortisation Derecognised FX
31 March of debt issue on Revaluation Debt issued Loss on debt 31 March
2023 costs repurchase adjustment net of costs Modification 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Fixed Rate
EUR Bonds
2024 152,194 260 (359,066) 5,132 - - 505,868
Fixed Rate
GBP Bonds
2025 480,494 493 (143,074) - - - 623,075
Fixed Rate
GBP Bonds
2029 597,633 334 - - - - 597,299
Fixed Rate
GBP Bonds
2032 397,848 199 - - - - 397,649
Fixed Rate
GBP Bonds
2033 397,152 135 - - 397,017 - -
Fixed Rate
GBP Bonds
2034 621,846 221 - - - - 621,625
Fixed Rate
GBP Bonds
2047 735,537 377 - - 114,083 - 621,077
Fixed Rate
GBP Bonds
2051 396,157 85 - - - - 396,072
Term Loan
2025 398,833 770 - - (2,950) 3,449 397,564
4,177,694 2,874 (502,140) 5,132 508,150 3,449 4,160,229
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).
2023
Balance
Par value sheet value Fair value
GBP'000 GBP'000 GBP'000
Level 2
Non-derivative financial liabilities
Unsecured bonds (3,818,552) (3,778,861) (2,996,211)
Unsecured term loan (400,000) (398,833) (400,000)
Derivative financial assets
Cross currency swaps - 475 475
Total financial liabilities (4,218,552) (4,177,219) (3,395,736)
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 liabilities
Cross currency swaps - (14,623) (14,623)
Total financial liabilities (4,201,260) (4,174,852) (4,132,331)
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 February 2028. 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 2023.
12. SHARE CAPITAL
2023 2022
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. HEDGING RESERVE
2023 2022
GBP'000 GBP'000
At 1 April 1,250 (6,974)
Fair value gains on cash flow hedge 6,121 4,006
Reclassification of fair value (losses)/gains
included in the income statement (4,570) 4,218
Recycling of hedge reserve on termination (3,120) -
of swaps
At 31 March (319) 1,250
14. DERIVATIVE FINANCIAL INSTRUMENTS
ACCOUNTING POLICY
The Company uses derivative financial instruments to reduce
exposure to foreign exchange rate risk. The Company does not hold
or issue derivative financial instruments for speculative
purposes.
Derivatives are initially recognised at fair value at the date a
derivative contract is entered into and are subsequently remeasured
to their fair value at each balance sheet date. Changes in the fair
value are recognised in profit or loss immediately unless the
derivative is designated and effective as a hedging instrument, in
which event the timing of the recognition in profit or loss depends
on the nature of the hedge relationship.
Hedge accounting
Hedges of foreign currency exchange risk on firm commitments are
accounted for as cash flow hedges. The relationship between the
hedging instrument and the hedged item, along with its risk
management objective and its strategy for undertaking hedge
transactions is documented at the inception of the hedge
relationship.
Additionally, on an ongoing basis, the Company documents whether
the hedging instrument is highly effective in offsetting changes in
fair values or cash flows of the hedged item attributed to the
hedged risk, which is when the hedging relationships meet all of
the following hedge effectiveness requirements:
-- there is an economic relationship between the hedged item and the hedging instrument;
-- the effect of credit risk does not dominate the value changes
that result from that economic relationship; and
-- the hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that the
Company actually hedges and the quantity of the hedging instrument
that the entity actually uses to hedge that quantity of hedged
item.
Cash flow hedges
The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash flow hedges is
recognised in other comprehensive income ("OCI") and accumulated in
the cash flow hedge reserve. The gain or loss relating to the
ineffective portion is recognised immediately in profit or loss,
and is included in the 'other gains and losses' line item.
Amounts previously recognised in OCI and accumulated in equity
are reclassified to profit or loss in the year when the hedged item
is recognised in profit or loss, in the same line of the income
statement as the recognised hedged item.
The Company discontinues hedge accounting only when the hedging
relationship ceases to meet the qualifying criteria.
The Company holds cross currency swaps of EUR173.3 million,
converting the nominal balance to GBP152.0 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 15 and the Company continues to apply hedge
accounting with respect to these swaps.
2023 2022
GBP'000 GBP'000
Financial asset measured at fair value
through OCI
Cross currency swaps that are in designated
hedge accounting relationships 475 -
Financial liability measured at fair value
through OCI
Cross currency swaps that are in designated
hedge accounting relationships - (14,623)
Reconciliation of movements
Revaluation
2023 adjustment Terminated 2022
GBP'000 GBP'000 GBP'000 GBP'000
Cross currency swap asset/(liability) 475 6,121 8,977 (14,623)
Total derivative financial
instruments 475 6,121 8,977 (14,623)
15. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
ACCOUNTING POLICY
Financial assets and financial liabilities are recognised when
the Company becomes party to the contractual provisions of the
instrument. Financial assets and financial liabilities are
initially measured at fair value and net of directly attributable
transaction costs as appropriate.
The Company has the following financial instruments:
2023 2022
Note GBP'000 GBP'000
Financial assets
Financial assets at amortised cost 8 4,211,496 4,210,617
Cash and cash equivalents 9 146 5,607
Assets measured at fair value through
OCI:
Cross currency swaps 14 475 -
Total financial assets 4,212,117 4,216,224
Financial liabilities
Liabilities measured at amortised
cost:
Payables 10 34,066 36,529
Loans and borrowings 11 4,177,694 4,160,229
Liabilities measured at fair value
through OCI:
Cross currency swaps 14 - 14,623
Total financial liabilities 4,211,760 4,211,381
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 and JP Morgan Securities plc. 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 holds eight tranches of corporate, unsecured bonds,
totalling c.GBP3.8 billion and a term loan of GBP400 million, also
unsecured.
A GBP100 million five year revolving credit facility is in place
to ensure that there is no default in the repayment of the
borrowing and interest to the bondholders. This facility has never
been drawn against.
Options for the extension, refinancing or repayment of debt are
considered well in advance of maturity so that the Company is able
to take steps to manage its debt levels and maturity profile of its
debt.
The partial refinancing of the bonds and the extension of the
term loan and revolving credit facility is discussed in Note
11.
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) offset by
cash and cash equivalents, while equity comprises that attributable
to equity holders of the Company, being issued share capital,
reserves and retained earnings (Note 12).
The debt imposes a number of covenants that must be complied
with under both the bonds and loan facility. Refer to Note 11 for
the covenants attaching to the debt.
Currency risk
In 2017, the Company issued 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. During the current year, EUR426.7 million of the euro
bonds were repurchased and a corresponding amount relating to the
swaps were terminated at the same time to ensure that the remaining
euro exposure is appropriately matched to the swaps in place. The
function of this swap increases the effective interest rate of Euro
Tranche debt to 2.755% (2022: 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
---------------- ---------------- ---------------- ----------------
2023 529 (475) 529 (590)
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
---------------- ---------------- ---------------- ----------------
2022 - (2,382) - (159)
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 (spread adjusted SONIA + 1.6% up to 20 February 2023,
whereupon the loan was extended and the margin increased to 1.85%).
The term loan is for a value of GBP400 million, maturing in
2028.
Interest Rate sensitivity analysis
The sensitivity analysis below has been determined based on the
exposure to interest rates for both derivatives and non-derivative
instruments at the balance sheet date. The impact of a hypothetical
increase/decrease in interest rates with all other variables
constant, would have increased/(decreased) equity and pro t by the
amounts shown below:
50 bps increase 50 bps decrease
---------------------------------- ----------------------------------
Gains/(losses) Gains/(losses) Gains/(losses) Gains/(losses)
in income included in income included
statement in equity statement in equity
GBP'000 GBP'000 GBP'000 GBP'000
---------------- ---------------- ---------------- ----------------
2023 (1,919) - 1,999 -
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)
For the year ended 31 March 2022, the bps decrease in interest
rate is subject to a floor of 0% + 1.6% margin. This floor is not
applicable for the current year, as rates were above the
sensitivity factor of 0.5% for the full year.
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 2023 (2022: 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.
2023
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 167 167 - -
Loans and borrowings 6,127,940 151,380 1,598,670 4,377,890
Total non-derivative financial
liabilities 6,128,107 151,547 1,598,670 4,377,890
Net payments for derivative
financial instruments
Cross currency swaps 888 1,675 (787) -
Total derivative financial instruments 888 1,675 (787) -
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 -
16. NOTES TO CASH FLOW STATEMENT
2023 2022
GBP'000 GBP'000
(Loss)/profit after taxation (2,912) 46
Adjustment for:
Finance costs 148,652 118,675
Finance income (145,944) (118,721)
Movements in working capital:
Decrease/(increase) in receivables 125 (125)
Increase in payables 51 -
Cash generated from operations (28) (125)
17. ANALYSIS OF CHANGES IN NET DEBT
Non-cash items
Amortisation of Fair value
bond issue adjustments and Profits/
costs and exchange (losses) on
2023 Cash flow interest accrued movements refinancing 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash and cash
equivalents 146 (5,470) - 9 - 5,607
Unsecured notes (3,778,861) (13,533) (2,104) (5,132) 4,573 (3,762,665)
Unsecured term
loan (398,833) 2,950 (770) - (3,449) (397,564)
Net debt (4,177,548) (16,053) (2,874) (5,123) 1,124 (4,154,622)
18. 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 were entered
into during the year:
2023 2022
GBP'000 GBP'000
Immediate Parent
Annington Homes Limited - finance income 118,179 108,372
Fellow subsidiary
Annington Property Limited - preference share
dividend 21,283 10,349
139,462 118,721
The following amounts were outstanding at the balance sheet
date:
Amounts owed
by related parties
2023 2022
GBP'000 GBP'000
Immediate Parent
Annington Homes Limited - intercompany loan 3,406,642 3,403,663
Annington Homes Limited - short-term receivable - 125
Fellow subsidiary
Annington Property Limited - redeemable preference
shares 793,600 793,600
Annington Property Limited - redeemable preference
dividend 10,349 10,349
4,210,591 4,207,737
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 3.523% (2022:
3.232%) per annum. An annual fee of GBP10,000 (2022: 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.
19. 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
This notice is released by Annington Funding plc and contains
information that qualified or may have qualified as inside
information for the purposes of Article 7 of the Market Abuse
Regulation (EU) 596/2014 as it forms part of domestic law by virtue
of the European Union (Withdrawal) Act 2018, as amended
("EUWA")("UK MAR"). For the purposes of UK MAR and Article 2 of
Commission Implementing Regulation (EU) 2016/1055 as it forms part
of domestic law by virtue of the EUWA, this announcement is made by
Stephen Leung, Chief Financial Officer of Annington Limited.
LEI: 549300KK63W8VZIONZ83
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END
FR DDLBBXDLFBBK
(END) Dow Jones Newswires
July 07, 2023 03:22 ET (07:22 GMT)
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