TIDMBE60
RNS Number : 8048X
Lanark Master Issuer PLC
22 December 2023
Annual report and financial statements
Lanark Master Issuer PLC
For the year ended 30 September 2023
Company Number: 06302751
Lanark Master Issuer PLC
Annual report and financial statements
For the year ended 30 September 2023
Contents
Officers and professional advisers
Strategic report
Directors' report
Statement of Directors' responsibilities 6
Independent auditor's report to the members of Lanark Master
Issuer PLC
Statement of comprehensive income
Balance sheet
Statement of changes in equity
Statement of cash flows
Notes to the financial statements
Officers and professional advisers
Directors Julius Bozzino
Christopher Upton
Justin Fox
Secretary Accomplish Secretaries Limited
Registered office Suite 2
7th Floor
50 Broadway
London
SW1H 0DB
Independent auditors Ernst & Young LLP
144 Morrison Street
Edinburgh
EH3 8EX
Strategic report
The Directors of Lanark Master Issuer PLC (the "Company")
present their Strategic report for the year ended 30 September
2023.
Principal activities and business structure
The Company is a Special Purpose Vehicle ("SPV") which was
established as part of Clydesdale Bank PLC's ("CB PLC") Lanark
Residential Mortgage Backed Securities Programme (the "Programme").
The Programme was established primarily for the purpose of raising
wholesale funding for the Programme Sponsor ("Sponsor") CB PLC.
The Company is incorporated under the Companies Act 2006 and
registered in England and Wales as a public limited company. It is
a wholly owned subsidiary of Lanark Funding Limited ("LFL")
http://www.rns-pdf.londonstockexchange.com/rns/8048X_1-2023-12-22.pdf
, the immediate parent entity, which is incorporated under the
Companies Act 2006 and registered in England and Wales. The
ultimate controlling entity is Virgin Money UK PLC ("VMUK PLC").
VMUK PLC and its subsidiary undertakings, which include CB PLC,
comprise the Virgin Money UK PLC Group ("Group"). Further detail of
the group structure is disclosed in note 1.1 to the financial
statements.
The principal activity of the Company is the issuance of limited
recourse class A and class Z Residential Mortgage Backed Loan Notes
(the "Notes"), under the Programme, for onward lending to LFL. The
Notes in issue have a legal maturity date of December 2069. The
class A Notes are listed on the London Stock Exchange. The proceeds
of the Notes were advanced via Global Intercompany Loans
("Intercompany Loans") to LFL who applied the proceeds to acquire
interests in a pool of residential mortgage loans held on trust by
Lanark Trustees Limited ("LTL").
The Programme documentation relating to the Programme structure
defines certain prescribed roles and terms and should be read in
conjunction with these financial statements. The Programme
documentation can be found on the Virgin Money UK debt investors
relations page at:
https://www.virginmoneyukplc.com/investor-relations/debt-investors/lanark-programme/.
Financial analysis
During the year, the Programme raised additional funds of
GBP1,300m by issuing the 2022-2 1A in November 2022 and 2023-1 1A
in May 2023, offset by a GBP60m decrease in the class Z Variable
Funding Notes ("VFN"). These movements were matched in the
associated Intercompany Loans. There were also scheduled repayments
of GBP1,007m including the full redemption of Notes 2018-1 2A in
February 2023, 2018-2 2A in August 2023, 2019-2 2A and 2020-1 1A in
November 2023 along with the associated Intercompany Loans.
The class A Notes and associated Intercompany Loans are subject
to controlled amortisation, with the maximum repayment on each
payment date set out in the Programme documentation. The Company is
only obliged to make repayments of interest and principal in
respect of the Notes, to the extent that repayments are received
from LFL in respect of the Intercompany Loans. Repayments are
ultimately dependent on there being sufficient principal receipts
from the borrowers of the underlying mortgage loans in the Trust
Property or Sponsor cash contributions as outlined in the Programme
documentation.
The Company receives income from the Intercompany Loans, in line
with the requirements of the Notes. Under the terms of the
Programme, the Company is entitled to retain a predetermined profit
balance (before the net effect of fair value gains and losses). For
the year ended 30 September 2023 this equated to GBP12,000 (2022:
GBP12,000). Additional income required to meet the predefined
profit balance accrues from LFL as deferred consideration of
GBP1,399,000 (2022: GBP2,317,000). Deferred consideration is
described in note 1.4 to the financial statements.
The combined performance of the receipts under the Intercompany
Loan and payments made on the Notes has been in line with
expectations.
The loss before tax for the year of GBP157,000 (2022: loss of
GBP670,000) was due to the net effect of the fair value loss of
GBP169,000 (2022: loss of GBP682,000) which resulted from fair
value movements on cross currency swaps designated in a fair value
hedge relationship with note 2020-1 A terminated in November 2022.
This is excluded from the calculation of predetermined profit as
the effect is expected to unwind over the life of the swaps.
Key performance indicators ("KPIs")
The Company's Directors are of the opinion that analysis using
KPIs is not necessary for an understanding of the development,
performance or position of the Company.
Section 172(1) statement
In accordance with the Companies Act 2006 as amended by the
Companies (Miscellaneous Reporting) Regulations 2018, the Directors
provide this statement describing how they have had regard to the
matters set out in section 172(1) when performing their duty to
promote the success of the Company.
In accordance with the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008 as amended by the
Companies (Miscellaneous Reporting) Regulations 2018, this
statement also provides details of how the Directors have engaged
with and had regard to the interest of key stakeholders. In
accordance with section 426B of the Companies Act 2006, this
statement is also available on the Virgin Money UK debt investors
relations page at
https://www.virginmoneyukplc.com/investor-relations/.
Strategic report (continued)
Section 172(1) statement (continued)
As an SPV, the governance structure and key policies to achieve
the objectives of section 172(1) were set out in the Programme
documentation at inception of the Programme. Therefore, compliance
with the Programme documentation ensures regard for the matters set
out in section 172(1) as follows:
-- The Programme documentation sets out the principal
transactions that will be undertaken to achieve the purpose and
objectives of the Company, while ensuring the Company's assets are
safeguarded;
-- The Company has appointed third parties to perform various
roles as specified in the Programme documentation. Fees and
conditions were agreed at inception and are paid in line with the
Programmes' priority of payments schedule;
-- In accordance with the securitisation tax regime, the Company
is only permitted to retain minimal profit;
-- The limited nature and range of activities of an SPV mean the
Company has no employees and engagement with community and
environmental stakeholders is not relevant for consideration;
and
-- The Company has a sole member, LFL, which also forms part of
the Programme. CB PLC is the Sponsor of the Programme and where
matters impact the wider Group, stakeholder engagement is led by
the VMUK PLC Board.
Future developments
The Company was established as a structured entity to issue
Notes under the Programme. The Directors continue to monitor the
economic environment and financial markets with regard to the
further issuance of Notes. No changes in future activities are
envisaged.
Despite the United Kingdom ("UK") economy gradually recovering
from last years increase in energy prices and inflation levels
aggravated by the ongoing conflict in Ukraine, the outlook
continues to be uncertain with the tightening of monetary policy
potentially leading to a further slowdown in growth and technical
recession.
Principal risks and uncertainties
The Company is exposed to changes in market variables such as
floating rate interest obligations arising from pounds sterling
("GBP") denominated Notes and exchange rate movements on United
States Dollar ("USD") denominated Notes. These risks are mitigated
by the terms of the Intercompany Loans to LFL, by the limited
recourse nature of the Notes issued and by using cross currency
swaps. Aligned to the Group approach, climate risk has been
assessed as a potential future risk of the Company and has been
deemed to have no material impact in these financial statements.
The main features of the Company's internal control and risk
management systems are set out in note 4.3 to the financial
statements.
The risks and challenges identified in the financial statements
do not represent an exhaustive list of the risks and issues
associated with the Company. Other risks and issues not
specifically referenced may adversely impact the future financial
position and performance of the Company. Accordingly, no assurances
or guarantees of future performance, profitability or returns on
capital are given by the Company.
Financial risk management
The Company's principal financial assets are the Intercompany
Loans and the associated risks are the potential impairments in the
carrying value of the underlying assets which LFL acquired and the
floating rate interest obligations under the Notes issued. The
financial risk management policies are discussed further in note
4.3 to the financial statements.
This report was approved by the Board of Directors on 12
December 2023 and was signed on its behalf by:
Christopher Upton
Director
12 December 2023
Directors' report
The Directors present their report and the audited financial
statements of the Company for the year ended 30 September 2023.
Corporate governance
The Directors have been charged with governance in accordance
with the Programme documentation, describing the structure and
operation of the Programme. The governance structure of the Company
is such that the key policies have been predetermined at inception
and the operational roles have been assigned to third parties with
their roles strictly governed by the Programme documentation.
The Programme documentation provides procedures that have been
designed for safeguarding assets against unauthorised use or
disposition; for maintaining proper accounting records; and for the
reliability and usefulness of financial information used within the
business or for publication. Such procedures are designed to manage
rather than eliminate the risk of failure to achieve business
objectives whilst enabling them to comply with the regulatory
obligations.
Due to the nature of the securities which have been issued and
the structure of the entity, the Company is largely exempt from the
requirements of the Financial Conduct Authority pertaining to the
Disclosure and Transparency Rules as detailed in DTR 7.1 Audit
committees and 7.2 Corporate governance statements (save for the
rule DTR 7.2.5 requiring description of the features of the
internal control and risk management systems), which would
otherwise require the Company to have an audit committee in place
and include a corporate governance statement in the Directors'
report. The Directors are therefore satisfied that there is no
requirement for an audit committee or supervisory body entrusted to
carry out the functions of an audit committee.
The main features of the Company's internal control and risk
management system are set out in note 4.3 to the financial
statements.
Profits and appropriations
The statement of comprehensive income for the year is set out on
page 12.
The Directors do not recommend the payment of a dividend for the
year under review (2022: GBPNil).
Future developments, principal risks and financial risk
management objectives and policies
Information regarding future developments, principal risks and
financial risk management objectives and policies of the Company in
relation to the use of financial instruments that would otherwise
be required to be disclosed in the Directors' report, and which is
incorporated into this report by reference, can be found in the
Strategic report.
Directors and Directors' interests
The Directors of the Company during the year and up to the date
on which the financial statements were approved are shown on page
1.
Directors' interests
None of the Directors had any interest either during the year or
at the end of the year in any material contract or arrangement with
the Company.
Appointments and resignations
There have been no appointments or resignations during the
year.
Directors' remuneration
None of the Directors were directly remunerated by the Company
in respect of their duties as Directors of the Company. However,
during the year, an expense in the amount of GBP12,000 (2022:
GBP12,000) was incurred to Vistra (UK) Limited, for the provision
of corporate administration services, including services of two
Directors to the Company. In relation to the remaining Director,
their service to the Company was performed as part of their
employment with CB PLC and no remuneration was received in respect
of qualifying services provided to the Company. CB PLC has not
recharged the Company for the cost of this service.
Company secretary
The company secretary during the year, and subsequently is
Accomplish Secretaries Limited.
Third party indemnities
A qualifying third-party indemnity provision for the benefit of
the Directors was in force during the year and remains in force as
at the date of approval of the annual report and financial
statements.
Employees
The Company does not have any employees.
Directors' report (continued)
Stakeholder engagement
The Directors have provided a statement in the Strategic report,
describing how they have performed their duty to promote the
success of the Company and how they have engaged with and had
regard to the interest of key stakeholders.
The Company is a controlled entity of VMUK PLC and as such
follows many of the processes and practices of this company which
are further referenced in this statement where relevant. In
accordance with section 426B of the Companies Act 2006, this
statement is also available on the Virgin Money UK debt investors
relations page at
https://www.virginmoneyukplc.com/investor-relations/.
Political donations
No political donations were made in the year (2022: GBPNil).
Research and development costs
The Company does not undertake formal research and development
activities.
Related parties
Details of related party transactions are set out in note 4.2 to
the financial statements.
Share capital
Information about share capital is shown in note 3.9 to the
financial statements.
Going concern
The Directors have made an assessment of the Company's ability
to continue as a going concern and are satisfied that the Company
has the resources to continue in business for 12 months from the
approval of the financial statements.
The Company's use of the going concern basis for preparation of
the accounts is discussed in note 1.3 to the financial
statements.
Events after the balance sheet date
Note 2020-1 2A was redeemed as scheduled at the step-up date
November 2023. There have been no other significant events between
30 September 2023 and the date of approval of the annual report and
financial statements which would require a change to or additional
disclosure in the financial statements.
Auditors and disclosure of information to the auditors
The Directors who were members of the Board at the time of
approving the Directors' report are listed on page 1. Having made
enquiries of fellow Directors and of the Company's auditors, each
of these Directors confirms that:
-- to the best of each Director's knowledge and belief, there is
no information relevant to the preparation of their report of which
the Company's auditors are unaware; and
-- each Director has taken all the steps a Director might
reasonably be expected to have taken to be aware of relevant audit
information and to establish that the Company's auditors are aware
of that information.
PricewaterhouseCoopers LLP ("PWC") will be appointed External
Auditor in place of EY with effect from the audit for the year
commencing 1 October 2023, in accordance with mandatory tender
requirements. In accordance with section 485 of the Companies Act
2006, a resolution to appoint PWC as External Auditor will be
proposed at the 2024 AGM.
This report was approved by the Board of Directors on 12
December 2023 and was signed on its behalf by:
Christopher Upton
Director
12 December 2023
Statement of Directors' responsibilities
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable UK 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 financial statements in accordance with
UK adopted International Accounting Standards ("IAS"). Under
company law, 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 in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and Errors and
then apply them consistently;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in International Financial Reporting
Standards ("IFRS") is insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the Company financial position and financial performance;
-- state whether UK adopted IASs have been followed, subject to
any material departures disclosed and explained in the financial
statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
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.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic report and Directors' report
that comply with the law and those regulations.The Directors are
responsible for the maintenance and integrity of the corporate and
financial information relating to the Company included on the
Group's website.
This statement was approved by the Board of Directors on 12
December 2023 and was signed on its behalf by:
Christopher Upton
Director
12 December 2023
Opinion
We have audited the financial statements of Lanark Master Issuer
PLC (the "Company") for the year ended 30 September 2023 which
comprise the Statement of comprehensive income, Balance sheet,
Statement of changes in equity, Statement of cash flows and the
related notes 1.1 to 4.4, 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.
In our opinion, the financial statements:
-- give a true and fair view of the Company's affairs as at 30
September 2023 and of its loss 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.
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
Finance Reporting Council's Ethical Standard as applied to listed
public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
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
the following procedures:
-- We reviewed the Directors' going concern assessment, taking
into consideration the nature of the Company as a bankruptcy-remote
structured entity, its operations, its financial performance and
position, including verifying the reasonableness of the key factors
which could affect the entity's ability to continue as a going
concern, including current economic volatility and the foreseeable
risks of climate change.
-- We obtained the Directors' forecasts and compared these
forecasts against our own assessment of the reasonable prospects of
the entity, including consideration of stress testing of the future
performance of the Companies.
-- Assessing the recoverability of the assets of the Company,
including the intercompany loan asset. We considered the
recoverability of the assets of the Company, including the
intercompany loan asset.
-- We reviewed the Company's going concern disclosures included
in the financial statements in order to assess whether the
disclosures were consistent with the going concern analysis
performed and in conformity with the financial reporting
standards.
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
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. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as
to the Company's ability to continue as a going concern.
Overview of our audit approach
Key audit matters
* Performance and recoverability of the Intercompany
Loan
Materiality
* Overall materiality of GBP30m which represents 1% of
total assets.
-----------------------------------------------------------------
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit scope
for the Company. This enables us to form an opinion on the
financial statements. We take into account size, risk profile, the
organisation of the Company and effectiveness of controls, the
potential impact of climate change and changes in the business
environment when assessing the level of work to be performed. All
audit work was performed directly by the audit engagement team.
Climate change
There has been increasing interest from stakeholders as to how
climate change will impact entities such as the Company. The
Company has determined that the most significant future impacts
from climate change on its operations will be from physical and
transitional risks and has concluded that these are longer term in
nature than the assets and liabilities held by the Company. These
are explained on page 3 of the Strategic Report, which form part of
the "Other information," rather than the audited financial
statements.
Climate change (continued)
Our procedures on these unaudited disclosures therefore
consisted solely of considering whether they are materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit or otherwise appear to be
materially misstated.
As explained in Note 1.2 to the financial statements, the
Directors have considered climate risk in the preparation of the
accounts. We note that governmental and societal responses to
climate change risks are still developing, and are interdependent
of each other, and consequently financial statements cannot capture
all possible future outcomes as these are not yet known. The degree
of uncertainty of these changes may also mean that they cannot be
taken into account when determining asset and liability valuations
and the timing of future cash flows under the requirements of UK
adopted international accounting standards. Note 4.3 to the
financial statements sets out the Directors' conclusion that there
is no material impact from climate change on the Company's current
year results or financial position.
Our audit effort in considering the impact of climate change on
the financial statements was focused on ensuring that reasonably
probable effects of material climate risks have been appropriately
considered in the preparation of the financial statements, and
particularly that any material impact appropriately reflected in
the carrying value of, and disclosures associated with, the
intercompany loan held by the Company. Details of our procedures
and observations are included in our key audit matter below. We
also challenged the Directors' considerations of climate change in
their assessment of going concern and associated disclosures
Under applicable accounting standards, the potential impacts
have not resulted in changes in valuation or measurement in these
financial statements.
Based on our work we have not identified the impact of climate
change on the financial statements to be a key audit matter.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on these
matters.
Risk Our response to the risk Key observations
communicated to those
charged with governance
Performance and We walked through the process and relevant controls by We reported to those
recoverability of which the Directors assessed expected charged with governance
intercompany loan credit losses ("ECLs") for the intercompany loan in order that we were satisfied
to understand the assessment performed. that expected credit
30 September 2023: We also walked through the process by which cashflows of losses
GBP2,976m the loan were realised. relating to the
We independently evaluated this assessment, which involved intercompany loan were
30 September 2022: the following procedures: appropriately measured
GBP2,741m; * Considering the terms of the intercompany loan as at 30 September 2023.
Refer to the Accounting between Lanark Master Issuer plc and Lanark Funding
policies Note 1.4; and Limited, including the potential for any expected We concluded that the
Note 3.1 of the loss events under the Lanark programme. financial statement
Financial Statements. disclosures in respect
The Company is a of the recoverability of
special purpose vehicle * Confirming that interest and principal repayments the intercompany loan,
within a securitisation made during the period were recognised appropriately, including the impact of
structure. It exists to completely and in accordance with the loan agreement. climate risks and
advance This included agreeing a sample of repayments to cash current economic
intercompany funding to transactions in the period. volatility,
Lanark Funding Limited are appropriate and in
through the issuance of accordance with the
listed debt used to * Examining the loan for any indicators of potential requirements of UK
acquire a beneficial future losses, which involved looking through to the adopted international
interest in a mortgage securitised mortgage loan portfolio from which accounting
portfolio held by intercompany loan repayments flow and assessing standards.
Lanark Trustees whether shortfalls in mortgage recoveries are
Limited. expected, as well as an assessment of the probable
The interest and impact of other risk factors including current
capital repayments on economic volatility and climate change.
the intercompany loan
are required to be
received by * Assessing the adequacy of provisions for expected
the Company in order to credit losses recognised by the Company and assessing
service its external the sufficiency and completeness of disclosures of
debt. the risk to the intercompany loan.
Due to the significance
of the intercompany
loan (representing 98%
of total assets) and
the
reliance of the Company
on the associated
interest and capital
repayments, we
determined the
performance and
recoverability of the
loan (including an
assessment of expected
credit losses)
to be a key audit
matter.
This includes the
impact of both climate
risk and recent
economic volatility on
the recoverability
of the underlying
mortgage assets.
----------------------------------------------------------------- -------------------------
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually
or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements.
Materiality provides a basis for determining the nature and extent
of our audit procedures.
We determined materiality for the Company to be GBP30m (2022:
GBP28m), which is 1% (2022: 1%) of total assets. We believe that
total assets is appropriate since the entity is a special purpose
vehicle that is structured to make a nominal profit, and so the
most relevant aspect of the entity is its assets.
Performance materiality
The application of materiality at the individual account or
balance level. It is set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our
assessment of the Company's overall control environment, our
judgement was that performance materiality was 75% (2022: 75%) of
our planning materiality, namely GBP23m (2022: GBP21m). We have set
performance materiality at this percentage due to our previous
experience as auditors of the Company, from which we concluded that
there is a lower expectation of material financial statement
inaccuracies.
Reporting threshold
An amount below which identified misstatements are considered as
being clearly trivial.
We agreed with those charged with governance that we would
report to them all uncorrected audit differences in excess of
GBP1.5m (2022: GBP1.4m), which is set at 5% of planning
materiality, as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
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 this 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 the other
information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion, based on the work undertaken 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 Directors' report have been prepared
in accordance with applicable legal requirements.
Matters on which we are required to report by exception
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
Directors' report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- 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; 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 the Statement of Directors'
responsibilities set out on page 6, 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.
Explanation as to what extent 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 irregularities,
including fraud. 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 or intentional misrepresentations, or through
collusion. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with governance of
the Company and the Directors.
Our approach was as follows:
-- We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Company and determined that
the most significant are UK adopted International Accounting
Standards, the Companies Act 2006, the UK Listing Rules of the
London Stock Exchange, Market Abuse Regulations, Transparency
Regulations, and UK Tax legislation.
-- We understood how the Company is complying with those
frameworks by inquiring of the Directors and identifying the
controls in place in order to comply.
-- We assessed the susceptibility of the Company's financial
statements to material misstatement, including how fraud might
occur by considering the controls that the Company has established
to address risks identified by the entity or that otherwise seek to
prevent, deter or detect fraud.
-- Based on this understanding we designed our audit procedures
to identify non-compliance with such laws and regulations. Our
procedures involved inquiries of legal counsel, executive
management, internal audit for their awareness of any known
instances of non-compliance or suspected non-compliance with laws
and regulations. We also performed focused testing, as referred to
in the Key Audit Matter section above.
-- The Company operates in the capital markets industry which is
a regulated environment. As such, the Senior Statutory Auditor
considered the experience and expertise of the engagement team to
ensure that the team had the appropriate competence and
capabilities.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor's report.
Other matters we are required to address
-- We were appointed by the Company on 30 September 2008 to
audit the financial statements for that period and subsequent
financial periods.
-- The period of total uninterrupted engagement including
previous renewals and reappointments is 16 years, covering the
years ending 30 September 2008 to 30 September 2023.
-- The non-audit services prohibited by the Financial Reporting
Council's Ethical Standard were not provided to the Company and we
remain independent of the Company in conducting the audit.
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.
Blake Adlem (Senior Statutory Auditor)
For and on behalf of Ernst & Young LLP, Statutory
Auditor
Edinburgh
12 December 2023
Statement of comprehensive income
for the year ended 30 September
The notes on pages 16 to 36 form part of these financial
statements.
Balance sheet
as at 30 September
The notes on pages 16 to 36 form part of these financial
statements.
The financial statements were approved by the Board of Directors
on 12 December 2023 and was signed on its behalf by:
Christopher Upton
Director
12 December 2023
Company No: 06302751
Statement of changes in equity
The notes on pages 16 to 36 form part of these financial
statements.
Statement of cash flows
for the year ended 30 September
The notes on pages 16 to 36 form part of these financial
statements.
1.1 General information
The Company is incorporated under the Companies Act 2006 as a
public limited company and registered in England and Wales.
The immediate parent company is LFL, a company incorporated
under the Companies Act 2006 and registered in England and Wales.
The ultimate parent company is Vistra Capital Markets (Ireland)
Limited ("Vistra Ltd"), a company incorporated and registered in
the Republic of Ireland. Vistra Ltd does not consolidate the
results of the Company.
CB PLC, a company incorporated under the Companies Act 2006 and
registered in Scotland, is the Sponsor of the Programme. The
smallest group in which the results of the Company are consolidated
is that headed by CB PLC. The ultimate controlling entity is VMUK
PLC, a company incorporated under the Companies Act 2006 and
registered in England and Wales. VMUK PLC and its subsidiary
undertakings, which include CB PLC, comprise the Virgin Money UK
PLC Group. The Virgin Money UK PLC Group is the largest group in
which the results of the Company are consolidated. The financial
statements of VMUK PLC may be obtained from the registered office
at Jubilee House, Gosforth, Newcastle upon Tyne, NE3 4PL.
1.2 Basis of accounting
The Company's financial statements, which should be read in
conjunction with the Strategic report and the Directors' report,
have been prepared in accordance with UK adopted IAS. The financial
information has been prepared under the historical cost convention
as modified by the application of fair value measurements. Climate
risk has been considered in the preparation of these accounts and
no adjustments have been deemed necessary.
1.3 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. In addition, note 4.3 includes
the Company's risk management objectives.
The Company has access to financial resources through its
Intercompany Loans with LFL. It is the intention of the Directors
of the Company to continue operations while the Programme supports
the funding and liquidity needs of the Group. A reduction in
retained earnings is solely related to the fair value movements of
the economic hedging swap, which are expected to unwind over the
life of the swap and should have no direct impact on the Company's
ability to perform as a going concern. Due to the limited recourse
nature of the Notes the ultimate risk is borne by the Noteholders,
therefore any shortfall in the proceeds from the Intercompany Loans
will be a risk to the Noteholders rather than the Company.
The Directors believe the Company is well placed to manage its
business risks successfully in line with the Programme
documentation. Accordingly, the financial statements have been
prepared on a going concern basis.
1.4 Accounting policies
There were no mandatory significant International Accounting
Standards Board (IASB) pronouncements adopted by the Company in the
current financial year. The IASB has also issued a number of minor
amendments to IASs that are not mandatory for 30 September 2023
reporting periods and have not been early adopted by the Company.
These amendments are not expected to have a material impact for the
Company and have therefore not been listed.
During the year, the Company early adopted Amendments to IAS 1
'Presentation of Financial Statements' and IFRS Practice Statement
2 'Making Materiality Judgements' which was issued by the IASB in
February 2021 (applicable for accounting periods beginning on or
after 1 January 2023 with early adoption permitted) and endorsed
for use in the UK by the UKEB in November 2022.
The amendments require entities to disclose their material
accounting policy information rather than their significant
accounting policies. As part of this, the IASB amended IFRS
Practice Statement 2 'Making Materiality Judgements' by adding
guidance to help determine when accounting policy information is
material and, therefore, needs to be disclosed.
The Company has assessed the requirements of the amendments
against those accounting policies included within the 2022
financial statements.
Consequently, the following material accounting policies have
been applied in preparing these financial statements.
(a) Functional and presentation currency
Items included in the financial statements of the Company are
measured using the currency of the primary economic environment in
which the entity operates (the 'functional currency'). The
financial statements are presented in GBP, which is also the
Company's presentation currency, rounded to the nearest thousand
pounds ("GBP'000") unless otherwise stated.
(b) Foreign currency - transactions and balances
Initially, at the date of a foreign currency transaction, the
Company records an asset, liability, income or expense arising from
a transaction using the end of day spot exchange rate between the
functional and foreign currency on the transaction date.
1.4 Accounting policies (continued)
(b) Foreign currency - transactions and balances (continued)
Subsequently, at each reporting date, the Company translates
foreign currency monetary items at the closing rate. Foreign
exchange ("FX") differences arising on translation or settlement of
monetary items are recognised in the statement of comprehensive
income during the period in which the gains or losses arise.
Foreign currency non-monetary items measured at historical cost are
translated at the date of the transaction. Foreign currency
non-monetary items measured at fair value will be translated at the
date when the fair value is determined. Foreign exchange
differences are recognised directly in equity for non-monetary
items where any component of associated gains or losses is
recognised directly in equity.
(c) Interest income and interest expense
Interest income is reflected in the statement of comprehensive
income using the effective interest rate ("EIR") method which
discounts the estimated future cash payments or receipts over the
expected life of the financial instrument to the gross carrying
amount of the non- credit impaired financial asset. Interest
expense is reflected in the statement of comprehensive income using
the same EIR method on the amortised cost of the financial
liability.
When calculating the EIR, cash flows are estimated considering
all contractual terms of the financial instrument (e.g. prepayment,
call and similar options) excluding future Expected Credit Losses
("ECL"). The calculation includes all amounts paid or received that
are an integral part of the EIR such as transaction costs and all
other premiums or discounts. Where it is not possible to reliably
estimate the cash flows or the expected life of a financial
instrument (or group of financial instruments), the contractual
cash flows over the full contractual term of the financial
instrument (or group of financial instruments) are used.
Interest income and expense on hedged assets and liabilities are
also recognised as part of net interest income.
Deferred consideration income from LFL
The deferred consideration income arises when the Company
receives additional income from LFL to provide for the expenses of
the Company and meet the predefined profit level. The deferred
consideration paid to the Company is paid in priority to the
deferred consideration LFL pays to the Programme Sponsor CB PLC as
per the priority of payments in the Programme documentation. The
income is included within interest income in the statement of
comprehensive income and the balance is accrued as a receivable
from LFL and derecognised once settled.
(d) Net gains and losses
Net gains and losses contain the fair value movement of the
derivatives designated as fair value hedges and FX and fair value
adjustments attributable to the hedged risk on hedged items. The
net of these amounts represents hedge ineffectiveness for the
year.
(e) Income tax
Income tax on the profit or loss for the year comprises current
tax. Income tax is recognised in the statement of comprehensive
income except to the extent that it is related to items recognised
in equity, in which case the tax is also recognised in equity.
Income tax expense is the tax payable on the current year's
taxable income based on the applicable tax rate adjusted by changes
in deferred tax assets and liabilities and is based on the
permanent tax regime for securitisation companies.
Current tax
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted at
the balance sheet date, and any adjustment to tax payable in
respect of previous years.
(f) Financial instruments
Recognition and derecognition
A financial asset or a financial liability is recognised on the
balance sheet when the Company becomes party to the contractual
provisions of the instrument.
The Company derecognises a financial asset when the contractual
cash flows from the asset expire or it transfers the right to
receive contractual cash flows on the financial asset in a
transaction in which substantially all the risk and rewards of
ownership are transferred. Financial liabilities are derecognised
from the balance sheet when the Company has discharged its
obligation to the contract, or the contract is cancelled or
expires.
Classification and measurement
The Company measures a financial asset or liability on initial
recognition at its fair value, plus or minus transaction costs that
are directly attributable to the acquisition or issue of the
financial asset or the financial liability (with the exception of
financial assets or liabilities at fair value through profit or
loss, where transaction costs are recognised directly in the
statement of comprehensive income as they are incurred).
1.4 Accounting policies (continued)
(f) Financial instruments (continued)
Financial assets
Subsequent accounting for a financial asset is determined by the
classification of the asset depending on the underlying business
model and contractual cash flow characteristics. This results in
classification within one of the following categories: i) amortised
cost, ii) fair value through other comprehensive income ("FVOCI"),
or iii) fair value through profit or loss ("FVTPL"). The Company
has no financial assets classified as FVOCI.
A financial asset is measured at amortised cost when (1) the
asset is held within a business model whose objective is achieved
by collecting contractual cash flows; and (2) the contractual terms
give rise to cash flows on specified dates which are solely
payments of principal and interest on the principal amount
outstanding. Financial assets held at amortised cost are assessed
for impairment using the ECL methodology. Further detail is
provided in note 1.5.
A financial asset is measured at FVTPL if it (1) does not fall
into the business model for amortised cost or FVOCI; (2) is
specifically designated as FVTPL on initial recognition in order to
eliminate or significantly reduce a measurement mismatch; or (3) is
classified as held for trading.
The Company's cash and cash equivalents and Intercompany Loans
are classified as financial assets at amortised cost. The
derivative financial assets are designated in hedge relationships
and classified as FVTPL.
Financial liabilities
All of the Company's financial liabilities are classified as
financial liabilities at amortised cost, with the exception of
derivative financial liabilities which are designated in hedge
relationships and classified as FVTPL.
Fair value measurement
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement
date.
When available, the Company measures the fair value of an
instrument using quoted prices in an active market for that
instrument. A market is regarded as active if transactions for the
asset or liability take place with sufficient frequency and volume
to provide pricing information on an ongoing basis.
Where no such active market exists for the particular asset or
liability, the Company uses a valuation technique to arrive at the
fair value, including the use of transaction prices obtained in
recent arm's length transactions where possible, discounted cash
flow analysis, option pricing models and other valuation techniques
commonly used by market participants. In doing so, fair value is
estimated using a valuation technique that makes maximum possible
use of market inputs and that places minimal possible reliance upon
entity specific inputs.
The best evidence of the fair value of a financial instrument at
initial recognition is the transaction price (i.e. the fair value
of the consideration given or received) unless the fair value of
that instrument is evidenced by comparison with other observable
current market transactions in the same instrument (i.e. without
modification or repackaging) or based on a valuation technique
whose variables include only data from observable markets. When
such evidence exists, the Company recognises profits or losses on
the transaction date.
The carrying value of financial instruments at FVTPL reflects
the credit risk attributable to the counterparty. Changes in the
credit profile of the counterparty are reflected in the fair value
of the instrument and recognised in the statement of comprehensive
income.
(g) Intercompany Loans
The loans issued under the terms of the Global Intercompany Loan
Agreement with LFL comprise the Intercompany Loans. The
Intercompany Loans are initially recognised on the balance sheet at
the fair value of the proceeds received and subsequently measured
at amortised cost.
(h) Derivative financial instruments and hedge accounting
The Company uses derivative financial instruments to manage
exposure to interest rate and foreign currency risk. Interest rate
risk arises when there is a mismatch between fixed interest rate
and floating interest rates, and different repricing
characteristics between assets and liabilities. Currency risk
arises when assets and liabilities are not denominated in the
functional currency of the entity. Derivatives are recognised on
the balance sheet at fair value on trade date and are remeasured at
fair value throughout the life of the contract. Derivatives are
carried as assets when the fair value is positive and as
liabilities when the fair value is negative. The notional amount of
a derivative contract is not recorded on the balance sheet but is
disclosed in note 3.2.
Fair value hedge
Although there are no active micro fair value hedges at the
Company's balance sheet date, these were designated as the hedging
strategy on foreign currency denominated fixed rate debt
issuances.
1.4 Accounting policies (continued)
(h) Derivative financial instruments and hedge accounting (continued)
Changes in the fair value of derivatives that are designated and
qualify as fair value hedges are recorded in the statement of
comprehensive income, together with any changes in the fair value
of the hedged liability that are attributable to the hedged risk.
This movement in the fair value of the hedged item is made as an
adjustment to the carrying value of the hedged liability.
Hedge ineffectiveness
Hedge ineffectiveness can arise from:
-- Differences in timing of cash flows of hedged items and hedging instruments;
-- Changes in expected timings and amounts of forecast future cash flows;
-- Different interest rate curves applied to discount the hedged
items and hedging instruments; and
-- Derivatives used as hedging instruments having a non zero
fair value at the time of designation.
Other risks such as credit risk and liquidity risk are managed
by the Company but are not included in the hedge accounting
relationship. Changes in the designated risk component usually
account for the largest portion of the overall change in fair value
or cash flows of the hedged item.
(i) Other assets
Other assets include intercompany receivables and prepaid
expenses, which are recognised initially at fair value and
subsequently measured at amortised cost.
(j) Cash and cash equivalents
Cash and cash equivalents are measured at amortised cost and are
derecognised when the rights to receive cash flows have expired or
the Company has transferred substantially all the risks and rewards
of ownership. For the purposes of the statement of cash flows, cash
and cash equivalents comprise balances with less than three months'
maturity from the date of acquisition.
(k) Notes in issue
The Residential Mortgage Backed Securities in issue comprise the
Notes. The Notes are initially recorded in the balance sheet at the
fair values of proceeds received net of any transaction costs. On
subsequent reporting dates, the Notes are measured at amortised
cost. The EIR has been calculated based on the assumption that the
Notes will be fully redeemed on the step-up date.
The accrual for interest payable on the Notes is recognised
unless the collectability of the income from the underlying assets
in which the proceeds from the limited recourse Notes were invested
is in doubt, in which case no interest expense is recognised as
there is no obligation to pay interest to the Noteholders in those
circumstances.
(l) Start-up loan
The start-up loan is a formal intercompany loan agreements
between the Company and CB PLC. The loan is subject to the terms of
the Start-up Loan Agreement. The start-up loan is recognised
initially at fair value and subsequently measured at amortised
cost.
(m) Other liabilities
Other liabilities include non-interest bearing intercompany
payables and accrued expenses, which are recognised initially at
fair value and subsequently measured at amortised cost.
(n) Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of tax effects.
(o) Capital management overview
The Company is not subject to externally imposed capital
requirements outside the scope of Programme documentation. The
Company considers its capital to reflect share capital which can be
found in the balance sheet on page 13.
1.5 Critical accounting estimates and judgements
The preparation of financial statements in accordance with UK
adopted IAS requires the Directors to make judgements, estimates
and assumptions that affect the reported amounts of assets,
liabilities, income and expenses reported in these financial
statements. Assumptions made at each balance sheet date are based
on best estimates at that date and are reviewed by the Directors at
each reporting date. Although the Company has internal control
systems in place to ensure that estimates can be reliably measured,
actual amounts may differ from those estimates. The most
significant use of estimates and judgements relate to the
following:
Impairment of financial assets
At initial recognition, allowance is made for ECLs resulting
from default events that are forecast within the next 12 months
(12-month ECL). In the event of a significant increase in credit
risk since origination, allowance (or provision) is made for ECLs
resulting from all possible default events over the expected life
of the financial instrument (lifetime ECL). In assessing a
significant increase in credit risk, the Company monitors the level
of credit enhancement within the Programme as detailed in the
monthly reporting, as well as considers the presence of any trigger
events as per the Programme documentation.
Financial assets where 12-month ECL are recognised are
considered to be Stage 1; financial assets which are considered to
have experienced a significant increase in credit risk since
initial recognition are in Stage 2; and financial assets which have
defaulted or are otherwise considered to be credit impaired are
allocated to Stage 3.
Unlike other financial instruments, the Intercompany Loans are,
by their construction, an instrument that incorporates credit
enhancement. The interest due on the loans to related company is
only due to the extent it matches the obligations of the entity.
All securitisation programmes incorporate credit enhancement in the
form of excess spread and various reserve funds for use in the
event the excess spread for a particular payment period is
insufficient. ECLs for these loans would only therefore be
recognised where the ECLs on the underlying assets were large
enough that no credit enhancement remained, which is not currently
the case. As at 30 September 2023, management judges ECLs to be
immaterial and as a result no ECL disclosures are presented.
2.1 Employee costs and Directors' emoluments
The Company does not have any employees thus there are no
associated costs included within these financial statements (2022:
GBPNil). The corporate administrative duties of the Company have
been outsourced to an external services provider, Vistra (UK)
Limited. Refer to page 4 for details of Directors' emoluments.
2.2 Interest income
The increase in interest income is driven by the issuance of
notes 2022-2 1A in November 2022 and 2023-1 1A in May 2023 and the
associated Intercompany Loans, along with an increase in the SONIA
index following central bank rate rises.
2.3 Interest expense
The increase in interest expense is driven by the issuance of
notes 2022-1 1A in November 2022 and 2023-1 1A in May 2023 and the
associated Intercompany Loan, along with an increase in the SONIA
index following central bank rate rises.
2.4 Operating expenses
During the year, the Company expensed GBP23,000 (2022:
GBP22,000) of audit fees for the statutory audit which are included
in other operating expenses.
2.1
2.5 Income tax
The Company is taxable under The Taxation of Securitisation
Companies Regulations 2006 ("Securitisation Regulations"), which is
effective for accounting periods beginning on or after 1 January
2007. As the payments condition has been satisfied at all times
during the accounting year, the calculation of corporation tax is
based upon the Company's retained profits.
The Company is entitled to retain an amount of GBP12,000 (2022:
GBP12,000) before any net gains or losses as profit for the year
ended 30 September 2023. This annual profit meets the definition of
retained profits under the Securitisation Regulations and is
taxable at the current taxation rate.
The charge above has been calculated in accordance with the
Securitisation Regulations.
Since 1 April 2017, the statutory rate of UK corporation tax has
been 19%. An increase in the UK corporation rate from 19% to 25%
(which became effective 1 April 2023) was substantively enacted on
24 May 2021. This will increase the Company's future current tax
charge accordingly.
3.1 Intercompany Loans
The Company entered into a Global Intercompany Loan Agreement
with the immediate parent company, LFL, pursuant to which the
Company advanced the total of GBP equivalent cash proceeds received
from the issue of the Notes in intercompany loan tranches to
LFL.
Intercompany Loans linked to the class Z Variable Funding Notes
("VFN") are also in existence. Any deficit or surplus of the VFN
notes is reassessed at the point of each issuance depending on the
level of liquidity required in the Programme using appropriate
credit enhancement techniques, thereby increasing or decreasing the
proportion of VFN required. They have a rate matching the Z notes
and this is Compounded Daily SONIA plus 0.90%
The Intercompany Loans are repayable quarterly in order of
priority starting from the class A tranches on a pro rata basis to
the class Z tranches, to the extent there are sufficient funds
available in LFL.
The Intercompany Loans are interest bearing and have a step-up
provision for the interest margin. The adjusted margin is the rate
that is payable if the principal is not paid by the step-up date.
The ultimate maturity date for all loan tranches is December
2069.
Movements in the underlying Notes during the year are further
disclosed in note 3.5.
3.2 Derivative financial instruments
Use of derivatives
The Company enters into certain derivative financial
instruments, which are designated into hedge accounting
relationships. These derivatives hedge foreign currency risk and
interest rate risk on the principal and interest of the Notes.
Although there are no active micro fair value hedges at the
Company's balance sheet date, these were designated as the hedging
strategy on foreign currency denominated fixed rate debt
issuances.
3.2 Derivative financial instruments (continued)
The derivative financial instruments held by the Company are
further analysed below. The notional contract amount is the amount
from which the cash flows are derived and does not represent the
principal amounts at risk relating to these contracts.
Summary of hedging instruments in designated hedge
relationships
In the below table, the Company sets out the accumulated
adjustments arising from the corresponding continuing hedge
relationships, irrespective of whether there has been a change in
hedge designation during the year. All cash flow hedge
relationships came to an end during the prior year.
Summary of hedged items in designated hedge relationships
In the below tables, the Company sets out the accumulated
adjustments arising from the corresponding continuing hedge
relationships, irrespective of whether there has been a change in
hedge designation during the year.
3.2 Derivative financial instruments (continued)
Gains and losses from hedge accounting
3.3 Other assets
3.4 Cash and cash equivalents
The Company holds a bank account with National Australia Bank.
The account has been established in the Company's name for the
following purposes:
-- to hold the Company's available principal and revenue
receipts until each quarterly Note payment date;
-- to apply proceeds to pay various creditors in accordance with
the relevant priority of payments; and
-- to retain the remaining balance as the Company's profits and paid-up share capital.
3.5 Notes in issue
(1) For details of the hedge adjustment value applied to the
Notes in issue refer to note 3.2.
Credit enhancements in the form of class Z VFNs are also in
existence to provide credit enhancement to the structure and act as
the first loss. Any deficit or surplus of the VFN notes is
reassessed depending on the level of liquidity required and have a
rate of Daily Compounded SONIA plus 0.90%.
Full details of all Notes in issue can be found in the investor
reports at
https://www.virginmoneyukplc.com/investor-relations/debt-investors/lannraig-programme/
.
Key movements in the year are shown in the table below(1) .
(1) Other movements relate to foreign exchange, hedging
movements and amortisation of issuance costs.
The Notes are repayable quarterly in order of priority starting
from the class A tranches to the class Z tranches, to the extent
there are sufficient funds available.
The Notes are interest bearing and have a step-up provision for
the interest margin. The adjusted margin is the margin that is
payable if the principal is not paid by the step-up date. The
ultimate maturity date for all classes of Notes is December
2069.
The proceeds from each issue and class of Notes have been
applied to fund a specified loan tranche of the Intercompany Loans,
as discussed in note 3.1.
Interest
Interest is payable quarterly in arrears. The payment of
interest on the Notes is dependent on the receipt of income from
the underlying loan tranches under the Intercompany Loans. If the
Company does not receive income from the underlying loan tranches
there is no obligation to pay interest to the Noteholders or the
swap counterparty.
Redemption
Redemption of the Notes will be made from the principal proceeds
received from LFL on the relevant payment date, in accordance to
the seniority of the Notes and availability of funds.
3.5 Notes in issue (continued)
Limited recourse and segregation of assets and liabilities
The Notes are limited in recourse to the swap agreements and to
the underlying Intercompany Loans held pursuant to each class of
Notes. Following termination of a swap agreement and its
enforcement against the counterparty and the enforcement of the
Global Intercompany Loan Agreement against LFL, there will be no
other assets of the Company available to meet any outstanding
claims of the Noteholders, who will bear any shortfall pro rata to
their holdings of Notes.
The Noteholders of each class therefore cannot claim against the
assets of any other classes of Notes.
3.6 Start-up loan
The Company entered into an issuer start-up loan agreement with
CB PLC, pursuant to which the Company may receive loans to be
applied towards:
-- the funding of the issuer reserve fund (in whole or in part); or
-- payment (in whole or in part) of the fees and expenses
incurred by the Company and LFL in respect of the issuance of the
Notes, and the lending of proceeds thereof to LFL.
The loans bear interest at the rate of a Daily Compounded SONIA
plus 0.90%. The loan is subordinated to the class A Notes but
senior to the class Z Notes.
During the year the Company repaid GBP4,478,000 which relates to
notes; 2022-1 1A, 2022-2 1A and 2023-1 1A.
3.7 Other liabilities
3.8 Fair value of financial instruments
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the valuation date.
Analysis of the fair value disclosures uses a hierarchy that
reflects the significance of inputs used in measuring the fair
value. The level in the fair value hierarchy within which a fair
value measurement is categorised is determined on the basis of the
lowest level input that is significant to the fair value
measurement in its entirety. The fair value measurement hierarchy
is as follows:
-- Level 1 - quoted prices (unadjusted) in active markets for an
identical financial asset or liability;
-- Level 2 - inputs other than quoted prices within level 1 that
are observable for the financial asset or liability, either
directly (as prices) or indirectly (derived from prices); and
-- Level 3 - inputs for the financial asset or liability that
are not based on observable market data (unobservable inputs).
3.8 Fair value of financial instruments (continued)
The methodologies and assumptions used in the fair value
estimates are described in the notes to the tables. The difference
between carrying value and fair value is relevant in a trading
environment but is not relevant to assets such as the Intercompany
Loans.
The table below show a comparison of the carrying amounts, as
reported on the balance sheet, and fair values of those financial
assets and liabilities measured at the amortised cost where the
carrying value amounts of the financial assets and financial
liabilities recorded at amortised cost in the balance sheet are not
approximately equal to their fair value.
The Company's fair values for financial instruments at amortised
cost are based on the following methodologies and assumptions:
Intercompany Loans - This is determined from a discounted cash
flow model using current market rates for instruments of similar
terms and maturity.
Notes in issue - This is determined from a discounted cash flow
model using current market rates for instruments of similar terms
and maturity.
There were no transfers between Level 1 and Level 2 in the
current or prior year.
Fair value measurements recognised on the balance sheet
The following table provide an analysis of financial instruments
that are measured subsequent to initial recognition at fair value,
using the fair value hierarchy described above.
The Company's fair values disclosed for financial instruments at
fair value are based on the following methodologies and
assumptions:
Derivative instruments - The fair value of derivatives,
including currency swaps, are obtained from discounted cash flow
models or option pricing models as appropriate .
There were no transfers between Level 1 and Level 2 in the
current or prior year.
3.9 Share capital
The entire share capital of the Company is held by LFL.
4.1 Notes to the statement of cash flows
Movements in liabilities arising from financing activities
(1) Accrued capital expenses are transaction costs associated
with the issuance of notes which have not yet been invoiced and
form a component of the total other payables balance.
(2) Other movements relate to movements of the fair value hedge
(including FX movement) and capitalisation or amortisation of
issuance costs.
4.2 Related party transactions
The Company had intercompany transactions with the immediate
parent company, LFL, and the Sponsor of the Programme, CB PLC. The
transactions with these related parties are disclosed below.
4.3 Management of risk
Introduction and overview
The principal activity of the Company is the issue of limited
recourse Notes, under the Lanark Programme, for onward lending to
LFL. Therefore, the role of financial assets and financial
liabilities is central to the activities of the Company; the
financial liabilities provide the funding advanced to LFL, which
represents the Company's principal financial asset. Financial
assets and liabilities provide the majority of the assets and
liabilities of the Company.
In addition to the advance of the Intercompany Loans, and the
issuance of Notes, the Company has also entered into cross currency
swaps. This is to hedge the currency and interest rate risk
associated with the mismatch between the floating GBP interest
generated by the Intercompany Loans and the foreign currency
interest paid on the Notes.
The strategies used by the Company in achieving its objectives
regarding the use of financial instruments were set when the
Company entered into the series of issuance transactions, such as
aligning the cash flow profiles of the Notes with the receivables
under the Intercompany Loans. The Company has attempted to match
the properties of its financial liabilities to its assets in order
to avoid significant elements of risk generated by mismatches of
maturity and interest rate risk.
This ensures that if one series defaults, the holders of that
series do not have the ability to claim other assets of the issuer,
resulting in the issuer's bankruptcy and the default of the other
series of Notes. The segregation criteria include the
following:
-- The Company is a bankruptcy remote structured entity;
-- The Company issues separate series of debt obligations;
-- Intercompany Loan tranches relating to any particular classes
of Notes are held separate from the assets relating to any other
classes of that series;
-- Any swap transaction entered into by the Company for a class
of Notes is separate from any other swap transaction for any other
class of Notes;
-- Only the trustees are entitled to exercise remedies on behalf of the Noteholders; and
-- Each series of Notes are reviewed by a recognised rating
agency prior to issuance regardless of whether it is to be rated or
not.
The Notes are initially recognised at the value of the net
proceeds less issue costs received and are carried at amortised
cost. The ultimate amount repaid to the Noteholders of these Notes
will depend on the proceeds from the relevant tranches of the
Intercompany Loans.
Risk management framework
The Board of Directors has overall responsibility for the
establishment and oversight of the Company's risk management
framework which is in line with the Programme documentation. This
includes information about the Company's exposure to risk, and its
objectives, policies and processes for measuring and managing risk.
Further quantitative disclosures are provided below.
Credit risk
Credit risk is the risk of the financial loss to the Company if
the counterparty to a financial instrument fails to meet its
contractual obligations and arises principally from the Company's
Intercompany Loans.
The Company limits its exposure to credit risk by investing only
with counterparties that have a credit rating defined in the
documentation of the relevant Note series. The risk of default on
the Intercompany Loans is borne by the holders of the relevant
classes of Notes.
Derivatives
At any one time, the amount subject to credit risk is limited to
the current fair value of instruments that are favourable to the
Company (i.e. assets where their fair value is positive) which, in
relation to derivatives, may only be a small fraction of the
contract, or notional values used to express the volume of
instruments outstanding.
The Company further restricts its exposure to credit losses by
entering into master netting arrangements with counterparties with
whom it undertakes derivative transactions. Master netting
arrangements do not generally result in an offset of balance sheet
assets and liabilities. However, credit risk associated with the
favourable contracts is reduced by a master netting arrangement to
the extent that, if any counterparty failed to meet its obligations
in accordance with the agreed terms, all amounts with the
counterparty are terminated and settled on a net basis. Derivative
financial instrument contracts are typically subject to the
International Swaps and Derivatives Association ("ISDA") master
netting agreements, as well as Credit Support Annexes, where
relevant, around collateral arrangements attached to those ISDA
agreements.
4.3 Management of risk (continued)
Credit risk (continued)
Maximum exposure to credit risk
The carrying amount of financial assets represents the maximum
exposure to the credit risk and at the reporting date was:
Maturity analysis of assets and liabilities
The following tables represent a breakdown of the Company's
balance sheet, according to the contractual maturity of the assets
and liabilities. Maturity analysis of Intercompany Loans and Notes
has been based upon these being redeemed at the step-up date.
4.3 Management of risk (continued)
Maturity analysis of assets and liabilities (continued)
Liquidity and funding risk
Liquidity risk is the risk that the Company is unable to meet
its current and future financial obligations as they fall due at
acceptable cost.
The Company's obligation to the Noteholders of a particular
class of Notes is limited to the net proceeds receivable under the
related tranche of Intercompany Loans and any available reserve
fund. Should the net proceeds be insufficient to make all payments
due in respect of a particular series of Notes, the other assets of
the Company will not be available for payment and the deficit is
instead borne by the Noteholders according to established
priorities.
Cash flows payable under financial liabilities by contractual
maturity
The following are the gross undiscounted contractual cash flows
of the financial liabilities. Liquidity analysis of Notes has been
based upon these being redeemed at the step-up date.
4.3 Management of risk (continued)
Liquidity and funding risk (continued)
The balances in the cash flow tables above do not agree directly
to the balances in the balance sheet as the table incorporates all
future cash flows, on an undiscounted basis, related to both
principal and interest.
The Company's exposure to liquidity risk is mitigated by
matching the repayments received on the Intercompany Loans with the
repayment profiles of the Notes.
Interest rate risk
Interest rate risk comprises the sensitivity of the Company's
current and future net interest income to movements in market
interest rates. The Company would be exposed to interest rate risk,
to the extent that there is a difference between the amount of the
interest-earning assets and the amount of the interest bearing
liabilities, or that the assets and liabilities mature or reprice
on different schedules.
For Notes at variable rates, the Company has fully mitigated any
interest rate risk by matching interest receivable on the
Intercompany Loans to that payable under the Notes.
For Notes at fixed currency rates, the Company has fully
mitigated any interest rate risk by matching interest receivable on
the Intercompany Loans to that payable on the currency swap
associated with the relevant Notes. Therefore, any change in
interest rates would not affect the statement of comprehensive
income of the Company.
Currency risk
The Company's functional currency is GBP and the Programme
allows issuances in GBP, USD and Euros. The Company is therefore
exposed to movements in exchange rates between its functional
currency GBP and its currency denominated financial
instruments.
The Company's policy is to fully mitigate any exchange rate
exposures by using cross currency swaps. The impact of any
movements in the exchange rates on any foreign currency denominated
Notes are offset by FX movements on the related cross currency
swaps. Therefore, any change in interest rates would not affect the
statement of comprehensive income of the Company.
Prepayment risk
Prepayment risk is the risk that the underlying loans in the
deemed loan, which allow LFL to make Intercompany Loan payments,
may be realised earlier than it is possible to redeem the
liabilities. This may arise due to redemptions of mortgages in the
underlying pool. In the event that the mortgage loans are redeemed
sooner, the prepayment proceeds are distributed in accordance with
the Programme documentation and additional mortgage loans are
assigned to the pool as required.
Operational risk
Operational risk is the risk of loss resulting from inadequate
or failed processes, people, systems or from external events. All
administration functions have been outsourced by the Company to
reputable organisations with strong operational risk controls.
Climate risk
The potential impact of climate related risks on the Company's
financial position and performance has been considered in preparing
the financial statements.
This involved undertaking an assessment at a Group level over
the assets (both financial and non financial) and evaluating
whether the observable effects of physical and transitional risk of
climate change would have a material impact on the financial
position and performance in the current year. The inherent risks
and uncertainties in quantifying the effect of climate change in
the financial statements are significant and more likely to impact
in the medium to long term. Consequently, the Company does not
consider there to be a material impact of climate change in these
financial statements.
4.4 Events after the balance sheet date
Note 2020-1 2A was redeemed as scheduled at the step-up date
November 2023.There have been no other significant events between
30 September 2023 and the date of approval of the annual report and
financial statements which would require a change to or additional
disclosure in the financial statements.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR BBBDDRGDDGXD
(END) Dow Jones Newswires
December 22, 2023 06:35 ET (11:35 GMT)
Lanark Mas.69 S (LSE:BE60)
過去 株価チャート
から 5 2024 まで 6 2024
Lanark Mas.69 S (LSE:BE60)
過去 株価チャート
から 6 2023 まで 6 2024