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Kenrick No.3 PLC (15GY)

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Monday 01 March, 2021

Kenrick No.3 PLC

Annual Financial Report

RNS Number : 7703Q
Kenrick No.3 PLC
01 March 2021
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kenrick No. 3 Plc

 

Annual report and financial statements

for the year ended 31 March 2020

 

 

Registered number: 11001450

 

Kenrick No. 3 Plc

 

 

Contents

 

Page

Directors and advisors

1

Strategic report

2

Directors' report

4

 

Statement of Directors' responsibilities in respect of the strategic report, Directors' report and the financial statements

5

Independent auditor's report to the members of Kenrick No. 3 Plc

6

Statement of comprehensive income

10

Statement of changes in equity

10

Statement of financial position

11

Statement of cash flows

12

Notes to the financial statements

13

 

Kenrick No. 3 Plc

Directors and advisors

Directors

Charles Michael Leahy

MaplesFS UK Corporate Director No.1 Limited

MaplesFS UK Corporate Director No.2 Limited

Company secretary

Maples Fiduciary Services (UK) Limited

Auditor

KPMG LLP

Chartered Accountants

One Snowhill

Snow Hill Queensway Birmingham

B4 6GH

Solicitors

Clifford Chance LLP

London

Bankers

Citibank

London

 

Registered office

11th Floor

200 Aldersgate Street

London

EC1A 4HD

 

Registered number

11001450

 

Kenrick No. 3 Plc

Strategic report

The Directors present their strategic report for Kenrick No. 3 Plc (the Company) for the year ended 31 March 2020.

Business model, objectives and future developments

The principal activity of the Company is the holding of secured residential mortgage portfolios.

On 25 January 2018, the Company acquired a 99% beneficial interest in a mortgage portfolio secured on residential properties located in England and Wales.  The assets were acquired from West Bromwich Building Society (the Seller), the originator of the mortgages. The acquisition of these loans was financed by the issue of mortgage backed floating rate loan notes (£350,000,000 Class A and £33,100,000 Class B floating rate notes with a final maturity date of  October  2054). The notes are listed on the London StockExchange.

The securitisation structure has been established as a means of raising finance for West Bromwich Building Society and its subsidiaries. Under the terms of the securitisation transaction the activities of the Company are managed through a series of agreements whereby the Company retains the rights to a profit of

£1,000 per annum, subject to there being sufficient available revenue receipts. Deferred consideration is payable to West Bromwich Building Society to the extent to which surplus income is generated by the residential mortgage assets to which the Company holds the beneficial title.

 

The Company's tax charge is based on the tax regime for securitisation companies.

 

The principal asset of the Company is a beneficial interest in a mortgage portfolio, which is classified as a deemed loan in the Company's statement of financial position, as described in note 1. The deemed loan is subject to economic factors affecting the residential loan market and reviewed annually for impairment.

The Directors are not, at the date of this report, aware of any likely major changes in the Company's activities in the next year.

Results and review of the business

The Company's loss for the year of £796,000 (2019 restated: loss £414,000) has been transferred to reserves.

The statement of financial position on page 11 of the financial statements shows the Company's financial position at the period end date.

Key performance indicators

The key performance indicators used by management in assessing the performance of the Company are monitoring of actual cash flows against planned cash flows within the scheduled waterfall of payments and the level of arrears in the underlying mortgage portfolio.

 

During the period, the Company made all required payments on the loan notes and paid all normal operating expenses.

 

At 31 March 2020, there were no loans with arrears of three months or more in the underlying mortgage portfolio (2019: nil).

Principal risks and uncertainties

The Company's financial instruments comprise a deemed loan to West Bromwich Building Society (equivalent to the value of its investment in the mortgages held in trust), cash and liquid resources, derivatives and a subordinated loan between the Company and West Bromwich Building Society. The Company is a securitisation company and has been structured so as to avoid, as far as possible, all forms of financial risk.

As explained above, during the period, the Company has made all required payments on the loan notes and paid all normal operating expenses.

 

As with the financial impact on the economy, the longer-term impact of COVID-19 on the Company is, as yet, unquantifiable with any degree of confidence. The sheer scale of the government's various support initiatives for individuals and businesses is targeted at minimising the adverse impact on the economy. The Company revisited assumptions used in its ECL calculations as a result of the pandemic and the introduction of UK government support schemes thatfollowed.

 

The outcome of Brexit is not expected to directly impact the Company's operations, with its activities being entirely UK-based. However, there are risks that could impact the wider economy in the transitional period.

 

It is, and has been throughout the period under review, the Company's policy that no trading in financial instruments be undertaken.

The principal risks arising from the Company's financial instruments are credit risk and interest rate risk. These, and other risks which may affect  the  Company's performance, are detailed below and in note 2 to the financialstatements.

Credit risk

Credit risk can be described as the risk of customers or counterparties being unable to meet their financial obligations to the Company as they become due.

 

The ability of the Company to pay loan interest and principal will depend on the amount and timing of payment of interest on the mortgage loans and the repayment of principal by the borrowers. Credit risk arises on the individual loans within the mortgage loan portfolio which are in turn secured on  the  underlying UK residential properties. The performance of these loans is therefore influenced by the economic background and the UK residential property market. Under International Financial Reporting Standards (IFRSs) the beneficial interest in the mortgage portfolio is classified as a deemed loan in the Company's statement of financialposition.

In terms of administrator/cash management, the Company has engaged West Bromwich Building Society to monitor repayments on the mortgage loans in accordance with its credit policies. West Bromwich Building Society is also responsible for ensuring residential loans in the Trust loan pool meet the eligibility criteria at loan and pool level.

As the Company is only required to make repayments of interest and principal to the extent that repayments are received from the mortgage administrator in respect of the mortgage loans, impairment losses on the deemed loan are not borne by the Company but by the Seller (in terms of impacting the Company's ability to pay deferred consideration and repay principal and interest on the subordinated loan provided to the Company by the Seller).

Interest rate risk

Interest rate risk exists where assets and liabilities have interest rates set under a different basis or which reset at different times. The Company minimises its exposure to interest rate risk by ensuring that the interest rate characteristics of assets and liabilities are similar. Where this is not possible the Company uses derivative financial instruments to mitigate interest rate risk. Interest rate swaps have therefore been entered into to manage the Company's exposure to interest rate risk.

 

Kenrick No. 3 Plc Strategic report (continued) Liquidity risk

Liquidity risk is the risk that the Company either does not have sufficient financial resources to enable it to meet its obligations as they fall due or can secure such resources only at excessive cost. The Company's policy to mitigate liquidity risk is through the use of a subordinated loan from West Bromwich Building Society.

 

The loan notes are obligations solely of the Company and will not be the responsibility of, or guaranteed by, any other entity. In particular, the loan notes will not be obligations or responsibilities of, or guaranteed by, the Seller or any of its affiliates. However due to the limited recourse nature of the Notes 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 the mortgage administrator in respect of the mortgage loans. Further details of the loan notes are given in note 12.

 

Operational risk

 

Operational risk is the risk of loss and/or the negative impact on the Company resulting from inadequate or failed internal processes or systems, inability to attract, retain and motivate people, or from external events.

 

The activities of the Company are strictly governed by the transaction documents and Prospectus which are designed to facilitate effective and efficient operations whilst managing the risk of failure to achieve business objectives. The Company does not have any employees and has entered into contracts with a number of third parties whose responsibilities are determined by the transaction agreements.

 

The Company's operations are managed by West Bromwich Building Society, which has established a thorough operational risk framework which involves a Group Operational and Conduct Risk team, which co-ordinates regular reviews with the function managers and collates the output for review by executive management, the Operational, Conduct and Information Risk Group and the Group Risk Committee.

 

The Company's operations are also subject to periodic review by the Internal Audit function of West Bromwich Building Society.

 

Capital risk management

 

The Company is not subject to any external capital requirements except for the minimum requirement under the Companies Act 2006. The Company has not breached the minimum requirement.

 

Section 172 Statement

A new requirement for firms is to explain how the directors have considered the views of stakeholders as part of long-term decision making, in the form of a Section 172 Statement.

 

Obligations included within the new statement require directors to act in the way they consider, in good faith, would be most likely to promote the success of the organisation and in doing so have regard to a number of key areas:

- The likely consequences of any decision in the long term;

- How constructive relationships with wider stakeholder groups are fostered;

- How any community and environmental impacts of our operations are considered;

- How a reputation for high standards of business conduct is maintained; and

- The need to act fairly and balance the interests of stakeholders

 

The entity's key stakeholders are its parent undertaking and noteholders, its customers as well as the regulator. The entity does not have any employees and does not occupy stand-alone premises thereby minimising the community and environmental impacts.

 

A summary of the entity's engagement with its key stakeholders is presented below. Additionally, the WBBS Group makes use of feedback from engagement with its wider stakeholder group including investors, intermediaries and suppliers to ensure it is achieving high standards of business conduct.

 

Our Stakeholders

How the Board has considered views within decision making

How else we engage to ensure views are considered

Parent and noteholder undertakings

The West Bromwich Building Society (WBBS) manages its operations on a Group basis as discussed in its annual report.

 

A number of Group Committees support the Company Board in the effective measurement and management of risk as described in the principal risks and uncertainties section.

Decisions taken at WBBS Group level are aligned to the long term strategic objectives of the Group and factor in the views of the Group's Employee and Member Councils as well as the wider stakeholders of the Group as described below.

Our Customers

The Group has a Member Council which acts as a formal body that helps to inform the Group Board's long-term strategic decision making.

Examples include the importance of extending the Society's digital capabilities.

- Management information supplied to the Group Board monthly covering key customermetrics

- An active programme of Members' ViewPoint Events providing an opportunity for members to ask questions of Group Executive Directors and seniormanagement.

Our Regulators

The West Bromwich Building Society's Board maintains an open and transparent relationship with both the FCA and the PRA. Key engagement includes:

- The management of any actions raised by regulatory reviews at Board level with key updates provided at regular intervals;and

- Attendance of Board members both Executive and non-Executive at key regulatory update meetings so the Society's position is considered in light of emerging developments.

- Monthly updates provided on key regulatory items covered within the material supplied to the GroupBoard.

- The Group engages in regular dialogue with regulatory supervisors covering principal risks and other matters. Regular regulatory 'horizon scanning' completed by the Group Legal and Regulatory Team to remain well informed regarding latest updates and actions required.

 

On behalf of the Board

 

Charles Leahy

 

Representing MaplesFS UK Corporate Director No.1 Limited, Director 17 September 2020

 

Kenrick No. 3 Plc

Directors' report

The Directors present their annual report and the audited financial statements of Kenrick No. 3 Plc (the Company) for the year ended 31 March 2020.

Going concern

After considering the principal risks and uncertainties within the strategic report, the directors have a reasonable expectation that the Company will have adequate resources to continue in operational existence for the foreseeable future. This is further discussed in note 1.

 

Share capital

The issued share capital consists of 1 fully paid ordinary share of £1 and 49,999 quarter paid ordinary shares of £1 each. The shares are beneficially owned by the Company's parent, Kenrick No. 3 Holdings Limited.

Directors and Directors' interests

The Directors who held office during the period and subsequently were as follows:

Charles Michael Leahy

MaplesFS UK Corporate Director No.1 Limited

MaplesFS UK Corporate Director No.2 Limited

None of the Directors has any beneficial interest in the ordinary share capital of the Company. None of the Directors had any interest either during or at the end of the period in any material contract or arrangement with theCompany.

Company secretary

Maples Fiduciary Services Limited served as the Company Secretary during the period.

Dividend

The Directors do not recommend a payment of a dividend (2019: £nil).

Third party indemnity

Qualifying third party indemnity provisions for the benefit of the Directors were in force during the period under review and remain in force as at the date of approval of the annual report and financial statements.

Information included in the strategic report

 

In accordance with Section 414(c) of the Companies Act 2006 (Strategic Report and Directors Report) Regulations 2013, the Company has prepared a strategic report that contains information that would have previously been included in the Directors' report, which includes the principal activity of the company and review of the business.

Disclosure of information to the auditor

The Directors who held office at the date of approval of this Directors' report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware, and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

 

This confirmation is given and should be interpreted in accordance with the provisions of section 418(2) of the Companies Act 2006.

 

Auditor

In accordance with the relevant sections of the Companies Act 2006, the Company has dispensed with the requirements to re-appoint the auditor annually. New auditors will be proposed at the forthcoming annual general meeting of the Company.

 

Kenrick No. 3 Plc

Directors' report (continued)

Statement of Directors' responsibilities in respect of the strategic report, Directors' report and the financial statements

The Directors are responsible for preparing the strategic report, the Directors' report and the financial statements in accordance with applicable law and regulations.

 

Company law requires the Directors to prepare financial statements for each financial period. Under that law they have elected to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicablelaw.

 

 

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 period. In preparing these financial statements, the Directors are required to:

 

select suitable accounting policies and then apply themconsistently;

make judgements and estimates that are reasonable, relevant andreliable;

state whether they have been prepared in accordance with IFRSs as adopted by theEU;

assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern;and

use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

 

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 responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

 

 

On behalf of the Board

 

 

Charles Leahy

 

 

Representing MaplesFS UK Corporate Director No.1 Limited, Director

17 September 2020

 

 

Kenrick No. 3 Plc

Independent auditor's report to the members of Kenrick No. 3 Plc

1 Our opinion is unmodified

We have audited the financial statements of Kenrick No. 3 plc ("the Company") for the year ended 31 March 2020 which comprise the statement of comprehensive income, statement of changes in equity, statement of financial position, statement of cash flows, and the related notes, including the accounting policies in note 1.

In our opinion the financial statements:

give a true and fair view of the state of the Company's affairs as at 31 March 2020 and of its loss for the year thenended;

have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union;and

have been prepared in accordance with the requirements of the Companies Act2006.

 

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to those charged with governance.

We were first appointed as auditor by the directors in 2018. The period of total uninterrupted engagement is for the two financial years ended 31 March 2020. We have fulfilled our ethical responsibilities under, and we remain independent of the Company in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard wereprovided.

2 Key audit matters: our assessment of risks of material misstatement

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on thesematters.

 

Kenrick No. 3 Plc

 

Independent auditor's report to the members of Kenrick No. 3 Plc (continued)

 

The risk

Our response

Going concern

 

Refer to page 4 (strategic report) and page 13 (basis of preparation)

Disclosure quality

 

The financial statements explain how the directors have formed a judgement that it is appropriate to adopt the going concern basis of preparation for the Company's financial statements.

 

The nature of the Company is such that it is governed by a securitisation agreement that stipulates the parties whom have the power to redeem the issued loan notes and proceed to collapse the securitisation and the timing of when these parties can instigate redemption.

 

There is a risk to the application of the going concern assumption where the securitisation agreement allows for redemption of the loan notes within 12 months of the date of this audit report.

 

As such, clear and full disclosure of the facts and the directors' rationale for the use of the going concern basis of preparation is a key financial statement disclosure and so was the focus of our audit in this area.

Our procedures included:

 

Tests of detail: We inspected the securitisation agreement to identify the timings from which parties have the power to instruct redemption of the loan notes

 

Assessing transparency: We critically assessed the completeness and accuracy of the matters covered in the going concern disclosure in the financial statements using our knowledge of the relevant facts and circumstances developed during our audit work and by considering the securitisation structure and agreements.

 

Our results

 

We found the resulting disclosure of the going concern basis of preparation to be acceptable (2019: acceptable).

Valuation of deemed loan

 

Deemed loan: £283,745k (2019: £337,299k)

 

Refer to pages 14 to 16 (accounting policy) and notes 2 and 9 (financial disclosures)

Subjective estimate

 

The Company recognises a deemed loan asset, being the beneficial interest in a mortgage portfolio secured on residential properties. The value of the deemed loan is subject to the performance of the underlying loan portfolio and to economic factors affecting the residential loan market.

 

The directors consider the valuation of the deemed loan by assessing the underlying residential mortgage loans for impairment.

 

The directors use models to determine the level of expected credit loss ("ECL") required to be recognised on the underlying loans. Given the subjectivity inherent in estimating the recoverability of loan balances on a forward-looking basis, the assessment of ECLs becomes highly judgemental. The subjectivity in respect of these assumptions has increased further at the current year end as a result of the uncertainties arising from COVID-19.

 

In particular, there is subjectivity in the following key areas:

Significant increase in credit risk ('SICR'): The criteria selected to identify a significant increase in credit risk is a key area of judgement within the Company's ECL calculation as these criteria determine whether a 12 month or lifetime provision isrecorded.

 

Model estimations: Inherently judgemental modelling is used to estimate ECLs, particularly in determining Probabilities of Default ("PD") and Loss Given Default ("LGD"), including collateral valuations. The PD and LGD assumptions used in the models are the key drivers of the ECL results and are therefore the most significant judgemental aspect of the Company's ECL modellingapproach.

 

Economic scenarios: IFRS 9 requires the Company to measure ECLs on an unbiased, forward-looking basis reflecting a range of future economic conditions. Significant management judgement is applied in determining the economic scenarios used and the probability weightings applied tothem.

 

Post-model adjustments: The overall level of expected credit losses recognised is also sensitive to the application of post-model adjustments made by management in respect ofCOVID-19.

 

The effect of these matters is that, as part of our risk assessment, we determined that the valuation of the deemed loan has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and potentially many times that amount.

Our procedures included:

 

Historical comparisons: We critically assessed certain assumptions used in the model, being LGD and PD, against historical experience. This included assessing the accuracy of the model's predicted PDs against actual default experience and comparing valuation haircut assumptions used in estimating LGDs against actual historical sales data of the West Bromwich Building Society, the originator of the mortgage loans.

 

Benchmarking assumptions: We compared assumptions and judgements made by management, for example regarding significant increase in credit risk criteria and the definition of default, against comparable peers to assess their reasonableness.

 

Tests of details: We critically assessed the collateral valuations used in the ECL model by comparing the original valuation to the underlying valuation report for a selection

of loan accounts and recalculating the indexation applied to the original valuation in determining a current collateral valuation for those loan accounts.

 

Our market expertise: Our economics specialists assessed the forward economic guidance applied by the Company in the ECL models to consider the reasonableness of assumptions against market data, our own independent assumptions and peer experience. This included considering the impact of uncertainties arising from COVID- 19 in the current economic forecasts.

 

Sensitivity analysis: We performed stress testing on the key assumptions to assess the sensitivity of the resulting expected credit loss to these.

 

Test of details: We critically assessed adjustments made outside of the Company's models by challenging the calculation methodology applied and critically assessing the assumptions used in determining the value of the post-model adjustments recognised.

 

Assessing transparency: We evaluated the adequacy of the Company's disclosures in note 1 regarding the estimation uncertainty inherent in arriving at the expected credit loss amount. This included an assessment of the disclosures made in light of the increased uncertainty arising from COVID-19.

 

Our results

 

We found the resulting estimate of the valuation of the deemed loan to be acceptable (2019: acceptable).

 

Kenrick No. 3 Plc

 

Independent auditor's report to the members of Kenrick No. 3 Plc (continued)

 

 

Complexity of the securitisation structure contractual terms present a risk to the accounting of interest income, interest expense, deemed loan and borrowings

 

Interest income £4,589k (2019 £6,028k) Interest expense £4,011k (2019: £5,228k)

Deemed loan receivable £283,745k (2019: £337,299k) Debt securities in issue £298,423k (2019: £351,347k)

 

Refer to pages 14 to 18 (accounting policy) and notes 3, 4, 9 and 12 (financial disclosures)

Securitisation structure

 

The company was set up by West Bromwich Building Society with the sole purpose being to issue asset-backed notes as part of the securitisation of a pool of loans.

 

The complex structure can lead to a lack of understanding of transactions and the contractual terms of the various financial instruments, hence there is risk that interest income and principal balances receivable from loans (referred to as 'Deemed loan receivable'), interest expense and principal balances of asset backed notes payable to investors (referred to as 'Debt securities in issue') are not appropriately accounted and reported.

 

Inspection of documents: We compared the underlying transaction flows and accounting against key legal and contractual documents and reports.

 

These included:

 

The base prospectus and final terms of the Deemed loan and Debt Securities in Issue which govern the operation of the Company and its transaction flows to understand the securitisation structure and accounting impact of the securitisationtransaction.

 

All minutes of board of directors' meetings for the year to identify and investigate any unusual trends or incidents that would indicate a misstatement in the balances of the Deemed loan, Debt Securities in Issue and associated interest income and interest expense.

 

Test of details: We have recalculated interest income and interest expense arising from the Deemed loan and Debt Securities in Issue respectively.

 

Our results

 

We found the accounting and reporting of the Deemed Loan, Debt Securities in Issue, interest income and interest expense to be acceptable (2019: acceptable).

 

 

We continue to perform procedures over the impact of uncertainties due to the UK exiting the European Union on our audit. However, as time has passed since Article 50 was first triggered, and the UK has now left the EU, the Company has had more time to plan for different scenarios of exit and the level of understanding about how Brexit might impact the Company has increased. As such, we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately identified in our report this year.

 

3 Our application of materiality and an overview of the scope of our audit

 

Materiality for the financial statements as a whole was set at £800k (2019: £800k), determined with reference to a benchmark of total assets, of which it represents 0.27% (2019: 0.23%).

 

We consider total assets to be the most appropriate benchmark for materiality as the Company is not set up to make a statutory profit and accordingly its strategy is not one purely of profit maximisation. Total assets are deemed to be the benchmark which users of the financial statements focus their attention on.

 

We agreed to report to those charged with governance any corrected or uncorrected identified misstatements exceeding £40k, in addition to other identified misstatements that warranted reporting on qualitative grounds.

 

We have nothing to report on going concern

 

The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or to cease its operations, and as they have concluded that the Company's financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements ("the going concern period").

 

Our responsibility is to conclude on the appropriateness of the directors' conclusions and, had there been a material uncertainty related to going concern, to  make reference to that in this audit report. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that  are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor's report is not a guarantee that the Company will continue in operation.

 

We identified going concern as a key audit matter (see section 2 of this report). Based on the work described in our response to that key audit matter, we are required to report to you if we have anything material to add or draw attention to in relation to the directors' statement in Note 1 to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Company's use of that basis for a period of at least twelve months from the date of approval of the financial statements.

 

We have nothing to report in this respect.

 

5 We have nothing to report on the other information in the Annual Report

 

The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.

 

Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.

 

Kenrick No. 3 Plc

Independent auditor's report to the members of Kenrick No. 3 Plc (continued)

Strategic report and directors' report

Based solely on our work on the other information:

we have not identified material misstatements in the strategic report and the directors'report;

in our opinion the information given in those reports for the financial period is consistent with the financial statements;and

in our opinion those reports have been prepared in accordance with the Companies Act2006.

 

6 We have nothing to report on the other matters on which we are required to report by exception

Under the Companies Act 2006, we are required 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. We have nothing to report in theserespects.

Respectiveresponsibilities

 

Directors' responsibilities

 

As explained more fully in their statement set out on page 5, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; 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 they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

 

 

Auditor's responsibilities

 

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 other irregularities (see below), or error, and to issue our opinion in an auditor's report.  Reasonable assurance is a high level of assurance, but does not  guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions  of users taken on the basis of the financialstatements.

A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities. Irregularities - ability to detect

We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial

and sector experience and through discussion with the directors and other management (as required by auditing standards), and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations. We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit.

 

The potential effect of these laws and regulations on the financial statements varies considerably.

 

The company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.

 

Whilst the company is subject to many other laws and regulations, we did not identify any others where the consequences of non-compliance alone could have a material effect on amounts or disclosures in the financial statements.

 

Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non- compliance with laws and regulations (irregularities) is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.  In addition, as with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws andregulations.

 

8 The purpose of our audit work and to whom we owe ourresponsibilities

 

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 haveformed.

 

 

 

 

 

Matthew Rowell (Senior Statutory Auditor)

for and on behalf of KPMG LLP, Statutory Auditor

Chartered Accountants

One Snowhill

Snow Hill Queensway Birmingham

B4 6GH

21 September 2020

 

 

Kenrick No. 3 Plc

 

 

 

Statement of comprehensive income

 

 

 

for the year ended 31 March 2020

 

 

 

 

 

Notes

Year ended31

March2020

Period ended31

March2019

 

 

 

Restated*

 

 

£'000

£'000

Interest receivable and similar income

3

4,589

6,028

Interest expense and similar charges

4

(4,011)

(5,228)

Net interest receivable

 

578

800

Net fair value losses on derivatives

 

(796)

(431)

Administrative expenses

 

(578)

(779)

Loss before tax

5

(796)

(410)

Taxation

7

-

(4)

Loss for the year

 

  (796)     

(414)

The loss for the year was derived wholly from continuing operations.

There has been no comprehensive income or expense other than the profit for the year.

*2019 fair value losses on derivatives have been restated as explained in note 19.

 

Statement of changes in equity

 

 

 

for the year ended 31 March 2020

 

 

 

 

Share capital

Retained losses

Total

 

£'000

£'000

£'000

Balance at 1 April 2019

13

(414)

(401)

Loss for the year

-

(796)

(796)

Balance at 31 March 2020

13

(1,210)

(1,197)

 

 

 

Share capital

 

 

Retained losses

 

 

Total

 

£'000

£'000

£'000

Balance at 6 October 2017

-

-

-

Issue of share capital

13

-

13

Loss for the period (restated)*

-

(414)

(414)

Balance at 31 March 2019 (restated)*

13

(414)

(401)

 

The notes on pages 13 to 29 form part of these financial statements.

 

 

*2019 loss for the period and retained earnings have been restated as explained in note 19.

 

 

 

Kenrick No. 3 Plc

 

 

 

Statement of financial position

 

 

 

at 31 March 2020

 

 

 

 

Notes

2020

2019

 

 

 

Restated*

 

 

£'000

£'000

Assets

 

 

 

Cash and cash equivalents

8

14,808

13,852

Deemed loan due from Group undertaking

9

283,745

337,299

Derivative financial instruments

10

-

-

Trade and other receivables

11

343

617

Total assets

 

  298,896

351,768

Liabilities

 

 

 

 

Debt securities in issue

 

12

 

298,423

 

351,347

Derivative financial instruments

10

1,529

658

Trade and other payables

13

141

160

Current tax

 

-

4

Total liabilities

 

   300,093

352,169

Equity

 

 

 

Share capital

15

13

13

Retained losses

16

(1,210)

(414)

Total equity attributable to equity holders of parent

 

  (1,197)

(401)

Total liabilities and equity

 

  298,896

351,768

 

The notes on pages 13 to 29 form part of these financial statements.

 

 

 

*2019 derivative financial instruments and retained earnings have been restated in note 19. There was no impact on the brought forward figures for the period ended 31 March 2019 from the restatement detailed in note 19.

These financial statements were approved by the Board of Directors on 17 September 2020 and were signed on its behalf by:

Charles Leahy

 

Representing MaplesFS UK Corporate Director No.1 Limited, Director

 

 

 

 

Registered number: 11001450

 

 

 

 

 

Kenrick No. 3 Plc

 

 

 

Statement of cash flows

 

 

 

for the period ended 31 March 2020.

 

 

 

 

 

Notes

Year ended31

March2020

Period ended31

March2019

 

 

 

Restated*

 

 

£'000

£'000

Cash flows from operating activities

 

 

 

Loss before tax

 

(796)

(410)

Amortisation of Note issue costs

 

334

472

Accrued interest on debt securities in issue

 

698

966

Movement in fair value of derivative financial instruments

 

871

658

Net cash inflow from operating activities before changes in operating assets and liabilities

1,107

1,686

Repayment of deemed loan due from Group undertaking

 

53,554

(337,299)

Movement in trade and other receivables

 

274

(617)

Movement in trade and other payables

 

(19)

160

Tax paid

 

(4)

-

Net cash outflow from operating activities

 

  54,912

(336,070)

Cash flows from financing activities

 

 

 

Issue of share capital

 

-

13

Issue of debt securities

 

-

381,629

Repayment of debt securities in issue

 

(53,956)

(31,720)

Net cash flows from financing activities

 

(53,956)

349,922

 

Net increase in cash and cash equivalents

 

 

956

 

13,852

Cash and cash equivalents at beginning of period

 

13,852

-

Cash and cash equivalents at end of period

8

  14,808 

13,852

 

The notes on pages 13 to 29 form part of these financial statements.

 

 

 

*2019 loss before tax and derivative financial instruments have been restated as explained in note 19, which have no impact on net cash inflow from operating activities.

 

Kenrick No. 3 Plc

Notes to the financial statements

1

Accounting policies

Kenrick No. 3 Plc (the Company) is a public limited company incorporated in the United Kingdom and registered in England and Wales under the Companies Act 2006. The Company's registered office and principal activities are set out on pages 1 and 2 respectively.

The principal accounting policies applied consistently in the preparation of these financial statements are set out below.

Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations as adopted by the European Union (EU) and effective at 31 March 2020.

The financial statements have been prepared under the historical cost convention as modified by the revaluation of derivatives at fair value through profit or loss.

The financial statements are presented in pounds Sterling and, except where otherwise indicated, have been rounded to the nearest thousand.

Going concern

The financial statements have been prepared on the going concern basis, as defined in 'IAS 1 - Presentation of Financial Statements'. In order to prepare financial statements on this basis, the directors must conclude that management does not intend to liquidate the Company or cease trading, and that the Company has the ability to continue to trade and will be able to satisfy its liabilities as they fall due.

 

As a result of the transaction documents governing the Company's mortgage backed floating rate note borrowings described in note 12, the Company will continue to trade in the same way as it did in the year ended 31 March 2020 until either:

 

All of the class A and B notes are repaid from principal cash flows arising from the Company's mortgageportfolio;

The call option, exercisable for the first time on the earlier of: 11th January 2023, when the aggregate principal amount outstanding of the notes is equal to or less than 10% of the issued notes principal amount, or when there is a change in tax law which has certain impacts on the Company as specified in the securitisation prospectus, is exercised; or

The final repayment date for the notes in October 2054 isreached.

 

The directors have reviewed the balance sheet performance of the company and consider that it is unlikely that any of these events will occur during the next 12 months.

 

Before this point, repayments of the principal liabilities of the Company, the mortgage backed floating rate notes described in note 12, are limited to available principal cash received on the Company's loan portfolio until the final repayment date. Therefore, the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence until this point, satisfying all liabilities as they falldue.

 

On that basis, the directors have concluded that it is appropriate to continue to adopt the going concern basis in the preparation of these financial statements.

New or amended accounting standards

The following new or amended accounting standards, which are relevant to the Company, have been adopted during the year ended 31 March 2020:

Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS7)

Future accounting developments

There were no new or amended accounting standards and interpretations relevant to the Company that have been issued, and not effective for the period ended

31 March 2020.

 

Kenrick No. 3 Plc

Notes to the financial statements

1

Accounting policies (continued)

Interest receivable and expense

Interest receivable and expense are recognised in the income statement for all instruments measured at amortised cost using the effective interest  method.  Interest income on defaulted loans categorised as 'stage 3' under IFRS 9 is recognised by applying the effective interest rate to the balances net of provisions for expected creditlosses.

Deferred consideration

Under the terms of the securitisation agreements, the Company retains the rights to a profit of £1,000 p.a. subject to there being sufficient available revenue receipts. Amounts in excess of this accrue to West Bromwich Building Society as deferred consideration.

 

Effective interest rate

The effective interest rate is the method used to calculate the amortised cost of financial instruments and to recognise interest receivable or payable over the relevant period. The effective interest rate is the internal rate of return (IRR) or the level yield to maturity, i.e. the rate that exactly discounts estimated future cash flows or receipts through the expected life of the instrument, or where appropriate, a shorter period, to the net carrying amount at initial recognition.

Financial instruments

a) Financial assets

Under IFRS 9, financial assets are classified based on the business model under which they are held and the characteristics of their contractual cash flows.

 

Amortised cost

Financial assets are measured at amortised cost if they are held for the purpose of collecting contractual cash flows and have contractual terms which give rise on specified dates to cash flows which are solely payments of principal and interest (SPPI) on the outstanding amount.

 

Assets measured at amortised cost are initially recognised at fair value, being the cash consideration to originate or purchase the asset including any directly attributable transaction costs, and measured subsequently using the effective interest method.

This category includes cash and cash equivalents and the deemed loan asset.

Deemed loan

The loans and advances to customers legally sold to the Company fail the derecognition criteria of IFRS 9 (and its predecessor IAS 39) as West Bromwich Building Society (the Seller) has retained significant risk and rewards of ownership and therefore these loans remain on the statement of financial position of the Seller. IFRS 9 (and its predecessor IAS 39) therefore requires the Seller to recognise a deemed loan financial liability on its statement of financial position and the resulting deemed loan asset is held on the Company's statement of financial position. This deemed loan initially represents the consideration paid by the Company in respect of the acquisition and the beneficial ownership of the securitised loans and advances to customers and is subsequently adjusted due to repayments made by the Seller to theCompany.

 

The deemed loan balance is shown net of any deferred consideration, start up loan and subordinated loan payable to West Bromwich Building Society. Similarly, interest receivable on the deemed loan is presented net of deferred consideration, start up loan and subordinated loan interest payable.

Fair value through profit or loss (FVTPL)

Financial assets which do not meet the classification criteria to be held at amortised cost are measured at FVTPL.

This category includes derivative assets. The fair values of derivatives are based on level 2 valuation techniques, as described in note 2. Changes in the fair value of derivative assets are presented as net fair value gains/(losses) on derivatives in the statement of comprehensive income. Interest arising on derivative financial instruments is recognised within net interest on an accruals basis.

b) Financial liabilities

In accordance with IFRS 9, all of the Company's financial liabilities are classified as subsequently measured at amortised cost except for financial liabilities at fair value through profit or loss.

 

Amortised cost

This category includes debt securities in issue.

Liabilities subsequently measured at amortised cost are recognised initially at fair value, being the issue proceeds, net of premia, discounts and directly attributable transaction costs incurred. They are subsequently measured at amortised cost using the effective interest method.

 

Kenrick No. 3 Plc

Notes to the financial statements (continued)

1

Accounting policies (continued)

Fair value through profit or loss (FVTPL)

This category includes derivative liabilities. The fair values of derivatives are based on level 2 valuation techniques, as described in note 2. Changes in the fair value of derivative liabilities are presented as net fair value gains/(losses) on derivatives in the statement of comprehensive income. Interest arising on derivative financial instruments is recognised within net interest on an accruals basis.

c) Impairment of financial assets

Impairment of financial assets

Expected credit losses (ECLs) are recognised for all financial assets carried at amortised cost.

COVID-19 was declared a pandemic and UK government support measures only came into play towards the end of the Company's financial year. Nevertheless this required an update of certain assumptions used in the Company's ECL calculation which included the Company revisng its macroeconomic scenarios and revisited the probability weightings assigned to each scenario to reflect a more pessimistic outlook.

Staging

At each reporting date, financial assets subject to the impairment requirements of IFRS 9 are categorised into one of three stages:

Stage 1

On initial recognition, financial assets which are not credit impaired are categorised as stage 1 and provision is made for 12-month ECLs, being the losses from default events expected to occur within the next 12 months. Assets remain in stage 1 until such time as they meet the criteria for another stage or are derecognised.

Stage 2 (significant increase in credit risk)

Financial assets which are not in default, but have experienced a significant increase in credit risk since initial recognition, are categorised as stage 2. The loss allowance recognised is equivalent to lifetime ECL, being the loss arising from default events expected to occur over the lifetime of the financial asset.

 

Determining whether a significant increase in credit risk has occurred is a critical aspect of the IFRS 9 methodology and one which involves judgement, based on a combination of quantitative and qualitative measures, including the IFRS 9 'backstop' of 30 days past due.

 

Stage 3 (default)

Defaulted or credit-impaired financial assets are categorised stage 3, requiring recognition of lifetime ECLs.

Transfers to lower stages (curing)

Financial assets in stages 2 or 3 can transfer back to stages 1 or 2, respectively, once the criteria for significant increase in credit risk or default cease to be met for a period of time defined within the ECL methodology for that portfolio, sometimes known as the 'cure' period. In practice, this means that a stage 2 or 3 loan which ceases to breach the threshold(s)/criteria for that stage will remain in the higher stage for a pre-determined number of months. The use of cure periods gives assurance that accounts have rehabilitated before re-entering lower stages and reduces the level of volatility that might otherwise arise from accounts regularly migrating between stages.

 

Forward-looking ECL approach

ECL is measured as the present value of the difference between the cash flows contractually due on a financial asset and the cash flows expected to be received. In the statement of financial position, the loss allowance is presented as a reduction in the carrying value of the financial asset.

 

The estimate of ECL is unbiased and probability-weighted, taking into account a range of possible outcomes. In accordance with IFRS 9, forecasts of future economic conditions are integral to the ECL calculations. The Company currently models four forward-looking macroeconomic scenarios: a central forecast  with economic assumptions aligned to the West Bromwich Building Society Group (the Group) Medium Term Plan (and therefore assigned the highest probability), together with upside, downside and stress scenarios. The scenarios have been updated with due regard to the latest market data available following the emergence of the COVID-19 pandemic. A more pessimistic view has been taken when developing the forecasts this year, combined withreduced

weightings assigned to the central scenario, offset by a higher weighting assigned to the severe low rate scenario.

 

Kenrick No. 3 Plc

Notes to the financial statements (continued)

1

Accounting policies (continued)

ECL calculation - deemed loan

The loss allowance held against the deemed loan is determined based on the IFRS 9 provision requirements for the underlying mortgage portfolio. The residential impairment model employs industry-accepted statistical techniques to address the complex requirements of IFRS 9, with model assumptions and parameters initially determined by regression analysis of the West Bromwich Building Society Group's (the Group's) historical default data. The assumptions are validated using 'out of time' samples, across a range of economic scenarios, enabling the predictive capabilities of the models to be confirmed.

 

The model incorporates quantitative factors for identifying a significant increase in credit risk by comparing reporting date lifetime probability of default (PD) with residual origination lifetime PD. Residual origination PD curves and (relative and absolute) threshold levels are established via an iterative process involving statistical analysis of the Group's default data. In addition, a range of internally monitored potential impairment indicators have been selected as qualitative criteria for classifying an individual loan as stage 2. Examples of qualitative indicators include cancelled direct debit instructions, certain forbearance measures and evidence of impaired credit history obtained from externalagencies.

 

Loans in the underlying portfolio are considered to be in default or credit-impaired if they are in arrears by three or more months, in litigation, possession or LPA receivership or meet one of a range of internal 'unlikely to pay' indicators.

 

Within the residential impairment model, ECL is calculated by multiplying forward-looking probability of default (PD), exposure at default (EAD) and loss given default (LGD). The model outputs monthly ECLs, which are aggregated over the first 12 months to obtain 12-month ECL and over the life of the loan to calculate lifetime ECL. The model combines a number of account-specific variables and forecasts of future economic conditions within the calculation of PD. Macroeconomic variable inputs to the model are reviewed quarterly and include house price index (HPI), interest rates, unemployment and GDP. The variables were selected based on statistical tests and other analysis which evidenced their correlation with credit risk.

 

As the Company is only required to make repayments of interest and principal to the extent that repayments are received from the mortgage administrator in respect of the mortgage loans, impairment losses on the deemed loan are not borne by the Company but by the Seller (in terms of impacting the Company's ability to pay deferred consideration and repay principal and interest on the subordinated loan provided to the Company by the Seller).

Where a loan is not recoverable, it is written off against the related provision for loan impairment once all the necessary procedures have been completed and the amount of the loss has been determined.

d) Derecognition of financial assets and liabilities

The Company's policy is to derecognise financial assets when the contractual right to the cash flows from the financial asset expires. The Company also derecognises financial assets that it transfers to another party provided the transfer of the asset also transfers the right to receive the cash flows of the financial asset and substantially all the risks and rewards of ownership.

 

The Company derecognises financial liabilities only when the obligation specified in the contract is discharged, cancelled or has expired.

Cash and cash equivalents

For the purposes of the statement of cash flows, cash comprises cash and bank balances repayable on demand. Cash equivalents comprise highly liquid investments that are convertible into cash with an insignificant risk of changes in value, with maturities of 90 days or less on acquisition.

 

Kenrick No. 3 Plc

Notes to the financial statements (continued)

1

Accounting policies (continued)

 

 

 

 

Taxation

The Company has elected to be taxed as a securitisation company under the Taxation of Securitisation Companies Regulations 2006 ("the permanent regime"). Under the permanent regime the Company will be taxed on an amount which broadly represents its net cashflows as determined by the transaction documents. This is different to the basis on which the accounting profit or loss is reported in these financial statements.

 

All differences between the Company's accounting profits or losses and taxable net cashflows are therefore treated as permanent differences and as no timing difference with future tax consequences arise, no deferred tax is required to be recognised.

 

Critical accounting estimates and judgements in applying accounting policies

In the process of applying accounting policies, the Company makes various judgements, estimates and assumptions which affect the amounts recognised in the financial statements. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Significant judgements in applying accounting policies

Impairment

For IFRS 9 impairment, judgement is required to define the staging criteria, i.e. what constitutes a significant increase in credit risk (stage 2) and what circumstances give rise to a default (stage 3). Where assets meet the stage 2 or 3 criteria, lifetime ECL must be recognised.

In accordance with IFRS 9, forecasts of future macroeconomic conditions are integral to the impairment modelling processes. The selection of economic variables which are genuine drivers of credit risk and adequately capture the impact of changes in the economic outlook involves a degree of judgement.

The staging methodologies and macroeconomic scenario selection processes for each portfolio are detailed within the financial assets (impairment) accounting policy above. Model monitoring and model validation procedures are used to continually evaluate the appropriateness of the staging criteria and macroeconomic variableinputs.

Sources of estimation uncertainty

Impairment on loans and advances - forward-looking ECL approach

The estimation of ECLs is inherently uncertain and the IFRS 9 impairment model incorporates a number of assumptions and estimates, changes in which could materially affect the carrying amounts of assets and liabilities within the next financial year. The IFRS 9 requirements to incorporate forward-looking information within the ECL calculation, including forecasts of future macroeconomic conditions, necessitate judgement thereby increasing the potential for volatility in future periods.

The impairment model incorporates four macroeconomic forecasts (central, upside, downside and stress), each comprising a number of economic variables considered to be credit risk drivers.

Impairment on deemed loan - residential mortgages

The scenarios have been updated with due regard to the latest market data available following the emergence of the COVID-19 pandemic. A more pessimistic view has been taken when developing the forecasts this year, combined with reduced weightings assigned to the central scenario, offset by a higher weighting assigned to the severe low rate scenario.

The following table indicates the main economic variables included within the IFRS 9 macroeconomic scenarios at 31 March and the associated probability weightings.

 

At 31 March 2020

 

 

 

 

 

 

Probability weighting

 

 

Current scenario (%)

 

 

 

2020/21

2021/22

2022/23

 

Central

scenario

 

Bank_Rate

0.1

0.3

0.3

50%

HPI

(4.0)

4.0

3.4

 

 

 

Unemployment

6.0

4.5

3.7

 

 

 

GDP

(5.0)

3.5

3.5

 

Upside scenario

 

Bank_Rate

0.3

0.8

1.0

5%

HPI

2.9

3.8

4.6

 

 

 

Unemployment

4.1

3.6

3.1

 

 

 

GDP

(5.0)

6.0

6.0

 

Downside scenario

 

Bank_Rate

0.1

0.1

0.1

30%

HPI

(6.0)

-

1.0

 

 

 

Unemployment

10.0

6.0

3.7

 

 

 

GDP

(15.0)

-

6.0

 

 

Stress scenario

 

Bank_Rate

0.1

-

-

15%

HPI

(15.0)

(5.0)

-

 

 

 

Unemployment

12.0

8.0

6.0

 

 

 

GDP

(15.0)

(5.0)

-

Key assumptions for the residential portfolios are the probability weightings of the macroeconomic forecasts, which each incorporate a different outlook for the economic variables shown in the table above, the forecast of future house price inflation and the relative threshold used  to identify a significant increase in credit risk. Any increase in provision requirements would not result in a loss to the Company but an adjustment to the carrying value of itsassets/liabilities.

Under the terms of the securitisation, impairment losses on the deemed loan are borne by the Seller (in relation to receipt of deferred consideration and capital and interest on the subordinated loan).

 

Limited sensitivities have been performed for the Company, with the total ECLs equating to £12k, from a £0.3bn loan book.

 

Kenrick No. 3 Plc

Notes to the financial statements (continued)

2

Financial instruments

A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity of another entity. The Company's activities expose it to a variety of financial risks including interest rate risk and liquidity risk.

The activities of the Company are conducted primarily by reference to a series of securitisation documents (the programme documentation). The securitisation structure has been set up as a means of raising finance for West Bromwich Building Society and no business activities will be undertaken by the Company beyond those set out in the programmedocumentation.

The Company's exposure to risk on its financial instruments and the management of such risk is largely set out at the inception of the securitisation transaction. The Company's activities and the role of each party to the transaction are clearly defined and documented.

 

Interest rate risk

The Company has a policy of maintaining floating rate liabilities and matching these with the floating rate assets to mitigate against interest rate risk.

 

Interest rate swaps are undertaken as part of the securitisation to hedge interest rate exposure arising from the underlying financial instruments. The derivative counterparty is selected as a highly rated, regulated financial institution to reduce the risk of default and loss for the Company.

Sensitivity analysis

As previously noted, the Company has been set up in such a way as to eliminate, as far as possible, any impact on the Company's cash flows from changes in market conditions. The Company is subject to a number of contractual agreements including the use of derivatives to eliminate market risk from interest rate changes.

At 31 March 2020, if interest rates were 25 basis points higher or lower with all other variables held constant, the effect on net interest receivable in the  statement of comprehensive income would not bematerial.

Liquidity risk

The Company's policy to mitigate liquidity risk is through the use of a subordinated loan from West Bromwich Building Society.  As the length of the funding  is designed to match the length of the mortgages, there is deemed to be no further liquidity risk facing theCompany.

The mortgage assets are principally funded by mortgage backed loan notes. The maturity profile of the loan notes is matched to that of the assets being funded. The loan notes are subject to mandatory redemption in part on each repayment date in accordance with the redemption of the assets.

 

Kenrick No. 3 Plc

Notes to the financial statements (continued)

2

Financial instruments (continued)

 

 

 

 

 

 

The table below analyses the Company's financial assets and liabilities across maturity periods that reflect the residual duration from the period end date to the contractual maturity date. In the case of the deemed loan, the analysis is based on the contractual maturity of the underlying mortgage assets. The actual repayment profiles of financial assets and liabilities are likely to be significantly different to that shown in the analysis.

 

 

Less than 12 months

1 to 5 years

Over 5 years

No specific maturity

Total

 

 

£'000

£'000

£'000

£'000

£'000

At 31 March 2020

Financial assets

Cash and cash equivalents

14,808

-

-

-

14,808

Deemed loan due from Group undertaking

-

853

282,904

(12)

283,745

 

 

14,808

853

282,904

(12)

298,553

Financial liabilities

Derivative financial instruments

-

1,529

-

-

1,529

Debt securities in issue

698

853

297,537

(665)

298,423

 

 

698

2,382

297,537

(665)

299,952

 

 

 

 

Less than 12 months

 

 

1 to 5 years

 

 

Over 5 years

 

 

No specific maturity

 

 

Total

 

 

£'000

£'000

£'000

£'000

£'000

At 31 March 2019*

Financial assets

Cash and cash equivalents

13,852

-

-

-

13,852

Deemed loan due from Group undertaking

-

1,016

336,295

(12)

337,299

 

 

13,852

1,016

336,295

(12)

351,151

Financial liabilities

Derivative financial instruments

-

658

-

-

658

Debt securities in issue

966

1,016

350,364

(999)

351,347

 

 

966

1,674

350,364

(999)

352,005

 

*2019 derivative financial instruments have been restated as explained in note 19.

 

Gross contractual cash flows

The timing and amount of any payments to be made in respect of financial liabilities is determined by the waterfall of payments as laid out in the initial prospectus. In practical terms, the waterfall of payments only allows for (and expects) payments to be made to the extent that funds have been generated from the underlying mortgage assets. If insufficient funds have been generated to meet the full payments expected, then these amounts continue to be accrued until such time as funds are available. The current expected cash flows to be generated from the underlying mortgage loans are included in the maturity table above.

 

Cash and cash equivalents are held with an A+ rated bank.

Credit risk

Credit risk arises on the individual loans within the mortgage portfolio which are secured on the underlying properties. Under IFRS the portfolio is reclassified as a deemed loan.

 

To the extent that the income on the deemed loan does not provide sufficient funds to recover the Company's investment in the mortgage portfolio, the Company has no claim on the assets of West Bromwich Building Society. The Company's maximum gross exposure to credit loss is therefore equal to the fair value of its involvement in the portfolio (subject to mitigation which may result in the elimination of any obligation to pay deferred consideration to West Bromwich Building Society).

Deemed loan

The deemed loan is a single financial instrument under IFRS 9 and is allocated within IFRS 9 stage 1.

The table below shows an analysis of the deemed loan:

 

 

 

 

 

2020

2019

 

 

 

 

 

£'000

£'000

Prime owner occupied residential mortgages

 

 

 

  289,294 

343,930

Gross balances

 

 

 

289,294

343,930

Subordinated loan

 

 

 

(1,540)

(4,486)

Expected credit loss provisions

 

 

 

(12)

(12)

Deferred consideration

 

 

 

  (3,997) 

(2,133)

 

 

 

 

  283,745 

337,299

 

Kenrick No. 3 Plc

Notes to the financial statements (continued)

2

Financial instruments (continued)

 

 

 

 

Credit quality

The West Bromwich Building Society Group assess credit risk on owner occupied mortgages using behavioural scorecard and other analysis to determine probabilities of default across a number of rating grades. The IFRS 9 impairment models make use of this data, incorporating forecasts of future economic conditions and account-specific factors to produce forward-looking probabilities of default by account and allocating loans to one of three stages (as explained in note 1).

The table below analyses the underlying residential mortgages (gross exposures) by 12-month probability of default and IFRS 9 stage at the reporting date.

 

At 31 March 2020

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

 

£'000

£'000

£'000

£'000

Probability of default range

0.00 to < 0.25

263,142

7,926

-

271,068

0.25 to < 0.50

14,490

897

-

15,387

0.50 to < 0.75

-

-

-

-

0.75 to < 1.00

-

-

-

-

1.00 to < 5.00

255

4,388

-

4,643

5.00 to < 10.00

-

-

-

-

10.00 to < 100.00

-

505

-

505

100.00 (default)

-

-

438

438

Other

 

(2,747)

-

-

(2,747)

 

 

275,140

13,716

438

289,294

 

 

At 31 March 2019

 

 

Stage 1

 

 

Stage 2

 

 

Stage 3

 

 

Total

 

 

£'000

£'000

£'000

£'000

Probability of default range

0.00 to < 0.25

307,648

9,696

-

317,344

0.25 to < 0.50

18,460

2,426

-

20,886

0.50 to < 0.75

-

-

-

-

0.75 to < 1.00

-

-

-

-

1.00 to < 5.00

4,038

4,328

-

8,366

5.00 to < 10.00

-

-

-

-

10.00 to < 100.00

-

175

-

175

100.00 (default)

-

-

539

539

Other

 

(3,380)

-

-

(3,380)

 

 

326,766

16,625

539

343,930

 

 

 

Included within 'Other' above, is £2.7m (2019: £3.4m) representing intercompany balances due to West Bromwich Building Society.

The table below provides further information on the underlying residential loan portfolio by payment due status at 31 March 2020:

 

 

 

 

2020

2019

 

 

 

 

£'000

£'000

Not past due

 

 

289,083

343,930

Past due 1 to 3 months

 

 

    211 

-

 

 

 

 

    289,294 

343,930

 

Expected credit losses

The table below illustrates the IFRS 9 staging distribution of the underlying residential mortgages and related expected credit loss provisions at the period end. Stage 2 loans have been further analysed to show those which are more than 30 days past due, the IFRS 9 backstop for identifying a significant increase in credit risk (SICR), and those which meet other SICR criteria as detailed in note 1.

 

At 31 March 2020

 

Gross exposure

Expected credit loss provision

 

Provision coverage

 

 

 

£'000

£'000

%

Residential loans at amortised cost

Stage1

 

 

275,140

4

0.00%

Stage2

 

 

 

 

 

> 30 days past due

 

211

-

0.00%

Other SICR indicators

 

13,505

6

0.04%

Stage3

 

 

438

2

0.46%

 

 

 

289,294

12

0.00%

 

 

At 31 March 2019

 

 

Gross exposure

 

Expected credit loss provision

 

 

Provision coverage

 

 

 

£'000

£'000

%

Residential loans at amortised cost

Stage1

 

 

326,766

4

0.00%

Stage2

 

 

 

 

 

> 30 days past due

 

-

-

0.00%

Other SICR indicators

 

16,625

5

0.03%

Stage3

 

 

539

3

0.56%

 

 

 

343,930

12

0.00%

 

Kenrick No. 3 Plc

Notes to the financial statements (continued)

2

Financial instruments (continued)

 

 

 

 

The tables below analyse the movement in gross balances and the related expected credit loss allowances on the underlying mortgage portfolio for the period ended 31 March:

 

 

Stage 1

Stage 2

Stage 3

Total

 

 

£'000

£'000

£'000

£'000

Gross balances

At 1 April 2019

326,766

16,625

539

343,930

Transfers due to increased credit risk:

From stage 1 to stage 2

(6,180)

6,180

-

-

Transfers due to decreased credit risk:

From stage 2 to stage 1

6,624

(6,624)

-

-

Net redemptions and repayments

(52,070)

(2,465)

(101)

(54,636)

At 31 March 2020

275,140

13,716

438

289,294

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

 

£'000

£'000

£'000

£'000

Gross balances

At start of period (6 October 2017)

-

-

-

-

Mortgages transferred via securitisation transaction

384,987

 

 

384,987

Transfers due to increased credit risk:

From stage 1 to stage 2

(16,625)

16,625

-

-

From stage 1 to stage 3

(539)

-

539

-

Net redemptions and repayments

(41,057)

-

-

(41,057)

At 31 March 2019

326,766

16,625

539

343,930

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

 

£'000

£'000

£'000

£'000

Expected credit loss provision

At 1 April 2019

4

5

3

12

Transfers due to increased credit risk:

From stage 1 to stage 2

-

4

-

4

Transfers due to decreased credit risk:

From stage 2 to stage 1

-

(1)

-

(1)

Remeasurement of expected credit losses with no stage transfer

-

(2)

(1)

(3)

At 31 March 2020

4

6

2

12

 

 

 

 

 

Stage 1

 

 

 

Stage 2

 

 

 

Stage 3

 

 

 

Total

 

 

£'000

£'000

£'000

£'000

Expected credit loss provision

At start of period (6 October 2017)

-

-

-

-

Transfers due to increased credit risk:

From stage 1 to stage 2

-

5

-

5

From stage 1 to stage 3

-

-

3

3

Remeasurement of expected credit losses with no stage transfer

4

-

-

4

At 31 March 2019

4

5

3

12

 

Kenrick No. 3 Plc

Notes to the financial statements (continued)

2

Financial instruments (continued)

 

 

Geographical analysis

The table below shows the geographic spread of the underlying residential mortgage portfolio at the year end date:

 

 

2020

2019

 

 

£'000

£'000

 

East Anglia

11,853

13,901

 

East Midlands

37,637

46,621

 

Greater London

13,332

17,479

 

North

16,403

19,677

 

North West

45,081

52,168

 

South East

40,558

47,466

 

South West

27,802

32,980

 

Wales

14,477

18,218

 

West Midlands

40,702

47,785

 

Yorkshire

41,449 

47,635

 

 

  289,294 

343,930

Collateral

The table below shows the indexed loan to value distribution of the underlying residential loan portfolio at the year end date:

 

 

2020

2019

 

 

£'000

£'000

 

>95%

-

-

 

91% - 95%

213

84

 

86% - 90%

7,283

34,896

 

76% - 85%

63,690

94,408

 

51% - 75%

152,963

157,771

 

<51%

 65,145 

56,771

 

 

  289,294 

343,930

The following table indicates collateral held against the underlying residential loan portfolio by IFRS 9 stage at the year-end date:

 

 

2020

2019

 

 

£'000

£'000

 

Fair value of collateral held

 

 

 

Stage 1

522,115

567,251

 

Stage 2

22,951

27,213

 

Stage 3

 655 

972

 

 

545,721 

595,436

The average indexed loan to value is 57.16%, calculated as a simple average across all loans (2019: 62.48%).

 

 

Kenrick No. 3 Plc

Notes to the financial statements (continued)

2

Financial instruments (continued)

 

 

 

Classification of financial assets and financial liabilities

The following tables show the classification of the Company's assets and liabilities:

 

 

Amortised

Fair value through

 

 

 

cost

profit or loss

Total

 

 

£'000

£'000

£'000

 

At 31 March 2020

 

 

 

 

Assets

 

 

 

 

Cash and cash equivalents

14,808

-

14,808

 

Deemed loan due from Group undertaking

283,745

-

283,745

 

Total financial assets

298,553

-

298,553

 

Non-financial assets

 

 

    343

 

Total assets

 

 

    298,896

 

 

Ot

 

her financial

 

Fair value through

 

 

 

liabilities

profit or loss

Total

 

 

£'000

£'000

£'000

 

Liabilities

 

 

 

 

Derivative financial instruments

-

1,529

1,529

 

Debt securities in issue

298,423

-

298,423

 

Total financial liabilities

298,423

1,529

299,952

 

Non-financial liabilities

 

 

141

 

Total liabilities

 

 

    300,093

 

 

 

Amortised

 

Fair value through

 

 

 

cost

profit or loss

Total

 

 

 

Restated*

Restated*

 

 

£'000

£'000

£'000

 

At 31 March 2019

 

 

 

 

Assets

 

 

 

 

Cash and cash equivalents

13,852

-

13,852

 

Deemed loan due from Group undertaking

337,299

-

337,299

 

Total financial assets

351,151

-

351,151

 

Non-financial assets

 

 

    617

 

Total assets

 

 

    351,768

 

 

O

 

ther financial

 

Fair value through

 

 

 

liabilities

profit or loss

Total

 

 

 

Restated*

Restated*

 

 

£'000

£'000

£'000

 

Liabilities

 

 

 

 

Derivative financial instruments

-

658

658

 

Debt securities in issue

351,347

-

351,347

 

Total financial liabilities

351,347

658

352,005

 

Non-financial liabilities

 

 

    164

 

Total liabilities

 

 

    352,169

*2019 derivative financial instruments have been restated as explained in note 19.

Fair values of financial assets and liabilities

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 measurement date. The Company determines fair value by the following three tier valuation hierarchy:

 

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Valuation techniques where all inputs are taken from observable market data, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Valuation techniques where significant inputs are not based on observable market data.

 

Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist  and other valuation models. Assumptions and market observable inputs used in valuation techniques include risk-free and benchmark interest rates, equity index prices and expected price volatilities. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date that would have been determined by market participants acting at arm's length. Observable prices are those that have been seen either from counterparties or from market pricing sources including Bloomberg. The use of these depends upon the liquidity of the relevantmarket.

 

The carrying value of cash and cash equivalents are assumed to approximate their fair value.

 

Kenrick No. 3 Plc

 

Notes to the financial statements (continued)

 

2  Financial instruments (continued)

 

Fair values of financial assets and liabilities held at amortised cost

 

The tables below show the fair values of the Company's financial assets and liabilities held at amortised cost in the statement of financial position, analysed according to the fair value hierarchy described previously.

 

 

Carrying

value

Fairvalue

Level1

Fairvalue

Level2

Fairvalue

Level3

Fairvalue

Total

£'000

£'000

£'000

£'000

£'000

At 31 March 2020

 

 

 

 

 

Financial assets

 

 

 

 

 

Deemed loan due from Group undertaking

283,745

-

-

285,503

285,503

Financial liabilities

Debt securities in issue

 

298,423

 

257,994

 

32,242

 

-

 

290,236

 

 

 

Carrying

 

 

Fair value

 

 

Fair value

 

 

Fair value

 

 

Fair value

 

value

Level 1

Level 2

Level 3

Total

 

£'000

£'000

£'000

£'000

£'000

At 31 March 2019

 

 

 

 

 

Financial assets

 

 

 

 

 

Deemed loan due from Group undertaking

337,299

-

-

332,880

332,880

Financial liabilities Debt securities in issue

 

351,347

 

315,638

 

32,891

 

-

 

348,529

 

 

a) Deemed loan

The deemed loan is net of provisions for impairment. The estimated fair value represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value.

 

b) Debt securities in issue

The aggregate fair values are calculated based on quoted market prices. For those notes where quoted market prices are not available, a discounted cash flow model is used based on a current yield curve appropriate for the remaining term to maturity.

 

Financial assets and financial liabilities held at fair value through profit or loss

 

The following table summarises the fair value measurement basis used for assets and liabilities held on the statement of financial position at fair value:

 

 

 

Level 2

Total

2020

2020

£'000

£'000

Financial liabilities

 

 

Derivativefinancialinstruments       1,529  1,529

 

 

Level 2

 

Total

 

2019

2019

 

Restated*

Restated*

 

£'000

£'000

Financial liabilities

 

 

Derivativefinancialinstruments                  65658

 

*2019 derivative financial instruments have been restated as explained in note 19.

 

Kenrick No. 3 Plc

Notes to the financial statements (continued)

 

3

 

Interest receivable and similar income

Year ended31

March2020

for the period ended 31 March 2019

 

 

£'000

£'000

 

On deemed loan

5,903

7,926

 

Bank interest

68

57

 

Net expense on derivative financial instruments

(1,382) 

(1,955)

 

 

4,589

6,028

Included within interest receivable and similar income is interest accrued on impaired residential mortgage assets of £13,549 (2019: £14,261). For the purposes of this disclosure, impaired mortgage assets are those which have been categorised as stage 3 under IFRS 9.

 

4

 

Interest expense and similar charges

 

 

 

 

Year ended31

March2020

for the period ended 31 March 2019

 

 

£'000

£'000

 

On debt securities in issue

3,973

5,193

 

Other interest payable

38

35

 

 

4,011

5,228

 

5

 

Profit before tax

 

 

 

 

Year ended31

March2020

for the period ended 31 March 2019*

 

 

£'000

£'000

 

Profit before tax is stated after charging:

 

 

 

Inter-group charges (note 18)

492

662

 

Fair value losses on financial instruments*

(796)

(431)

 

Auditor's remuneration: audit services

1

2 0

*2019 fair value losses on financial instruments have been restated as explained in note 19.

 

6

 

Information regarding Directors and employees

 

 

 

Directors

 

 

None of the Directors received any emoluments for their qualifying services to Kenrick No. 3 Plc during the year ended 31 March 2020 or the preceding period.

 

Employees

 

 

 

The Company has no employees and services required are contracted from third parties.

 

 

 

7

 

Taxation

 

 

 

The Company's tax charge is based on the tax regime for securitisation companies.

 

 

 

 

Year ended31

March2020

Period ended31

March2019

 

 

£'000

£'000

 

Tax charge

4

 

The tax charge for the period is reconciled to the loss before tax in the income statement as follows:

 

 

 

Loss before tax*

 

(796)

 

(410)

 

Loss before tax multiplied by the UK standard rate of tax of 19%

(151)

(78)

 

Permanent differences as a result of securitisation regime

151

82

 

Tax charge

4

 

*2019 loss before tax has been restated as explained in note 19.

 

 

 

Kenrick No. 3 Plc

Notes to the financial statements (continued)

8

Cash and cash equivalents

 

 

 

 

 

 

2020

2019

 

 

 

£'000

£'000

 

Bank deposits

 

14,808 

13,852

9

Deemed loan to Group undertaking

 

 

 

 

 

2020

2019

 

 

 

£'000

£'000

 

Repayable in:

 

 

 

 

1 to 5 years

 

853

1,016

 

Over 5 years

 

288,441 

342,914

 

 

 

289,294

343,930

 

Subordinated loan

 

(1,540)

(4,486)

 

Impairment provisions

 

(12)

(12)

 

Deferred consideration (note 14

)

(3,997) 

(2,133)

 

 

 

283,745

337,299

The deemed loan balance is shown net of the subordinated loan and deferred consideration due back to West Bromwich Building Society.

Allowance for losses on deemed loan

 

 

 

2020

2019

 

 

 

£'000

£'000

 

At beginning of period

 

12

-

 

Amounts written off net of recoveries

-

-

 

Charge for the year comprising:

 

 

 

Provisions for loan impairment

 

-

12

 

Adjustments to provisions resulting from recoveries

-

-

 

Charge for the year

 

12

 

At end of year

 

12 

12

 

10

 

Derivative financial instruments

 

 

 

 

 

2020

2019

 

 

 

 

Restated*

 

 

 

£'000

£'000

 

Interest rate swaps

 

(1,529) 

(658)

*2019 derivative financial instruments have been restated as explained in note 19.

11

Trade and other receivables

 

 

 

 

 

 

2020

2019

 

 

 

£'000

£'000

 

Other debtors

 

34

61 7

12

Debt securities in issue

 

 

 

 

 

 

2020

2019

 

 

 

£'000

£'000

 

Due after more than 1 year:

 

 

 

 

Class A Notes

 

265,290

318,280

 

Class B Notes

 

33,100

33,100

 

Unamortised issue costs

 

(665)

(999)

 

Accrued interest

 

698

966

 

 

 

298,423 

351,347

 

 

Interest on the Notes will accrue on a day to day basis and be payable quarterly in arrears (subject to a longer first period) at the following rates above the London Interbank Offer Rate for 3 month sterling deposits (3 month LIBOR).

 

 

Amounts outstanding

Margin over 3 month LIBOR

 

 

 

2020

%

 

 

 

£'000

 

 

 

Class A

265,290

0.37

 

 

Class B

33,100

0.00

 

 

Kenrick No. 3 Plc

Notes to the financial statements (continued)

12

Debt securities in issue (continued)

 

 

For the purposes of the statement of cash flows, debt securities in issue are classified as liabilities arising from financing activities. The following table analyses movements in debt securities in issue.

 

 

 

2020

 

2019

 

 

£'000

£'000

 

At beginning of period

351,347

-

 

Financing cash flows

 

 

 

Proceeds from issue of debt securities

-

383,100

 

Issue costs

-

(1,471)

 

Repayments of debt securities in issue

(53,956)

(31,720)

 

Non-cash flows:

 

 

 

Accrued interest

698

966

 

Amortisation of issue costs

334 

472

 

At end of period

298,423

351,347

 

13

 

Trade and other payables

 

 

 

 

2020

2019

 

 

£'000

£'000

 

Other amounts due to related parties

113

132

 

Other payables

28 

28

 

 

14

16 0

 

14

 

Deferred consideration

 

 

Deferred consideration payable to West Bromwich Building Society is dependent on the extent to which surplus income is generated by the mortgage assets, to which the Company holds the beneficial title.

Movements in deferred consideration due to West Bromwich Building Society during the period were as follows:

 

 

2020

2019

 

 

£'000

£'000

 

At beginning of period

2,133

-

 

Deferred consideration arising during the period

1,864

2,145

 

Movement in carrying value adjustment

(12)

 

At end of period

3,997

2,133

 

Under the terms of the securitisation agreements, impairment losses on the deemed loan are borne by the Seller (in relation to receipt of deferred consideration and capital and interest on the subordinated loan) and the holders of the mortgage backed floating rate notes. The carrying value of the deferred consideration has been decreased to reflect cumulative actual and expected impairment losses.

The deferred consideration remains a liability of the Company as the associated contractual obligation has not been extinguished. The deferred consideration amount is presented net against the deemed loan. The carrying value adjustment will be reviewed on a regular basis to reflect the cash flows expected to be achieved by the underlying assets and adjusted accordingly.

15

Share capital

 

 

 

 

2020

2019

 

 

£

£

 

Allotted

 

 

 

1 ordinary share of £1 each, fully paid

1

1

 

49,999 ordinary shares of £1 each, 25p paid

12,500

12,500

 

 

12,501

12,501

 

A dividend shall be declared and paid according to the amounts paid up on the shares.

 

 

 

Capital disclosures

 

 

 

The Company is not subject to any external capital requirements except for the minimum requirement under the Companies Act 2006. The Company has not breached the minimum requirement.

 

Kenrick No. 3 Plc

Notes to the financial statements (continued)

16

Retained earnings

 

 

 

 

2020

2019

 

 

 

Restated*

 

 

£'000

£'000

 

At beginning of period

(414)

-

 

Loss for the period

(796) 

(414)

 

At end of period

(1,210)

(414)

 

17

 

Parent undertakings and ultimate controlling party

 

 

The entire ordinary share capital of the Company is owned by Kenrick No. 3 Holdings Limited, a company registered in England and Wales. MaplesFS UK Group Services Limited holds the entire share capital of Kenrick No. 3 Holdings Limited, on a discretionary trust basis for the benefit of certain charities.  The Company regards West Bromwich Building Society as its ultimate controlling party.  The results of the Company are consolidated into  the results of the West Bromwich Building Society Group (the Group) under the rules and guidance of IFRS 10 'Consolidated Financial Statements'. A copy of the Group financial statements may be obtained from 2 Providence Place, West Bromwich B70 8AF, the address of the ultimate controlling party's registeredoffice.

 

18

 

Related party transactions

 

 

 

Transactions with West Bromwich Building Society

 

 

 

 

Year ended31

March2020

for the period ended 31 March 2019

 

 

£'000

£'000

 

Interest receivable on deemed loan

5,903

7,926

 

Interest payable on debt securities in issue

(262)

(294)

 

Administration and cash management fees

(492)

(662)

 

Transactions with Maples Fiduciary Services (UK) Limited

 

 

 

Year ended31

March2020

for the period ended 31 March 2019

 

 

£'000

£'000

 

Corporate services and back-up service facilitator fees

1 5

 

At the period end the following balances were outstanding with related parties:

 

 

 

 

Outstanding balances with West Bromwich Building Society

 

 

 

 

2020

2019

 

 

£'000

£'000

 

Deemed loan asset

283,745

337,299

 

Debt securities in issue

(33,154)

(33,167)

 

Other balances due to Group undertaking

(113) 

(132)

 

Kenrick No. 3 Plc

Notes to the financial statements (continued)

19

Prior year adjustment

 

 

 

 

It was identifed during the year that derivative financial instruments were incorrectly posted in the prior year due to a transposition error. A prior year restatement has been made to reverse the derivative financial instrument asset of £658k and recognise a derivative financial instrument liability of £658k. A £1,316k charge has been made to the net fair value losses (previously 'gains') on derivatives within the Income Statement.

 

 

The table below show the effect of the retrospective restatements on the statements of financial position.

 

 

 

 

 

Statement of financial position

 

 

 

 

 

As reported

 

Restated

 

 

31-Mar-19

Restatement

31-Mar-19

 

 

£'000

£'000

£'000

 

Assets

 

 

 

 

Cash and cash equivalents

13,852

-

13,852

 

Deemed loan due from Group undertaking

337,299

-

337,299

 

Derivative financial instruments

658

(658)

-

 

Trade and other receivables

617

-

617

 

Total assets

352,426

(658)

351,768

 

Liabilities

 

 

 

 

Debt securities in issue

351,347

-

351,347

 

Derivative financial instruments

-

658

658

 

Trade and other payables

160

-

160

 

Current tax

4

-

4

 

Total liabilities

351,511

658

352,169

 

Equity

 

 

 

 

Share capital

13

-

13

 

Retained earnings/(losses)

902

(1,316)

(414)

 

Total equity attributable to equity holders of parent

915

(1,316)

(401)

 

Total liabilities and equity

352,426

(658)

351,768

 

 

The table below show the effect of the retrospective restatements on the income statement.

 

 

 

 

As reported

 

Restated

 

 

31-Mar-19

Restatement

31-Mar-19

 

 

£'000

£'000

£'000

 

 

Interest receivable and similar income

 

6,028

 

-

 

6,028

 

Interest expense and similar charges

(5,228)

-

(5,228)

 

Net interest receivable

800

-

800

 

Net fair value gains on derivatives

885

(1,316)

(431)

 

Administrative expenses

(779)

-

(779)

 

Profit before tax

906

(1,316)

(410)

 

Taxation

(4)

-

(4)

 

Profit for the period

902

(1,316)

(414)

 

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