Rothschild & Co

Audit Report / Information • Apr 29, 2020

National Storage Mechanism | Additional information

RNS Number : 3915L

Rothschild & Co Continuation Fin

29 April 2020

Rothschild & Co Continuation Finance PLC

Report of the Directors and Financial Statements

for the year ended 31 December 2019

Strategic Report

Business Model and Strategic Objectives

Rothschild & Co Continuation Finance PLC ("the Company") is a wholly-owned subsidiary of N M Rothschild & Sons Limited ("NMR") and was incorporated on 30 August 2000 to operate as a finance vehicle for the benefit of NMR and its subsidiaries. 

The principal activity of the Company is the raising of finance for the purpose of lending it to NMR and other companies in the Rothschild & Co Group ("the Group").  The only current debt securities in issue are the perpetual subordinated notes guaranteed by NMR.

Business Update and Key Performance Indicators

As mentioned above, the Company operates as a finance vehicle which issues debt and lends it onto other Rothschild & Co Group companies on substantially the same terms.  The only debt currently in issue is perpetual subordinated notes.  Given the nature of this debt and the related loans to its parent undertaking, the Directors consider that accrual accounting best reflects the purpose of the Company as a pass through financing vehicle and to match the €150m loan asset and debt securities in issue.  On this basis, the loan asset and debt securities would be matched on the balance sheet at £128m to reflect the real asset and liability position of the Company. However, as mentioned in the 2018 Strategic Report, IFRS 9 has required the Company to report the loan asset, and the Company has elected to report the debt securities in issue, at fair value of c£105m. Small differences in the valuation of the asset and liability has resulted in a small accounting loss being reported for the year although the Company has increased its cash balances and remains well capitalised.

Principal Risks and Uncertainties

The principal risks of the Company are credit risk, liquidity risk, market risk and operational risk.  The Company follows the risk management policies of the parent undertaking, NMR.

Since the start of January 2020, COVID-19 has created significant disruption to the global markets and economies. Management has concluded that the impact of COVID-19 is a non-adjusting post balance sheet event in respect of the financial statements for the year ended 31 December 2019. Management has performed an assessment to determine whether there are any material uncertainties arising due to the pandemic that could cast significant doubt on the ability of the Company to continue as a going concern.

The Company's principal risk is credit exposure to NMR, as the notes issued by the Company have been guaranteed by, and funds have been on-lent to NMR. The Company is therefore reliant on the ability of NMR to meet its obligations under these lending arrangements. NMR is exposed to the aforementioned market disruption but, nevertheless, has sufficient liquidity to continue to operate for the next 12 months even in the scenario where revenue is significantly reduced. Management has considered the going concern basis of preparation as outlined in note 1 to the financial statements.

The Company's processes are undertaken by another group undertaking. As a result of recent events the activities of this group undertaking are now being conducted remotely with all employees supported by enhanced existing technology and IT infrastructure. The business has accordingly invoked the relevant sections of Business Continuity plans.  These plans have now been operational for a period of time and all critical systems continue to operate effectively and they have encountered minimal disruption in activity. The Company continues to carefully monitor and mitigate the risk on an ongoing basis in order to minimise exposure.

Strategic Report

The Company's market risk exposure is limited to interest rate and currency exchange rate movements.  Exposure to interest rate movements on the perpetual subordinated note issues has been passed to NMR, as the issue proceeds have been lent onwards to NMR at a fixed margin of one basis point above the rate being paid.  Currency risk is not considered significant as all material foreign currency balances and cash flows are matched. 

Liquidity risk has similarly been transferred to NMR as the funds on-lent have the same maturity dates as the notes issued.  Operational risk arising from inadequate or failed internal processes, people and systems or from external events is managed by maintaining a strong framework of internal controls. 

S172 statement

The Board has a duty under s172 of the Companies Act 2006 to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:

a)    the likely consequences of any decision in the long term,

b)    the interests of the Company's employees,

c)     the need to foster the Company's business relationships with suppliers, customers and others,

d)    the impact of the Company's operations on the community and the environment,

e)    the desirability of the Company maintaining a reputation for high standards of business conduct, and

f)     the need to act fairly as between members of the Company.

During the year the Board has considered its duties under s172 and how it fulfils its obligations thereof. Given that the Company has no staff and limited suppliers, the key stakeholders are thought to be shareholders, regulators and tax authorities:

Shareholders

The Board is appointed by the shareholders to oversee, govern and make decisions on their behalf and so is directly responsible for protecting and managing their interests in the Company. It does this by setting the strategies, policies and corporate governance structures described earlier. As part of the wider R&Co Group, some of these responsibilities are managed at a group level and described in greater detail in the R&Co financial statements that are available on www.rothschildandco.com/en/investor-relations/. 

Regulators and tax authorities

The Company insists on the highest standards of professionalism and integrity from those that act on its behalf who are expected to refrain from any conduct or behaviours that could be perceived unfavourably. This extends to dealing honestly and openly with regulators and tax authorities and in compliance with all the relevant laws and regulations in place.

By Order of the Board

Peter Barbour

New Court, St Swithin's Lane, London EC4N 8AL

28 April 2020

Report of the Directors

The Directors present their Directors' report and the financial statements for the year ended 31 December 2019.

Dividends

During the year, the Company did not pay any dividends (2018: £nil).

Directors

The Directors who held office during the year were as follows:

Peter Barbour

Christopher Coleman

Mark Crump

Directors' Indemnity

The Company has provided qualifying third-party indemnities for the benefit of its Directors.  These were provided during the year and remain in force at the date of this report.  

Auditor

In accordance with Section 489 of the Companies Act 2006, a resolution for the re-appointment of KPMG LLP as auditor of the Company is to be proposed at the forthcoming Annual General Meeting.

Audit Information

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

Directors' Responsibilities Statement

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 year.  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 applicable law. 

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that year. 

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

·	Select suitable accounting policies and then apply them consistently;
·	Make judgements and estimates that are reasonable, relevant and reliable;
·	State whether they have been prepared in accordance with IFRS as adopted by the EU;
·	Assess the Group and parent 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 Group and to prevent and detect fraud and other irregularities. 

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, and Corporate Governance Statement that complies with that law and those regulations.      

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.  Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 

Responsibility Statement of the Directors in respect of the Annual Financial Report

We confirm to the best of our knowledge:

·      The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

·      The Strategic Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By Order of the Board

Peter Barbour

New Court, St. Swithin's Lane, London EC4N 8AL

28 April 2020

Independent Auditor's Report to the Members of Rothschild & Co Continuation Finance PLC

1.     Our opinion is unmodified

We have audited the financial statements of Rothschild & Co Continuation Finance PLC ("the Company") for the year ended 31 December 2019 which comprise the statement of comprehensive income, balance sheet, statement of changes in equity, cash flow statement 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 December 2019 and of the Company's loss for the year then ended;
·	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 Act 2006.

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 engaged as auditor by the Directors in 2001.  The period of total uninterrupted engagement is the 18 years ended 31 December 2019.  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 were provided. 

Overview
Materiality: financial statements as a whole		£1.05m (31 December  2018:£0.99m ) 1% (31 December 2018: 1%) of Total Assets
Risks of material misstatement		vs December 2018
Recurring risks	Valuation of loans to parent undertaking and Debt securities in issue		The loan to the parent undertaking and debt securities in issue are classified at fair value upon adoption of IFRS 9 on 1 January 2018. A risk in relation to the fair value of loans and debt securities in issue has been identified in the current year due to the associated estimation uncertainty of the valuations.

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

Key audit matters are those matters that, in our professional judgement, 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 these matters. 

	The risk	Our response
Going Concern - Disclosure Quality Refer to Director's report and accounting policy	Going Concern - Disclosure quality The financial statements explain how the Board has formed a judgment that it is appropriate to adopt the going concern basis of preparation for the Company. That judgment is based on an evaluation of the inherent risks to the Company's business model and how those risks might affect the Company's financial resources or ability to continue operations over a period of at least a year from the date of approval of the financial statements. The risk most likely to adversely affect the Company's available financial resources over this period is the impact of Covid-19. The risk for our audit was whether or not the risk of Covid-19 is such that it amounted to a material uncertainty that may have cast significant doubt about the ability to continue as a going concern. Had this been such, then that fact would have been required to have been disclosed.	Our procedures included: -          Our Covid-19 knowledge: We considered the directors' assessment of Covid-19 related sources of risk for the Company's business and financial resources compared with our own understanding of the risks. We considered the directors' plans to take action to mitigate the risks. -          Sensitivity analysis: We considered sensitivities over the level of available financial resources indicated by the Company's financial forecasts, taking account of reasonably possible (but not unrealistic) adverse effects that could arise from these risks individually and collectively. -          Assessing transparency: We assessed the completeness and accuracy of the matters covered in the going concern disclosure, including those in the strategic report, by comparing the overall picture against our understanding of the risks. Our results: -          We found the going concern disclosure without any material uncertainty to be acceptable  (2018: acceptable).

	The risk	Our response
Valuation of Loans to parent undertaking and debt securities in issue Loan to parent undertaking (£104.6 million; 31 December 2018: £99.2million) Debt securities in issue (£104.4 million; 31 December 2018: £98.9 million) Refer to Note 6 and Note 11 (financial disclosure)	Low Risk, high value: The amount of the intercompany loan receivable represents 99% (December 2018: 99%) of the Company's total assets. The terms of the loan to parent are similar to the debt securities in issue. The fair value of debt securities in issue is based on available quotes from brokers and third party transactions where available. As a result, valuation is not at a high risk of material misstatement or subject to significant judgement. However, due to its materiality in the context of the financial statements, valuation of loan to parent undertaking and debt securities in issue is considered to be an area that has the greatest effect on our audit.	Our procedures included: -          Test of details: We involved our valuation specialists to independently determine the fair value of the loan to the parent undertaking and the debt securities in issue at 31 December 2019. -          We assessed whether the Company's disclosures in relation to fair value were in compliance with the relevant standards. Our results: -          We found the valuation of loans to parent undertaking and debt securities in issue, and the relevant disclosures to be acceptable. (December 2018: Corrected audit misstatement identified.)

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

Materiality for the Company as a whole was set at £1.05m (31 December 2018: £0.99m) determined with reference to a benchmark of total assets (of which it represents 1% (31 December 2018: 1%).  The threshold for reporting misstatements to those charged with governance was £0.05m (31 December 2018: £0.05m).

4.     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 its 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 concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least a year from the date of approval of the financial statements. 

We have nothing to report in these respects.

5.     We have nothing to report on the other information in the financial statements

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. 

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 year is consistent with the financial statements; and
·	In our opinion those reports have been prepared in accordance with the Companies Act 2006

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 by the Company, or returns adequate for our audit have not been received from branches not visited by us; or
·	The Company 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 these respects. 

7.     Respective responsibilities

Directors' responsibilities

As explained more fully in their statements set out on page 4, 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 financial statements. 

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 annual accounts from our general commercial and sector experience, through discussion with the directors (as required by auditing standards), and from inspection of the Group's regulatory correspondence and discussed with the directors 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.

Firstly, 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 and regulations.

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

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.  Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed. 

Pamela McIntyre (senior Statutory Auditor)

For and on behalf of KPMG LLP, Statutory Auditor

Chartered Accountants

15 Canada Square

London E14 5GL

28 April 2020

Statement of Comprehensive Income

For the year ended 31 December 2019

		2019	2018
	Note	£	£
Interest income		767,887	1,560,498
Interest expense		(756,228)	(1,548,915)
Operating profit		11,659	11,583
Revaluation of loan to parent undertaking	6	5,431,046	(20,287,162)
Revaluation of debt securities in issue	11	(5,440,409)	20,288,548
Foreign exchange translation profits		(2,471)	1,325
Loss before tax		(175)	14,294
Taxation	5	(153)	(2,688)
Loss for the financial year		(328)	11,606
Other comprehensive income		-	-
Total comprehensive income for the financial year		(328)	11,606

All amounts are in respect of continuing activities. 

Balance Sheet

At 31 December 2019

			2019		2019	2018	2018
	Note		£		£	£	£
Non-current assets
Loan to parent undertaking		6			104,620,334		99,189,288
Current assets
Cash and cash equivalents		8	230,368			392,172
Other financial assets		7	49,713			252,361
			280,081			644,533
Current liabilities
Overdrafts		8	-			(168,639)
Current tax liability		5	(1,746)			(2,452)
Deferred tax liability		9	(32,598)			(34,190)
Other financial liabilities		10	(47,725)			(250,275)
Net current assets					198,012		188,977
Total assets less current liabilities					104,818,346		99,378,265
Non-current liabilities
Debt securities in issue		11			(104,428,584)		(98,988,175)
Net assets					389,762		390,090
Shareholders' equity
Share capital		13			100,000		100,000
Retained earnings					289,762		290,090
Total shareholders' equity					389,762		390,090

Approved by the Board of Directors and signed on its behalf on 28 April 2020 by:

Peter Barbour

Director

Statement of Changes in Equity

For the year ended 31 December 2019

	Share Capital	Retained Earnings	Total Equity
	£	£	£
At 31 December 2018	100,000	290,090	390,090
Total comprehensive income for the financial year	-	(328)	(328)
At 31 December 2019	100,000	289,762	389,762
At 31 December 2017	100,000	112,711	212,711
Transition to IFRS 9	-	165,773	165,773
Restated Balance at 1 January 2018	100,000	278,484	378,484
Total comprehensive income for the financial year	-	11,606	11,606
At 31 December 2018	100,000	290,090	390,090

Cash Flow Statement

For the year ended 31 December 2019

		2019	2018
	Note	£	£
Cash flow from operating activities Net(loss)/ profit for the financial year		(328)	11,606
Tax charge		153	2,688
Operating profit before changes in working capital and provisions		(175)	14,294
Fair value movements of loans		(5,431,046)	20,287,162
Fair value movements of debt securities		5,440,409	(20,288,548)
Cash from operations		9,188	12,908
Taxation paid		(2,451)	(4,931)
Net cash from operating activities		6,737	7,977
Cash from financing activities Net decrease/(increase) in interest receivable		202,648	(48,936)
Net (decrease)/increase in interest payable		(202,550)	48,884
Net cash flow from financing activities		98	(52)
Net (decrease)/increase in cash and cash equivalents		6,835	7,925
Cash and cash equivalents at beginning of year		223,533	215,608
Cash and cash equivalents at end of year	8	230,368	223,533

Interest receipts and payments during the year were as follows:

		2019	2018
		£	£
Interest received from parent undertaking		970,535	1,511,562
Interest paid to note holders		958,778	1,500,031

Notes to the Financial Statements

(forming part of the Financial Statements)

For the year ended 31 December 2019

1.    Accounting Policies

Rothschild & Co Continuation Finance PLC ("the Company") is a public limited company incorporated in England and Wales.  The principal accounting policies which have been consistently adopted in the presentation of the financial statements are as follows:

a.       Basis of preparation

The financial statements are prepared and approved by the Directors in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations, endorsed by the European Union ("EU") and with those requirements of the Companies Act 2006 applicable to companies reporting under IFRS. 

Going concern

Management has performed an assessment to determine whether there are any material uncertainties that could cast significant doubt on the ability of the Company to continue as a going concern, including the impact of COVID-19. No significant issues have been noted. In reaching this conclusion, management considered:

·      The financial impact of the uncertainty on the Company's balance sheet;

·      The Company's liquidity position based on current and projected cash resources. The liquidity position has been assessed taking into account the forecast liquidity of NMR and its ability to continue to pay the interest on the intercompany loan provided by the Company.  Considerations included a stressed scenario where NMR's revenue could be reduced by more than 50% as compared to the prior year; and

·      The operational resilience with respect to the impact of the pandemic on existing IT and infrastructure.

Based on the above assessment of the Company's financial position, the Directors have concluded that the Company has adequate resources to continue in operational existence for the foreseeable future (for a period of at least twelve months after the date that the financial statements are signed). Accordingly, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

The financial statements are presented in sterling, unless otherwise stated. 

Standards affecting the financial statements

There were no new standards or amendments to standards that have been applied in the financial statements for the year ended 31 December 2019.

Future accounting policies

A number of new standards, amendments to standards and interpretations are effective for accounting periods ending after 31 December 2019 and therefore have not been applied in preparing these financial statements. The Company has reviewed these new standards to determine their effects on the Company's financial reporting, and none are expected to have a material impact on the Company's financial statements.

b.       Interest receivable and payable

Interest income and expense represents interest arising out of lending and borrowing activities. Interest income and expense is recognised in the income statement using the effective interest rate method.

c.       Foreign currencies

Transactions in foreign currencies are accounted for at the exchange rates prevailing at the time of the transaction.  Gains and losses resulting from the settlement of such transactions, and from the translation at period end exchange rates of monetary items that are denominated in foreign currencies, are recognised in the statement of comprehensive income. 

d.       Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise balances with other group companies that are readily convertible to cash and are subject to an insignificant risk of changes in value.

e.       Taxation

Tax payable on profits is recognised in the statement of comprehensive income.

Deferred tax is provided in full, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. Deferred tax is determined using tax rates and laws that are expected to apply when a deferred tax asset is realised, or when a deferred tax liability is settled.

f.       Capital management

The Company is not subject to any externally imposed capital requirements.

g.       Financial assets and liabilities

Financial assets and liabilities are recognised on trade date and derecognised on either trade date, if applicable, or on maturity or repayment. 

i.       Loans and advances

Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are initially recorded at fair value with any subsequent movement in fair value being recognised in the income statement.

ii.      Financial liabilities

Debt securities in issue are recorded at fair value with any changes in fair value recognised in the income statement.  All other financial liabilities are recognised at amortised cost. 

h.       Accounting judgements and estimates

The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the accounting policies.

Valuation of financial assets and liabilities

Fair value is the price that would be received on selling an asset or paid to transfer a liability in an orderly transaction between market participants. For financial instruments carried at fair value, market prices or rates are used to determine fair value where an active market exists (such as a recognised exchange), as this is the best evidence of the fair value of a financial instrument.  Where no active market price or rate is available, fair values are estimated using inputs based on market conditions at the balance sheet date. 

i.        Deferred tax

The recoverability of deferred tax assets is based on management's assessment of the availability of future taxable profits against which the deferred tax assets will be utilised. 

2.    Financial Risk Management

The Company follows the financial risk management policies of the parent undertaking, N M Rothschild & Sons Limited.  The key risks arising from the Company's activities involving financial instruments, which are monitored at the group level, are as follows:

Credit risk - the risk of loss arising from client or counterparty default is not considered a significant risk to the Company as all asset balances are with other group companies as detailed in note 14 Related Party Transactions. 

Market risk - exposure to changes in market variables such as interest rates, currency exchange rates, equity and debt prices is not considered significant as the terms of financial assets substantially match those of financial liabilities. 

Liquidity risk - the risk that the Company is unable to meet its obligations as they fall due or that it is unable to fund its commitments is not considered significant as the risk has been transferred to NMR.  As the funds on-lent to NMR have the same maturity dates as the notes issued, the Company's ability to meet its obligations in respect of notes issued by it is affected by NMR's ability to make payments to the Company. 

3.    Audit Fee

The amount receivable by the auditors and their associates in respect of the audit of these financial statements is £7,500 (2018: £5,000).  The audit fee is paid on a group basis by N M Rothschild & Sons Limited.

4.    Directors' Emoluments

None of the Directors received any remuneration in respect of their services to the Company during the year (2018: £nil).

5.    Taxation

	2019	2018
	£	£
Current tax	1,745	2,452
Deferred tax	(1,592)	236
Total tax	153	2,688

The tax charge can be explained as follows:

	2019	2018
	£	£
(Loss)/profit before tax	(175)	14,294
United Kingdom corporation tax charge at 19%	(33)	2,716
Impact on deferred tax of corporation rate change	187	(28)
Prior year adjustments	(1)	-
Total tax	153	2,688

6.    Non-Current Assets: Loan to Parent Undertaking

	2019	2018
	£	£
At beginning of period	99,189,288	133,151,064
Revaluation due to transition to IFRS 9	-	(13,674,614)
	99,189,288	119,476,450
Fair value movements	5,431,046	(20,287,162)
At end of period	104,620,334	99,189,288
Due In 5 years or more	104,620,334	99,189,288

IFRS 9 requires the €150,000,000 loan to be carried at fair value which as at 31 December 2019 was £104,620,334 (2018: £99,189,288).  On an amortised cost basis, the value of the loan at 31 December 2019 would be £127,833,646 (2018: £134,075,815).  The fair values are based on the market value of the external debt securities (level 2). 

The interest rate charged on the €150 million loan is EUR-TEC10-CNO plus 36 basis points, capped at 9.01 per cent, fixed on 05 February, 05 May, 05 August and 05 November each year.  The effective interest rate on the above loan at 31 December 2019 was 0.25% (2018: 1.13%).

7.    Current  Assets: Other Financial Assets

	2019	2018
	£	£
Amounts owed by parent undertaking: Interest receivable	49,713	252,361

8.    Cash and Cash Equivalents

At the year end the Company held cash of £230,368 (2018: £223,533) at the parent undertaking.  Of this balance, £213,288 was held in a sterling account (2018: overdraft of £168,639).  The equivalent of £17,080 (2018: £392,172) was held in a euro account.  The effective interest rate at 31 December 2019 was 0.0% (2018: 0.0%). 

9.    Deferred Income Taxes

	2019	2018
	£	£
At beginning of period	(34,190)	-
Transition to IFRS 9	-	(33,954)
	(34,190)	(33,954)
Recognised in income
Income statement credit	1,592	(236)
At end of period	(32,598)	(34,190)

Deferred tax assets less liabilities are attributable to the following items:

	2019	2018
	£	£
Fair value of intra group loans	3,946,263	5,930,710
Fair value of debt securities in issue	(3,978,861)	(5,964,900)
	(32,598)	(34,190)

Both the intra-group loans and debt securities in issue are taxed on an amortised cost basis of accounting and accordingly taxable/deductible temporary differences arise following the adoption of IFRS 9.  Deferred tax is provided using rates that have been substantively enacted at the balance sheet date and that are expected to apply when the temporary difference is realised. The current UK corporation tax rate is 19 per cent although a reduction in the rate to 17 per cent from April 2020 had been substantively enacted at the balance sheet date and is reflected in the carrying value of deferred tax.

In the 11 March 2020 Budget, it was announced that the UK tax rate will remain at the current 19% and not reduce to 17% from 1 April 2020. This will have a consequential effect on the Company's future tax charge.  If this rate change had been substantively enacted at the current balance sheet date the deferred tax liability would have increased by £3,835.

10.  Current Liabilities: Other Financial Liabilities

	2019	2018
	£	£
Interest payable	47,725	250,275

11.  Non-Current Liabilities: Debt Securities in Issue

	2019	2018
	£	£
At beginning of period	98,988,175	133,151,064
Revaluation due to transition to IFRS 9	-	(13,874,341)
	98,988,175	119,276,723
Fair value movements	5,440,409	(20,288,548)
At end of period	104,428,584	98,988,175
Repayable In 5 years or more	104,428,584	98,988,175

Given the IFRS 9 requirement to fair value the related loans, the Company has elected to fair value the debt securities in issue, which as at 31 December 2019 was £104,428,584 (2018: £98,988,175).  On an amortised cost basis, the value of the debt securities in issue at 31 December 2019 would be £127,833,646 (2018: 134,075,815). The fair value was derived from the quoted market price at the balance sheet date (level 1). 

The interest rate payable on the €150 million Perpetual Subordinated Notes is EUR-TEC10-CNO plus 35 basis points, capped at 9 per cent, fixed on 05 February, 05 May, 05 August and 05 November each year.  From and including the interest payment date falling in August 2016 and every interest payment date thereafter, the Company may redeem all (but not some only) of the Perpetual Subordinated Notes at their principal amount. 

The effective interest rate on the above notes at 31 December 2019 was 0.24% (2018: 1.12%).

12.  Maturity of Financial Liabilities

The following table shows contractual cash flows payable by the Company on the perpetual subordinated notes, analysed by remaining contractual maturity at the balance sheet date.  Interest cashflows on perpetual subordinated notes are estimated and shown up to five years only, with the principal balance being shown in the perpetual column. 

		3 months
		or less	1 year	5 years
		but not	or less	or less
		payable	but over	but over
	Demand	on demand	3 months	1 year	Perpetual	Total
2019	£	£	£	£	£	£
Perpetual subordinated notes	-	76,700	230,101	1,227,203	127,833,646	129,367,650
		3 months
		or less	1 year	5 years
		but not	or less	or less
		payable	but over	but over
	Demand	on demand	3 months	1 year	Perpetual	Total
2018	£	£	£	£	£	£
Perpetual subordinated notes	-	375,415	1,126,237	6,006,597	134,075,815	141,584,064

13.  Share Capital

	2019	2018
	£	£
Authorised, allotted, called up and fully paid 100,000 Ordinary shares of £1 each	100,000	100,000

14.  Related Party Transactions

Parties are considered to be related if one party controls, is controlled by or has the ability to exercise significant influence over the other party.  This includes key management personnel, the parent company, subsidiaries and fellow subsidiaries. 

Amounts receivable from related parties at the year-end were as follows:

	2019	2018
	£	£
Cash and cash equivalents at parent undertaking	230,368	223,533
Accrued interest receivable from parent undertaking	49,713	252,361
Loans to parent undertaking - at fair value	104,620,334	99,189,288

Amounts recognised in the statement of comprehensive income in respect of related party transactions were as follows:

	2019	2018
	£	£
Interest income from parent undertaking	767,887	1,560,498

There were no loans made to Directors during the year (2018: none) and no balances outstanding at the year-end (2018: £nil).  The Directors did not receive any remuneration in respect of their services to the Company.  There were no employees of the Company during the year (2018: none). 

15.  Parent Undertaking, Ultimate Holding Company and Registered Office

The largest group in which the results of the Company are consolidated is that headed by Rothschild & Co Concordia SAS, incorporated in France, and whose registered office is at 23bis, Avenue de Messine, 75008 Paris.  The smallest group in which they are consolidated is that headed by Rothschild & Co SCA, a French public limited partnership whose registered office is also at 23bis, Avenue de Messine, 75008 Paris.  The accounts are available on Rothschild & Co website at www.rothschildandco.com. 

The Company's immediate parent company is N M Rothschild & Sons Limited, incorporated in England and Wales and whose registered office is at New Court, St Swithin's Lane, London EC4N 8AL. 

The Company's registered office is located at New Court, St Swithin's Lane, London EC4N 8AL. 

16.  Post Balance Sheet Event

In early 2020, the existence of a new coronavirus (COVID-19) was confirmed and since this time COVID-19 has spread across China and to a significant number of other countries. COVID-19 has caused disruption to businesses and economic activity which has been reflected in recent fluctuations in global stock markets.  The Company considers the emergence and spread of COVID-19 to be a non-adjusting post balance sheet event.  Given the inherent uncertainties, it is not practicable at this time to determine the impact of COVID-19 on the Company or to provide a quantitative estimate of its impact.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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