Registered number:
FOR THE YEAR ENDED 31 MARCH 2022
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SF FUNDING LIMITED
COMPANY INFORMATION
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SF FUNDING LIMITED
CONTENTS
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SF FUNDING LIMITED
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 MARCH 2022
The directors present their report and financial statements for the year ended 31 March 2022.
The principal activity of the Group throughout the year was that of property investment.
The directors believe that the Group is in a satisfactory financial position.
The directors do not expect there to be significant future developments which could adversely impact the business; however, notice should be taken of the potential legislative changes disclosed in the critical accounting estimates and assumptions section of note 3.
The management of the business and the execution of the Group's strategy are subject to a number of risks.
The key business risks and uncertainties affecting the Group arise from the performance of its investments in property. The principal risk is that demand from investors for property assets will affect the valuation of investment properties.
This report was approved by the board
and signed on its behalf.
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SF FUNDING LIMITED
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 MARCH 2022
The directors present their report and the financial statements for the year ended 31 March 2022.
The directors are responsible for preparing the Group Strategic Report, the Directors' Report and the
consolidated
financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year
. Under that law the director has elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland' Section 1A (Small Entities). Under Company Law the director must not approve the financial statements unless he is satisfied that they give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period.
In preparing these financial statements, the directors are required to:
∙
select suitable accounting policies for the Group's financial statements and then apply them consistently;
∙
make judgements and accounting estimates that are reasonable and prudent;
∙
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors who served during the year were:
The directors believe that the Group is in a satisfactory financial position.
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SF FUNDING LIMITED
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2022
The auditors, Harris & Trotter LLP, will be proposed for reappointment in accordance with
section 485 of the Companies Act 2006.
This report was approved by the board and signed on its behalf.
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SF FUNDING LIMITED
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF SF FUNDING LIMITED
We have audited the financial statements of SF Funding Limited (the 'parent Company') and its subsidiaries (the 'Group') for the year ended 31 March 2022, which comprise the Group Statement of Comprehensive Income, the Group and Company Balance Sheets, the Group and Company Statement of Changes in Equity
and the related notes, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards,
including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland' (United Kingdom Generally Accepted Accounting Practice).
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the United Kingdom, including the Financial Reporting Council's Ethical Standard and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's or the parent Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
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SF FUNDING LIMITED
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF SF FUNDING LIMITED (CONTINUED)
The other information comprises the information included in the Annual Report other than the financial statements and our Auditors' Report thereon. The directors are responsible for the other information contained within the Annual Report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
In our opinion, based on the work undertaken in the course of the audit:
∙
the information given in the Group Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
∙
the Group Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Group Strategic Report or the Directors' Report.
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SF FUNDING LIMITED
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF SF FUNDING LIMITED (CONTINUED)
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditors' Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Group financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud The objectives of our audit are to identify and assess the risks of material misstatement of the financial statements due to fraud or error; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud or error; and to respond appropriately to those risks. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatements in the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (UK). In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, our procedures included the following: • We obtained an understanding of the legal and regulatory frameworks applicable to the Group and the industry in which it operates. We determined that the following laws and regulations were most significant: FRS 102 and the Companies Act 2006. • We obtained an understanding of how the Group is complying with those legal and regulatory frameworks by making enquiries of management. • We challenged assumptions and judgements made by management in its significant accounting estimates; We did not identify any key audit matters relating to irregularities, including fraud.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities
. This description forms part of our Auditors' Report.
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SF FUNDING LIMITED
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF SF FUNDING LIMITED (CONTINUED)
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 Auditors' 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.
for and on behalf of
Chartered Accountants
Registered Auditors
64 New Cavendish Street
W1G 8TB
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SF FUNDING LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2022
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SF FUNDING LIMITED
REGISTERED NUMBER:
09092048
CONSOLIDATED BALANCE SHEET
AS AT
31 MARCH 2022
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SF FUNDING LIMITED
REGISTERED NUMBER:
09092048
CONSOLIDATED BALANCE SHEET
(CONTINUED)
AS AT
31 MARCH 2022
The financial statements were approved and authorised for issue by the board and were signed on its behalf by
:
The notes on pages 15 to 31 form part of these financial statements.
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SF FUNDING LIMITED
REGISTERED NUMBER:
09092048
COMPANY BALANCE SHEET
AS AT
31 MARCH 2022
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SF FUNDING LIMITED
REGISTERED NUMBER:
09092048
COMPANY BALANCE SHEET
(CONTINUED)
AS AT
31 MARCH 2022
The financial statements were approved and authorised for issue by the board and were signed on its behalf by
:
The notes on pages 15 to 31 form part of these financial statements.
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SF FUNDING LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED
31 MARCH 2022
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SF FUNDING LIMITED
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED
31 MARCH 2022
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
SF Funding Limited is a private company limited by shares, incorporated in England & Wales (registered number 09092048). Its registered office and principal place of business is Prospect Place, Moorside Road, Winchester, England, SO23 7RX. The financial statements are presented in Sterling, which is the functional currency of the Group. The principal activity of the Group during the year was that of property investment.
2.
Accounting policies
The financial statements have been prepared under the historical cost convention unless otherwise specified within these accounting policies and in accordance with Section 1A of
Financial Reporting Standard 102, the Financial Reporting Standard applicable in
the UK and the Republic of Ireland and the Companies Act 2006
.
The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires Group management to exercise judgement in applying the Group's accounting policies (see note 3).
The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its own Statement of Comprehensive Income in these financial statements.
The following principal accounting policies have been applied:
The consolidated financial statements present the results of the Company and its own subsidiaries ("the Group") as if they form a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.
The consolidated financial statements incorporate the results of business combinations using the purchase method. In the Balance Sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the Consolidated Statement of Comprehensive Income from the date on which control is obtained. They are deconsolidated from the date control ceases. In accordance with the transitional exemption available in FRS 102, the group has chosen not to retrospectively apply the standard to business combinations that occurred before the date of transition to FRS 102, being 01 April 2014.
The financial statements have been prepared on a going concern basis. The Group is financed by a long-term loan of £298,569k (2021: £297,632k) from Rothesay Life Limited, a leading life insurer specialising in bulk annuities and other derisking solutions for defined benefit pension schemes and insurance companies. The loan provides sufficient working capital to enable the group to fund its day to day requirements.
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
2.
Accounting policies (continued)
Goodwill represents the difference between amounts paid on the cost of a business combination and the acquirer’s interest in the fair value of the Group's share of its identifiable assets and liabilities of the acquiree at the date of acquisition. Subsequent to initial recognition, Goodwill is measured at cost less accumulated amortisation and accumulated impairment losses. Goodwill is amortised on a straight line basis to the Profit and Loss Account over its useful economic life which is considered to be the life of the finance agreement with Rothesay Life.
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
2.
Accounting policies (continued)
These assets, as their name implies, represent interests held in the freehold land on which third party developers have built and sold long leasehold properties. As such these assets are more akin to financial investments, as they generate income in the form of annual ground rents along with other ancillary income streams. Recognising the unusual nature of these investment properties and the lack of a regular market for significant portfolios of such assets, which are in distinct contrast with the more regular “bricks and mortar” investment properties, the director is of the opinion that the best approximation to fair value for these properties is provided by a discounted cashflow valuation of the income streams generated by these assets. The valuation of the entire freehold reversionary interest portfolio is undertaken by independent valuers. The director also recognises, given the unusual nature and lack of a regular market for significant portfolios of such assets, that these carrying values may not be realised should the Company seek to dispose of any or all of the investment properties. Further details are given in note 12.
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
2.
Accounting policies (continued)
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
2.
Accounting policies (continued)
Provisions are charged as an expense to profit or loss in the year that the Group becomes aware of the obligation, and are measured at the best estimate at the balance sheet date of the expenditure required to settle the obligation, taking into account relevant risks and uncertainties. When payments are eventually made, they are charged to the provision carried in the Balance Sheet.
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
The estimates and underlying assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revisions affect only that period, or in the period of the revisions and future periods if the revision affects both current and future periods. The key sources of estimation uncertainty that have a significant effect on the amounts recognised in the financial statements are described below. Valuation of investment properties A key accounting estimate in preparing these financial statements relates to the carrying value of the investment property which is stated at fair value, as valued by the independent valuers. However, the valuation of the Group's investment property is inherently more subjective, as it is made on the basis of valuation assumptions which may in future not prove to be accurate, the risk of which is heightened due to the potential legislative changes noted below. The Government, through the Department for Communities and Local Government, now known as the Department for Levelling Up, Housing and Communities (DLUHC), The Competition and Markets Authority (CMA) and the Law Commission, have undertaken a series of consultations on and reviews of the residential property market with a focus on the legal framework surrounding the freehold and leasehold classes of property interests. The Leasehold Reform (Ground Rent) Act 2022 came into effect on 30th June 2022 and fulfills the commitment to “set future ground rents to zero”. The provisions only apply to new lease arrangements and therefore the Group’s existing income is unaffected. However, it may prove difficult to introduce new ground rent in future should the requirement arise. DLUHC have also proposed changes to the law governing leasehold enfranchisement. These proposals, which have not yet been enacted, include changes to the rights of leaseholders in relation to leasehold extensions and freehold purchases as well as changes to the manner in which ground rent would subsequently be determined. The implementation of legislative changes arising from these reforms could materially reduce the level of income generated by the portfolio of investment properties. Uncertainties also exist on the ultimate shape of any legislation, or its timetable, following the advent of a new Prime Minister and ministerial team. The Company is of the view that the proposed changes (as currently formulated) would be very damaging to the residential property market and against the interests of consumers and other property owners. Recent public announcements by government and in the Law Commission's report have recognised that any proposals to make wholesale reforms retrospectively pose real problems with respect to the contravention of human rights legislation. As such the directors' expectation of the impact of reforms will be greatest for future leases and not those already in existence, which will reduce the financial impact on freeholders. The Competitions and Markets Authority (CMA) has reviewed potential breaches of consumer protection law in the leasehold market. The CMA considers that lease terms which cause the ground rent to double every 10 or 15 years constitute unfair terms. At the time of signing these financial statements the Group had voluntarily entered into undertakings with the CMA to remove such clauses from the majority of any relevant leases held and the Group has now concluded discussions with the CMA. The impact on the value of the Group’s investment properties is reflected in the Balance Sheet. The Group continues to work with other leaseholders to vary such lease terms to RPI based review calculations. A significant number of
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
3.
Judgements in applying accounting policies (continued)
An intrinsic element of the long-term forecasts is the continuing rental income and lease extension premiums generated by the property assets held by these subsidiaries. The potential legislative changes raised above may affect these forecasts to the extent that the underlying assumption is no longer valid. However, the financial consequences of any changes are too uncertain to enable the director to reasonably estimate the impact of such changes on those forecasts. It is assumed that the current methodology continues to represent a fair value of these assets and the ability to meet the long-term obligations is not compromised. Details of the principal assumptions applied in the valuation of the investment properties are set out in note 12.
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
9.
Taxation (continued)
The budget on 3 March 2021 announced that the rate of corporation tax will remain at 19% until 1 April 2023 when it will increase to 25%.
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
Subsidiary undertakings (continued)
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
The investment properties represent a portfolio of freehold reversionary interests that generate ground rents as the principal income stream.
As at 31 March 2022 the investment properties were valued at £323,844k. The valuation has been carried out by independent valuers. The basis of the valuation was to project and discount the income streams generated by the portfolio over a period of 45 years. The principal assumptions used in the valuation were: • Reference sterling interest rate swaps based on the SONIA (Sterling Overnight Index Average) benchmark, provided with reference to directly observable data • Funding margins, provided with reference to recent comparable transactions • No allowance for taxation in projecting the ground rent cash flows • Future rental uplifts modelled as and when they are expected to occur in accordance with leases • Projected RPI (Retail Price Index) rate, provided with reference to directly observable data • HPI (Household Price Index) projected rate, provided with reference to the projected RPI rate which are found to be acceptable to lenders in this sector • PSEI (Private Sector Earnings Index), this has been set at 0% as a conservative assumption • Leases with 10-yearly or 15-yearly doubling clauses are modelled based on initial ground rent amounts stated in each lease with no increases on any future date
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
12.
Investment property (continued)
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
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SF FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
Profit and loss account
The immediate parent company is Penult SF Limited. The ultimate controlling party is TMW Holdings Limited.
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