REGENCY_OLDHOMES_LIMITED - Accounts

The directors present the strategic report for the year ended 31 October 2020.

The principal trading asset is the 82 beds nursing and dementia home known as Herons Park in Kidderminster. Throughout the whole trading year, the directors have authorised expenditure on accommodation and equipment upgrades in the home in line with normal company policy. The continued commitment to providing the best quality care, accommodation and customer service is integral to the company’s on-going appeal to premium customers.

We also consider:

• The care and welfare of our staff; promoting self-development and career opportunities including training and promotion; supplying access to a counselling service and other healthcare support.

• The environment; Using high energy efficiency building methods and the latest gas boilers.

• Diversity and equal opportunity and all newly introduced Employment Law legislation.

• Social issues: our corporate social responsibility (CSR) page on the royalbay.co.uk web site gives a full breakdown of how the company helps with charitable concerns.

Herons Park Nursing and Dementia Home performed well, with the home’s occupancy achieving an annual average figure as at Oct 2020 of 79% and average fee of £962 compared with the previous Oct 2019 figure of 91% and average fee of £929. The Herons Park occupancy figure is marginally less than the Royal Bay Group’s 2020 annual average occupancy of 83% but Herons Park fee levels have dropped by 1.6% over the same period. Both the Nursing Unit and the Dementia Unit with the addition of a further 24 beds are achieving satisfactory target figures of occupancy.

The 24-bed extension at Herons Park Nursing Home in Kidderminster was completed in September 2011. An accreditation audit was carried out in the first half of 2012 by Stirling University Dementia Service Development Centre and Herons Park was awarded the Gold Standard Award for Design. The dementia unit has improved in both occupancy and average fee, providing a steady financial contribution to the Home’s overall profits.

The company’s profit for the year to Oct 2020, before tax, amounted to £273,731, a 26.2% decrease on the previous year’s figure of £370,880. This was mainly due to a decrease in occupancy as the pandemic and lockdowns impacted admissions and this resulted in reduction of fees. Total equity is £5,304,052. The directors consider the position and performance of the company have recovered well to be satisfactory for the reported trading year.

The company monitors and analyses the home’s performance on a number of levels using indicators. These include; monthly fee income and occupancy; key internal spends such as wages, catering, repairs and renewal and energy. All financial data is amalgamated in a monthly management accounts report to show EBITDA. Comparisons with the previous year’s results and the current year’s budget to identify any significant variance. As a result, action is taken if need be.

The care industry faces fundamental changes to the public funding framework that would benefit the care sector and provide more realistic care home fees. Overall, the balance of the new arrangements appears to be a positive however we are still yet to see the future medium-term impact.

Interest rates are unpredictable. The Bank of England had increased base rate from 0.5% to 0.75% (August 2018) but was expected to be cautious about applying future increases as Brexit loomed. The Coronovirus Pandemic of March 2020 saw economic activity in the U.K. drop to a record low and Feb 2020 saw the base rate reduce to 0.25% and then within weeks to 0.1% the current level. The directors believed that marginal rate changes would have little impact on debt serviceability during the next 2 to 3 years but welcome the new low rate. Our capital repayments are reducing our outstanding debt level, and this would provide part mitigation against future potential increases in interest rate payments. In 2018 the main debt was transferred from Santander to Metro and is based on Bank of England Base Rate + margin over an extended repayment period. This had the effect of substantially increasing cash flow for the parent company and in turn Regency Oldhomes Limited.

The Coronavirus pandemic which occurred during this past financial year has had an impact on the performance of the Home. However the company has recovered well due to mitigation planning by the Directors. The care homes continue to operate well, with staff and residents being vaccinated as well as with virus protection measures in place.

There has also been a continuing effort in recent years to improve our cash flow by streamlining operations, reducing costs as well as increasing profitability, all of which will be carried forward for the next 12 months and beyond. Notable instances include negotiating supplier contracts, taking advantage of company purchasing power (this included a new singular energy contract), reducing out dated marketing expenses (traditional print) and maintaining our internet-based Payment Authorisation System for any purchase over £100.

Local Authority and CCGs continue to have a more pragmatic approach to fee increases, although there is still room for improvement in order to meet a more realistic market average. This, together with Regency Oldhomes Limited’s attention to both improving average fees whilst controlling costs and overheads, will allow the company to enhance its profitability.

There is a continuing drive to provide community care services to keep the elderly at home for as long as possible, but it was not meeting all of the needs of the elderly in the U.K. and sheer numbers created by demographics meant that residential care was still in demand and would continue to increase. Estimates quote that the number of over 85 year olds with high needs will double in the next 20 years (Kings Fund 2018).

Ultimately it is an objective of the company to move toward an even higher ratio of private to Local Authority and Continuing Healthcare NHS funded clients, thus reducing some of the complications involved with dealing with a third party.

There are three principal underlying wage pressures that will have an impact on care and nursing staff salaries:

First, Herons Park has auto-enrolment pensions has now reached 8% contributions from each party, employer and staff member, having been increased on 1st April 2019 to 3% and 5% contributions respectively.

Second, there is intense competition from the residential care sector, the domiciliary care sector and the N.H.S. for all grades of staff compounded by the reduction in numbers of nursing and medical graduates and overseas nurses taking up posts in the U.K. being restricted. This is leading to serious wage competition in South-West Birmingham .

Third, the continuing rise of the National Living Wage (NLW) means that wage budgets are rising in excess of normal annual fee increases. This pressure can be reduced by accelerating fee increases way above RPI levels for private payers (already happening) and relying more on ‘costed care plans’ as the basis for fee determination with the local authorities and the NHS.

The company is adjusting its budget expenditures and fee income decisions to make realistic forward plans to meet all of the pressures from the points outlined above and the directors are confident that the trading performance will improve over the next 12 months.

On behalf of the board

The directors present their annual report and financial statements for the year ended 31 October 2020.

The principal activity of the company continued to be that of care home operation.

The directors who held office during the year and up to the date of signature of the financial statements were as follows:

The results for the year are set out on page 8.

No ordinary dividends were paid. The directors do not recommend payment of a final dividend.

The company's activities expose it to a variety of financial risks. The Board reviews and agrees policies for managing these risks at regular intervals dependant on circumstances. The company's principal financial instruments include assets and liabilities such as trade receivables and trade payables arising directly from its operations. In accordance with company's treasury policy, derivative instruments are not entered into for speculative purposes.

The company manages its cash and borrowing requirements in order to maximise interest income and minimise interest expense, whilst ensuring the company has sufficient liquid resources to meet the operating needs of the business.

The company is exposed to fair value interest rate risk on floating rate deposits, bank overdrafts and loans. The cash flow interest rate risk is managed within the company's business projections and planning, in the monitoring of financial covenants and through negotiation of facility terms with the provider of the borrowing facility at specified intervals.

Investments of cash surpluses, borrowings and derivative instruments are made through banks and companies which must fulfil credit rating criteria approved by the Board. All residents who wish to trade on credit terms are subject to credit verification procedures. Trade debtors are monitored on an ongoing basis and provision is made for doubtful debts where necessary. The company is not exposed to commodity price risk.

The auditor, Morris Lane, is deemed to be reappointed under section 487(2) of the Companies Act 2006.

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards 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 period. In preparing these financial statements, the directors are required to:

•     select suitable accounting policies and then apply them consistently;

•     make judgements and accounting estimates that are reasonable and prudent;

•     state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

•     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the company website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the company’s auditor is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the company’s auditor is aware of that information.

Qualified Opinion

We have audited the financial statements of Regency Oldhomes Limited (the 'company') for the year ended 31 October 2020 which comprise the income statement, the statement of comprehensive income, the statement of financial position, the statement of changes in equity, the statement of cash flows and notes to the financial statements, 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 FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements:

•     give a true and fair view of the state of the company's affairs as at 31 October 2020 and of its profit for the year then ended;

•     have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

•     have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for qualified opinion

FRS 102 requires tangible fixed assets held under the revaluation model to be carried at a revalued amount, being the asset’s fair value at date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. FRS 102 requires revaluations to be undertaken with sufficient regularity to ensure that the carrying value does not differ materially from that which would be determined using fair value at the balance sheet date. In the case of the fair value of the freehold land and buildings owned by the company, due to their specialist nature, the valuation would normally be undertaken by professionally qualified valuers. The evidence available to us in respect of the fair value of freehold land and buildings with a carrying value of £5,143,361 held by the company was limited as no recent professional valuations have been undertaken. As a result, we were unable to obtain sufficient appropriate audit evidence about their carrying amounts and consequently, we were unable to determine whether any adjustments to these amounts are necessary.

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’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.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. 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.

In connection with our audit of the financial statements, 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 audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. 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.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of our audit:

• the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

• the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

In respect solely of the limitation on our work relating to stock, described above:

•     we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and

•     we were unable to determine whether adequate accounting records had been maintained.

In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report and the directors' report.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

•     adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

•     the financial statements are not in agreement with the accounting records and returns; or

•     certain disclosures of directors' remuneration specified by law are not made; or

•     we have not received all the information and explanations we require for our audit.

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Use of our report

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

The income statement has been prepared on the basis that all operations are continuing operations.

Regency Oldhomes Limited is a company limited by shares incorporated in England and Wales. The registered office is 31/33 Commercial Road, Poole, Dorset, BH14 0HU. The principal business address is Herons Park Nursing Home, Heronswood Road, Spennells Wood, Kidderminster, Worcestershire, DY10 4EX.

These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.

The financial statements have been prepared under the historical cost convention, modified to include the revaluation of freehold properties and to include investment properties and certain financial instruments at fair value. The principal accounting policies adopted are set out below.

The cost of a business combination is the fair value at the acquisition date of the assets given, equity instruments issued and liabilities incurred or assumed, plus costs directly attributable to the business combination. The excess of the cost of a business combination over the fair value of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill.

The cost of the combination includes the estimated amount of contingent consideration that is probable and can be measured reliably, and is adjusted for changes in contingent consideration after the acquisition date.

Provisional fair values recognised for business combinations in previous periods are adjusted retrospectively for final fair values determined in the 12 months following the acquisition date.

Deferred tax is recognised on differences between the value of assets (other than goodwill) and liabilities recognised in a business combination accounted for using the purchase method and the amounts that can be deducted or assessed for tax, considering the manner in which the carrying amount of the asset or liability is expected to be recovered or settled. The deferred tax recognised is adjusted against goodwill or negative goodwill.

The directors have adopted the going concern basis in preparing these accounts, after assessing the principal risks and having considered the impact of the ongoing COVID-19 pandemic. The directors considered the impact of the current COVID-19 environment on the business for the next 12 months and in the longer term. The directors have considered a number of impacts on fee income, profitability and cash flow. They have assumed that due to the nature of the trade of the business, with residential care services being an essential supply to many private and Local Authority clients, business operations will continue into the future. Whilst the biggest risk faced would be a significant reduction in occupancy resulting from COVID-19, due to the nature of the trade there is expected to be a continued regenerating income stream going forward and any consequential effect would therefore likely manifest itself primarily in a cash flow timing issue as opposed to a significant downturn in company profitability. However, the company has sufficient cash reserves and continues to take advantage of Government financial support available to enable it to meet its obligations as they fall due for a period of at least 12 months from the date of signing of these financial statements. The directors believe from their regular review of the company’s financial position and performance that the company is well placed to manage its financing and business risks satisfactorily and they therefore consider it appropriate to adopt the going concern basis in preparing these accountstrue.

Revenue is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.

When cash inflows are deferred and represent a financing arrangement, the fair value of the consideration is the present value of the future receipts. The difference between the fair value of the consideration and the nominal amount received is recognised as interest income.

Revenue from the supply of care services represents the value of services provided under contracts to the extent that there is a right to consideration and is recorded at the fair value of the consideration received or receivable. Where payments are received from customers in advance of services provided the amounts are recorded as deferred income and included as part of payables due within one year.

Interest income is recognised when it is probable that the economic benefits will flow to the company and the amount of revenue can be measured reliability. Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable.

Intangible assets acquired separately from a business are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.

Intangible assets acquired on business combinations are recognised separately from goodwill at the acquisition date where it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the fair value of the asset can be measured reliably; the intangible asset arises from contractual or other legal rights; and the intangible asset is separable from the entity.

Amortisation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

Property, plant and equipment are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

Freehold land is not depreciated.

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.

Properties whose fair value can be measured reliably are held under the revaluation model and are carried at a revalued amount, being their fair value at the date of valuation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The fair value of the land and buildings is usually considered to be their market value.

Revaluation gains and losses are recognised in other comprehensive income and accumulated in equity, except to the extent that a revaluation gain reverses a revaluation loss previously recognised in profit or loss or a revaluation loss exceeds the accumulated revaluation gains recognised in equity; such gains and losses are recognised in profit or loss.

At each reporting period end date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Inventories are stated at the lower of cost and estimated selling price less costs to complete and sell.

Cost is calculated using the weighted average method.

At each reporting date, an assessment is made for impairment. Any excess of the carrying amount of inventories over its estimated selling price less costs to complete and sell is recognised as an impairment loss in profit or loss. Reversals of impairment losses are also recognised in profit or loss.

Cash and cash equivalents are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

The company has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the company's statement of financial position when the company becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset, with the net amounts presented in the financial statements, when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Basic financial assets, which include trade and other receivables and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.

Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.

Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.

Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.

If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.

Basic financial liabilities, including trade and other payables, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.

Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.

Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.

Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.

Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or non-current assets.

The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.

Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets at the lower of the assets fair value at the date of inception and the present value of the minimum lease payments. The related liability is included in the statement of financial position as a finance lease obligation. Lease payments are treated as consisting of capital and interest elements. The interest is charged to profit or loss so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leases asset are consumed.

Government grants are recognised at the fair value of the asset received or receivable when there is reasonable assurance that the grant conditions will be met and the grants will be received.

Government grants relating to turnover are recognised as income over the periods when the related costs are incurred. Grants relating to an asset are recognised in income systematically over the asset's expected useful life. If part of such a grant is deferred it is recognised as deferred income rather than being deducted from the asset's carrying amount.

Credit risk

The company implements appropriate credit checks on residents and service users prior to providing services. This reduces the exposure of the company in respect of credit risk.

Liquidity risk

The policy of the company is to maintain a mix of short and long term borrowings to effectively manage liquidity risk.

Cash flow and interest rate risk

The company's interest rate risk arises primarily from long-term borrowings issued at variable rates which exposes the company to cash flow interest rate risk. The cash flow interest rate risk is managed within the company's business projections and planning, in the monitoring of financial covenants and through negotiation of facility terms with the provider of the borrowing facility at specified intervals.

In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated 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 where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.

An analysis of the company's revenue is as follows:

Government grants received in the year relate to various Covid-19 support schemes.

The average monthly number of persons (including directors) employed by the company during the year was:

Their aggregate remuneration comprised:

The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:

Intangible fixed assets with a carrying amount of £2,049 (2019 - £2,390) have been pledged to secure borrowings of the company. Further information is provided in Note 19.

The carrying value of land, included in land and buildings above, comprises:

Freehold land and buildings were revalued in October 2018 by Savills (UK) Limited, independent valuers not connected with the company on the basis of market value. The valuation conforms to International Valuation Standards and was based on recent market transactions on arm's length terms for similar properties. The directors are not aware of any material change in value of the freehold property and therefore do not consider an adjustment to the valuation reported is necessary. The tax treatment of the revaluation reserve is detailed in Note 15.

If revalued assets were stated on an historical cost basis rather than a fair value basis, the total amounts included would have been as follows:

Property, plant and equipment with a carrying amount of £5,202,640 (2019 - £5,327,018) have been pledged to secure borrowings of the company. Further information is provided in Note 19.

The carrying amount of inventories includes £3,469 (2019 - £3,469) pledged as security for liabilities. Further information is provided in Note 19.

The carrying amount of trade and other receivables includes £1,002,121 (2019 - £543,452) pledged as security for liabilities.

Government grants totalling £66,652 were received in the year in connection with coronavirus funding. Of this amount, £63,401 has not yet been fully utilised as at 31 October 2020, and so is recognised in accruals and deferred income to be released in line with the accounting policy for capital grants. No grants were received in 2019.

Deferred tax assets and liabilities are offset where the company has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:

Of the deferred tax liability set out above, an amount of £3,209 is expected to reverse within 12 months and relates to accelerated capital allowances.

Of the deferred tax liability set out above, an amount of £10,842 is expected to reverse within 12 months and relates to the revaluation of freehold property.

The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.

Ordinary shares carry voting rights but have no right to fixed income or fixed repayment of capital.

The revaluation reserve represents the cumulative effect of revaluations of freehold land and buildings which are revalued to fair value. At the end of each reporting period a transfer is made to retained earnings to transfer the excess depreciation that has been charged in the income statement which relates to the revalued portion of the assets. In respect of revaluation gains, deferred tax is recognised and is initially debited to the revaluation reserve. The amount of deferred tax recognised is adjusted on an annual basis for any movement in amounts debited or credited to the revaluation reserve in the year. Current year corporation tax is not required to be recognised in respect of any amounts debited or credited to the revaluation reserve.

Retained earnings represents cumulative profits or losses, including unrealised profit on the remeasurement of investment properties, net of dividends paid and other adjustments.

At 31 October 2020, the company had secured the Metro borrowings of the parent company, Royal Bay Care Homes Limited, by way of a first legal charge over the properties and a first debenture over all the assets and undertakings of the company. As at 31 October 2020, the maximum exposure of the company in respect of amounts drawn by the parent company was £6,739,095 (2019: £7,651,863).

At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

The following amounts were outstanding at the reporting end date:

The ultimate parent company is Royal Bay Care Homes Limited, whose registered office is 31/33 Commercial Road, Poole, Dorset, BH14 0HU.

The ultimate controlling party is Mrs C Wilson by virtue of her 64.021% shareholding of the issued share capital of Royal Bay Care Homes Limited.

The smallest and largest group into which the company is consolidated is Royal Bay Care Homes Limited.