ASHTON_HEALTHCARE_GROUP_L - Accounts

The directors present the strategic report for the year ended 31 December 2017.

The group performance exceeded all expectations during the year delivering a good set of results following the opening of our new home Bletchingley, in Haywards Heath.

Start-up trading losses relating to the opening of Bletchingley in July 2017 were expected to be incurred as occupancy increases as part of the normal maturity profile. However, these were not as great as anticipated as the home was successfully awarded a long-term block contract with a local authority together with three quarters of the rooms being occupied by private residents. This resulted in the home returning an operating profit within four months of opening. Average fee rates are also higher than initial expectations, improving profitability for this new start up which has contributed to the better overall group results compared to the prior year.

Performance needs to be considered in light of current economic uncertainty and against a backdrop of change in Government policy and the UK’s exit from the European Union which has already had an impact on the UK labour market.

Principal risks and uncertainties

Business Risk

The board has overall responsibility for the group’s approach to assessing risk and recognises that creating value is the reward for taking, and accepting, risk. Management implement the board’s policies on risk and control and oversea compliance of these policies. They are responsible for and maintaining appropriate control environments.

Government policy

Government and local authorities continue to favour the provision of care at home for the elderly for as long as possible, with the decision to refer into a registered care environment often a financial consideration rather than relating solely to care needs.

The pressure on public sector bodies to cut costs could have an impact on the group’s ability to achieve annual inflationary increases in non-contracted residential and nursing fees.

The group counters the above risks by remaining as flexible as possible in the structuring and delivery of its services and by remaining alert to potential change. Our homes are very well established, highly renowned, with a healthy mix of both private and publicly funded residents that mitigates any risk from local authorities or the NHS.

Occupancy risk

Lower than expected occupancy rates and a fall in bed rates, would cause a drop in revenue and hence resultant pressure on cash flow.

Our track record of high occupancy is based upon our reputation for the provision of excellent nursing care, together with a strong and flexible management team. The director has mitigated this risk by developing a sales and marketing strategy that ensures adequate management time and resources are devoted to its implementation.

Wage Rate

Future changes in the rate of the National Living Wage (“NLW”) will have a significant impact on labour costs for the group and our ability to recovery these costs through fee increases is uncertain. Failure to recover such costs would have a negative impact on margin.

Interest rate risk

The group’s interest rate risk arises from borrowings issued at variable rates that expose the group to interest rate cash flow risk. The group prepares projections and forecasts that are flexed to illustrate cash flow difficulties and management time and resources are given to managing this risk.

UK departure from the European Union

The UK exiting the European Union could materially change both the fiscal and legal framework in which the group operates. It could have a material impact on the UK’s economy and its future economic growth. In addition, prolonged uncertainty regarding aspects of the UK economy due to the uncertainty around the proposed exit could damage customers’ and investors’ confidence. The consequences and potential risks arising from the 2016 referendum decision to leave the European Union relate principally to the labour market for essential care workers. The likelihood of any adverse impact remains unclear, but the sector is working actively to ensure that measures to support ongoing recruitment and retention of necessary care and nursing staff are in place.

Legislative & regulatory risk

The group operates in a highly regulated environment and is subject to licensing and inspection from many third parties that includes the Care Quality Commission (CQC). There is continual pressure on achieving a high standard of regulatory compliance rating. Failure of which would impact on the group’s turnover and profitability.

In recognising this obligation and requirement to achieve the highest CQC rating possible we are confident that the group’s internal processes, procedures and controls will ensure ongoing compliance throughout all the changes in the regulatory landscape, anticipated in 2018 and beyond. We are pleased to report that all our inspected homes have achieved the CQC rating of 'Good' in the latest inspections.

Financial key performance indicators

The group tracks its performance against a number of key performance indicators which are aligned to our strategic vision. The key drivers are revenue,occupancy rates, average weekly fees, payroll costs, non-payroll costs and profit margins (EBITDA). Revenue of the group this year has increased 18.2% from £3.09m in 2016 to £3.65m this year. As part of our internal weekly, monthly and annual reporting we compare our results to national standards and find that we are operating within the industry norm. We look forward to making improvements in the year ahead.

Prospects for 2018

Our strategy for the future is a plan to grow through a combination of development and acquisition, and increasing the breadth of services that we provide to residents based on their changing needs and demands.

We expect to maintain the current trading performance for existing homes and build upon the good start seen by Bletchingley in 2017 which will increase our EBITDA in 2018.

Economic and political conditions will remain testing. Internal controls, risk management and compliance, continue to be high on our agenda. We’re confident that focusing on our residents’ needs, and delivering high-quality services, through our excellent staff, will help us grow in a sustainable way.

On behalf of the board

The directors present their annual report and financial statements for the year ended 31 December 2017.

The principal activity of the group is that of the provision of care services. These include a range of specialist nursing and residential care services to the elderly and to people with dementia. The company acts as a holding company and financial service provider for the group companies.

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 7.

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

Details of principal risks, including financial instrument risks, are detailed in the Strategic Report.

The directors believe that there are currently no future developments requiring disclosure.

Carpenter Box were appointed auditor to the group and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.

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 auditor of the company 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 auditor of the company is aware of that information.

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 group and company, 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 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 group’s and company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and 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 group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

We have audited the financial statements of Ashton Healthcare Group Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2017 which comprise the group statement of comprehensive income, the group statement of financial position, the company statement of financial position, the group statement of changes in equity, the company statement of changes in equity, the group 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 the financial statements:

•     give a true and fair view of the state of the group's and the parent company's affairs as at 31 December 2017 and of the group's 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 opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the 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 group's or the parent 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 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 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 by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent 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.

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 group's and the parent 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 group or the parent 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 group statement of total comprehensive income has been prepared on the basis that all operations are continuing operations.

As permitted by s408 Companies Act 2006, the company has not presented its own income statement and related notes. The company's loss for the year was £6,547,907 (2016 - £128,730)

Ashton Healthcare Group Limited (“the company”) is a limited company domiciled and incorporated in England and Wales. The registered office is 13 Oathall Road, Haywards Heath, West Sussex, RH16 3EG.

The group consists of Ashton Healthcare Group Limited and all of its subsidiaries.

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 certain financial instruments at fair value. The principal accounting policies adopted are set out below.

The company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements for parent company information presented within the consolidated financial statements:

• Section 4 ‘Statement of Financial Position’ – Reconciliation of the opening and closing number of shares;

• Section 7 ‘Statement of Cash Flows’ – Presentation of a statement of cash flow and related notes and disclosures;

• Section 33 ‘Related Party Disclosures’ – Compensation for key management personnel.

The consolidated financial statements incorporate those of Ashton Healthcare Group Limited and all of its subsidiaries. All financial statements are made up to 31 December 2017.

Part way through the comparative year, the group acquired both Adelaide Healthcare Limited and Birchgrove Healthcare Limited. These acquisitions were accounted for using the merger accounting method. Therefore, although the acquisition did not become effective until September 2015, the comparative consolidated financial statements are presented as if Ashton Healthcare Group Limited and its subsidiary undertakings have always been part of the same group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

As at 31 December 2017, the group had net current liabilities of £2,941,523 and the company had net current liabilities of £145,134 and net liabilities of £6,727,516. This may cast doubt over the use of the going concern basis, however £1.7m of the group's current liabilities are due to a related party controlled by the directors and there is no expectation that this will become payable in the next 12 months. In addition other group current liabilities and the net liability of the company arise from group bank loans that will be paid from future trading of the subsidiaries. The directors confirm that these will be settled as instalments fall due. The directors have also confirmed that, if required, they will provide financial support to the company.

At the time of approving the financial statements, the directors have a reasonable expectation that the group and company have adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.

Revenue is recognised at the fair value of the consideration received or receivable for services provided in the normal course of business, is shown net of VAT and on an accruals basis.

Goodwill represents the excess of the cost of acquisition of a business over the fair value of net assets acquired. It is initially recognised as an asset at cost and is subsequently measured at cost less accumulated amortisation and accumulated impairment losses. Goodwill is considered to have a finite useful life and is amortised on a systematic basis over its expected life, which is 20 years in Adelaide Healthcare Limited and 5 years for Birchgrove Healthcare (Sussex) Limited after a reduction in the remaining useful economic life at the beginning of the comparative period, see note 2.

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:

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.

Revaluations are made with sufficient regularity to ensure that the carrying amount in the financial statements does not differ materially from that which would be determined using the fair value at the end of the reporting period.

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.

In the parent company financial statements investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.

A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.

At each reporting period end date, the group 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.

The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.

Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset 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 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 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.

Cash and cash equivalents are basic financial assets and include cash in hand, deposits held at call with banks, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

The group 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 group's statement of financial position when the group 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.

The group enters into basic financial instruments transactions that result in the recognition of financial assets and liabilities like trade and other accounts receivable and payable, loans from banks and loans from related parties.

Debt instruments like loans and other accounts receivable and payable are initially measured at the transaction price (including transaction costs) and subsequently at amortised cost using the effective interest method; Debt instruments that are payable or receivable within one year are measured, initially and subsequently, at the undiscounted amount of the cash or other consideration expected to be paid or received.

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership to another entity. Financial liabilities are derecognised when, and only when, the group’s obligations are discharged, cancelled, or they expire.

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

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.

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.

The costs of short-term employee benefits are recognised as a liability and an expense.

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.

Rentals payable under operating leases, including any lease incentives received, are charged to income 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 lease asset are consumed.

In the application of the group’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.

The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.

In the current year there has been no change to the remaining useful life of goodwill in Adelaide Healthcare Limited and Birchgrove Healthcare (Sussex) Limited. An impairment review has been undertaken by the directors on the carrying value of goodwill and they do not believe any impairment is requirement.

The director's valuation relating to the fair value of property, plant and equipment across the group is based on their use of the professional valuation carried out on behalf of the company's lenders on 31 December 2017 at £16.075 million, taking into account any additions, disposals and depreciation since this date. The valuation was carried out in accordance with the 2014 edition of The Royal Institution of Chartered Surveyors valuation manual by Savills, an independent firm of Chartered Surveyors with a recognised and relevant professional qualification and with recent experience in the location and category of the property, plant and equipment being valued. The valuation was made on the basis of existing use as a fully-equipped operational entity having regard to trading potential in line with Section 27 of FRS 102.

The company operates in one principal activity, that of the rendering of services, which is wholly undertaken in the United Kingdom. Turnover is therefore made up 100% by the fees in relation to the supply of these services.

The average monthly number of persons employed by the group and company during the year was:

Their aggregate remuneration comprised:

During the year, no director received any emoluments (2016 - £nil)

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

In addition to the amount charged to the income statement, the following amounts relating to tax have been recognised directly in other comprehensive income:

The group has estimated trading and capital losses of £877,826 (2016 - £646,824) and £36,000 (2016 - £36,000) respectively available for carry forward against future income.

The director's have valued property, plant and equipment as disclosed in note 2.

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:

There was a reversal of a previous impairment of one of the group's properties in the year, this is due to a updated revaluation having taken place.

There is a debenture over all assets of the group and company.

Details of the company's subsidiaries at 31 December 2017 are as follows:

Registered office addresses

a) 13 Oathall Road, Haywards Heath, West Sussex, RH16 3EG

An amount of £1.7m in the other payables balance above forms the majority of the balance owed to a related party as disclosed in note 25.

The bank loans are repayable over a period of between 1 and 5 years, the rate of interest payable is at the Bank of England's Base rate plus between 2.5% to 3.15%.

The bank loans are secured by a debenture over the assets of the company and the group as well as an unlimited cross guarantee between the company and a company under common control of the directors. The directors have also provided a personal guarantee.

Deferred tax assets and liabilities are offset where the group or 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:

A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.

All shares carry equal voting rights, equal rights to a dividend entitlement, equal rights to a distribution on winding up and there is no likelihood of redemption.

Other reserves
Represents reserve created on consolidation under the merger accounting procedures.

This reserve is used to record movements in the fair value of its property, plant and equipment. The directors continue to separate revaluation reserves in order to distinguish between unrealised reserves which are not available for distribution.

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

The remuneration of key management personnel, is as follows.

Group

Middleton Grove Healthcare (Southern) Limited is a related party of the group as it is a company under the common control of the directors. At the year end, the group owed £2,410,253 (2016 - £2,064,253) to the company. The prior year also saw an amount of £2,865,657 owed to the company, no right of set off was available between these balances as the latter related to funding received from a third party. During the year, costs were recharged to the company of £92,118 (2016 - £63,471) and interest income was received from the company of £7,881 (2016 - £99,751).

Company

At the year end a balance of £161,820 (2016 - £2,865,657 owed by) was owed to Middleton Grove Healthcare (Southern) Limited, a company under common control of the directors. During the year interest income was received from the company of £22,438 (2016 - £99,751).

Included within other payables in non-current liabilities are directors' loan balances which total £1,123,516 (2016 - £nil). No interest is charged on this balance.