CARE HOMES 1 LIMITED: DIRECTORS' REPORT AND FINANCIAL STATEMENTS PERIOD FROM 1 JANUARY 2013 TO 30 JUNE 2013

EDINBURGH, Scotland--(BUSINESS WIRE)--Regulatory News:

Company Registration No: 05771789

CARE HOMES 1 LIMITED

DIRECTORS' REPORT AND FINANCIAL STATEMENTS

PERIOD FROM 1 JANUARY 2013 TO 30 JUNE 2013

RBS Secretariat

The Royal Bank of Scotland Group plc

Gogarburn

P.O. Box 1000

Edinburgh

EH12 1HQ

CARE HOMES 1 LIMITED 05771789

CONTENTS	Page
OFFICERS AND PROFESSIONAL ADVISERS	1
DIRECTORS’ REPORT	2 - 3
STATEMENT OF COMPREHENSIVE INCOME	4
BALANCE SHEET	5
STATEMENT OF CHANGES IN EQUITY	6
CASH FLOW STATEMENT	7
NOTES TO FINANCIAL STATEMENTS	8 - 20

OFFICERS AND PROFESSIONAL ADVISERS

DIRECTORS:	I R Luke
	A R Rodriguez
	A E Tobin
SECRETARY:	RBS Secretarial Services Limited
REGISTERED OFFICE:	135 Bishopsgate
	London
	EC2M 3UR

Registered in England and Wales.

DIRECTORS' REPORT

The directors of Care Homes 1 Limited (“the Company”) present their report and the unaudited financial statements for the period from 1 January 2013 to 30 June 2013.

ACTIVITIES AND BUSINESS REVIEW

Principal Activity

The principal activity of the Company continues to be investment business.

The directors do not anticipate any material change in either the type or level of activities of the Company.

The Company is a subsidiary of The Royal Bank of Scotland Group plc (“RBSG“ or “the Group”) which provides the Company with direction and access to all central resources it needs and determines policies in all key areas such as finance, risk, human resources or environment. For this reason, the directors believe that performance indicators specific to the Company are not necessary or appropriate for an understanding of the development, performance or position of the business. The annual reports of The Royal Bank of Scotland Group plc review these matters on a group basis. Copies can be obtained from RBS Secretariat, RBS Gogarburn, Edinburgh, EH12 1HQ, the Registrar of Companies or through the Group’s website at rbs.com.

Business review

The directors are satisfied with the development of the Company’s activities during the period. The Company does not currently expect to make any further significant investments in the foreseeable future.

Financial performance

The Company’s financial performance is presented in the Statement of Comprehensive Income on Page 4. The profit after taxation for the period ended 30 June 2013 amounted to £299,384 (June 2012: £148,092).

At the end of the period, the financial position showed total assets of £147,301,232 (31 Dec 2012: £155,714,716) and equity of £20,436,361 (31 Dec 2012: £25,679,212).

Dividends

The directors do not recommend the payment of a dividend (2012: nil).

Principal risks and uncertainties

The Company is funded by facilities from The Royal Bank of Scotland plc.

The Company's financial risk management objectives and policies regarding the use of financial instruments are set out in notes 11, 12 and 13 to these financial statements.

Going Concern

The directors, having a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future have prepared the financial statements on a going concern basis.

DIRECTORS AND SECRETARY

The present directors and secretary, who have served throughout the period are listed on page 1.

DIRECTORS’ RESPONSIBILITIES STATEMENT

To the best of our knowledge, the financial statements for the period ending 30 June 2013 for the issuer (“Care Homes 1 Limited”) have been prepared in accordance IFRSs, and give a true and fair view of the assets, liabilities, financial position and profit of Care Homes 1 Limited. We can also confirm that the Directors’ Report includes a fair review of the development and performance of the business and the position of Care Homes 1 Limited, together with a description of the principal risks and uncertainties that it faces.

This statement addresses section 4.a. (i) of the circular issued by the Commission de Surveillance du Secteur Financier.

I Luke

Director

August 2013

STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD ENDED 30 JUNE 2013

	Note	Period ended 30/06/13	Period ended 30/06/12
		£	£
Revenue	3	575,048	735,597
Other operating income	3	2,537,170	2,225,982
Finance costs	4	(2,784,273)	(2,787,526)
Administrative expenses		(28,561)	(25,961)
Operating Profit before tax		299,384	148,092
Taxation	6	-	-
Profit for the period		299,384	148,092
Other comprehensive income/(loss):
Cash flow hedges		(7,197,708)	1,678,484
Other comprehensive income/(loss) before tax		(7,197,708)	1,678,484
Tax (charge)/credit		1,655,473	(77,560)
Other comprehensive income/(loss) after tax		(5,542,235)	1,600,924
Total comprehensive income for the period		(5,242,851)	1,749,016

The results above arose wholly from continuing operations.

The notes on pages 8 to 20 form an integral part of the financial statements.

BALANCE SHEET

AS AT 30 JUNE 2013

	Note	As at 30/06/13	As at 31/12/12
		£	£
Current assets
Derivative financial instruments	12	23,261,026	30,434,295
Cash and cash equivalents	7	124,040,206	125,280,421
Total assets		147,301,232	155,714,716
Current liabilities
Accruals and deferred income	8	(25,952)	(3,452)
Non-current liabilities
Deferred taxation	9	(5,077,679)	(6,733,152)
Debt securities in issue	10	(121,761,239)	(123,298,900)
Total liabilities		(126,864,870)	(130,035,504)
Equity
Share capital	14	10,000	10,000
Hedge reserve		16,999,186	22,541,421
Retained earnings		3,427,175	3,127,791
Total equity		20,436,361	25,679,212
Total liabilities and equity		147,301,232	155,714,716

The notes on pages 8 to 20 form an integral part of the financial statements. The financial statements were approved and authorised for issue on August 2013.

I Luke

Director

STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 30 JUNE 2013

	Equity attributable to equity holders of the Company
	Share capital	Hedge reserve	Retained earnings	Total
	£	£	£	£
Balance at 1 January 2012	10,000	19,473,180	2,866,000	22,349,180
Profit for the period	-	-	148,092	148,092
Gain on cash flow hedge	-	1,678,484	-	1,678,484
Deferred taxation	-	(77,560)	-	(77,560)
Other comprehensive income for the period	-	1,600,924		1,600,924
Total comprehensive income for the period	-	1,600,924	148,092	1,749,016
Balance at 30 June 2012	10,000	21,074,104	3,014,092	24,098,196
Balance at 1 January 2013	10,000	22,541,421	3,127,791	25,679,212
Profit for the period	-	-	299,384	299,384
Loss on cash flow hedge	-	(7,197,708)	-	(7,197,708)
Deferred taxation	-	1,655,473	-	1,655,473
Other comprehensive income for the period	-	(5,542,235)	-	(5,542,235)
Total comprehensive income for the period	-	(5,542,235)	299,384	(5,242,851)
Balance at 30 June 2013	10,000	16,999,186	3,427,175	20,436,361

STATEMENT OF CASH FLOWS

FOR THE PERIOD ENDED 30 JUNE 2013

	Note	Period ended 30/06/13	Period ended 30/06/12
		£	£
Operating activities
Operating profit for the year before tax		299,384	148,092
Operating cash flows before movements in working capital		299,384	148,092
Movement in derivative accrual		(24,438)	48,937
Movement in accruals & deferred income		22,500	22,500
Movement in debt securities		(1,537,661)	(1,312,474)
Total movement in working capital		(1,539,599)	(1,241,037)
Net cash flow from operating activities		(1,240,215)	(1,092,945)
Net decrease in cash and cash equivalents		(1,240215)	(1092945)
Cash and cash equivalents at 1 January 13		125,280,421	127,713,872
Cash and cash equivalents at 30 June 13	7	124,040,206	126,620,927

The notes on pages 8 to 20 form an integral part of the financial statements.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2013

1.	Accounting policies
	a)	Presentation of financial statements
		The financial statements are prepared on a going concern basis and in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB as adopted by the European Union (EU) (together IFRS).   The Company is incorporated in the UK and registered in England and Wales.   The financial statements are prepared on the historical cost basis except that derivative financial instruments are stated at their fair value. Recognised financial assets in fair value hedges are adjusted for changes in fair value in respect of the risk that is hedged.   Adoption of new and revised standards There are a number of changes to IFRSs that were effective from 1 January 2013. They have had no material effect on the Company’s financial statements for the period ended 30 June 2013.

b)	Foreign currencies
	The Company’s financial statements are presented in sterling which is the functional currency of the Company.   Transactions in foreign currencies are translated into sterling at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date.

c)

Revenue recognition

Interest income on financial assets that are classified as loans and receivables and interest expense on financial liabilities other than those at fair value through profit or loss are determined using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the expected life of the asset or liability. The effective interest rate is the rate that exactly discounts estimated future cash flows to the instrument's initial carrying amount. Calculation of the effective interest rate takes into account fees payable or receivable, that are an integral part of the instrument's yield, premiums or discounts on acquisition or issue, early redemption fees and transaction costs. All contractual terms of a financial instrument are considered when estimating future cash flows.   Gains and losses on financial assets that are designated as at fair value through profit or loss are recognised in profit or loss as they arise.   Fees in respect of services are recognised as the right to consideration accrues through the provision of the service to the customer. The arrangements are generally contractual and the cost of providing the service is incurred as the service is rendered. The price is usually fixed and always determinable. Fees charged for managing investments are recognised as revenue as the services are provided. Incremental costs that are directly attributable to securing an investment management contract are deferred and charged as expense as the related revenue is recognised.

d)

Taxation

Income tax expense or income, comprising current tax and deferred tax, is recorded in the income statement except income tax on items recognised outside profit or loss which is credited or charged to other comprehensive income or to equity as appropriate.   Current tax is income tax payable or recoverable in respect of the taxable profit or loss for the year arising in income or in equity. Provision is made for current tax at rates enacted or substantively enacted at the balance sheet date.   Deferred tax is the tax expected to be payable or recoverable in respect of temporary differences between the carrying amount of an asset or liability for accounting purposes and its carrying amount for tax purposes. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered. Deferred tax is not recognised on temporary differences that arise from initial recognition of an asset or a liability in a transaction (other than a business combination) that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is calculated using tax rates expected to apply in the periods when the assets will be realised or the liabilities settled, based on tax rates and laws enacted, or substantively enacted, at the balance sheet date.

e)	Financial assets
	On initial recognition, financial assets are classified into loans and receivables and designated hedges at fair value.   Loans and receivables Loans and receivables are initially recognised at fair value and are subsequently measured at amortised cost using the effective interest method (see accounting policy 1c).

f)

Derivative financial instruments and hedging

The Company uses derivative financial instruments to manage interest rate risk. Such contracts are initially recognised and subsequently measured at fair value.   Any resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.   The Company designates its derivatives as hedges of highly probable forecast transactions (cash flow hedges). Changes in fair values of derivative financial instruments which are designated and effective as hedges of cash flows are recognised directly in equity at each balance sheet date and the ineffective portion is recognised immediately in the income statement.   At the inception of the hedge relationship, the Company documented the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking the hedge transaction. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective in offsetting changes in cash flows of the hedged item.   Note 12 sets out details of the fair values of the derivative instrument used for hedging purposes. Movements in the hedging reserve in equity are shown in the Statement of Changes in Equity.

g)	Financial liabilities
	All financial liabilities are initially recognised at fair value and are subsequently measured at amortised cost using the effective interest method (see accounting policy 1c).

h)	Cash and cash equivalents
	Cash and cash equivalents comprises cash and demand deposits with banks together with short-term highly liquid investments that are readily convertible to known amounts of cash and subject to insignificant risk of change in value.

i)

Accounting developments

The IASB issued IFRS 9 ‘Financial Instruments’ in November 2009 simplifying the classification and measurement requirements in IAS 39 ‘Financial Instruments: Recognition and Measurement’ in respect of financial assets. The standard reduces the measurement categories for financial assets to two: fair value and amortised cost. A financial asset is classified on the basis of the entity's business model for managing the financial asset and the contractual cash flow characteristics of the financial asset. Only assets with contractual terms that give rise to cash flows on specified dates that are solely payments of principal and interest on the principal amount outstanding and which are held within a business model whose objective is to hold assets in order to collect contractual cash flows are classified as amortised cost. All other financial assets are measured at fair value. Changes in the value of financial assets measured at fair value are generally taken to profit or loss.   In October 2010, IFRS 9 was updated to include the classification and measurement of liabilities. It is not markedly different from IAS 39 except for liabilities measured at fair value where the movement is due to changes in credit rating of the preparer it is recognised not in profit or loss but in other comprehensive income.   The standard is effective for annual periods beginning on or after 1 January 2015; early application is permitted.   This standard makes major changes to the framework for the classification and measurement of financial assets and will have a significant effect on the Company's financial statements. The changes relating to the classification and measurement of liabilities carried at fair value will have a less significant effect on the Company. The Company is assessing these impacts which are likely to depend on the outcome of the other phases of IASB's IAS 39 replacement project.   The IASB issued an amendment to IAS 12 ‘Income Taxes’ in December 2010 to clarify that recognition of deferred tax should have regard to the expected manner of recovery or settlement of the asset or liability. The amendment and consequential withdrawal of SIC 21 ‘Deferred Tax: Recovery of Underlying Assets’, effective for annual periods beginning on or after 1 January 2012, is not expected to have a material effect on the Company.   In May 2011, the IASB issued six new or revised standards:   IFRS 10 Consolidated Financial Statements which replaces SIC-12 Consolidation - Special Purpose Entities and the consolidation elements of the existing IAS 27 Consolidated and Separate Financial Statements. The new standard adopts a single definition of control: a reporting entity controls another entity when the reporting entity has the power to direct the activities of that other entity to generate returns for the reporting entity.

j)

Accounting developments (continued)

IAS 27 Separate Financial Statements which comprises those parts of the existing IAS 27 that dealt with separate financial statements.   IFRS 11 Joint Arrangements which supersedes IAS 31 Interests in Joint Ventures. IFRS 11 distinguishes between joint operations and joint ventures. Joint operations are accounted for by the investor recognising its assets and liabilities including its share of any assets held and liabilities incurred jointly and its share of revenues and costs. Joint ventures are accounted for in the investor’s consolidated accounts using the equity method.   IAS 28 Investments in Associates and Joint Ventures covers joint ventures as well as associates; both must be accounted for using the equity method. The mechanics of the equity method are unchanged.   IFRS 12 Disclosure of Interests in Other Entities covers disclosures for entities reporting under IFRS 10 and IFRS 11 replacing those in IAS 28 and IAS 27. Entities are required to disclose information that helps financial statement readers evaluate the nature, risks and financial effects associated with an entity’s interests in subsidiaries, in associates and joint arrangements and in unconsolidated structured entities.   IFRS 13 Fair Value Measurement which sets out a single IFRS framework for defining and measuring fair value and requiring disclosures about fair value measurements.   These standards are effective for annual periods beginning on or after 1 January 2013. Earlier application is permitted. The Company is reviewing the standards to determine their effect on the Company’s financial reporting.   In June 2011, the IASB issued amendments to two standards:   Amendments to IAS 1 Presentation of Items of Other Comprehensive Income that require items that will never be recognised in profit or loss to be presented separately in other comprehensive income from those that are subject to subsequent reclassification.   Amendments IAS 19 Employee Benefits - these require the immediate recognition of all actuarial gains and losses eliminating the ‘corridor approach’; interest cost to be calculated on the net pension liability or asset at the appropriate corporate bond rate; and all past service costs to be recognised immediately when a scheme is curtailed or amended.   These amendments are effective for annual periods beginning on or after 1 July 2012 and 1 January 2013 respectively. Earlier application is permitted. The Company is reviewing the amendments to determine their effect on the Company’s financial reporting.

2.

Critical accounting policies and key sources of estimation uncertainty

The reported results of the Company are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of its financial statements. UK company law and IFRSs require the directors, in preparing the Company’s financial statements, to select suitable accounting policies, apply them consistently and make judgements and estimates that are reasonable and prudent. In the absence of an applicable standard or interpretation, IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors', requires management to develop and apply an accounting policy that results in relevant and reliable information in the light of the requirements and guidance in IFRSs dealing with similar and related issues and the IASB's Framework for the Preparation and Presentation of financial statements. The judgements and assumptions involved in the Company’s accounting policies that are considered by the Board to be the most important to the portrayal of its financial condition are discussed below. The use of estimates, assumptions or models that differ from those adopted by the Company would affect its reported results.   Fair value - financial instruments Derivative financial instruments are recognised in the financial statements at fair value. Any gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. Significant estimates and assumptions are made in respect of the derivative financial instruments. These are explained in accounting policy 1f.

3.	Revenue	Period ended 30/06/13	Period ended 30/06/12
		£	£
	Interest income	575,048	611,380
	Other operating income
	Interest rate swaps	2,537,170	2,385,918
		3,112,218	2,997,298

4.	Finance costs	Period ended 30/06/13	Period ended 30/06/12
		£	£
	Interest expense on debt securities in issue	4,063,243	4,073,562
	Bond Amortisation	(1,278,970)	(1,286,036)
		2,784,273	2,787,526

5.	Operating expenses
	None of the directors received any emoluments from the Company for their services to the Company during the current period or the prior period.   None of the directors had any material interest in any contract of significance in relation to the business of the Company during the current period or the prior period.   The Company did not have any employees in the current period or the prior period.

6.	Taxation	Period ended 30/06/13	Period ended 30/06/12
		£	£
	Tax expense:
	UK corporation tax	-	-
	The actual tax charge differs from the expected tax charge computed by applying the blended rate of UK corporation tax of 23.25%, (24% FY2012): 23%-FY2013) as follows:
		Period ended 30/06/13	Period ended 30/06/12
		£	£
	Profit before taxation	299,384	148,092
	Tax charge thereon	69,597	36,278
	Non-taxable income from amortisation of premiums on debt securities issued	(297,317)	(315,040)
	Thin capitalisation adjustment
	Group relief surrendered for nil consideration	227,720	278,762
	UK corporation tax charge	-	-
	The Company is resident in the United Kingdom for tax purposes.   In the wider interests of The Royal Bank of Scotland Group, the Company has agreed to surrender any tax losses to other group companies and as part of this agreement may claim tax losses from other group companies for nil consideration.

7.	Cash and cash equivalents	As at 30/06/13	As at 31/12/12
		£	£
	Short term deposits with group undertakings	124,035,761	125,275,726
	Cash at bank	4,445	4,695
		124,040,206	125,280,421

8.	Accruals, deferred income and other liabilities	As at 30/06/13	As at 31/12/12
		£	£
	Accrued fees payable	(25,952)	(3,452)
		25,952	3,452

9.	Deferred tax
	Deferred tax on Derivative financial instruments	£
	Balance at 1 January 2012	6,577,420
	Release to Equity (Hedge reserve)	77,560
	Balance at 30 June 2012	6,654,980
	Balance at 1 January 2013	6,733,152
	Charge to Equity (Hedge reserve)	(1,655,473)
	Balance at 30 June 2013	5,077,679
	In recent years the UK Government has steadily reduced the rate of UK corporation tax, with the latest rates substantively enacted in July 2013 now standing at 21% with effect from 1 April 2014 and 20% with effect from 1 April 2015. The closing deferred tax assets and liabilities have been calculated at 23% in accordance with the rates enacted at the balance sheet date.

10.	Debt securities in issue	As at 30/06/13	As at 31/12/12
		£	£
	Debt securities in issue	121,761,239	123,298,900
	On 4 December 2006 Care Homes 1 Limited became an obligor in respect of certain debt securities by means of a novation from NHP Group.   Each of these debt securities is denominated in sterling and carries a fixed rate of interest as follows, £60million Class A1 at 8.0 per cent due in 2021, and £40million Class A2 at 8.5 per cent due in 2021. As at the balance sheet date, the total fair value of the debt securities in issue was £142.1m (31 December 2012: £148m).   The consideration received on novation was equal to the fair value of these obligations as at the date of novation and was paid in cash by the NHP Group.

11.

Financial instruments

Financial assets are classified as loans and receivables and derivative instruments are in designated hedge relationships. All financial liabilities are classified as financial liabilities at amortised cost. The directors consider that, with the exception of debt securities in issue (Note 10), the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate to their fair values.

	Level 1	Level 2	Level 3	Total
As at 30 June 2013	£	£	£	£
Liabilities:
Derivative financial instruments	–	23,261,026	–	23,261,026

	Level 1	Level 2	Level 3	Total
As at 31 December 2012	£	£	£	£
Liabilities:
Derivative financial instruments	–	30,434,295	–	30,434,295

Financial assets and liabilities have been classified above according to a valuation hierarchy that reflects the valuation techniques used to determine fair value.   Level 1: valued by reference to unadjusted quoted prices in active markets for identical assets and liabilities   Level 2: valued by reference to observable market data, other than quoted market prices   Level 3: valuation is based on inputs other than observable market data     The derivative financial instruments recorded at fair value for the Company are all considered Level 2 being valued using pricing models. Inputs for these models are usually observed directly in the market, or derived from observed prices.   Financial liabilities   The following table shows by contractual maturity the undiscounted cash flows payable from the balance sheet date including future interest payments.

As at 30 June 2013	0 - 3 months	3 - 12 months	1 - 3 years	3 – 5 years	5+ years
	£’000	£’000	£’000	£’000	£’000
Debt securities	–	8,200	16,400	16,400	124,600

As at 31 December 2012	0 - 3 months	3 - 12 months	1 - 3 years	3 – 5 years	5+ years
	£’000	£’000	£’000	£’000	£’000
Debt securities	–	8,200	16,400	16,400	128,700

12.

Derivative financial instruments

The Company is party to an interest rate swap transaction to hedge exposure to variability in cashflows arising from its floating rate deposits. As at the balance sheet date, the contract had a nominal value of £124.9m (31 December 2012: £126.1m) which amortises over time in line with the asset it hedges. The swap entitles the Company to receive fixed cash flows (based on a rate of 4.8049%) in exchange for variable cashflows based on 6 month sterling LIBOR. The swap matures in April 2021 and at the balance sheet date had a fair value of £23.2m (31 December 2012: £30.4m). This derivative is designated as a cashflow hedge of the Company’s variable cashflows.

13.

Risk management

The Company is exposed to financial risk through its financial assets and liabilities. The key financial risk is that the proceeds from financial assets are not sufficient to fund the obligations arising from liabilities as they fall due. The most important components of financial risk are market risk, credit risk and liquidity risk.   Credit risk   The objective of credit risk management is to enable the Company to achieve appropriate risk versus reward performance whilst maintaining credit risk exposure in line with approved appetite for the risk that customers will be unable to meet their obligations to the Company.   Credit risk is the risk arising from the possibility that the Company will incur losses from the failure of debtors to meet their obligations.   The Company’s exposure to credit risk is not considered to be significant as a major component of its credit exposures are with related parties (note 16). As at 30 June 2013 there were no outstanding or impaired loans due to the Company (31 December 2012: £nil).   Liquidity risk   Liquidity risk arises where assets and liabilities have different contractual maturities.   Management focuses on both overall balance sheet structure and the control, within prudent limits, of risk arising from the mismatch of maturities across the balance sheet and from undrawn commitments and other contingent obligations. It is undertaken within limits and other policy parameters set by Group Asset and Liability Management Committee (GALCO).   The expected maturity of the Company’s material liabilities are shown in note 11.   Market risk   Market risk is the risk of loss as a result of adverse changes in interest rates and foreign currency together with related parameters such as market volatilities.   The Company is exposed to market risk as a result of the assets and liabilities contained within the Company’s balance sheet. There has been no change to the nature of the Company’s exposure to market risks or the manner in which it manages and measures the risk.   The main component of market risk that the Company faces is interest rate risk. The Company manages interest rate risk by monitoring consistency in the interest rate profile of its assets and liabilities.

13.

Risk management (continued)

Market risk – sensitivity analysis   The sensitivity analysis below has been determined based on the Company’s assets and liabilities present in the balance sheet as at the balance sheet date and by reference to a movement in market interest rates reasonably possible in the Company’s next financial reporting period.   If interest rates for the current period had been 100 basis points lower and this movement applied to the assets and liabilities as at the balance sheet date, the pre-tax profit for the period would have been £847 lower (period ending 30 June 2012: £735 lower). This would have mainly resulted from lower interest income on variable rate assets and lower interest expense on derivative financial instruments.   The converse is equally true if interest rates had been 100 basis points higher.   Currency risk   The Company has no currency risk as all transactions and balances are denominated in Sterling.

14.	Share capital
		Number of Shares	As at 30/06/13	As at 31/12/12
	Authorised		£	£
	Ordinary Shares of £1 each	10,000	10,000	10,000

		As at 30/06/13	As at 31/12/12
Allotted, called up and fully paid	Number of Shares	£	£
Ordinary Shares of £1 each	10,000	10,000	10,000
Holders of the Ordinary Shares have the right to receive notice of, to attend and to vote in respect of any resolution of the Company. Each Ordinary Share carries an equal entitlement to receive dividends out of the funds of the Company that are legally available for distribution.   The Company has one class of ordinary shares which carry no right to fixed income.

15.

Capital resources

The Company’s capital consists of equity comprising issued share capital and retained earnings. The Company is a member of The Royal Bank of Scotland group of companies which has regulatory disciplines over the use of capital. In the management of capital resources, the Company is governed by the Group’s policy which is to maintain a strong capital base: it is not separately regulated. The Group has complied with the PRA’s capital requirements throughout the period.

16.

Related Parties

UK Government The UK Government through HM Treasury is the ultimate controlling party of The Royal Bank of Scotland Group plc. Its shareholding is managed by UK Financial Investments Limited, a company it wholly-owns and as a result, the UK Government and UK Government controlled bodies are related parties of the company.   Group undertakings The Company’s immediate parent company is Care Homes Holdings Limited a company incorporated in the UK and registered in England and Wales. As at 30 June 2013, The Royal Bank of Scotland plc heads the smallest group in which the Company is consolidated, a company incorporated in the UK and registered in Scotland. Copies of the consolidated accounts may be obtained from RBS Secretariat, Gogarburn, PO Box 1000, Edinburgh EH12 1HQ.   The Company’s ultimate holding company is The Royal Bank of Scotland Group plc, a company incorporated in the UK and registered in Scotland. As at 30 June 2013, The Royal Bank of Scotland Group plc heads the largest group in which the Company is consolidated. Copies of the consolidated accounts may be obtained from RBS Secretariat, Gogarburn, PO Box 1000, Edinburgh. EH12 1HQ.   Transactions between the Company, and the UK Government and UK Government controlled bodies, consisted solely of corporation tax which is separately disclosed in Note 6. The Company was party to various transactions with The Royal Bank of Scotland plc. These transactions were entered into on an arms length basis unless stated otherwise and in respect of the surrender of tax losses (see Note 6). The income statement impact and outstanding balances arising from these transactions as at 30 June 2013 are set out below:

The Royal Bank of Scotland plc	Period ended 30/06/13	Period ended 30/06/12
	£	£
Income statement impact:
- Interest income	575,048	735,597
- Other operating income	2,537,170	2,225,982
- Finance costs	(2,784,273)	(2,787,526)
- Administrative expenses	(28,561)	(25,961)
	299,384	148,092

	As at 30/06/13 £	As at 31/12/12 £
Amounts owed to Company:
- Derivative financial instruments	23,261,026	30,434,295
- Unsecured loans	124,040,206	125,280,421
	147,301,232	155,714,716
Amounts owed to the Company consisted of a £124m 6 month GBP LIBOR loan with a residual maturity of less than 5 months (31 December 2012: £125.3m 6 month GBP LIBOR deposit with a residual maturity of less than 5 months).
	As at 30/06/13 £	As at 31/12/12 £
Amounts owed by the Company:
- Issued debt securities	121,761,239	123,298,900
- Derivative financial instruments	-	-
- Accrued fees	25,952	3,452
	121,787,191	123,302,352
The debt securities in issue have a combined nominal value of £100m, with an effective interest rate of 5.63% and a maturity of April 2021.

18.

Key management

The Company is a subsidiary of The Royal Bank of Scotland Group plc whose policy is for companies to bear the costs of their full time staff. The time and costs of executives and other staff who are primarily employed by the Group are not specifically recharged. However, the Group recharges subsidiaries for management fees which include an allocation of certain staff and administrative support costs.   In the Company and the Group, key management comprise directors of the Company and members of the Group Executive Management Committee. The emoluments of the directors of the Company are met by the Group.   The directors of the Company do not receive remuneration for specific services provided to the Company.

19.

Capital Support Deed

The Company, together with other members of the Group, is party to a capital support deed (CSD). Under the terms of the CSD, the Company may be required, if compatible with its legal obligations, to make distributions on, or repurchase or redeem, its ordinary shares. The amount of this obligation is limited to the Company’s capital resources in excess of the capital and financial resources needed to meet its regulatory requirements. {The Company may also be obliged to make onward distribution to its ordinary shareholders of dividends or other capital distributions received from subsidiaries that are party to the CSD.} The CSD also provides that, in certain circumstances, funding received by the Company from other parties to the CSD becomes immediately repayable, such repayment being limited to the Company’s available resources.

20.	Post balance sheet events
	There have been no significant events between the period end and the date of approval of the financial statements which would require a change or additional disclosure in the financial statements.