MSP Capital Two Limited
Registered number: 09866856
Annual Report
For the year ended 31 December 2021
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MSP CAPITAL TWO LIMITED
COMPANY INFORMATION
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Chartered Accountants
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Statutory Auditor
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MSP CAPITAL TWO LIMITED
CONTENTS
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Independent Auditor's Report
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Statement of Comprehensive Income
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Statement of Financial Position
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Statement of Changes in Equity
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Notes to the Financial Statements
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MSP CAPITAL TWO LIMITED
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2021
MSP’s strategic objective is to be well known and respected in the marketplace among current and future clients, competitors, lenders, and employees. MSP aims to empower people to build property, offering its borrowers a wealth of experience from over 40 years of lending.
In addition to its growth objectives, MSP are aiming to become carbon neutral in 2022 and will be engaging with specialists to assess its carbon emissions as a business. After quantifying its carbon footprint, MSP will identify emissions reduction opportunities and seek to neutralise remaining emissions through a variety of initiatives.
Despite the COVID-19 pandemic introducing market uncertainty in 2021, activity levels recovered rapidly with the average house price in the UK increasing by 11% in the year, partly aided by the stamp duty holiday. Additionally, the dual impact of COVID-19 and Brexit related supply chain issues meant that supply of housing was constrained which also contributed to price rises.
The United Kingdom has well documented shortage of affordable homes and MSP will continue to service property investors who provide homes within this sector. As such, MSP’s growth forecasts are in line with this general theme.
The Directors are satisfied with the performance of the Company during the year. Further information on the primary KPIs of the business is provided below.
The Company will continue to provide the finance and manage its continued growth by investing in all stakeholders. The Company's growth is only restricted by its existing capital structure and key potential developments for the forthcoming year is to continue to explore additional funding lines to complement the current capital structure.
Principal risks and uncertainties
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The principal risks and uncertainties faced by the Company are, liquidity risk, credit risk, interest rate risk, compliance and regulatory risk and operational risk.
The Company uses various financial instruments, loans, cash and a variety of items such as trade creditors that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Company's operations. The main risks arising from the Company's financial instruments are liquidity risk, credit risk and interest rate risk.
The Directors review and agree policies for managing each of these risks and they are summarised below:
Liquidity risk
Liquidity risk arises when the Company is potentially unable to meet its contracted obligations and this risk is mitigated by daily internal controls to monitor the Company's treasury function. All long-term commitments are matched with similar long-term funding lines.
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MSP CAPITAL TWO LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2021
Credit risk
The primary risk within the Company is the potential financial loss arising from borrowers not repaying their loans within agreed contracted terms or the net realisations from the security underpinning a loan being insufficient to recover the full loan.
The Company mitigates this risk by regularly reviewing the underwriting policy in the context of current market conditions and the risk appetite of the board. In addition, internal covenants relating to concentration risk, geographic location and project type are monitored frequently.
Interest rate risk
The Company provides finance at a fixed interest rate whilst funding lines are negotiated at lower, variable rates. The Directors regularly review interest rate risk and ensure adequate measures are in place to manage this risk. These measures include ensuring that the average borrower loan term is approximately 17 months and thus any exposure, if any, will be limited.
Compliance and reputational risk
During the year the Company appointed a Head of Financial Crime Compliance and has taken multiple steps to further safeguard the group from compliance risks. These steps included enhancing the existing 'Know Your Client' procedures and undertaking a thematic review of current internal controls.
The Company takes independent advice on the regulatory framework and the Directors are satisfied that none of the business activities fall into regulated areas. Nevertheless, the Directors are cognisant of the broader sector in which the business operates and manage the business accordingly.
Macro-economic risk
The Company is impacted by general business in the wider economy. MSP Capital Group works solely in the United Kingdom and all security is based in the United Kingdom; therefore, the Company is primarily affected by domestic business and economic conditions.
The Company has a thorough risk management process along with a strong performance record through market corrections historically. Management undertake sensitivity analysis on shocks in the market and how they could impact the Company.
The Directors consider the business has a robust business model of pricing loans in the event of a downturn, by using risk managed loan-to-value ratios against robust security.
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MSP CAPITAL TWO LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2021
COVID-19
Whilst the global pandemic continues, the UK Government has now publicised its ‘Living with Covid’ strategy with the remaining domestic legal restrictions lifted in early 2022.
In line with this a comprehensive action plan remains in place enabling the Company to respond to any possible business interruptions, as and when they arise.
The firm’s operational response to the pandemic has been highly successful. IT infrastructure and security continued to be upgraded, enabling the team to work remotely where necessary.
Several risk assessments have also been undertaken to enable a safe return to the office with Covid-secure measures in place, tailored to meet the evolving Government guidance.
The many adaptations to the overall ecosystem of MSP operations represent a gain in resilience and contingency capabilities enabling the business to deal with a range of possible scenarios.
The ongoing impact of the pandemic or other global events on the UK property market and wider economy, cannot be reliably estimated due to its unprecedented nature. Management continues to be keenly aware of upcoming changes, and the Company is poised to react to these as appropriate.
Financial key performance indicators
The KPIs are an important indicator to monitor the performance of the business. The Directors report and monitor KPIs on a monthly basis. Whilst management continue to track a range of financial and non-financial measures, it is these KPIs that the business uses to gauge progress.
These KPIs illustrate that revenue and profitability are directly related to the loan book, which fluctuates over time. The below KPIs are a comparison of the year to 31 December 2021 with the year to 31 December 2020.
The gross loan book grew by 28% (17% in the year to 31 December 2020) representing significant originations and redemptions of loans throughout the year.
Revenue for the year was £20.45m (compared to £16.30m in the year to 31 December 2020). Profit after tax was £8.39m (compared to £7.27m for the year to 31 December 2020).
This report was approved by the board
and signed on its behalf by:
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MSP CAPITAL TWO LIMITED
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 2021
The Directors present their annual report and the audited financial statements of MSP Capital Two Limited (the 'Company') for the year ended 31 December 2021.
Directors' responsibilities statement
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The Directors are responsible for preparing the Strategic Report, the Directors' Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year
. Under that law the Directors have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland'. 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:
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select suitable accounting policies for the Company's financial statements and then apply them consistently;
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make judgements and accounting estimates that are reasonable and prudent;
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state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
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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 to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The profit for the year, after taxation, amounted to £
8,390,108
(2020: profit of
£
7,272,480
)
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The Directors do not recommend the payment of a dividend (2020: £nil).
The Directors who served during the year and up to the date of this report were:
Matters covered in the Strategic Report
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The mandatory disclosures in relation to financial instruments and future developments of the Company are considered by the Directors to be of strategic importance. These have therefore been included in the Strategic Report.
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MSP CAPITAL TWO LIMITED
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2021
Provision of information to auditor
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Each of the persons who are
Directors at the time when this Directors' Report is approved has confirmed that:
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so far as the Directors are aware, there is no relevant audit information of which the Company's auditor is unaware; and
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the Directors have taken all the steps that ought to have been taken as a Director in order to be aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
Post balance sheet events
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There have been no significant events affecting the Company since the year end.
The auditor,
Mazars LLP
, will be proposed for reappointment in accordance with
section 485 of the Companies Act 2006.
This report was approved by the board and signed on its behalf by:
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MSP CAPITAL TWO LIMITED
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF MSP CAPITAL TWO LIMITED
Opinion
We have audited the financial statements of MSP Capital Two Limited (the ‘Company’) for the year ended
31 December 2021
which comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Equity 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:
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give a true and fair view of the state of the Company’s affairs as at 31 December 2021 and of its
profit for the year then ended;
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have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
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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
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
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MSP CAPITAL TWO LIMITED
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF MSP CAPITAL TWO LIMITED
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
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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
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the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In 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 or the Directors' Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
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adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
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the financial statements are not in agreement with the accounting records and returns; or
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certain disclosures of directors' remuneration specified by law are not made; or
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we have not received all the information and explanations we require for our audit.
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MSP CAPITAL TWO LIMITED
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF MSP CAPITAL TWO LIMITED
Responsibilities of Directors
As explained more fully in the Directors' Responsibilities Statement set out on page 4, 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 intend either to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
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.
The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Based on our understanding of the Company and its industry, we considered that non-compliance with the following laws and regulations might have a material effect on the financial statements: FCA regulation, employment regulation, health and safety regulation, anti-money laundering regulation, non-compliance with implementation of government support schemes relating to COVID-19.
To help us identify instances of non-compliance with these laws and regulations, and in identifying and assessing the risks of material misstatement in respect to non-compliance, our procedures included, but were not limited to:
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Inquiring of management and, where appropriate, those charged with governance, as to whether the Company is in compliance with laws and regulations, and discussing their policies and procedures regarding compliance with laws and regulations;
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Inspecting correspondence, if any, with relevant licensing or regulatory authorities;
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Communicating identified laws and regulations to the engagement team and remaining alert to any indications of non-compliance throughout our audit; and
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Considering the risk of acts by the Company which were contrary to applicable laws and regulations, including fraud.
We also considered those laws and regulations that have a direct effect on the preparation of the financial statements, such as
tax legislation, pension legislation and the Companies Act 2006.
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MSP CAPITAL TWO LIMITED
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF MSP CAPITAL TWO LIMITED
In addition, we evaluated the directors’ and management’s incentives and opportunities for fraudulent manipulation of the financial statements, including the risk of management override of controls, and determined that the principal risks related to posting manual journal entries to manipulate financial performance, management bias through judgements and assumptions in significant accounting estimates, in particular in relation to revenue recognition (which we pinpointed to the cut-off and completeness assertion), and significant one-off or unusual transactions.
Our audit procedures in relation to fraud included but were not limited to:
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Making enquiries of the directors and management on whether they had knowledge of any actual, suspected or alleged fraud;
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Gaining an understanding of the internal controls established to mitigate risks related to fraud;
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Discussing amongst the engagement team the risks of fraud; and
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Addressing the risks of fraud through management override of controls by performing journal entry testing.
There are inherent limitations in the audit procedures described above and the primary responsibility for the prevention and detection of irregularities including fraud rests with management. As with any audit, there remained a risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal controls.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of the audit 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.
Stephen Mills
(Senior statutory auditor)
for and on behalf of Mazars LLP
Chartered Accountants and Statutory Auditor
5th Floor, Merck House
Seldown Lane
Poole
Dorset
BH15 1TW
5 May 2022
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MSP CAPITAL TWO LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2021
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Profit for the financial year
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The Statement of Comprehensive Income has been prepared under the basis that all operations are continuing operations.
There was no other comprehensive income for the year ended 31 December 2021 (2020: £nil).
The notes on pages 13 to 23 form part of these financial statements.
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MSP CAPITAL TWO LIMITED
REGISTERED NUMBER:
09866856
STATEMENT OF FINANCIAL POSITION
AS AT
31 DECEMBER 2021
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Debtors: Amounts falling due after more than one year
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Debtors: Amounts falling due within one year
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Creditors: Amounts falling due within one year
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Total assets less current liabilities
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Creditors: Amounts falling due after more than one year
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The financial statements were approved and authorised for issue by the board and were signed on its behalf by:
The notes on pages 13 to 23 form part of these financial statements.
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MSP CAPITAL TWO LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED
31 DECEMBER 2021
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The notes on pages 13 to 23 form part of these financial statements.
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MSP CAPITAL TWO LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
MSP Capital Two Limited (09866856) is a private Company limited by shares incorporated in England and Wales. The address of its registered office is Strata House, 12-14 Castle Street, Poole, England, BH15 1BQ.
The Company's principal activity during the year is the granting of credit.
2.
Accounting policies
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Basis of preparation of financial statements
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The financial statements have been prepared under the historical cost convention unless otherwise specified within these accounting policies and in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in
the UK and the Republic of Ireland and the Companies Act 2006
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The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the Company's accounting policies (see note 3).
The financial statements have been prepared in Pound Sterling as this is the currency of the primary economic environment in which the Company operates and is rounded to the nearest pound.
The following principal accounting policies have been applied:
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Financial reporting standard 102 - reduced disclosure exemptions
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The Company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permitted by the FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland":
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the requirements of Section 7 Statement of Cash Flows;
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the requirements of Section 3 Financial Statement Presentation paragraph 3.17(d).
This information is included in the consolidated financial statements of MSP Capital Holdings Limited as at 31 December 2021 and these financial statements may be obtained from Strata House, 12-14 Castle Street, Poole, England, BH15 1BQ.
The Directors have made an assessment in preparing the financial statements as to whether the Company is a going concern. After reviewing the Company's forecasts and projections, the Directors have a reasonable expectation that the Company has adequate resources to continue in operation existence for the foreseeable future. The Company therefore adopts the going concern basis in preparing its financial statements.
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MSP CAPITAL TWO LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
2.
Accounting policies (continued)
Interest income is recognised in the Statement of Comprehensive Income for all interest-bearing financial instruments, using the effective interest method, except for those classified at fair value through profit or loss. The effective interest method is a method of calculating the amortised cost of a financial asset or liability and of allocating the interest income over the expected life of the financial instrument. The effective interest rate is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability.
The effective interest rate is calculated on initial recognition of the financial asset or liability by estimating the future cash flows after considering all the contractual terms of the instrument but not future credit losses. The calculation includes all amounts expected to be paid or received by the Company including expected early redemption fees and related penalties and premiums and discounts that are an integral part of the overall return. Direct incremental transaction costs related to the acquisition, issue or disposal of a financial instrument are also taken into account in the calculation. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
In accordance with section 11 of FRS102, loans issued which are receivable within one year are accounted for on a straight line basis. Arrangement fees are recognised in full at the commencement of the loan, in line with the costs associated with the initial loan setup.
Fees and commissions which are not an integral part of the effective interest rate are generally recognised when the service has been provided.
All loans are arranged by the immediate parent company, MSP Capital Limited, for which MSP Capital Limited charges customers commitment and arrangement fees.
The costs of borrowing are spread over the life of the related facility.
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MSP CAPITAL TWO LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
2.
Accounting policies (continued)
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Current and deferred taxation
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The tax expense for the year comprises current and deferred tax. Tax is recognised in the Statement of Comprehensive Income except that a charge attributable to an item of income and expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the Company operates and generates income.
Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the Statement of Financial Position date, except that:
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The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits; and
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Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met.
Deferred tax balances are not recognised in respect of permanent differences except in respect of business combinations, when deferred tax is recognised on the differences between the fair values of assets acquired and the future tax deductions available for them and the differences between the fair values of liabilities acquired and the amount that will be assessed for tax. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.
Short term debtors are measured at transaction price, less any impairment. Loans receivable are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method, less any impairment.
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Cash and cash equivalents
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Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents are highly liquid investments that mature in no more than three months from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in value.
Short term creditors are measured at the transaction price. Other financial liabilities, including bank loans, are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method.
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MSP CAPITAL TWO LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
2.
Accounting policies (continued)
The Company only enters into basic financial instrument transactions that result in the recognition of financial assets and liabilities like trade and other debtors and creditors, loans from banks and other third parties and loans to related parties.
Debt instruments (other than those wholly repayable or receivable within one year), including loans and other accounts receivable and payable, are initially measured at present value of the future cash flows and subsequently at amortised cost using the effective interest method. Debt instruments that are payable or receivable within one year, typically trade debtors and creditors, are measured, initially and subsequently, at the undiscounted amount of the cash or other consideration expected to be paid or received. However, if the arrangements of a short-term instrument constitute a financing transaction, like the payment of a trade debt deferred beyond normal business terms or in case of an out-right short-term loan that is not at market rate, the financial asset or liability is measured, initially at the present value of future cash flows discounted at a market rate of interest for a similar debt instrument and subsequently at amortised cost, unless it qualifies as a loan from a director in the case of a small company, or a public benefit entity concessionary loan.
Financial assets that are measured at cost and amortised cost are assessed at the end of each reporting period for objective evidence of impairment. If objective evidence of impairment is found, an impairment loss is recognised in the Statement of Comprehensive Income.
For financial assets measured at amortised cost, the impairment loss is measured as the difference between an asset's carrying amount and the present value of estimated cash flows discounted at the asset's original effective interest rate. If a financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.
For financial assets measured at cost less impairment, the impairment loss is measured as the difference between an asset's carrying amount and best estimate of the recoverable amount, which is an approximation of the amount that the Company would receive for the asset if it were to be sold at the reporting date.
Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position when there is an 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.
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MSP CAPITAL TWO LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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Judgements in applying accounting policies and key sources of estimation uncertainty
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The Company’s significant accounting policies are stated in note 2. Not all of these significant policies require the management to make difficult, subjective or complex judgements or estimates. The following is intended to provide an understanding of the policies the management considers critical because of their complexity, judgement and estimation involved in their application and their impact on these financial statements.
Judgements and estimates are reviewed on an ongoing basis and actual results may differ from these estimates. The areas involving a higher degree of judgements or complexity or areas where assumptions and estimates are significant to the financial statements are as follows:
3.1 Critical judgements in applying the Company's accounting policies
The Directors do not consider there to be any critical judgements in applying the Company's accounting policies.
3.2 Key sources of estimation uncertainty
i) Provision for doubtful debts: All loans issued are based on recent independent valuations which are then assessed and reviewed by an experienced in-house chartered surveyor. When underwriting a loan, the Directors stay within the Company Loan to Value parameters to manage the risk of the loan. The Directors form an assessment for the provision of doubtful debts taking into account this security over the loans.
ii) Exit fee recognition: Exit fees are accrued evenly over the life of the loan, up to the loan expiry date. Long loans have variable exit fee rates depending upon the future date of repayment. Based upon historical data, MSP considers the rate applicable at the loan expiry date the most appropriate rate to use.
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All turnover arose within the United Kingdom.
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Fees for the Company's statutory audit and other fees payable to the Company's auditor are incurred by MSP Capital Ltd, the immediate parent company. Full details of auditor's remuneration is included in the accounts of MSP Capital Holdings Limited.
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MSP CAPITAL TWO LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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The Company has no employees other than the Directors, who did not receive any remuneration (2020: £nil).
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Current tax on profits for the year
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Adjustments in respect of previous periods
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Origination and reversal of timing differences
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Effect of tax rate change on opening balance
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Factors affecting tax charge for the year
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The tax assessed for the year is higher than (2020: lower than) the standard rate of corporation tax in the UK of 19% (2020: 19%). The differences are explained below:
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Profit multiplied by standard rate of corporation tax in the UK of 19% (2020: 19%)
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Adjustments for provisions
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Short term timing differences
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Adjustments to tax charge in respect of
previous periods
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Total tax charge for the year
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- 18 -
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MSP CAPITAL TWO LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
7.
Tax on profit (continued)
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Factors that may affect future tax charges
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The UK Government announced in the 2021 budget that from 1 April 2023, the rate of corporation tax in the United Kingdom will increase from 19% to 25%. Companies with profits of £50,000 or less will continue to be taxed at 19%, which is a new small profits rate. Where taxable profits are between £50,000 and £250,000, the higher 25% rate will apply but with a marginal relief applying as profits increase.
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Due after more than one year
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Prepayments and accrued income
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Trade debtors are stated after a provision for impairment against unpaid interest and fees of £nil (2020: £385,871).
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Cash and cash equivalents
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- 19 -
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MSP CAPITAL TWO LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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Creditors: Amounts falling due within one year
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Amounts owed to group undertakings
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Accruals and deferred income
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Amounts owed to group undertakings are unsecured, repayable on demand and interest is charged at market rate.
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Creditors: Amounts falling due after more than one year
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Analysis of the maturity of loans is given below:
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Amounts falling due 2-5 years
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The other loans are secured by way of fixed and floating charges which are secured over the property that MSP Capital Two Limited have received as security in relation to loans made to their customers.
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Allotted, called up and fully paid
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1
(2020:
1
)
Ordinary
share of £
1
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The Company has one class of ordinary shares; each share carries one voting right per share but no right to fixed income.
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- 20 -
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MSP CAPITAL TWO LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
Profit and loss account includes all current and prior period retained profits and losses.
The Statement of Comprehensive Income has been restated for the reclassification of loan facility fees from administrative expenses to cost of sales.
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Related party transactions
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As a wholly owned subsidiary of MSP Capital Ltd, the Company has taken advantage of the exemption under FRS 102 Section 33 from disclosing transactions with members of the group.
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Post balance sheet events
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There have been no significant events affecting the Company since the year end.
The Company is a wholly owned subsidiary of
MSP Capital Ltd
, this is the smallest group of undertakings for which consolidated accounts are drawn up. MSP Capital Ltd is registered in the United Kingdom with a registered office address of Strata House, 12-14 Castle Street, Poole, England, BH15 1BQ. The financial statements of this company are available from the Registrar, Companies House. MSP Capital Holdings Limited is the largest group of companies for which consolidated accounts are drawn up.
The ultimate controlling party is considered to be Mr. John Van Deventer.
- 21 -
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MSP CAPITAL TWO LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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Risk management and monitoring
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Risk is inherent in all aspects of the Company’s business and effective risk management is a core objective for the Company.
The principal financial risks that the Company manages are listed below and explained further in the following sections:
•
Credit risk
•
Market risk – interest rate
•
Liquidity risk
Credit risk
This is the risk that counterparties will be unable or unwilling to meet their obligations to the Company as they fall due and the credit risk of lending is a factor of two components:
i) The probability of default by the customer on contractual obligations
ii) The exposure at default by the customer on contractual obligations
The Board seeks to mitigate credit risk by:
•
Focusing on market segments where it has specific expertise;
•
Limiting the absolute size of exposures, and their loan to value percentage;
•
Maintaining detailed lending policies;
•
Thorough rigorous underwriting process; and
•
Actively monitoring the performance, collections and recoveries of loans
Maximum credit risk exposure at 31 December 2021 is £238,684,212 (31 December 2020: £190,615,064) which includes future capital commitments of £53,511,942 (31 December 2020: £45,211,707).
Loans are regularly reviewed to determine if a provision is necessary. A provision for impairment against unpaid interest and fees of £nil (2020: £385,871) is included within trade debtors. Due to the weighted average loan to values being 63% (31 December 2020: 61%) a further provision is not required. The Company deems its security coverage to be adequate and therefore the credit quality of loans is considered good.
- 22 -
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MSP CAPITAL TWO LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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Risk management and monitoring (continued)
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Interest rate risk
The Company has fully transitioned from LIBOR to SONIA prior to the year end.
Interest rate risk arises from the relationship between interest rate changes due to a spike in SONIA and the timing of repricing new loan at revised interest rates.
Management monitor interest rate risks monthly by performing a sensitivity analysis on changes in SONIA. The potential impact of a rise or fall in market interest rates by 1% should have a +/- impact of £1,306,040 for the results for the year.
Included within creditors falling due after more than 1 year are other loans totalling £127,642,610 (2020: £102,806,768) which are interest bearing at market rates of interest.
Liquidity Risk
Liquidity risk represents the risk of being unable to pay contracted commitments as they fall due, arising from the mismatch in cash flows generated from current and expected assets. The Company’s policy is to maintain a liquidity buffer in case of a stress event, as well as maintaining sufficient liquidity resources to meet current and future commitments.
- 23 -
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