The directors present their annual report and financial statements for the year ended 31 December 2020.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
In light of the uncertainty in respect of the adverse impacts of Covid 19, its duration and the ability of the company to either continue meeting the loan covenants or obtain further waivers as and when required, a material uncertainty exists which may cast significant doubt on the company’s ability to continue as a going concern and therefore its ability to realise its assets and settle its liabilities within the ordinary course of business. The financial statements have been prepared on a going concern basis and do not include adjustments that would result if the company was unable to continue as a going concern. See note 1.2 to the accounts for further details.
BDO LLP were appointed as auditor to the company 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.
This report has been prepared in accordance with the provisions applicable to companies entitled to the small companies exemption.
Basis for opinion
Conclusions relating to going concern
We draw attention to note 1.2 to the financial statements, which states that as a result of the uncertainty over the impact of C ovid-19 pandemic, the company may breach certain covenants to its banking agreements. If not waived by the bank or cured, this could result in the bank calling in the loans. These events or conditions, along with other matters as set out in note 1.2, indicate that a material uncertainty exists that may cast significant doubt on the ability of the company to continue as a going concern. Our opinion is not modified in respect of this matter.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
Other information
Other Companies Act 2006 reporting
In our opinion, based on the work undertaken in the course of our audit :
the information given in the directors' r eport for the financial year for which the financial statements are prepared is consistent with the financial statements ; and
the directors' report has been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identifie d material misstatements in the directors' r eport .
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
certain disclosures of Directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit. ;or
the Directors were not entitled to prepare the financial statements in accordance with the small companies regime and take advantage of the small companies’ exemptions in preparing the Directors’ report and from the requirement to prepare a Strategic report.
As explained more fully in the Statement of Directors' Responsibilities , the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Extent to which the audit was capable of detecting irregularities, including fraud.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below .
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our sector experience through discussion with the directors and other management (as required by auditing standards).
We had regard to laws and regulations in areas that directly affect the financial statements including financial reporting (including related company legislation) and taxation legislation. We considered that extent of compliance with those laws and regulations as part of our procedures on the related financial statement items.
With the exception of any known or possible non-compliance, and as required by auditing standards, our work in respect of these was limited to enquiry of the directors.
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit.
We addressed the risk of fraud through management override of controls, by testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://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 member 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 member 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 member for our audit work, for this report, or for the opinions we have formed.
50 HSS Limited is a private company limited by shares incorporated in England and Wales. The registered office is First Floor, Thavies Inn House, 3-4 Holborn Circus, London, EC1N 2HA.
The financial statements are prepared in sterling , which is the functional currency of the company. Monetary a mounts in these financial statements are rounded to the nearest £.
The company has taken advantage of the exemption in Financial Reporting Standard No.102 "Cash Flow Statements" Section 1.12B not to produce a cash flow statement on the grounds that it is a small company.
In making their assessment of the ability of the company to continue as a going concern the directors have considered the impact of Covid 19 on the operations of the company as well as its liquidity and ability to comply with its bank loan covenants during the going concern period. The company is funded by a £3,910,000 bank loan (which is secured against the property owned by the company) which is due for repayment in February 2022 together with shareholder loans from parent companies of £3,227,337 which are unsecured and repayable only on the sale of the property.
The bank loan facility agreement includes a number of covenants, including loan to value and interest coverage. The interest coverage covenant on the bank loan was breached in April 2020 and July 2020 but the bank waived both covenant breaches as the company has continued to make the scheduled capital and interest repayments.
In order to assess the potential impact of COVID-19 the company has produced updated forecasts which take into account the potential impact on operations, including that a number of the existing tenants were to default on their rental payments. These forecasts show that were there to be a significant deterioration in rent collection as a result of Covid 19 and certain covenants would be breached and the loan could be called in. The directors have reviewed the tenants’ payments histories since the Covid 19 outbreak and, based on discussions with tenants, consider that the rent collection will remain sufficient such that no further breach will occur.
In light of the uncertainty in respect of the adverse impacts of Covid 19, its duration and the ability of the company to either continue meeting the loan covenants or obtain further waivers as and when required, a material uncertainty exists which may cast significant doubt on the company’s ability to continue as a going concern and therefore its ability to realise its assets and settle its liabilities within the ordinary course of business. The financial statements do not include adjustments that would result if the company was unable to continue as a going concern.
Notwithstanding the above, having reviewed the company’s cash flow forecasts for the next 12 months the directors consider that the company has headroom to meet its financial obligations and liabilities as they fall due for the foreseeable future. However, if a default were to occur the directors would either request the bank waive the breach or would approach shareholders for further funding such that the bank loan would not be called in. Accordingly, they have prepared the financial statements on a going concern basis.
Basic financial assets, which include trade and other receivables and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including trade and other payables, bank loans and loans from related companies, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future paymen ts discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. A m ounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
Finance costs
Finance costs are charged to profit or loss over the term of the debt using the effective interest rate method so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.
In preparing these financial statements, the directors have made the following judgements:
They have determined whether leases entered into by the company either as a lessor or a lessee are operating leases or finance leases. These decisions depend on an assessment of whether the risks and rewards of ownership have been transferred from the lessor to the lessee on a lease by lease basis.
Investment properties are valued annually using a yield methodology. This uses market rental values capitalised at a market capitalisation rate but there is an inevitable degree of judgement involved in that each property is unique and value can only ultimately be reliably tested in the market itself.
An analysis of the company's revenue is as follows:
All the turnover arose within the United Kingdom.
The average monthly number of persons (including directors) employed by the company during the year was:
The investment property was valued on an open market basis by the directors at 31 December 2020 (based on a valuation by the asset manager).
The historical cost of the investment property was £7,804,560 (2019 - £7,804,560 )
The amount owed to the group undertaking is unsecured and interest free and is expected to be repaid following a disposal of the company's investment property.
The bank loan is secured by fixed and floating charges over the property owned by the company and is repayable on 2 February 2022. The interest rate is 3.00% plus base rate per annum.
At the reporting end date the company had contracted with tenants for the following minimum lease payments:
At the balance sheet date the company owed £3,230,537 (2019 - £3,230,537) to Tellon Capital Two LP in respect of amounts outstanding on an unsecured and interest free loan.
During the year Tellon Capital LLP charged management fees of £18,831 (2019 - £21,382) out of which £11,520 (2019 - £11,520) was outstanding at the year end. At the balance sheet date the company was owed £3,199 from (2019 - £3,516 owed to) Tellon Capital LLP in respect of amounts outstanding on an unsecured and interest free loan.
Tellon GP Limited, registered in Jersey, is the company's immediate parent entity.