The directors present the ir strategic report and the financial statements for the year ended 31 March 2022.
The incorporation of CIFCO Capital Limited and its associated structure are borne out of a necessity to supplement, and ultimately replace, central Government financial support to Babergh and Mid Suffolk District Councils (“the Shareholders”). In order to deliver this, CIFCO Capital Limited was incorporated as a Special Purpose Vehicle (SPV) to invest in commercial assets to generate income. The rationale for commercial assets being targeted is:
Commercial property tends to generate higher income returns
To avoid conflict with the Councils' housing policies as may arise from time to time
Focus on investment in the Eastern Region (but not exclusive to), with the prime purpose of generating income to the Council for investment in services for the districts.
To undertake sustainable long-term investment in commercial opportunities through the investment of an aggregated £100,000,000 representing £50,000,000 investment from each of the two shareholders
To generate long term income to support the revenue gap arising from the reduction in central government funding
In carrying out the investment, the board's role has been: -
To guide future investment decisions, asset management opportunities and the management of the investment fund
To ensure that investment opportunities taken are ethical and fit with the values of the two shareholding Councils
CIFCO Capital Limited completed its drawdown of approved funds from the Councils in 2020/21.
The structure is based upon each Council’s wholly owned holding company which has a 50% equal shareholding in the jointly owned investment company limited by shares. Each of the Councils' own companies are a holding/parent company.
The principal risks and uncertainties impacting the entity are: the portfolio fails to realise returns due to its nature, structure or management; asset obsolescence over time; void periods resulting in the fund making a net loss or falling short of Business plan targets.
This period marks the first full year of trading following completion of the acquisition phase of the portfolio. The construction of one asset, a small Coop store in Stanton, remains to be completed and therefore this acquisition has not yet been completed.
The Portfolio, with a value of £94,110,000, is currently comprised of 21 assets. This value has increased by £10,192,000 since the 31st March 2021. The current contracted rental income is £5,355,618 per annum from these properties with an estimated full rental value of £5,912,985 per annum. This has resulted in the shareholder Councils benefitting from net income after borrowing costs of £3,785,000 in 2021/22.
A number of refurbishment projects have been carried out, when units have become vacant, and significant progress has been made in improving the sustainability credentials of these assets, as well as substantial increases in rental values.
Management use a range of measures to monitor and manage the business. The Key Performance Indicators are:
KPI |
Description |
Target |
Actual |
1 |
Increase contracted rent from £5m p.a.by 1st April 2022
|
CPI + 1% (6.2%+1%=7.2%) |
£5,368,674 (7.27%) |
2 |
Equivalent Yield (EY)
|
6% |
5.3% |
3 |
Reduce EPC Portfolio Score from 7034 (Average D)
|
7034 |
6963 |
4 |
Quarterly Rent Arrears Measured by the amount of rent outstanding at the end of the quarter as a percentage of the total rent due that quarter.
|
<5% |
Q June- 1.56% Q Sept- 1.76% Q Dec- 1.27% Q March- 1.63% |
Rent collection has been a significant focus during 21/22 in response to the pandemic, however the diverse portfolio of assets mitigated CIFCO Capital Limited’s risk in this respect, with rent collection figures exceeding many other funds. During 21/22 CIFCO Capital Limited maintained full debt repayments to its lenders. It is continuing to trade and receive regular rent.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 March 2022.
The results for the year are set out on page 9.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The company manages its cash and borrowing requirements in order to maximise interest income and minimise interest expense, whilst ensuring the company has sufficient liquid resources to meet the operating needs of the business.
The company is exposed to fair value interest rate risk on its fixed rate borrowings. The directors believe the exposure to interest rate risk is minimal given the availability of flexible funding and support from the ultimate shareholders of the business.
Investments of cash surpluses, borrowings and derivative instruments are made through banks and companies which must fulfil credit rating criteria approved by the Board.
Customers are tenants of the company's investment properties and signed lease agreements are in place for all tenants. Trade receivables are monitored on an ongoing basis and provision is made for doubtful debts where necessary.
The company aims to manage the invested portfolio to maximise the income from the assets and their long term value. The company has completed the drawdown of investment funds from the Councils comprising a total of £99.25m.
The auditor, Ensors Accountants LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
We have audited the financial statements of CIFCO Capital Limited (the 'company') for the year ended 31 March 2022 which comprise the income statement, the statement of financial position, the statement of changes in equity, the statement of cash flows and notes to the financial statements, including significant accounting policies . The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the United Kingdom.
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. 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 our audit :
the information given in the strategic report and the directors' r eport for the financial year for which the financial statements are prepared is consistent with the financial statements ; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identifie d material misstatements in the strategic report and 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.
As explained more fully in the directors' r esponsibilities s tatement, 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 .
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 .
Our audit was designed to include tests of detail together with an assessment of the control environment to enable us to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement due to fraud. Through discussion with directors and management, and from our own knowledge of and experience of the sector in which the company operates we identified the following areas where we consider there is a higher risk of fraud: transactions with related parties, revenue recognition, investment property valuation, and management override of systems and control. We note that the use of external advisors and service organisations has helped to reduce the susceptibility of the company to material misstatement due to fraud.
We performed audit procedures to address the risks noted above, which included the following:
Enquiry of management, those charged with governance and the entity’s solicitors around actual and potential litigation and claims
Reviewing minutes of board meetings
Testing journal entries and other adjustments for appropriateness, and evaluating the business rationale of significant transactions
Reviewing the objectivity and qualifications of the third party property valuers, and reviewing their assumptions for reasonableness
Reconciling turnover to underlying lease agreements for each investment property
Auditor's responsibilities for the audit of the financial statements (continued)
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is we would become aware of non-compliance.
Material misstatements that arise due to fraud can be harder to detect that those that arise from error as they may involve deliberate concealment or collusion.
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 members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
The income statement has been prepared on the basis that all operations are continuing operations.
CIFCO Capital Limited is a private company limited by shares incorporated in England and Wales. The registered office is C/O B&Msdc Endeavour House, 8 Russell Road, Ipswich, IP1 2BX.
The financial statements of CIFCO Capital Limited for the year ended 31 March 2022 were authorised for issue by the board of directors on 22 August 2022 and the Statement of Financial Position was signed on the board's behalf by Mr C Haworth.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
Investment property, which is property held to earn rentals and/or for capital appreciation, is initially measured at cost and subsequently measured using the fair value model and stated at its fair value at the reporting end date. The surplus or deficit on revaluation is recognised in profit or loss.
The company recogni s es financial debt when the company becomes a party to the contractual provisions of the instruments. Financial liabilities are classified as either ' financial liabilities at fair value through profit or loss ' or ' other financial liabilities ' .
Other financial liabilities, including borrowings , t rade payables and other short-term monetary liabilities, are initially measured at fair value net of transaction costs directly attributable to the issuance of the financial liability. They are subsequently measured at amortised cost using the effective interest method . For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
Financial liabilities are derecognised when, and only when, the company’s obligations are discharged, cancelled, or they expire.
Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
The tax expense represents the sum of the tax currently payable and deferred tax.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are outlined below.
The company has trade debtors owed by tenants. Trade debtors are assessed at each period end and the total recoverable amount is estimated based on the directors and advisors knowledge of the customer and their financial position. Any balances not considered recoverable are provided against. Where recovery is uncertain, a provision is made based on the likelihood that the debt will be recovered. The bad debts provision is disclosed in note 13.
The average monthly number of persons (including directors) employed by the company during the year was:
The charge for the year can be reconciled to the profit/(loss) per the income statement as follows:
The fair values of investment properties are based on valuations performed by Knight Frank LLP, a firm of valuers independent of CIFCO Capital Limited. The independent valuers hold professional qualifications with the Royal Institute of Chartered Surveyors.
Direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period totalled £554,511 (2021: £270,006).
Cash deposits and financial transactions give rise to credit risk in the event that counter parties fail to perform under the contract. The c ompany regularly monitors the credit ratings of its counter parties and the probability of material loss is considered to be at an acceptable level.
Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost.
The directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.
Trade receivables have been impaired at the year end where the directors consider it is unlikely that specific tenants will be able to pay their rent arrears.
Borrowings are secured on the investment properties of the company.
Market risk is the risk that changes in market prices, such as interest rates and property prices, will affect the company 's income or the value of its assets . The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
The c ompany pays interest on long term borrowings. CIFCO Capital Limited has no exposure to fluctuations in interest rates as the rates payable by the c ompany have been fixed for the full term of the loan agreements.
The company is exposed to market risks associated with its investment property assets held at fair value .
The company mitigates its exposure to fluctuations in the market price of investment property by holding a diverse portfolio of assets. The portfolio includes properties located in different geographical areas of the United Kingdom and a mix of retail and manufacturing properties.
The fair value of financial assets and liabilities held at fair value has been estimated using the following fair value hierarchy:
Level 1: The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.
Level 2: Inputs other than quoted prices included within level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.
Level 3: Inputs are unobservable (i.e. for which market data is unavailable for the asset or liability).
There have been no transfers between categories in the current or preceding period.
The company holds investment properties at fair value. These are categorised as Level 3 in the above fair value hierarchy . The effect of the fair value measurement of these assets is shown in note 9 to these financial statements.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon during the current and prior reporting period.
Deferred tax assets and liabilities are offset in the financial statements only where the company has a legally enforceable right to do so.
A and B shares rank pari passu in all respects.
During the year ended 31 March 2022, a bonus issue of Ordinary A and B shares has been made to reduce the share premium account balance.
As at 31st March 2021, a share issue remained outstanding in respect of properties purchased prior to the year end. The equity funding in relation to this property was recognised as share premium on the issue of share capital during the period. During the year ended 31 March 2022, a bonus issue of Ordinary A and B shares has been made to reduce the share premium account balance.
Revenue includes income from the lease of investment properties to third parties. Lease terms vary across the property portfolio.
At the reporting end date the company had contracted with tenants for the following minimum lease payments:
No contingent rental income has been recognised.
The c ompany manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance .
The capital structure of the c ompany consists of debt, cash and cash equivalents and equity comprising share capital, share premium and retained earnings. The c ompany regularly reviews the capital structure and as part of this review considers th e cost of capital and the risks associated with each class of capital.
The company has a target gearing ratio of 90% determined as the proportion of debt to equity.
The majority of capital introduced to the company is immediately used for the purchase of investment properties and is therefore considered to be low risk.
CIFCO Capital Limited has exchanged conditional contracts to purchase a new build convenience store pre-let to the Co-op, a deposit has been paid and is being held by the vendors solicitors as stakeholders. The transaction will complete subject to the convenience store being delivered and the Co-op completing the lease for the building by the longstop date in 2024. If the conditions are not met by the longstop date the contract will terminate and the deposit will be returned to CIFCO Capital Limited.
During the year the company entered into the following transactions with related parties:
The following amounts were outstanding at the reporting end date:
Amounts owed to related parties are secured on the company's investment properties.
No guarantees have been given or received.
The company is under the joint ownership of MSDC (Suffolk Holdings) Limited, a 100% subsidiary of Mid Suffolk District Council and BDC (Suffolk Holdings) Limited, a 100% subsidiary of Babergh District Council.
During the year ended 31 March 202 2 , CIFCO Capital Limited incurred finance costs totaling £ 2,215,274 (202 1 : £1, 562,915 ) payable to Babergh District Council. At 31 March 202 2 it owed £ 44,927,904 (202 1 : £ 45,063,397 ) to Babergh District Council.
During the year ended 31 March 202 2 , CIFCO Capital Limited incurred finance costs totaling £ 2,215,274 (202 1 : £1, 562,915 ) payable to Mid Suffolk District Council. At 31 March 202 2 it owed £ 44,927,904 (202 1 : £ 45,063,397 ) to Mid Suffolk District Council.
In addition, CIFCO Capital Limited incurred overhead costs in the year to 31 March 2022 totaling £ 70,000 (2021: £ 70,000 ) payable to Babergh and Mid Suffolk District Council s . £70,000 was payable to the Councils at each year end in respect of these costs.