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REA Finance B.V.: Annual accounts for 2020 -6-

06/10/2021 | 08:31am EDT

For deductible temporary differences, available tax losses and unused tax credits, a deferred tax asset is recognised, but only to the extent that it is probable that future taxable profits will be available for set-off or compensation. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax assets and deferred tax liabilities are offset in the balance sheet if the company has a legally enforceable right to offset current tax assets against current tax liabilities, insofar as they relate to the same financial year and deferred tax assets relate to income taxes levied by the same tax authority on the same taxable Company, or the same fiscal unity.

The measurement of deferred tax liabilities and deferred tax assets is based on the tax consequences following from the manner in which the Company expects, at the balance sheet date, to realise or settle its assets, provisions, debts and accrued liabilities. Deferred tax assets and liabilities are measured at nominal value.

There are no deferred taxes applicable to the Company.

2.3 Notes to the financial statements (continued)

Cash flow statement

The annual accounts for 2020 of the Company's ultimate parent company (REAH) include a consolidated cash flow statement for the group as a whole. Accordingly, the Company has elected to use the exemption provided under RJ 360.104 and does not present its own cash flow statement. The annual report of REAH can be obtained from the website www.rea.co.uk.

Determination of fair value

The fair value of a financial instrument is the amount for which an asset can be sold or a liability settled, involving parties who are well informed regarding the matter, willing to enter into a transaction and are independent from each other.

The fair value of listed financial instruments is determined on the basis of the last trade prior to the balance sheet date.

The fair value of the loan to REAH is determined by reference to the fair value of the sterling notes.

Related parties

Transactions with related parties are assumed when a relationship exists between the Company and a natural person or entity that is affiliated with the Company. This includes, amongst others, the relationship between the Company and its subsidiaries, its parent company shareholder, directors and key management personnel.

Transactions are transfers of resources, services or obligations, regardless of whether anything has been charged.

Subsequent events

Events that provide further information on the actual situation at the balance sheet date and that appear before the financial statements are being prepared, are recognised in the financial statements.

Events that provide no information on the actual situation at the balance sheet date are not recognised in the financial statements. When those events are relevant for the economic decisions of users of the financial statements, the nature and the estimated financial effects of the events are disclosed in the financial statements.

2.4 Notes to the balance sheet

ASSETS

FIXED ASSETS

Financial fixed assets [1]

                                                             31-12-2020 31-12-2019 
                                                             GBP          GBP 
Loan to parent company 
Loan to R.E.A. Holdings plc                                  32,144,755 - 
 
                                                             2020       2019 
                                                             GBP          GBP 
Loan to R.E.A. Holdings plc 
Balance as at 1 January                                      -          31,327,000 
Reclassification from/to current assets                      31,327,000 (31,327,000) 
Present value of premium at 31 March 2020                    765,057    - 
 
Adjustment to present value of premium at 31 December 2020 
                                                             52,698     - 
Balance as at 31 December                                    32,144,755 - 
 

The loan to REAH bore interest at 8.9283 per cent from 1 January 2020 to 31 March 2020 and at 9.007 per cent from 1 April 2020 to 31 December 2020 (2019: 8.9283 per cent). The rate was changed following a transfer pricing review by the Company's tax adviser. The effective rate for 2020 was 8.99 per cent (2019: 8.9283 per cent).

The loan is repayable on 20 August 2025 (2019: repayable on 20 August 2020). On 31 March 2020, a general meeting of holders of the sterling notes agreed proposals to extend the repayment date of the sterling notes to 31 August 2025. As a consequence, the Company has agreed with REAH to extend the loan to 20 August 2025.

A premium of 4p per GBP1 nominal of notes is now payable on redemption of the notes on 31 August 2025 (or earlier in the event of default) or on surrender of the sterling notes in satisfaction, in whole or in part, of the subscription price payable on exercise of warrants issued by REAH on the final subscription date. As a consequence, the Company has agreed with REAH that an amount equivalent to the premium, if any, payable on redemption of the sterling notes shall be aggregated with the loan which is now repayable on 20 August 2025.

The sterling notes and loan were not derecognised and recognised as a new liability and asset, because a substantial modification of terms was not deemed to have occurred. The extension of the repayment date and the addition of the premium payable on redemption were the quantitative criteria considered. As the discounted present value of the cash flows at market rate under the new terms was less than 10% different from the discounted present value of the remaining cash flows of the original financial liability and asset, there was no substantial modification so there was no requirement to derecognise the sterling notes or loan and account for new financial instruments.The Company has therefore calculated the amortised cost of the financial asset and liability as the present value of the future contractual cash flows that are discounted at the financial instrument's effective interest rate of 8.75 per cent and 9.007 per cent respectively.

The loan represents the on-lending of proceeds from the issue of the sterling notes. The interest receivable on the loan is based on a formula from which the Company derives a fixed margin over the cost of funding. This margin was determined by an independent adviser by applying the CAPM method to determine the remuneration for the Company's equity at risk. The TNMM cost plus method determined the profit remuneration on the financial services performed by the Company. The economic analysis showed that a gross financing margin of 25.7 basis points could be considered in line with market conditions for the Company's financing activities.

2.4 Notes to the balance sheet (continued)

CURRENT ASSETS

Receivables

                                         31-12-2020   31-12-2019 
                                         GBP            GBP 
Loan to parent company [2] 
Loan to R.E.A. Holdings plc              -            31,327,000 
 
                                         2020         2019 
                                         GBP            GBP 
Loan to R.E.A. Holdings plc 
Balance as at 1 January                  31,327,000   - 
Reclassification to/from fixed assets    (31,327,000) 31,327,000 
Balance as at 31 December                -            31,327,000 
 
                                                      31-12-2020 31-12-2019 
                                                      GBP          GBP 
Receivable from parent company [3] 
Current account receivable from R.E.A. Holdings plc   588,283    537,801 
 

The current account receivable from REAH is due within one year and bears no interest.

2.4 Notes to the balance sheet (continued)

                             31-12-2020 31-12-2019 
                             GBP          GBP 
Taxes [4] 
Corporate income tax         6,125      4,968 
 
                             2020       2019 
                             GBP          GBP 
Corporate income tax 
Corporate income tax 2020    6,125      - 
Corporate income tax 2019    -          4,968 
                             6,125      4,968 
 

The Company makes advance payments on its estimated corporate tax liability each year. An asset is therefore recognised when the tax charge is less than the amount paid.

The tax charge for the year is the profit before tax at the statutory rate of 16.5 percent (2019: statutory rate of 19.0 per cent). The effective tax rate is the same as the statutory rate (2019: effective rate 19.7 per cent).

The company is a resident of the Netherlands for tax purposes.

There are no deferred tax assets or liabilities.

                            31-12-2020 31-12-2019 
                            GBP          GBP 
Cash [5] 
Current account bank GBP    50,589     39,996 
Current account bank EUR    367        127 
                            50,956     40,123 
 

The balance of the cash is available to the Company without any restrictions.

2.4 Notes to the balance sheet (continued)

SHAREHOLDER'S EQUITY AND LIABILITIES

SHAREHOLDER'S EQUITY [6]

                             31-12-2020 31-12-2019 
                             GBP          GBP 
Issued share capital 
Balance as at 1 January      15,373     16,210 
Revaluation                  810        (837) 
Balance as at 31 December    16,183     15,373 
 

The authorised share capital of the Company amounts to EUR90,000 divided into 90,000 shares of EUR1 each, of which 18,000 shares have been issued and fully paid-up. The share capital is recorded at the rate of exchange at the balance sheet date. At 31 December 2020 the rate was GBP1 = EUR1.11 (2019: GBP1 = EUR1.17).

                             31-12-2020 31-12-2019 
                             GBP          GBP 
Share premium reserve 
Balance as at 31 December    475,000    475,000 
 

(MORE TO FOLLOW) Dow Jones Newswires

June 10, 2021 08:30 ET (12:30 GMT)

Stocks mentioned in the article
ChangeLast1st jan.
BRITISH POUND / AUSTRALIAN DOLLAR (GBP/AUD) 0.08% 1.89413 Delayed Quote.6.33%
BRITISH POUND / CANADIAN DOLLAR (GBP/CAD) -0.02% 1.73345 Delayed Quote.0.02%
BRITISH POUND / JAPANESE YEN (GBP/JPY) 0.06% 152.531 Delayed Quote.8.27%
BRITISH POUND / NEW ZEALAND DOLLAR (GBP/NZD) 0.03% 1.99243 Delayed Quote.4.76%
BRITISH POUND / SWISS FRANC (GBP/CHF) 0.02% 1.25852 Delayed Quote.4.63%
BRITISH POUND / US DOLLAR (GBP/USD) 0.06% 1.3906 Delayed Quote.2.12%
DJ INDUSTRIAL -0.42% 34935.47 Delayed Quote.14.63%
EURO / BRITISH POUND (EUR/GBP) -0.05% 0.85337 Delayed Quote.-4.69%
REA GROUP LIMITED -0.79% 161.66 End-of-day quote.8.60%
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