Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's financial results. The payment of interest income by REAH to the Company is always agreed and timed to be several days in advance of the date the interest on the sterling notes is due. The Company can also request additional funds from REAH if required.
Liquidity is monitored by the preparation of projections incorporating cash flow forecasts which cover the period in which the liabilities will fall due at group level and at Company level (see also Credit risk). Consideration of possible on-going impacts of Covid-19 on the Company is taken into account by regular communications with REAH.
Cashflow risk
Cash flow risk relates to the risk that cash flows are unable to cover payments as they fall due. Month by month cash flow projections are prepared by the Company for a minimum period of 12 months and include interest receipts and payments.
Currency risk
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Company's measurement currency.
As the Company's financial instruments and significant transactions are in pounds sterling, the currency risk is low, exchange differences arise on the euro and USD balances which are significantly smaller than the pounds sterling balances. The exchange result for 2020 was a GBP20,560 loss and a there was a GBP5,510 gain in 2019.
2.4 Notes to the balance sheet (continued)
Interest rate risk
The Company's interest rate risk is the risk which relates to the interest percentages used for the sterling notes and loan to the parent company. 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 on remuneration for the Company's financing activities.
Since the interest rate on the notes as well as the loan is fixed and the Company earns a margin on the loan, the interest rate risk is considered to be limited.
Fair value
The fair value of most of the financial instruments recognised on the balance sheet, including receivables, securities, cash and cash equivalents and current liabilities, is approximately equal to their carrying amount. The fair value of the other financial instruments recognised on the balance sheet can be specified as follows:
The fair value of the sterling notes has been estimated by management to be GBP27.8 million based on the latest price at which the sterling notes were traded prior to the balance date. This price was 90 percent of the current value of the notes of GBP30.9 million. The value of the sterling notes was therefore determined by prevailing market conditions at the time of such trades.
The fair value of the loan to REAH is estimated by management to be GBP27.8 million, this is based on the fair value of the sterling notes.
2.5 Notes to the profit and loss account
2020 2019
GBP GBP
Financial income [12]
Interest income from loan to R.E.A. Holdings plc ("REAH") 2,815,459 2,796,969
Present value of premium on loan 817,755 -
Currency exchange rate differences - 5,510
Operational income - recharge of expenses to REAH 136,433 54,510
3,769,647 2,856,989
2020 2019
GBP GBP
Financial expenses [13]
Interest expense sterling notes 2,699,550 (2,699,550)
Present value of premium on notes 827,213 -
Currency exchange rate differences 20,560 -
3,547,323 (2,699,550)
2020 2019
GBP GBP
Administrative expenses [14]
Auditor's costs 90,569 41,299
Administrative costs 49,178 38,395
Notary costs 5,650 8,033
Tax advisory costs 32,078 5,575
Bank costs 2,717 2,609
VAT costs 1,193 1,302
181,385 97,213
The total management remuneration for the year 2020 (included within Administrative costs) amounts to GBP2,643 (EUR 3,025). Apex received no management remuneration during 2019 as another service company was engaged, Alter Domus/Corfas B.V.
2020 2019
GBP GBP
Management remuneration
Apex Financial Services B.V. 2,643 -
Alter Domus/Corfas B.V. - 1,750
2,643 1,750
2.5 Notes to the profit and loss account (continued)
2020 2019
GBP
Auditor's costs GBP
KPMG in respect of 2020 audit 63,839 -
EY in respect of 2019 audit and handover to KMPG 26,730 41,299
90,569 41,299 Audit fees of GBP63,839 were charged by KPMG Accountants N.V. ("KPMG") to the Company as referred to in Article 2:382a (1) and (2) of the Dutch Civil Code. The KPMG fees relate to the total fees for the audit of the 2020 financial statements.
The EY costs in 2020 represent GBP19,875 costs not accrued in 2019 in respect of the 2019 audit and GBP6,675 handover costs.
2020 2019
GBP GBP
Taxation [15]
Corporate income tax current year 6,755 11,865
Corporate income tax prior year (427) (7)
6,328 11,858
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.
Related parties [16]
Related parties of the Company are REAH its parent company and its management board director. Transactions with REAH are disclosed in notes 2, 3, 12 and 14. Transactions with the management board director are disclosed in note 16.
Subsequent events [17]
There have been no material post-balance sheet events that would require disclosure in, or adjustment to, these accounts.
Amstelveen, 9 June 2021
REA Finance B.V.
Apex Financial Services B.V.
3. OTHER INFORMATION3. Other information
3.1 Independent auditor's report
The independent auditor's report is set out on the next page.
3.2 Statutory rules concerning appropriation of result
In accordance with article 18 of the Company's articles of association and Book 2 of the Dutch Civil Code, the allocation of profits accrued in a financial year shall be determined by the general meeting. If the general meeting does not adopt a resolution regarding the allocation of the profits prior to or at latest immediately after the adoption of the annual accounts, the profits will be reserved.
The general meeting has the authority to make distributions. If the Company is required by law to maintain reserves, this authority only applies to the extent that the equity exceeds these reserves. No resolution of the general meeting to distribute shall have effect without the consent of the management board. The management board may withhold such consent only if it knows or reasonably should expect that after the distribution, the Company will be unable to continue the payment of its debts as they fall due.
Independent auditor's report
To: the shareholder of REA Finance B.V. and the Audit Committee of R.E.A. Holdings plc
Report on the audit of the financial statements 2020 included in the annual report
Our opinion
In our opinion the accompanying financial statements give a true and fair view of the financial position of REA Finance B.V. as at 31 December 2020 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.
What we have audited
We have audited the financial statements 2020 of REA Finance B.V. ("the Company") based in Amsterdam.
The financial statements comprise:
1 the balance sheet as at 31 December 2020;
2 the profit and loss account for the year ended 31 December 2020; and
3 the notes comprising a summary of the accounting policies and other explanatory information.
Basis for our opinion
We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the 'Our responsibilities for the audit of the financial statements' section of our report.
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