The directors present the strategic report for the year ended 31 March 2024.
Principal Activities
Nucleus Cashflow Finance4 Limited (NCFF4) is a subsidiary within the Nucleus Group, it’s UK Holding Company being Nucleus Commercial Group Limited [09646728].
The SPV was set up with the sole purpose to manage the Recovery Loan Scheme (RLS) portfolio.
The RLS scheme started in 2021 following on from the CBILs scheme managed by the British Business Bank. Nucleus was accredited in September-21. Nucleus originated c.£142m of loans before the scheme was concluded in June-22.
General Business Overview
The CBILs scheme concluded in Mar-21 and no further loans have been originated in this SPV after this date or will be going forward. The loan portfolio is managed by Nucleus Services Limited 09914635 via a servicing agreement entered into at the outset of the scheme.
Capital and interest repayments continue to be collected on the performing portfolio which are in turn paid back to the senior lenders under the agreed terms of the facility agreement. Once the Senior lenders have been re-paid in full any excess will be re-paid to the Mezz/equity funder, Nucleus Cashflow Finance Limited.
The SPV has agreed facilities in place which extend beyond the term of the longest dated loan and we continue to manage out collections on an ongoing basis in line with agreed facility terms and internal policies.
Key Performance Indicators – Results
A summary of the Key Performance Indicators is shown below:
| FY24 | FY23 |
| £m | £m |
Total Income | 14.68 | 15.97 |
|
|
|
Operating Profit | 4.08 | 7.42 |
|
|
|
Loss for the Financial Year | (3.11) | (1.36) |
|
|
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Total Loan Facilities | 103.60 | 130.87 |
|
|
|
Loan Origination | 0.00 | 38.86 |
The SPV originated c.£39m of new loans before the scheme finished in June-22, thereby fully utilising the funding level set by the BBB.
In a challenging market the portfolio defaulted loans are above initial expectations. This has not been due to one specific underlying issue but what appears to be a combination of factors. Loan portfolios which are similar in nature, and with loans being underwritten with similar criteria have performed at a slightly better level. We continue to closely monitor the performance of the portfolio and underlying trends to ensure improved performance where possible.
The Nucleus Group benefits from a servicing fee, comprised of a base and conditional (based on performance) servicing fee. Income (interest) and capital repayments are re-paid to the lender under an agreed cash waterfall after interest costs, third party fees and other incidental costs associated with managing the portfolio and SPV.
Income for FY24 was £14.68m against £15.97m in FY23, in line with the performing loans and no new originations. Nucleus does not directly benefit from the income on generated as this is subject to cash waterfalls and retentions on performing and non-performing loans.
Operating Profit has fallen from £7.42m in FY23 to £4.08m in FY24. Again, in line with expectations of ongoing costs.
The SPV made a total loss for FY24 of (£3.11m) against (£1.36m) in FY23. This loss is directly due to the level of defaulted loans, lower interest and the capital provisions associated with these.
Whilst NCFF4 is a subsidiary of NCFF and consolidated for accounting purposes this remains ringfenced on a Group basis for any losses exceeding the Juniors notes provided by NCFF. There are no cross guarantees or negative pledges on a Group basis.
Principal Risk and Uncertainties
There are various risks uncertainties which face the Group as whole, though are not specific to this SPV. These risks and uncertainties are integrated with the principal risks of the Group and are not managed separately. They include:
Strategic risk
Economic risk
Funding risk
Credit risk
Regulatory risk
Reputational risk
Information Security
Technology risk
Data risk
Financial crime
Client money risk
Economic risk
Economic risk is the biggest risk to the portfolio. Micro and Macro economic factors are likely to have a direct impact on our clients and therefore their ability to continue to service their loans. Performance of the loan book has remained within covenants during a period that has seen increased rate rises, a cost of living crisis and political changes. Robust underwriting of the portfolio at origination coupled with a comprehensive collections and recovery policy will continue to be used to mitigate this risk.
Environmental, Social and Governance
The Group has a firm wide ESG policy and it is not managed individually in SPV’s. Further details on the Group’s ESG policy and commitment to it can be found in the Group Consolidated accounts.
Section 172 Statement
The directors, in line with their duties under s172 of the Companies Act 2006, act individually and collectively in the way they consider, in good faith, would be most likely to promote the success of the group for the benefit of its members, and in doing so have regard, amongst other matters. While the board accepts that not every decision it makes will result in an equally positive outcome for all of the Group’s stakeholders, by considering the Company’s purpose, mission and values together with its strategic objectives and having a process in place for decision making, the Directors aim to make sure that the Board’s decisions are consistent and do not create unexpected outcomes for stakeholders.
The Group’s key stakeholders are, but not limited to, its people, its customers, its lenders and, the communities in which it operates and the shareholders. The impact of any decisions made by the Directors take account off the impact on the Group’s activities and on those actions on the Groups stakeholders.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 March 2024.
The results for the year are set out on page 10.
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 auditor, Moore Kingston Smith LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
We have audited the financial statements of Nucleus Cash Flow Finance4 Limited (the 'company') for the year ended 31 March 2024 which comprise the Statement of Comprehensive Income, the Balance Sheet, the Statement of Changes in Equity 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 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).
Basis for 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
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' Report 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.
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.
As part of an audit in accordance with ISAs (UK) we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Explanation as to what extent the audit was considered 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.
The objectives of our audit in respect of fraud, are; to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses to those assessed risks; and to respond appropriately to instances of fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both management and those charged with governance of the company.
Our approach was as follows:
We obtained an understanding of the legal and regulatory requirements applicable to the company and considered that the most significant are the Companies Act 2006, UK financial reporting standards as issued by the Financial Reporting Council, and UK taxation legislation.
We obtained an understanding of how the company complies with these requirements by discussions with management and those charged with governance.
We assessed the risk of material misstatement of the financial statements, including the risk of material misstatement due to fraud and how it might occur, by holding discussions with management and those charged with governance.
We inquired of management and those charged with governance as to any known instances of non-compliance or suspected non-compliance with laws and regulations.
Based on this understanding, we designed specific appropriate audit procedures to identify instances of non-compliance with laws and regulations. This included making enquiries of management and those charged with governance and obtaining additional corroborative evidence as required.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, 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 or intentional misrepresentations, or through collusion.
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 Profit and Loss Account has been prepared on the basis that all operations are continuing operations.
Nucleus Cash Flow Finance4 Limited is a private company limited by shares domiciled and incorporated in England and Wales. The registered office is Mezzanine Floor, St Albans House, 57-59 Haymarket, London, United Kingdom, SW1Y 4QX.
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 £.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues: Interest income/expense and net gains/losses for financial instruments not measured at fair value; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The financial statements of the company are consolidated in the financial statements of Nucleus Commercial Holdings. These consolidated financial statements are available from its registered office, Mezzanine Floor, St Albans House, 57-59 Haymarket, London, SW1Y 4QX.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
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.
The other reserve represents a capital contribution reserve.
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 where the revision affects only that period, or in the period of the revision and future periods where 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 as follows.
The company makes an estimate of the recoverable value of trade and other debtors. When assessing impairment of trade and other debtors, management considers factors including the current valuation of the assets that the company has security on, the ageing profile of debtors and historical experience, applying this to both the principal and interest elements of the loans. See note 8 for the net carrying amount of the debtors which includes an associated impairment provision of £14,248,840 (2023: £8,097,252) within trade debtors.
For the RLS loan book the company consider collection data and historical experience. A specific provision is recognised in respect of loans where an assessment has been made that recovery of the principal is doubtful, with the unbacked element recognised as a bad debt expense and the backed element recognised as an other debtor.
There were no persons employed by the company during the year or the comparative period.
The actual charge for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
Included within debtors is £83,614,506 (2023: £112,934,317) falling due in more than one year, gross of the bad debt provision.
Other creditors due after more than one year are secured by fixed and floating charges over the company's assets in their entirety.
The company has taken advantage of the exemption available in accordance with FRS 102 section 33 'Related Party Disclosures' not to disclose transactions entered into between two or more members of a group, as the company is a wholly owned subsidiary undertaking of the group with which it is party to the transactions.