Registered number:
FOR THE YEAR ENDED 31 MARCH 2024
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RMB 102 LIMITED
COMPANY INFORMATION
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RMB 102 LIMITED
CONTENTS
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RMB 102 LIMITED
STRATEGIC REPORT
FOR THE YEAR ENDED 31 MARCH 2024
The directors present their report and financial statements for the year ended 31 March 2024.
The principal activity of the Company throughout the year was that of property investment.
The directors believe that the Company is in a satisfactory financial position.
The directors do not expect there to be significant future developments which could adversely impact the business; however, notice should be taken of the potential legislative changes disclosed in the critical accounting estimates and assumptions section of note 3.
The management of the business and the execution of the Company's strategy are subject to a number of risks.
The key business risks and uncertainties affecting the Company arise from the performance of its investments in property. The principal risk is that demand from investors for property assets will affect the valuation of investment properties.
This report was approved by the board and signed on its behalf.
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RMB 102 LIMITED
DIRECTOR'S REPORT
FOR THE YEAR ENDED 31 MARCH 2024
The director presents his report and the financial statements for the year ended 31 March 2024.
The director who served during the year was:
The director is responsible for preparing the Strategic Report, the Director's Report and the financial statements in accordance with applicable law and regulations.
In preparing these financial statements, the director is required to:
∙select suitable accounting policies for the Company's financial statements and then apply them consistently;
∙make judgments and accounting estimates that are reasonable and prudent;
∙prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The director is responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable him to ensure that the financial statements comply with the Companies Act 2006. He is also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
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RMB 102 LIMITED
DIRECTOR'S REPORT (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2024
The auditor , Harris & Trotter LLP, will be proposed for reappointment in accordance with section 485 of the Companies Act 2006.
This report was approved by the board and signed on its behalf.
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RMB 102 LIMITED
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF RMB 102 LIMITED
We have audited the financial statements of RMB 102 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 the related notes, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland' (United Kingdom Generally Accepted Accounting Practice).
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 Auditors' 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 United Kingdom, including the Financial Reporting Council'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.
In auditing the financial statements, we have concluded that the director's 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 director with respect to going concern are described in the relevant sections of this report.
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RMB 102 LIMITED
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF RMB 102 LIMITED (CONTINUED)
The other information comprises the information included in the Annual Report other than the financial statements and our Auditors' Report thereon. The director is 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.
In our opinion, based on the work undertaken in the course of the audit:
∙the information given in the Strategic Report and the Director's Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
∙the Strategic Report and the Director's 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 identified material misstatements in the Strategic Report or the Director's Report.
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RMB 102 LIMITED
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF RMB 102 LIMITED (CONTINUED)
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 Auditors' 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:
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud The objectives of our audit are to identify and assess the risks of material misstatement of the financial statements due to fraud or error; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud or error; and to respond appropriately to those risks. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatements in the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (UK). In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and noncompliance with laws and regulations, our procedures included the following: • We obtained an understanding of the legal and regulatory frameworks applicable to the Company and the industry in which it operates. We determined that the following laws and regulations were most significant: FRS 102 and the Companies Act 2006. • We obtained an understanding of how the Company is complying with those legal and regulatory frameworks by making enquiries of management. • We challenged assumptions and judgments made by management in its significant accounting estimates; We did not identify any key audit matters relating to irregularities, including fraud.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditors' Report.
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RMB 102 LIMITED
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF RMB 102 LIMITED (CONTINUED)
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 Auditors' 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.
for and on behalf of
Chartered Accountants
Statutory Auditors
101 New Cavendish Street
1st Floor South
W1W 6XH
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RMB 102 LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2024
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RMB 102 LIMITED
REGISTERED NUMBER: 07511484
BALANCE SHEET
AS AT 31 MARCH 2024
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RMB 102 LIMITED
REGISTERED NUMBER: 07511484
BALANCE SHEET (CONTINUED)
AS AT 31 MARCH 2024
The financial statements were approved and authorised for issue by the board and were signed on its behalf by:
The notes on pages 12 to 21 form part of these financial statements.
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RMB 102 LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2024
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RMB 102 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
RMB 102 Limited is a private company limited by shares, incorporated in England & Wales (registered number 07511484). Its registered office and principal place of business is Prospect Place, Moorside Road, Winchester, SO23 7RX. The financial statements are presented in Sterling, which is the functional currency of the Company. The principal activity of the Company during the year was that of property investment.
2.Accounting policies
The financial statements have been prepared under the historical cost convention unless otherwise specified within these accounting policies and in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and the Republic of Ireland and the Companies Act 2006.
The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the Company's accounting policies (see note 3).
The following principal accounting policies have been applied:
These accounts have been prepared on the going concern basis on the understanding that the intermediate parent company, SF Funding Limited, will continue to financially support the Company. At the period end, creditors total £146,678,499 (2023: £157,457,508), of which £113,877,027 (2023: £124,634,301) relates to group undertakings.
The Director has considered the legislative changes disclosed in note 3 and is of the opinion that taking into account the group support referred to above the Company is expected to have adequate financial resources to continue as a going concern for the forthcoming year. The group of which the company is part has sufficient liquidity in its structure to meet liabilities as they fall due. When arriving at this conclusion the Director has considered the impact of Building Safety legislation and Leasehold Reform: Building Safety Legislation The Building Safety Act 2022 received Royal Assent in April 2022. It is intended to improve safety standards in buildings within its scope (broadly, multi-dwelling units greater than 11 meters in height) and to protect homeowners in full or in part from the costs of remediating historical building safety defects. On buildings over 11 meters in height it is expected that either Government or developer funding will be available to ensure necessary remediation of unsafe cladding systems can be undertaken. Developers will be primarily liable for non-cladding safety defects. Leaseholders are only liable to contribute in limited, prescribed circumstances. Where funding gaps remain, freeholders may incur a responsibility to provide funding. However, the government has made available new routes for freeholders to recover any outlay from parties such as developers, product manufacturers, warranty insurers and others involved in the original development, design, or construction of buildings. The group of which the Company is a member is pursuing for each relevant building the most appropriate funding routes available, in the interests of both freeholders and leaseholders.
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RMB 102 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
2.Accounting policies (continued)
Building Safety Legislation (continued) The new remediation funding regime is in its early days. Some uncertainty remains on how tribunals and the courts will interpret provisions relevant to freeholder funding obligations. Knowledge gaps remain around the full extent and cost of building remediation, particularly in medium rise (11-18 meter) buildings, where analysis is generally at a less advanced stage since priority has correctly been given to Higher Risk (>18 meters in height) buildings. The most likely area of freeholder exposure relates to non-cladding defects, which do not qualify for Government funding and are therefore dependent on other potential funding sources summarized above. Intensive lobbying has taken place to educate policy makers on the unintended consequences to wider building safety policy which would result from freeholders being financially impaired by remediation funding obligations. The Director, having considered the provisions of the Act, the uncertainty over how and when some provisions will be implemented and interpreted, and uncertainty around potential freeholder funding exposure and consequent impact on the group of which the Company is a member does not believe that the Act has a material effect on the Company's ability to meet its liabilities as they fall due for at least 12 months from signing of the financial statements. Leasehold Reform The Leasehold Reform (Ground Rent) Act 2022 prohibits the inclusion of a ground rent in excess of a peppercorn on new residential long leases. This Act came into force on 30 June 2022 and for retirement properties on 1 April 2023. The legislation does not apply retrospectively although does create restrictions on the ability of the Company to generate rental income beyond the existing term of current leases. The prohibition of the creation of future ground rents is not expected to have a material effect on the ability of the Company to meet its liabilities as they fall due for at least 12 months from signing of the financial statements. The Leasehold & Freehold Reform Act 2024 (“LFRA”) was passed and obtained Royal Assent in May 2024 as the last piece of legislation enacted before the last parliament was prorogued. The premise of LFRA is to provide Leaseholders with more rights and protections and to make extending leases or buying freeholds easier and cheaper. However, while LHFRA is now law, its provisions are not yet in force and it is not clear when the necessary secondary legislation will be in place. This includes key areas such as valuation methodology, on which consultation may be necessary. In view of the Government’s other legislative priorities, it seems likely that outstanding issues will be addressed in 2025/2026. A proposed cap on existing ground rents, a centrepiece of the previous Government’s legislative priorities, did not feature in the final Bill. The new Government’s position is that it will “tackle unregulated and unaffordable ground rent” and, more broadly, make Commonhold the default tenure. It is at present entirely unclear when and how the Government might address these issues.
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RMB 102 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
2.Accounting policies (continued)
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RMB 102 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
2.Accounting policies (continued)
These assets, as their name implies, represent interests held in the freehold land on which third party developers have built and sold long leasehold properties. As such these assets are more akin to financial investments, as they generate income in the form of annual ground rents along with other ancillary income streams. Recognising the unusual nature of these investment properties and the lack of a regular market for significant portfolios of such assets, which are in distinct contrast with the more regular “bricks and mortar” investment properties, the director is of the opinion that the best approximation to fair value for these properties is provided by a discounted cashflow valuation of the income streams generated by these assets. The valuation of the entire freehold reversionary interest portfolio is undertaken by independent valuers specialising in this type of asset. Valuations of this nature are particularly volatile, demonstrated by the increase in valuation of £3.09M in the current year. The director also recognises, given the unusual nature and lack of a regular market for significant portfolios of such assets, that these carrying values may not be realised should the Company seek to dispose of any or all of the investment properties. Further details are given in note 8. Provisions are measured as the best estimate of the amount required to settle the obligation, taking into account the related risks and uncertainties.
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RMB 102 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
The estimates and underlying 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 revisions affect only that period, or in the period of the revisions and future periods if the revision affects both current and future periods. The key sources of estimation uncertainty that have a significant effect on the amounts recognised in the financial statements are described below. Valuation of investment properties A key accounting estimate in preparing these financial statements relates to the carrying value of the investment property which is stated at fair value, as valued by the independent valuers. However, the valuation of the investment property portfolio held by the Group, of which the Company is a member, is inherently more subjective, as it is made on the basis of valuation assumptions which may in future not prove to be accurate, the risk of which is heightened due to the potential legislative changes noted below. Past Governments, The Competition and Markets Authority (CMA) and the Law Commission have undertaken a series of consultations on and reviews of the residential property market, with a focus on the legal framework surrounding the freehold and leasehold classes of property interests. The Leasehold Reform (Ground Rent) Act 2022 came into effect on 30th June 2022 and fulfills the commitment to “set future ground rents to zero”. The provisions only apply to new lease arrangements and therefore the Group’s existing income is unaffected. However, it may prove difficult to introduce new ground rent in future should the requirement arise. The LFRA was passed and obtained Royal Assent in May 2024 as the last piece of legislation enacted before the previous parliament was prorogued. The premise of the LFRA is to provide Leaseholders with more rights and protections and to make extending leases or buying freeholds easier and cheaper. However, while the LHFRA is now law, its provisions are not yet in force and it is not clear when the necessary secondary legislation will be in place. This includes key areas such as valuation methodology, on which consultation may be necessary. In view of the Government’s other legislative priorities, it seems likely that outstanding issues will not be addressed until 2025/2026. A proposed cap on existing ground rents, a centrepiece of the previous Government’s legislative priorities, did not feature in the final Bill. The new Government’s position is that it will “tackle unregulated and unaffordable ground rent” and, more broadly, make Commonhold the default tenure. It is at present entirely unclear when and how the Government might address these issues. The Group is of the view that the proposed legislative changes (as currently formulated) would be very damaging to the residential property market and against the interests of consumers and other property owners. Public announcements by government and proposals in the Law Commission's report have recognised that any move to make wholesale reforms retrospectively presents contraventions of human rights legislation, around impairment of legitimate property rights. The potential cost implications to government through possible compensation, the effect on the reputation of the UK as an investment environment, and the impact on the pensions industry, have been well rehearsed in the ongoing public debate. As such the director’s expectation is that the impact of reforms will be greatest for future leases and not those already in existence, which will reduce the financial impact on freeholders.
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RMB 102 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
3.Judgments in applying accounting policies (continued)
The Group continues to work with other leaseholders owning leases with similar provisions to vary such lease terms to RPI based review calculations. A significant number of such lease across the group have already been varied in this way. An intrinsic element of the long-term forecasts is the continuing rental income and lease extension premiums generated by the property assets held by these subsidiaries. The potential legislative changes raised above may affect these forecasts to the extent that the underlying assumption is no longer valid. However, the financial consequences of any changes are too uncertain to enable the director to reasonably estimate the impact of such changes on those forecasts. It is assumed that the current methodology continues to represent a fair value of these assets and the ability to meet the long-term obligations is not compromised. Details of the principal assumptions applied in the valuation of the investment properties are set out in note 8.
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RMB 102 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
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RMB 102 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
The investment properties represent a portfolio of freehold reversionary interests that generate ground rents as the principal income stream.
As at 31 March 2024 the investment properties were valued at £243,356,876. The valuation has been carried out by independent valuers. The basis of the valuation was to project and discount the income streams generated by the portfolio over a period of 45 years. The principal assumptions used in the valuation were: • Reference sterling interest rate swaps based on the SONIA (Sterling Overnight Index Average) benchmark, provided with reference to directly observable data. • Funding margins, provided with reference to recent comparable transactions. • No allowance for taxation in projecting the ground rent cash flows. • Future rental uplifts modelled as and when they are expected to occur in accordance with leases. • Projected RPI (Retail Price Index) rate, provided with reference to directly observable data. • HPI (Household Price Index) projected rate, provided with reference to the projected RPI rate which are found to be acceptable to lenders in this sector. • PSEI (Private Sector Earnings Index), this has been set at 0% as a conservative assumption. • Historical RPI as published by the Office of National Statistics.
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RMB 102 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
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RMB 102 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
The smallest group to consolidate these financial statements is SF Funding Limited. The registered office and principal place of business of SF Funding Limited is Prospect Place, Moorside Road, Winchester, SO23 7RX.
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