The directors present the strategic report for the year ended 31 December 2024.
During the period under review the company achieved a doubling of revenue compared with the 7 months to 31 December 23 together with a doubling of profit before taxation.
The directors are satisfied with progress made.
The Group may be affected by a number of risks, not all of which are under its control, the primary risks being noted below.
Credit risk
The primary risk relates to the potential financial loss arising from net realisations from the security supporting the Group’s loans being insufficient to cover a loan in full. This risk is mitigated by prudent, yet commercial, underwriting processes. This involves strict vetting of borrowers, the purpose for which a loan is to be used and the ultimate repayment strategy a borrower employs to exit a loan. Collateral security is taken, where appropriate, to increase the level of cover. Loan to value (LTV), Loan to Cost (LTC) and Loan to Gross Development Value (LTGDV) covenants which are offered to customers are constantly reviewed in line with market conditions and are adjusted appropriately. Consequently, at 31 December 2024 weighted average LTV’s across the bridging and BTL loan portfolio were at a very prudent level of 57%, with weighted average LTVs, LTCs and LTGDVs at 40%, 54% and 48% respectively on development finance. All loans are strictly monitored throughout the contract period to ensure that a borrower’s ultimate repayment strategy remains viable. Swift action is taken to support customers where either projects are faltering, payments are missed on BTL loans or an exit route becomes doubtful.
Management is comfortable that its risk management processes are suitably robust and the directors are pleased to report that there have been no capital or interest losses during the period under review and therefore a reserve for potential losses at the period end is not considered necessary. This continues the Group’s enviable record of default levels well below the industry average and never having incurred a capital or interest loss since inception in 2010.
Inflation and property market risks
In October 2021, the Group tightened criteria on many of its products, strengthened stress testing and withdrew all fixed rate products from the market. Since it was clear that during the period, inflation remained a risk, management did not loosen the Group’s criteria and currently have no intention to do so.
Interest rate risk
Throughout the period both the interest charged to borrowers and the interest levied by our funding providers has largely been on a variable basis. As a result, the Group’s net interest margin was not materially adversely impacted by the increases in the Bank of England’s base rate during the period. However, because interest charged to borrowers is subject to a collar, which means that they cannot fall below a certain level, Group profitability was protected during the period and should be favourably impacted by interest rate reductions expected in the year to 31 December 2024.
Liquidity risk
The Group treasury function is tasked with maintaining sufficient liquidity to meet its contracted obligations. Cash balances are maintained at a level that is around 3% of the gross loan balance or sufficient to cover at least 5 months of operational expenditure including loan interest payments, payroll and broker fees. As further mitigation against liquidity risk management have negotiated favourable “wet funding” facilities from the Group’s fund providers which covers the loan value in advance of cash being remitted to the borrower.
Operational risk
Operational risk is defined as the loss or adverse impact to the business including but not limited to fraud, cyber attacks, GDPR breaches or general process failures. The Group maintains a number of internal committees that report to the Main Board on subjects including Cyber and Information Security, Data Protection and aspects of regulatory compliance. In addition, a rolling staff training program exists to ensure that all members of staff are up to date with subject matters such as AML, KYC and GDPR.
The Main Board includes non executive directors responsible for monitoring the compliance of operational management in respect of all the above subject matters and, in line with the requirements of the institutional funding lines, processes and procedures are audited 3 to 4 times per year. In addition, the Main Board has recently commissioned an independent internal audit which gave a clean bill of health on certain processes.
The directors consider revenue, profit before taxation and the value of the loan book to be key performance indicators. These KPI's are reported on and discussed at board meetings on a monthly basis.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2024.
The results for the year are set out on page 8.
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:
Lopian Gross Barnett & Co were appointed as auditor to the company and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.
This report has been prepared in accordance with the provisions applicable to companies entitled to the medium-sized companies exemption.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period.
In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The directors are 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 enable them to ensure that the financial statements comply with the Companies Act 2006. They are 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.
We have audited the financial statements of Romaco SPV2 Limited (the 'company') for the year ended 31 December 2024 which comprise the profit and loss account, 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 Financial Reporting Standard 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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, 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:
We obtained an understanding of laws and regulations that affect the entity, focusing on those that had a direct effect on the financial statements or that had a fundamental effect on its operations.
Where considered necessary we enquired of those charged with governance, reviewed correspondence and reviewed meeting minutes for evidence of non-compliance with relevant laws and regulations.
We gained an understanding of the controls environment which includes the controls in place to prevent and detect fraud. We enquired of those charged with governance about any incidences of fraud that had taken place during the accounting period.
The risk of fraud and non-compliance with laws and regulations was discussed within the audit team and tests were planned and performed to address these risks.
We reviewed financial statements disclosures to assess compliance with relevant laws and regulations.
We enquired of those charged with governance about actual and potential litigation and claims.
We performed analytical procedures to identify any unusual or unexpected relationships that might indicate risks of material misstatement due to fraud.
In addressing the risk of fraud due to management override of internal controls we tested the appropriateness of journal entries and assessed whether the judgements made in making accounting estimates were indicative of a potential bias.
Due to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, as with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing fraud or non-compliance with laws and regulations and cannot be expected to detect all fraud and non-compliance with laws and regulations.
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 member 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 member those matters we are required to state to the member 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 member, 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.
Romaco SPV2 Limited is a private company limited by shares incorporated in England and Wales. The registered office is 15 Carnarvon Street, Manchester, M3 1HJ.
The current accounting period is a 12 month period. The comparative period is 7 months due to the shortening of the year end.
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;
The financial statements of the company are consolidated in the financial statements of Romaco Limited. These consolidated financial statements are available from its registered office, 15 Carnarvon Street, Manchester, M3 1HJ.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
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.
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.
All turnover is derived in the United Kingdom.
The average monthly number of persons employed by the company during the year was:
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
The above bank facility is secured against the assets of the company.
The long-term bank loans are secured by fixed and floating charges over the assets of the company.
On 8 March 2022, the company agreed to a fixed and floating charge with TMF Trustee Limited. The parent company, Romaco Limited, is also subject to a charge from TMF Trustee Limited.
On 31 May 2023, the company agreed to a fixed and floating charge with The Greater Manchester Combined Authority. The parent company, Romaco Limited, is also subject to a charge from The Greater Manchester Combined Authority.
On 17 July 2023, the company agreed to a fixed and floating charge with LGB & Co. Limited. The parent company, Romaco Limited, is also subject to a charge from LGB & Co. Limited.
There were no events after the reporting period end date which require disclosure at the balance sheet date.
During the year the company entered into the following transactions with related parties:
The following amounts were outstanding at the reporting end date:
The following amounts were outstanding at the reporting end date:
The ultimate controlling party is Mr P Hodari.