STRATEGIC REPORT

Business review, results and dividends

The principal activity of the Group continues to be that of home building and property development and the consolidated results of the year’s trading, presented on the basis of accounting, are shown below.  The Consolidated profit for the year amounted to £204,877 (2015: Loss £619,106).

Principal risks & uncertainties

Set out below are certain risk factors which could have an impact on the Group's long term performance.  The factors discussed below should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties facing the Group.

The principal risks and uncertainties facing the Group are:

1. Any possibility that lending criteria from the Group’s bankers may harden with little prior notice.

2. Construction costs may escalate and eat into gross profit margins.

3. Heavy overheads may be incurred especially when projects have been completed and before others have been commenced.

4. The Group could pay too much for land acquisitions.

5. The Group’s reliance on key members of staff.

The Group considers that it mitigates these risks with the following policies and actions:

1. The Group affords its bankers and other lenders a strong level of asset and income cover and maintains good relationships with a range of funding sources from which it is able to secure finance on favourable terms.

2. Construction costs are outsourced on a fixed price contract basis, thereby passing on to the contractor all risk of development cost overspend, including from increased material, labour or other costs.

3. Most other professional services are also outsourced, thus providing a known fixed cost before any project is taken forward and avoiding the risk that can arise in employing in-house professionals of a high unproductive overhead at times when activity is slack.

4. Land buying decisions are taken at board level, after careful research by the Directors personally, who have substantial experience of the house building industry, potential construction issues and the local market.

The Group focuses on a niche market sector of new home developments in the range of 4 to 20 units.  Within this unit size, competition to purchase development sites from land buyers is relatively weak, as this size is unattractive to major national and regional house builders who require a larger scale to justify their administration and overheads, whilst being too many units for the jobbing builder to finance or undertake as a project.  Within this market, there are opportunities to negotiate land acquisitions on favourable terms.  Many competitors who also focus on this niche have yet to recapitalise and are unable to raise finance.

5. Many of the activities are outsourced and each of the Directors is fully aware of the activities of all members of staff enabling adequate cover when needed.

Operations review

The expected turnover of the Group during the year was based upon the completion of the construction and sale of all eight of the remaining houses at its site at Oakhurst Park Gardens, Bank Lane, Hildenborough, Kent. In the event, seven of the eight were sold, leaving one house unsold at the year end.

A summary of the results for the year is as follows:-

Group turnover for the year related to the sale of the final house at Oakhurst Park Gardens, Hildenborough, and the completion and sale of the houses on the sites at The Bell Inn, Ticehurst, East Sussex and the land at Station Road, Borough Green, Kent. The revenue from these sales totalled £2,235,000, generating a gross profit of £476,607.  After deducting overhead costs of £279,250 for the year the Company recorded a pre-tax profit of £204,877.

As the Company has approved tax losses brought forward of a sum in excess of the profitability, there will be no tax charge and, therefore, the post-tax profit amounts to £204,877 and with 238,375,190 shares in issue, (no change from the previous year) the Company achieved earnings per share of 0.09p, which compares favourably to the earnings per share loss of 0.26p recorded for the year ended 31st March 2015.

Key performance indicators (KPIs)

Management are closely involved in the day to day operations of the group and are very aware of cashflows and expenditure. However management believe that the key indicators of performance for the group are the revenue and profitability achieved during the period. These measures are disclosed above in the operations review.

Management do not use any non-financial KPIs.

Development Pipeline

Construction work continues on our site at Tunbridge Wells, Kent for six luxury apartments. Work has also commenced on sites at High Street, Edenbridge, Kent for three terraced houses and at Vines Lane, Hildenborough, Kent for two detached houses. Construction work on all three sites is expected to be completed during the current calendar year and most of these eleven units should be sold before 31st March 2017, which will contribute to the profitability of the Group for the year ending 31st March 2017.

The funding for the sites at Edenbridge and Hildenborough is being provided by Coutts, with RateSetter financing the Tunbridge Wells site. The Company’s arrangements with its funders now provide Trafalgar New Homes with 100% of the finance required to build on all three sites, having committed its own funds at the time of the acquisition of the sites and for the initial construction costs.

The Company has also commenced work on the site at Sheerness, Kent, which has been owned by the Group for some time. Trafalgar New Homes has secured funding from Lloyds Bank for the construction of the development on this site, which, after an initial payment by the Group, will result in 100% of the finance required being provided by the Bank.

Since the year-end the Company has completed the purchase of a development site in Speldhurst, Tunbridge Wells, Kent, with the benefit of receiving planning permission for the demolition of the existing house and the erection of a substantial new build detached house. Funding for the acquisition and development is being provided by Lloyds Bank and construction work should commence shortly. It is anticipated that the build work will be completed in the spring of 2017 with a sale hopefully being achieved during the summer of 2017.

Trafalgar New Homes believes that all the funding it has secured for these developments are on competitive commercial terms.

The site at Staplehurst, Kent

The Company has been refused planning permission on its most recent planning application for its site at Staplehurst, Kent. This was received post year-end. Under the guidance of its planning consultants, the Company felt it had addressed the requirements and concerns set out by the authorities to the fullest. The Company is now preparing a further application for planning permission, having received advice from its planning consultants stating that: “In formulating the emerging Local Plan, the Council’s planning policy team have clearly concluded (in writing and on public record) that this is a site that is suitable to accommodate residential development. In this context it is impossible to comprehend how an ‘in principle’ objection to housing development can be justified and maintained”.

Outlook

The Company is confident that its current development programme will deliver profits for the Group for the year ended March 2017 and will enable it to meet market expectations. Looking ahead, the Company is negotiating the purchase of other sites in the South East of England, its chosen area of operation, which will contribute to turnover and anticipated profitability for the Group for the year ended 31st March 2018 and beyond.

Trafalgar New Homes remains focused on growing the Group, both through site acquisition and development and corporate acquisition, should any opportunities present themselves. The Company is committed to creating value for its shareholders and although it will not be paying a dividend this year Trafalgar New Homes intends to declare and pay a dividend when circumstances permit.

Financial instruments

The Group's principal financial instruments comprise cash at bank, bank loans, other loans and various items within current assets and current liabilities that arise directly from its operations.  The Directors consider that the key financial risk is liquidity.  This risk is explained in the section headed Principal Risks and Uncertainties in the annual report and accounts.

Christopher Johnson

Director

9th August, 2016