STRATEGIC REPORT

Business review, results and dividends

All trading and property assets of Trafalgar Property Group Plc are held in the name of Trafalgar Property Group Plc or its subsidiaries as follows:

Trafalgar New Homes Limited

Trafalgar Retirement+ Limited

Combe Bank Homes (Oakhurst) Limited

Combe Homes (Borough Green) Ltd

All bank and mortgage borrowings are the liability of Trafalgar New Homes Ltd, the wholly owned subsidiary of Trafalgar Property Group Plc. The shares of Trafalgar Property Group Plc are quoted on the London Stock Exchange AIM market.

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, are shown below. The consolidated loss for the year amounted to £2,296,422 (2018: Loss £424,903) after taking into account exceptional items as mentioned in note 19 to the accounts. See also Note 8 of the parent company’s Financial Statements.

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.

6. The market may deteriorate, damaging liquidity of the group and future revenues.

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 at 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 smaller independent 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.

6. The Group has a rigorous corporate governance policy appropriate for a publicly quoted company with ambitions substantially to raise its profile within the wider investor community.

Operations review

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

Group turnover for the year amounted to £2,123,500, representing the sale of five residential properties.

After taking into account the overheads of the Group, there was a loss recorded for the year of £2,296,422 after exceptional items as detailed in note 19.

There will be no tax charge and the Company now has tax losses being carried forward of £3,364,609 (2018: losses £ 2,642,077)

The loss per share is (0.54p) (2018: loss per share 0.10p) during the year..

As can be seen from the above , the Group failed to achieve a profit for the year under review and, as at the year end, only five of the residential units developed during the year have been sold, being the 2 apartments at the Burnside Tunbridge Wells, Kent development, the two remaining terraced houses at the Edenbridge, Kent development and one of the two detached houses at Hildenborough Kent Development.

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.

Development Pipeline and outlook

The year under review was not without its difficulties. In the residential division delays occurred on the building programme for the various properties that were still in the course of construction, or being finished off, with contractors appointed to complete the works but unable to follow the timetable laid down for completion of those works.

The delays lead to escalating interest costs on borrowing and therefore affected the profitability of the completed units that were for sale, on the disposal of the same. Five of the units were sold during the year grossing £2,123,500.

Rather than sell the remaining completed units into a declining market the units were retained by the group, refinanced and let out on assured shorthold tenancy agreements which in every case resulted in the group receiving rents in excess of the borrowing cost of each property.

Currently the group holds 4 "let out" properties, valued at £1,975,000.

The substantial detached property developed by the group at Saxons, Speldhurst Nr Tunbridge Wells, Kent required further build work which was commenced during the year and is nearing completion and terms have been agreed with a buyer for a sale of the property at£1,600,000, subject to contract, which once the necessary residual works have been completed should conclude.

During the year work has continued on the 6 town house site at Sheerness, Kent where, again, contractor difficulties were experienced with the appointed contractor ceasing work on site resulting in the group having to appoint an alternative contractor to complete the works. Work on site is anticipated to be completed by end October where all the properties will be put on the market for sale and we will be taking advantage of the "help to buy" scheme for which we are registered.

The integration of Trafalgar Retirement +, the extra/care assisted living operator has gone well and they have secured a number of options for both extra/care assisted living developments and vanilla residential developments which should provide a steady supply of sites for development in both sectors, to contribute to turnover in the current year and beyond.

Whilst Trafalgar Retirement+ continue to identify and secure new land opportunities for extra/care and assisted living, they are equally focused on obtaining a successful outcome on the sites currently under option and/or in for planning. Once planning has been achieved then the sites can be built out and placed for sale on the open market, or in the care of the smaller residential schemes, sold on with planning, both options being profitable to the business.

Notwithstanding that finance is readily available for the modest sized residential development schemes which the group has specialised in, difficulties have been experienced in the raising of finance for the substantial larger extra case/assisted living schemes which the group wishes to undertake and the group is accordingly actively seeking the finance for such developments at the present time.

Since the year end Trafalgar Retirement+ entered into a guarantee agreement for £360,000 for funds supplied by Mr C Johnson, being a deposit forfeited by Randell House Ltd, a subsidiary of Trafalgar Retirement+. This is related to the acquisition of an assisted living site in Camberley Surrey, where the acquisition was not completed.

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 above.

Paul Treadaway
Director

27th September, 2019