STRATEGIC REPORT

Business review, results and dividends

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

Trafalgar New Homes Limited (TNH)

Trafalgar Retirement+ Limited (TR+)

Selmat Limited – acquired April 2019 (Selmat)

Combe Bank Homes (Oakhurst) Limited (Oakhurst)

Combe Homes (Borough Green) Limited (Borough Green)

All bank and mortgage borrowings are the liability of TNH, the wholly owned subsidiary of the Group, apart from the mortgages on the four properties held by Selmat. The shares of the Group 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 was £1,022,898 (2019: Loss £ 2,296,422) after taking into account exceptional items as mentioned in note 20 to the accounts.

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 four to twenty 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.

1. Many of the activities are outsourced and each of the Directors is fully aware of the activities of all members.
2. 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.
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Operations review

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

Group turnover for the year amounted to £1,970,106 (2019: £2,128,189), representing the sale of two (2019: five) residential properties plus a car park space. During the first six months to 30 September, 2019 the Group reclassified four properties from Trading Stock to Investment Property. These were assessed to be at fair market value and transferred to a newly acquired investment company. In the interim accounts this was recorded on the face of the profit and loss account as turnover and cost of sales at no profit. As part of the year-end audit process the treatment of this transaction has been amended and removed from turnover and cost of sales in the Group accounts and shown instead as an inter-group transfer. This adjustment has had no effect on profit or cashflow.

After taking into account the overheads of the Group, there was a loss recorded for the year of £1,022,898 after exceptional items as detailed in note 20.

There will be no tax charge and the Company now has tax losses being carried forward of £4,381,991  (2019: losses £3,364,609).

The loss per share during the year was (0.21p), (2019: loss per share 0.54p).

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, all remaining residential units have been sold being the executive house at Saxons, the sale of an option in Ewell and the remaining car park space at Borough Green site. Going forward five of a total of six units at the Sheerness Site are, as at the date of this report, all under offer with further options opportunities being explored.

Directors’ duties under S172

The Directors believe that, individually and together, they have acted 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 as a whole, having regard to the stakeholders and matters set out in s172(1)(a-f) of the companies Act 2006 in the decisions taken during the year ended 31 March 2020.

Our Board of Directors remain aware of their responsibilities both within and outside of the Group. Within the limitations of a Group with so few employees we endeavour to follow these principles:

•  Purpose, vision and strategy: this is set out on pages 3 and 4 of the Strategic Report and we recognise our role in identifying opportunities to develop homes and apartments to the best quality standards.
•  Group policies: these are reviewed annually and staff and Directors are encouraged to improve their skillset as appropriate.
•  Culture and people: we fully support a culture where all customers, staff and suppliers are treated in an open and honest fashion, irrespective of race, gender, ethnic, disabilities or other scenarios.
•  Board structure: the role of the Board is reviewed annually with a clear focus on the specific roles assigned to each individual to enable the Board to properly support each member of staff.
•  Freedom within a framework: we are developing a new framework for communicating this freedom in a straight-forward methodology.
•  Risk and internal control framework: risks and controls are subject to discussion at quarterly Board meetings. Every project undertaken by the Group is analysed with a view to limiting the risks to the Group and its Stakeholders before proceeding with implementation.

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 & 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.

During the year under review, Selmat was acquired to enable the retention of selected unsold properties rather than selling them into a declining market. Four properties were transferred as an intergroup transaction and let out on Assured Shorthold Tenancy Agreements, the rental income generated being substantially in excess of the borrowing cost of each property. Currently the Group holds these four rented properties, valued at £1,975,000 as investment property.

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 has been completed and five of these properties are under offer, under the Government’s Help To Buy Scheme.

Whilst TR+ 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 case of the smaller residential schemes, sold on with planning, both options being profitable to the business. Options have been secured for residential development in Ashtead, Epsom, Leatherhead and Send Surrey. Of these sites, Ashtead and Epsom were sold on once planning permission had been granted to show a profit in the current year. It is our intention to develop the Leatherhead and Send sites once planning is granted.

During the year TR+ entered into a guarantee agreement for £240,000 for funds supplied by Mr C Johnson, being a deposit forfeited by Randell House Ltd, a subsidiary of TR+. This is related to the acquisition of an assisted living site in Camberley Surrey, where the acquisition was not completed owing to a lack of funding.

Since then, Randell House Ltd has been dissolved on 22 September, 2020.

Financial Instruments

Information relating to the financial instruments is now included in the Directors’ Report.

Paul Treadaway
Director
29th September, 2020