Trafalgar Property : Final Results

RNS Number : 0440O

Trafalgar Property Group PLC

30 September 2019

30 September 2019

TRAFALGAR NEW HOMES PLC

("Trafalgar", the "Company" or "Group")

Final Results for the year ended 31 March 2019 and notice of Annual General Meeting

Trafalgar (AIM: TRAF), the AIM quoted residential property developer operating in southeast England, announces its final results for the twelve months ended 31 March 2019.

The Company's Annual Report is being posted to shareholders today and contains notice of the Annual General Meeting of the Company to be held at the Company's offices at Chequers Barn, Bough Beech, Edenbridge, Kent TN8 7PD at 11.00 a.m. on 25 October 2019.

Highlights

Group turnover was £2,123,500 (2018: £906,484), with a loss after tax of £ 2,296,422 (2018: Loss £424,903), after taking into account exceptional item of £1,559,319.

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

Management have concluded that an impairment of the investments in subsidiaries is prudent and that these will be written down to zero, resulting in an exceptional charge of £1,559,319.

The cash on the balance sheet at the end of the year was £32,800 (2018: £458,209) and the Group continues to have sufficient bank facilities for all planned activities.

On 27th May, 2019 Chris Johnson and his son Alex Johnson stepped down from the Group Board, although they remain involved on a consultancy basis. On the same day, Paul Treadaway was appointed as the new Group Managing Director which strengthens the Board with his particular expertise being in the sector for assisted living developments. This retains a good balance of complementary skills on the Board.

Enquiries:

SPARK Advisory Partners Limited - AIM Nominated +44 (0) 203 368

Adviser3550

Matt Davis

0930

Duncan Vasey/Lucy Williams

Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the publication of this announcement, this information is now considered to be in the public domain.

Notes to Editors:

Trafalgar Property Group plc

For further information visit www.trafalgarproperty.group

CHAIRMAN'S STATEMENT

for the year ended 31 March 2019

On behalf of the Board, I present Trafalgar Property Group's results for the year ended 31 March 2019 which show five property sales were recorded in the year. The overall result was very disappointing, as can be seen in the attached Accounts and Strategic Report.

We will continue to explore the potential for acquiring new sites that should produce increased turnover and a return to profit.

Financials

The year under review saw Group turnover at £2,123,500 (2018: £906,484), with a loss after tax of £2,296,422 (2018: Loss

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£424,903), after taking into account exceptional items as detailed in note 19 to the accounts.

Management have performed a review of the assets and liabilities of the underlying subsidiaries which form the value of the anticipated profits on ongoing developments. In addition, the value of land options in Trafalgar Retirement + have been re- assessed. At the time of approval of the financial statements there is no confirmed planning permission on these land options.

Due to the uncertainties and timing of developments it has been agreed by management not to include any future anticipated profits of developments in their assessment. Therefore the net asset value of the underlying investments does not support the Trafalgar Property Group's carrying value of investments in the subsidiaries.

Management have concluded that an impairment of the investments is prudent and that these will be written down to zero, resulting in an exceptional charge of £1,559,319.

The cash on the balance sheet at the end of the year was £32,800 (2018: £458,209) and the Group continues to have sufficient bank facilities for all planned activities.

Business Environment and Outlook

Our recent move into the assisted living sector gives us an opportunity to expand into fresh areas of residential units where we see an enormous demand, especially in the South-East. However, our failure in obtaining finance for our first venture, at Camberley, has proved a poor start to our ambitions in this direction.

On 27th May, 2019 Chris Johnson and his son Alex Johnson stepped down from the Group Board, although they remain involved on a consultancy basis. On the same day, Paul Treadaway was appointed as the new Group Managing Director which strengthens the Board with his particular expertise being in the sector for assisted living developments. This retains a good balance of complementary skills on the Board. We are currently progressing offers of finance alongside our planning applications so that we should be well placed to commence our developments as soon as planning permits.

I would refer you to Paul Treadaway's Strategic Report that covers our activities in more detail.

James Dubois

Chairman

27 September 2019

Trafalgar Property Group Plc

STRATEGIC REPORT

for the year ended 31 March 2019

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.

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

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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.

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.

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 & 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 on page 3.

Paul Treadaway

Director

27 September, 2019

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• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group 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.

They are further responsible for ensuring that the Strategic Report and the Report of the Directors and other information included in the Annual Report and Financial Statements is prepared in accordance with applicable law in the United Kingdom.

The maintenance and integrity of the Group website is the responsibility of the Directors; the work carried out by the auditors does not involve the consideration of these matters and, accordingly, the auditors accept no responsibility or any changes that may have occurred in the accounts since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of the accounts and the other information included in annual reports may differ from legislation in other jurisdictions.

Financial Instruments

Information relating to the financial instruments is now included in the Strategic report on pages 3-5.

Future Developments

Information relating to future developments is included in the Strategic report on pages 3-5.

Provision of information to auditor

Each of the persons who are Directors at the time when this Directors' Report is approved has confirmed that:

• so far as that Director is aware, there is no relevant audit information of which the Group's auditor is unaware; and
• that Director has taken all the steps that ought to have been taken as a Director in order to be aware of any information need by the Group's auditor in connection with preparing their report and to establish that the Group's auditor is aware of the information.

Auditor

During the year the company changed auditors from Crowe UK LLP, to MHA MacIntyre Hudson.

The auditor, MHA MacIntyre Hudson, will be proposed for re-appointment in accordance with Section 489 of the Companies Act 2006.

This report was approved by the board and signed on its behalf.

Paul Treadaway Director

27 September 2019

Trafalgar Property Group Plc

CORPORATE GOVERNANCE STATEMENT

The Board of Trafalgar Property Group Plc recognise the value of good corporate governance and has through the year ended 31 March 2019 implemented corporate governance procedures appropriate for the present size of the entity having given due regard to the Corporate Governance Code for Small and Mid-Size Quoted Companies issued by the Quoted Companies Alliance ("QCA"). In accordance with AIM Rule 26 as amended, the Company has decided to apply the QCA Corporate Governance Code ("QCA Code") issued by the QCA in May 2018 and is publishing on its website details of the QCA Code, how the Company complies with the QCA Code and, where it departs from the QCA Code, an explanation of the reasons for doing so.

Board Structure

The Board consists of four Directors of which two are executive and two non-executive.

The Board meets as and when required and is satisfied that it is provided with information in an appropriate form and quality to enable it to discharge its duties. All Directors are required to retire by rotation with one third of the board seeking re-election each year.

Due to the current size of the Group, the duties that would normally be attributed to The Nomination Committee, have been undertaken by the board as a whole.

The board has undertaken a formal assessment of the auditor's independence and will continue to do so atleast annually. This assessment includes:

• a review of non-audit services provided to the company and the related fees;
• a review of the auditor's own procedures for ensuring the independence of the audit firm and parties and staff involved in the audit, including regular rotation of the audit partner; and

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