Business review, results and dividends

The Consolidated Results of the year’s trading, presented on the basis of accounting, are shown on page 12 of the Financial Statements.  The Consolidated loss for the year amounted to £305,049 (2013: Profit £530,558).

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 might fail to adhere to good corporate governance policies.

6. 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. The Group has a rigorous corporate governance policy appropriate for a publicly quoted company now listed on AIM.

6. 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 year under review can only be described as disappointing, that sentiment being reflected in the financial results for the year which showed a consolidated loss after tax of £305,049 on revenue of £3,368,500 (compared to a 2013 profit of £530,558 on revenue of £2,205,786).

During the year the Company anticipated completing the construction and sale of its flagship site at Oakhurst Park Gardens, Hildenborough, Kent comprising 12 houses and anticipating a turnover of not less than circa £6,500,000 from this site and a substantial profit.

In the event, the Company sold only four of the houses as at the year end which contributed only circa £186,000 towards the profits for the year.  The reason for the failure to sell all the units and take in the profit, as anticipated on the entire site, included:-

a. Serious delays in the construction programme

b. The  liquidation of the  contractor undertaking the work resulting in the Company having to employ third party contractors/sub-contractors  and trades  to finish  the works.  This incurred substantial additional cost over that which was agreed to be paid  to the  contractor under  the Fixed Price JCT Contract it had entered into with the Company.

c. Planning delays, reference to which was made in the Interim Trading update of the 1st April 2014.

As a result of the above, the Company incurred an increase in the cost of financing the site due to having to re-finance because of the delays beyond the date of the expiry of the funding arrangement that was in place.  This re-financing was successfully concluded but the increased cost reduced the potential profitability of the site yet further.

Despite the contribution to profit made by the sale of the remaining units on the Edenbridge site (which was the basis of the small profit generated at the interim stage, as already reported on), the fact that only four of the houses at Oakhurst Park Gardens sold by the year end, resulted in the Company only being able to declare a small profit overall from its development activities.

In addition, it was necessary during the year to write-off the costs of £250,653  of moving the Company from the ISDX Growth Market, formerly PLUS) to AIM which was successfully concluded on the 16th July 2013.

As a result of the above, the Company has recorded a loss for the year of £ 305,049.

Our move to AIM was with a view to, inter alia, increasing the profile of the Company and utilising the Company’s shares as a further source of capital funding in the future.  Indeed, in the current year, your Company announced the issue of 10m new ordinary shares of 1p each at a price of 2p per share and the shares issued were admitted to trading on AIM in July 2014.

Looking forward, we are pleased to report that our sales of the houses on the Oakhurst Park Gardens site continues with five more of the units sold and a further two under offer.  All homes are now fully complete and landscaping and access road works mostly concluded.  The attractive nature of the development, especially the garden spaces created for each home, continues to attract positive comment from prospective purchasers.  We are confident that all the remaining houses will sell in the current year, contributing to profit for the year ended 31st March 2015, despite the fact that some potential buyers have been unable to proceed due to the recent reduction in mortgage availability.    

During the current year we acquired a small site with planning permission in Borough Green, near Sevenoaks, Kent which will be undertaken and should contribute to profit in the current year, along with our site at Ticehurst, East Sussex, where construction is now under way.  Also during the current year we will be commencing development of the sites, with planning permission, that we own in Sheerness, Kent and Tunbridge Wells, Kent.  At Tunbridge Wells, we are awaiting receipt of a planning permission for a four house scheme (to replace the six apartment scheme for which we have planning consent) as the four house scheme will generate a higher profit with less cost and risk.  We are advised by our planning consultants that the granting of this alternative consent should be a formality and, therefore, we anticipate commencing construction on this site during the current year.

Our flagship site going forward will be the land at Staplehurst, Kent.  Our revised planning application on the first phase for permission for a 23 house development on approximately half of the site we have under Option, is with Maidstone Borough Council.  An early positive outcome is expected.  Thereafter, we will be applying for consent for a further 30 houses on the remainder of the site.  We have worked closely with the planners on this.  The development of this site will contribute substantially to the Group’s profitability for the years ended March 2016 and March 2017.

We continue to investigate other opportunities and have no shortage of sites being offered to us.  We have detected, though, that land costs are rising again and we are not prepared to bid for sites which do not show a realistic return on capital employed.

Our area of operation remains Kent, East Sussex, Surrey and the outer London M25 ring and we continue to believe that our selective and careful land acquisition policy will continue to bear fruit.  Indeed, our approach to land buying and development has been vindicated in the Oakhurst Park Gardens development.  Despite the many unforeseen and costly problems we have encountered on this site, we still anticipate making an overall profit on the development which will show an acceptable return on capital employed. We continue to operate the business on a low overhead cost basis, despite the rising costs largely related to being on the AIM Market.  We are unable to pay a dividend this year but the Company remains committed to the declaration and payment of a dividend at the earliest opportunity.  The losses carried forward from previous years will continue to be available to mitigate future tax charges.

Finally, our bankers continue their financial support of the Company and its activities and with the Directors’ Loans and other loans from private investors available to the Company, we have sufficient funds available to continue the expansion of the business and the generation of profitability for the Company.

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 risk.  This risk is explained in the section headed Principal Risks and Uncertainties on page 3.

Christopher Johnson


27 August 2014

Annual report & consolidated financial statements 2014