Final Results

RNS Number : 2499Q

Trafalgar New Homes PLC

28 August 2014

 



28 August 2014

TRAFALGAR NEW HOMES PLC

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

FINAL RESULTS AND NOTICE OF AGM

Trafalgar (AIM: TRAF), the AIM quoted residential property developer operating in southeast England, announces the audited results for the year ended 31 March 2014.

HIGHLIGHTS:

·      The year under review saw Group turnover at £3,368,500 (2013: £2,205,786), generating a gross profit of £293,446.

·      After administrative expenses and provision of AIM listing costs of £250,653 incurred in moving the Company to AIM, the Group recorded a loss before tax of £305,049 (2013: Profit £617,976).

·      Successful move of the Company from the ISDX Growth Market (formerly PLUS) to AIM concluded on the 16^th July 2013.

·      The 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, the 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.

·      Sales of the remaining units at Oakhurst Park Gardens, along with the development and sale of the sites at Ticehurst and Borough Green, are expected to contribute to profitability for the current year.

·      The revised planning application at Staplehurst, Kent on the first phase for permission for a 23 house development on approximately half of the site under Option, is with Maidstone Borough Council.  An early positive outcome is expected.  The development of this site will contribute substantially to the Group's profitability for the years ended March 2016 and March 2017, along with the development and sale of the sites owned at Tunbridge Wells and Sheerness, Kent.

Annual Report and Notice of AGM

The Company advises that the 2014 Annual General Meeting of the Company will be held at the offices of Allenby Capital Limited, 3 St. Helen's Place, London EC3A 6AB at 11.00 a.m. on 29 September 2014, notice of which will be contained in the Annual Report to be posted to shareholders next week.  Copies of the Annual Report will also be available on the Company's website: www.trafalgar-new-homes.co.uk. 

Enquiries:

Trafalgar New Homes Plc Christopher Johnson	[phone]
Allenby Capital Ltd - Nominated Adviser and Broker Jeremy Porter/James Reeve	[phone]
Yellow Jersey PR Limited Dominic Barretto/Anna Legge	[phone]

Notes to Editors:

Trafalgar New Homes is the holding company of Combe Bank Homes, a successful residential property developer operating in the southeast of England. The founders of Combe Bank Homes have a long track record of developing new and refurbished homes, principally in Kent. Combe Bank Homes was incorporated in 2006 and was acquired by ISDX quoted Trafalgar New Homes in a reverse takeover on 11 November 2011.

The Company's focus is on the select acquisition of land for residential property development. The Company outsources all development activities, for example the obtaining of planning permission, design and construction, and uses fixed price build contracts. This enables the Company to tightly control its development and overhead costs.

The Company focuses on the regions of Kent, Surrey, Sussex and the M25 ring south of London and targets development sites of up to 20 homes, with sales prices typically ranging from £100,000 to £750,000 per unit, although larger projects are undertaken.

For further information visit www.trafalgar-new-homes.co.uk. 

TRAFALGAR NEW HOMES PLC

Annual report and consolidated financial statements for the year ended 31 March 2014

CHAIRMAN'S STATEMENT

The attached Report and Accounts for the Group for the year ended 31 March 2014 are very disappointing.

Business Environment

Trafalgar New Homes continues to specialise in small developments in Kent, Surrey, Sussex and the M25 ring south of London.  The Board believes that this strategy positions the Group in a niche market place, between local builders and developers and larger house building companies in the high demand area of the South East.

As a Board, we are optimistic about the future prospects of the residential property market as activity has started to increase which we believe will benefit the Group over the coming year.  Various campaigns by the Government, as well as an overall improvement in the residential property market are encouraging.

However, we have experienced significant delays and cost over-runs during this past year which has resulted in a loss for the year.  Full details are in the Operations Review in the Directors' Report.

Financials

The period under review saw Group turnover at £3,368,500 (2013: £2,205,786), with a loss before tax of £305,049 (2013: Profit £617,976). This loss is after providing for the AIM listing costs of £250,653.  The underlying loss for the year was £205,843 (2013: Profit £559,732).

Land has been acquired to enable our development programme to continue profitably for 2015 and 2016.

Outlook

We have worked hard to put Trafalgar New Homes in a strong position as we aim to take advantage of an improvement in the sector. 

Following our move from ISDX to AIM on 16 July 2013 we have raised a further £200,000 with a new share issue in June 2014.

I would like to take this opportunity to thank the staff and Board on their achievements, which have now laid the foundation for substantial future growth of Trafalgar New Homes.  We have established a strong team, which is essential for our continued growth and I look forward to working together over the next year.

James Dubois

Chairman
27^th August 2014

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 1^st 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 16^th 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 31^st 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.

Christopher Johnson

Director

27^th August 2014

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2014

		Year  ended 31 March	Year  ended 31 March
	Note	2014	2013
		£	£
Revenue		3,368,500	2,205,786
Cost of sales		3,075,034	1,583,216
Gross profit		293,466	622,570
Administrative expenses		248,656	261,469
Gain on disposal of Group Company		-	198,631
Underlying operating profit*		44,810	559,732
AIM transaction costs		250,653	-
Operating (loss)/profit		(205,843)	559,732
(Loss)/profit before interest		(205,843)	559,732
Other interest receivable and similar income	2	794	58,244
Interest payable and similar charges	5	100,000	-
(Loss)/profit before taxation		(305,049)	617,976
Tax payable on (loss)/profit on ordinary activities	6	-	87,418
(Loss)/profit after taxation for the year attributable to equity holders of the parent		(305,049)	530,558
Other comprehensive income attributable to equity holders of the parent		-	-
Total comprehensive income for the year		(305,049)	530,558
(Loss)/profit attributable to:
Equity holders of the Parent		(305,049)	530,558
Total comprehensive (loss)/income for the year attributable to:
Equity holders of the Parent		(305,049)	530,558
(LOSS)/PROFIT PER ORDINARY SHARE; Basic/diluted	7	(0.14p)	0.25p

*Operating profit before AIM transaction costs.

All results in the current and preceding financial year derive from continuing operations.

The notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 2014

		31 March	31 March
	Note	2014	2013
		£	£
Non-current assets
Property, plant and equipment	8	863	1,150
		863	1,150
Current assets
Inventory	11	5,070,454	6,261,384
Trade and other receivables	9	2,425,257	1,322,092
Cash at bank and in hand	10	1,216,471	393,922
		8,712,182	7,977,398
Total assets		8,713,045	7,978,548
Liabilities: amounts falling due within one year
Trade and other payables	12	(741,090)	(452,579)
Borrowings	13	(574,503)	(3,380,034)
Net current assets		7,396,589	4,144,785
Non-current liabilities
Borrowings	13	(8,295,572)	(4,993,391)
Net liabilities		(898,120)	(847,456)
Capital and reserves
Called up share capital	14	2,283,752	2,143,752
Share premium account	15	1,075,513	961,128
Reverse acquisition reserve		(2,817,633)	(2,817,633)
Profit & loss account		(1,439,752)	(1,134,703)
Equity - attributable to the owners of the Parent		(898,120)	(847,456)

These financial statements were approved by the Board of Directors and authorised for issue on 27^th August 2014 and are signed on its behalf by:

C C Johnson:    ……………………………………….      J Dubois:  ……………………………………………

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2014

	Share capital	Share premium	Reverse acquisition  reserve	Retained  profits  /(losses)	Total equity
	£	£	£	£	£
At 1 April 2012	2,143,752	961,128	(2,817,633)	(1,665,261)	(1,378,014)
Profit for the year	-	-	-	530,558	530,558
Total comprehensive income for the year	-	-	-	530,558	530,558
At 31 March 2013	2,143,752	961,128	(2,817,633)	(1,134,703)	(847,456)
At 31 March 2013	2,143,752	961,128	(2,817,633)	(1,134,703)	(847,456)
Loss for year	-	-	-	(305,049)	(305,049)
Total comprehensive income for the year	-	-	-	(305,049)	(305,049)
Issue of shares	140,000	140,000	-	-	280,000
Share issue costs	-	(25,615)	-	-	(25,615)
At 31 March 2014	2,283,752	1,075,513	(2,817,633)	(1,439,752)	(898,120)

For the purpose of preparing the consolidated financial statement of the Group, the share capital represents the nominal value of the issued share capital of 1p per share. Share premium represents the excess over nominal value of the fair value consideration received for equity shares net of expenses of the share issue.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 March 2014

	Note	2014	2013
		£	£
Cash flow from operating activities
Operating (loss)/profit		(205,843)	559,732
Depreciation		287	383
Decrease in stocks		1,190,930	296,282
Increase in debtors		(1,103,394)	(1,013,418)
Increase in creditors		378,238	199,258
Interest received		794	58,244
Gain on disposal of group company		-	(198,631)
Net cash (outflow) / inflow from operating activities		261,012	(98,150)
Investing activities
Purchase of tangible fixed assets		-	-
Net cash used in investing activities		-	-
Taxation		(89,483)	(3,402)
Financing activities
New loans / (loan repayments) in year (net)		900,631	485,575
Issue of shares (net of direct costs)		254,370	-
Director loan repayments		(403,981)	(543,521)
Interest paid		100,000	-
Net cash inflow/(outflow) from financing		651,020	(57,946)
Increase/(decrease) in cash and cash equivalents in the year		822,549	(159,498)
Cash and cash equivalents at the beginning of the year		393,922	553,420
Cash and cash equivalents at the end of the year		1,216,471	393,922

BASIS OF PREPARATION

The financial information set out in this announcement is abridged and does not constitute the Company's statutory financial statements for the year ended 31 March 2014. The financial information has been extracted from the financial statements for the year ended 31 March 2014, which have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations adopted by the European Union ("EU") and as applied in accordance with the provisions of the Companies Act 2006 and were approved by the Board on 27 August 2014 and on which the auditors have reported without qualification.

The statutory financial statements for the year ended 31 March 2014 will be posted to shareholders next week and, once approved, will be delivered to the Registrar of Companies following the Annual General Meeting on 29 September 2014.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 March 2014

1          SEGMENTAL REPORTING

For the purpose of IFRS 8, the chief operating decision maker ("CODM") takes the form of the Board of Directors.  The Directors opinion of the business of the Group is as follows.

The principal activity of the Group was property development.

Based on the above considerations, there is considered to be one reportable segment.  The internal and external reporting is on a consolidated basis with transactions between Group companies eliminated on consolidation.  Therefore the financial information of the single segment is the same as that set out in the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of financial position and cashflows.

Geographical segments

The following tables present revenue regarding the Group's geographical segments for the year ended 31 March 2014.

Year ended 31 March 2014	United Kingdom	Total
	£	£
Property development - sales	3,368,500	3,368,500
	3,368,500	3,368,500

Year ended 31 March 2013	United Kingdom	Total
	£	£
Property development - sales	2,205,786	2,205,786
	2,205,786	2,205,786

2          OTHER INTEREST RECEIVABLE AND SIMILAR INCOME

	2014	2013
	£	£
Bank interest received	189	253
Rental income & ground rent	605	57,991
Gain on disposal of Group Company	-	198,631
	794	256,875

3           LOSS FOR THE YEAR

The Group's loss for the year is stated after charging the following:

	2014	2013
	£	£
AIM Transaction costs	250,653	-
Depreciation of tangible fixed assets	287	383
Loan interest to Director	100,000	-
Auditor's remuneration:
Audit of these financial statements	10,000	10,000
Amounts receivable by the auditor in respect of the audit of the financial statements of subsidiary undertakings pursuant to legislation	4,250	4,000
Non-audit services associated with AIM Listing	40,000	383

Amounts payable to Crowe Clark Whitehill LLP and its related entities in respect of audit and non-audit services are disclosed in the table above.

4          EMPLOYEES AND DIRECTORS' REMUNERATION

Staff costs during the year were as follows:

	2014	2013
	£	£
Directors remuneration	30,000	25,000
Wages and salaries	71,000	61,000
Social security costs	11,489	7,736
Other pension costs	18,000	18,000
	130,489	111,736

The average number of employees of the company during the year was:

	2014	2013
	Number	Number
Directors and management	3	4

Key management are the Group's Directors.  Remuneration in respect of key management was as follows:

	2014	2013
	£	£
Short-term employee benefits:
- Emoluments for qualifying services C C Johnson	-	-
- Emoluments for qualifying services A Johnson	-	10,000
- Emoluments for qualifying services J Dubois	30,000	15,000
	30,000	25,000

There are retirement benefits accruing to Mr C C Johnson for whom a company contribution was paid during the year of £18,000 (2013: £18,000).

Consultancy fees of £10,000 (2013: £10,000) were paid to Mr N Lott during the year.

5          INTEREST PAYABLE AND SIMILAR CHARGES

During the year all interest paid on borrowings is normally capitalised with the exception of:-

	2014	2013
	£	£
Director's loan interest paid	100,000	-
	100,000	-

6          TAXATION

	2014	2013
	£	£
Current tax	-	87,418
Tax charge	-	87,418

		2014		2013
		£		£
(Loss)/profit on ordinary activities before tax		(305,049)		617,976
Based on (loss)/profit for the year:
Tax at 23% (2013: 24%)	(70,161)		148,314
Effect of:
Losses utilised	-		(64,509)
Disallowable items	43,784		3,636
Capital allowances claimed	-		(23)
Losses c/f	26,377		-
Tax charge for the year	-		87,418

No deferred tax asset has been recognised in respect of historical losses due to the uncertainty in future profits against which to offset these losses

7          (LOSS)/PROFIT PER ORDINARY SHARE

The calculation of  (loss)/profit per ordinary share is based on the following profits/(losses) and number of shares:

	2014	2013
	£	£
(Loss)/profit for the year	(305,049)	530,558

Weighted average number of shares for basic  (loss)/profit per share	224,347,803	214,375,200
Weighted average number of shares for diluted  (loss)/profit per share	224,347,803	214,375,200
(LOSS)/PROFIT PER ORDINARY SHARE: Basic	(0.14p)	0.25p
Diluted	(0.14p)	0.25p

8          PROPERTY, PLANT AND EQUIPMENT

					Fixtures and fittings £
Cost					11-
At 1 April 2013					2,936
At 31 March 2014					2,936
Depreciation
At 1 April 2013 Charge for the year					1,786                     287
At 31 March 2014					2,073
Net book value at 31 March 2014					863
Net book value at 31 March 2013					1,150

9          TRADE AND OTHER RECEIVABLES

			2014	2013
			£	£
Trade debtors			-	1,140,000
Other receivables			2,395,257	103,442
Other taxes			25,451	76,149
Prepayment			4,548	2,501
			2,425,257	1,322,092

There are no receivables that are past due but not impaired at the year end, and receivables relate only to customers with no recent history of default. There are no provisions for irrecoverable debt included in the balances above.

10        CASH AND CASH EQUIVALENTS

All of the Group's cash and cash equivalents at 31 March 2014 are in sterling and held at floating interest rates.

	2014	2013
	£	£
Cash and cash equivalents	1,216,471	393,922

The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value.

11        INVENTORY

				2014		2013
				£		£
Work in progress			5,070,454		6,261,384

12        TRADE AND OTHER PAYABLES

			2014	2013
			£	£
Trade creditors			60,766	169,510
Accruals			54,848	140,693
Tax			5,478	89,483
Other creditors			619,998	52,893
			741,090	452,579

13        BORROWINGS

			2014	2013
			£	£
Director's loans			3,631,410	4,035,391
Other loans			755,000	565,000
Bank and other loans			4,483,665	3,773,034
			8,870,075	8,373,425

Included in other loans, all bearing interest at 10% - 12% per annum, is the sum of £300,000 (2013: £300,000) advanced by the DFM Pension Scheme of which Mr J Dubois is the principal beneficiary.

C C Johnson is a named guarantor on the loan included within bank loans.

The bank borrowings are repayable as follows:

			2014	2013
			£	£
On demand or within one year			574,503	3,380,034
In the second year			3,909,162	393,000
In the third to fifth years inclusive			-	-
After five years			4,483,665	3,773,034
Less amount due for settlement within 12 months (included in current liabilities)			(574,503)	(3,380,034)
Amount due for settlement after 12 months			3,909,162	393,000

The weighted average interest rates paid on the bank loans were as follows:

Bank Loans - 8.41% (2013: 5.1%).

All of the Director's  loan is repayable after more than 1 year. Interest of £ 100,000 was paid at the rate of 5% pa as from 1 April 2013 (2013: nil).

14        Share capital

Authorised Share Capital

				2014		2013
				Number		Number
Ordinary shares of 1p each - @ 1April 2013			214,375,200		214,375,200
Additional shares issued for cash in year			14,000,000		-
			228,375,200		214,375,200

Issued, allotted and fully paid

	2014	2013
	£	£
Ordinary shares of 1p each	2,283,752	2,143,752

On 16 July 2013 Trafalgar New Homes plc issued 14,000,000 ordinary shares for cash at £0.02 per share.

15        Share PREMIUM ACCOUNT

			2014	2013
			£	£
Balance brought forward			961,128	961,128
Premium on issue of new shares			140,000	-
Share issue costs			(25,615)	-
Balance carried forward			1,075,513	961,128

16        RELATED PARTY TRANSACTIONS

Mr C C Johnson holds 81.8% (2013: 87.15%) of the total issued share capital of the Group.

In the prior year, the Directors agreed to sell a small number of completed properties to Mr C C Johnson and his Pension Fund for an aggregate consideration of  £760,000.  There have been no such similar arrangements in the current year.

In the previous year, four properties were also sold to an independent third party to whom Mr J Dubois provided an indirect loan of nil (2013: £275,000) in connection with these purchases, for an aggregate consideration of £nil (2013: £972,000).

The following working capital loans have been provided by the Directors:

                                                                                                                                           2014                         2013

C C Johnson                                                                                                            £3,631,410               £4,035,391

J Dubois                                                                                                                      £300,000                  £300,000       

Mr Johnson's Loan was interest-free except that £2,000,000  bore interest at 5% pa from 1^st April 2013. Mr Dubois's Loan, which is from his Pension Fund of which he is the sole beneficiary, was at 12% pa interest (2013: 15% pa).

Mrs L C Howard (daughter of Mr C C Johnson) has provided a loan to the company at a rate of 10% per annum of £90,000 (2013: £ 100,000).

17        CATEGORIES OF Financial instruments

The Group's financial assets are divided as cash and cash equivalents.  The Group's financial liabilities are divided as Directors loans, bank loans and other loans.

	Loans, cash and cash equivalents and receivables held at amortised cost		Borrowings and trade payables held at amortised cost
	2014	2013	2014	2013
	£	£	£	£
Financial assets
Cash and cash equivalents	1,216,471	393,922	-	-
Financial liabilities
Borrowings - Directors' loans	-	-	3,631,410	4,035,391
Borrowings - Bank loan	-	-	4,483,665	3,773,034
Borrowings - Other loans	-	-	755,000	565,000
Total	1,216,471	393,922	8,870,075	8,373,425

The Board has overall responsibility for the determination of the Group's risk management objectives and policies and it sets policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility.  Further details regarding these policies are set out below:

Capital risk management

The Group considers its capital to comprise its share capital and share premium.  The Group's capital management objectives are to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders and to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

Significant Accounting Policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed on pages 16 to 21 to these financial statements.

Foreign currency risk

The Group has minimal exposure to the differing types of foreign currency risk.  It has no foreign currency denominated monetary assets or liabilities and does not make sales or purchases from overseas countries.

Interest rate risk

The Group is sensitive to changes in interest rates principally on the loans from banks.  £ 2,000,000 of the loans from Mr Johnson  bears interest at 5% pa from 1 April 2013.  Mr Dubois'  loan from his Pension Fund attracts interest at 12% pa.

The impact of a 100 basis point increase in interest rates would result in additional interest cost for the year of £41,283 (2013: £43,969).

Credit risk management

Credit risk refers to the risk that a counter-party will default on its contractual obligations resulting in financial loss to the Group.

Liquidity risk management

This is the risk of the Company not being able to continue to operate as a going concern.

The Directors have, after careful consideration of the factors set out above, concluded that it is appropriate to adopt the going concern basis for the preparation of the financial statements and the financial statements do not include any adjustments that would result if the going concern basis was not appropriate.

Mr Johnson confirms that he will continue to support the Group for its anticipated needs for the next two years.  As with all business forecasts, the Directors' statement cannot guarantee that the going concern basis will remain appropriate given the inherent uncertainty about the future events.

Derivative financial instruments

The Group does not currently use derivative financial instruments as hedging is not considered necessary.  Should the Group identify a requirement for the future use of such financial instruments, a comprehensive set of policies and systems as approved by the Directors will be implemented.

In accordance with IAS 39, "Financial instruments: recognition and measurement", the Group has reviewed all contracts for embedded derivatives that are required to be separately accounted for if they do not meet specific requirements set out in the standard.  No material embedded derivatives have been identified.

 

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