REG - Smart(J)Contractrs - Final Results
18/11/2022 10:45
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RNS Number : 9301G Smart(J.)&Co(Contractors) PLC 18 November 2022
J. SMART & CO. (CONTRACTORS) PLC ANNOUNCES TODAY, FRIDAY 18 NOVEMBER 2022,
ITS FULL YEAR RESULTS FOR THE YEAR TO 31st JULY 2022
The information contained within this announcement is deemed to constitute
inside information as stipulated under the
Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now
considered to be in the public domain.
CHAIRMAN'S REVIEW
ACCOUNTS
Headline Group profit for the year before tax on continuing and discontinued
operations, including an unrealised surplus in revalued property and a deficit
in revalued financial assets, was £8,192,000, compared with £14,784,000 last
financial year.
As in previous years, our view is that disregarding the movement in the
revaluation of the commercial property portfolio and adjusting for the
revaluation movement on financial assets provides a truer reflection of the
Group's performance, which we refer to as underlying profit. The underlying
profit before tax for the year was £7,840,000 and was more than last year's
figure of £2,367,000.
The Board is recommending a Final Dividend of 2.27p, making a total of 3.23p,
which compares with 3.22p for the previous year. The Final Dividend will
cost the company no more than £926,000.
TRADING ACTIVITIES
Group construction activities, including private residential sales on
continuing operations, decreased by 22%. Headline Group profit on continuing
operations decreased substantially this financial year, which was mainly due
to the exceptional increase in the value of the commercial property portfolio
in the previous financial year to 31st July 2021. Underlying profit before
tax on continuing operations increased substantially this year, mainly due to
the profit on the sale of the industrial estates: Bilston Glen Industrial
Estate, Loanhead, Inchwood Park, Bathgate and West Edinburgh Business Park,
Edinburgh.
Trading activities continued to be affected by supply chain issues and the
seemingly unstoppable rise in the price of construction materials. These
issues, coupled with the continued prolonged process in obtaining not only
statutory approvals, but also simple utility approvals and associated
infrastructure, has meant that all our construction sites have experienced
delays and thereby longer programmes. This has resulted in overall costs
being greater than original budgets.
All of the above has caused an increase in aborted site acquisitions and a
lack of tender work being acquired in the Housing Association sector. It has
again given rise to an erosion of profits of recently completed and soon to be
completed projects.
The private housing development at Winchburgh, Canal Quarter, has experienced
delays in progress on site for the reasons noted above, albeit reservations
remain encouraging. The first sale has recently concluded at this
development, but after the end of the financial year. The majority of the
completions will occur prior to the end of the financial year to 31st July
2023.
The residential development at Clovenstone Gardens did not start prior to the
end of the financial year due to delays in obtaining statutory approvals.
Construction has now started, but the first completions will not take place
until the middle of 2024.
Progress in our commercial property portfolio continues to be positive to
date, albeit with a note of caution. The sale of the three industrial
estates, as mentioned above and reported in the Interim results, completed in
January 2022 with a significant profit achieved. It is worth noting that if
the same sale took place in the current climate, then the price achieved would
have been less. This is reflected in the valuation of the commercial
property portfolio being relatively similar to last year indicating a plateau
in yields.
In both our office and industrial properties we have seen a general churn of
tenants leaving and new tenants leasing space. There has been no rental
growth as in recent years as rents, like yields, have remained static.
As reported in the Interim results, construction completed at the second phase
of Gartcosh Industrial Park, developed through the joint venture company,
Gartcosh Estates LLP. Whilst interest in the two medium sized units remains
promising, we had hoped that a letting would have been achieved by now.
As predicted the small commercial development at Winchburgh was completed
after the end of the financial year. There is good interest in the
speculative retail units, although the increased programme, due to delays in
utility infrastructure delivery, will impact on profit margins.
The second phase at Belgrave Point, Bellshill, a large speculative single user
industrial unit, started just after the end of the financial year. The
progress in construction is satisfactory to date, but it is too early to gauge
demand from any prospective tenants.
FUTURE PROSPECTS
We have substantially more work in hand in our own private housing at this
time than we did last year. We do not have any real prospects of external
contracts at present.
We currently have several planning applications stuck in the Scottish planning
system totalling over 500 residential units and over 60,000 sq ft of
commercial space. Regrettably we may have to utilise the appeal process in
order to hopefully obtain planning consent on more than one of these
applications.
The continuing increases in construction costs, interest rates and inflation
and the cost of living crisis all contribute to a high degree of uncertainty
as to when any of these sites will commence. As mentioned above, there will
be private housing sales this year, but what impact the economic problems will
have on the level of sales is uncertain.
Due to the above issues, whilst we expect lettings to continue in our
commercial property portfolio, it is already evident that rents and yields
have already started to plateau and property values in our sectors may drop.
At this stage it is evident that the headline profit will drop for the year to
31st July 2023. Indeed, if commercial property values fall, we may make a
headline loss. Profits will continue to be eroded by the lack of external
contracting work, the lack of recovery of overhead costs and the increase in
material costs.
DAVID W SMART
Chairman
PERFORMANCE REVIEW
Construction activities
2022 2021
Continuing Operations £000 £000
Revenue 7,430 10,407
Operating loss (2,487) (2,305)
Turnover in the year has significantly decreased again this year and this is
due to the fact that in the current year there was only one private housing
development at The Courtyard, Winchburgh that had sales. This development
had 4 detached houses all of which were sold in the year. The only other
private housing development currently underway is at Canal View, Winchburgh.
This is an ongoing development and in there were no concluded sales in the
year. Sales at this development are expected in the year to 31st July
2023.
There were no social housing projects in the year.
We completed the work in the year for our Joint Venture, Gartcosh Estates LLP
at phase 2 of their development consisting of two industrial units. In one
of the completed units we also undertook the work to fit out the unit with
office and welfare facilities. To date neither of these units have been let.
The turnover of our civil engineering subsidiary decreased slightly in the
year and with tighter margins resulted also in a slight decrease in the
overall profit earned by the subsidiary.
Our construction sites remained open for the entire year throughout the Group,
although coronavirus still has an impact both operationally and financially on
the running of our sites. We continued to follow the legislation and
guidance issued by the Scottish Government in relation to coronavirus safe
working conditions for all our staff whether they are site or office based.
We did not take advantage of the UK Government's Furlough scheme in the year.
Brexit and the impact of increasing inflation rates, impacting the country as
a whole, have also had a financial impact on the results for the year via
supply chain issues and significant increase in the cost of construction
materials and services required by the Group. These increased costs have
been borne by the Group resulting in the margins on construction work
continuing to be tight, although not to the same level as the previous year
due to the level and nature of work undertaken in the year.
The Directors continue to fully appraise contracts, at various stages, prior
to acceptance to ascertain the likely outcome of the contract. These
appraisals are also conducted prior to land bank acquisitions. The contract
reporting functions between the finance and surveyor teams relating to the
recording of costs have been revised and fully implemented this year and
provide the surveyors with increased detail and analysis of costs. The
surveyors along with the Directors can then appraise contract performance on a
timely basis to analyses areas of contracts where losses are being incurred
with the aim to rectify were possible.
Overheads continue to remain relatively constant over time however the
Directors continue to monitor these with a view to achieving any savings on
costs were possible. The increased energy costs which will impact on the
Group this year are been monitored and the Group is entering into supply
contracts with the most favourable rates and contract durations it is able to
obtain.
Investment activities
2022 2021
£000 £000
Income from investment properties 6,983 7,411
Profit on sale of investment properties 6,055 37
Net surplus on valuation of investment properties 473 12,105
Operating profit from investment properties 10,309 16,578
Income from financial assets 63 36
Profit on sale of financial assets 17 1
Net (deficit)/surplus on valuation of financial assets (121) 312
Share of profits in Joint Ventures 254 264
Rental income from the Group's investment property portfolio decreased in the
year by 6% (2021, increased by 4%) mainly due to reduction in rent following
the sale of three of our industrial estates in the year. For our remaining
industrial and commercial properties we have experienced increased occupancy
but there has been no rental growth as rents have remained static.
Recoverability of rental income continues to remain high despite the
continuing impact of coronavirus and generally the increase in costs due to
inflation.
During the year construction of our office and retail development at
Winchburgh continued and was completed and handed over to our investment
property company just after the conclusion of our year end. We have a tenant
in place for the office however, we have still to lease any of the retail
units, although we have received a number of enquires for the units. We
commenced work on phase 2 at our industrial site at Bellshill for the
construction of one 53,735 square foot unit.
Service charges and insurance receivable income has increased by 4% (2021,
decreased by 5%) due mainly to the increased occupancy of our commercial
properties. Service charges are dependent on costs incurred in the year that
can be recovered and varies from year to year.
As noted above the Group sold three of its industrial estates for £24,032,000
which generated a profit on sale of £6,055,000.
The Group has recorded another surplus on the revaluation of investment
property portfolio, however this is significantly down on the level recorded
in the previous year due to the sale of three of our industrial estates and
the fact that in the previous financial year the yields for our prime
industrial stock rose to unprecedented levels.
Income from our financial assets has risen in the year due to the fact that
companies are recommencing the payment of dividends after putting these on
hold due to the impact of coronavirus. There were a number of acquisitions
is the year to our portfolio and disposals which generated a very profit of
£17,000. The impact of world and domestic events on the financial
markets has resulted in a deficit of £121,000 on the fair value of our
financial assets being recorded this year.
The share of the results in our Joint Ventures is a profit this year of
£254,000 which is due to the effect of accounting for the revaluation surplus
relating the completed phases 1 and 2 of the development owned by Gartcosh
Estates LLP. During the year the Joint Venture company, Northrigg Limited
became a wholly owned subsidiary of J. Smart & Co. (Contractors) PLC
following Northrigg Limited buying back the share of the other party to the
Joint Venture. The Joint Venture company, Duff Street Limited was
dissolved on 10th August 2021.
Group results and financial position
Continuing and discontinued activities 2022 2021
Restated
Note 11
£000 £000
Profit before tax 8,192 14,784
Net bank position 20,795 7,831
Net assets 124,676 115,737
The profit before tax reported by the Group has decreased significantly mainly
due to the level of the surplus on valuation of investment properties recorded
this year in comparison to the previous year. However, this impact is
mitigated by the level of profit on sale of investment properties recorded
this year, being £6,055,000 as compared to £37,000 in 2021. If the surplus
on revaluation of investment properties, the profit on sale of investment
properties and the deficit on the revaluation of the Group's financial assets
are excluded the Group generated a profit for the year of £1,735,000 compared
to £2,330,000 in the previous year. The movement being the result of the
increase in the loss suffered within construction activities and the reduction
in rents received from investment properties.
Our net bank position, which comprises monies held on deposit, cash and cash
equivalents and the netting of our bank overdraft has increased in the year.
This is due to the proceeds received from the sale of investment properties
net of the cash outflows on current private housing and own industrial
development currently in progress. Also, in the year the Group lent money to
its Joint Ventures amounting to £1,440,000 and invested a further £50,000 in
them. Overall, the Group continues to be net debt-free.
The Group's net assets have increased overall by £8,939,000, the main impact
on this being due to the revision in the accounting for the pension scheme
surplus. Further advice on the Group's right to a surplus arising on the
pension scheme was sought in the year from a firm of lawyers who specialise in
this area. Their advice was that the Group had an unconditional right to the
surplus based on the original Trust Deed and Deed of Variation and therefore
the full surplus arising on the calculation thereof under IAS 19 (amended):
Employee Benefits should be accounted for in the financial statements. This
revised advice impacted on the accounts for the year to 31st July 2021 and
resulted in that year's accounts having to be revised. Full details of this
prior year adjustment can be found in note 35 to the financial statements.
The profit earned in the year as discussed above and the accounting for share
buy backs and dividends paid to shareholders in the year also impact on the
net assets.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties faced by the Group and the mitigating
factors taken by the Group against these risks are detailed below. The
principal risks noted below are not all of the risks faced by the Group but
are those risks which the Group perceives as those which could have a
significant impact on the Group's performance and future prospects.
Area of principal risk or uncertainty and impact
By focusing external construction activities in the social housing sector,
which is a competitive market, failure to win new contracts would impact on
our volume of work and therefore the workforce required by the Group.
Mitigating actions and controls
• Maintain long-term relationships with social housing providers,
resulting from high standards of service, quality and post construction care
thus giving the Group an advantage over other builders when contracts are
awarded on criteria other than cost only.
• Identify potential build sites or include the provider within
private housing developments in relation to the element of affordable housing
required.
• When workload is reduced workforce can be diverted to the
Group's own commercial and private residential developments.
• Continue to acquire land for development for either private
housing developments or for resale to social housing providers as part of a
construction contract.
• Develop new areas of construction activities.
• Develop new joint venture opportunities.
Area of principal risk or uncertainty and impact
Decline in home buyer confidence, due to bank interest rates, availability of
affordable mortgages and cost of living crisis resulting in stalling of
private house sales.
Mitigating actions and controls
• Building developments in popular residential areas.
• Building high quality specification homes with attention to detail
which sets them apart from other new build homes and therefore makes them more
attractive to buyers.
• Building a range of homes within a development thus providing
choice to buyers.
• Programming commencement of new build housing projects to market
conditions.
• Providing sales incentives.
• Considering the letting of built homes at market rates until the
market improves.
Area of principal risk or uncertainty and impact
Social housing sector and the housing market in general is highly competitive
with tight margins.
Mitigating actions and controls
• We are an 'all trades' contractor who employs our own personnel
in all basic building trades who are supervised by site agents who are long
serving employees of the Group and who have been promoted through their
trades, thus ensuring control of labour costs on contracts.
• We have invested heavily in plant and the maintenance thereof
and therefore limit our costs on contracts by utilising own plant as opposed
to incurring higher costs of hiring plant.
• Subcontractors employed by the Group are specialists in their
fields and in the main subcontractors have previously been used by the Group
therefore quality of work and reliability is known. No labour only
subcontractors are employed.
• In house architectural technicians and surveyors provide
pre-contract design advice to resolve potential technical problems with the
build and therefore potential costs.
• Detailed appraisals of contract pre-land acquisition and
pre-construction.
Area of principal risk or uncertainty and impact
Reduction in rental demand for investment properties may result in a fall in
property valuations.
Mitigating actions and controls
• Only commence speculative developments after careful assessment
of the market.
• Restricting our operations to the central belt of Scotland being
the area of the country with which we are most familiar.
• Continually maintain and refurbish existing properties to retain
existing tenants and attract new tenants and improvements to our properties
for improved economic and climate efficiencies.
• Provide necessary financial incentives to retain existing
tenants at end of current leases and attract new tenants.
Area of principal risk or uncertainty and impact
Reduction in demand for UK real estate from investors may result in a fall in
valuations within our investment property portfolio, this could result in
delays in investment decisions which could impact on our activities.
Mitigating actions and controls
• The Directors regularly review the property market to ascertain
if changes in the overall market present specific risks or opportunities to
the Group.
• Restricting our operations to the central belt of Scotland being
the area of the country with which we are most familiar.
Area of principal risk or uncertainty and impact
Political events and policies result in uncertainty until final decisions have
been made and the impact of decisions are known, this could result in delays
in investment decisions which could impact on our activities.
Mitigating actions and controls
• Before any decisions are taken by the Directors in any area of
the Group's activities the level of uncertainty and range of potential
outcomes arising from political events and policies are considered.
Area of principal risk or uncertainty and impact
Reduction of financial resources.
Mitigating actions and controls
• Ensure resources are not over committed and only undertake
commercial and private housing developments after due consideration for the
financial impact on the Group's financial resources.
• Build up resources to ensure the Group has sufficient finance
for working capital requirements and financing of commercial and private
housing developments.
• Spread cash reserves over several banks taking account of the
strength of the bank and interest rates attainable.
• Invest resources in equities also taking account of the security
of the investment and the yields attainable.
Area of principal risk or uncertainty and impact
Continuing impact of coronavirus on the Group's operational and financial
performance.
Mitigating actions and controls
• Continue to follow all the legislation and guidance issued by
Scottish Government for the safe working of our construction sites and
offices.
• Helping current tenants in our investment properties with rental
payment plans for those facing financial difficulties due to the coronavirus.
Area of principal risk or uncertainty and impact
Failure to evolve business practices and operations in response to climate
change.
Mitigating actions and controls
• Continue to monitor all requirements relating to the
construction industry in relation to improvements in buildings to ensure they
comply with current and emerging requirements.
• Review of designs for new buildings to ensure they are as energy
efficient as possible.
• Procurement of building materials from sustainable sources.
• Investment in energy saving measures within our investment
property portfolio.
Emerging Risks
The Group faces a number of emerging risks which could have a significant
impact on the Group's performance and future prospects. These risks are
discussed by the Directors and appropriate actions taken to mitigate these
risks as soon as they are considered to be a principal risk of the Group.
CONSOLIDATED INCOME STATEMENT
for the year ended 31st JULY 2022
Notes 2022 2021
£000 £000
CONTINUING OPERATIONS
Group construction activities 2 9,597 12,308
Less: Own construction work capitalised (2,167) (1,901)
REVENUE 3 7,430 10,407
Cost of sales (5,853) (8,977)
GROSS PROFIT 1,577 1,430
Other operating income 4 7,012 7,446
Net operating expenses (7,295) (6,745)
OPERATING PROFIT BEFORE PROFIT ON SALE AND NET SURPLUS ON VALUATION OF 1,294 2,131
INVESTMENT PROPERTIES
Profit on sale of investment properties 6,055 37
Net surplus on valuation of investment properties 10 473 12,105
OPERATING PROFIT 7,822 14,273
Share of profits in Joint Ventures 254 264
Income from financial assets 63 36
Profit on sale of financial assets 17 1
Net (deficit)/surplus on valuation of financial assets (121) 312
Finance income 141 4
Finance costs (12) (25)
Gain on remeasurement of subsidiary company 28 -
PROFIT BEFORE TAX 8,192 14,865
Taxation 5 (1,571) (3,802)
PROFIT FOR THE YEAR FROM CONTINUING ACTIVITIES 6,621 11,063
DISCONTINUED OPERATIONS
Loss for the year from discontinued operations 6 - (93)
PROFIT FOR YEAR ATTRIBUTABLE TO EQUITY SHAREHOLDERS 7 6,621 10,970
EARNINGS/(LOSS) PER SHARE
From continuing operations - basic and diluted 9 15.90p 26.16p
From discontinued operations - basic and diluted 9 - (0.22)p
From continuing and discontinued operations - basic and diluted 9 15.90p 25.94p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31st JULY 2022
2022 2021
Restated
Note 11
£000 £000
PROFIT FOR YEAR 6,621 10,970
OTHER COMPREHENSIVE INCOME
Items that will not be subsequently reclassified to Income Statement:
Remeasurement gains on defined benefit pension scheme 7,219 9,126
Deferred taxation on remeasurement gains on defined benefit pension scheme (1,804) (1,476)
TOTAL ITEMS THAT WILL NOT BE SUBSEQUENTLY RECLASSIED TO INCOME STATEMENT 5,415 7,650
TOTAL OTHER COMPREHENSIVE INCOME 5,415 7,650
TOTAL COMPREHENSIVE INCOME FOR YEAR, NET OF TAX 12,036 18,620
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
as at 31st JULY 2022
Share Capital Capital Redemption Reserve Retained Earnings Total
Restated Restated
Note 11 Note 11
£000 £000 £000 £000
As at 1st August 2020 853 155 98,252 99,260
Profit for year - - 10,970 10,970
Other comprehensive gain - - 7,650 7,650
TOTAL COMPREHENSIVE INCOME FOR YEAR - - 18,620 18,620
TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY IN EQUITY
Shares purchased and cancelled (13) - (769) (782)
Transfer to Capital Redemption Reserve - 13 (13) -
Dividends - - (1,361) (1,361)
TOTAL TRANSACTIONS WITH OWNERS (13) 13 (2,143) (2,143)
As at 31st July 2021 - Restated 840 168 114,729 115,737
Profit for year - - 6,621 6,621
Other comprehensive gain - - 5,415 5,415
TOTAL COMPREHENSIVE INCOME FOR YEAR - - 12,036 12,036
TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY IN EQUITY
Shares purchased and cancelled (22) - (1,727) (1,749)
Transfer to Capital Redemption Reserve - 22 (22) -
Dividends - - (1,348) (1,348)
TOTAL TRANSACTIONS WITH OWNERS (22) 22 (3,097) (3,097)
As at 31st July 2022 818 190 123,668 124,676
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31st JULY 2022
Notes 2022 2021
Restated
Note 11
£000 £000
NON-CURRENT ASSET
Property, plant and equipment 1,207 1,245
Investment properties 10 77,777 93,060
Investments in Joint Ventures 1,532 1,267
Financial assets 1,069 1,184
Trade and other receivables 3,010 1,570
Retirement benefit surplus 15,096 7,863
Deferred tax assets 13 179
99,704 106,368
CURRENT ASSETS
Inventories 12,454 7,531
Contract assets 16 246
Corporation tax asset - 35
Trade and other receivables 2,442 2,945
Monies held on deposit 48 48
Cash and cash equivalents 31,796 19,355
46,756 30,160
TOTAL ASSETS 146,460 136,528
NON-CURRENT LIABILITIES
Deferred tax liabilities 8,172 5,956
Lease liabilities 212 213
8,384 6,169
CURRENT LIABILITIES
Trade and other payables 2,306 3,050
Lease liabilities 1 -
Corporation tax liability 44 -
Bank overdraft 11,049 11,572
13,400 14,622
TOTAL LIABILITIES 21,784 20,791
NET ASSETS 124,676 115,737
EQUITY
Called up share capital 818 840
Capital redemption reserve 190 168
Retained earnings 123,668 114,729
TOTAL EQUITY 124,676 115,737
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31st JULY 2022
2022 2021
£000 £000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit after tax - continuing and discontinued operations 6,621 10,970
Tax charge for year 1,571 3,814
Profit before tax - continuing and discontinued operations 8,192 14,784
Adjustments for:
Share of profits from Joint Ventures (254) (264)
Depreciation 399 349
Unrealised surplus on valuation of investment properties (473) (12,105)
Unrealised deficit/(surplus) on valuation of financial assets 121 (312)
Profit on sale of property, plant and equipment (29) (35)
Profit on sale of investment property (6,055) (37)
Profit on sale of financial assets (17) (1)
Gain on remeasurement of subsidiary company (28) -
Change in retirement benefits (14) 187
Interest received (20) (4)
Interest paid 12 12
Change in inventories (4,584) (1,350)
Change in contract assets 230 177
Change in receivables 503 (122)
Change in payables (1,113) (22)
CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES (3,130) 1,257
Tax paid (914) (361)
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES (4,044) 896
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (380) (336)
Additions to investment properties (54) (439)
Expenditure on own work capitalised - investment properties (2,167) (1,901)
Proceeds of sale of property, plant and equipment 48 45
Proceeds of sale of investment property 24,032 62
Purchase of financial assets (47) -
Proceeds of sale of financial assets 58 15
Acquisition of investment in Subsidiary - net cash acquired 97 -
Interest received 20 4
Loan to Joint Ventures (1,440) (1,320)
Investment in Joint Ventures (50) (133)
Dividend received from Joint Ventures - 31
NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES 20,117 (3,972)
CASH FLOWS FROM FINANCING ACTIVITIES
Interest costs on leases (12) (12)
Purchase of own shares (1,749) (782)
Dividends paid (1,348) (1,361)
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (3,109) (2,155)
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 12,964 (5,231)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,783 13,014
CASH AND CASH EQUIVALENTS AT END OF YEAR 20,747 7,783
NOTES
1. ACCOUNTING POLICIES AND ESTIMATION TECHNIQUES
GENERAL INFORMATION
J. Smart & Co. (Contractors) PLC which is the ultimate Parent Company of
the J. Smart & Co. (Contractors) PLC Group is a public limited company
registered in Scotland, incorporated in the United Kingdom and listed on the
London Stock Exchange.
BASIS OF PREPARATION
The financial information in this announcement has been extracted from the
Group's Annual Report and Statement of Accounts for the year to 31st July 2022
and is prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and in accordance
with UK adopted international accounting standards. Whilst the financial
information included in this preliminary announcement has been computed in
accordance with International Financial Reporting Standards (IFRS), this
announcement does not itself contain sufficient information to comply with
IFRS and the financial information set out does not constitute the Company or
Groups statutory accounts for the years to 31st July 2022 or 31st July 2021.
The statutory consolidated accounts for the year to 31st July 2022 have been
reported on by the Independent Auditor, their report was unqualified and did
not draw attention to any matters by way of emphasis and it does not contain a
statement under S498 (2) or S498 (3) of the Companies Act 2006. The
statutory consolidated accounts for the year to 31st July 20221 will be
delivered to the Registrar of Companies following the Company's Annual General
Meeting.
The financial information for the year to 31st July 2021 is derived from the
statutory accounts for that year which were submitted to the Registrar of
Companies and upon which the Company's auditor provided an unqualified audit
report. The audit report did not include a reference to any matters to which
the auditor drew attention by way of emphasis without qualifying its report
and did not contain a statement under S498 (2) or S498 (3) of the Companies
Act 2006.
STANDARDS, AMENDMENTS TO STANDARDS AND INTERPRETATIONS EFFECTIVE IN THE YEAR
TO 31st JULY 2022
The following new standards and amendments to standards and interpretations
relevant to the Group have been issued by the International Accounting
Standards Board and are mandatory for the first time for the financial year to
31st July 2022:
• IFRS1 (amended): Financial Instruments: Disclosures.
• IFRS 9 (amended): Financial Instruments.
• IFRS 16 (amended): Leases.
• IAS 39 (amended): Financial Instruments: Recognition and
Measurements.
None of the above amendments to standards had a significant impact on the
Group's financial statements.
NEW STANDARDS, AMENDMENTS TO STANDARDS AND INTERPRETATIONS NOT YET APPLIED
The following new standards, amendments to standards and interpretations
relevant to the Group have been issued by the International Accounting
Standards Board but are not yet effective for the Group at the date of these
financial statements, and have not been adopted early:
• IFRS 16 (amended): Leases (effective in the year
ending 31st July 2025).
• IAS 12 (amended): Income Taxes (effective in the year
ending 31st July 2024).
The Directors do not consider that the application of these amendments to
standards will have a material impact on the financial statements.
BASIS OF PREPARATION
The financial statements have been prepared under the historical cost
convention except where the measurement of balances at fair value is required
as noted below for investment properties, available for sale financial assets
and assets held by the defined benefit pension scheme.
The accounting policies set out below have been consistently applied to all
periods presented in these financial statements.
The preparation of financial statements requires management to make estimates
and assumptions concerning the future that may affect the application of
accounting policies and the reported amounts of assets and liabilities and
income and expenses. Management believes that the estimates and assumptions
used in the preparation of these financial statements are reasonable. However,
actual outcomes may differ from those anticipated.
GOING CONCERN
The financial statements have been prepared on a going concern basis. The
Directors have prepared a number of cashflows scenarios taking account of
trading activities around construction projects in hand and anticipated
projects, land acquisitions, rental income, investment property acquisitions
and disposals and other capital expenditure. The Directors also have taken
account of the continuing impact of the coronavirus on the construction and
investment activities of the Group. In each scenario reviewed by the
Directors the Group remains cash positive with no reliance on external funding
and therefore remains net debt-free. The net assets of the Group are
£124,676,000 at 31st July 2022 and the Group's net current assets amount to
£33,356,000. Taking all of the information the Directors currently have
they are of the opinion that the Company and Group are well placed to manage
its financial and business risks and have a reasonable expectation that the
Company and Group have adequate financial resources to continue in operational
existence for a period of at least twelve months from the date of approval of
these financial statements and therefore consider the adoption of the going
concern basis as appropriate for the preparation of these financial
statements.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
INVESTMENT PROPERTIES
Investment properties are revalued annually by the Directors in accordance
with the RICS Valuation Standards. The valuations are subjective due to, among
other factors, the individual nature of the property, its location and the
expected future rental income. As a result, the valuation of the Group's
investment property portfolio incorporated into the financial statements is
subject to a degree of uncertainty and is made on the basis of assumptions
which may prove to be inaccurate, particularly in periods of volatility or low
transaction flow in the property market.
The assumptions used by the Directors are market standard assumptions in
accordance with the RICS Valuation Standards and include matters such as
tenure and tenancy details, ground conditions of the properties and their
structural conditions, prevailing market yields and comparable market
conditions. If any of the assumptions used by the Directors prove to be
incorrect this could result in the valuation of the Group's investment
property portfolio differing from the valuation incorporated into the
financial statements and the difference could have a material effect on the
financial statements.
REVENUE RECOGNITION
Revenue recognition on construction contracts requires judgement on the stage
of completion of the contract at the Statement of Financial Position date to
calculate the revenue to be recognised.
LONG-TERM CONTRACT PROVISIONS
Judgement is required in the area of provisions for losses on long-term
contracts. The Directors make judgements relating to estimated costs to
complete and the percentage stage of completion of current contracts when
determining the provision for losses. The Directors consider adequate, but not
excessive provisions have been made in this respect.
RETIREMENT BENEFIT OBLIGATION
The valuation of the retirement benefit obligation is dependent upon a series
of assumptions, mainly discount rates, mortality rates, investment returns,
salary inflation and the rate of pension increases, which are determined after
taking expert advice from the Group's Actuary. If different assumptions were
used then this could materially affect the results disclosed in the financial
statements. These are set out in note 31 to the financial statements.
The Group has concluded that the trust deed relating to the defined benefit
scheme grants the unconditional right to any surplus of the scheme on the full
settlement of the scheme liabilities to the Group and therefore have concluded
that any surplus on the scheme can be incorporated into the Group and Company
financial statements. Advice on the Group's right to a surplus arising on the
pension scheme was sought in the year from a firm of lawyers who specialise in
this area. Their advice was that the Group had an unconditional right to the
surplus based on the original Trust Deed and Deed of Variation and therefore
the full surplus arising on the calculation thereof under IAS 19 (amended):
Employee Benefits should be accounted for in the financial statements. This
revised advice impacted on the accounts for the year to 31st July 2021 and
resulted in that year's accounts having to be revised. Full details of this
prior year adjustment can be found in note 11 to the financial statements.
2. SEGMENTAL INFORMATION
IFRS 8: Operating Segments requires operating segments to be identified on the
basis of internal reporting about components of the Group that are regularly
reviewed by the chief operating decision maker to allow the allocation of
resources to the segments and to assess their performance. The chief operating
decision maker has been identified as the Board of Directors. The chief
operating decision maker has identified two distinct areas of activities in
the Group being construction activities and investment property activities.
All revenue and investment property income arises from activities within the
UK and therefore the Board of Directors does not consider the business from a
geographical perspective. The operating segments are based on activity and
performance of an operating segment is based on a measure of operating
results.
External Revenue Internal Revenue Total Revenue Other Operating Income Operating Profit / (Loss)
2022 2021
£000 £000 £000 £000 £000 £000
2022
Construction 7,430 2,167 9,597 7 (2,487) -
-continuing operations
Investment property - - - 6,976 10,309 -
-continuing operations
7,430 2,167 9,597 6,983 7,822 -
2021
Construction 10,407 1,901 12,308 - - (2,305)
-continuing operations
Construction - - - - - (81)
-discontinued operations
Investment property - - - 7,411 - 16,578
-continuing operations
Investment properties - - - 7 - -
-discontinued operations
10,407 1,901 12,308 7,418 - 14,192
OPERATING PROFIT (2021: continuing and discontinued activities) 7,822 14,192
Share of results in Joint Ventures 254 264
Finance and investment income 221 353
Finance and investment costs (133) (25)
Gain on remeasurement of subsidiary company 28 -
PROFIT ON ORDINARY ACTIVITIES BEFORE TAX 8,192 14,784
(2021: continuing and discontinued activities)
Internal revenue relates to own work capitalised and inter group transactions
are eliminated on consolidation. The Group had sales from construction
activities from two customers amounting to £2,051,000 and £1,387,000
respectively (2021, sales from construction activities from two customers
amounting to £1,335,000 and £1,638,000 respectively).
OTHER SEGMENTAL INFORMATION
Non-Current Asset Segment Assets Segment Liabilities
Additions Depreciation
£000 £000 £000 £000
2022
Construction activities 380 351 36,679 16,744
Investment activities 2,221 48 109,748 6,539
Joint Ventures - - 1,532 -
147,959 23,283
Allocation of corporation tax creditor (1,499) (1,499)
146,460 21,784
2021 - Restated
Construction activities - continuing operations 336 293 23,228 14,301
Construction activities - discontinued operations - 7 21 529
Investment activities 2,348 49 113,012 6,961
Joint Ventures - - 1,267 -
137,528 21,791
Allocation of corporation tax creditor (1,000) (1,000)
136,528 20,791
3. REVENUE
The Group derives its revenue from contracts with customers for the transfer
of goods over time in relation to construction contracts and also at point in
time in relation to housing sales. This is consistent with the revenue
information that is disclosed for Construction Activities segment under IFRS
8: Operating Segments.
Construction contracts are generally for social housing or industrial and
commercial properties. The Group provides a complete service including
architectural and surveyor services from the pre-contract design through to
completion.
Disaggregation of Revenue 2022 2021
£000 £000
Continuing operations:
Social housing 9 1,514
Civil engineering 4,330 4,521
Industrial 1,387 1,638
General construction 42 421
Private house sales 1,662 2,313
7,430 10,407
The transaction price allocated to unsatisfied performance obligations in
respect of construction activities as at 31st July 2022 are as set out below:
Social housing - -
Civil engineering 422 801
Industrial - 1,264
The Directors expect that 100% (2021, 100%) of the transaction price allocated
to the unsatisfied contracts as at 31st July 2022 will be recognised as
revenue in the year to 31st July 2023.
4. OTHER OPERATING INCOME
2022 2021
£000 £000
Rental income 6,158 6,619
Service charges and insurance receivable 824 792
Sundry income 1 -
6,983 7,411
Direct property costs (2,997) (2,800)
Net rental income 3,986 4,611
Direct property costs included £904,000 (2021, £1,011,000) in respect of
investment properties that did not generate rental income in the year.
Profit on disposal of property, plant and equipment 29 35
Total other operating income 7,012 7,446
5. TAXATION
2022 2021
£000 £000
UK Corporation Tax
Current tax on income for the year 997 450
Corporation tax (over)/under provided in previous years (4) 3
993 453
Deferred taxation 578 3,349
1,571 3,802
Current Tax Reconciliation
Profit on ordinary activities before tax 8,192 14,865
Share of profits of Joint Ventures (254) (264)
Gain on remeasurement of subsidiary company (28) -
7,910 14,601
Current tax at 19.00% (2021, 19.00%) 1,503 2,774
Effects of:
Expenses not deductible for tax purposes 124 45
Ineligible depreciation (1,189) -
Non-taxable income including revaluation surplus (103) (1,223)
Chargeable gains 752 -
Effect of change in tax rate 547 1,320
Adjustment to corporation tax charge in respect of prior years (4) 3
Adjustment to deferred tax charge in respect of prior years (30) 466
Deferred tax not recognised (29) 417
1,571 3,802
The Finance Act 2020, which received Royal assent on 22nd July 2020, states
that the corporation tax rate for the financial year commencing 1st April 2020
is 19%. The Finance Act 2021, which received Royal assent on 24th May 2021,
states that the corporation tax rate for the financial year commencing 1st
April 2023 is 25%.
The effective corporation tax rate is 19.00% (2021, 19.00%) being the average
rate applicable over the period. Deferred tax provisions have been calculated
using the 25% rate.
In addition to amounts charged to the Income Statement, a deferred tax charge
of £1,804,000 (2021 restated, charge £1,476,000) relating to actuarial gains
on the defined benefit pension scheme has been recognised directly to Equity.
There are no income tax consequences attached to dividends paid or proposed by
the Company to its shareholders.
6. DISCONTINUED OPERATIONS
In the year to 31st July 2019 Concrete Products (Kirkcaldy) Limited ceased
trading.
The results of the discontinued operation, which have been included in the
profit for the year, were as follows:
2022 2021
£000 £000
Revenue - -
Cost of sales - -
Gross Loss - -
Other operating income - 7
Net operating expenses - (88)
Loss Before Tax - (81)
Taxation
Corporation tax - (12)
Net loss attributable to discontinued operations - (93)
(attributable to owners of the Company)
The operating loss is stated after charging/(crediting);
Cost of inventories recognised as an expense - -
Staff costs (note 5) - -
Hire of plant and machinery - -
Depreciation of owned assets - 7
Profit on disposal of property, plant and equipment - -
Auditor's remuneration - audit of these financial statements - 4
During the year, Concrete Products (Kirkcaldy) Limited had cash outflows of
£nil (2021, inflow £64,000) in relation to Operating activities and
contributed £nil (2021, £nil) in respect of Investing and Financing
activities.
7. PROFIT FOR THE FINANCIAL
YEAR
The Group uses underlying profit before tax as an alternative performance
measure, which is the profit before tax excluding net surplus or deficit on
valuation of investment properties and financial assets accounted for through
the Income Statement. As the net surplus or deficit on valuation of investment
properties and financial assets can fluctuate from year to year and is not a
realised surplus or deficit by excluding this amount, the Directors consider
that a truer reflection of actual Group performance is obtained. Analysis of
this alternative performance measure is as follows:
2022 2021
£000 £000
Profit before tax - continuing and discontinued operations 8,192 14,784
Surplus on valuation of investment properties (473) (12,105)
Deficit/(surplus) on valuation of financial assets 121 (312)
7,840 2,367
8. DIVIDENDS
2022 2021
£000 £000
2020 Final Dividend of 2.27p per share - 961
2021 Interim Dividend of 0.95p per share - 400
2021 Final Dividend of 2.27p per share 948 -
2022 Interim Dividend of 0.96p per share 400 -
1,348 1,361
The Board is proposing a Final Dividend of 2.27p per share (2021, 2.27p) which
will cost the Company no more than £926,000.
The proposed Final Dividend is subject to approval by the shareholders at the
Annual General Meeting and has not been included as a liability in these
financial statements.
9. EARNINGS/(LOSS) PER SHARE
CONTINUING OPERATIONS
Profit attributable to Equity shareholders £000 6,621 11,063
Basic Earnings per share 15.90p 26.16p
DISCONTINUED OPERATIONS - (93)
Loss attributable to Equity shareholders £000 - (0.22)p
Basic Loss per share
CONTINUING AND DISCONTINUED OPERATIONS
Profit attributable to Equity shareholders £000 6,621 10,970
Basic Earnings per share 15.90p 25.94p
Basic earnings per share are calculated by dividing the profit attributable to
equity shareholders by the weighted average number of shares in issue during
the year.
The weighted average number of shares for the year to 31st July 2022 amounted
to 41,638,000 (2021, 42,284,000). There is no difference between basic and
diluted earnings per share.
10. INVESTMENT PROPERTIES
Land and buildings Freehold Land and buildings Leasehold Right-of-use Asset Total
£000 £000 £000 £000
Cost or valuation:
At 1st August 2021 75,744 17,103 213 93,060
Additions 2,218 3 - 2,221
Disposals (9,303) (8,674) - (17,977)
(Deficit)/surplus on valuation (752) 1,225 - 473
At 31st July 2022 67,907 9,657 213 77,777
Cost or valuation:
At 1st August 2020 65,337 13,090 205 78,632
Additions 1,773 567 8 2,348
Disposals (25) - - (25)
Surplus on valuation 8,659 3,446 - 12,105
At 31st July 2021 75,744 17,103 213 93,060
Right-of-use Asset relates to a ground lease on which the Group has built
investment properties. The rent paid by the Group to the lessee for the
ground is a set annual rent and is not contingent on rents received by the
Group from tenants and therefore the lease falls within the definition of IFRS
16: Leases.
Valuation Process
The Group's investment properties are valued by David W Smart, MRICS, who is a
Director of the Parent Company, on the basis of fair value, in accordance with
the RICS Valuation - Global Standards 2017, incorporating the International
Valuations Standards, and RICS Professional Standards UK January 2014 (revised
April 2015). The Directors also requested a third party external valuer to
value the Group's investment property portfolio. The valuations prepared by
the Director and the external valuers are compared to ensure that there are no
material variations between the valuations.
Investment properties, excluding ongoing developments, are valued using the
investment method of valuation. This approach involves applying capitalisation
yields to current and estimated future rental streams and then allowing for
voids arising from vacancies and rent free periods and associated running
costs. The capitalisation yields and rental values are based on comparable
property and leasing transactions in the market, using the valuers'
professional judgement and market observations. Other factors taken into
account in the valuations include the tenure of the property, tenancy details
and ground and structural conditions.
In the case of ongoing developments, the approach applied is the residual
method of valuation, which is the same as the investment method, as described
above, with a deduction for all costs necessary to complete the development,
together with a further allowance for remaining risk.
In accordance with IAS 40: Investment Property, net annual surpluses or
deficits are taken to the Income Statement and no depreciation is provided in
respect of these properties.
The Group considers all of its investment properties fall within 'Level 3' of
the fair value hierarchy as described by IFRS 13: Fair Value Measurement.
Level 3 valuations are those using inputs for the asset or liability that are
not based on observable market data. The main unobservable inputs relate to
estimated rental value and equivalent yield. There have been no transfers of
properties in the fair value hierarchy in the financial year.
The table below summarises the key unobservable inputs used in the valuation
of the Group's Freehold and Leasehold investment properties:
Estimated Rental Value Equivalent Yield
£ per sq ft %
£000 Low Average High Low Average High
Fair Value at 31st July 2022
Investment
Commercial 22,113 11.00 15.25 19.50 6.78 8.60 10.57
Industrial 55,451 4.75 7.75 10.75 6.00 7.19 9.06
Fair Value at 31st July 2021
Investment
Commercial 21,885 11.00 15.25 19.50 6.70 8.91 11.67
Industrial 70,962 4.75 7.75 10.75 5.89 7.02 8.89
The following table illustrates the impact of changes in the key unobservable
inputs (in isolation) on the fair value of the Group's Freehold and Leasehold
investment properties:
5% change in estimated rental value 25bps change in equivalent Yield
Increase Decrease Decrease Increase
£000 £000 £000 £000 £000
Fair Value at 31st July 2022
Investment
Commercial 22,113 1,183 (1,183) 696 (658)
Industrial 55,451 2,511 (2,511) 1,785 (1,667)
Fair Value at 31st July 2021
Investment
Commercial 21,885 1,094 (1,094) 655 (618)
Industrial 70,962 3,426 (3,426) 2,588 (2,407)
The Group had commitments of £6,133,000 (2021, £1,442,000) in respect of
future developments and repair costs of investment properties at the Statement
of Financial Position date.
11. PRIOR YEAR ADJUSTMENT
During the year the Group sought further advice on the Group's right to a
surplus arising on the pension scheme from a firm of lawyers who specialise in
this area. Their advice was that the Group had an unconditional right to the
surplus based on the original Trust Deed and Deed of Variation and therefore
the full surplus arising on the calculation thereof under IAS 19 (amended):
Employee Benefits should be accounted for in the financial statements. This
revised advice impacted on the accounts for the year to 31st July 2021 and
resulted in the accounts for that year being revised.
The impact of this new advice is that it is now clear to the Company that the
full surplus arising on the pension scheme should be accounted for and should
not have been reduced by the asset ceiling adjustment to reduce the surplus to
the present value of economic benefits available in the form of reductions in
future contributions to the plan.
There has been no impact on the Consolidated Income Statement as the asset
ceiling adjustment was only accounted for in the Consolidated Statement of
Comprehensive Income. The pension scheme asset in the Consolidated Statement
of Financial Position has increased as has deferred tax liability on the
asset.
Details of the impact of the revision on the figures in the financial
statements are given below:
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
£000
Other Comprehensive Income - as previously reported
Items that will not be subsequently reclassified to Income Statement:
Remeasurement gains on defined benefit pension scheme 5,988
Other Comprehensive Income - as restated
Items that will not be subsequently reclassified to Income Statement:
Remeasurement gains on defined benefit pension scheme 9,126
Impact on Consolidated Statement of Comprehensive Income - increase 3,138
Tax
Increase in deferred tax adjustment based on above increase (785)
Net impact on Consolidated Statement of Comprehensive Income 2,353
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Retirement benefit surplus - as previously stated 4,725
Retirement benefit surplus - as restated 7,863
Increase in asset 3,138
Increase in deferred tax adjustment based on above increase (785)
Increase in net assets of the Group 2,353
Increase in retained earnings of Group 2,353
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