REG - Smart(J)Contractrs - Final Results
17/11/2023 10:00
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RNS Number : 8371T Smart(J.)&Co(Contractors) PLC 17 November 2023
J. SMART & CO. (CONTRACTORS) PLC ANNOUNCES TODAY, FRIDAY 17 NOVEMBER 2023,
ITS FULL YEAR RESULTS FOR THE YEAR TO 31st JULY 2023
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, including an unrealised deficit
in revalued property and a deficit in revalued financial assets was
£105,000 compared with £8,192,000 last year.
As in previous years, our view is that disregarding the movement in the
revaluation of the commercial property 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 £2,288,000, compared with last year's
figure of £7,840,000, as detailed in note 6.
The Board is recommending a Final Dividend of 2.27p, making a total of 3.23p,
which compares with 3.23p for the previous year. The Final Dividend will
cost the company no more than £904,000.
TRADING ACTIVITIES
Group construction activities, including private residential sales, decreased
by 20%. Headline Group profit on continuing operations decreased
substantially this financial year, which was mainly due to the decrease in the
value of the commercial property portfolio and the absence of profit from
investment sales of commercial property, as was the case in the previous
year. Underlying profit before tax on continuing operations decreased
substantially this year, the previous year having benefitted from an
exceptional profit on the investment sale of commercial property.
Trading margins continued to be affected by the rise in the price of
construction materials and the prolonged process in obtaining not only
statutory approvals, but also simple approvals for utilities and associated
infrastructure. This has resulted in all our construction sites experiencing
delays and thereby longer programmes.
All of the above has caused an increase in aborted site acquisitions and a
lack of contract work being acquired in the Housing Association sector.
Overall costs have therefore out-stripped original budgets, which has led to
an erosion of profits of recently completed and soon to be completed projects.
The private housing development at Winchburgh, Canal Quarter, is mainly
complete. Reservations were encouraging until the end of 2022, but have
significantly reduced in 2023. As previously reported, the current economic
issues of high interest rates and inflation and the cost of living crisis
continues to have an impact on consumer confidence in the private housing
sector. The majority of reservations at Winchburgh have converted into sales,
but sales have been substantially less than expected. The resultant
prolonged sales period and accompanying holding costs, coupled with higher
construction costs, partly due to a longer than expected build period, has and
will continue to lead to a deterioration in the profitability of this
development.
The residential development at Clovenstone Gardens has commenced and
construction is progressing well. As previously reported, the first
completions are not due until late 2024, so no marketing has yet taken
place. As with the development at Winchburgh, the rise in construction costs
and the longer than expected programme may result in a decrease in profit
levels. It remains to be seen if this will be counter-balanced by positive
house sales.
As predicted, commercial property values have fallen due to the decrease in
investment yields. However, lettings of both our industrial stock and office
stock remain robust. Rental levels in both sectors have not fallen yet and
we are still seeing rental growth, but more so in the industrial sector than
the office sector.
The second phase of Gartcosh Industrial Park, developed through the joint
venture company, Gartcosh Estates LLP, comprising two medium sized industrial
units, is now fully let.
The second phase at Belgrave Point, Bellshill, a large speculative single user
industrial unit, is nearly complete and interest is promising. The increased
programme, due to delays in utility infrastructure, and increased construction
costs, will again impact on profit margins.
As reported in the interim statement, we have not secured any new external
contracts with housing associations. A contract has been agreed with a
manufacturing company for a new office facility and an industrial unit
extension. This contract, just outside Stirling, did commence just prior to
the end of the financial year, and is progressing well.
FUTURE PROSPECTS
We have less work in hand in our own private housing at this time than we did
last year. We do not have any real prospects of further contract work at
present.
We have finally made progress with several planning applications previously
stuck in the Scottish planning system, albeit it has taken longer than is
necessary. Planning consent was obtained for an industrial development in
Bathgate. We have just received approval for a residential development in
Fife. We anticipate planning permission being granted for a substantial
flatted development in Edinburgh this financial year.
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 due to simple viability issues.
The lack of urgency in local authorities in processing statutory approvals
will undoubtedly delay commencement on site, should we choose to progress
these developments. As mentioned above, there will be private housing sales
this year, but substantially less than anticipated.
We expect to maintain letting levels in our commercial property portfolio.
It is already evident that investment yields have decreased, but rental levels
have held steady. Therefore, it remains to be seen whether commercial property
values will fall this current financial year.
At this stage it is difficult to assess what the headline profit will be for
the year to 31st July 2024. If commercial property values fall further, 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, the
increase in material costs and prolonged programmes due to statutory approval
delays.
Mr Roy Anderson, Managing Director of our subsidiary Thomas Menzies (Builders)
Limited, retires at the end of 2023. He served your company diligently for 34
years and I wish him a long and happy retirement.
This is the first full reporting year for the new Task Force Climate-Related
Financial Disclosures (TCFD) standards. It has taken a significant amount of
time, effort and work with our consultant, Beyond Green, to develop an updated
Sustainability Policy incorporating the required TCFD Reporting. I would like
to thank all our employees involved in the process. Special mention must be
made of the efforts of Head of HR, Lynsey Mackenzie, Head of Commercial
Development, Jane Oliver and our Chief Buyer, John Sharp in this regard.
DAVID W SMART
16th November
2023
Chairman
PERFORMANCE REVIEW
Construction activities
2023 2022
£000 £000
Revenue 5,961 7,430
Operating loss (2,720) (2,487)
Construction revenue in the year has significantly decreased again this year
due mainly to fallen turnover in the areas of civil engineering undertaken by
Subsidiary Company, Thomas Menzies (Builders) Limited and in work on
construction of industrial units. As noted in the previous year we completed
the work for our Joint Venture, Gartcosh Estates LLP at phase 2 of their
development consisting of 2 industrial units and undertook no new construction
work of industrial units for third parties in the year.
During the year there were sales of private house sales at our development at
Canal View, Winchburgh a development of 64 dwellings consisting of flats and
terrace houses. In total 9 properties were sold in the year. Revenue from
private house sales due to these sales increased from that of the previous
year.
We commenced construction at our site in Clovenstone, Wester Hailes,
Edinburgh. This site is a development of 45 flats. Private house sales at
this development are not expected until the year to 31st July 2026. There is
also an element of social housing at this site being 24 flats for Prospect
Community Housing. During the year there was a small amount of revenue
earned against this contract.
During the year we also commenced construction of commercial property for a
third party and again a small amount of revenue was earned against this
contract.
Full details of construction revenue is given in note 3 to the financial
statements.
Construction material costs continue to remain high due to the continuing
impact of Brexit, global unrest, inflation rate increases and the overall
demand for goods and services causing increases in material and labour
costs. The Group continues to monitor costs on construction contracts, with
the finance and surveyor teams liaising to ensure accurate recording of cost
to contracts and monitoring of actual costs against anticipated costs and
anticipated revenue to ensure projects remain on course. The Directors
continue to fully appraise contracts, at various stages, prior to acceptance
to ascertain the likely outcome of the contract. These appraisals are
conducted prior to land bank acquisitions, commencement of construction and
then during the lifetime of the contract to its completion.
Overheads continue to remain relatively constant over time, the Directors do
continue to monitor these with a view to achieving any savings on costs were
possible. However, with reduced revenue levels the recoverability of
overhead is difficult.
The increased material construction costs together with increased labour costs
has resulted in margins being reduced which impacts on the recoverability of
overheads incurred by the Group and has resulted in the increased operating
loss incurred in the year.
Investment activities
2023 2022
£000 £000
Revenue from investment properties 7,011 6,983
Profit on sale of investment properties - 6,055
Net (deficit)/surplus on valuation of investment properties (2,164) 473
Operating profit from investment properties 2,063 10,309
Income from financial assets 58 63
(Loss)/profit on sale of financial assets (15) 17
Net deficit on valuation of financial assets (19) (121)
Share of (losses)/profits in Joint Ventures (36) 254
Revenue for investment properties marginally increased in the year (2022,
increased by 6%). There have been movements by tenants in and out of
properties in the year but overall both occupancy levels and rental growth
have remained fairly static. Recoverability of revenue for investment
properties continues to remain high and the Group has suffered little in the
way of defaulting tenants.
The office and retail development at Winchburgh was completed and handed over
to our investment property company at the start of the financial year. On
completion of the build a tenant for the office was in place but we have still
to lease any of the industrial units, although a tenant is lined up to take up
occupancy of one of the units in the near future. Work continues on phase 2
at our industrial site at Bellshill for the construction of one 53,735 square
foot unit and the work now includes an office fit out within the unit which
has resulted in an extension to the duration of the build.
Service charges and insurance receivable revenue have remained unchanged from
the previous year due to the limited movements in occupancy in the year (2022,
increased by 4%). Service charges remain dependent on costs incurred in the
year that can be recovered and varies from year to year.
There were no disposals of properties in the year, compared to the previous
year when the Group sold three of its industrial estates for £24,032,000
which generated a profit on sale of £6,055,000.
This year the Group has suffered a deficit on the revaluation of investment
property portfolio of £2,164,000, due mainly to decreasing yields.
Income from our financial assets has decreased from that of the previous
year. There were a number of acquisitions in the year to our portfolio and
disposals on which the Group suffered a loss of £15,000. The impact of
world and domestic events on the financial markets resulted in a deficit of
£19,000 on the fair value of our financial assets being recorded this year.
The share of the results in our Joint Ventures is a loss of £36,000 which is
due to the effect of accounting for a revaluation deficit on the industrial
development owned by Gartcosh Estates LLP.
Group results and financial position
2023 2022
£000 £000
Profit before tax 105 8,192
Net bank position 8,214 20,795
Net assets 125,467 124,676
Overall the Group has earned a profit before tax in the year but it is
significantly reduced from the profit earned in the previous year due to the
operating loss on the construction activities of the Group and the accounting
for the deficit on the revaluation of investment properties. The
significant movement in the profit for this year and the profit in the
previous year is also due to the profit earned on sale of the investment
properties in the previous year and the accounting for the impact of the
revaluation deficit on investment properties in each year. If these are
excluded then in the current year the Group generated a profit of £2,269,000
compared to £1,664,000 in the previous year. The movement of £605,000
arises mainly from the increased operating profit earned on the Group's
investment activities less the increased loss on the construction activities
and the increase in finance income on short-term deposits with banks, interest
on loans to Joint Ventures and interest earned on the Group's Retirement
Benefit asset.
Our net bank position, which comprises monies held on deposit, cash and cash
equivalents and the netting of our bank overdraft has decreased in the year.
This is due to the cash outflows on our current private housing and own
industrial developments currently in progress. Overall, the Group continues to
be net debt-free.
The Group's net assets have increased by £791,000, the main impact being the
movement in the Group's pension scheme surplus of £4,902,000 and the increase
in our inventories of private housing for sale net of the decrease in cash and
cash equivalents. The profit generated 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.
Area of principal risk or uncertainty and impact Mitigating actions and controls
By focusing external construction activities in the social housing sector, • Maintain long-term relationships with social housing providers,
which is a competitive market, failure to win new contracts would impact on resulting from high standards of service, quality and post construction care
our volume of work and therefore the workforce required by the Group. 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.
Decline in home buyer confidence, due to bank interest rates, availability of • Building developments in popular residential areas.
affordable mortgages and cost of living crisis resulting in stalling of
private house sales. • 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.
Social housing sector and the housing market in general is highly competitive • We are an 'all trades' contractor who employs our own personnel in all
with tight margins. 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.
Reduction in rental demand for investment properties may result in a fall in • Only commence speculative developments after careful assessment
property valuations. of the market.
• Continue to invest in property sectors which are robust.
• 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.
Reduction in demand for UK real estate from investors may result in a fall in • The Directors regularly review the property market to ascertain
valuations within our investment property portfolio, this could result in if changes in the overall market present specific risks or opportunities to
delays in investment decisions which could impact on our activities. the Group.
• Restricting our operations to the central belt of Scotland being
the area of the country with which we are most familiar.
Political events and policies result in uncertainty until final decisions have • Before any decisions are taken by the Directors in any area of the
been made and the impact of decisions are known, this could result in delays Group's activities the level of uncertainty and range of potential outcomes
in investment decisions which could impact on our activities. Including arising from political events and policies are considered.
Local Government processes slowing down our ability to commence new building
projects. • Monitor Government guidelines and new legislations announcements to
ensure the Group remains up to date with legislation.
• Continue to pursue contacts at Local Government to obtain necessary
consents and planning approval.
Reduction of financial resources. • Ensure resources are not over committed and only undertake
commercial and private housing developments after due consideration of 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.
Failure to evolve business practices and operations in response to climate • Continue to monitor all requirements relating to the construction
change. 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.
• Establishment of Sustainability Committee to develop the Group's
sustainability strategy with the commitment to reduce the Group's carbon
emissions in line with science-based carbon reduction targets.
• Employ the services of external specialists and consultants for their
expertise.
Unforeseen national and global events including world conflicts and natural • Establish strong relationships with suppliers and subcontractors to
disasters. ascertain impact on their potential supply chains.
• Build up financial resources to ensure the Group has sufficient funds
for future working capital requirements.
• Establish continuity plans for all areas of operations.
Impact of cost of living crisis, increased inflation and bank interest rates. • Retain strong control over costs on construction contracts.
• Remunerate onsite and office based employees with competitive rates of
pay and benefits.
CONSOLIDATED INCOME STATEMENT
for the year ended 31st July 2023
Notes 2023 2022
£000 £000
Restated Note 1
REVENUE 3 12,972 14,413
Cost of sales (6,922) (8,850)
GROSS PROFIT 6,050 5,563
Other operating income 4 74 29
Administrative expenses (4,617) (4,298)
OPERATING PROFIT BEFORE PROFIT ON SALE AND NET (DEFICIT)/SURPLUS ON VALUATION 1,507 1,294
OF INVESTMENT PROPERTIES
Profit on sale of investment properties - 6,055
Net (deficit)/surplus on valuation of investment properties 9 (2,164) 473
OPERATING (LOSS)/PROFIT (657) 7,822
Share of (loss)/profits in Joint Ventures (36) 254
Income from financial assets 58 63
(Loss)/profit on sale of financial assets (15) 17
Net deficit on valuation of financial assets (19) (121)
Finance income 786 141
Finance costs (12) (12)
Gain on remeasurement of subsidiary company - 28
PROFIT BEFORE TAX 6 105 8,192
Taxation 5 95 (1,571)
PROFIT FOR YEAR ATTRIBUTABLE TO EQUITY SHAREHOLDERS 200 6,621
EARNINGS PER SHARE
Basic and diluted 8 0.49p 15.90p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31st July 2023
2023 2022
£000 £000
PROFIT FOR YEAR 200 6,621
OTHER COMPREHENSIVE INCOME
Items that will not be subsequently reclassified to Income Statement:
Remeasurement gains on defined benefit pension scheme 4,330 7,219
Deferred taxation on remeasurement gains on defined benefit pension scheme (1,083) (1,804)
TOTAL ITEMS THAT WILL NOT BE SUBSEQUENTLY RECLASSIED TO INCOME STATEMENT 3,247 5,415
TOTAL OTHER COMPREHENSIVE INCOME 3,247 5,415
TOTAL COMPREHENSIVE INCOME FOR YEAR, NET OF TAX 3,447 12,036
ATTRIBUTABLE TO EQUITY SHAREHOLDERS 3,447 12,036
`
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
as at 31st July 2023
Share Capital Capital Redemption Reserve Retained Earnings Total
£000 £000 £000 £000
As at 1st August 2021 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
Profit for year - - 200 200
Other comprehensive gain - - 3,247 3,247
TOTAL COMPREHENSIVE INCOME FOR YEAR - - 3,447 3,447
TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY IN EQUITY
Shares purchased and cancelled (16) - (1,329) (1,345)
Transfer to Capital Redemption Reserve - 16 (16) -
Dividends - - (1,311) (1,311)
TOTAL TRANSACTIONS WITH OWNERS (16) 16 (2,656) (2,656)
As at 31st July 2023 802 206 124,459 125,467
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31st July 2023
Notes 2023 2022
£000 £000
NON-CURRENT ASSETS
Property, plant and equipment 1,670 1,207
Investment properties 9 81,389 77,777
Investments in Joint Ventures 1,496 1,532
Financial assets 1,225 1,069
Trade and other receivables 3,010 3,010
Retirement benefit surplus 19,998 15,096
Deferred tax assets 13 13
108,801 99,704
CURRENT ASSETS
Inventories 17,760 12,454
Contract assets 33 16
Corporation tax asset 274 -
Trade and other receivables 2,352 2,442
Monies held on deposit 49 48
Cash and cash equivalents 18,656 31,796
39,124 46,756
TOTAL ASSETS 147,925 146,460
NON-CURRENT LIABILITIES
Deferred tax liabilities 8,842 8,172
Lease liabilities 212 212
9,054 8,384
CURRENT LIABILITIES
Trade and other payables 2,912 2,306
Lease liabilities 1 1
Corporation tax liability - 44
Bank overdraft 10,491 11,049
13,404 13,400
TOTAL LIABILITIES 22,458 21,784
NET ASSETS 125,467 124,676
EQUITY
Called up share capital 802 818
Capital redemption reserve 206 190
Retained earnings 124,459 123,668
TOTAL EQUITY 125,467 124,676
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31st July 2023
2023 2022
£000 £000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit after tax 200 6,621
Tax (credit)/charge for year (95) 1,571
Profit before tax 105 8,192
Adjustments for:
Share of losses/(profits) from Joint Ventures 36 (254)
Depreciation 445 399
Unrealised deficit/(surplus) on valuation of investment properties 2,164 (473)
Unrealised deficit on valuation of financial assets 19 121
Profit on sale of property, plant and equipment (74) (29)
Loss on derecognition of asset 42 -
Profit on sale of investment property - (6,055)
Loss/(profit) on sale of financial assets 15 (17)
Gain on remeasurement of subsidiary company - (28)
Change in retirement benefits (41) (14)
Interest received (786) (20)
Interest paid 12 12
Change in inventories (5,306) (4,584)
Change in contract assets (17) 230
Change in receivables 187 503
Change in payables 606 (1,113)
CASH OUTFLOW FROM OPERATING ACTIVITIES (2,593) (3,130)
Tax paid (636) (914)
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (3,229) (4,044)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (978) (380)
Additions to investment properties (48) (54)
Expenditure on own work capitalised - investment properties (5,728) (2,167)
Proceeds of sale of property, plant and equipment 102 48
Proceeds of sale of investment property - 24,032
Purchase of financial assets (368) (47)
Proceeds of sale of financial assets 178 58
Monies held on deposit (1) -
Acquisition of investment in Subsidiary - net cash acquired - 97
Interest received 158 20
Loan to Joint Ventures - (1,440)
Investment in Joint Ventures - (50)
NET CASH (OUTFLOW)/INFLOW FROM INVESTING ACTIVITIES (6,685) 20,117
CASH FLOWS FROM FINANCING ACTIVITIES
Interest costs on leases (12) (12)
Purchase of own shares (1,345) (1,749)
Dividends paid (1,311) (1,348)
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (2,668) (3,109)
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (12,582) 12,964
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,747 7,783
CASH AND CASH EQUIVALENTS AT END OF YEAR 8,165 20,747
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 PREPARATI0N
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 2023
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 2023 or 31st July 2022.
The statutory consolidated accounts for the year to 31st July 2023 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 2023 will be
delivered to the Registrar of Companies following the Company's Annual General
Meeting.
The financial information for the year to 31st July 2022 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 2023
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 2023:
• IFRS3 (amended): Business Combinations
• IAS 37 (amended): Provisions, Contingent Liabilities and
Contingent Assets.
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
There have been no new standards, amendments to standards and interpretations
relevant to the Group which have been issued by the International Accounting
Standards Board, but are not yet effective for the Group at the date of these
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. 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
£125,467,000 at 31st July 2023 and the Group's net current assets amount to
£25,720,000. 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 Directors have 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.
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.
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 30 of 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 to 31st July 2022 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.
PRIOR PERIOD RESTATEMENT
When the Group was first established, it was for the purposes of construction
of homes in both the private and social housing sectors. In 1977, the Group
acquired the Investment Property subsidiary, C. & W. Assets Limited and
overtime this subsidiary has continually grown, both with regards to annual
income generated and the value of assets held by the Group. Historically,
the Group considered the investment property activities to be a non-core
activity of the Group and so the Group presented investment property activity
income as Other Operating Income in the Consolidated Income Statement with
associated costs within Administration expenses. Given the continual growth
in investment property activities, the Directors have revisited this judgement
and after having considered the investment property activities, capital
employed and business prospects, have concluded that investment property
activities are a core part of the Group. This change in judgement lead to
rental income from investment property for the year to 31st July 2022 in the
Consolidated Income Statement and related notes to the financial statements
re-presented as Revenue, with the associated direct costs being re-presented
as Cost of Sales. Accordingly, notes 2, 3 and 4 have been restated to
reflect this change. The change of judgement has no impact on the net profit
for the year to 31st July 2022 or the net assets as at 31st July 2022.
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 from construction and investment property 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.
Revenue Operating (Loss)/Profit
2023 2022
£000 £000 £000
2023
Construction activities 5,961 (2,720) -
Investment property activities 7,011 2,063 -
12,972 (657) -
2022
Construction activities 7,430 - (2,487)
Investment property activities 6,983 - 10,309
14,413 - 7,822
OPERATING (LOSS)/PROFIT (657) 7,822
Share of results in Joint Ventures (36) 254
Finance and investment income 844 221
Finance and investment costs (46) (133)
Gain on remeasurement of subsidiary company - 28
PROFIT ON ORDINARY ACTIVITIES BEFORE TAX 105 8,192
The Group had sales from construction activities from two customers amounting
to £1,281,000 and £753,000 respectively (2022, sales from construction
activities from two customers amounting to £2,051,000 and £1,387,000
respectively).
OTHER SEGMENTAL INFORMATION
Non-Current Asset Segment Assets Segment Liabilities
Additions Depreciation
£000 £000 £000 £000
2023
Construction activities 978 398 47,195 17,964
Investment property activities 5,776 47 100,192 5,452
Joint Ventures - - 1,496 -
148,883 23,416
Allocation of corporation tax creditor (958) (958)
147,925 22,458
2022
Construction activities 380 351 36,679 16,744
Investment property 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
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.
2023 2022
£000 £000
Disaggregation of Revenue Restated Note 1
Construction activities
Social housing 397 9
Civil engineering 3,223 4,330
Industrial 77 1,387
Commercial 97 -
General construction 4 42
Private house sales 2,163 1,662
5,961 7,430
Investment property activities
Rental income 6,186 6,158
Service charges and insurance receivable 824 824
Sundry income 1 1
7,011 6,983
Total Revenue 12,972 14,413
The transaction price allocated to unsatisfied performance obligations in
respect of construction activities as at 31st July 2023 are as set out below:
Social housing 3,829 -
Civil engineering 457 422
Industrial - -
Commercial 2,965 -
The Directors expect that 82% (2022, 100%) of the transaction price allocated
to the unsatisfied contracts as at 31st July 2023 will be recognised as
revenue in the year to 31st July 2024. The Directors expect that the remain
18% which relates to social housing and commercial property will be recognised
as revenue in the year to 31st July 2025.
The Group does not include in Revenue the value of work done in the year which
relates to own work capitalised on the Group's Investment Properties, in the
year to 31st July 2023 this amounted to £5,728,000 (2022, £2,167,000).
4. OTHER OPERATING INCOME
2023 2022
£000 £000
Restated Note 1
Profit on disposal of property, plant and equipment 74 29
5. TAXATION
2023 2022
£000 £000
UK Corporation Tax
Current tax on income for the year 358 997
Corporation tax over provided in previous years (40) (4)
318 993
Deferred taxation (413) 578
95 1,571
Current Tax Reconciliation
Profit on ordinary activities before tax 105 8,192
Share of losses/(profits) of Joint Ventures 36 (254)
Gain on remeasurement of subsidiary company - (28)
141 7,910
Current tax at 21.01% (2022, 19.00%) 30 1,503
Effects of:
Expenses not deductible for tax purposes 490 124
Ineligible depreciation - (1,189)
Non-taxable income including revaluation surplus (567) (103)
Chargeable gains - 752
Effect of change in tax rate (90) 547
Adjustment to corporation tax charge in respect of prior years (40) (4)
Adjustment to deferred tax charge in respect of prior years 80 (30)
Deferred tax not recognised 2 (29)
95 1,571
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 21.01% (2022, 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 £1,083,000 (2022, £1,804,000) 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. PROFIT BEFORE TAX 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:
2023 2022
£000 £000
Profit before tax 105 8,192
Deficit/(surplus) on valuation of investment properties 2,164 (473)
Deficit on valuation of financial assets 19 121
2,288 7,840
7. DIVIDENDS
2023 2022
£000 £000
2021 Final Dividend of 2.27p per share - 948
2022 Interim Dividend of 0.96p per share - 400
2022 Final Dividend of 2.27p per share 923 -
2023 Interim Dividend of 0.96p per share 388 -
1,311 1,348
The Board is proposing a Final Dividend of 2.27p per share (2022, 2.27p) which
will cost the Company no more than £904,000.
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.
8. EARNINGS PER SHARE
2023 2022
£000 £000
Profit attributable to Equity shareholders £000 200 6,621
Basic earnings per share 0.49p 15.90p
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 2023 amounted
to 40,572,000 (2022, 41,638,000). There is no difference between basic and
diluted earnings per share.
9. 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 2022 67,907 9,657 213 77,777
Additions 5,776 - - 5,776
Deficit on valuation (1,692) (472) - (2,164)
At 31st July 2023 71,991 9,185 213 81,389
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
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
variations outside of acceptable valuation differences.
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 2023
Investment
Commercial 21,285 11.00 16.00 21.00 8.04 9.40 11.29
Industrial 59,891 4.75 7.82 10.89 7.24 7.98 9.95
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
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 2023
Investment
Commercial 21,285 1,171 (1,171) 653 (620)
Industrial 59,891 2,713 (2,713) 1,828 (1,713)
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)
The Group had commitments of £2,623,000 (2022, £6,133,000) in respect of
future developments and repair costs of investment properties at the Statement
of Financial Position date.
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