Smart(J)Contractrs - Final Results
19/11/2021 09:54
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20211119:nRSS9691Sa&default-theme=true
RNS Number : 9691S Smart(J.)&Co(Contractors) PLC 19 November 2021
J. SMART & CO. (CONTRACTORS) PLC ANNOUNCES TODAY, FRIDAY 19 NOVEMBER 2021,
ITS FULL YEAR RESULTS FOR THE YEAR TO 31st JULY 2021
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 surplus
in revalued financial assets, was £14,784,000, compared with £4,083,000 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 £2,367,000 and was more than last year's
figure of £1,283,000.
The Board is recommending a Final Dividend of 2.27p, making a total of 3.22p,
which compares with 3.22p for the previous year. The Final Dividend will
cost the company no more than £949,000.
TRADING ACTIVITIES
Group construction activities, including private residential sales on
continuing operations, decreased by 36%. Headline Group profit on continuing
operations increased substantially this financial year, which was mainly due
to the increase in the value of the commercial property portfolio, most
noticeably in the industrial element. Underlying profit before tax on
continuing operations increased by 83%, due to an unexpected profit in a
perennial loss making subsidiary company, profit in the Joint Venture Company
Gartcosh Estates LLP, due to the enhanced value in the first industrial unit
developed and an unrealised surplus in revalued financial assets.
Trading activities in the second half of the financial year continued to be
impacted by the coronavirus crisis, albeit in a different manner to last
financial year. Practically, whilst our construction sites have remained
open, although still working under covid guidelines, the majority of our
office-based staff continued to work from home in line with legislation and
guidance. The majority of our office-based staff are now back working in the
office, which happened after the year end.
Whilst the above has hampered trading activities in the financial year, the
main negative impacts of the coronavirus crisis have been with supply chain
issues and an inexorable rise in the price of construction materials.
All our construction sites have, and continue to experience, delays and
prolonged lead in times for most essential construction materials and the
increases in material costs show no sign of abating.
This has directly resulted in aborted site acquisitions and tender work
negotiations in the Housing Association sector being halted. Moreover, it
has led to an erosion of profits of recently completed and soon to be
completed projects.
The small private housing development at Winchburgh, The Courtyard, completed
after the year end and all the units are either sold or reserved. The margin
achieved was disappointing for the reasons noted above.
The larger private housing development at Winchburgh, Canal Quarter, started
just prior to the financial year end, but there will be no private housing
sales until late 2022. This project has already suffered delays in material
deliveries and this coupled with material cost increases will affect profit
margins.
As an antithesis to the negative issues above, our commercial property
portfolio has continued to progress positively. Property valuation levels,
especially in the industrial sector, have continued to rise with the yields
for prime industrial stock at unprecedented levels. Rental growth in our
industrial properties improved in the financial year, as well as occupancy
rates. In our office properties, whilst rental growth and occupancy levels
are not quite as pronounced as the industrial stock, these are progressing
satisfactorily.
The third and final phase at Inchwood Park, Bathgate is now complete, with a
third of the space being let shortly after completion to a trade counter
operator.
Construction is progressing well at the second phase of Gartcosh Industrial
Park, developed through the joint venture company, Gartcosh Estates LLP. The
two medium sized units at the second phase are due for completion at the end
of 2021, and interest is promising.
A small commercial development at Winchburgh town centre, with pre-let offices
and speculative retail units, was started just prior to the year end, and
completion is due after the next financial year.
FUTURE PROSPECTS
We have similar work in hand in contracting as at the same time last year.
Whilst we have a number of potential new contracts, it remains to be seen, due
to the rise in construction costs and general delays in the development
process, when these new contracts will commence.
As mentioned above, there will be a small amount of private housing sales in
the year to 31st July 2022. We are hopeful that one or more of our future
private housing sites will commence in this current financial year.
We expect letting and positive rental growth in our industrial properties to
continue, as with our office properties, albeit at a reduced scale. Due to
the increased values of our industrial properties and the appetite of property
investors for multi-let industrial stock, the Board has decided to sell a
selection of our corporeal industrial property. The estates at Bilston Glen
Industrial Estate, Loanhead, Inchwood Park, Bathgate and West Edinburgh
Business Park, South Gyle have been marketed recently for sale. Interest in
these assets has been promising and a sale is expected in this current
financial year.
At this stage it is difficult to make an informed forecast for the outcome of
the year to 31st July 2022. The lull in contracting work and private housing
will result in an erosion in profits due to a lack of recovery of overhead
costs. This erosion in profit will be further exacerbated by the increase in
material costs.
DAVID W SMART
Chairman
PERFORMANCE REVIEW
Construction activities
2021 2020
Continuing Operations £000 £000
Revenue from Group construction activities 12,308 19,223
Operating loss (2,305) (3,472)
Turnover in the year has significantly decreased this year and this is due to
the fact that in the current year in the private housing development at West
Bowling Green Street there were only sales of the remaining 6 unsold flats at
the development compared to the 41 flats sold in the previous year.
At the commencement of the year we only had one social housing project, being
the Ferrymuir contract. This completed in the year and was handed over to
the social housing provider in December 2020. No new social housing projects
have commenced this year.
We commenced work for our Joint Venture, Gartcosh Estates LLP being phase 2 of
the development consisting of two industrial units. Both of these units are
due for completion and handover in December 2021.
During the year we completed the work at our own industrial developments at
the final phases at West Edinburgh Business Park, which was fully let in the
year, and at Inchwood Park, Bathgate, although there were no lettings in the
year at this development post year end letting have been secured for part of
the phase.
The turnover of our civil engineering subsidiary increased in the year.
Although our construction sites have remained open for the entire year
throughout the Group, coronavirus has still had a significant impact on the
running of our sites and also financially on the results of our construction
activities. 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 which has again resulted
in additional costs being incurred to ensure this. We continued to utlised
the UK Government's Furlough scheme of site-based operatives although to a
lesser extent than the previous year.
Brexit along with coronavirus has had a financial impact on the results for
the year via supply chain issues and significant increase in the cost of
construction materials. These increased costs have been borne by the Group
resulting in the margins on construction work continuing to be poor, although
not to the same level as previous year due to the level of work undertaken in
the year.
The Directors continue to fully
appraise contracts prior to acceptance to ascertain the likely outcome of the contract.
The contract reporting functions between the finance team and the surveyors
relating to the recording of costs have been revised with the view to
providing increased detail and analysis of costs to the surveyors, who along
with the Directors can appraise contract performance on a timely basis to and
analysis areas of contracts were losses are been incurred and 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.
Investment activities
2021 2020
£000 £000
Income from investment properties 7,411 7,198
Profit on sale of investment properties 37 -
Net surplus on valuation of investment properties 12,105 3,179
Operating profit from investment properties 16,578 7,820
Income from financial assets 36 50
Profit on sale of financial assets 1 16
Net surplus/(deficit) on valuation of financial assets 312 (379)
Share of profits/(losses) in Joint Ventures 264 (13)
Rental income from the Group's investment property portfolio increased in the
year by 4% (2020, decreased by 5%) mainly due to increase rental growth and
occupancy in our industrial properties and to a lesser extend in our
commercial properties. Coronavirus continues to affect our tenants and a
small number left before the end of their leases resulting in rental income
loss to the Group, however in the main we have secured in the year new tenants
to take occupancy of these properties. Recoverability of rental income
continues to remain high despite the impact coronavirus has had on our
tenants.
During the year construction of our industrial units at West Edinburgh
Business Park Phase 3 was completed and the entire phase was leased in the
year to a national tool and equipment hire company. Construction at Inchwood
Phase 3 also completed in the year, and although there was no occupancy in the
current financial year a trade counter operator has since taken occupancy of a
third of the phase
Service charges and insurance receivable income has decreased by 5% (2020,
increased by 10%) but this is dependent on costs incurred in the year that can
be recovered and varies from year to year.
There was one small disposal of vacant land at one of our industrial estates
in the year which resulted in the profit on sale of £37,000.
The Group has recorded a significant surplus on the revaluation of its
investment property portfolio. The surplus relates to both our industrial
and commercial properties but particularly to our industrial properties due to
the yields for prime industrial stock being at unprecedented levels.
If the surplus on the valuation of investment properties is excluded the Group
generated a profit from its investment activities of £4,473,000 compared to
£4,641,000 in 2020 being a fall of £168,000. Despite the increased income
levels there have also been significant costs incurred on properties not
generating income of £1,011,000 (2020, £652,000) which has contributed to
the fall in underlying profits in the year.
Income from our financial assets has fallen in the year due to the fact
that companies are just not paying out dividends.
There have been no additions to the portfolio
in the year and the disposals in the year generated a very small
profit of £1,000. Despite the fact the world is still in a
worldwide pandemic the fair value for the shares held by the Group
increased and as at the year end a surplus of £312,000 was recorded.
The share of the results in our Joint Ventures is a profit this year of
£264,000 which is due to the effect of accounting for the revaluation surplus
relating the completed phase 1 development owned by Gartcosh Estates LLP.
The only income generating Joint Venture is Gartcosh Estates LLP. Post year
end, one of the Joint Venture companies, Duff Street Limited was dissolved.
Group results and financial position
Continuing and discontinued activities 2021 2020
£000 £000
Profit before tax 14,784 4,083
Net bank position 7,831 13,062
Net assets 113,384 99,260
The Group has reported a significant profit before tax for the year as
compared to the previous year and this is mainly due to the surplus on
valuation of investment properties recorded. Even if this surplus and that
recorded on revaluation of financial assets is excluded the Group generated a
profit for the year of £2,367,000 compared to £1,283,000 in the previous
year. The movement being the result of reduction in the loss suffered within
construction activities netted against the fall in the profits earned in our
investment activities.
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 mainly due to fact revenue for private house sales is considerably
lower this year than last year and the nature of the work undertaken this year
was predominately private housing with only cash outflows with no sales
revenue on current developments underway. There has been again been
significant expenditure this year on our own work capitalised. Also, in the
year the Group lent money to its Joint Ventures amounting to £1,320,000 and
invested a further £133,000 in them. Despite the decrease in our net bank
position the Group continues to be net debt free.
The Group's net assets have increased overall by £14,124,000, the main impact
on this being the profit earned in the year as discussed above. Other
significant impacts on net assets are the movement in the Group's defined
benefit pension scheme which moved from a deficit at 31st July 2020 of
£1,076,000 to a surplus this year of £4,725,000 and the increase in deferred
tax liability which resulted from the increase in valuation of investment
properties and the surplus arising on the pension scheme.
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 and availability of affordable mortgages
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.
• 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.
• 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 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.
Area of principal risk or uncertainty and impact
Continuing uncertainty of the impact of coronavirus on the Group's operational
and financial performance.
Mitigating actions and controls
• Following 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.
• Regularly reviewing cash flow projections.
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
Credit risk
The Group's credit risk is mainly mitigated due to the fact the majority of
the Group's revenue relates to private house sales which are made on
completion of a legal contract for the transfer of title and are to numerous
customers. Other construction contract sales are mainly to social housing
providers and government local authorities who undertake projects knowing
funds are available to fulfil payment of contracts. With regards to rental
income there is no concentration of credit risk as exposure is spread over a
number of tenants.
Liquidity risk
The Group finances its operation through equity it has no bank borrowings and
therefore has no exposure to liquidity risk.
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 2021
Notes 2021 2020
£000 £000
CONTINUING OPERATIONS
Group construction activities 12,308 19,223
Less: Own construction work capitalised (1,901) (2,410)
REVENUE 3 10,407 16,813
Cost of sales (8,977) (16,764)
GROSS PROFIT 1,430 49
Other operating income 4 7,446 7,198
Net operating expenses (6,745) (6,078)
OPERATING PROFIT BEFORE PROFIT ON SALE AND NET SURPLUS ON VALUATION OF 2,131 1,169
INVESTMENT PROPERTIES
Profit on sale of investment properties 37 -
Net surplus on valuation of investment properties 12,105 3,179
OPERATING PROFIT 14,273 4,348
Share of profits/(losses) in Joint Ventures 264 (13)
Income from financial assets 36 50
Profit on sale of financial assets 1 16
Net surplus/(deficit) on valuation of financial assets 312 (379)
Finance income 4 130
Finance costs (25) (12)
PROFIT BEFORE TAX 14,865 4,140
Taxation 5 (3,802) (508)
PROFIT FOR THE YEAR FROM CONTINUING ACTIVITIES 11,063 3,632
DISCONTINUED OPERATIONS
Loss for the year from discontinued operations 6 (93) (47)
PROFIT FOR YEAR ATTRIBUTABLE TO EQUITY SHAREHOLDERS 7 10,970 3,585
EARNINGS/(LOSS) PER SHARE
From continuing operations - basic and diluted 9 26.16p 8.46p
From discontinued operations - basic and diluted 9 (0.22)p (0.11)p
From continuing and discontinued operations - basic and diluted 9 25.94p 8.35p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31st JULY 2021
2021 2020
£000 £000
PROFIT FOR YEAR 10,970 3,585
OTHER COMPREHENSIVE INCOME/(LOSS)
Items that will not be subsequently reclassified to Income Statement:
Remeasurement gains/(losses) on defined benefit pension scheme 5,988 (3,961)
Deferred taxation on remeasurement (gains)/losses on defined benefit pension (691) 942
scheme
TOTAL ITEMS THAT WILL NOT BE SUBSEQUENTLY RECLASSIED TO INCOME STATEMENT 5,297 (3,019)
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS) 5,297 (3,019)
TOTAL COMPREHENSIVE INCOME FOR YEAR, NET OF TAX 16,267 566
ATTRIBUTABLE TO EQUITY SHAREHOLDERS 16,267 566
`
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
as at 31st JULY 2021
Share Capital Capital Redemption Reserve Retained Earnings Total
£000 £000 £000 £000
As at 1st August 2019 866 142 99,274 100,282
Profit for year - - 3,585 3,585
Other comprehensive loss - - (3,019) (3,019)
TOTAL COMPREHENSIVE INCOME FOR YEAR - - 566 566
TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY IN EQUITY
Shares purchased and cancelled (13) - (780) (793)
Transfer to Capital Redemption Reserve - 13 (13) -
Dividends - - (795) (795)
TOTAL TRANSACTIONS WITH OWNERS (13) 13 (1,588) (1,588)
As at 31st July 2020 853 155 98,252 99,260
Profit for year - - 10,970 10,970
Other comprehensive gain - - 5,297 5,297
TOTAL COMPREHENSIVE INCOME FOR YEAR - - 16,267 16,267
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 840 168 112,376 113,384
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31st JULY 2021
Notes 2021 2020
£000 £000
NON-CURRENT ASSET
Property, plant and equipment 1,245 1,268
Investment properties 10 93,060 78,632
Investments in Joint Ventures 1,267 901
Financial assets 1,184 886
Trade and other receivables 1,570 250
Retirement benefit surplus 4,725 -
Deferred tax assets 179 313
103,230 82,250
CURRENT ASSETS
Inventories 7,531 6,181
Contract assets 246 423
Corporation tax asset 35 139
Trade and other receivables 2,945 2,823
Monies held on deposit 48 48
Cash and cash equivalents 19,355 23,118
30,160 32,732
TOTAL ASSETS 133,390 114,982
NON-CURRENT LIABILITIES
Deferred tax liabilities 5,171 1,265
Lease liabilities 213 205
Retirement benefit deficit - 1,076
5,384 2,546
CURRENT LIABILITIES
Trade and other payables 3,050 3,072
Lease liabilities - -
Bank overdraft 11,572 10,104
14,622 13,176
TOTAL LIABILITIES 20,006 15,722
NET ASSETS 113,384 99,260
EQUITY
Called up share capital 840 853
Capital redemption reserve 168 155
Retained Earnings 112,376 98,252
TOTAL EQUITY 113,384 99,260
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31st JULY 2021
Notes 2021 2020
£000 £000
CASH INFLOW FROM OPERATING ACTIVITIES 11 (a) 1,257 5,387
Tax paid (361) (531)
NET CASH INFLOW FROM OPERATING ACTIVITIES 896 4,856
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (336) (355)
Additions to investment properties (439) (483)
Expenditure on own work capitalised - investment properties (1,901) (2,410)
Proceeds of sale of property, plant and equipment 45 29
Proceeds of sale of investment property 62 -
Purchase of financial assets - -
Proceeds of sale of financial assets 15 60
Interest received 4 78
Loan to Joint Ventures (1,320) -
Investment in Joint Ventures (133) -
Dividend received from Joint Ventures 31 -
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (3,972) (3,081)
CASH FLOWS FROM FINANCING ACTIVITIES
Interest costs on leases (12) (12)
Purchase of own shares (782) (793)
Dividends paid (1,361) (795)
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (2,155) (1,600)
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (5,231) 175
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 11 (b) 13,014 12,839
CASH AND CASH EQUIVALENTS AT END OF YEAR 11 (b) 7,783 13,014
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 2021
and is prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and in accordance
with international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union. 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 2021 or 31st
July 2020.
The statutory consolidated accounts for the year to 31st July 2021 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 2021 will be
delivered to the Registrar of Companies following the Company's Annual General
Meeting.
The financial information for the year to 31st July 2020 is derived from the
statutory accounts for that year which were submitted to the Registrar of
Companies and upon which the Company's previous 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 2021
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 2021:
• IAS 1 (amended): Presentation of Financial Statements.
• IAS 8 (amended): Accounting Policies, Changes in
Accounting Estimates and Errors.
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:
• IAS 1 (amended): Presentation of financial statements
(effective in the year ending 31st July 2024).
• IAS 8 (amended): Accounting Policies, Changes in
Accounting Estimates and Errors (effective in the year ending 31st July
2024).
• IAS 39 (amended): Financial Instruments: Recognition
and Measurement (effective in the year ending 31st July 2022).
• IFRS 3 (amended): Business Combinations (effective in
the year ending 31st July 2023).
• IFRS 7 (amended): Financial Instruments: Disclosures
(effective in the year ending 31st July 2022).
• IFRS 9 (amended): Financial Instruments (effective in
the year ending 31st July 2022).
• IFRS 16 (amended): Leases (effective in the year
ending 31st July 2022).
•
IAS 37 (amended): Provisions, Contingent Liabilities and Contingent Assets (effective in the year ending 31st
July 2022).
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 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
£112,859,000 at 31st July 2021 and the Group's net current assets amount to
£15,538,000. 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.
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.
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)
2021 2020
£000 £000 £000 £000 £000 £000
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 property - - - 7 - -
-discontinued operations
10,407 1,901 12,308 7,418 14,192 -
2020
Construction 16,813 2,410 19,223 - - (3,472)
-continuing operations
Construction 1 - 1 - - (57)
-discontinued operations
Investment property - - - 7,198 - 7,820
-continuing operations
Investment properties - - - 9 - -
-discontinued operations
16,814 2,410 19,224 7,207 - 4,291
OPERATING PROFIT (continuing and discontinued activities) 14,192 4,291
Share of results in Joint Ventures 264 (13)
Finance and investment income 353 196
Finance and investment costs (25) (391)
PROFIT ON ORDINARY ACTIVITIES BEFORE TAX 14,784 4,083
(continuing and discontinued activities)
Internal revenue relates to own work capitalised, all other internal
transactions are eliminated on consolidation. The Group had sales from
construction activities from two customers amounting to £1,335,000 and
£1,638,000 respectively (2020, sales from construction activities from one
customer amounting to £2,498,000).
OTHER SEGMENTAL INFORMATION
Non-Current Asset Segment Assets Segment Liabilities
Additions Depreciation
£000 £000 £000 £000
2021
Construction activities - continuing operations 336 293 20,090 13,516
Construction activities - discontinued operations - 7 21 529
Investment activities 2,348 49 113,012 6,961
Joint Ventures - - 1,267 -
134,390 21,006
Allocation of corporation tax creditor (1,000) (1,000)
133,390 20,006
2020
Construction activities - continuing operations 322 322 12,516 10,636
Construction activities - discontinued operations - 8 27 591
Investment activities 2,926 50 102,465 5,422
Joint Ventures - - 901 -
115,909 16,649
Allocation of corporation tax debtor (927) (927)
114,982 15,722
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 and sale of concrete products. 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 2021 2020
£000 £000
Continuing operations:
Social housing 1,514 3,229
Civil engineering 4,521 3,833
Industrial 1,638 148
General construction 421 2
Private house sales 2,313 9,601
10,407 16,813
Discontinued operations:
Concrete products - 1
10,407 16,814
The transaction price allocated to unsatisfied performance obligations at 31st
July 2021 are as set out below:
Social housing - 1,337
Civil engineering 801 334
Industrial 1,264 280
Private house sales 12,552 1,886
The Directors expect that 14% (2020,
93%) of the transaction price allocated to the unsatisfied contracts
and private house sales included in inventory as at 31st July 2021 will be
recognised as revenue in the year to 31st July 2022.
4. OTHER OPERATING INCOME
2021 2020
£000 £000
Rental income 6,619 6,365
Service charges and insurance receivable 792 833
Sundry income - -
7,411 7,198
Direct property costs (2,800) (2,383)
Net rental income 4,611 4,815
Direct property costs included £1,011,000 (2020, £652,000) in respect of
investment properties that did not generate rental income in the year.
35 -
Profit on disposal of property, plant and equipment
5. TAXATION
2021 2020
£000 £000
UK Corporation Tax
Current tax on income for the year 450 239
Corporation tax under provided in previous years 3 9
453 248
Deferred taxation 3,349 260
3,802 508
Current Tax Reconciliation
Profit on ordinary activities before tax 14,865 4,140
Share of (profits)/losses of Joint Ventures (264) 13
14,601 4,153
Current tax at 19.00% (2020, 19.00%) 2,774 789
Effects of:
Expenses not deductible for tax purposes 45 19
Non taxable income including revaluation surplus (1,223) (689)
Effect of change in tax rate 1,320 195
Adjustment to corporation tax charge in respect of prior years 3 9
Adjustment to deferred tax charge in respect of prior years 466 194
Deferred tax not recognised 417 (9)
3,802 508
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% (2020, 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 £691,000 (2020, credit £942,000) relating to actuarial gains on the
defined benefit pension scheme has been recognised directly to Equity.
The value of the deferred tax asset in respect of capital losses not
recognised in the financial statements amounted to £nil (2020, £426,000).
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:
2021 2020
£000 £000
Revenue - 1
Cost of sales - (18)
Gross Loss - (17)
Other operating income 7 9
Net operating expenses (88) (49)
Loss Before Tax (81) (57)
Taxation
Corporation tax (12) 10
Net loss attributable to discontinued operations (93) (47)
(attributable to owners of the Company)
The operating loss is stated after charging/(crediting);
Cost of inventories recognised as an expense - 14
Staff costs (per note 5) - -
Hire of plant and machinery - -
Depreciation of owned assets 7 8
Profit on disposal of property, plant and equipment - -
Auditor's remuneration - audit of these financial statements 4 4
During the year, Concrete Products (Kirkcaldy) Limited had cash
inflows of £64,000 (2020, outflow £417,000) in relation to Operating
activities and contributed £nil (2020, £nil) in respect of
Investing 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 a truer reflection of actual Group performance is obtained.
Analysis of this alternative performance measure is as follows:
2021 2020
£000 £000
Profit before tax - continuing and discontinued operations 14,784 4,083
Surplus on valuation of investment properties (12,105) (3,179)
(Surplus)/deficit on valuation of financial assets (312) 379
2,367 1,283
8. DIVIDENDS
2021 2020
£000 £000
2019 Final Dividend of 2.24p per share, after waivers - 390
2020 Interim Dividend of 0.95p per share - 405
2020 Final Dividend of 2.27p per share 961 -
2021 Interim Dividend of 0.95p per share 400 -
1,361 795
The Board is proposing a Final Dividend of 2.27p per share (2020, 2.27p) which
will cost the Company no more than £949,000.
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
2021 2020
£000 £000
CONTINUING OPERATIONS
Profit attributable to Equity shareholders £000 11,063 3,632
Basic Earnings per share 26.16p 8.46p
DISCONTINUED OPERATIONS (93) (47)
Loss attributable to Equity shareholders £000 (0.22)p (0.11)p
Basic Loss per share
CONTINUING AND DISCONTINUED OPERATIONS
Profit attributable to Equity shareholders £000 10,970 3,585
Basic Earnings per share 25.94p 8.35p
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 2021 amounted to 42,284,000 (2020, 42,948,000).
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 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
Cost or valuation:
At 1st August 2019 62,043 11,831 - 73,874
Adoption of IFRS 16 - - 205 205
62,043 11,831 205 74,079
Additions 865 2,028 - 2,893
Disposals (1,519) - - (1,519)
Surplus/(deficit) on valuation 3,948 (769) - 3,179
At 31st July 2020 65,337 13,090 205 78,632
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 judgment 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 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
Fair Value at 31st July 2020
Investment
Commercial 20,569 11.00 15.25 19.50 6.41 8.42 9.97
Industrial 57,858 4.00 7.00 10.00 7.02 7.76 9.46
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 2021
Investment
Commercial 21,885 1,094 (1,094) 655 (618)
Industrial 70,962 3,426 (3,426) 2,588 (2,407)
Fair Value at 31st July 2020
Investment
Commercial 20,569 194 (194) 91 (86)
Industrial 57,858 983 (983) 630 (592)
The Group had obligations of £1,442,000 (2020, £1,583,000) in respect of future developments and repair costs of
investment properties at the Balance Sheet date.
11. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
(a)
RECONCILIATION OF PROFIT BEFORE TAX TO CASH FLOWS FROM OPERATING ACTIVITIES
2021 2020
£000 £000
Profit before tax - continuing and discontinued operations 14,784 4,083
Share of (profits)/losses from Joint Ventures (264) 13
Depreciation 349 380
Unrealised surplus on valuation of investment properties (12,105) (3,179)
Unrealised (surplus)/deficit on valuation of financial assets (312) 379
Profit on sale of property, plant and equipment (35) (18)
Profit on sale of investment property (37) -
Profit on sale of financial assets (1) (16)
Change in retirement benefits 187 14
Interest received (4) (78)
Interest paid 12 12
Change in inventories (1,350) 3,981
Change in contract assets 177 126
Change in receivables - current (122) 12
Change in payables (22) (322)
CASH FLOWS FROM OPERATING ACTIVITIES 1,257 5,387
(b) CASH AND CASH EQUIVALENTS FOR STATEMENT OF CASH FLOWS
Cash and cash equivalents 19,355 23,118
Bank overdraft (11,572) (10,104)
Net position 7,783 13,014
(c) ANALYSIS OF NET FUNDS
At 1st August 2020 Cash Flow At 31st July 2021
£000 £000 £000
Cash and cash equivalents 23,118 (3,763) 19,355
Bank overdraft (10,104) (1,468) (11,572)
Net funds 13,014 (5,231) 7,783
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR UKVKRAUUAARA