TIDMSMJ
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
GBP14,784,000, compared with GBP4,083,000 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 GBP2,367,000 and was more than last year's figure of
GBP1,283,000.
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
GBP949,000.
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 GBP000 GBP000
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
GBP000 GBP000
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 GBP37,000.
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 GBP4,473,000 compared to GBP4,641,000 in 2020 being a
fall of GBP168,000. Despite the increased income levels there have
also been significant costs incurred on properties not generating
income of GBP1,011,000 (2020, GBP652,000) 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 GBP1,000.
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 GBP312,000 was recorded.
The share of the results in our Joint Ventures is a profit this
year of GBP264,000 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
GBP000 GBP000
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
GBP2,367,000 compared to GBP1,283,000 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 GBP1,320,000 and invested a further GBP133,000 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 GBP14,124,000,
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 GBP1,076,000 to a surplus this
year of GBP4,725,000 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.
-- C ontinue 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
-- W e 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
GBP000 GBP000
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 INVESTMENT PROPERTIES 2,131 1,169
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
GBP000 GBP000
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 scheme (691) 942
-------- ---------
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
Capital
Share Redemption Retained
Capital Reserve Earnings Total
GBP000 GBP000 GBP000 GBP000
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
GBP000 GBP000
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
GBP000 GBP000
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 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, AMMENTS 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, AMMENTS 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 GBP112,859,000 at 31st July 2021 and the
Group's net current assets amount to GBP15,538,000. 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 Internal Total Revenue Other Operating Operating Profit
Revenue Revenue Income / (Loss)
2021 2020
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
2021
Construction
-continuing operations 10,407 1,901 12,308 - (2,305) -
Construction
-discontinued operations - - - - (81) -
Investment property
-continuing operations - - - 7,411 16,578 -
Investment property
-discontinued operations - - - 7 - -
---------- ---------- --------------- ----------------- --------- ---------
10,407 1,901 12,308 7,418 14,192 -
---------- ---------- --------------- ----------------- --------- ---------
2020
Construction
-continuing operations 16,813 2,410 19,223 - - (3,472)
Construction
-discontinued operations 1 - 1 - - (57)
Investment property
-continuing operations - - - 7,198 - 7,820
Investment properties
-discontinued operations - - - 9 - -
---------- ---------- --------------- ----------------- --------- ---------
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 GBP1,335,000 and GBP1,638,000 respectively (2020, sales from
construction activities from one customer amounting to
GBP2,498,000).
OTHER SEGMENTAL INFORMATION
Non-Current Asset
Segment Segment
Additions Depreciation Assets Liabilities
GBP000 GBP000 GBP000 GBP000
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
GBP000 GBP000
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
GBP000 GBP000
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 GBP1,011,000 (2020, GBP652,000)
in respect of investment properties that did not generate rental
income in the year.
Profit on disposal of property,
plant and equipment 35 -
---- ---
5. TAXATION
2021 2020
GBP000 GBP000
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 GBP691,000 (2020, credit GBP942,000)
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 GBPnil
(2020, GBP426,000).
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
GBP000 GBP000
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
(attributable to owners of the
Company) (93) (47)
-------- --------
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 GBP64,000 (2020, outflow GBP417,000) in relation to
Operating activities and contributed GBPnil (2020, GBPnil) 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
GBP000 GBP000
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. DIVIDS
2021 2020
GBP000 GBP000
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
GBP949,000.
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
GBP000 GBP000
CONTINUING OPERATIONS
Profit attributable to Equity
shareholders GBP000 11,063 3,632
Basic Earnings per share 26.16p 8.46p
--------- ---------
DISCONTINUED OPERATIONS (93) (47)
Loss attributable to Equity shareholders
GBP000 (0.22)p (0.11)p
--------- ---------
Basic Loss per share
CONTINUING AND DISCONTINUED OPERATIONS
Profit attributable to Equity
shareholders GBP000 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 Land and
and buildings buildings Right-of-use
Freehold Leasehold Asset Total
GBP000 GBP000 GBP000 GBP000
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
GBP per sq ft %
GBP000 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 25bps change in equivalent
rental value Yield
Increase Decrease Decrease Increase
GBP000 GBP000 GBP000 GBP000 GBP000
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 GBP1,442,000 (2020, GBP1,583,000)
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
GBP000 GBP000
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 At 31st
August July
2020 Cash Flow 2021
GBP000 GBP000 GBP000
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 or visit 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.
END
FR UKVKRAUUAARA
(END) Dow Jones Newswires
November 19, 2021 04:54 ET (09:54 GMT)
Smart (j.) & Co. (contra... (LSE:SMJ)
Historical Stock Chart
From Mar 2024 to Apr 2024
Smart (j.) & Co. (contra... (LSE:SMJ)
Historical Stock Chart
From Apr 2023 to Apr 2024
