Final Results

RNS Number : 6334G

Smart(J.)&Co(Contractors) PLC

26 November 2020

 

J SMART & CO (CONTRACTORS) PLC AND SUBSIDIARY COMPANIES

ACCOUNTS FOR THE YEAR ENDED 31st JULY 2020

PRELIMINARY STATEMENT

ACCOUNTS

Headline Group profit for the year before tax, including an unrealised surplus in revalued property and a deficit in revalued available for sale financial assets, was £4,083,000 compared with £6,643,000.

Underlying profit before tax for the year of £1,283,000 was less than last year's figure of £2,600,000.  As before, our view is that discounting the increase in the revaluation of the commercial property portfolio and adjusting for the revaluation movement on available for sale financial assets provides a truer reflection of Group performance.

The Board is recommending a Final Dividend of 2.27p making a total of 3.22p which compares with 3.19p for the previous year.  The Final Dividend will cost the Company no more than £963,000.

TRADING ACTIVITIES

Group construction activities including private residential sales on continuing operations increased by 19%.  Headline Group profit before tax on continuing operations decreased by 43% and underlying profit before tax on continuing operations decreased by 58%.

Trading activities in the second half of the financial year were impacted by the coronavirus crisis.  All construction sites, head office and operational premises were closed from the end of March 2020 until the middle of June 2020, in line with Scottish Government guidance.  Whilst construction activities ceased, home working ensured that all other facets of the business were able to progress during this period.  Our site operatives were put on furlough and note must be made of the efficiency of HMRC in processing furlough payments.  All necessary measures were put in place at our construction sites, head office, operational premises and the relevant areas of our commercial property portfolio to ensure coronavirus compliance in line with legislation and guidance.

The build contract for the Affordable Housing at West Bowling Green Street completed in October 2019.  The completion of the social housing build contract at Ferrymuir was delayed due to the lockdown in March 2020 and will now not be completed until the end of 2020.  Margins in these types of build contract and those in the build contracts of our subsidiary company, Thomas Menzies (Builders) Limited, continue to be poor. Measures have been put in place to respectively correct these poor margins.

The vast majority of the sales in the private housing at West Bowling Green Street were completed prior to the lockdown in March 2020.  Post lockdown, there were only six private housing units left to be sold at West Bowling Green Street and these sales have now completed, albeit delayed until after the end of the financial year.

Further sites for private housing were acquired in the financial year, notably two sites in Winchburgh, West Lothian.  The first small detached housing site called The Courtyard started in September 2020.  The second, named Canal Quarter, a much larger site providing approximately sixty flats and terraced houses, will start in April 2021.

Our commercial property portfolio has been remarkably resilient during the coronavirus pandemic. The majority of the portfolio is in multi-let industrial with the remainder in multi-let offices, and this has fared well in the past year.  Rental growth and occupancy levels have continued to improve, as have property valuation levels.  Concerns were raised regarding payment of rent, but rent collection levels at the last rent quarter payment date prior to the financial year end, currently sit at 96%.  Regrettably, we have lost some tenants whose businesses have been affected by the coronavirus crisis. However, we have been able to fill these vacancies with new tenants.

The first unit at Gartcosh Business Park, developed through the joint venture company, Gartcosh Estates LLP, has now been successfully let. The second phase of development at this estate, providing two medium sized industrial units, will commence in early 2021.

Construction at the third and final phases at West Edinburgh Business Park, South Gyle and Inchwood Park, Bathgate is progressing well, with respective completions due in the year to 31st July 2021. Interest in these final phases at both estates is promising.

A site for future industrial development was acquired at Whitehill Industrial Estate, Bathgate in the reporting year.

FUTURE PROSPECTS

Work in hand in contracting is again less than last year. Over and above the usual delays in the development process, progress in site acquisitions and negotiated tender work in the Housing Association sector has been hampered by the first lockdown and the coronavirus crisis. There was no new contracting work in the past financial year and those build contracts programmed for the current financial year may well be delayed until the next financial year.

As mentioned above, all the sales at West Bowling Green Street have now been completed. There will only be a small amount of private housing sales in the year to 31st July 2021. There are a number of substantial future private housing sites where we have just commenced the planning process but, due to general delays caused by the coronavirus crisis, it remains to be seen when development will commence on these sites.

Commercial property valuation levels have improved again, as mentioned above, and we expect letting and positive rental growth to continue in our industrial properties. We have not yet seen any significant negative impact on our office properties due to the coronavirus crisis but that is no guarantee that there may be some in the future.

At this stage, with uncertainty due to the coronavirus crisis, it is difficult to make an informed forecast for the outcome of the year to 31st July 2021. The lull in contracting work and reduced private housing work this financial year makes it unlikely that the headline profit and underlying profit will improve.

I would like to make special mention of French Duncan LLP, who has served as auditor to your company for 45 years. This is the last set of accounts that French Duncan will audit due to company law and will unfortunately end a long-standing relationship. A new auditor will be appointed shortly. I would like to offer my sincere gratitude to all at French Duncan, past and present, for all their hard work over many years. 

Finally, I would like to pay tribute to all employees at J. Smart & Co. and the subsidiary companies in what has been and continues to be a turbulent time due to the coronavirus crisis. The dedication, skill and hard work of all was no better demonstrated in the considerable effort to shut down all operations in less than a twenty-four hour period in March of this year prior to the first lockdown.

	DAVID W. SMART
	Chairman

CONSOLIDATED INCOME STATEMENT

for the year ended 31st JULY 2020

		2020		2019
		Unaudited		Audited
Note		£000		£000
CONTINUING OPERATIONS
Group construction activities		19,223		16,182
Less: Own construction work capitalised		(2,410)		(147)
REVENUE		16,813		16,035
Cost of sales		(16,764)		(14,416)
GROSS PROFIT		49		1,619
Other operating income		7,198		7,560
Net operating expenses		(6,078)		(6,264)
OPERATING PROFIT BEFORE NET SURPLUS ON VALUATION OF INVESTMENT PROPERTIES		1,169		2,915
Net surplus on valuation of investment properties		3,179		4,052
OPERATING PROFIT		4,348		6,967
Share of (losses)/profits in Joint Ventures		(13)		48
Income from available for sale financial assets		50		53
Profit on sale of available for sale financial assets		16		26
Net deficit on valuation of available for sale financial assets		(379)		(9)
Finance income		130		185
Finance costs		(12)		-
PROFIT BEFORE TAX		4,140		7,270
Taxation		(508)		(529)
PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS		3,632		6,741
DISCONTINUED OPERATIONS
Loss for the year from discontinued operations	2	(47)		(505)
PROFIT FOR YEAR ATTRIBUTABLE TO EQUITY SHAREHOLDERS		3,585		6,236
EARNINGS/(LOSS) PER SHARE
From continuing operations - basic and diluted		8.46p		15.47p
From discontinued operations - basic and diluted		(0.11)p		(1.16)p
From continuing and discontinued operations - basic and diluted		8.35p		14.31p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31st JULY 2020

	2020		2019
	Unaudited		Audited
	£000		£000
PROFIT FOR THE YEAR	3,585		6,236
OTHER COMPREHENSIVE LOSS
Items that will not be subsequently reclassified to the Income Statement:
Actuarial loss recognised in defined benefit pension scheme	(3,961)		(1,118)
Deferred taxation on actuarial loss	942		190
TOTAL ITEMS THAT WILL NOT BE SUBSEQUENTLY RECLASSIFIED TO INCOME STATEMENT	(3,019)		(928)
TOTAL OTHER COMPREHENSIVE LOSS	(3,019)		(928)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX	566		5,308
ATTRIBUTABLE TO EQUITY SHAREHOLDERS	566		5,308

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

as at 31st July 2020

		Share Capital	Capital Redemption Reserve	Retained Earnings		Total
		£000	£000	£000		£000
At 1st August 2018 (audited)		880	128	95,585		96,593
Profit for the year		-	-	6,236		6,236
Other comprehensive loss		-	-	(928)		(928)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR		-	-	5,308		5,308
TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY IN EQUITY
Shares purchased and cancelled		(14)	-	(792)		(806)
Transfer to capital redemption reserve		-	14	(14)		-
Dividends		-	-	(813)		(813)
TOTAL TRANSACTIONS WITH OWNERS		(14)	14	(1,619)		(1,619)
At 31st July 2019 (audited)		866	142	99,274		100,282
Profit for the year		-	-	3,585		3,585
Other comprehensive loss		-	-	(3,019)		(3,019)
TOTAL COMPREHENSIVE INCOME FOR THE 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)
At 31st July 2020 (unaudited)		853	155	98,252		99,260

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31st JULY 2020

	2020		2019
	Unaudited		Audited
	£000		£000
NON-CURRENT ASSETS
Property, plant and equipment	1,268		1,304
Investment properties	78,632		73,874
Investments in Joint Ventures	901		914
Available for sale financial assets	886		1,309
Trade and other receivables	250		250
Retirement benefit surplus	-		2,899
Deferred tax asset	313		101
	82,250		80,651
CURRENT ASSETS
Inventories	6,181		8,643
Contract assets	423		549
Trade and other receivables	2,823		2,835
Corporation tax asset	139		-
Monies held on deposit	48		48
Cash and cash equivalents	23,118		25,699
	32,732		37,774
TOTAL ASSETS	114,982		118,425
NON-CURRENT LIABILITIES
Deferred tax liabilities	1,265		1,735
Lease liability	205		-
Retirement benefit deficit	1,076		-
	2,546		1,735
CURRENT LIABILITIES
Trade and other payables	3,072		3,394
Current tax liability	-		154
Bank overdraft	10,104		12,860
	13,176		16,408
TOTAL LIABILITIES	15,722		18,143
NET ASSETS	99,260		100,282
EQUITY
Called up share capital	853		866
Capital redemption reserve	155		142
Retained earnings	98,252		99,274
TOTAL EQUITY	99,260		100,282

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31st JULY 2020

	2020		2019
	Unaudited		Audited
	£000		£000
Profit before tax	4,083		6,643
Share of losses/(profits) from Joint Ventures	13		(48)
Depreciation	380		376
Unrealised valuation surplus on investment properties	(3,179)		(4,052)
Unrealised valuation deficit on available for sale financial assets	379		9
Profit on sale of property, plant and equipment	(18)		(141)
Profit on sale of available for sale financial assets	(16)		(26)
Change in retirement benefits	14		188
Interest received	(78)		(71)
Interest paid	12		-
Change in inventories	3,981		164
Change in contract assets	126		221
Change in receivables - non-current	-		(250)
Change in receivables - current	12		935
Change in payables	(322)		(186)
	5,387		3,762
Tax paid	(531)		(448)
NET CASH FLOWS FROM OPERATING ACTIVITIES	4,856		3,314
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment	(355)		(424)
Additions to investment properties	(483)		(143)
Expenditure on own work capitalised - investment properties	(2,410)		(147)
Sale of property, plant and equipment	29		193
Purchase of available for sale financial assets	-		(380)
Proceeds of sale of available for sale financial assets	60		187
Decrease on monies held on deposit	-		-
Interest received	78		71
Interest paid	(12)		-
Dividend from Joint Ventures	-		59
NET CASH FLOWS FROM INVESTING ACTIVITIES	(3,093)		(584)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of own shares	(793)		(806)
Dividends paid	(795)		(813)
NET CASH FLOWS FROM FINANCING ACTIVITIES	(1,588)		(1,619)
INCREASE IN CASH AND CASH EQUIVALENTS	175		1,111
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	12,839		11,728
CASH AND CASH EQUIVALENTS AT END OF YEAR	13,014		12,839

NOTES TO THE PRELIMINARY STATEMENT

1.  BASIS OF PREPARATION

The financial information set out in this unaudited preliminary statement does not constitute the Group's statutory financial statements.  The financial statements for the year to 31st July 2020 have not yet been filed with the Registrar of Companies and have not yet been reported on by the Company's auditor.

Due to the coronavirus pandemic and the shortage of comparable market evidence, the investment properties are subject to material valuation uncertainty in accordance with RICS valuation standards.  Consequently less certainty can be attached to the valuation than would normally be the case.  It is likely that the audit report on the accounts for the year to 31st July 2020 will draw attention to this material uncertainty by way of emphasis without modifying the audit opinion.

The unaudited financial information included in this preliminary statement does not include all of the disclosures required by International Financial Reporting Standards (IFRS) or the Companies Act 2006 and accordingly does not itself comply with IFRS or the Companies Act 2006.

The Group prepares its annual consolidated financial statements in accordance with IFRS and its interpretations issued by the International Accounting Standards Board as adopted by the European Union.  There are no differences in the accounting policies applied in the preparation of the unaudited consolidated financial statements for the year to 31st July 2020 and the unaudited financial information included in this preliminary statement and the accounting policies disclosed in the 2019 Annual Report and Statement of Accounts, with the exception of the policy regarding leases resulting from the application of IFRS 16: Leases.  The impact of this standard is detailed below.

The following standards, amendments to standards and interpretations became mandatory for the first time for the financial year to 31st July 2020:

· IFRS 16: Leases.

· IAS 12 (amended): Income Taxes.

· IAS 19 (amended): Employee Benefits.

· IFRIC 23: Uncertainty over Income Tax Treatments.

Other than IFRS 16: Leases none of the above amendments to standards or the new interpretation had a significant impact on the Group's financial statements. Details of the impact of IFRS 16 are given below.

IFRS 16: Leases became effective as from 1st August 2019 for the Group.  IFRS 16: Leases replaced IAS 17: Leases and requires the Group to incorporate a right-of-use asset and corresponding lease liability in the Statement of Financial Position for those assets held under leases for which the new standard applies. This standard will impact on ground leases on which the Group has built investment properties and which the rent payable to the lessor under the leases is not contingent on the rents received by the Group from its tenants.  The standard requires the current operating lease charges, which were disclosed in Operating Profit to be replaced by a depreciation charge on the right-of-use asset.  As our leases relate to land there will be no depreciation charge but there will be an impact relating to the revaluation movement on the land.  There will also be interest costs in relation to the lease liability which will be recognised in Finance Costs.  The standard does not have an impact on the Group where the Group is the Lessor in respect of leases granted to tenants in our investment properties.

IFRS 16 outlines several options for the initial recognition on adoption of the standard.  The Group chose to apply the modified retrospective approach which allowed the Group to incorporate the right-of-use assets and the lease liability as at the transition date of 1st August 2019 without the requirement to restate prior periods.  The lease liability is calculated as the discounted present value of the outstanding rental payments and the right-of-use asset is set as being equal to the liability therefore there is no impact on the net assets of the Group on adoption of this standard.  On the transition date the lease liability and right-of-use assets recognised amounted to £205,000.

The unaudited consolidated financial statements are prepared on a going concern basis and under the historical cost convention except where the measurement of balances at fair value is required for investment properties, available for sale financial assets and assets held by the defined benefit pension scheme.

The financial information for the year to 31st July 2019 is derived from the statutory accounts for that year which were submitted to the Registrar of Companies and upon which the Company's auditor provided an unqualified audit report.  The audit report did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report and did not contain a statement under S498 (2) or S498 (3) of the Companies Act 2006.

2.  DISCONTINUED   OPERATIONS

In the year to 31st July 2019 the Group Directors took the decision that the subsidiary company, Concrete Products (Kirkcaldy) Limited should cease trading.

The results of the discontinued operation, which have been included in the profit for the year, were as follows:

	2020		2019
	Unaudited		Audited
	£000		£000
Revenue	1		645
Cost of sales	(18)		(817)
Gross Loss	(17)		(172)
Other operating income	9		6
Net operating expenses	(49)		(461)
Loss before tax	(57)		(627)
Taxation	10		122
Net loss attributable to discontinued operations (attributable to owners of the Company)	(47)		(505)

3.  DIVIDENDS

Ordinary dividends
2018 Final dividend of 2.21p per share, after waivers	-		402
2019 Interim dividend of 0.95p per share	-		411
2019 Final dividend of 2.24p per share, after waivers	390		-
2020 Interim dividend of 0.95p per share	405		-
	795		813

The Company is proposing a final dividend of 2.27p per share for the year to 31st July 2020 which will cost the Company no more than £963,000.

The dividend if approved will be paid on 8th February 2021 to shareholders on the Register at the close of business on 15th January 2021.

 

END

 

 

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