Final Results

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.

•     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
		£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 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
		£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 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

	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 -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 £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.

Profit on disposal of property, plant and equipment			35	-

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 (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 £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

 

END

 

 

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