Source - LSE Regulatory
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

(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 

 

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.

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