SMART (J.) & CO. (CONTRACTORS) PLC

Interim / Quarterly Report • Apr 21, 2020

National Storage Mechanism | Additional information

RNS Number : 3493K

Smart(J.)&Co(Contractors) PLC

21 April 2020

J. SMART & CO. (CONTRACTORS) PLC

INTERIM REPORT

FOR THE SIX MONTHS TO

31st JANUARY 2020

J SMART & CO. (CONTRACTORS) PLC

CHAIRMAN'S REVIEW

INTERIM REPORT

Unaudited Group profit for the six months to 31st January 2020 amounted to £250,000 compared with £639,000 for the corresponding period last year.

In accordance with our normal practice, there has been no revaluation of our investment properties at the end of the half year.  If a half year revaluation had taken place, we believe that there would have been an uplift in the valuation, which would have had a material impact on the headline figures.

The private housing sales at our West Bowling Green Street development continued positively in the half year.

The build contract for the Affordable Housing at the same development completed as well. The current site progress at the build contract at Ferrymuir is satisfactory but margins are not.

We have commenced the third and final phase of industrial development at West Edinburgh Business Park. Letting activity in both our industrial and office properties remained robust in the half year.

The lull in contracting work and new private housing work has continued as predicted. This has resulted in an erosion of profit due to lack of recovery of overhead costs and poor margins on contracting.

INTERIM DIVIDEND

The Board announces an interim dividend of 0.95p per share (2019, 0.95p) to be paid on 1st June 2020 to shareholders on the register at the close of business on 11th May 2020.  The interim dividend will cost the Company no more than £406,000.

FUTURE PROSPECTS

We have substantially less work in hand in contracting than the same time last year.  Margins remain no better than last year. It is by no means certain that new contracting work will be secured this financial year.

As mentioned above, sales at our private housing development at West Bowling Green Street continued. The majority of sales at the development have completed albeit after the end of the half year.

Commercial property valuation levels have continued to improve since last year.  Also, as mentioned above, lettings of both our industrial and office stock remain robust. The third and final phase of speculative industrial development at Inchwood Park, Bathgate has commenced, but after the half year.

However, no sooner had we exited a period of political uncertainty, than we entered the coronavirus crisis. All our construction sites, head office and other operational premises have been closed in line with Scottish Government guidance. Home working has ensured business is progressing, where possible, during the current lockdown.

As we do not know when the lockdown will lift it is not possible to accurately predict what impact it will have on all facets of the business, such as inter alia current build contracts, potential new build contracts, commercial property valuation levels, commercial property rental payments, private housing sales and the extent of the potential decrease in value of the Company Pension Fund on the balance sheet.

Therefore, at this stage it is difficult to make an accurate forecast of the year end figures, but due to a potential short-term downward pressure on commercial property values there may be a headline loss. It also remains to be seen whether an underlying profit will be achieved this financial year.

21st April 2020	D.W. SMART Chairman

CONSOLIDATED INCOME STATEMENT

	Notes	6 Months ended 31.1.20 (Unaudited)	6 Months ended 31.1.19 (Unaudited)	Year ended 31.7.19 (Audited)
		£000	£000	£000
CONTINUING OPERATIONS
Group construction activities		10,473	4,513	16,182
Less:  Own construction work capitalised		(1,219)	(46)	(147)
REVENUE		9,254	4,467	16,035
Cost of sales		(9,972)	(3,946)	(14,416)
GROSS (LOSS)/PROFIT		(718)	521	1,619
Other operating income		3,915	3,641	7,560
Net operating expenses		(2,967)	(3,116)	(6,264)
OPERATING PROFIT BEFORE NET SURPLUS ON VALUATION OF INVESTMENT PROPERTIES		230	1,046	2,915
Net surplus on valuation of investment properties		-	-	4,052
OPERATING PROFIT		230	1,046	6,967
Share of (losses)/profits in Joint Ventures		(5)	61	48
Income from available for sale financial assets		28	23	53
Profit on sale of available for sale financial assets		16	10	26
Net deficit on valuation of available for sale financial assets		(47)	(48)	(9)
Finance income		49	32	185
Finance costs		(6)	-	-
PROFIT BEFORE TAX		265	1,124	7,270
Taxation	5	(64)	(232)	(529)
PROFIT FROM CONTINUTING OPERATIONS		201	892	6,741
DISCONTINUED OPERATIONS
Loss from discontinued operations	6	(12)	(393)	(505)
PROFIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS		189	499	6,236
EARNINGS/(LOSS) PER SHARE	8
From continuing operations - basic and diluted		0.47p	2.04p	15.47p
From discontinued operations - basic and diluted		(0.03)p	(0.90)p	(1.16)p
From continuing and discontinued operations - basic and diluted		0.44p	1.14p	14.31p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		6 Months ended 31.1.20 (Unaudited)	6 Months ended 31.1.19 (Unaudited)	Year ended 31.7.19 (Audited)
		£000	£000	£000
PROFIT FOR THE PERIOD		189	499	6,236
OTHER COMPREHENSIVE LOSS
Items that will not be subsequently reclassified to Income Statement:
Actuarial loss recognised in defined benefit pension scheme		-	-	(1,118)
Deferred taxation on actuarial loss		-	-	190
TOTAL ITEMS THAT WILL NOT BE SUBSEQUENTLY RECLASSIFED TO INCOME STATEMENT		-	-	(928)
TOTAL OTHER COMPREHENSIVE LOSS		-	-	(928)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD, NET OF TAX		189	499	5,308
ATTRIBUTABLE TO EQUITY SHAREHOLDERS		189	499	5,308

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

			Notes	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 the period				-	-	189	189
Other comprehensive income				-	-	-	-
Total comprehensive income for period				-	-	189	189
TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY IN EQUITY
Shares purchased and cancelled				(3)	-	(170)	(173)
Transfer to Capital Redemption Reserve				-	3	(3)	-
Dividends			7	-	-	(390)	(390)
Total transactions with owners				(3)	3	(563)	(563)
As at 31st January 2020				863	145	98,900	99,908

			Notes	Share Capital	Capital Redemption Reserve	Retained Earnings	Total
				£000	£000	£000	£000
As at 1st August 2018				880	128	95,585	96,593
Profit for the period				-	-	499	499
Other comprehensive income				-	-	-	-
Total comprehensive income for period				-	-	499	499
TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY IN EQUITY
Shares purchased and cancelled				(8)	-	(451)	(459)
Transfer to Capital Redemption Reserve				-	8	(8)	-
Dividends			7	-	-	(402)	(402)
Total transactions with owners				(8)	8	(861)	(861)
As at 31st January 2019				872	136	95,223	96,231

			Notes	Share Capital	Capital Redemption Reserve	Retained Earnings	Total
				£000	£000	£000	£000
As at 1st August 2018				880	128	95,585	96,593
Profit for the period				-	-	6,236	6,236
Other comprehensive loss				-	-	(928)	(928)
Total comprehensive income for period				-	-	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			7	-	-	(813)	(813)
Total transactions with owners				(14)	14	(1,619)	(1,619)
As at 31st July 2019				866	142	99,274	100,282

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

		6 Months ended 31.1.20 (Unaudited)	6 Months ended 31.1.19 (Unaudited)	Year ended 31.7.19 (Audited)
		£000	£000	£000
NON-CURRENT ASSETS
Property, plant and equipment		1,300	1,393	1,304
Investment properties		75,311	69,594	73,874
Investments in Joint Ventures		909	927	914
Available for sale financial assets		1,218	951	1,309
Trade and other receivables		250	-	250
Retirement benefit surplus		2,899	4,205	2,899
Deferred tax assets		101	94	101
		81,988	77,164	80,651
CURRENT ASSETS
Inventories		6,161	11,805	8,643
Contract assets		751	-	549
Trade and other receivables		2,913	4,448	2,835
Monies held on deposit		48	48	48
Cash and cash equivalents		26,565	22,247	25,699
		36,438	38,548	37,774
TOTAL ASSETS		118,426	115,712	118,425
NON-CURRENT LIABILITIES
Deferred tax liabilities		1,731	1,995	1,735
Lease liabilities		205	-	-
		1,936	1,995	1,735
CURRENT LIABILITIES
Trade and other payables		3,740	4,629	3,394
Lease liabilities		-	-	-
Corporation tax liability		7	110	154
Bank overdraft		12,835	12,747	12,860
		16,582	17,486	16,408
TOTAL LIABILITIES		18,518	19,481	18,143
NET ASSETS		99,908	96,231	100,282
EQUITY
Called up share capital		863	872	866
Capital redemption reserve		145	136	142
Retained earnings		98,900	95,223	99,274
TOTAL EQUITY		99,908	96,231	100,282

CONSOLIDATED STATEMENT OF CASH FLOWS

	Notes	6 Months ended 31.1.20 (Unaudited)	6 Months ended 31.1.19 (Unaudited)	Year ended 31.7.19 (Audited)
		£000	£000	£000
CASH FLOWS FROM OPERATING ACTIVITIES	10	2,932	(1,104)	3,762
Tax paid		(212)	(148)	(448)
NET CASH FLOWS FROM OPERATING ACTIVITIES		2,720	(1,252)	3,314
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment		(161)	(254)	(424)
Additions to investment properties		(13)	(16)	(143)
Expenditure on own work capitalised - investment properties		(1,219)	(46)	(147)
Sale of property, plant and equipment		24	-	193
Purchase of available for sale financial assets		-	-	(380)
Proceeds of sale of available for sale financial assets		60	110	187
Decrease in monies held on deposit		-	-	-
Interest received		49	32	71
Interest paid		(6)	-	-
Dividend received from Joint Ventures		-	59	59
NET CASH FLOWS FROM INVESTING ACTIVITIES		(1,266)	(115)	(584)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of own shares		(173)	(459)	(806)
Dividends paid		(390)	(402)	(813)
NET CASH FLOWS FROM FINANCING ACTIVITIES		(563)	(861)	(1,619)
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS		891	(2,228)	1,111
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		12,839	11,728	11,728
CASH AND CASH EQUIVALENTS AT END OF PERIOD		13,730	9,500	12,839

NOTES TO INTERIM FINANCIAL STATEMENTS

1.         BASIS OF PREPARATION

J. Smart & Co. (Contractors) PLC is a company domiciled in the United Kingdom.  The condensed consolidated interim financial statements of the Company for the six months ended 31st January 2020 comprise the Company and its Subsidiaries, together referred to as the Group, and the Group's interest in jointly controlled entities.

The condensed consolidated interim financial statements for the six months to 31st January 2020 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34: Interim Financial Reporting as adopted by the European Union. 

The condensed consolidated interim financial statements for the six months to 31st January 2020 do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.  The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year to 31st July 2019, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

The statutory financial statements for the year to 31st July 2019 have been filed with the Registrar of Companies and a copy may be obtained from Companies House.  These have been audited and contain an unqualified audit opinion, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498 of the Companies Act 2006.

The condensed consolidated interim financial statements have not been audited or reviewed by the Company's auditor.  A copy of the interim financial statements will be available on the Company's website www.jsmart.co.uk.

2.         ACCOUNTING POLICIES

The condensed consolidated interim financial statements have been prepared 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 defined benefit pension scheme.

The accounting policies adopted are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31st July 2019, with the exception of the policies regarding the accounting for pension scheme obligations and investment properties revaluations and the adoption of IFRS 16: Leases, details of which are given below.  

For the condensed consolidated interim financial statements the assets and liabilities of the pension scheme are estimated to be unchanged from the values included at the previous year end.  Also, in accordance with long standing practice, the Group's investment properties are revalued annually on 31st July each year.  No revaluation adjustment is made in the condensed consolidated interim financial statements.

IFRS 16: Leases became effective as from 1st August 2019 for the Group.  IFRS 16: Leases replaces 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.

Interpretations effective in period

Other than IFRS 16: Leases as noted above there have been no other new standards, amendments to standards and interpretations relevant to the Group which were issued by the International Accounting Standards Board that were mandatory for the Group for the first time in the financial year to 31st July 2020.

Estimates and assumptions

The preparation of the condensed consolidated interim 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, liabilities and income and expenses.  Management believes that the estimates and assumptions used in the preparation of these accounts are reasonable.  However, actual outcomes may differ from those anticipated.

Going concern

The Directors have a reasonable expectation that the Company and Group as a whole have adequate resources to continue in operational existence for the foreseeable future, being a period of not less than twelve months from the date of these accounts.  For this reason, the Directors continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements.

3.         PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties which could have a material impact on the Group's performance for the remainder of the current financial year remain the same as those detailed in the Group's Annual Report and Financial Statements for the year to 31st July 2019, with the exception of the current situation relating to coronavirus.  The Directors are closely monitoring the situation as it develops and the impact it is having on the trading performance of the Group and will continue to do so.  The Directors will take appropriate actions to help mitigate the impact of the situation on the Group's performance and future prospects.

4.         SEGMENTAL INFORMATION

The Group has identified operating segments on the basis of internal reporting components that are regularly reviewed by the chief operating decision maker to allow the allocation of resources to segments and assess their performance.  The Board of Directors has been recognised as the chief operating decision maker.

All revenue 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	Operating Profit/(Loss)
31.1.20	31.1.19	31.7.19
	£000	£000	£000	£000	£000	£000
31st JANUARY 2020 (Unaudited)
Construction activities -     continuing operations	9,254	1,219	10,473	(2,387)	-	-
Construction activities - discontinued operations	1	-	1	(15)	-	-
Investment activities - continuing operations	3,915	-	3,915	2,617	-	-
Investment activities - discontinued operations	4	-	4	-	-	-
	13,174	1,219	14,393	215	-	-
31st JANUARY 2019 (Unaudited)
Construction activities -     continuing operations	4,467	46	4,513	-	(1,263)	-
Construction activities - discontinued operations	587	-	587	-	(485)	-
Investment activities - continuing operations	3,641	-	3,641	-	2,309	-
Investment activities - discontinued operations	3	-	3	-	-	-
	8,698	46	8,744	-	561	-
31st JULY 2019 (Audited)
Construction activities - continuing operations	16,035	147	16,182	-	-	(2,084)
Construction activities - discontinued operations	645	-	645	-	-	(627)
Investment activities - continuing operations	7,560	-	7,560	-	-	9,051
Investment activities - discontinued operations	6	-	6	-	-	-
	24,246	147	24,393	-	-	6,340
OPERATING PROFIT				215	561	6,340
Share of results of Joint Ventures				(5)	61	48
Finance and investment income				93	65	264
Finance and investment costs				(53)	(48)	(9)
PROFIT BEFORE TAX ON ORDINARY ACTIVITIES				250	639	6,643

5.         TAXATION

The tax charge for the 6 months to 31st January 2020 is based on the corporation tax rate at 18.67% (2019, 19.00%).

6.         DISCONTINUED OPERATIONS

On 9th November 2018 the Group Directors took the decision that the subsidiary company, Concrete Products (Kirkcaldy) Limited should cease to trade.

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

	6 Months Ended 31.1.20 (Unaudited)	6 Months Ended 31.1.19 (Unaudited)	Year Ended 31.7.19 (Audited)
	£000	£000	£000
Revenue	1	587	645
Cost of Sales	(11)	(773)	(817)
Gross loss	(10)	(186)	(172)
Other operating income	4	3	6
Net operating expenses	(9)	(302)	(461)
Loss before tax	(15)	(485)	(627)
Taxation
Corporation tax	3	92	137
Deferred tax	-	-	(15)
	3	92	122
Net loss attributable to discontinued operations	(12)	(393)	(505)
The company had cashflows amounting to:
Operating activities	(433)	(132)	(76)
Investing activities	-	6	138

7.         DIVIDENDS

	6 Months Ended 31.1.20 (Unaudited)	6 Months Ended 31.1.19 (Unaudited)	Year Ended 31.7.19 (Audited)
	£000	£000	£000
ORDINARY DIVIDENDS
2019 Final dividend of 2.24p, after waivers	390	-	-
2019 Interim dividend of 0.95p	-	-	411
2018 Final dividend of 2.21p, after waivers	-	402	402
	390	402	813

The interim dividend of 0.95p per share for the year to 31st July 2020 will be paid on 1st June 2020 to shareholders on the register at 11th May 2020.  The interim dividend will cost the Company no more than £406,000.

8.         EARNINGS/(LOSS) PER SHARE

	6 Months Ended 31.1.20 (Unaudited)	6 Months Ended 31.1.19 (Unaudited)	Year Ended 31.7.19 (Audited)
CONTINUING OPERATIONS
Profit attributable to Equity Shareholders    £000	201	892	6,741
Basic and diluted Earnings per share	0.47p	2.04p	15.47p
DISCONTINUED OPERATIONS
Loss attributable to Equity Shareholders    £000	(12)	(393)	(505)
Basic and diluted Loss per share	(0.03)p	(0.90)p	(1.16)p
CONTINUING AND DISCONTINUED OPERATIONS
Profit attributable to Equity Shareholders    £000	189	499	6,236
Basic and diluted Earnings per share	0.44p	1.14p	14.31p
Weighted average number of shares	43,151,502	43,827,404	43,580,094

Basic earnings/(loss) per share are calculated by dividing the profit/(loss) attributable to equity shareholders by the weighted average number of shares in issue during the period.

During the 6 months to 31st January 2020 the Company purchased for immediate cancellation 150,000 Ordinary Shares of 2p.

There is no difference between basic and diluted earnings per share.

9.         FAIR VALUE ASSETS

The Group's investment properties, available for sale financial assets and assets held by defined benefit pension scheme are measured at fair value after initial recognition.

Investment properties are only valued annually by the Directors at the year end and not for the purposes of the interim financial statements.  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.

The Group's available for sale financial assets consisted entirely of equities of companies listed on quoted markets which fall within 'Level 1' of the fair value hierarchy.  Assets held by defined benefit pension scheme consist of equities and bond of companies listed on quoted markets and cash which all fall within 'Level 1' of the fair value hierarchy.  Level 1 valuations are those using inputs which are quoted prices (unadjusted) in active markets for identical assets or liabilities the Company can access at the period end date.

10.       RECONCILIATION OF PROFIT BEFORE TAX TO CASH FLOWS FROM

OPERATING ACTIVITIES

	6 Months ended 31.1.20 (Unaudited)	6 Months ended 31.1.19 (Unaudited)	Year ended 31.7.19 (Audited)
	£000	£000	£000
Profit before tax	250	639	6,643
Share of losses/(profits) from Joint Ventures	5	(61)	(48)
Depreciation	159	163	376
Unrealised valuation surplus on investment properties	-	-	(4,052)
(Profit)/loss on sale of property, plant and equipment	(18)	6	(141)
Profit on sale of available for sale financial assets	(16)	(10)	(26)
Unrealised valuation deficit on available for sale financial assets	47	48	9
Change in retirement benefits	-	-	188
Interest received	(49)	(32)	(71)
Interest paid	6	-	-
Change in inventories	2,482	(2,998)	164
Change in contract assets	(202)	-	221
Change in receivables - non-current	-	-	(250)
Change in receivables - current	(78)	92	935
Change in payables	346	1,049	(186)
CASH FLOWS FROM OPERATING ACTIVITIES	2,932	(1,104)	3,762

11.       RELATED PARTY TRANSACTION

Related parties are consistent with those disclosed in the Group's Annual Report and Statement of Accounts for the year to 31st July 2019.

Related party transactions, including salary and benefits provided to Directors and key management, were not material to the financial position or performance of the Group for the period.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors named below, confirm on behalf of the Board of Directors that to the best of their knowledge that the condensed consolidated interim financial statements for the six months to 31st January 2020 have been prepared in accordance with IAS 34: Interim Financial Reporting as adopted by the European Union.  The condensed consolidated interim financial statements include a fair review of the information required by Disclosure and Transparency Rules 4.2.7 and 4.2.8, being:

·    an indication of important events that have occurred during the six months to 31st January 2020 and their impact on the condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year, and

·    material related party transactions in the six months to 31st January 2020 and any material changes in the related party transactions described in the last annual report.

The Directors of the Company are listed in the Annual Report and Statement of Accounts for the year to 31st July 2019. 

By order of the Board
D.W. SMART, Director	J.R. SMART, Director
21st April 2020

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