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

Earnings Release • Oct 24, 2019

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RNS Number : 0218R

Smart(J.)&Co(Contractors) PLC

24 October 2019

J SMART & CO (CONTRACTORS) PLC AND SUBSIDIARY COMPANIES

ACCOUNTS FOR THE YEAR ENDED 31st JULY 2019

PRELIMINARY STATEMENT

ACCOUNTS

Headline Group profit for the year before tax, including an unrealised surplus in revalued property and a minor deficit in revalued available for sale financial assets, was £6,643,000 compared with £5,357,000 last year after accounting for the prior year adjustment resulting from implementation of IFRS 9.

Underlying profit before tax for the year of £2,600,000 was unexpectedly marginally more than last year's figure of £2,392,000 (including £460,000 profit from property sales in a joint venture company and a prior year adjustment increasing the profit by £104,000).  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 2.24p making a total of 3.19p which compares with 3.16p for the previous year.  After waivers by members holding almost 60% of the shares, the Final Dividend will cost the Company no more than £390,000.

TRADING ACTIVITIES

Group construction activities including private residential sales on continuing operations increased by 56%.  Own work capitalised decreased by 92% and headline Group profit on continuing operations increased by 25%.  Underlying Group profit on continuing operations increased by 13%. 

As reported in post balance sheet events in the last Annual Report and in my Statement in the last Interim Report, due to a substantial loss in that financial year and losses in previous years, the decision was taken to cease trading in the subsidiary company, Concrete Products (Kirkcaldy) Limited, based at Hayfield Industrial Estate, Kirkcaldy.  Trading has now ceased and the majority of the company assets have now been sold.  The demolition of the production buildings has now commenced and post demolition the property assets will be transferred to our commercial property subsidiary company, C. & W. Assets Limited.  The remaining property and yard space will be used by other group companies, mainly for storage purposes.  The loss for Concrete Products (Kirkcaldy) Limited stated in these accounts reflects the majority of the final cost of cessation.

Turnover in contracting was more than last year but the loss was increased.  The build contract for the Affordable Housing at the mixed development at West Bowling Green Street continues and will be finished prior to the end of 2019.  The social housing build contract at Ferrymuir is progressing and is due to complete after the end of the current financial year.

The first private residential sales completed in the year under review at West Bowling Green Street.  Sales will continue in the current financial year with the overall development due to complete prior to the end of the current financial year. 

Interest in the commercial property units at West Bowling Green Street is positive, with potential sales due this financial year.

Occupancy levels in our industrial and office portfolio have improved.  The total rent roll from our commercial property portfolio has increased by 15% since the last financial year end.

Interest in our industrial estates remains robust, with continued rental growth through lettings of new stock and re-lettings/rent review settlements of existing stock. 

The first unit at Gartcosh through our joint venture company, Gartcosh Estates LLP, has now been completed and interest is promising.  Due to the strong performance of the first two phases at our industrial development at West Edinburgh Business Park, South Gyle we commenced the third and final phase of development, after the end of the last financial year.  Similarly at Inchwood Park, Bathgate the third and final phase of this development may commence this financial year.  The first unit at our industrial development at Bellshill has now been successfully let.

Lettings of the office stock were encouraging this year.  Bridgeside House in Edinburgh is now 100% let after lying mainly vacant for a number of years.  A public sector related tenant let the majority of this building.  Our office building at Links Place, Leith, Edinburgh has seen a number of lettings with occupancy up to just over 80% by the end of the financial year.  As this building was sitting at less than 50% occupied only a few years ago, tribute must be paid to the staff involved with this successful turnaround.

FUTURE PROSPECTS

Work in hand in contracting is less than last year.  Potential site acquisitions and tender work in the Housing Association sector continue to be progressed, but there will probably be no new contracting work this financial year.  This will influence the year end figures due to reduced turnover, which will impact on the recovery of fixed overhead costs.

As mentioned above, private housing sales will continue this financial year at West Bowling Green Street and reservations to date have remained steady.  In relation to site acquisitions/future development we currently have either legal agreements in place on potential sites or sites within our control that would provide a total of approximately 200 private residential sale units.  Due to the, frequently prolonged, planning and building control processes, it is unlikely that development will commence on any of these sites in the current financial year.

Property valuation levels have improved again and we expect lettings to continue this financial year.  It remains to be seen how the continuing political uncertainty will affect the confidence of house purchasers and commercial property occupiers.

At this stage it is difficult to make an informed forecast for the outcome of the current year.  However, due to the lull in contracting work and new private housing work this financial year, it seems unlikely that the underlying profit will improve.

	DAVID W. SMART
	Chairman

CONSOLIDATED INCOME STATEMENT

for the year ended 31st JULY 2019

		2019		2018
		Unaudited		Audited
				Restated (Note 1 & 2)
Note		£000		£000
CONTINUING OPERATIONS
Group construction activities		16,182		10,402
Less: Own construction work capitalised		(147)		(1,847)
REVENUE		16,035		8,555
Cost of sales		(14,416)		(6,209)
GROSS PROFIT		1,619		2,346
Other operating income		7,560		6,344
Net operating expenses		(6,264)		(6,521)
OPERATING PROFIT BEFORE NET SURPLUS ON VALUATION OF INVESTMENT PROPERTIES		2,915		2,169
Net surplus on valuation of investment properties		4,052		2,859
OPERATING PROFIT		6,967		5,028
Share of profits in Joint Ventures		48		463
Income from available for sale financial assets		53		43
Profit on sale of available for sale financial assets		26		2
Net (deficit)/surplus on valuation of available for sale financial assets		(9)		106
Finance income		185		180
PROFIT BEFORE TAX		7,270		5,822
Taxation		(529)		(500)
PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS		6,741		5,322
DISCONTINUED OPERATIONS
Loss for the year from discontinued operations	2	(505)		(380)
PROFIT FOR YEAR ATTRIBUTABLE TO EQUITY SHAREHOLDERS		6,236		4,942
EARNINGS/(LOSS) PER SHARE
From continuing operations - basic and diluted		15.47p		11.96p
From discontinued operations - basic and diluted		(1.16)p		(0.85)p
From continuing and discontinued operations - basic and diluted		14.31p		11.11p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31st JULY 2019

	2019		2018
	Unaudited		Audited
			Restated (Note 1)
	£000		£000
PROFIT FOR THE YEAR	6,236		4,942
OTHER COMPREHENSIVE (LOSS)/INCOME
Items that will not be subsequently reclassified to the Income Statement:
Actuarial (loss)/gain recognised in defined benefit pension scheme	(1,118)		111
Deferred taxation on actuarial loss/(gain)	190		(19)
TOTAL ITEMS THAT WILL NOT BE SUBSEQUENTLY RECLASSIFIED TO INCOME STATEMENT	(928)		92
TOTAL OTHER COMPREHENSIVE (LOSS)/INCOME	(928)		92
TOTAL COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX	5,308		5,034
ATTRIBUTABLE TO EQUITY SHAREHOLDERS	5,308		5,034

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

as at 31st July 2019

		Share Capital	Capital Redemption Reserve	Retained Earnings		Total
		£000	£000	£000		£000
At 1st August 2017 (audited) (Restated Note 1)		896	112	92,850		93,858
Profit for the year		-	-	4,942		4,942
Other comprehensive income		-	-	92		92
TOTAL COMPREHENSIVE INCOME FOR THE YEAR		-	-	5,034		5,034
TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY IN EQUITY
Shares purchased and cancelled		(16)	-	(892)		(908)
Transfer to capital redemption reserve		-	16	(16)		-
Dividends		-	-	(1,391)		(1,391)
TOTAL TRANSACTIONS WITH OWNERS		(16)	16	(2,299)		(2,299)
At 31st July 2018 (audited) (Restated Note 1)		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 (unaudited)		866	142	99,274		100,282

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31st JULY 2019

	2019		2018
	Unaudited		Audited
			Restated (Note 1)
	£000		£000
NON-CURRENT ASSETS
Property, plant and equipment	1,304		1,308
Investment properties	73,874		69,532
Investments in Joint Ventures	57		68
Available for sale financial assets	1,309		1,099
Trade and other receivables	1,107		857
Retirement benefit surplus	2,899		4,205
Deferred tax asset	101		94
	80,651		77,163
CURRENT ASSETS
Inventories	8,643		8,807
Contract assets	549		770
Trade and other receivables	2,835		3,770
Monies held on deposit	48		48
Cash and cash equivalents	25,699		23,586
	37,774		36,981
TOTAL ASSETS	118,425		114,144
NON-CURRENT LIABILITIES
Deferred tax liabilities	1,735		1,995
CURRENT LIABILITIES
Trade and other payables	3,394		3,580
Current tax liability	154		118
Bank overdraft	12,860		11,858
	16,408		15,556
TOTAL LIABILITIES	18,143		17,551
NET ASSETS	100,282		96,593
EQUITY
Called up share capital	866		880
Capital redemption reserve	142		128
Retained earnings	99,274		95,585
TOTAL EQUITY	100,282		96,593

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31st JULY 2019

	2019		2018
	Unaudited		Audited
			Restated (Note 1)
	£000		£000
Profit before tax	6,643		5,357
Share of profits from Joint Ventures	(48)		(463)
Depreciation	376		427
Impairment of assets	-		116
Unrealised valuation surplus on investment properties	(4,052)		(2,859)
Unrealised valuation deficit/(surplus) on available for sale financial assets	9		(106)
Profit on sale of property, plant and equipment	(141)		(59)
Profit on sale of available for sale financial assets	(26)		(2)
Change in retirement benefits	188		(232)
Interest received	(71)		(80)
Change in inventories	164		(5,926)
Change in contract assets	221		86
Change in receivables - non-current	(250)		(857)
Change in receivables - current	935		1,097
Change in payables	(186)		(805)
	3,762		(4,306)
Tax paid	(448)		(442)
NET CASH FLOWS FROM OPERATING ACTIVITIES	3,314		(4,748)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment	(424)		(454)
Additions to investment properties	(143)		(27)
Expenditure on own work capitalised - investment properties	(147)		(1,847)
Sale of property, plant and equipment	193		93
Purchase of available for sale financial assets	(380)		-
Proceeds of sale of available for sale financial assets	187		9
Decrease on monies held on deposit	-		2,488
Interest received	71		80
Dividend from Joint Ventures	59		700
NET CASH FLOWS FROM INVESTING ACTIVITIES	(584)		1,042
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of own shares	(806)		(908)
Dividends paid	(813)		(1,391)
NET CASH FLOWS FROM FINANCING ACTIVITIES	(1,619)		(2,299)
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS	1,111		(6,005)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	11,728		17,733
CASH AND CASH EQUIVALENTS AT END OF YEAR	12,839		11,728

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 2019 have not yet been filed with the Registrar of Companies and have not yet been reported on by the Company's auditor.

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 2019 and the unaudited financial information included in this preliminary statement and the accounting policies disclosed in the 2018 Annual Report and Statement of Accounts, with the exception of the policy regarding revenue recognition resulting from the application of IFRS 15: Revenue from Contracts with Customers and IFRS 9: Financial Instruments relating to the accounting of revaluation surpluses or deficits on the Group's available for sale financial assets.  The impact of these standards is detailed below.

The following standards, amendments to standards and interpretations became mandatory for the first time for the financial year to 31st July 2019:

·      IFRS 9: Financial Instruments

·      IFRS 15: Revenue from Contracts with Customers

·      IAS 40 (amended): Investment Properties

These standards had no material impact on the financial statements but the application on IFRS 9: Financial Instruments resulted in the restatement of prior year figures as detailed below.

IFRS 9: Financial Instruments became effective as from 1st August 2018.  This standard changes the accounting for revaluation surpluses or deficits on available for sale financial assets.  Previously these surpluses or deficits were accounted for in the Consolidated Statement of Comprehensive Income together with the taxation impact of these surpluses or deficits.  Under IFRS 9 these surpluses or deficits are accounted for in the Consolidated Income Statement together with taxation impact.  There is no impact on the valuation of the available for sale financial assets or the deferred tax provision in relation to their valuation in the Consolidated Statement of Financial Position.  Within the Equity section of the Consolidated Statement of Financial Position the Fair value reserve no longer exists as the fair value movement is included in Retained earnings.

The application of IFRS 9: Financial Instruments has been applied retrospectively and accordingly the comparative figures have been restated for the year to 31st July 2018. 

The table below details the impact of the application of IFRS 9: Financial Instruments on the Consolidated Income Statement and the Consolidated Statement of Comprehensive Income for the year to 31st July 2018:

CONSOLIDATED INCOME STATEMENT
			£000
PROFIT BEFORE TAX (as previously reported)			5,253
Impact of net surplus on valuation of available for sale financial assets			104
			5,357
TAX (as previously reported)			(402)
Impact of deferred tax adjustment on fair value reserve			(13)
			(415)
PROFIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS - REVISED			4,942
Impact on profit attributable to equity shareholders			91

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD (as previously reported)			5,034
Impact on profit for the period - increase (as above)			91
			5,125
Other comprehensive income relating to fair value of available for sale financial assets - no longer accounted for in Statement of Comprehensive Income			(91)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD			5,034
PROFIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS			5,034

IFRS 15: Revenue from Contracts with Customers became effective from 1st August 2018.  It replaces IAS 11: Construction Contracts and IAS 18: Revenue and sets out the criteria for revenue recognition with regards to performance obligations. As stated in the Group's 2018 Annual Report and Statement of Accounts the implementation of this standard has not had a material impact on the revenue or cash flows reported by the Group for the year to 31st July 2019.  In respect of construction contracts this standard has no impact on revenue from customers.  The standard allows for the recognition of revenue over time for the performance obligation based on stage of completion of the contracts which is in line with the Group's policy.  The recognition of revenue from private house sales or sales of land was not impacted by the new standard as this revenue is recognised on completion of the performance obligation of the supply of the housing or the land.  This standard does not apply to rental income from our investment properties but does apply to service charge income and other property related income and income from sale of investment properties. The new standard does not impact on the Group's current policy of recognition of these income types. 

IAS 40 (amended): Investment Properties became effective from 1st August 2018.  The amendment to this standard relating to the transfer of properties to and from Investment Properties has no impact on the Group's financial statements for the year.

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 2018 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

On 9th November 2018 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:

	2019		2018
	£000		£000
	Unaudited		Audited
Revenue	645		2,100
Cost of sales	(817)		(1,909)
Gross (Loss)/Profit	(172)		191
Other operating income	6		8
Net operating expenses	(461)		(664)
Loss before tax	(627)		(465)
Taxation	122		85
Net loss attributable to discontinued operations (attributable to owners of the Company)	(505)		(380)

3.         DIVIDENDS

Ordinary dividends
2017 Final dividend of 2.17p per share	-		968
2018 Interim dividend of 0.95p per share	-		423
2018 Final dividend of 2.21p per share, after waivers	402		-
2019 Interim dividend of 0.95p per share	411		-
	813		1,391

The Company is proposing a final dividend of 2.24p per share for the year to 31st July 2019 which, after waivers, will cost the Company no more than £390,000.

The dividend if approved will be paid on 30th December 2019 to shareholders on the Register at the close of business on 6th December 2019.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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