TIDMSMJ
RNS Number : 8371T
Smart(J.)&Co(Contractors) PLC
17 November 2023
J. SMART & CO. (CONTRACTORS) PLC ANNOUNCES TODAY, FRIDAY 17
NOVEMBER 2023, ITS FULL YEAR RESULTS FOR THE YEAR TO 31st JULY
2023
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, including an
unrealised deficit in revalued property and a deficit in revalued
financial assets was GBP105,000 compared with GBP8,192,000 last
year.
As in previous years, our view is that disregarding the movement
in the revaluation of the commercial property 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 GBP2,288,000, compared with last year's figure of GBP7,840,000,
as detailed in note 6.
The Board is recommending a Final Dividend of 2.27p, making a
total of 3.23p, which compares with 3.23p for the previous year.
The Final Dividend will cost the company no more than
GBP904,000.
TRADING ACTIVITIES
Group construction activities, including private residential
sales, decreased by 20%. Headline Group profit on continuing
operations decreased substantially this financial year, which was
mainly due to the decrease in the value of the commercial property
portfolio and the absence of profit from investment sales of
commercial property, as was the case in the previous year.
Underlying profit before tax on continuing operations decreased
substantially this year, the previous year having benefitted from
an exceptional profit on the investment sale of commercial
property.
Trading margins continued to be affected by the rise in the
price of construction materials and the prolonged process in
obtaining not only statutory approvals, but also simple approvals
for utilities and associated infrastructure. This has resulted in
all our construction sites experiencing delays and thereby longer
programmes.
All of the above has caused an increase in aborted site
acquisitions and a lack of contract work being acquired in the
Housing Association sector. Overall costs have therefore
out-stripped original budgets, which has led to an erosion of
profits of recently completed and soon to be completed
projects.
The private housing development at Winchburgh, Canal Quarter, is
mainly complete. Reservations were encouraging until the end of
2022, but have significantly reduced in 2023. As previously
reported, the current economic issues of high interest rates and
inflation and the cost of living crisis continues to have an impact
on consumer confidence in the private housing sector. The majority
of reservations at Winchburgh have converted into sales, but sales
have been substantially less than expected. The resultant prolonged
sales period and accompanying holding costs, coupled with higher
construction costs, partly due to a longer than expected build
period, has and will continue to lead to a deterioration in the
profitability of this development.
The residential development at Clovenstone Gardens has commenced
and construction is progressing well. As previously reported, the
first completions are not due until late 2024, so no marketing has
yet taken place. As with the development at Winchburgh, the rise in
construction costs and the longer than expected programme may
result in a decrease in profit levels. It remains to be seen if
this will be counter-balanced by positive house sales.
As predicted, commercial property values have fallen due to the
decrease in investment yields. However, lettings of both our
industrial stock and office stock remain robust. Rental levels in
both sectors have not fallen yet and we are still seeing rental
growth, but more so in the industrial sector than the office
sector.
The second phase of Gartcosh Industrial Park, developed through
the joint venture company, Gartcosh Estates LLP, comprising two
medium sized industrial units, is now fully let.
The second phase at Belgrave Point, Bellshill, a large
speculative single user industrial unit, is nearly complete and
interest is promising. The increased programme, due to delays in
utility infrastructure, and increased construction costs, will
again impact on profit margins.
As reported in the interim statement, we have not secured any
new external contracts with housing associations. A contract has
been agreed with a manufacturing company for a new office facility
and an industrial unit extension. This contract, just outside
Stirling, did commence just prior to the end of the financial year,
and is progressing well.
FUTURE PROSPECTS
We have less work in hand in our own private housing at this
time than we did last year. We do not have any real prospects of
further contract work at present.
We have finally made progress with several planning applications
previously stuck in the Scottish planning system, albeit it has
taken longer than is necessary. Planning consent was obtained for
an industrial development in Bathgate. We have just received
approval for a residential development in Fife. We anticipate
planning permission being granted for a substantial flatted
development in Edinburgh this financial year.
The continuing increases in construction costs, interest rates
and inflation and the cost of living crisis all contribute to a
high degree of uncertainty as to when any of these sites will
commence due to simple viability issues. The lack of urgency in
local authorities in processing statutory approvals will
undoubtedly delay commencement on site, should we choose to
progress these developments. As mentioned above, there will be
private housing sales this year, but substantially less than
anticipated.
We expect to maintain letting levels in our commercial property
portfolio. It is already evident that investment yields have
decreased, but rental levels have held steady. Therefore, it
remains to be seen whether commercial property values will fall
this current financial year.
At this stage it is difficult to assess what the headline profit
will be for the year to 31st July 2024. If commercial property
values fall further, we may make a headline loss. Profits will
continue to be eroded by the lack of external contracting work, the
lack of recovery of overhead costs, the increase in material costs
and prolonged programmes due to statutory approval delays.
Mr Roy Anderson, Managing Director of our subsidiary Thomas
Menzies (Builders) Limited, retires at the end of 2023. He served
your company diligently for 34 years and I wish him a long and
happy retirement .
This is the first full reporting year for the new Task Force
Climate-Related Financial Disclosures (TCFD) standards. It has
taken a significant amount of time, effort and work with our
consultant, Beyond Green, to develop an updated Sustainability
Policy incorporating the required TCFD Reporting. I would like to
thank all our employees involved in the process. Special mention
must be made of the efforts of Head of HR, Lynsey Mackenzie, Head
of Commercial Development, Jane Oliver and our Chief Buyer, John
Sharp in this regard.
DAVID W SMART
16th November 2023 Chairman
PERFORMANCE REVIEW
Construction activities
2023 2022
GBP000 GBP000
Revenue 5,961 7,430
Operating loss (2,720) (2,487)
Construction revenue in the year has significantly decreased
again this year due mainly to fallen turnover in the areas of civil
engineering undertaken by Subsidiary Company, Thomas Menzies
(Builders) Limited and in work on construction of industrial units.
As noted in the previous year we completed the work for our Joint
Venture, Gartcosh Estates LLP at phase 2 of their development
consisting of 2 industrial units and undertook no new construction
work of industrial units for third parties in the year.
During the year there were sales of private house sales at our
development at Canal View, Winchburgh a development of 64 dwellings
consisting of flats and terrace houses. In total 9 properties were
sold in the year. Revenue from private house sales due to these
sales increased from that of the previous year.
We commenced construction at our site in Clovenstone, Wester
Hailes, Edinburgh. This site is a development of 45 flats. Private
house sales at this development are not expected until the year to
31st July 2026. There is also an element of social housing at this
site being 24 flats for Prospect Community Housing. During the year
there was a small amount of revenue earned against this
contract.
During the year we also commenced construction of commercial
property for a third party and again a small amount of revenue was
earned against this contract.
Full details of construction revenue is given in note 3 to the
financial statements.
Construction material costs continue to remain high due to the
continuing impact of Brexit, global unrest, inflation rate
increases and the overall demand for goods and services causing
increases in material and labour costs. The Group continues to
monitor costs on construction contracts, with the finance and
surveyor teams liaising to ensure accurate recording of cost to
contracts and monitoring of actual costs against anticipated costs
and anticipated revenue to ensure projects remain on course. The
Directors continue to fully appraise contracts, at various stages,
prior to acceptance to ascertain the likely outcome of the
contract. These appraisals are conducted prior to land bank
acquisitions, commencement of construction and then during the
lifetime of the contract to its completion.
Overheads continue to remain relatively constant over time, the
Directors do continue to monitor these with a view to achieving any
savings on costs were possible. However, with reduced revenue
levels the recoverability of overhead is difficult.
The increased material construction costs together with
increased labour costs has resulted in margins being reduced which
impacts on the recoverability of overheads incurred by the Group
and has resulted in the increased operating loss incurred in the
year.
Investment activities
2023 2022
GBP000 GBP000
Revenue from investment properties 7,011 6,983
Profit on sale of investment properties - 6,055
Net (deficit)/surplus on valuation
of investment properties (2,164) 473
Operating profit from investment properties 2,063 10,309
Income from financial assets 58 63
(Loss)/profit on sale of financial
assets (15) 17
Net deficit on valuation of financial
assets (19) (121)
Share of (losses)/profits in Joint
Ventures (36) 254
Revenue for investment properties marginally increased in the
year (2022, increased by 6%). There have been movements by tenants
in and out of properties in the year but overall both occupancy
levels and rental growth have remained fairly static.
Recoverability of revenue for investment properties continues to
remain high and the Group has suffered little in the way of
defaulting tenants.
The office and retail development at Winchburgh was completed
and handed over to our investment property company at the start of
the financial year. On completion of the build a tenant for the
office was in place but we have still to lease any of the
industrial units, although a tenant is lined up to take up
occupancy of one of the units in the near future. Work continues on
phase 2 at our industrial site at Bellshill for the construction of
one 53,735 square foot unit and the work now includes an office fit
out within the unit which has resulted in an extension to the
duration of the build.
Service charges and insurance receivable revenue have remained
unchanged from the previous year due to the limited movements in
occupancy in the year (2022, increased by 4%). Service charges
remain dependent on costs incurred in the year that can be
recovered and varies from year to year.
There were no disposals of properties in the year, compared to
the previous year when the Group sold three of its industrial
estates for GBP24,032,000 which generated a profit on sale of
GBP6,055,000.
This year the Group has suffered a deficit on the revaluation of
investment property portfolio of GBP2,164,000, due mainly to
decreasing yields.
Income from our financial assets has decreased from that of the
previous year. There were a number of acquisitions in the year to
our portfolio and disposals on which the Group suffered a loss of
GBP15,000. The impact of world and domestic events on the financial
markets resulted in a deficit of GBP19,000 on the fair value of our
financial assets being recorded this year.
The share of the results in our Joint Ventures is a loss of
GBP36,000 which is due to the effect of accounting for a
revaluation deficit on the industrial development owned by Gartcosh
Estates LLP.
Group results and financial position
2023 2022
GBP000 GBP000
Profit before tax 105 8,192
Net bank position 8,214 20,795
Net assets 125,467 124,676
Overall the Group has earned a profit before tax in the year but
it is significantly reduced from the profit earned in the previous
year due to the operating loss on the construction activities of
the Group and the accounting for the deficit on the revaluation of
investment properties. The significant movement in the profit for
this year and the profit in the previous year is also due to the
profit earned on sale of the investment properties in the previous
year and the accounting for the impact of the revaluation deficit
on investment properties in each year. If these are excluded then
in the current year the Group generated a profit of GBP2,269,000
compared to GBP1,664,000 in the previous year. The movement of
GBP605,000 arises mainly from the increased operating profit earned
on the Group's investment activities less the increased loss on the
construction activities and the increase in finance income on
short-term deposits with banks, interest on loans to Joint Ventures
and interest earned on the Group's Retirement Benefit asset.
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 due to the cash outflows on our
current private housing and own industrial developments currently
in progress. Overall, the Group continues to be net debt-free.
The Group's net assets have increased by GBP791,000, the main
impact being the movement in the Group's pension scheme surplus of
GBP4,902,000 and the increase in our inventories of private housing
for sale net of the decrease in cash and cash equivalents. The
profit generated in the year as discussed above and the accounting
for share buy backs and dividends paid to shareholders in the year
also impact on the net assets.
Area of principal Mitigating actions and controls
risk or uncertainty
and impact
By focusing external
construction activities * Maintain long-term relationships with social housing
in the social housing providers, resulting from high standards of service,
sector, which is a quality and post construction care thus giving the
competitive market, Group an advantage over other builders when contracts
failure to win new are awarded on criteria other than cost only.
contracts would impact
on our volume of work
and therefore the workforce * I dentify potential build sites or include the
required by the Group. 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.
* Continue 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.
Decline in home buyer
confidence, due to * Building developments in popular residential areas.
bank interest rates,
availability of affordable
mortgages and cost * Building high quality specification homes with
of living crisis resulting attention to detail which sets them apart from other
in stalling of private new build homes and therefore makes them more
house sales. attractive to buyers.
* Building a range of homes within a development thus
providing choice to buyers.
* Programming commencement of new build housing
projects to market conditions.
* Providing sales incentives.
* Considering the letting of built homes at market
rates.
Social housing sector
and the housing market * We are an 'all trades' contractor who employs our own
in general is highly personnel in all basic building trades who are
competitive with tight supervised by site agents who are long serving
margins. 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.
Reduction in rental
demand for investment * Only commence speculative developments after careful
properties may result assessment of the market.
in a fall in property
valuations.
* Continue to invest in property sectors which are
robust.
* 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 and improvements to our properties for
improved economic and climate efficiencies.
* Provide necessary financial incentives to retain
existing tenants at end of current leases and attract
new tenants.
Reduction in demand
for UK real estate * The Directors regularly review the property market to
from investors may ascertain if changes in the overall market present
result in a fall in specific risks or opportunities to the Group.
valuations within our
investment property
portfolio, this could * Restricting our operations to the central belt of
result in delays in Scotland being the area of the country with which we
investment decisions are most familiar.
which could impact
on our activities.
Political events and
policies result in * Before any decisions are taken by the Directors in
uncertainty until final any area of the Group's activities the level of
decisions have been uncertainty and range of potential outcomes arising
made and the impact from political events and policies are considered.
of decisions are known,
this could result in
delays in investment * Monitor Government guidelines and new legislations
decisions which could announcements to ensure the Group remains up to date
impact on our activities. with legislation.
Including Local Government
processes slowing down
our ability to commence * Continue to pursue contacts at Local Government to
new building projects. obtain necessary consents and planning approval.
Reduction of financial
resources. * 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.
Failure to evolve business * Continue to monitor all requirements relating to the
practices and operations construction industry in relation to improvements in
in response to climate buildings to ensure they comply with current and
change. emerging requirements.
* Review of designs for new buildings to ensure they
are as energy efficient as possible.
* Procurement of building materials from sustainable
sources.
* Investment in energy saving measures within our
investment property portfolio.
* Establishment of Sustainability Committee to develop
the Group's sustainability strategy with the
commitment to reduce the Group's carbon emissions in
line with science-based carbon reduction targets.
* Employ the services of external specialists and
consultants for their expertise.
Unforeseen national
and global events including * Establish strong relationships with suppliers and
world conflicts and subcontractors to ascertain impact on their potential
natural disasters. supply chains.
* Build up financial resources to ensure the Group has
sufficient funds for future working capital
requirements.
* Establish continuity plans for all areas of
operations.
Impact of cost of living * Retain strong control over costs on construction
crisis, increased inflation contracts.
and bank interest rates.
* Remunerate onsite and office based employees with
competitive rates of pay and benefits.
CONSOLIDATED INCOME STATEMENT
for the year ended 31st July 2023
Notes 2023 2022
GBP000 GBP000
Restated Note 1
REVENUE 3 12,972 14,413
Cost of sales (6,922) (8,850)
---------- ------------------
GROSS PROFIT 6,050 5,563
Other operating income 4 74 29
Administrative expenses (4,617) (4,298)
---------- ------------------
OPERATING PROFIT BEFORE PROFIT ON SALE AND
NET (DEFICIT)/SURPLUS ON VALUATION OF INVESTMENT
PROPERTIES 1,507 1,294
Profit on sale of investment properties - 6,055
Net (deficit)/surplus on valuation of investment
properties 9 (2,164) 473
---------- ------------------
OPERATING (LOSS)/PROFIT (657) 7,822
Share of (loss)/profits in Joint Ventures (36) 254
Income from financial assets 58 63
(Loss)/profit on sale of financial assets (15) 17
Net deficit on valuation of financial assets (19) (121)
Finance income 786 141
Finance costs (12) (12)
Gain on remeasurement of subsidiary company - 28
---------- ------------------
PROFIT BEFORE TAX 6 105 8,192
Taxation 5 95 (1,571)
---------- ------------------
PROFIT FOR YEAR ATTRIBUTABLE TO EQUITY SHAREHOLDERS 200 6,621
EARNINGS PER SHARE
Basic and diluted 8 0.49p 15.90p
---------- ------------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31st July 2023
2023 2022
GBP000 GBP000
PROFIT FOR YEAR 200 6,621
OTHER COMPREHENSIVE INCOME
Items that will not be subsequently reclassified
to Income Statement:
Remeasurement gains on defined benefit pension
scheme 4,330 7,219
Deferred taxation on remeasurement gains
on defined benefit pension scheme (1,083) (1,804)
-------- --------
TOTAL ITEMS THAT WILL NOT BE SUBSEQUENTLY
RECLASSIED TO INCOME STATEMENT 3,247 5,415
-------- --------
TOTAL OTHER COMPREHENSIVE INCOME 3,247 5,415
-------- --------
TOTAL COMPREHENSIVE INCOME FOR YEAR, NET
OF TAX 3,447 12,036
-------- --------
ATTRIBUTABLE TO EQUITY SHAREHOLDERS 3,447 12,036
-------- --------
`
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
as at 31st July 2023
Capital
Share Redemption Retained
Capital Reserve Earnings Total
GBP000 GBP000 GBP000 GBP000
As at 1st August 2021 840 168 114,729 115,737
Profit for year - - 6,621 6,621
Other comprehensive gain - - 5,415 5,415
--------- ------------ ---------- --------
TOTAL COMPREHENSIVE INCOME FOR YEAR - - 12,036 12,036
--------- ------------ ---------- --------
TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY
IN EQUITY
Shares purchased and cancelled (22) - (1,727) (1,749)
Transfer to Capital Redemption Reserve - 22 (22) -
Dividends - - (1,348) (1,348)
--------- ------------ ---------- --------
TOTAL TRANSACTIONS WITH OWNERS (22) 22 (3,097) (3,097)
--------- ------------ ---------- --------
As at 31st July 2022 818 190 123,668 124,676
--------- ------------ ---------- --------
Profit for year - - 200 200
Other comprehensive gain - - 3,247 3,247
--------- ------------ ---------- --------
TOTAL COMPREHENSIVE INCOME FOR YEAR - - 3,447 3,447
--------- ------------ ---------- --------
TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY
IN EQUITY
Shares purchased and cancelled (16) - (1,329) (1,345)
Transfer to Capital Redemption Reserve - 16 (16) -
Dividends - - (1,311) (1,311)
--------- ------------ ---------- --------
TOTAL TRANSACTIONS WITH OWNERS (16) 16 (2,656) (2,656)
--------- ------------ ---------- --------
As at 31st July 2023 802 206 124,459 125,467
--------- ------------ ---------- --------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31st July 2023
Notes 2023 2022
GBP000 GBP000
NON-CURRENT ASSETS
Property, plant and equipment 1,670 1,207
Investment properties 9 81,389 77,777
Investments in Joint Ventures 1,496 1,532
Financial assets 1,225 1,069
Trade and other receivables 3,010 3,010
Retirement benefit surplus 19,998 15,096
Deferred tax assets 13 13
108,801 99,704
CURRENT ASSETS
Inventories 17,760 12,454
Contract assets 33 16
Corporation tax asset 274 -
Trade and other receivables 2,352 2,442
Monies held on deposit 49 48
Cash and cash equivalents 18,656 31,796
-------- --------
39,124 46,756
-------- --------
TOTAL ASSETS 147,925 146,460
-------- --------
NON-CURRENT LIABILITIES
Deferred tax liabilities 8,842 8,172
Lease liabilities 212 212
9,054 8,384
-------- --------
CURRENT LIABILITIES
Trade and other payables 2,912 2,306
Lease liabilities 1 1
Corporation tax liability - 44
Bank overdraft 10,491 11,049
-------- --------
13,404 13,400
TOTAL LIABILITIES 22,458 21,784
-------- --------
NET ASSETS 125,467 124,676
-------- --------
EQUITY
Called up share capital 802 818
Capital redemption reserve 206 190
Retained earnings 124,459 123,668
-------- --------
TOTAL EQUITY 125,467 124,676
-------- --------
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31st July 2023
2023 2022
GBP000 GBP000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit after tax 200 6,621
Tax (credit)/charge for year (95) 1,571
--------- --------
Profit before tax 105 8,192
Adjustments for:
Share of losses/(profits) from Joint Ventures 36 (254)
Depreciation 445 399
Unrealised deficit/(surplus) on valuation
of investment properties 2,164 (473)
Unrealised deficit on valuation of financial
assets 19 121
Profit on sale of property, plant and equipment (74) (29)
Loss on derecognition of asset 42 -
Profit on sale of investment property - (6,055)
Loss/(profit) on sale of financial assets 15 (17)
Gain on remeasurement of subsidiary company - (28)
Change in retirement benefits (41) (14)
Interest received (786) (20)
Interest paid 12 12
Change in inventories (5,306) (4,584)
Change in contract assets (17) 230
Change in receivables 187 503
Change in payables 606 (1,113)
--------- --------
CASH OUTFLOW FROM OPERATING ACTIVITIES (2,593) (3,130)
Tax paid (636) (914)
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (3,229) (4,044)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (978) (380)
Additions to investment properties (48) (54)
Expenditure on own work capitalised - investment
properties (5,728) (2,167)
Proceeds of sale of property, plant and equipment 102 48
Proceeds of sale of investment property - 24,032
Purchase of financial assets (368) (47)
Proceeds of sale of financial assets 178 58
Monies held on deposit (1) -
Acquisition of investment in Subsidiary -
net cash acquired - 97
Interest received 158 20
Loan to Joint Ventures - (1,440)
Investment in Joint Ventures - (50)
NET CASH (OUTFLOW)/INFLOW FROM INVESTING
ACTIVITIES (6,685) 20,117
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Interest costs on leases (12) (12)
Purchase of own shares (1,345) (1,749)
Dividends paid (1,311) (1,348)
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (2,668) (3,109)
--------- --------
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (12,582) 12,964
--------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR 20,747 7,783
--------- --------
CASH AND CASH EQUIVALENTS AT OF YEAR 8,165 20,747
--------- --------
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 PREPARATI0N
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 2023 and is prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and in accordance with UK
adopted international accounting standards. 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 2023 or 31st July
2022.
The statutory consolidated accounts for the year to 31st July
2023 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 2023 will be delivered to the Registrar
of Companies following the Company's Annual General Meeting.
The financial information for the year to 31st July 2022 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.
STANDARDS, AMMENTS TO STANDARDS AND INTERPRETATIONS EFFECTIVE IN
THE YEAR TO 31st JULY 2023
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 2023:
-- IFRS3 (amended): Business Combinations
-- IAS 37 (amended): Provisions, Contingent Liabilities and Contingent Assets.
None of the above amendments to standards had a significant
impact on the Group's financial statements.
NEW STANDARDS, AMMENTS TO STANDARDS AND INTERPRETATIONS NOT YET
APPLIED
There have been no new standards, amendments to standards and
interpretations relevant to the Group which have been issued by the
International Accounting Standards Board, but are not yet effective
for the Group at the date of these 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 set out below 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. 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
GBP125,467,000 at 31st July 2023 and the Group's net current assets
amount to GBP25,720,000. 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
Directors have 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.
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.
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. These are set out in note 30 of the financial
statements.
The Group has concluded that the trust deed relating to the
defined benefit scheme grants the unconditional right to any
surplus of the scheme on the full settlement of the scheme
liabilities to the Group and therefore have concluded that any
surplus on the scheme can be incorporated into the Group and
Company financial statements. Advice on the Group's right to a
surplus arising on the pension scheme was sought in the year to
31st July 2022 from a firm of lawyers who specialise in this area.
Their advice was that the Group had an unconditional right to the
surplus based on the original Trust Deed and Deed of Variation and
therefore the full surplus arising on the calculation thereof under
IAS 19 (amended): Employee Benefits should be accounted for in the
financial statements.
PRIOR PERIOD RESTATEMENT
When the Group was first established, it was for the purposes of
construction of homes in both the private and social housing
sectors. In 1977, the Group acquired the Investment Property
subsidiary, C. & W. Assets Limited and overtime this subsidiary
has continually grown, both with regards to annual income generated
and the value of assets held by the Group. Historically, the Group
considered the investment property activities to be a non-core
activity of the Group and so the Group presented investment
property activity income as Other Operating Income in the
Consolidated Income Statement with associated costs within
Administration expenses. Given the continual growth in investment
property activities, the Directors have revisited this judgement
and after having considered the investment property activities,
capital employed and business prospects, have concluded that
investment property activities are a core part of the Group. This
change in judgement lead to rental income from investment property
for the year to 31st July 2022 in the Consolidated Income Statement
and related notes to the financial statements re-presented as
Revenue, with the associated direct costs being re-presented as
Cost of Sales. Accordingly, notes 2, 3 and 4 have been restated to
reflect this change. The change of judgement has no impact on the
net profit for the year to 31st July 2022 or the net assets as at
31st July 2022.
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 from construction and investment property 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.
Revenue Operating (Loss)/Profit
2023 2022
GBP000 GBP000 GBP000
2023
Construction activities 5,961 (2,720) -
Investment property
activities 7,011 2,063 -
--------
12,972 (657) -
-------- ------------ ------------
2022
Construction activities 7,430 - (2,487)
Investment property
activities 6,983 - 10,309
--------
14,413 - 7,822
-------- ------------ ------------
OPERATING (LOSS)/PROFIT (657) 7,822
Share of results in Joint
Ventures (36) 254
Finance and investment
income 844 221
Finance and investment
costs (46) (133)
Gain on remeasurement of subsidiary
company - 28
------------ ------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAX 105 8,192
------------ ------------
The Group had sales from construction activities from two
customers amounting to GBP1,281,000 and GBP753,000 respectively
(2022, sales from construction activities from two customers
amounting to GBP2,051,000 and GBP1,387,000 respectively).
OTHER SEGMENTAL INFORMATION
Non-Current Asset
Segment Segment
Additions Depreciation Assets Liabilities
GBP000 GBP000 GBP000 GBP000
2023
Construction activities 978 398 47,195 17,964
Investment property activities 5,776 47 100,192 5,452
Joint Ventures - - 1,496 -
---------- ------------- -------- -------------
148,883 23,416
Allocation of corporation tax
creditor (958) (958)
-------- -------------
147,925 22,458
-------- -------------
2022
Construction activities 380 351 36,679 16,744
Investment property activities 2,221 48 109,748 6,539
Joint Ventures - - 1,532 -
---------- ------------- -------- -------------
147,959 23,283
Allocation of corporation tax
creditor (1,499) (1,499)
-------- -------------
146,460 21,784
-------- -------------
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.
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.
2023 2022
GBP000 GBP000
Restated
Note
Disaggregation of Revenue 1
Construction activities
Social housing 397 9
Civil engineering 3,223 4,330
Industrial 77 1,387
Commercial 97 -
General construction 4 42
Private house sales 2,163 1,662
------- ---------
5,961 7,430
------- ---------
Investment property activities
Rental income 6,186 6,158
Service charges and insurance
receivable 824 824
Sundry income 1 1
------- ---------
7,011 6,983
------- ---------
Total Revenue 12,972 14,413
------- ---------
The transaction price allocated to unsatisfied performance
obligations in respect of construction activities as at 31st July
2023 are as set out below:
Social housing 3,829 -
Civil engineering 457 422
Industrial - -
Commercial 2,965 -
------ ----
The Directors expect that 82% (2022, 100%) of the transaction
price allocated to the unsatisfied contracts as at 31st July 2023
will be recognised as revenue in the year to 31st July 2024. The
Directors expect that the remain 18% which relates to social
housing and commercial property will be recognised as revenue in
the year to 31st July 2025.
The Group does not include in Revenue the value of work done in
the year which relates to own work capitalised on the Group's
Investment Properties, in the year to 31st July 2023 this amounted
to GBP5,728,000 (2022, GBP2,167,000).
4. OTHER OPERATING INCOME
2023 2022
GBP000 GBP000
Restated
Note
1
Profit on disposal of property,
plant and equipment 74 29
------- ---------
5. TAXATION
2023 2022
GBP000 GBP000
UK Corporation Tax
Current tax on income for the
year 358 997
Corporation tax over provided
in previous years (40) (4)
------- --------
318 993
Deferred taxation (413) 578
------- --------
95 1,571
------- --------
Current Tax Reconciliation
Profit on ordinary activities
before tax 105 8,192
Share of losses/(profits) of Joint
Ventures 36 (254)
Gain on remeasurement of subsidiary
company - (28)
------- --------
141 7,910
------- --------
Current tax at 21.01% (2022, 19.00%) 30 1,503
Effects of:
Expenses not deductible for tax
purposes 490 124
Ineligible depreciation - (1,189)
Non-taxable income including revaluation
surplus (567) (103)
Chargeable gains - 752
Effect of change in tax rate (90) 547
Adjustment to corporation tax charge in
respect of prior years (40) (4)
Adjustment to deferred tax charge in respect
of prior years 80 (30)
Deferred tax not recognised 2 (29)
------- --------
95 1,571
------- --------
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 21.01% (2022, 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 GBP1,083,000 (2022, GBP1,804,000) relating
to actuarial gains on the defined benefit pension scheme has been
recognised directly to Equity.
There are no income tax consequences attached to dividends paid
or proposed by the Company to its shareholders.
6. PROFIT BEFORE TAX 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, the Directors
consider that a truer reflection of actual Group performance is
obtained. Analysis of this alternative performance measure is as
follows:
2023 2022
GBP000 GBP000
Profit before tax 105 8,192
Deficit/(surplus) on valuation
of investment properties 2,164 (473)
Deficit on valuation of financial
assets 19 121
------- -------
2,288 7,840
------- -------
7. DIVIDS
2023 2022
GBP000 GBP000
2021 Final Dividend of 2.27p per
share - 948
2022 Interim Dividend of 0.96p
per share - 400
2022 Final Dividend of 2.27p per
share 923 -
2023 Interim Dividend of 0.96p
per share 388 -
------- -------
1,311 1,348
------- -------
The Board is proposing a Final Dividend of 2.27p per share
(2022, 2.27p) which will cost the Company no more than
GBP904,000.
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.
8. EARNINGS PER SHARE
2023 2022
GBP000 GBP000
Profit attributable to Equity
shareholders GBP000 200 6,621
Basic earnings per share 0.49p 15.90p
------- -------
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
2023 amounted to 40,572,000 (2022, 41,638,000). There is no
difference between basic and diluted earnings per share.
9. INVESTMENT PROPERTIES
Land Land and
and buildings buildings Right-of-use
Freehold Leasehold Asset Total
GBP000 GBP000 GBP000 GBP000
Cost or valuation:
At 1st August 2022 67,907 9,657 213 77,777
Additions 5,776 - - 5,776
Deficit on valuation (1,692) (472) - (2,164)
--------------- ----------- ------------- --------
At 31st July 2023 71,991 9,185 213 81,389
--------------- ----------- ------------- --------
Cost or valuation:
At 1st August 2021 75,744 17,103 213 93,060
Additions 2,218 3 - 2,221
Disposals (9,303) (8,674) - (17,977)
(Deficit)/surplus on valuation (752) 1,225 - 473
-------- -------- ---- ---------
At 31st July 2022 67,907 9,657 213 77,777
-------- -------- ---- ---------
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 variations outside of
acceptable valuation differences.
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 judgement 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
GBP per sq ft %
GBP000 Low Average High Low Average High
Fair Value at 31st
July 2023
Investment
Commercial 21,285 11.00 16.00 21.00 8.04 9.40 11.29
Industrial 59,891 4.75 7.82 10.89 7.24 7.98 9.95
Fair Value at 31st
July 2022
Investment
Commercial 22,113 11.00 15.25 19.50 6.78 8.60 10.57
Industrial 55,451 4.75 7.75 10.75 6.00 7.19 9.06
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 25bps change in equivalent
rental value Yield
Increase Decrease Decrease Increase
GBP000 GBP000 GBP000 GBP000 GBP000
Fair Value at 31st
July 2023
Investment
Commercial 21,285 1,171 (1,171) 653 (620)
Industrial 59,891 2,713 (2,713) 1,828 (1,713)
Fair Value at 31st
July 2022
Investment
Commercial 22,113 1,183 (1,183) 696 (658)
Industrial 55,451 2,511 (2,511) 1,785 (1,667)
The Group had commitments of GBP2,623,000 (2022, GBP6,133,000)
in respect of future developments and repair costs of investment
properties at the Statement of Financial Position date.
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END
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