REG - Smart(J)Contractrs - Final Results
19/11/2024 16:00
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RNS Number : 8478M Smart(J.)&Co(Contractors) PLC 19 November 2024
J. SMART & CO. (CONTRACTORS) PLC ANNOUNCES TODAY, TUESDAY 19 NOVEMBER
2024, ITS FULL YEAR RESULTS FOR THE YEAR TO 31st JULY 2024
The information contained within this announcement is deemed to constitute
inside information as stipulated under the Market Abuse Regulations (EU) No.
596/2014. Upon the publication of this announcement, this inside information
is now considered to be in the public domain.
CHAIRMAN'S REVIEW
ACCOUNTS
Headline Group profit for the year before tax on continuing and discontinued
operations, including an unrealised surplus in revalued property and a surplus
in revalued financial assets was £2,365,000 compared with £105,000 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 £1,248,000, compared with last year's
figure of £2,288,000, as detailed in note 10 of the financial statements.
The Board is recommending a Final Dividend of 2.27p, making a total of 3.23p,
the same as the previous year. The Final Dividend will cost the company no
more than £890,000.
TRADING ACTIVITIES
Group construction activities, including residential sales, increased by
141%. Headline Group profit on continuing operations increased this
financial year, due to the rise in the value of the commercial property
portfolio, the profit from the investment sale in a joint venture company and
an improved financial performance from some of our subsidiary companies.
Underlying profit before tax decreased substantially this year, mainly due to
increased loss provisions in our private housing developments, which are
detailed below.
Our construction sites continue to suffer from longer than anticipated
programmes due to delays in statutory approvals and infrastructure/utility
approvals.
Trading margins have been negatively affected by these delays and also by the
continuing rise in the price of construction materials.
The lack of contract work in the housing association sector continues due to
these factors, but also by a reluctance by central government to increase
funding from their current unviable levels.
The residential development at Clovenstone Gardens has been badly affected by
the above issues, with first completions now not being until March/April
2025. Marketing has just commenced on the private housing and interest is
not promising. At present it is unlikely that the rise in construction costs
will be counter-balanced by positive house sales.
The sales at our private housing development at Winchburgh, Canal Quarter,
continue to suffer due to the lack of interest from home buyers. Whilst
there was a spate of reservations at the beginning of 2024, these have become
sporadic. Half of the properties remain to be sold, which is more than
anticipated. There has been a downward pressure on sales prices due to
competitors drastically reducing their figures. The prolonged sales period,
with associated holding costs and negative pressure on sales prices, has led
to a significant deterioration in the profitability of this development.
The construction contract with a manufacturing company for a new office
facility and an industrial unit extension just outside Stirling has progressed
well and is now complete, albeit after the financial year end. Whilst
inexplicable delays in local authority approvals have hampered administrative
progress, we do not anticipate any significant profit erosion in this
contract.
Commercial property values have recovered, albeit mainly due to rental growth
rather than any significant improvement in investment yields. Lettings of
both our industrial stock and office stock continue to progress well. Rental
levels in both sectors have held with rental growth still being experienced.
As previously reported, the three let units at Gartcosh Industrial Park,
developed through our joint venture company, Gartcosh Estates LLP, were sold
as an investment property disposal, with an acceptable profit achieved.
As mentioned in the interim report, the second phase at Belgrave Point,
Bellshill, a large single user industrial unit, was finished in March 2024 and
let to an occupier on completion. Both phases of this development, now being
let, were marketed as an investment sale and sold after the financial year
end. As predicted, profit margins on the second phase were impacted
negatively due to a longer than anticipated programme caused by delays in
utility infrastructure and increased construction costs.
As predicted in the interim report, the slow nature of the pre-contract
process has delayed the start of private housing and commercial property
developments, with none being commenced prior to the end of the reporting
year.
Contract work continues to be scarce, mainly due to the financial viability
issues noted above.
FUTURE PROSPECTS
We have less work in hand in our own private housing than we did last year.
There are no real prospects of further contract work at present. We continue
to explore other avenues to obtain contract work, but many of these sectors
have major obstacles. For example, investment in the new build private
rented sector has stalled due to the Scottish Government's rent control
legislation. The Housing (Scotland) Bill will hopefully reverse this lack of
investment and kick start this sector, but when remains to be seen.
The new Government in Westminster has adopted a pessimistic approach to
business in their start in power, but they have relaxed matters in the
planning system. Unfortunately, this does not apply in Scotland, and we
continue to suffer from a lack of urgency in local authorities in processing
statutory approvals.
A start at Inchmuir Park, Bathgate, a speculative industrial development, will
be made in the near future. This development should have commenced well
before the financial year end, but delays in statutory approvals and utility
approvals prevented this.
Planning consent has been granted at our site at Inglis Green Road, Edinburgh,
for a substantial flatted housing development.
Interest rates have recently decreased but consumer confidence in private
housing remains low. Whilst there will be some private housing sales this
year, it is probable these will be less than originally anticipated.
Letting and rental levels in our commercial property portfolio will be
maintained. We do not anticipate that yields will drastically change, and
therefore, expect property values to remain steady in this current financial
year.
At this stage it is difficult to assess what the headline profit will be for
the year to 31st July 2025. Profits will be eroded by the factors already
reported.
DAVID W SMART
19th November
2024
Chairman
PERFORMANCE REVIEW
Construction activities
2024 2023
£000 £000
Revenue 14,350 5,961
Operating loss (3,968) (2,720)
Construction revenue in the year has significantly increased over all
activities due to the progress of contracts in the year.
Work has continued on the social housing contract at our Clovenstone
development, being the 24 flats for Prospect Community Housing. The work on
the private housing at this development has also progressed throughout the
year, however sales from these are not expected until the year to 31st July
2026. Post year end we have established our sales office at this site and
the showhouse will follow in due course. For both the social housing and
private housing elements at this site the Directors considered the carrying
value of the contract asset and inventory balances in the financial statements
and made required provisions against both amounts.
The work for a third party for a commercial and industrial property have
progressed well in the year. Both of these properties have been completed
and handed over to the customer post year end.
Sales continue to be made at our private housing development at Canal View,
Winchburgh but not at the levels we had anticipated this being due to
continuing uncertainties in the housing market. In the year to 31st July
2024 we sold 16 properties, giving a total sold of 25 as at 31st July 2024 out
of a total of 64 dwellings in the development. Due to the levels of sales at
this development, reduced sales prices and other incentives were introduced to
simulate sales. Post year end we have sold a further 2 dwellings with a
further 5 reserved. Due to the reduced sales prices and incentives
introduced and the duration of time since the completion of the housing
development, the Directors considered the carrying value of the inventory
balance at the year end and made a required provision against the balance.
Our civil engineering subsidiary, Thomas Menzies (Builders) Limited, has seen
an increase in revenue of £1,423,000 being an increase of 44% this is year to
the nature and timing of contracts undertaken in the year.
Full details of construction revenue is given in note 3 to the financial
statements.
Construction material costs continue to remain high for various reasons, being
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
and reviewing the impact on future costs to complete contracts. 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 in nature over time,
however they have increased in monetary terms due to inflationary increases.
The Directors do continue to monitor these with a view to achieving any
savings on costs where possible. With our revenue levels the recoverability
of overhead is difficult.
The increased material construction costs together with increased labour costs
has resulted in margins being reduced and the impact on the recoverability of
overheads incurred by the Group has resulted in the increased operating loss
incurred in the year.
Investment activities
2024 2023
£000 £000
Revenue from investment properties 7,670 7,011
Net surplus/(deficit) on valuation of investment properties 994 (2,164)
Operating profit from investment properties 4,634 2,063
Income from financial assets 49 58
Loss on sale of financial assets (123) (15)
Net surplus/(deficit) on valuation of financial assets 123 (19)
Share of profit/(loss) in Joint Ventures 320 (36)
Overall revenue for investment properties has increased in the year by 9%.
There has been a small increase overall in the rental income and a significant
increase of 58% in the amount of service charges and insurance premiums we
have recovered from tenants. Throughout the year, as expected there have
been movements of tenants in and out of properties 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.
We completed work on phase 2 at our industrial site at Bellshill for the
construction of one 53,735 square foot unit and the fit out of an office
within the unit. A tenant moved into the unit in the year. This unit and
the existing unit at the estate were sold post year end. Refer to notes 18
and 35 of the financial statements for further details on this sale.
There were no disposals of properties in the year but, as stated above, the
Group sold the estate at Bellshill and also the one at Cardonald, post year
end.
This year the Group has earned a surplus on the revaluation of investment
property portfolio of £994,000, due mainly to improving yields and increased
rental.
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 of
financial assets along with a number of disposals on which the Group suffered
a loss of £123,000. Improvements in the world financial markets
resulted in a surplus of £123,000 on the fair value of our financial assets
being recorded this year.
The share of the results in our Joint Ventures is a profit of £320,000 this
is due to the accounting for the sale of the investment properties held by
Gartcosh Estates LLP in the year and the resulting profit earned on the sale.
Group results and financial position
2024 2023
£000 £000
Profit before tax 2,365 105
Net bank position 7,552 8,214
Total assets 146,498 147,925
Net assets 126,313 125,467
Overall the Group has earned a profit before tax in the year which has
significantly increased due to the impact of the surplus on revaluation of the
investment properties earned this year as opposed to the deficit suffered in
the previous year. Construction activities continue to suffer operating
losses but these are covered by the operating profit earned on investment
activities. If the movements in investment properties fair value and the
movement in fair value of financial assets are excluded then in the current
year the Group generated a profit of £1,248,000 compared to £2,288,000 in
the previous year, as detailed in note 10 of the financial statements. The
decrease in profits of £1,040,000 is mainly from the increased operating loss
suffered on the Group's construction activities plus the loss suffered on the
sale of financial assets less the profit earned from Joint Ventures and
overall increase earned in finance income.
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 undertaken in the year. In the year, however, the
Group received significant amounts from the Joint Venture, Gartosh Estates LLP
following the sale of its investment properties. These sums were for the
repayment of the loan provided by J. Smart & Co (Contractors) PLC plus
interest earned thereon, the repayment of the capital contribution initially
paid to the Joint Venture and a dividend payment from profits previously
earned and earned in the financial year following the sale for the investment
properties. Overall, the Group continues to be net debt-free.
The Group's net assets have increased by £846,000, the main impact being the
profits earned in the year, the movement in the Group's pension scheme surplus
of £3,042,000 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 risk or uncertainty and impact Mitigating actions and controls
By focusing external construction activities in the social housing sector, • Maintain long-term relationships with social housing providers,
which is a competitive market, failure to win new contracts would impact on resulting from high standards of service, quality and post construction care
our volume of work and therefore the workforce required by the Group. thus giving the Group an advantage over other builders when contracts are
awarded on criteria other than cost only.
• Identify potential build sites or include the provider within
private housing developments in relation to the element of affordable housing
required.
• When workload is reduced workforce can be diverted to the
Group's own commercial and private residential developments.
• 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 bank interest rates, availability of • Building developments in popular residential areas.
affordable mortgages and cost of living crisis resulting in stalling of
private house sales. • Building high quality specification homes with attention to
detail which sets them apart from other new build homes and therefore makes
them more attractive to buyers.
• Building a range of homes within a development thus providing
choice to buyers.
• 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 in general is highly competitive • We are an 'all trades' contractor who employs our own personnel
with tight margins. in all basic building trades who are supervised by site agents who are long
serving employees of the Group and who have been promoted through their
trades, thus ensuring control of labour costs on contracts.
• We have invested heavily in plant and the maintenance thereof
and therefore limit our costs on contracts by utilising own plant as opposed
to incurring higher costs of hiring plant.
• Subcontractors employed by the Group are specialists in their
fields and in the main subcontractors have previously been used by the Group
therefore quality of work and reliability is known. No labour only
subcontractors are employed.
• In house architectural technicians and surveyors provide
pre-contract design advice to resolve potential technical problems with the
build and therefore potential costs.
• Detailed appraisals of contract pre-land acquisition and
pre-construction.
Reduction in rental demand for investment properties may result in a fall in • Only commence speculative developments after careful assessment
property valuations. of the market.
• 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 from investors may result in a fall in • The Directors regularly review the property market to ascertain
valuations within our investment property portfolio, this could result in if changes in the overall market present specific risks or opportunities to
delays in investment decisions which could impact on our activities. the Group.
• Restricting our operations to the central belt of Scotland being
the area of the country with which we are most familiar.
Political events and policies result in uncertainty until final decisions have • Before any decisions are taken by the Directors in any area of
been made and the impact of decisions are known, this could result in delays the Group's activities the level of uncertainty and range of potential
in investment decisions which could impact on our activities. Including outcomes arising from political events and policies are considered.
Local Government processes slowing down our ability to commence new building
projects. • Monitor Government guidelines and new legislations announcements
to ensure the Group remains up to date with legislation.
• Continue to pursue contacts at Local Government to 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 practices and operations in response to climate • Continue to monitor all requirements relating to the construction
change. industry in relation to improvements in buildings to ensure they comply with
current and emerging requirements.
• Review of designs for new buildings to ensure they are as energy
efficient as possible.
• Procurement of building materials from sustainable sources.
• 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 world conflicts and natural • Establish strong relationships with suppliers and subcontractors to
disasters. ascertain impact on their potential 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 crisis, increased inflation and bank interest rates. • Retain strong control over costs on construction contracts.
• Remunerate onsite and office based employees with competitive rates of
pay and benefits.
CONSOLIDATED INCOME STATEMENT
for the year ended 31st July 2024
Notes 2024 2023
£000 £000
REVENUE 3 22,020 12,972
Cost of sales (17,993) (6,922)
GROSS PROFIT 4,027 6,050
Other operating income 4 163 74
Administrative expenses (4,518) (4,617)
OPERATING (LOSS)/PROFIT BEFORE NET SURPLUS/(DEFICIT) ON VALUATION OF (328) 1,507
INVESTMENT PROPERTIES
Net surplus/(deficit) on valuation of investment properties 9 994 (2,164)
OPERATING PROFIT/(LOSS) 666 (657)
Share of profit/(loss) in Joint Ventures 320 (36)
Income from financial assets 49 58
Loss on sale of financial assets (123) (15)
Net surplus/(deficit) on valuation of financial assets 123 (19)
Finance income 1,346 786
Finance costs (16) (12)
PROFIT BEFORE TAX 6 2,365 105
Taxation 5 (692) 95
PROFIT FOR YEAR ATTRIBUTABLE TO EQUITY SHAREHOLDERS 1,673 200
EARNINGS PER SHARE
Basic and diluted 8 4.22p 0.49p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31st July 2024
2024 2023
£000 £000
PROFIT FOR YEAR 1,673 200
OTHER COMPREHENSIVE INCOME
Items that will not be subsequently reclassified to Income Statement:
Remeasurement gains on defined benefit pension scheme 1,802 4,330
Deferred taxation on remeasurement gains on defined benefit pension scheme (450) (1,083)
TOTAL ITEMS THAT WILL NOT BE SUBSEQUENTLY RECLASSIED TO INCOME STATEMENT 1,352 3,247
TOTAL OTHER COMPREHENSIVE INCOME 1,352 3,247
TOTAL COMPREHENSIVE INCOME FOR YEAR, NET OF TAX 3,025 3,447
ATTRIBUTABLE TO EQUITY SHAREHOLDERS 3,025 3,447
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
as at 31st July 2024
Share Capital Capital Redemption Reserve Retained Earnings Total
£000 £000 £000 £000
As at 1st August 2022 818 190 123,668 124,676
Profit for year - - 200 200
Other comprehensive income - - 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
Profit for year - - 1,673 1,673
Other comprehensive income - - 1,352 1,352
TOTAL COMPREHENSIVE INCOME FOR YEAR - - 3,025 3,025
TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY IN EQUITY
Shares purchased and cancelled (13) - (889) (902)
Transfer to Capital Redemption Reserve - 13 (13) -
Dividends - - (1,277) (1,277)
TOTAL TRANSACTIONS WITH OWNERS (13) 13 (2,179) (2,179)
As at 31st July 2024 789 219 125,305 126,313
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31st July 2024
Notes 2024 2023
£000 £000
NON-CURRENT ASSETS
Property, plant and equipment 2,743 1,670
Investment properties 9 70,038 81,389
Investments in Joint Ventures 65 1,496
Financial assets 1,032 1,225
Trade and other receivables - 3,010
Retirement benefit surplus 23,040 19,998
Deferred tax assets 54 13
96,972 108,801
CURRENT ASSETS
Assets held for sale 14,199 -
Inventories 18,710 17,760
Contract assets 944 33
Corporation tax asset 255 274
Trade and other receivables 2,435 2,352
Monies held on deposit 51 49
Cash and cash equivalents 12,932 18,656
49,526 39,124
TOTAL ASSETS 146,498 147,925
NON-CURRENT LIABILITIES
Deferred tax liabilities 9,828 8,842
Lease liabilities 212 212
10,040 9,054
CURRENT LIABILITIES
Trade and other payables 4,713 2,912
Lease liabilities 1 1
Bank overdraft 5,431 10,491
10,145 13,404
TOTAL LIABILITIES 20,185 22,458
NET ASSETS 126,313 125,467
EQUITY
Called up share capital 789 802
Capital redemption reserve 219 206
Retained earnings 125,305 124,459
TOTAL EQUITY 126,313 125,467
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31st July 2024
2024 2023
£000 £000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit after tax 1,673 200
Tax charge/(credit) for year 692 (95)
Profit before tax 2,365 105
Adjustments for:
Share of (profits)/losses from Joint Ventures (320) 36
Depreciation 455 445
Unrealised (surplus)/deficit on valuation of investment properties (994) 2,164
Unrealised (surplus)/deficit on valuation of financial assets (123) 19
Profit on sale of property, plant and equipment (114) (74)
Loss on derecognition of asset - 42
Loss on sale of financial assets 123 15
Change in retirement benefits (154) (41)
Interest received (1,346) (786)
Interest paid 16 12
Change in inventories (950) (5,306)
Change in contract assets (911) (17)
Change in receivables (180) 187
Change in payables 1,801 606
CASH OUTFLOW FROM OPERATING ACTIVITIES (332) (2,593)
Tax paid (178) (636)
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (510) (3,229)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (1,554) (978)
Additions to investment properties (81) (48)
Expenditure on own work capitalised - investment properties (1,765) (5,728)
Proceeds of sale of property, plant and equipment 132 102
Purchase of financial assets (51) (368)
Proceeds of sale of financial assets 244 178
Monies held on deposit (2) (1)
Interest received 357 158
Interest paid (4) -
Loan to Joint Ventures repaid 3,010 -
Return of capital contribution to Joint Ventures 1,040 -
Dividend received from Joint Venture 711 -
NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES 2,037 (6,685)
CASH FLOWS FROM FINANCING ACTIVITIES
Interest costs on leases (12) (12)
Purchase of own shares (902) (1,345)
Dividends paid (1,277) (1,311)
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (2,191) (2,668)
DECREASE IN CASH AND CASH EQUIVALENTS (664) (12,582)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,165 20,747
CASH AND CASH EQUIVALENTS AT END OF YEAR 7,501 8,165
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 2024
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 2024 or 31st July 2023.
The statutory consolidated accounts for the year to 31st July 2024 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 2024 will be
delivered to the Registrar of Companies following the Company's Annual General
Meeting.
The financial information for the year to 31st July 2023 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.
NEW STANDARDS, AMENDMENTS TO STANDARDS AND INTERPRETATIONS NOT YET APPLIED
The following new standards, amendments to standards and interpretations
relevant to the Group have been issued by the International Accounting
Standards Board but are not yet effective for the Group at the date of these
financial statements, and have not been adopted early:
• IFRS S1: General Requirements for Disclosure of
Sustainability-related Financial Information (effective in the year ending
31st July 2025).
• IFRS S2: Climate-related Disclosures (effective in the
year ending 31st July 2025).
• IFRS 18: Presentation and Disclosures in Financial
Statements (effective in the year ending 31st July 2028).
• IFRS 19: Subsidiaries without Public Accountability
(effective in the year ending 31st July 2028).
• IAS 1 (amended): Presentation of Financial Statements
(effective in the year ending 31st July 2025).
The Directors do not consider that the application of these amendments to
standards will have a material impact on the financial statements other than
regarding disclosures to be made in the financial statements.
NEW STANDARDS, AMENDMENTS TO STANDARDS AND INTERPRETATIONS NOT YET APPLIED
The following new standards, amendments to standards and interpretations
relevant to the Group have been issued by the International Accounting
Standards Board but are not yet effective for the Group at the date of these
financial statements, and have not been adopted early:
• IFRS S1: General Requirements for Disclosure of
Sustainability-related Financial Information (effective in the year ending
31st July 2025).
• IFRS S2: Climate-related Disclosures (effective in the
year ending 31st July 2025).
• IFRS 18: Presentation and Disclosures in Financial
Statements (effective in the year ending 31st July 2028).
• IFRS 19: Subsidiaries without Public Accountability
(effective in the year ending 31st July 2028).
• IAS 1 (amended): Presentation of Financial Statements
(effective in the year ending 31st July 2025).
The Directors do not consider that the application of these amendments to
standards will have a material impact on the financial statements other than
regarding disclosures to be made in the financial statements.
BASIS OF PREPARATION
The financial statements have been prepared under the historical cost
convention except where the measurement of balances at fair value is required
as noted below for investment properties, 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
future 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
£126,313,000 at 31st July 2024 and the Group's net current assets amount to
£39,381,000. The Directors have also taken account of the impact of climate
changes on the activities of the Group. Taking all of the information the
Directors currently have they are of the opinion that the Company and Group
are well placed to manage their 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
ACCOUNTING ESTIMATES
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.
ACCOUNTING JUDGEMENTS
CASH AND CASH EQUIVALENTS
As the Group has a pooling arrangement with its bankers and the bank has been
granted guarantees and letters of offset by certain members of the Group in
favour of the bank on account of all these members as continuing security for
all monies, obligations and liabilities owing or incurred to the bank, then
for the purposes of the Statement of Cash Flows and the calculation of cash
and cash equivalents the bank overdraft is netted against positive bank
balances. The Directors consider the bank balances whether positive or
negative to be part of the Group's ordinary working capital cycle. In
accordance with IAS 7: Statement of Cash Flows, the Directors deem the bank
overdraft to be cash and cash equivalents and not borrowings as this balance
is being used for working capital and other trading activities. Overall the
Group is not allowed to be in an overdrawn bank position in the pooling
arrangement, however individual companies within the arrangement may have an
overdrawn bank balance. The Group and Company present positive and negative
bank balances separately on the face of the Statement of Financial Position
and do not offset these balances for presentation purposes. Companies
not in the pooling arrangement do not have an overdraft facility and therefore
their bank balances cannot be overdrawn.
RECOVERABILITY OF WORK IN PROGRESS
The Group takes account of all anticipated losses on work in progress contacts
at the year end and therefore considers that the value of work in progress
included in the financial statements is recoverable.
DEFINED BENEFIT RETIREMENT PENSION SCHEME SURPLUS
The Group has concluded that the trust deed relating to the defined benefit
retirement pension 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.
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 Profit/(Loss)
2024 2023 2024 2023
£000 £000 £000 £000
Construction activities 14,350 5,961 (3,968) (2,720)
Investment property activities 7,670 7,011 4,634 2,063
22,020 12,972 666 (657)
Share of results in Joint Ventures 320 (36)
Finance and investment income 1,518 844
Finance and investment costs (139) (46)
PROFIT ON ORDINARY ACTIVITIES BEFORE TAX 2,365 105
The Group had sales from construction activities from two customers amounting
to £4,269,000 and £1,671,000 respectively (2023, sales from construction
activities from two customers amounting to £1,281,000 and £753,000
respectively).
OTHER SEGMENTAL INFORMATION
Non-Current Asset Segment Assets Segment Liabilities
Additions Depreciation
£000 £000 £000 £000
2024
Construction activities 1,554 409 49,959 14,898
Investment property activities 1,854 46 97,562 6,375
Joint Ventures - - 65 -
147,586 21,273
Allocation of corporation tax creditor (1,088) (1,088)
146,498 20,185
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
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.
2024 2023
£000 £000
Disaggregation of Revenue
Construction activities
Social housing 1,617 397
Civil engineering 4,646 3,223
Industrial 2,079 77
Commercial 2,232 97
General construction 59 4
Private house sales 3,717 2,163
14,350 5,961
Investment property activities
Rental income 6,366 6,186
Service charges and insurance receivable 1,299 824
Sundry income 5 1
7,670 7,011
Total Revenue 22,020 12,972
The transaction price allocated to unsatisfied performance obligations in
respect of construction activities as at 31st July 2024 are as set out below:
Social housing 2,509 3,829
Civil engineering 604 457
Industrial 59 -
Commercial 734 2,965
The Directors expect that 91% (2023, 82%) of the transaction price allocated
to the unsatisfied contracts as at 31st July 2024 will be recognised as
revenue in the year to 31st July 2025. The Directors expect that the
remaining 9% which relates to social housing and commercial property will be
recognised as revenue in the year to 31st July 2026.
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 2024 amounting to £1,765,000 (2023, £5,728,000).
4. OTHER OPERATING INCOME
2024 2023
£000 £000
Profit on disposal of property, plant and equipment 114 74
Other income 49 -
163 74
5. TAXATION
2024 2023
£000 £000
UK Corporation Tax
Current tax on income for the year 225 358
Corporation tax under provided in previous years (28) (40)
197 318
Deferred taxation 495 (413)
692 (95)
Current Tax Reconciliation
Profit on ordinary activities before tax 2,365 105
Share of (profits)/losses of Joint Ventures (320) 36
2,045 141
Current tax at 25.00% (2023, 21.01%) 511 30
Effects of:
Expenses not deductible for tax purposes 440 490
Non-taxable income including revaluation surplus (621) (567)
Chargeable gains 380 -
Effect of change in tax rate - (90)
Adjustment to corporation tax charge in respect of prior years (28) (40)
Adjustment to deferred tax charge in respect of prior years 5 80
Deferred tax not recognised 5 2
692 (95)
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 25.00% (2023, 21.01%) 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 £450,000 (2023, £1,083,000) relating to actuarial gains on the defined
benefit pension scheme has been recognised directly in the Consolidated
Statement of Comprehensive Income.
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:
2024 2023
£000 £000
Profit before tax 2,365 105
(Surplus)/deficit on valuation of investment properties (994) 2,164
(Surplus)/deficit on valuation of financial assets (123) 19
1,248 2,288
7. DIVIDENDS
2024 2023
£000 £000
2022 Final Dividend of 2.27p per share - 923
2023 Interim Dividend of 0.96p per share - 388
2023 Final Dividend of 2.27p per share 898 -
2024 Interim Dividend of 0.96p per share 379 -
1,277 1,311
The Board is proposing a Final Dividend of 2.27p per share (2023, 2.27p) which
will cost the Company no more than £890,000.
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
2024 2023
Profit attributable to Equity shareholders £000 1,673 200
Basic earnings per share 4.22p 0.49p
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 2024 amounted
to 39,608,000 (2023, 40,572,000).
There is no difference between basic and diluted earnings per share.
9. INVESTMENT PROPERTIES
Land and buildings Freehold Land and buildings Leasehold Right-of-use Asset Total
£000 £000 £000 £000
Cost or valuation:
At 1st August 2023 71,991 9,185 213 81,389
Additions 1,846 - - 1,846
Transfer from Property, Plant and Equipment 8 - - 8
Transfer to Assets Held for Sale (14,199) - - (14,199)
Surplus on valuation 780 214 - 994
At 31st July 2024 60,426 9,399 213 70,038
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
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
£ per sq ft %
£000 Low Average High Low Average High
Fair Value at 31st July 2024
Investment
Commercial 21,136 11.00 16.70 22.40 8.50 10.19 13.39
Industrial 48,689 4.75 7.82 10.89 6.55 9.07 10.97
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
The following table illustrates the impact of changes in the key unobservable
inputs (in isolation) on the fair value of the Group's Freehold and Leasehold
investment properties:
5% change in estimated rental value 25bps change in equivalent Yield
Increase Decrease Decrease Increase
£000 £000 £000 £000 £000
Fair Value at 31st July 2024
Investment
Commercial 21,136 1,130 (1,130) 609 (578)
Industrial 48,689 2,516 (2,516) 1,665 (1,619)
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)
The Group had commitments of £nil (2023, £2,623,000) in respect of future
developments and repair costs of investment properties at the Statement of
Financial Position date.
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