Smart (J) & Co Regulatory News (SMJ)

J. SMART & CO. (CONTRACTORS) PLC

INTERIM REPORT

FOR THE SIX MONTHS TO

31st JANUARY 2020

INTERIM REPORT

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

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

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

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

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

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

INTERIM DIVIDEND

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

FUTURE PROSPECTS

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

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

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

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

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

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

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO INTERIM FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

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

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

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

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

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

2. ACCOUNTING POLICIES

The condensed consolidated interim financial statements have been prepared under the historical cost convention except where the measurement of balances at fair value is required for investment properties, available for sale financial assets and assets held by defined benefit pension scheme.

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

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

IFRS 16: Leases became effective as from 1st August 2019 for the Group. IFRS 16: Leases replaces IAS 17: Leases and requires the Group to incorporate a right-of-use asset and corresponding lease liability in the Statement of Financial Position for those assets held under leases for which the new standard applies. This standard will impact on ground leases on which the Group has built investment properties and which the rent payable to the lessor under the leases is not contingent on the rents received by the Group from its tenants. The standard requires the current operating lease charges, which were disclosed in Operating Profit to be replaced by a depreciation charge on the right-of-use asset. As our leases relate to land there will be no depreciation charge but there will be an impact relating to the revaluation movement on the land. There will also be interest costs in relation to the lease liability which will be recognised in Finance Costs. The standard does not have an impact on the Group where the Group is the Lessor in respect of leases granted to tenants in our investment properties.

IFRS 16 outlines several options for the initial recognition on adoption of the standard. The Group chose to apply the modified retrospective approach which allowed the Group to incorporate the right-of-use assets and the lease liability as at the transition date of 1st August 2019 without the requirement to restate prior periods. The lease liability is calculated as the discounted present value of the outstanding rental payments and the right-of-use asset is set as being equal to the liability therefore there is no impact on the net assets of the Group on adoption of this standard. On the transition date the lease liability and right-of- use assets recognised amounted to £205,000.

Interpretations effective in period

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

Estimates and assumptions

The preparation of the condensed consolidated interim financial statements requires management to make estimates and assumptions concerning the future that may affect the application of accounting policies and the reported amounts of assets, liabilities and income and expenses. Management believes that the estimates and assumptions used in the preparation of these accounts are reasonable. However, actual outcomes may differ from those anticipated.

Going concern

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

3. PRINCIPAL RISKS AND UNCERTAINTIES

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

 4. SEGMENTAL INFORMATION

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

All revenue arises from activities within the UK and therefore the Board of Directors does not consider the business from a geographical perspective. The operating segments are based on activity and performance of an operating segment is based on a measure of operating results.

5. TAXATION

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

6. DISCONTINUED OPERATIONS

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

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

7. DIVIDENDS

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

8. EARNINGS/(LOSS) PER SHARE

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

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

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

9. FAIR VALUE ASSETS

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

Investment properties are only valued annually by the Directors at the year end and not for the purposes of the interim financial statements. The Group considers all of its investment properties fall within 'Level 3' of the fair value hierarchy as described by IFRS 13: Fair Value Measurement. Level 3 valuations are those using inputs for the asset or liability that are not based on observable market data. The main unobservable inputs relate to estimated rental value and equivalent yield.

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

10. RECONCILIATION OF PROFIT BEFORE TAX TO CASH FLOWS FROM

OPERATING ACTIVITIES

11. RELATED PARTY TRANSACTION

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

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

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

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

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

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