J. Smart & Co. Contractors PLC
Annual Report 2014

Plain-text annual report

J. SMART & CO. (CONTRACTORS) PLC ANNUAL REPORT AND STATEMENT OF ACCOUNTS TO 31s t JULY 2014 J. Smart & Co. (Contractors) PLC DIRECTORS John M Smart, Chairman and Managing Director DaviD W Smart alaSDair h roSS John r Smart COMPANY SECRETARY Patricia Sweeney REGISTERED OFFICE 28 cramonD roaD South, eDinburgh, eh4 6ab SUBSIDIARY COMPANIES mcgowan & co. (contractorS) limiteD cramonD real eState comPany limiteD thomaS menzieS (builDerS) limiteD concrete ProDuctS (KirKcalDy) limiteD c. & w. aSSetS limiteD REGISTRARS AND TRANSFER OFFICE equiniti limiteD, 34 South gyle creScent, South gyle buSineSS ParK, eDinburgh, eh12 9eb BANKERS banK of ScotlanD, 38 St anDrew Square, eDinburgh, eh2 2yr AUDITORS french Duncan lLP, chartereD accountantS, 133 finnieSton Street, glaSgow, g3 8hb SOLICITORS anDerSon Strathern llP, 1 rutlanD court, eDinburgh, eh3 8ey 1 J. Smart & Co. (Contractors) PLC NOTICE IS HEREBY gIVEN that the ANNUAL gENERAL MEETINg of the Company will be held at the Registered Office, 28 Cramond Road South, Edinburgh on 18th December 2014 at 12 noon, for the following purposes: 1. To receive and consider the Statement of Accounts for the year ended 31st July 2014 and the Report of the Directors and the Report of the Auditors. 2. To approve the Directors’ Remuneration Policy as set out in the Directors’ Remuneration Report on pages 22 to 24 in the Annual Report. 3. To approve the Directors’ Remuneration Report for the financial year ended 31st July 2014 as set out on pages 22 to 28 in the Annual Report. 4. To declare a Final Dividend of 2.04p per share. 5. To re-elect Alasdair H Ross as a Director, who retires in accordance with provision B.7.1 of the UK Corporate Governance Code. 6. To re-elect French Duncan LLP as Auditors. 7. To authorise the Directors to determine the remuneration of the Auditors. 8. To transact any other business of an Annual General Meeting. A member entitled to attend and vote at this Meeting is entitled to appoint one or more proxies to attend and vote on a poll instead of him. A proxy need not be a member. Forms of proxy, if used, must be lodged with the Registrars of the Company at least 48 hours before the time fixed for the Meeting. Forms of proxy may also be lodged electronically by submitting a duly completed scanned copy of the proxy card to proxy.votes@equiniti.com.You may not use the electronic address provided either in this Notice of Meeting or any related documents (including the Form of Proxy) to communicate with the Company for any purpose other than that expressly stated. In accordance with section 311A of the Companies Act 2006, the contents of this Notice of Meeting, details of the total number of shares in respect of which members are entitled to exercise voting rights at the AGM and, if applicable, any members’ statements, members’ resolutions or members’ matters of business received by the Company after the date of this Notice will be available on the Company’s website www.jsmart.co.uk. Pursuant to section 319A of the Companies Act 2006, the Company must cause to be answered at the AGM any question relating to the business being dealt with at the AGM which is put by a member attending the meeting, except in certain circumstances, including if it is undesirable in the interests of the Company or the good order of the Meeting that the question be answered or if to do so would involve the disclosure of confidential information. BY ORDER OF THE BOARD OF DIRECTORS Patricia Sweeney Company Secretary 28 Cramond Road South, Edinburgh EH4 6AB 18th November 2014 2 J. Smart & Co. (Contractors) PLC and Subsidiary Companies CHAIRMAN’S REVIEW ACCOUNTS Headline Group profit for the year before tax, including an unrealised deficit in revalued property as required by the International Financial Reporting Standards was £1,207,000 compared with a restated headline profit for last year of £533,000. If the impact of revalued property on the figures is disregarded, then a truer reflection of Group performance emerges in the form of an underlying profit before tax for the year under review of £1,764,000 (no property sales but including £1,299,000 profit from the sale of our listed stock market investment portfolio) which compares with the figure for the restated underlying profit last year of £3,660,000 (including £2,244,000 profit from property sales and a contribution from joint ventures relating to property sales). The Board is recommending a Final Dividend of 2.04p nett making a total for the year of 2.96p nett which compares with 2.93p nett for the previous year. After waivers by members holding over 50% of the shares, the Final Dividend will cost the Company no more than £430,000. TRADING ACTIVITIES Group construction activities carried out including private residential sales increased by 20%. Disregarding private residential sales Group construction activities decreased by 26%. Own work capitalised decreased by 10%. Group revenue increased by 24% and headline Group profit increased by 126%. Underlying Group profit excluding the unrealised deficit in revalued property decreased by 52%. As forecast, turnover in contracting was substantially less than last year and a loss was again sustained. Private residential sales were well up on last year. Sales in precast concrete manufacture increased and the loss was reduced. Inter alia two large mixed social housing and private residential developments commenced at Seafield Street and Pilton Drive, Edinburgh, although too late to have any significant bearing on revenue for the year under review. Occupancy levels at our industrial estates are satisfactory with Inchwood Business Park, Bathgate now filling up. Occupancy levels at our commercial office premises continue to disappoint. FUTURE PROSPECTS Work in hand in contracting is substantially more than at this time last year, albeit obtained at highly competitive rates. Private residential sales will be considerably less than last year. Phase 1 of our industrial development at South Gyle, Edinburgh is now complete and has current interest. Property values continue to hold up, however should we fail to reduce the rental voids in our office properties further write downs in value will be inevitable. Bearing in mind the foregoing and the current uncertain economic climate too many imponderables exist at this stage to permit even an approximate forecast of the outcome for the current year. 18th November 2014 John M SMart Chairman 3 J. Smart & Co. (Contractors) PLC and Subsidiary Companies STRATEGIC REPORT 31st JULY 2014 The Directors present their Strategic Report of the Group for the year ended 31st July 2014. The purpose of the Strategic Report is to provide the members of the Company with information to allow them to assess how the Directors have performed their duty to promote the success of the Company and Group. OUR BUSINESS MODEL, STRATEGY AND OBJECTIVES The Company was established in 1947 and was listed on the London Stock Exchange in 1965. The principal activities of the Group are building and civil engineering contracting, residential development for sale, the development of industrial and commercial property for lease and sale and the manufacture of hydraulically pressed concrete products. All the construction work involved in these activities is carried out by the Parent Company and its subsidiaries. Sub-contracting is kept to a minimum. The main area of operations is the central belt of Scotland. The main construction activity undertaken by the Group is that of social housing for several housing associations and registered social landlords predominately in the Edinburgh area and is undertaken by the Parent Company, J. Smart & Co. (Contractors) PLC. The Group has a portfolio of self-financed industrial and commercial properties which are owned and managed by subsidiary company, C. & W. Assets Limited. The investment properties are located throughout the central belt of Scotland but primarily in the Edinburgh area, this being the area of the country we are familiar with and understand. Our portfolio currently extends to more than 1,000,000 sq ft. The Group has four other subsidiaries. Thomas Menzies (Builders) Limited carry out small to medium sized building and civil engineering work for a variety of clients. McGowan & Co. (Contractors) Limited provides plumbing support to the main construction companies. Concrete Products (Kirkcaldy) Limited manufactures hydraulically pressed concrete products sold to the trade. Cramond Real Estate Company Limited, is the investment holding company of the Group and holds the Group’s equity investments and monies on bank deposits. The Group also has interests in a number of Joint Venture Companies which were established for purposes of property development. The Group operates out of premises in Edinburgh and Kirkcaldy, with the centralised administration and finance function being at the head office in Edinburgh. Full support is given by the company Directors and the finance staff to all Group companies based at the two locations. We maintain a core employee base which is beneficial to the growth and success of the Group due to the fact that they have the expertise to ensure the construction activities of the Group are efficiently run, achieve high level of quality of work and retain control over operations. Employees who manage the Group’s investment property portfolio are fully aware of current market conditions and ensure that there is appropriate marketing of the Group’s investment property portfolio. We employ our own maintenance team thereby ensuring that our investment property portfolio is always in good condition and ready for let. Our objectives are to identify and exploit promising business opportunities as they arise to the benefit of the Group, its shareholders and employees without over extending Group resources. While endeavouring to complete all our operations as efficiently and to as high a standard as possible we do not set ourselves general performance yardsticks or volumetric targets. 4 J. Smart & Co. (Contractors) PLC and Subsidiary Companies STRATEGIC REPORT (continued) 31st JULY 2014 OUR BUSINESS MODEL, STRATEGY AND OBJECTIVES (continued) To achieve these objectives our strategy is to continue to maintain and develop the relationships we have with social housing providers, retain our core workforce and only use specialist subcontractors with proven track records in the Group to ensure work quality. We will continue to build both our residential properties and investment property portfolio within the central belt of Scotland, being the area of the country with which we are familiar. We will build up our resources to ensure the Group has sufficient current working capital facilities and financing for future commercial and private residential developments. In achieving our objectives we aim to generate value by creating long-term and sustainable returns for our shareholders by growing our income and profits and increasing the value of our investment portfolio and the net assets of the Group. PERFORMANCE REVIEW Construction activities Revenue Operating loss . . . . . . . . . . . . . . . . 2014 £000 24,805 (3,547) 2013 £000 20,595 (2,961) As forecast in the 2013 accounts this was a difficult year for the Group with regards to its construction activities. Although overall turnover from construction activities increased in the year by 20% this was a result of the recognition of turnover on the private house sales during the year from our development at Robertson Avenue and the remaining apartments at Papermill Wynd, against a fall in turnover relating to construction contracts. The loss suffered in the year on construction activities exceeded that of the previous year mainly due to the reduced level of contracting in the year together with the tighter margins associated with the current contracts and therefore the inability to fully recover overhead costs. The Directors continue to monitor, on a monthly basis, the current contracts being undertaken by the Group with regards to costs incurred and profitability. We have again invested this year in own plant for use in construction to improve efficiencies were possible. Investment activities Income from investment properties . Net deficit on valuation of investment properties Operating profit from investment properties . . Income from available for sale financial assets Profit on sale of available for sale financial assets Share of profits in Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 £000 5,253 (782) 2,656 2013 £000 5,383 (3,127) 850 143 1,299 138 8 469 2,438 Income from our investment properties was down 2% from the previous year but overall remains at a reasonable level based on our portfolio of investment properties. 4 5 J. Smart & Co. (Contractors) PLC and Subsidiary Companies STRATEGIC REPORT (continued) 31st JULY 2014 PERFORMANCE REVIEW (continued) Investment activities (continued) The portfolio did not change significantly in the year other than the addition of the industrial development West Edinburgh Business Park at South Gyle, Edinburgh. This development and also our other development at Inchwood Park, Bathgate which was completed last year are generating interest which it is hoped will be reflected in the income of the Group in the year to come. Full details of our investment properties are given in note 13 to the Accounts. The Directors continue to review unlet properties and take steps to improve the letting of these properties whether through refurbishment or provision of financial incentives. Operating profit from investment properties has significantly increased in the year and this is due to the amount of the deficit on the valuation of investment properties recorded this year as opposed to last year. During the year the Group sold its entire portfolio of available for sale financial assets which constituted equity shares in other listed companies. This disposal generated a profit on sale, recorded through the Income Statement of £1,299,000. The Group’s share of profits in Joint Venture companies is significantly reduced from that of last year which is due to the fact that in 2013 one of the Joint Venture companies sold land which generated a profit of £4,240,000 of which the Group received half. During the year to 31st July 2014 there were no similar transactions. Results and financial position Profit before tax . Net bank position . Net assets . . . . . . . . . . . . . . . . . . . . . 2014 £000 1,207 8,070 88,482 2013 £000 533 5,493 91,125 Whilst the Group has reported a higher profit than in the previous year, it’s component parts show that it has been another difficult year for the construction activities of the Group but our investment activities remain strong and was also helped in the year by the sale of the Group’s investment in equity shares. The Group’s net bank position improved in the year mainly due to the income received in the year from the sale of private residential properties, although the sale of the Group’s equity investments occurred in the year the impact on the bank of the proceeds of these sales will not occur until next year. The Group continues to remain net debt free. The Group’s net assets are impacted on by the profit for the year, the movement in the Group’s pension scheme, the shares bought back by the Company and the dividends paid in the year. 6 7 J. Smart & Co. (Contractors) PLC and Subsidiary Companies STRATEGIC REPORT (continued) 31st JULY 2014 FINANCIAL INSTRUMENTS The Group’s financial instruments consist of bank balances and cash, available for sale financial assets, trade receivables and trade payables. The main purpose of the financial instruments are to provide working capital for the Group’s continuing activities and provide funding for future activities be they in construction or investment. Given the nature of the Group’s financial instruments the main risk associated with these is credit risk, however this is minimised due to fact exposure is spread over a number of counterparties and customers. The Group is not exposed to interest rate risk as it does not have any debt but it does suffer from fallen interest rates on the amount we can earn on monies on deposit. TOTAL DIVIDEND The Directors are recommending a final dividend of 2.04p per share which taken with the interim dividend of 0.92p already paid in the year gives a total dividend for the year of 2.96p (2013, 2.93p), being an increase of 1% on the dividend rate for 2013. GREENHOUSE GAS EMISSIONS The Group is required to report the greenhouse gas emissions for which it is responsible and on any environmental matters which are material to the Group’s operations. Details of our emissions for the year to 31st July 2014 are set out in the Report of the Directors on page 15. PRINCIPAL RISKS AND UNCERTAINTIES The principal risks and uncertainties faced by the Group and the mitigating factors taken by the Group against these risks are detailed below. The principal risks noted below are not all of the risks faced by the Group but are those risks which the Group perceives as those which could have a significant impact on the Group’s performance and future prospects. Area of principal risk or uncertainty and impact Mitigating actions and controls By focusing external construction activities on the social housing sector any cuts in spending by providers of social housing can reduce or suspend the social housing programme thus impacting on our workload and therefore the workforce required by the Group. • Maintain long term relationships with social housing providers, resulting from high standards of service, quality and post construction care 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. 7 J. Smart & Co. (Contractors) PLC and Subsidiary Companies STRATEGIC REPORT (continued) 31st JULY 2014 PRINCIPAL RISKS AND UNCERTAINTIES (continued) Area of principal risk or uncertainty and impact Mitigating actions and controls Social housing sector is highly competitive with tight margins • We are an ‘all trades’ contractor who employs our own personnel in all basic building trades who are supervised by site agents who are long serving employees of the Group, 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 in the Group are the main their fields and specialists subcontractors have previously been used by the Group therefore quality of work and reliability is known. No labour only subcontractors are employed. in Limited mortgage availability to home buyers resulting in stalling of private house sales. • In house architectural technicians and surveyors provide pre-contract design advice to resolve potential technical problems with the build and therefore potential costs. • Providing a range of purchase assistance schemes to buyers including shared equity and partaking in the ‘Help to Buy (Scotland)’ scheme. • Building developments in popular residential areas. • Building high quality specification homes with attention to detail which sets them apart from other new build homes and therefore attractive to buyers. • Building a range of homes within a development thus providing choice to buyers. • Providing sales incentives. • Consider letting of homes at market rates until the market improves. 8 9 J. Smart & Co. (Contractors) PLC and Subsidiary Companies STRATEGIC REPORT (continued) 31st JULY 2014 PRINCIPAL RISKS AND UNCERTAINTIES (continued) Area of principal risk or uncertainty and impact Mitigating actions and controls Reduction in rental demand for investment properties may result in a fall in property valuations. Reduction of financial resources. • Only commence speculative developments after careful assessment of the market. • Restricting our operations to the central belt of Scotland being the area of the country with which we are familiar. • Continually maintain and refurbish existing properties to retain existing tenants and attract new tenants. • Provide necessary financial incentives to retain existing tenants at end of current leases and attract new tenants. • Ensure resources are not over committed and only undertake commercial and private housing developments after due consideration of the financial impact on the Group 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. 8 9 J. Smart & Co. (Contractors) PLC and Subsidiary Companies STRATEGIC REPORT (continued) 31st JULY 2014 EMPLOYEES The Group recognises the contribution of the staff to the success of the Group. The Group operates with a core employee base who in the main have been with the Group for a considerable length of time and have gained a significant knowledge of the sectors the Group operates in and of the companies within the Group. Where appropriate the Group promotes from within whether that be the Directors, staff or site employees. The Group recognises the importance of retaining its core staff to ensure its future success. The Group does not have a specific Human Rights policy but it does have policies on recruitment and retention of employees and communication with employees which are aimed at ensuring employees are fairly treated during their employment with the Group. The Group is committed to providing equal opportunities in recruitment and employment, full and fair consideration is given to all applicants for employment and to all existing employees for promotion. Where employees become disabled during their employment and are unable to fulfil current duties they are offered suitable alternative employment within the Group, if feasible. It is the Group’s policy that there should be effective communication with employees at all levels, on matters which affect their current jobs or future prospects and all Directors and senior staff members make themselves available to all staff to discuss any matters of concern. In achieving this policy, the Directors are aware of the need to take account of the practical and commercial considerations of the Group, and the needs of the employees. A breakdown by gender of Directors, senior managers and all employees is given below: Directors Senior Managers Total Employees Male 4 2 180 Female - 1 13 18th November 2014 BY ORDER OF THE BOARD OF DIRECTORS Patricia Sweeney Company Secretary 10 J. Smart & Co. (Contractors) PLC DIRECTORS John M Smart, Chairman and Managing Director Aged 70 Joined the Company in 1967 Appointed Director in 1978 and appointed Chairman in 1988 David W Smart Aged 41 Joined the Company in 1998 Appointed Director in 2010 Alasdair H Ross Aged 52 Joined the Company in 1989 Appointed Director in 2012 John R Smart Aged 44 Joined the Company in 2002 Appointed Director in 2013 10 11 J. Smart & Co. (Contractors) PLC and Subsidiary Companies REPORT OF THE DIRECTORS 31st JULY 2014 The Directors present their Annual Report and the audited financial statements of the Group for the year ended 31st July 2014. STRATEGIC REPORT The Companies Act 2006 requires the Directors to prepare a Strategic Report which presents a fair review of the business during the year to 31st July 2014 and of the position of the Group at the end of the financial year. The Strategic Report also includes a description of the principal risks and uncertainties faced by the Group. The Strategic Report can be found on pages 4 to 10 and is incorporated into the Report of the Directors by reference. CORPORATE GOVERNANCE The Company is required, as a premium listed company on the London Stock Exchange, to prepare a report on Corporate Governance in accordance with the Financial Reporting Council’s UK Corporate Governance Code (the Code). The information required by the Code and also the Disclosure and Transparency Rules and the Listing Rules can be found on pages 17 to 21 and is incorporated into the Report of the Directors by reference. RESULTS AND DIVIDENDS The profit of the Group after tax for the year ended 31st July 2014 amounted to £1,025,000 (2013, £148,000). The results for the prior year to 31st July 2013 have been restated following the implementation of the revised accounting standard IAS 19 (amended): Employee Benefits, the effect of this revision is detailed in note 1 to the Accounts. During the year the Company paid on 23rd December 2013 a final dividend for the year to 31st July 2013 of 2.01p per share (2013, 1.98p) and paid on 2nd June 2014 an interim dividend for the year to 31st July 2014 of 0.92p per share (2013, 0.92p). The Directors recommend a proposed final dividend for the year of 2.04p per share, making a total for the year of 2.96p. This final dividend is subject to approval by the shareholders at the Annual General Meeting in December 2014 and has not been included as a liability in these financial accounts. If this dividend is approved it will be paid to the members on the share register of the Company at the close of business on 28th November 2014. Dividend warrants will be posted on 22nd December 2014. DIRECTORS The following were Directors of the Company during the financial year ended 31st July 2014: − − − − John M Smart David W Smart Alasdair H Ross John R Smart Details of the Directors are given on page 11. 12 J. Smart & Co. (Contractors) PLC and Subsidiary Companies REPORT OF THE DIRECTORS (continued) 31st JULY 2014 APPOINTMENT AND REPLACEMENT OF DIRECTORS The Company’s Articles of Association (the Company’s Articles) give the Directors the power to appoint or remove any Director. Initial appointments must be approved by the Board of Directors but anyone so appointed must be re-elected by ordinary resolution at the next Annual General Meeting of the Company. In accordance with the Company’s Articles, Directors are not required to retire by rotation, however, in accordance with provision B.7.1 of the UK Corporate Governance Code, with the exception of the Managing Director, all Directors must retire and offer themselves for re-election at the Annual General Meeting at least every three years. DIRECTORS’ INTERESTS Details of Directors’ interests in the ordinary share capital of the Company are given in the Directors’ Remuneration Report. There have been no changes in Directors’ interests between 31st July 2014 and 24th October 2014. No Director has a service contract with the Company and no Director has a material interest in any contract to which the Company or any Subsidiary Company was a party to during the year. DIRECTORS’ POWERS The Company’s Articles states that the Directors may exercise all of the powers of the Company which also includes the right of the Directors to buy back the Company’s shares based on the authority given by the shareholders following the passing of a special resolution at the Company’s 2012 Annual General Meeting. INDEMNIFICATION OF DIRECTORS In accordance with the Company’s Articles and to the extent permitted by law, Directors are granted an indemnity by the Company in respect of liabilities incurred as a result of their office. The Directors are also indemnified against the cost of defending any proceedings whether criminal or civil in which judgement is given in favour of the Director or in which the Director is acquitted or the charge is found not proven. The Company has maintained Directors’ and Officers’ liability insurance cover throughout the financial year. CAPITAL MANAGEMENT AND SHAREHOLDER INFORMATION The capital structure of the Company consists of issued share capital, reserves and retained earnings represented predominantly by investment properties, financial investments and cash. The Company’s issued ordinary share capital as at 31st July 2014 comprises a single class of ordinary share of 2p each. Details of the issued share capital are shown in note 22 to the Accounts. At the Annual General Meeting in 2012 the Company was authorised by the shareholders to purchase, in the market, up to 10% of the Company’s issued share capital, as permitted under the Company’s Articles. The purpose of the market purchase is to enhance the earnings per share and/or the equity shareholders’ funds per share. This authority is renewable and the Directors will be seeking renewal at the 2017 Annual General Meeting. 13 J. Smart & Co. (Contractors) PLC and Subsidiary Companies REPORT OF THE DIRECTORS (continued) 31st JULY 2014 CAPITAL MANAGEMENT AND SHAREHOLDER INFORMATION (continued) During the year the Company made market purchases of 285,000 ordinary shares of 2p under this authority, for a total consideration of £285,000. The shares purchased were subsequently cancelled, and represented less than 1% of the Company’s issued share capital at the start of the financial year. All members who hold ordinary shares are entitled to attend and vote at a General Meeting. On a show of hands at a General Meeting every member present in person and every duly appointed proxy shall have one vote and on a poll, every member present in person or by proxy shall have one vote for every ordinary share held or represented. The Company is not aware of any agreements between shareholders that may result in restrictions on voting rights of shareholders. Rights attached to ordinary shares may only be varied by special resolution at a general Meeting. There are no specific restrictions on the transfer of securities in the Company, other than those imposed by prevailing legislation and the requirements of the Listing Rules in respect of Company Directors. The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities. Details of substantial shareholders can be found in the Company’s Corporate Governance Report. ARTICLES OF ASSOCIATION The Company’s Articles can only be amended by a special resolution at a General Meeting. No amendments are proposed to be made to the existing Company Articles at the 2014 Annual General Meeting. CHANGE OF CONTROL The Company is not party to any significant agreements which take effect, alter or terminate upon change of control of the Company following a takeover bid. The Company does not have any agreements with any Director or employee that would provide compensation for loss of office or employment, whether through resignation, purported redundancy or otherwise resulting from a takeover bid. POLITICAL DONATIONS AND POLITICAL EXPENDITURE It is the policy of the Group not to make donations for political purposes to EU Political Parties or incur EU Political Expenditure and accordingly neither the Company nor its Subsidiaries made donations or incurred such expenditure in the year. 14 J. Smart & Co. (Contractors) PLC and Subsidiary Companies REPORT OF THE DIRECTORS (continued) 31st JULY 2014 GREENHOUSE GAS EMISSIONS The Companies Act 2006 (Strategic Report and Directors’ Report) Regulation 2013 requires all quoted companies to report the greenhouse gas emissions for which they are responsible and on any environmental matters which are material to the company’s operations. Carbon emissions and energy use: Emissions from: Combustion of fuel and operation of facilities Electricity, heat, steam and cooling purchased for own use . Total emissions . . . . 2013 Tonnes of CO2e Tonnes of CO2e 2014 . . . . . . 1,467 298 1,765 1,596 397 1,993 Group’s chosen intensity measurement: Emissions reported above normalised to per full time equivalent employee Emissions reported above normalised to per £million of revenues . 9.148 77.375 7.043 108.843 We have reported on all the emission sources required under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. These sources fall within our Statement of Accounts. We do not have responsibility for any emission sources that are not included in our Statement of Accounts. Our greenhouse gas emissions have been calculated using the GHG Protocol Corporate Accounting and Reporting Standard (revised edition), data gathered to fulfil our requirements under these Regulations, and emission factors from the UK Government’s GHG Conversion Factors for Company Reporting 2014. WASTE MANAGEMENT We manage waste in accordance with the waste hierarchy and ensure compliance with all applicable environmental legislation across all our operations. Construction waste is managed through site waste management plans which ensure waste arising is minimised, reused or recycled. Waste reduction is considered at the building design stage and any waste arising in construction is segregated either on site or off site. Where possible, waste is reused on site and waste to landfill is minimised with preference given to recycling or energy recovery. Training is provided to all staff and subcontractors and waste champions are assigned to each site to ensure compliance with our waste policies and procedures. GOING CONCERN The Group’s business activities, performance and principal risks and uncertainties are set out in the Strategic Report. The Group has adequate financial resources and is not reliant on external funding, and the Directors believe that the Group is well placed to manage its business risks successfully. After making enquires, the Directors have a reasonable expectation that the Company and Group have adequate financial resources to allow the Company and Group to continue in operational existence for the foreseeable future and therefore considers the adoption of the going concern basis as appropriate for the preparation of the Annual Report and Statement of Accounts. FUTURE DEVELOPMENTS It is not anticipated that the activities of the Company and its Subsidiaries, as described in the Strategic Report, will substantially change in the immediate future. 14 15 J. Smart & Co. (Contractors) PLC and Subsidiary Companies REPORT OF THE DIRECTORS (continued) 31st JULY 2014 POST BALANCE SHEET EVENT There have been no events occurring after the Balance Sheet date that the Directors consider should be brought to the attention of the shareholders. AUDITORS The Company’s auditors, French Duncan LLP, have expressed their willingness to continue in office. Resolutions to re-appoint them as the Company’s auditors and to authorise the Directors to determine their remuneration will be proposed at the Company’s forthcoming Annual General Meeting. CAUTIONARY STATEMENT The Chairman’s Statement on page 3 and the Strategic Report on pages 4 to 10 have been prepared to provide additional information to members of the Company to assess the Group’s strategy and the potential for the strategy to succeed. It should not be relied on by any other party or for any other purpose. This Annual Report and Statement of Accounts contain certain forward-looking statements relating to operations, performance and financial status. By their nature, such statements involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors, including both economic and business risk factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this Report. STATEMENT OF DISCLOSURE TO AUDITORS The Directors who held office at the date of approval of the Report of the Directors, confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s Auditors is unaware; and each of the Directors has taken all steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s Auditors are aware of that information. 18th November 2014 BY ORDER OF THE BOARD OF DIRECTORS Patricia Sweeney Company Secretary 16 17 J. Smart & Co. (Contractors) PLC and Subsidiary Companies CORPORATE GOVERNANCE 31st JULY 2014 STATEMENT OF COMPLIANCE This statement details how your Company has applied the main and supporting principles of corporate governance as set out in the Financial Reporting Council’s UK Corporate Governance Code issued in September 2012 (the Code). A copy of the Code can be found on the Financial Reporting Council’s website, www.frc. org.uk. The Board of Directors (the Board) is committed to the principles of openness, integrity and accountability in dealing with the Company’s affairs and believes it has always acted with probity in the best interests of the Company, its employees and shareholders without recourse to guidance or instruction from others and fully intends to continue to do so in the future. The Board recognises that as it has no non-executive Directors on the Board, no nomination, remuneration or audit committees have been established and therefore the Company has not complied with any of the principles of the Code relating to non-executive directors or the establishment and operations of these committees. Also, the Board recognises that it has not fully complied with other principles of the Code relating to the division of responsibilities and evaluation of the Board as a whole and the Directors individually. Details and explanations for all principles not complied with are given below. THE BOARD The Company is led by the Board which comprises the executive management of the Company, being the Chairman and three executive Directors, and thus maintains full control of the Company, sets the strategic aims of the Company and ensures the Company has adequate financial and human resources to meet its objectives. All the Directors worked for the Company prior to their appointments as Director and therefore have the appropriate skills, experience and knowledge of the Company to ensure that the Board discharges its duties and responsibilities effectively. There were no changes in Directors in the year. Decisions are taken by the Board quickly and effectively following ad hoc consultation among the Directors concerned when any matter arises. Your Board takes the view that this direct and flexible approach is preferable to the more cumbersome procedures prevalent in larger organisations and has made a considerable contribution to your Company’s continuing success and ensures that this approach best serves the interests of the Company and its shareholders. The Board held 2 formal Board Meetings in the year, both of which were attended by all Directors. During the year the Directors also met regularly on an ad hoc basis to undertake the executive management of the Company and take decisions on all material matters quickly and effectively thus exercising full direction and control of the Company. Given the way in which the Board and Company operates there is no requirement for a formal schedule of matters reserved for the Board’s decision. The Chairman of the Company is also the Managing Director. Bearing in mind the size of the Company, the Board sees no value in splitting the role of the Chairman and Managing Director, a policy which has served your Company well over many years. The Chairman is responsible for the leadership of the Board, ensuring that all the Directors receive accurate, timely and clear information on issues arising at formal and ad hoc Board meetings, setting Board agendas and ensuring adequate time is given to discussion of the agenda points. The members of the Board have complete freedom to seek independent professional advice, at the Company’s expense, when they feel it is appropriate to do so. All Directors have access to the advice and services of the Company Secretary, who is responsible for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. All Directors openly express their views and make a valuable contribution to the running of the Company. 17 J. Smart & Co. (Contractors) PLC and Subsidiary Companies CORPORATE GOVERNANCE (continued) 31st JULY 2014 THE BOARD (continued) Information regarding the Directors’ interests in ordinary shares of the Company is given in the Directors’ Remuneration Report. The Chairman is also responsible for ensuring effective communication with shareholders and ensuring that their views and concerns are brought to the attention of the Board. The Board considers that increasing the manning level of the Board by 50% by the appointment of two non- executive Directors would increase costs and impose an additional administrative burden for no discernible benefit and, accordingly, would serve no useful purpose. As a result of not appointing non-executive Directors, the Company has not established Nomination, Remuneration or Audit Committees or identified an independent Director. As the Company does not have a Nomination Committee, nominations for appointment of new Directors to the Board are submitted by the Chairman for approval by the other members of the Board. As all the Directors of the Company were long-serving employees of the Company at the date of appointment this ensures that the skills, experience and knowledge are retained in the Company and onto the Board. Due regard is taken of the benefits of diversity, including gender on the Board when appointments are made. No formal tailored induction upon joining the Board is considered necessary. As the Directors are all full-time employees of the Company they are fully committed to the Company and are able to allocate sufficient time to the Company in discharging their duties and responsibilities effectively. The Directors are encouraged by the Board to receive any training they consider necessary to ensure they remain up-to-date with their skills, knowledge and familiarity of the Company’s business and they remain aware of the risks associated with the Company and are also aware of regulatory, legal, financial and other developments to enable them to fulfil their role effectively. There is no formal system of performance evaluation of the Board or the Directors individually given the manner in which the Board operates on a day to day basis. The Company’s Articles of Association do not require that Directors retire by rotation, however, in accordance with provision B.7.1 of the Code all Directors, with the exception of the Managing Director, seek re-election at intervals of no more than three years at the Annual General Meeting. Also in accordance with provision B.7.1 of the Code all new Directors are subject to re-election at the first Annual General Meeting following their appointment. As the Company does not have a Remuneration Committee, the Chairman is responsible for fixing the remuneration packages of the Directors which are based on their performance and the scope of their duties and responsibilities. No Director has a service contract with the Company and accordingly periods of notice and termination payments would be construed in accordance with Employment Law. There is no scheme in place for a Director to receive entitlement to share options nor are there any long term incentive schemes. Full details of the Company’s remuneration policy are given in the Directors’ Remuneration Report. 18 19 J. Smart & Co. (Contractors) PLC and Subsidiary Companies CORPORATE GOVERNANCE (continued) 31st JULY 2014 FINANCIAL AND BUSINESS REPORTING The Directors have sole responsibility for the preparation of the Annual Report and Statement of Accounts which taken as a whole is fair, balanced and understandable and provides the information necessary for the shareholders to assess the Company’s performance, business model and strategy. The Directors are also solely responsible for the preparation of the Interim Report, the Interim Management Statements and other price- sensitive public reports in a fair, balanced and understandable manner. The basis on which the Company creates and preserves value over the long term is described in the business model within the Strategic Report. In order to ensure that the Company and Group have adequate resources to ensure the continuing operations of the Company and Group for the foreseeable future the Directors consider current and future trading, investment property acquisitions and cash requirements. The Directors take account of available market conditions in all areas of the Group’s activities and use their knowledge and experience relating to the Group’s investment property portfolio. The Directors’ opinion is that the Company and Group have adequate financial resources to allow the Company and Group to continue in operational existence for the foreseeable future and therefore considers the adoption of the going concern basis as appropriate for the preparation of the Accounts. The Statement of Directors’ Responsibilities is set out on page 29. RISK MANAGEMENT AND INTERNAL CONTROL The Board is responsible for and annually reviews the Group’s system of internal controls in relation to financial, operational, compliance and risk management to ensure their continued effectiveness. The systems adopted by the Board are designed to manage the risk of failure to achieve the Company’s business objectives as opposed to eliminate them as any system of control can only provide reasonable but not absolute assurance against material misstatement or loss. The Board, in accordance with the Code, has reviewed the effectiveness of the internal controls from the commencement of the accounting period to the date of approval of the Annual Report and Statement of Accounts. No significant failings or weaknesses have been identified in that period. There has also been a continual process of identification by the Directors of key areas of risk within the Group and appropriate action taken to mitigate and monitor such risks. The main features of the Group’s internal control and risk management systems in relation to the financial reporting process are: – contracts, development projects, land purchases and acquisition of property, plant and equipment are proceeded with after due consideration by the Directors; monthly reports are prepared for each contract and development project for review by the Directors; subsidiary Company reports are prepared for consideration by the Directors; and treasury operations are carried out in accordance with policies and procedures already approved by the Board. − − − 18 19 J. Smart & Co. (Contractors) PLC and Subsidiary Companies CORPORATE GOVERNANCE (continued) 31st JULY 2014 AUDIT As the Company does not have an Audit Committee, it is the responsibility of the Chairman and Company Secretary on a continuing basis to consider how the financial reporting and internal control principles apply to the Company, to maintain an appropriate relationship with the Group’s Auditors and to review the scope and results of the audit and its cost effectiveness. The Board is responsible for setting the remuneration of the Auditors. Currently there are no proposals to undertake a retendering of the Company’s external audit function. The Company’s external auditors have held office since 1975 and there has been no audit tender since that appointment. The Board continues to assess the independence and effectiveness of the external audit function to ensure the integrity of the audit role provided by the current external auditors on behalf of the shareholders. The Board also takes into account the external auditors own policies and procedures regarding their integrity and independence including their procedures for rotation of audit partner and senior staff and the professional standards they have to adhere to. At this time the Board has concluded that there is no requirement to place the external audit function out to tender. In order to ensure the continued independence and objectivity of the Group’s Auditors, the Board has established policies regarding the provision of non-audit services by the Auditors. In some cases, the nature of the non- audit advice may make it more timely and cost effective to select the Group’s Auditors, who already have a good understanding of the Group. In other circumstances the decisions on the allocation of work are made on the basis of competence and cost effectiveness. The Board has considered and for the time being has concluded that an internal audit function is not necessary. The Board will continue to review the need for such a function. As such there is no internal audit of the risks identified by the Board and the controls established by the Board to mitigate and monitor these risks. SIGNIFICANT JUDGEMENTS, KEY ASSUMPTIONS AND ESTIMATES Given that there is no Audit Committee, it is the responsibility of the Board as a whole to consider areas of the financial statements where there are significant areas of judgement regarding estimates and assumptions, which in turn have a significant effect on the amounts recognised in the financial statements. In respect of the 2014 financial statements these areas were: − Investment Property Valuations – the valuation of the investment property portfolio is completed by the Directors. The valuation of the property portfolio is inherently subjective and requires significant judgements and assumptions to be made. The Directors appoint external independent valuers to value a sample of properties in the portfolio to provide a sense check on their valuation. The valuations are discussed with the Auditors. Long Term Contract Valuations and Provisions – the Directors consider contract performance to ensure appropriate revenue recognition. Future revenue and contract performance are considered and loss provisions determined where necessary. Both costs and revenues may require to be revised as future events unfold and uncertainties are resolved. − The Board discusses fully all issues relevant to the above areas and obtains where possible information and advice from external experts and our external Auditors and only when fully satisfied with the amounts associated with each area are they incorporated into the financial statements. 20 J. Smart & Co. (Contractors) PLC and Subsidiary Companies CORPORATE GOVERNANCE (continued) 31st JULY 2014 RELATIONS WITH SHAREHOLDERS The Board has in the past and will in the future continue to enter into dialogue with the shareholders wherever possible. The Chairman is responsible for ensuring that the views and concerns of the shareholders are communicated to the Board. The Chairman is also responsible for discussing governance and strategy matters with the shareholders. As the Company has no non-executive Directors there is no opportunity for shareholders to meet with these Directors. All shareholders have an opportunity at the Annual General Meeting to participate in questions and answers with the Board on matters relating to the Company. At the Annual General Meeting separate resolutions will be proposed on each substantially separate issue and the number of proxy votes received for, against, and withheld for each resolution will be announced. SUBSTANTIAL SHAREHOLDERS As at 31st July 2014 and 24th October 2014, excluding holdings of Directors, the Company has been notified of the following holdings of substantial voting rights in respect of the issued share capital of the Company: Octet Investments Limited . A J Whitehead . . . . . . . . . . . Number 1,622,400 1,579,485 % 3.46 3.37 18th November 2014 BY ORDER OF THE BOARD OF DIRECTORS Patricia Sweeney Company Secretary 20 21 J. Smart & Co. (Contractors) PLC and Subsidiary Companies DIRECTORS’ REMUNERATION REPORT 31st JULY 2014 ANNUAL STATEMENT On behalf of the Board of Directors, I present the Directors’ Remuneration Report for the year ended 31st July 2014. In addition to this statement the Report includes two other parts being the Policy Report and the Annual Report on Remuneration, which have been prepared in accordance with the provisions of the Companies Act 2006 and Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The Report also meets the requirements of the UK Listing Authority’s Listing Rules and the Disclosure and Transparency Rules. The Policy Report has been developed taking account of the principles of the UK Corporate Governance Code 2012. The shareholders will be asked to approve the Policy at the 2014 Annual General Meeting (AGM) and if approved the policy will become effective from that date and will be effective for three years. The Annual Report on Remuneration will be subject to a vote at the 2014 AGM. Our Auditors are required to report to the shareholders on certain information contained in the Annual Report on Remuneration and that it has been prepared in accordance with the Act and the Regulations. The information to be audited is appropriately marked. There have been no substantial changes to Executive Directors’ remuneration in the year. Our policy continues to be to provide remuneration packages that will retain and motivate the Directors to sustain the long term growth and value of the Company. 18th November 2014 THE POLICY REPORT John m Smart Chairman As stated in the Corporate Governance Statement the Company does not appoint non-executive Directors and therefore the Company does not have a Remuneration Committee to set the Executive Directors’ Remuneration Policy. The Chairman fulfils the function of the Remuneration Committee. The Company’s remuneration policy is to provide remuneration packages that will retain and motivate the Directors to sustain the longterm growth and value of the Company and is based on the scope of their duties and responsibilities. The Directors are not entitled to any performance related remuneration, long term incentive schemes or share options. The remuneration of the Directors is not performance related therefore no element of their remuneration is based on performance measures. The policy table below summarises the main components of Directors’ Remuneration: ELEMENT PURPOSE AND STRATEGY OPERATION BASE SALARY To pay a fair salary commensurate with the individual’s role, responsibilities and experience. Reviewed annually in July taking account of the individual’s role and experience and the salary increases of employees throughout the Group as a whole. No maximum level is set. 22 J. Smart & Co. (Contractors) PLC and Subsidiary Companies DIRECTORS’ REMUNERATION REPORT (continued) 31st JULY 2014 ELEMENT PURPOSE AND STRATEGY OPERATION BENEFITS To provide support to enable the Directors to carry out their duties effectively. PENSION To provide appropriate levels of retirement benefits. Benefits include provision of a company car (or cash in lieu) and private medical insurance. No maximum level is set as the costs of providing benefits fluctuate over time; however the costs are monitored to ensure they remain reasonable. Depending on when a Director first became an employee of the Company will determine whether they are members of the Company’s Defined Benefit Pension Scheme or Defined Contribution Scheme. to Company contributions the Defined Benefit Scheme are currently 22.6% of base salary. Contribution levels are set in agreement between the scheme trustees and the Company and can therefore vary from time to time. the Defined Company contributions Contribution Scheme are currently a minimum of 10% of base salary. to The Chairman retains the right to make minor amendments to the above policy, to take account of regulatory, tax, legislative or administrative changes without obtaining shareholder approval for these amendments. No share options or long term incentive schemes are operated by the Company. Directors are entitled to claim relevant expenses incurred by them in respect of their duties. There are no provisions for the recovery of sums paid to Directors or the withholding of the payment of any sums to Directors. As all remuneration of Directors is fixed remuneration there is no need to illustrate, via a bar chart, the expected values of proposed remuneration as it does not contain any elements based on performance and therefore is not subject to change based on either the Company’s or Director’s performance. APPROACH TO RECRUITMENT OF DIRECTORS The Company’s approach to appointing new Executive Directors is to appoint from within the Company. As such the remuneration of the Director has already been set by the Company and the package held by the employee prior to appointment as a Director will remain in place. Consideration will be made of the increased duties and responsibilities that will apply post appointment as a Director and revision to their base salary may be made to reflect this. SERVICE CONTRACTS AND POLICY ON CESSATION No Director has a service contract with the Company, therefore periods of notice and termination payments would be construed in accordance with current Employment Law. 23 J. Smart & Co. (Contractors) PLC and Subsidiary Companies DIRECTORS’ REMUNERATION REPORT (continued) 31st JULY 2014 CONSIDERATION OF EMPLOYMENT CONDITIONS ELSEWHERE IN COMPANY The Chairman when considering the remuneration of the Executive Directors takes into account the remuneration of employees across the Group as a whole. However, the Chairman does not consult directly with employees on the remuneration of the Executive Directors but is mindful of salary increases which are applied across the Group as a whole. CONSIDERATION OF SHAREHOLDER VIEWS The Chairman considers all views and concerns he receives from shareholders especially at the AGM when shareholders have the opportunity to ask questions of the Board on all matters of the Company including Directors’ Remuneration, or at any other time throughout the year. Although no direct communication was held by the Chairman with major shareholders prior to shaping the Remuneration Policy he believes that it is a responsible approach to remuneration and its policies in the past and for the future as evidenced by the level of approval of the 2013 Directors’ Remuneration Report at the 2013 AGM, details of which are given in the Annual Report on Remuneration below. ANNUAL REPORT ON REMUNERATION The following provides details of how the remuneration policy was implemented in the year to 31st July 2014. Single Total Figure of Remuneration for Executive Directors (Audited Information) The following table presents the single figure for the total remuneration of each Executive Director for the year ended 31st July 2014 and the prior year: Salary £000 . . 109 123 88 . . . . – . . 98 90 98 90 97 44 . . 90 . . 6 . . 44 . . . . 6 . . 96 . . 3 . . . . 96 . . 53 . . 47 . . Taxable Benefits £000 10 10 6 6 9 6 Pension £000 – – Total £000 119 133 1032 207 184 88 922 94 199 190 7 11 115 3 5 52 John M Smart 2014 . . 2013 David W Smart 2014 2013 . . . . . . Alasdair H Ross 90 2014 2013 . . . . John R Smart1 2014 2013 . . . . 1. John R Smart was appointed to the Board of Directors on 23rd January 2013 his remuneration for 2013 represents that from date of appointment as Director. 2. Pension value represents the cash value of pension accrued over one year multiplied by 20 in line with new regulations with allowance for inflation and employee contributions. 3. Lionel E Glenday retired as a Director on 22nd January 2013, his total salary of £209,000 in the year to 31st July 2013 included £150,000 being a gratuity payment on retiral. 24 J. Smart & Co. (Contractors) PLC and Subsidiary Companies DIRECTORS’ REMUNERATION REPORT (continued) 31st JULY 2014 DIRECTORS’ PENSION ENTITLEMENTS (AUDITED INFORMATION) David W Smart and Alasdair H Ross are members of the Company’s Defined Benefit Pension Scheme whilst John R Smart is a member of the Company’s Group Personal Pension Plan. The Company’s Defined Benefit Pension Scheme was closed to new members in 2003. The normal date of retirement based on the scheme rules is 65 and there is no automatic entitlement to early retirement. Contributions by the employer under the scheme are 22.6% of pensionable salary. Normal retirement date David W Smart .5 Alasdair H Ross 19/1/2038 18 16/2/2027 Accrued pension Accrued pension as at 31 July 2013 as at 31 July 2014 £000 £000 24 18 207 118 26 31 SCHEME INTEREST AWARDS (AUDITED INFORMATION) There were no scheme interests awarded in the year. PAYMENTS TO PAST DIRECTORS (AUDITED INFORMATION) No payments were made to past Directors in the year. PAYMENTS FOR LOSS OF OFFICE (AUDITED INFORMATION) No payments for loss of office were made to Directors in the year. STATEMENT OF DIRECTORS’ SHAREHOLDING AND SHARE INTERESTS (AUDITED INFORMATION) The Company has no policy that Directors are required to own shares in the Company, although all Directors are currently shareholders of the Company. The interests of the Directors in the ordinary shares of the Company, including beneficial interests, are shown in the table below: Beneficial holdings (including interests of the Director’s connected persons) 31 July 2014 31 July 2013 . John M Smart David W Smart . Alasdair H Ross . . John R Smart . . . . . . . . . . . . . . . . 1,198,500 11,863,500 100,000 11,863,500 1,198,500 11,863,500 100,000 11,863,500 There have been no changes in any Directors’ beneficial holdings between the year end and 24th October 2014. 24 25 J. Smart & Co. (Contractors) PLC and Subsidiary Companies DIRECTORS’ REMUNERATION REPORT (continued) 31st JULY 2014 PERFORMANCE GRAPH The graph below shows a comparison of the total shareholder return for the Company’s shares for each of the last five financial years against the total shareholder return for the companies comprised in the FTSE EPRA/NAREIT UK index which the Company deems to be the most relevant to the Company as it includes companies in the same sector as the Company. The graph compares the value of £100 invested in J. Smart & Co. (Contractors) PLC, including re-invested dividends. Total Shareholder Return over the last five financial years 250 200 150 100 50 0 J Smart & Co (Contractors) PLC FTSE EPRA / NAREIT UK Index 2009 2010 2011 2012 2013 2014 GROUP CHIEF EXECUTIVE OFFICER’S TOTAL REMUNERATION The following table details the Chief Executive Officer’s single figure of remuneration over the last five financial years: 2014 £000 119 2013 £000 133 2012 £000 130 2011 £000 127 2010 £000 125 John M Smart 26 27 J. Smart & Co. (Contractors) PLC and Subsidiary Companies DIRECTORS’ REMUNERATION REPORT (continued) 31st JULY 2014 GROUP CHIEF EXECUTIVE OFFICER’S CHANGE IN REMUNERATION The following table compares the change in remuneration of the Group Chief Executive Officer and that of the remuneration of the Group’s salaried employees. This group of employees was chosen as it represents the most comparable group. CEO % change 2013-2014 Other employees % change 2013-2014 Base salary Taxable benefits . . . . . . . . . (11)% – % 3% – % RELATIVE IMPORTANCE OF SPEND ON PAY The following table compares the total spend on remuneration of all employees of the Group, including Executive Directors, and the total amounts paid in distributions to shareholders for the years to 31st July 2014 and 31st July 2013: 2014 £000 8,038 1,147 2013 £000 11,330 3,248 Difference in spend £000 (3,292) (2,101) Difference as a percentage % 29 65 Remuneration of employees Total distributions paid (being dividends and share buy backs) IMPLEMENTATION OF EXECUTIVE DIRECTOR REMUNERATION POLICY FOR 2015 After taking into consideration Group employees’ salary increases for the year to 31st July 2015, an increase of 3% of base salary was awarded to David W Smart and Alasdair H Ross, John R Smart received an increase of 4% to bring his base salary into line with the other Directors. . John M Smart David W Smart . Alasdair H Ross . . John R Smart . . . . Base salary from 1st July 2014 £ . 105,000 . 101,000 . 101,000 . 101,000 . . . . . . . . Base salary from 1st July 2013 £ 109,000 98,000 98,000 97,000 CONSIDERATIONS BY THE DIRECTORS OF MATTERS RELATING TO DIRECTORS’ REMUNERATION The Chairman is responsible for determining Directors’ Remuneration. No advice was sought in the year in considering Directors’ Remuneration. 27 J. Smart & Co. (Contractors) PLC and Subsidiary Companies DIRECTORS’ REMUNERATION REPORT (continued) 31st JULY 2014 SUMMARY OF SHAREHOLDER VOTING AT THE 2013 AGM The 2013 Directors’ Remuneration Report was put to the shareholders for their approval at the 2013 AGM. The resolution was passed on a show of hands. Details of the proxy votes lodged, including those at the discretion of the Chairman, are as follows: . . . . For . Against . Total votes cast (excluding votes withheld) Votes withheld Total votes cast (including votes withheld) . . . . . . . . . . . . . . . Total number of votes 26,600,550 – 26,600,550 6,500 26,607,050 % of votes cast 100 – 100 Votes withheld are not included in the proxy figures as they are not recognised as a vote in law. 18th November 2014 BY ORDER OF THE BOARD OF DIRECTORS Patricia Sweeney Company Secretary 28 29 J. Smart & Co. (Contractors) PLC and Subsidiary Companies STATEMENT OF DIRECTORS’ RESPONSIBILITIES 31st JULY 2014 STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND STATEMENT OF ACCOUNTS The Directors are responsible for preparing the Annual Report and the Group and Parent Company’s Statement of Accounts in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the Parent Company financial statements on the same basis. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to: − − − − select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether they have been prepared in accordance with IFRSs as adopted by the EU; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent Company and enable them to ensure that its financial statements comply with Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Report of the Directors, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. DIRECTORS’ RESPONSIBILITY STATEMENT Each of the Directors confirms to the best of their knowledge: − the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; the Strategic Report and the Report of the Directors include a fair review of the development and performance of the business and the position of the Company and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and the Annual Report and Statement of Accounts taken as a whole are fair, balanced and understandable and provide the information necessary for the shareholders to assess the Group’s business model, performance and strategy. − − 28 29 18th November 2014 BY ORDER OF THE BOARD OF DIRECTORS Patricia Sweeney Company Secretary J. Smart & Co. (Contractors) PLC and Subsidiary Companies INDEPENDENT REPORT OF THE AUDITORS 31st JULY 2014 INDEPENDENT AUDITORS’ REPORT to the memberS of J. Smart & co. (contractorS) Plc We have audited the financial statements of J. Smart & Co. (Contractors) PLC for the year ended 31st July 2014 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statement of Changes in Equity, the Consolidated and Company Statement of Financial Position, the Consolidated and Company Statement of Cash Flows and related notes to the accounts. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s shareholders, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed. RESPECTIVE RESPONSIBILITIES OF THE DIRECTORS AND AUDITORS As explained more fully in the Statement of Directors Responsibilities (set out on page 29), the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) (ISAs (UK and Ireland)). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. OPINION ON FINANCIAL STATEMENTS In our opinion: – the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31st July 2014 and of the Group’s profit for the year then ended; − the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; − the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and − the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulations 30 J. Smart & Co. (Contractors) PLC and Subsidiary Companies INDEPENDENT REPORT OF THE AUDITORS (continued) 31st JULY 2014 OUR ASSESSMENT OF RISK OF MATERIAL MISSTATEMENT In arriving at our audit opinion above on the financial statements, the risks of material misstatement that had the greatest effect on our audit strategy, the allocation of our resources in the audit and directing the efforts of the audit team, were the valuation of the investment property portfolio, contract accounting estimates, revenue recognition and the risk of management override of controls. OUR APPLICATION OF MATERIALITY We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatement on our audit and on the financial statements. For the purposes of determining whether the financial statements are free from material misstatement we define materiality as the magnitude of misstatements that makes it probable that the economic decisions of a reasonably knowledgeable person relying on the financial statements would be changed or influenced. The materiality for the Group financial statements as a whole was set at £450,000. This has been determined with reference to a benchmark of Group net assets (of which it represents 0.5%) which we consider to be one of the principal considerations for members of the Company in assessing the financial performance of the Group. We agreed with the Board of Directors to report to it all corrected and uncorrected misstatements we identified through our audit with a value in excess of £22,000, in addition to other audit misstatements below that threshold that we believe warranted reporting on qualitative grounds. AN OVERVIEW OF THE SCOPE OF OUR AUDIT The Group financial statements are a consolidation of the six trading entities including the Parent entity and the Group’s four Joint Ventures. Except for the Joint Ventures where we focussed our work on the share of profits and net assets (including Investment Properties) that are recognised in the Group accounts, all entities were audited. In establishing the overall approach to the Group audit, we determined the type of audit work required to enable us to conclude whether sufficient audit evidence had been obtained as a basis for our opinion on the Group financial statements. The way in which we scoped our response to the risks identified above was as follows: VALUATION OF THE INVESTMENT PROPERTY PORTFOLIO Risk: The valuation of the investment property portfolio involves significant judgements made by the Directors, particularly those around current market conditions. The valuation exercise also relies on the accuracy of the underlying lease and financial information used by the Directors in completing the valuation. Our response: Our audit procedures included among others: – Testing the integrity of the information used by the Directors in completing the valuation including agreement on a sample basis back to underlying leases; – Meeting with the Directors to challenge the valuation process, the performance of the portfolio and the significant assumptions and critical judgement areas, including future income and yields; – Reviewing the results of a valuation completed by an independent third party valuer of a sample of the property portfolio, comparing this to the Directors’ valuation and discussing the results with the Directors. 30 31 J. Smart & Co. (Contractors) PLC and Subsidiary Companies INDEPENDENT REPORT OF THE AUDITORS (continued) 31st JULY 2014 CONTRACT ACCOUNTING ESTIMATES Risk: The Group recognises revenue and profit in accordance with IAS 11: Construction Contracts based on the stage of completion of contracts. The recognition of revenue and profit or loss on contracts therefore relies on judgements made by the Directors in relation to the final outturn of costs on each contract and on overall contract performance. Our response: Our audit procedures included among others: – Substantive testing of contract revenues and costs; – Meeting with the Directors to challenge key judgements inherent in the forecast costs to complete that are crucial in determining revenue and margin to be recognised and the identification of loss making contracts and the quantum of loss provisions; – Performing site visits and reviewing contract terms for key contracts. REVENUE RECOGNITION Risk: ISAs (UK and Ireland) presume that there is a risk of fraud in revenue recognition because of the pressure Directors may feel to achieve planned results. Our response: Our audit procedures included among others: – Testing rental income to lease agreements, rental incentives and other property related income. Our approach to contract income is detailed above. – Substantive testing and analytical procedures in connection with revenue balances, including private house sales, to assess whether revenue has been recognised in the appropriate accounting period; – Assessment of whether revenue recognition policies adopted complied with IFRSs as adopted by the EU. THE RISK OF MANAGEMENT OVERRIDE OF CONTROLS Risk: Fraud risk as a result of the override of controls. Our response: Our audit procedures included among others: – Performing a fraud risk assessment in order to identify specific areas of risk relating to management override of controls; – Journal entry testing in order to identify and test the risk of fraud arising from management override of controls; – Independently assess and challenge accounting estimates relevant to the financial statements for evidence of bias by the Directors that may represent a risk of material misstatement due to fraud; – Assessment of the overall control environment within the Group. 32 J. Smart & Co. (Contractors) PLC and Subsidiary Companies INDEPENDENT REPORT OF THE AUDITORS (continued) 31st JULY 2014 OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion: – the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and − the information given in the Strategic Report and the Report of the Directors for the financial year for which the financial statements are prepared is consistent with the financial statements. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION We have nothing to report in respect of the following: Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the Annual Report is: − materially inconsistent with the information in the audited financial statements; or − apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or − otherwise misleading. In particular, we are required to consider whether we have identified, any inconsistencies between our knowledge acquired during the audit and the Directors’ Statement that they consider the Annual Report is fair, balanced and understandable and whether the Annual Report appropriately discloses those matters that we communicated to the Board of Directors which we consider should have been disclosed. Under the Companies Act 2006 we are required to report to you if, in our opinion: − adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or − the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or − certain disclosures of Directors’ Remuneration specified by law are not made; or − we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: − the Directors’ statement set out on page 15, in relation to going concern; and − the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review. 133 Finnieston Street glasgow G3 8HB 18th November 2014 Paula galloway Senior Statutory Auditor for and on behalf of FRENCH DUNCAN LLP Statutory Auditor and Chartered Accountants 33 J. Smart & Co. (Contractors) PLC and Subsidiary Companies CONSOLIDATED INCOME STATEMENT for the year ended 31st JULY 2014 Notes 2014 2013 Restated (note 1) £000 £000 Group construction activities . Less: Own construction work capitalised . REVENUE 1 Cost of sales GROSS PROFIT . . . . . . Other operating income . Net operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OPERATING (LOSS)/PROFIT BEFORE PROFIT ON SALE AND NET DEFICIT . ON VALUATION OF INVESTMENT PROPERTIES . . . Profit on sale of investment properties . Net deficit on valuation of investment properties . . . . OPERATING LOSS Share of profits in Joint Ventures . Income from available for sale financial assets Profit on sale of available for sale financial assets . Finance income . . . Finance costs . . . . . . . . PROFIT BEFORE TAX Taxation . . . . . . . . . . PROFIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS EARNINGS PER SHARE – BASIC AND DILUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,805 (1,994) 20,595 (2,214) 22,811 (22,521) 18,381 (17,313) 290 1,068 3 5,253 (5,652) 5,383 (5,559) (109) 892 – (782) 124 (3,127) (891) (2,111) 5 14 469 2,438 138 143 6 8 1,299 100 187 – (40) 7 7 1,207 533 8 (182) (385) 9 1,025 148 11 2.18p 0.31p All activities in both the current and previous year relate to continuing operations. 1. Revenue excludes the share of Joint Ventures’ revenue of £nil (2013, £6,523,000). 34 J. Smart & Co. (Contractors) PLC and Subsidiary Companies CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31st JULY 2014 2014 2013 Restated (note 1) £000 £000 PROFIT FOR THE YEAR . . . . . . . 1,025 148 OTHER COMPREHENSIVE (LOSS)/INCOME Items that may be subsequently reclassified to Income Statement: Fair value of available for sale financial assets reclassified to Income Statement . Tax adjustment on fair value reserve . . . . (1,266) 180 736 (108) TOTAL ITEMS WHICH MAY BE SUBSEQUENTLY RECLASSIFIED TO INCOME STATEMENT . . . . . (1,086) 628 Items that will not be subsequently reclassified to Income Statement: Actuarial (loss)/gain recognised in defined benefit pension scheme . (1,793) Deferred taxation on actuarial loss/(gain) 3,222 358 (934) . . . . TOTAL ITEMS THAT WILL NOT BE SUBSEQUENTLY RECLASSIFIED TO INCOME STATEMENT . . TOTAL OTHER COMPREHENSIVE (LOSS)/INCOME TOTAL COMPREHENSIVE (LOSS)/INCOME . FOR THE YEAR, NET OF TAX . ATTRIBUTABLE TO EQUITY SHAREHOLDERS . . . . . . . . . . . . . . (1,435) 2,288 (2,521) 2,916 (1,496) 3,064 (1,496) 3,064 34 35 J. Smart & Co. (Contractors) PLC and Subsidiary Companies CONSOLIDATED STATEMENT OF CHANGES IN EQUITY as at 31st JULY 2014 Capital Share Redemption Reserve Capital Fair Value Reserve Retained Earnings Total Restated Restated (note 1) (note 1) £000 £000 £000 £000 £000 989 19 458 89,843 91,309 – – 148 148 – – 628 2,288 2,916 – . . . . . . . . – – 628 2,436 3,064 At 1st August 2012 . . Profit for the year Other comprehensive income TOTAL COMPREHENSIVE . INCOME FOR THE YEAR TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY IN EQUITY Shares purchased and cancelled . Transfer to Capital Redemption Reserve . Dividends (47) – – – 47 – . . . – – – (1,798) (47) (1,403) (1,845) – (1,403) TOTAL TRANSACTIONS WITH OWNERS . (47) 47 – (3,248) (3,248) At 31st July 2013 . . Profit for the year . Other comprehensive loss TOTAL COMPREHENSIVE LOSS . . . . . . 942 66 1,086 89,031 91,125 – – 1,025 1,025 – – (1,086) (1,435) (2,521) – FOR THE YEAR . . . – – (1,086) (410) (1,496) 2,436 TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY IN EQUITY Shares purchased and cancelled . Transfer to Capital Redemption Reserve . Dividends (6) – – – 6 – . . . 3,064 – (279) (6) – (862) – (285) – (862) TOTAL TRANSACTIONS WITH OWNERS . (6) 6 – (1,147) (1,147) At 31st July 2014 . . . . 936 72 – 87,474 88,482 36 37 J. Smart & Co. (Contractors) PLC and Subsidiary Companies COMPANY STATEMENT OF CHANGES IN EQUITY as at 31st JULY 2014 Capital Share Redemption Reserve Capital Retained Earnings Total Restated Restated (note 1) (note 1) £000 £000 £000 19 17,579 18,587 £000 989 . . 530 . – – 2,288 2,288 530 – – At 1st August 2012 . Profit for the year Other comprehensive income . . . . . . . TOTAL COMPREHENSIVE INCOME FOR THE YEAR – – 2,818 2,818 TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY IN EQUITY . Shares purchased and cancelled Transfer to Capital Redemption Reserve . Dividends . (1,845) (1,798) – . – 47 (47) . – – (1,403) (1,403) (47) – . . . TOTAL TRANSACTIONS WITH OWNERS . . (47) 47 (3,248) (3,248) At 31st July 2013 . . Loss for the year . . Other comprehensive loss . . . . . . . 942 66 17,149 18,157 . – – (1,614) (1,614) . – – (1,435) (1,435) TOTAL COMPREHENSIVE LOSS FOR THE YEAR . – – (3,049) (3,049) TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY IN EQUITY Shares purchased and cancelled . Transfer to Capital Redemption Reserve . Dividends (6) – (279) (285) . . – . – – (862) (862) – 6 (6) . . . TOTAL TRANSACTIONS WITH OWNERS . . (6) 6 (1,147) (1,147) At 31st July 2014 . . . . . 936 72 12,953 13,961 37 J. Smart & Co. (Contractors) PLC and Subsidiary Companies CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31st JULY 2014 NON-CURRENT ASSETS Property, plant and equipment . . Investment properties Investments in Joint Ventures . Available for sale financial assets . Retirement benefit surplus . . Deferred tax assets . CURRENT ASSETS Inventories . Trade and other receivables . Current tax asset Cash at bank and in hand . TOTAL ASSETS . . NON-CURRENT LIABILITIES . Deferred tax liabilities CURRENT LIABILITIES Trade and other payables . Bank overdraft . TOTAL LIABILITIES NET ASSETS . . . EQUITY Called up share capital Capital redemption reserve Fair value reserve Retained earnings . . . TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes 12 13 14 15 26 21 16 17 21 19 22 . . . . . . . . . . . . . . . . . . . . . 2014 £000 1,380 63,609 1,288 – 1,629 23 2013 £000 1,279 62,325 819 3,817 2,567 109 67,929 70,916 6,246 11,099 988 16,802 13,620 6,650 90 15,157 35,135 35,517 103,064 106,433 1,707 2,049 4,143 8,732 3,595 9,664 12,875 13,259 14,582 15,308 88,482 91,125 936 72 – 87,474 942 66 1,086 89,031 88,482 91,125 The financial statements on pages 34 to 74 were approved by the Board of Directors and authorised for issue on 18th November 2014 and were signed on its behalf by: John m Smart Director Company Number SC021530 DaviD w Smart Director 38 39 J. Smart & Co. (Contractors) PLC and Subsidiary Companies COMPANY STATEMENT OF FINANCIAL POSITION as at 31st JULY 2014 NON-CURRENT ASSETS . Property, plant and equipment . Investments in Subsidiaries and Joint Ventures . Retirement benefit surplus . . Deferred tax assets . . . . . CURRENT ASSETS Inventories . Trade and other receivables Current tax asset . . Cash at bank and in hand . TOTAL ASSETS . . NON-CURRENT LIABILITIES . Deferred tax liabilities CURRENT LIABILITIES Trade and other payables . Bank overdraft . TOTAL LIABILITIES NET ASSETS . . . EQUITY Called up share capital Capital redemption reserve Retained earnings . . TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes 12 14 26 21 16 17 21 19 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 £000 827 708 1,629 – 3,164 5,943 7,977 1,710 1 2013 £000 760 1,235 2,567 20 4,582 13,380 7,538 1,993 1 15,631 22,912 18,795 27,494 388 571 2,864 1,582 4,446 2,278 6,488 8,766 4,834 9,337 13,961 18,157 936 72 12,953 942 66 17,149 13,961 18,157 The financial statements on pages 34 to 74 were approved by the Board of Directors and authorised for issue on 18th November 2014 and were signed on its behalf by: John m Smart Director Company Number SC021530 DaviD w Smart Director 38 39 J. Smart & Co. (Contractors) PLC and Subsidiary Companies CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31st JULY 2014 Notes 2014 £000 2013 £000 CASH FLOWS FROM OPERATING ACTIVITIES Tax paid . . . . . . . NET CASH FLOWS FROM OPERATING ACTIVITIES . . . . . . . 23 (a) 7,208 (1,842) . (798) (1,232) . 6,410 (3,074) CASH FLOWS FROM INVESTING ACTIVITIES . Additions to property, plant and equipment . . Additions to investment properties . Sale of property, plant and equipment . Sale of investment properties . . Expenditure on own work capitalised - investment properties . . Purchase of available for sale financial assets Proceeds of sale of available for sale financial assets . Acquisition of investment in subsidiary, net of cash acquired . Interest received . . . Dividend received from Joint Venture . . . . . . . . . . . . . . . NET CASH FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Purchase of own shares . . Dividends paid . . . . . NET CASH FROM FINANCING ACTIVITIES . . . . INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . (582) (72) 85 – (1,994) (406) 260 (39) 62 – (544) (879) 51 8,202 (2,214) (277) 192 (227) 100 2,115 (2,686) 6,519 (285) (862) (1,845) (1,403) (1,147) (3,248) . 2,577 197 . 23 (b) 5,493 5,296 CASH AND CASH EQUIVALENTS AT END OF YEAR . . . 23 (b) 8,070 5,493 40 41 J. Smart & Co. (Contractors) PLC and Subsidiary Companies COMPANY STATEMENT OF CASH FLOWS for the year ended 31st JULY 2014 CASH FLOWS FROM OPERATING ACTIVITIES Tax received/(paid) . . . . . NET CASH FLOWS FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Sale of property, plant and equipment . Acquisition of investment in subsidiary Repayment of share capital in subsidiary . Interest received . Dividend received from subsidiary undertaking . . . . . . . NET CASH FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Purchase of own shares . . Dividends paid . . . . . NET CASH FROM FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR . 40 Notes 2014 £000 2013 £000 . 24 (a) 4,267 (3,033) . . . . . . . . . . . . . 1,098 (426) 5,365 (3,459) (427) (349) 59 52 (463) (39) – 50 6 19 955 – 688 (825) (285) (862) (1,845) (1,403) (1,147) (3,248) 4,906 (7,532) . 24 (b) (6,487)) 1,045 . 24 (b) (1,581)) (6,487) . . . . . . . . . . . . . . . . 41 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS 31st JULY 2014 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. STATEMENT OF COMPLIANCE The accounts are prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) Interpretations endorsed by the European Union (EU) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. STANDARDS, AMENDMENTS TO STANDARDS AND INTERPRETATIONS EFFECTIVE IN THE YEAR TO 31ST JULY 2014 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 2014: • IAS 19 (amended): Employee Benefits. • IAS 27: Separate Financial Statements. • IAS 28: Investments in Associates and Joint Ventures. • IFRS 10: Consolidated Financial Statements. • IFRS 11: Joint Arrangements. • IFRS 12: Disclosure of Interests in Other Entities. • IFRS 13: Fair Value Measurement. In the current financial year the application of IAS 19 (amended): Employee Benefits impacts the measurement of the various components representing movements in retirement benefit obligations and associated disclosures, but not the Group’s total retirement benefit obligations. Following the replacement of expected returns on pension scheme assets with a net finance cost in the Consolidated Income Statement, the profit for the period reduces and accordingly the actuarial gain in Other Comprehensive Income increases in the Consolidated Statement of Comprehensive Income. This change has been applied retrospectively and accordingly the comparative figures have been restated for the year ended 31st July 2013. The effect is to increase the interest expense by £40,000 and reduce the interest income by £256,000 on retirement benefit obligations recognised in the Consolidated Income Statement, resulting in a total reduction to profit before tax of £296,000 and to increase the actuarial gain recognised in the Consolidated Statement of Comprehensive Income also by £296,000. Deferred taxation is also impacted upon and as a result the credit to the Consolidated Income Statement is increased by £60,000 and the charge to the Consolidated Statement of Comprehensive Income is also increased by £60,000. There has been no impact on the Group’s retirement benefit surplus position recorded in the Balance Sheet at 31st July 2013. 42 43 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 1. ACCOUNTING POLICIES AND ESTIMATION TECHNIQUES (continued) STANDARDS, AMENDMENTS TO STANDARDS AND INTERPRETATIONS EFFECTIVE IN THE YEAR TO 31ST JULY 2014 (continued) The application of IAS 19 (amended): Employee Benefits has exactly the same impact on the Parent Company’s profit for the year and Other Comprehensive Income as it has on the Group’s profit for the year and the Group’s Other Comprehensive Income. There is no impact on the Company’s retirement benefit surplus position recorded in the Balance Sheet at 31st July 2013. The table below details the impact of the application of IAS 19 (amended): Employee Benefits on the accounts for the year to 31st July 2013: CONSOLIDATED INCOME STATEMENT Finance income and finance cost (as previously reported) . Expected return on pension scheme assets . Interest cost of pension scheme liabilities Net finance income of pension scheme assets . . . . Finance income and finance costs (as restated) Net interest expense on retirement benefit obligation Impact on finance income/(costs) and profit before taxation . Tax Adjustment to deferred tax thereon Impact on profit for the year – reduction . . . . CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Actuarial gain on defined benefit pension scheme . Previously shown as . . Now shown as Impact on actuarial gain on defined benefit pension scheme . . . . . . . . . . . . . . . . Tax Adjustment to deferred tax thereon Impact on Other Comprehensive Income for the year – increase . . . . . £000 1,272 (1,016) 256 (40) (296) 60 (236) 2,926 3,222 296 (60) 236 . . . . . . . . . . . . . . . . . . . . . . . . IFRS 13: Fair Value Measurement provides a precise definition of fair value and a single source of fair value measurement and disclosure requirements. The disclosures are included in the financial statements and the adoption of the standard has had no impact on the reported results or financial position of the Group or Company. The other standards or guidance had no material impact on the Group or Company’s financial statements but resulted in minor changes in terms of disclosure. 42 43 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 1. ACCOUNTING POLICIES AND ESTIMATION TECHNIQUES (continued) 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 and Company at the date of these financial statements, and have not been adopted early: • IAS 32 (amended): Offsetting financial assets and financial liabilities (effective for accounting periods beginning on or after 1st January 2014). • IAS 36 (amended): Recoverable Amounts Disclosures for Non-Financial Assets (effective for accounting periods on or after 1st January 2014). • IAS 39 (amended): Financial Instruments recognition and measurement on novation of derivatives and hedge accounting (effective for accounting periods on or after 1st January 2014). • Amendments to IFRS 10: Consolidated Financial Statements, IFRS 11: Joint Ventures and IFRS 12: Disclosure of Interests in Other Entities in relation to Investment Entities (transition guidance). The Directors are to fully consider the implications of these Standards, Amendments to Standards and Interpretations and their relevance and impact on the financial statements of the Company and Group. The Directors anticipate that there will be no material effect on the financial statements. BASIS OF PREPARATION The accounts have been prepared on a going concern basis and under the historical cost convention except where the measurement of balances at fair value is required as noted below for investment properties and available for sale financial assets. The accounting policies set out below have been consistently applied to all periods presented in these accounts. 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 accounts are reasonable. However, actual outcomes may differ from those anticipated. 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 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. 44 45 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 1. ACCOUNTING POLICIES AND ESTIMATION TECHNIQUES (continued) CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued) LONG-TERM CONTRACT PROVISIONS Judgement is required in the area of provisions for losses on long-term contracts. The Directors take into account the estimated costs to complete and the percentage stage of completion of current contracts when determining the provision for losses. The Directors consider adequate, but not excessive provisions have been made in this respect. 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. These are set out in note 26 to the Accounts. BASIS OF CONSOLIDATION The Group accounts consolidate the accounts of J. Smart & Co. (Contractors) PLC and all of its Subsidiaries made up to 31st July each year. Subsidiaries are entities controlled by the Company. Control is assumed where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Intra-group balances and any income or expenses arising from intra-group transactions are eliminated in preparing the Group accounts. No income statement is presented for the Parent Company as provided by section 408 of the Companies Act 2006. BUSINESS COMBINATIONS AND GOODWILL Subsidiaries acquired in the year are accounted for using the acquisition method of accounting. Identifiable assets acquired and liabilities assumed are measured at their fair values at the acquisition date. The consideration transferred for the acquisition is the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the identifiable assets acquired and liabilities assumed, the difference is recognised directly in the Income Statement. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised and is subject to annual impairment review. Acquisition related costs are expensed as incurred. INVESTMENT IN JOINT VENTURES Joint Ventures are those entities over which the Company has a 50% holding and exercises joint control under a contractual arrangement. The results of Joint Venture undertakings are accounted for using the equity method of accounting. Under this method the investment is initially recorded at cost and is subsequently adjusted to reflect the Group’s share of the net profit or loss in the Joint Venture. The Accounts of the Group’s Joint Ventures have been prepared in accordance with UK GAAP. The Group’s interest in the assets and liabilities of the Joint Ventures have only been restated in accordance with International Financial Reporting Standards where such restatement is considered material to an understanding of the Group’s interest. 44 45 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 1. ACCOUNTING POLICIES AND ESTIMATION TECHNIQUES (continued) CAPITAL MANAGEMENT Group objectives in managing capital are to safeguard the interests of the Company to operate as a net debt-free going concern, of its employees to maintain wherever possible security of employment, remuneration and retirement provisions and of its shareholders to maintain continuity of dividends and stability of share price. The capital structure of the Group consists of issued share capital, reserves and retained earnings represented predominantly by investment properties, financial investments and cash. These assets are purchased, managed and maintained by the Group’s management and employees, advised where appropriate by independent outside professionals. Refer to pages 7 to 9 of this report for details of relevant risk factors and management measures. The Group has sufficient cash reserves and readily realisable assets available to meet its foreseeable commitments. INVESTMENT PROPERTIES Investment properties are properties, either owned by the Group or where the Group is a lessee under a finance lease, which are held for long-term rental income or for capital appreciation or both. Also, properties held under operating leases are accounted for as investment properties when the rest of the definition of an investment property is met. In such cases, the operating leases concerned are accounted for as if they were finance leases. Investment properties, whether completed or under development, are initially recognised at cost and revalued at the Balance Sheet date to fair value as determined by the Directors in accordance with the RICS Valuation Standards. Gains or losses arising from the changes in fair value are included in the Income Statement in the year in which they arise. In accordance with IAS 40: Investment Property, as the Group uses the fair value model, no depreciation is provided in respect of investment properties including integral plant. Additions to investment properties consist of costs of a capital nature and, in the case of investment properties under development, includes certain internal staff and associated costs directly attributable to the management of the developments under construction. PROPERTY, PLANT AND EQUIPMENT Items of property, plant and equipment are stated at cost less accumulated depreciation. Subsequent costs are included in the asset’s carrying value or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of them can be measured reliably. All other repairs and maintenance expenditure is charged to the Income Statement as incurred. 46 47 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 1. ACCOUNTING POLICIES AND ESTIMATION TECHNIQUES (continued) DEPRECIATION Depreciation is provided on all items of property, plant and equipment, other than investment properties and freehold land, at rates calculated to write off the cost of each asset over its expected useful life, as follows: Freehold buildings Plant and machinery Office furniture and fittings Motor vehicles - over 40 to 66 years - 25% to 33 1⁄3% reducing balance - 20% to 33 1⁄3% reducing balance - 33 1⁄3% reducing balance IMPAIRMENT REVIEWS PROPERTY, PLANT AND EQUIPMENT Individual assets are grouped for impairment assessment purposes at the lowest level at which there are identifiable cash inflows independent of the cash inflows of other groups of assets. The Group assesses at each Balance Sheet date whether there is an indication that an asset may be impaired. If an indication exists the Group makes an estimate of the recoverable amount of each asset group, being the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. An impairment loss is recognised where the recoverable amount is lower than the carrying value of assets. If there is an indication that previously recognised impairment losses may have decreased or no longer exist, a reversal of the loss may be made. The carrying amount of the asset is increased to its recoverable amount only up to the carrying amount that would have resulted, net of depreciation, had no impairment loss been recognised for the asset in prior years. Impairment losses and any subsequent reversals are recognised in the Income Statement. INVENTORIES AND WORK IN PROGRESS Inventories are valued at the lower of cost and net realisable value. Land held for development is included at the lower of cost and net realisable value. Work in progress other than long-term contract work in progress is valued at the lower of cost and net realisable value. Cost includes materials, on a first-in first-out basis and direct labour plus attributable overheads based on normal operating activity, where applicable. Net realisable value is the estimated selling price less anticipated disposal costs. Variations and claims are included in Revenue where it is probable that the amount, which can be measured reliably, will be recovered from the customer. 46 47 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 1. ACCOUNTING POLICIES AND ESTIMATION TECHNIQUES (continued) LONG-TERM CONTRACTS Amounts recoverable on contracts which are included in debtors are stated at cost as defined above, plus attributable profit to the extent that this is reasonably certain after making provision for maintenance costs, less any losses incurred or foreseen in bringing contracts to completion, and less amounts received as progress payments. For any contracts where receipts exceed the book value of work done, the excess is included in trade and other payables as payments on account. INCOME TAX The charge for current UK corporation tax is based on results for the year as adjusted for items that are non-assessable or disallowed and any adjustments for tax payable in respect of previous years. It is calculated using rates that have been enacted or substantially enacted at the Balance Sheet date. DEFERRED TAXATION Deferred tax is provided using the liability method in respect of temporary differences between the carrying value of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax is provided on all temporary differences, except in respect of investments in Subsidiaries and Joint Ventures where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amounts of its assets and liabilities for Investment Properties that are measured at fair value. Deferred tax is determined using tax rates that have been enacted or substantially enacted by the Balance Sheet date and are expected to apply when the deferred tax asset is realised or the deferred tax liability is settled. It is recognised in the Income Statement except when it relates to items credited or charged directly to Equity, in which case the deferred tax is also dealt with in Equity. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. PENSIONS The Group operates a defined benefit pension scheme, which was closed to new members during the year to 31st July 2003 and which requires contributions to be made to an administered fund. The obligations of the scheme represent benefits accruing to employees and are measured at discounted present value while scheme assets are measured at their fair value. The discount rate used is the yield on AA credit rated corporate bonds that have maturity dates approximating to the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. The operating and financial costs of such plans are recognised separately in the Income Statement, service costs are spread systematically over the working lives of the employees concerned and financing costs are recognised in the year in which they arise. Actuarial gains and losses are recognised immediately in the Consolidated Statement of Comprehensive Income. The Group also operates a defined contribution Group Personal Pension Plan for eligible employees. The plan is externally administered and professionally managed. Contributions payable are expensed to the Income Statement as incurred. 48 49 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 1. ACCOUNTING POLICIES AND ESTIMATION TECHNIQUES (continued) LEASES Leases are classified according to the substance of the transaction. A lease that transfers substantially all the risks and rewards of ownership to the lessee is classified as a finance lease. All other leases are classified as operating leases. GROUP AS A LESSEE In accordance with IAS 40: Investment Property, leases of investment property are assessed on a property by property basis. Where future rentals are material, the properties are capitalised and treated as finance leases in accordance with IAS 17: Leases, otherwise properties are classified as operating leases and rentals payable are charged to the Income Statement on a straight line basis over the term of the lease. Other leases are classified as operating leases and rentals payable are charged to the Income Statement on a straight line basis over the term of the lease. GROUP AS A LESSOR Properties leased out under operating leases are included in investment property, with rental income recognised on a straight line basis over the lease term. REVENUE Revenue, which is stated net of value added tax, represents the invoiced value of goods sold, except in the case of long-term contracts where revenue represents the amounts received and receivable for work done in the year. The measurement and stage of completion of long-term contracts are based on external valuations issued by third party surveyors. Profits on long-term contracts are calculated in accordance with International Financial Reporting Standards and do not relate directly to revenue. Profit on current contracts is only taken at a stage near enough to completion for that profit to be reasonably certain after making provision for contingencies, whilst provision is made for all losses incurred to the accounting date together with any further losses that are foreseen in bringing contracts to completion. The value of construction work transferred to investment properties is excluded from revenue. Revenue from investment properties comprises rental income, service charges, insurance receivable and other recoveries, and is disclosed as other operating income in the Income Statement. Rental income from investment property leased out under an operating lease is recognised in the Income Statement on a straight line basis over the term of the lease. Revenue from private housing sales is recognised when transactions are legally completed. Revenue from private housing sales under shared equity scheme are accounted for at fair value. FINANCIAL INSTRUMENTS Financial assets and financial liabilities are recognised on the Group’s Statement of Financial Position when the Group becomes a party to the contractual provision of the instrument. The principal treasury objective is to provide sufficient liquidity to meet operational cash requirements. The Group operates controlled treasury policies which are monitored by the Board to ensure that the needs of the Group are met as they arise. AVAILABLE FOR SALE FINANCIAL ASSETS Available for sale financial assets represent investments in quoted shares which are recognised at fair value at the year end. The movement in fair value is transferred directly to Equity and shown in a separately designated Fair Value Reserve. 48 49 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 1. ACCOUNTING POLICIES AND ESTIMATION TECHNIQUES (continued) FINANCIAL INSTRUMENTS (continued) TRADE AND OTHER RECEIVABLES Trade and other receivables are recognised at invoiced value less provisions for impairment. A provision for impairment of trade receivables is established where there is objective evidence that the Group will not be able to collect all amounts due according to the terms of the receivables concerned. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash in hand, deposits with banks and other short-term highly liquid investments with original maturities of three months or less. For the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. TRADE AND OTHER PAYABLES Trade and other payables are non-interest bearing and are recognised at invoiced amount. MEASUREMENT OF FAIR VALUES A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which a change has occurred. Further information about the assumptions made in measuring fair values is included in the following notes: • Note 13 – Investment Properties; • Note 15 – Available for Sale Financial Assets; • Note 20 – Financial Instruments. DIVIDENDS Final Dividends are recognised as a liability in the year in which they are approved by the Company’s shareholders. Interim Dividends are recognised when they are paid. 50 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 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. 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. 2014 Construction activities Investment activities 2013 Construction activities Investment activities . . . . . . . . External Revenue Internal Revenue Total Revenue Operating Loss 2014 £000 £000 £000 £000 2013 Restated (note 1) £000 22,811 5,253 1,994 – 24,805 5,253 (3,547) 2,656 – – 28,064 1,994 30,058 (891) – 18,381 5,383 2,214 20,595 – – 5,383 – (2,961) 850 23,764 2,214 25,978 – (2,111) . OPERATING LOSS . Share of results of Joint Ventures Finance and investment income . Finance costs . . . . . . . . . PROFIT ON ORDINARY ACTIVITIES BEFORE TAX . . . . . . . . . . . . . . . (891) (2,111) . . 469 2,438 246 . (40) . 1,629 – . 1,207 533 Internal revenue relates to own work capitalised, all other internal transactions are eliminated on consolidation. The Group had no customers whose turnover with the Group in the year exceed 10% of the Group’s total revenue from construction activities (2013, 3 customers whose total revenue in the year amounted to £11,000,000). 50 51 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 2. SEGMENTAL INFORMATION (continued) OTHER SEGMENTAL INFORMATION 2014 Construction activities Investment activities Joint Ventures . . . Non-Current Asset Additions Depreciation £000 £000 . . . . . . 582 2,066 – 446 – – Segment Segment Assets Liabilities £000 £000 21,656 81,003 1,288 5,741 9,724 – 103,947 15,465 Allocation of corporation tax debtor . . . . . . (883) (883) 2013 Construction activities Investment activities Joint Ventures . . . . . . . . . 544 3,093 – 360 – – 103,064 14,582 32,089 75,444 819 11,202 6,025 – 108,352 17,227 Allocation of corporation tax debtor . . . . . . (1,919) (1,919) 3. OTHER OPERATING INCOME Rental income Service charges and insurance receivable . . . Direct property costs Net rental income . . . . . . 106,433 15,308 2014 £000 4,798 455 2013 £000 4,901 482 5,253 (1,768) 5,383 (1,495) 3,485 3,888 . . . . . . . . . . . . . . . . . . . . Direct property costs included £620,000 (2013, £513,000) in respect of investment properties that did not generate rental income in the year. 52 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 4. STAFF COSTS AND DIRECTORS’ REMUNERATION Staff costs during the year amounted to: Wages, salaries and short term benefits. . Social security costs . . Post-employment benefits . . . . . . . . . . . . . . . . . 6,502 671 865 9,496 982 852 8,038 11,330 The average weekly number of employees during the year was made up as follows: 2014 £000 2013 £000 Construction and related services. Office and management . . Directors’ remuneration: – Salaries and short term benefits . – Post-employment benefits . . . . . . . . . . . . . . . . . . . . . . . . No. No. 169 24 258 25 193 283 £000 434 59 £000 586 58 493 644 David W Smart and Alasdair H Ross are members of the Group’s defined benefit pension scheme. John R Smart is a member of the Group’s defined contribution Group Personal Pension Plan. Key management is comprised solely of the Directors of the Company. Full details of Directors’ remuneration is given in the Directors’ Remuneration Report on pages 22 to 28. 5. OPERATING LOSS This is stated after charging/(crediting): . Cost of inventories recognised as an expense . . . Staff costs (per note 4) . . . Hire of plant and machinery . . Contingent rents . . . Depreciation of owned assets Profit on disposal of property, plant and equipment . Auditors’ remuneration and expenses – audit services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,811 8,038 469 73 446 (50) 112 15,965 11,330 547 73 360 (24) 114 The auditors’ fees for the Parent Company are £50,000 (2013, £50,000). 6. INCOME FROM INVESTMENTS Dividend income from available for sale financial assets . . . 143 138 53 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 7. FINANCE INCOME AND FINANCE COSTS Income: . Interest on short term deposits . Other interest . . Net interest income on retirement benefit obligations . . . . . . . 2014 2013 Restated (note 1) £000 £000 . . . 43 19 125 187 69 31 – 100 Costs: Net interest expense on retirement benefit obligations . – (40) 8. TAXATION UK Corporation Tax Current tax on income for the year Corporation tax over provided in previous years . . Deferred taxation (note 21) . . Current Tax Reconciliation Profit on ordinary activities before tax . . Share of profits of Joint Ventures . . . . Current tax at 22.33% (2013, 23.67%) . Effects of: Expenses not deductible for tax purposes . Tangible asset differences Non taxable income . . Deferred tax asset not recognised Effect of indexation allowances . Effect of change in tax rate . Adjustments to tax charge in respect of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (95) (5) (100) 282 1,113 (3) 1,110 (725) 182 385 1,207 (469) 533 (2,438) 738 (1,905) 165 (451) 11 (20) (32) 174 (86) (25) (5) 16 16 (34) 1,197 (112) (244) (3) 182 385 The Finance Act 2014, which received Royal Ascent on 17th July 2014 states that the UK corporation tax rate will reduce to 21% for financial years commencing 1st April 2014 with a further reduction to 20% for financial years commencing 1st April 2015. The effective corporation tax rate is 22.33% (2013, 23.67%) being the average rate applicable over the period. Deferred tax provisions have been calculated using the 20% rate. In addition to amounts charged to the Income Statement, a deferred tax credit of £358,000 (2013, charge – £934,000) relating to actuarial (losses)/gains on defined benefit pension scheme has been recognised directly to Equity. Also a deferred tax credit of £180,000 (2013, charge – £108,000) relating to the movement in fair value of available for sale financial assets has been recognised directly to Equity. The value of the deferred tax asset in respect of Capital Losses not recognised in the financial statements amounted to £1,464,000 (2013, £1,197,000). There are no income tax consequences attached to dividends paid or proposed by the Company to its shareholders. 54 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 9. PROFIT FOR THE FINANCIAL YEAR Dealt with in the accounts of the Parent Company . Retained by Subsidiary and Joint Venture Companies 10. DIVIDENDS . 2012 Final Dividend of 1.98p per share 2013 Interim Dividend of 0.92p per share . 2013 Final Dividend of 2.01p per share, after waivers . 2014 Interim Dividend of 0.92p per share . . . 2014 2013 Restated (note 1) £000 £000 (1,614) 2,639 530 (382) 1,025 148 – – 430 432 862 968 435 – – 1,403 . . . . . . . . . . . . . . . . . . The Board is proposing a Final Dividend of 2.04p per share (2013, 2.01p) which, after waivers will cost the Company no more than £430,000. 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. 11. EARNINGS PER SHARE Profit attributable to Equity shareholders £000 Basic Earnings per share Year to 31st July 2014 . . . Year to 31st July 2013 Restated (note 1) . . . . . . . . . 1,025 2.18p . 148 0.31p 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 2014 amounted to 47,020,000 (2013, 48,299,000). There is no difference between basic and diluted earnings per share. 54 55 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st July 2014 12. PROPERTY, PLANT AND EQUIPMENT (a) GROUP Cost: At 1st August 2013 Additions Disposals . . At 31st July 2014 . . . . Depreciation: At 1st August 2013 . Provided during year . . Disposals . At 31st July 2014 Net book value: At 31st July 2014 Cost: At 1st August 2012 Additions Disposals . . At 31st July 2013 . . . . . . Depreciation: At 1st August 2012 . Provided during year . . Disposals . At 31st July 2013 Net book value: At 31st July 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Land and buildings Freehold £000 Plant, equipment and vehicles £000 Total £000 896 – – 5,560 582 (422) 6,456 582 (422) 896 5,720 6,616 496 19 – 4,681 427 (387) 5,177 446 (387) 515 4,721 5,236 381 999 1,380 714 182 – 5,546 362 (348) 6,260 544 (348) 896 5,560 6,456 478 18 – 4,660 342 (321) 5,138 360 (321) 496 4,681 5,177 400 879 1,279 The Group’s non-investment heritable properties were revalued at 31st July 2014. This revaluation which has not been incorporated into these accounts, showed a net surplus over the cost of those properties after depreciation of £1,714,000 as at 31st July 2014. Included within Freehold Land and Buildings is land costing £13,000 (2013, £13,000) which is not depreciated. 56 57 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 12. PROPERTY, PLANT AND EQUIPMENT (continued) (b) COMPANY Land and buildings Freehold £000 Plant, equipment and vehicles £000 361 – – – 2,553 349 (191) (26) Total £000 2,914 349 (191) (26) 361 2,685 3,046 100 5 – – 2,054 251 (167) (24) 2,154 256 (167) (24) . . . . . . . . . . 105 2,114 2,219 . 256 571 827 . . . . . 179 182 – – 361 . . . . 95 5 – – 2,591 245 (241) (42) 2,770 427 (241) (42) 2,553 2,914 2,079 226 (219) (32) 2,174 231 (219) (32) . 100 2,054 2,154 . 261 499 760 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost: At 1st August 2013 Additions Disposals Group transfer disposals . . . . . At 31st July 2014 . Depreciation: . At 1st August 2013 Provided during year . Disposals . Group transfer disposals . At 31st July 2014 Net book value: At 31st July 2014 . . Cost: At 1st August 2012 Additions Disposals Group transfer disposals . . . . . At 31st July 2013 . Depreciation: At 1st August 2012 . Provided during year . . Disposals Group transfer disposals . At 31st July 2013 Net book value: At 31st July 2013 . . The Company’s non-investment heritable properties were revalued at 31st July 2014. This revaluation which has not been incorporated into these accounts, showed a net surplus over the cost of those properties after depreciation of £1,427,000 as at 31st July 2014. 57 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st July 2014 13. INVESTMENT PROPERTIES Cost or valuation: At 1st August 2013 Additions . . . (Deficit)/surplus on valuation . . At 31st July 2014 . . Cost or valuation: At 1st August 2012 Additions Disposals . . . . . (Deficit)/surplus on valuation . . . At 31st July 2013 . . Land and buildings Freehold £000 Land and buildings Leasehold £000 55,539 364 (819) 6,786 1,702 37 Total £000 62,325 2,066 (782) 55,084 8,525 63,609 63,834 2,914 (8,060) (3,149) 6,603 179 (18) 22 70,437 3,093 (8,078) (3,127) 55,539 6,786 62,325 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation Process The Group’s investment properties are valued by John M Smart, MRICS and David W Smart, MRICS, who are Directors of the Parent Company, on the basis of fair value, in accordance with the RICS Valuation – Professional Standards (January 2014), Global and UK Edition. As in previous years, external valuers have reviewed a sample of the Group’s investment properties and provided a report to the Group detailing the valuations they would have placed on the sample of investment properties reviewed. The valuations prepared by the Directors and the external valuers are compared to ensure that there are no material variations between the valuations. 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 net of income 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 judgment 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. 58 59 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 13. INVESTMENT PROPERTIES (continued) 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 investment properties as at 31st July 2014: Fair Value at 31 July 2014 £000 Estimated Rental Value £ per sq ft Average High Low Equivalent Yield % Average High Low 18,674 44,935 9.00 4.00 12.00 15.00 5.75 7.50 8.9 7.7 10.3 12.4 9.1 10.6 Investment Commercial Industrial The following table illustrates the impact of changes in the key unobservable inputs (in isolation) on the fair value of the Group’s investment properties as at 31st July 2014: Fair Value at 31 July 2014 £000 5% change in estimated rental value Decrease £000 Increase £000 25bps change in equivalent yield Increase Decrease £000 £000 Investment Commercial Industrial 18,674 44,935 929 2,152 (929) ( 2,152) 507 1,228 (485) (1,161) The Group had obligations of £126,000 (2013, £1,230,000) in respect of developments and repair costs of investment properties at the Balance Sheet date. 58 59 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 14. INVESTMENTS Shares in Subsidiaries at Cost . . Joint Ventures . . 2014 £000 . . . . – 1,288 1,288 Group 2013 £000 – 819 819 Company 2014 £000 2013 £000 708 – 1,235 – 708 1,235 (a) JOINT VENTURES The Directors consider Prestonfield Development Company Limited to be a material associate and the following table summarises the financial information of that company as included in its own financial statements, adjusted for differences in accounting policies: Non-current assets . Current assets (including cash and cash equivalents of £176,000 . (2013, £180,000)) . . . . . . . . . . . . Current liabilities (including current financial liabilities excluding trade and other payables and provisions - £4,750,000 (2013, £5,150,000)) Net assets . . Group’s share of net assets . . . . . . . . . . Revenue Surplus on valuation of investment property Profit and total comprehensive income Group’s share of profit and total comprehensive income . . . . . . . . . . . . . . . . . . . . 2014 £000 6,966 196 2013 £000 6,482 203 (4,963) (5,351) 2,199 1,334 1,100 167 554 450 864 432 506 – 394 197 . . . . . . . . . The Group has interests in other Joint Venture Companies but these are not considered to be material. The aggregated financial information on these associates is as follows: Aggregate carrying amount of individually immaterial associates Aggregate carrying amount of the Group’s share of: . Profit from continuing activities 37 188 2,241 152 . . . . . . . Total comprehensive income . . . . . . . 37 2,241 In the year to 31st July 2013, the Group transferred land to Invertiel Developments Limited which, with the exception of one piece thereof, was immediately sold to a third party. This generated a profit before tax in Invertiel Developments Limited of £4,240,000 of which J. Smart & Co. (Contractors) PLC received half. The Group accounts for all Joint Ventures using the equity method of accounting. The Group has provided a letter of support to Prestonfield Development Company Limited agreeing to provide support if required to the company for a period of 12 months from the date that company’s financial statements for the year to 31st July 2014 were signed. 60 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 14. INVESTMENTS (continued) (a) JOINT VENTURES (continued) Name of Joint Venture Prestonfield Development Company Limited Northrigg Limited Duff Street Limited Invertiel Developments Limited Registered in and Principal Country J. Smart & Co. (Contractors) PLC Interest in Joint Venture’s Capital 50% 50% 50% 50% of Operation Scotland Scotland Scotland Scotland Name of Joint Venture Jointly managed with Prestonfield Development Company Limited Westerwood Limited Northrigg Limited William Sanderson Duff Street Limited Kiltane Developments Limited Invertiel Developments Limited Macdonald Estates PLC Issued Share capital Issued shares held by J. Smart & Co. (Contractors) PLC 1 B Share 1 A Share 50 A Shares 50 A Shares 2 ordinary £1 shares split equally into A & B shares and ranking equally in all respects 2 ordinary £1 shares split equally into A & B shares and ranking equally in all respects 100 ordinary £1 shares split equally into A & B shares and ranking equally in all respects 100 ordinary £1 shares split equally into A & B shares and ranking equally in all respects All of the Joint Venture companies were established for the purposes of property development and all have accounting years ending on 31st July. 60 61 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 14. INVESTMENTS (continued) (b) SUBSIDIARIES . At 1st August 2013 Transfer from Joint Venture. . Additions. Dividend received set against cost of investment Repayment of share capital . . . . . . . . . . . . . At 31st July 2014 . . . . 2014 £000 1,235 – – 2013 £000 708 . . 25 502 . . (477) – . (50) – . 708 1,235 . . . . . . At 31st July 2014 the Company held the entire issued share capital of the following companies, all of which are registered in and operate in Scotland: McGowan & Co. (Contractors) Limited Cramond Real Estate Company Limited Thomas Menzies (Builders) Limited Concrete Products (Kirkcaldy) Limited C. & W. Assets Limited Edinburgh Industrial Estates Limited Plumbing contractors Investment holding Civil Engineering contractors Manufacture of concrete building products Property company Property development As at 31st July 2014 an application to strike off Edinburgh Industrial Estates Limited had been submitted to the Registrar of Companies and the company has been formally dissolved. 15. AVAILABLE FOR SALE FINANCIAL ASSETS Group 2014 £000 2013 £000 Listed investments . . . . . . . . – 3,817 Fair value movement on shares held at 31st July 2014 before tax amounted to £nil (2013, £754,000). There has been no impairment adjustment on available for sale financial assets in this or the previous year. As the Group’s available for sale financial assets consisted entirely of equities of companies listed on quoted markets then these fall within ‘Level 1’ of the fair value hierarchy as described by IFRS 13: Fair Value Measurement. 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 year end date. 62 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 16. INVENTORIES . Long-term contract balances . Work in progress . Land held for development . Raw materials and consumables . Finished goods . . . 2014 £000 539 3,683 1,796 141 87 . . . . . Group Company 2013 £000 58 11,644 1,708 138 72 2014 £000 418 3,683 1,796 46 – 2013 £000 – 11,644 1,708 28 – 6,246 13,620 5,943 13,380 . . . . . CONTRACTS IN PROGRESS AT THE BALANCE SHEET DATE: Aggregate amount of costs incurred and recognised profits less recognised losses to date . Retentions outstanding . . Advances received . . . . 1,710 85 (2,281) 3,781 101 1,130 63 (3,581) (1,902) 2,702 98 (2,730) Net value of contracts in progress . . (486) 301 (709) 70 The Company granted a standard security during the year to The Scottish Ministers (Lothian Health Board) in respect of land held for development acquired from Lothian Health Board. 17. TRADE AND OTHER RECEIVABLES . CURRENT ASSETS: Trade receivables . Amounts owed by Subsidiaries . . Other receivables Prepayments and accrued income Amounts recoverable on contracts Loans to Joint Venture companies . . . . . . . . . . . . . 1,686 – 5,078 419 445 3,471 11,099 1,493 – 73 406 1,007 3,671 6,650 691 2,004 1,140 330 341 3,471 7,977 462 2,250 – 322 833 3,671 7,538 Trade receivables are shown net of provision for doubtful debts of £24,000 (2013, £26,000). The ageing of past due but not impaired trade debtors is as follows: Less than 30 days 30 to 60 days Greater than 60 days . . . . . . . . . . . . 1,126 520 40 1,686 1,136 354 3 1,493 547 139 5 691 409 53 – 462 Trade receivables includes £569,000 (2013, £509,000) in respect of outstanding retentions. The loans to Joint Venture companies (note 14(a)) are repayable on demand. The Group has charged interest on one loan to a Joint Venture Company at a rate of 1% above the Group’s banker’s base rate. The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. 63 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 18. BANK The bank has been granted guarantees and letters of offset by each member of the Group in favour of the bank on account of all other members of the Group as a continuing security for all monies, obligations and liabilities owing or incurred to the bank. 19. TRADE AND OTHER PAYABLES . CURRENT LIABILITIES: . Trade payables Amounts owed to Subsidiaries . Other taxes and social security costs Other creditors and accruals . . Group Company 2014 £000 2013 £000 2014 £000 2013 £000 . . . . . . . . 1,081 – 221 2,841 1,386 – 469 1,740 740 10 107 2,007 1,045 96 189 948 4,143 3,595 2,864 2,278 20. FINANCIAL INSTRUMENTS The Group’s financial instruments comprise of bank balances and cash, available for sale financial assets, trade receivables and trade payables. The amounts presented in relation to trade receivables are net of allowances for doubtful receivables. The carrying amount of these assets approximates to their fair value. CREDIT RISK In relation to the Group’s financial assets, the Group has no significant concentration of credit risk, as exposure is spread over a number of counterparties and customers. There is no significant impairment loss recognised or significant receivables that are past due but not impaired. The Group has assessed that there is no significant credit risk in relation to loans to Joint Venture companies given the underlying value of the assets held by these entities. IFRS 7: Financial Instrument Disclosures requires a company to undertake a sensitivity analysis on its financial instruments which are affected by changes in interest rates. The Group financial instruments affected by interest rate fluctuations are bank deposits and bank overdrafts. Based on the Group’s net position at the year end, a 1% increase or decrease in the interest rates would change the Group’s profit before tax by approximately £114,000 and £40,000 respectively (2013, £49,000 and £55,000 respectively). 64 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 21. DEFERRED TAXATION DEFERRED TAX ASSETS GROUP At 1st August 2012 Credited/(Charged) to Income Statement Charged to Equity . . . . . . At 31st July 2013 . . Charged to Income Statement . At 31st July 2014 . . . . . COMPANY At 1st August 2012 Credited/(Charged) to Income Statement Charged to Equity . . . . . . At 31st July 2013 . . Charged to Income Statement . At 31st July 2014 . . . . . Retirement Benefit Obligations £000 343 1,874 (2,217) Other £000 214 (105) – Total £000 557 1,769) (2,217)) – 109 109 – (86) (86) – 23 23 343 1,874 (2,217) 44 (24) – 387 1,850 (2,217) – 20 20 – (20) (20) – – – . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax assets arising in respect of valuation surpluses on Investment Properties of £1,464,000 (2013, £1,197,000) have not been recognised because it is not probable that relevant future taxable profits will be available against which the Group can use the benefits therefrom. DEFERRED TAX LIABILITIES GROUP . At 1st August 2012 Charged/(Credited) to Equity Charged/(Credited) to Income Statement . At 31st July 2013 Credited to Equity Charged/(Credited) to Income Statement At 31st July 2014 . . . . Accelerated Capital Allowances Fair Value Reserve Valuation Retirement Surplus on Benefit Investment Obligations Properties Other Timing Restated Differences £000 £000 £000 (note 1) £000 £000 Total Restated (note 1) £000 . . 1,447 – 72 108 565 – – (1,283) 96 – 2,180 (1,175) . (162) – (565) 1,796 (25) 1,044 . 1,285 180 – 513 71 2,049 . – (180) – (358) – (538) . 30 – – 171 (5) 196 . 1,315 – – 326 66 1,707 64 65 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 21. DEFERRED TAXATION (continued) DEFERRED TAX LIABILITIES (continued) COMPANY At 1st August 2012 Credited to Equity Charged/ (Credited) to Income Statement . . . . . . At 31st July 2013 . . . Credited to Equity Charged/ (Credited) to Income Statement . . . At 31st July 2014 . . . 22. SHARE CAPITAL . . . . . . . . . . . . . . Issued and fully paid ordinary shares of 2p each . At 1st August 2013 . . Purchased and cancelled . . . . At 31st July 2014 . . . . Accelerated Retirement Benefit Other Timing Allowances Obligations Differences Capital Restated (note 1) £000 – (1,283) £000 68 – 1,796 (10) Total Restated (note 1) £000 68 (1,283) 1,786 £000 – – – – 513 58 571 – 10 (358) – 171 (6) (358) 175 10 326 52 388 2014 Number £000 2013 Number £000 47,118,000 942 49,472,000 989 (47) (285,000) 47,118,000 942 (6) (2,354,000) 46,833,000 936 During the year to 31st July 2014 the Company purchased for cancellation 285,000 ordinary shares of 2p each with a nominal value of £6,000 for a consideration of £285,000. All shareholders of ordinary shares have a right to receive dividends paid by the Company in accordance with their shareholding. Each shareholder has the right to attend and vote at a General Meeting and each share attracts one vote. There are no restrictions on the distribution of dividends or repayment of capital. 23. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS (a) RECONCILIATION OF PROFIT BEFORE TAX TO CASH FLOWS FROM OPERATING ACTIVITIES . . . . . . . . . . . Profit before tax . . Share of profits from Joint Ventures Depreciation . . Unrealised valuation deficit on investment properties . . Profit on sale of property, plant and equipment . Profit on sale of investment properties . . . Profit on sale of available for sale financial assets . Change in retirement benefits . Interest received . . Change in inventories . Change in receivables . Change in payables . . . . . . . . . . . . . . . . . . . CASH FLOWS FROM OPERATING ACTIVITIES . . 66 2014 £000 1,207 (469) 446 782 (50) – (1,299) (855) (62) 7,374 (453) 587 2013 Restated (note 1) £000 533 (2,438) 360 3,127 (24) (124) (8) (835) (100) (2,235) 311 (409) 7,208 (1,842) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 23. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS (continued) (b) CASH AND CASH EQUIVALENTS FOR STATEMENT OF CASH FLOWS . Cash and cash equivalents . . Bank overdraft . . Net position . . . . . . . . . . . . . . . . . 2014 £000 16,802 (8,732) 8,070 2013 £000 15,157 (9,664) 5,493 . . . (c) ANALYSIS OF NET FUNDS Cash and cash equivalents . Bank overdraft . Net funds . . . . . . . . . . . . . . At 1st August 2013 £000 15,157 (9,664) . . Cash Flow £000 1,645 932 At 31st July 2014 £000 16,802 (8,732) . 5,493 2,577 8,070 24. NOTES TO THE COMPANY STATEMENT OF CASH FLOWS (a) RECONCILIATION OF LOSS BEFORE TAX TO CASH FLOWS FROM OPERATING ACTIVITIES . . . . . . . . . . Loss before tax . Depreciation . Profit on sale of property, plant and equipment . Net dividend received from subsidiary undertaking . . Change in retirement benefits . Interest received . . Change in inventories . Change in receivables . Change in payables . CASH FLOWS FROM OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (b) CASH AND CASH EQUIVALENTS FOR STATEMENT OF CASH FLOWS . Cash and cash equivalents . . Bank overdraft . . . . . . . . . . . Net funds . . . . . . . . 2014 £000 2013 Restated (note 1) £000 (2,235) 256 (26) (477) (855) (19) 7,437 (439) 625 4,267 (326) 231 (27) – (835) (6) (3,044) 1,494 (520) (3,033) 1 (1,582) 1 (6,488) (1,581) (6,487) . . . . . . . . . . . . . (c) ANALYSIS OF NET FUNDS Cash and cash equivalents . Bank overdraft . Net Funds . . . . . . . . . . . . . . 67 At 1st August 2013 £000 1 (6,488) . . Cash Flow £000 – 4,906 At 31st July 2014 £000 1 (1,582) . (6,487) 4,906 (1,581) J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 25. FUTURE CAPITAL EXPENDITURE There were no amounts of Capital Expenditure relating to Property, plant and equipment contracted for at 31st July 2014 or 31st July 2013. The Group’s share of Capital Expenditure contracted for by its Joint Ventures as at 31st July 2014 amounted to £nil (2013, £nil). 26. RETIREMENT BENEFIT OBLIGATIONS The Group operates a defined benefit pension scheme for certain active and former employees of the Group. The scheme was closed to new members in the year to 31st July 2003. The scheme is subject to the funding legislation outlined in the Pensions Act 2004 together with documents issued by the Pensions Regulator and Guidance Notes adopted by the Financial Reporting Council. The scheme is administered by a separate Board of Trustees which is composed of employer nominated representatives and member nominated Trustees and is a separate legal entity. The assets of the scheme are held separately from the assets of the Group and are administered and managed professionally under the supervision of the Trustees. The Trustees are required by law to act in the best interests of all classes of beneficiaries to the scheme and are responsible for the investment policy and the day-to-day running of the scheme. The Trustees are also responsible for jointly agreeing with the employer the level of contributions due to the Pension scheme. The scheme provides qualifying employees with an annual pension based on final pensionable salary on attainment of a normal retirement age of 65. Active members also benefit from life assurance cover. However the payment of these benefits are at the discretion of the Trustees of the scheme. The pension scheme’s independent qualified Actuary carries out a triennial valuation using the Projected Unit Credit Method to determine the level of the scheme’s surplus or deficit. The last completed triennial valuation was as at 31st October 2012 which revealed a deficit of £3,092,000, representing a funding level of 89.7%. Following the latest triennial valuation the Group and the scheme Trustees agreed that the employer contributions to the scheme would increase to 68.8% of pensionable salaries and employee contributions would remain at 3%. There were no outstanding contributions at the year end. The Group expects to pay a contribution of £1,221,000 during the financial year to 31st July 2015. ASSUMPTIONS The financial assumptions used to calculate scheme liabilities under IAS 19 (amended): Employee Benefits are: . . . . Valuation method . . . Discount rate Inflation rate - Retail price index . Inflation rate - Consumer price index . . Salary increases . . Pension increases . . . . 2013 2014 2012 Projected Unit Projected Unit Projected Unit 3.9% 2.4% 1.6% 2.6% 1.5%–2.6% 4.1% 3.1% 2.3% 3.3% 2.2% – 3.1% 4.3% 3.1% 2.3% 3.3% 2.2%–3.1% . . . . . . 68 69 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 26. RETIREMENT BENEFIT OBLIGATIONS (continued) ASSUMPTIONS (continued) The mortality assumptions imply the following expectations of years of life from age 65: Man currently aged 65 . Woman currently aged 65 Man currently aged 45 . Woman currently aged 45 . . . . . . . . . . . . . . . . SENSITIVITY TO KEY ASSUMPTIONS 2014 22.0 24.2 23.3 25.7 2013 22.1 24.4 23.4 25.9 2012 22.2 24.4 23.5 25.9 The scheme exposes the Group to actuarial risks, such as interest rate risk, inflation risk, longevity risk and investment risk. The key assumptions used for IAS 19 are discount rate, inflation rates and mortality. If different assumptions were used then this could materially affect the results disclosed in the financial statements. Movements in the key assumptions would have the following effect on the level of the deficit: Change in assumption Discount rate Inflation rate Mortality rate Decrease of 0.25% Increase of 0.25% Increase in life expectancy of 1 year Increase in scheme liabilities 2014 £000 2013 £000 949 530 809 887 496 756 The sensitivity information has been prepared using the same methodology as the calculation of the current year scheme obligations. 68 69 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 26. RETIREMENT BENEFIT OBLIGATIONS (continued) BALANCE SHEET DISCLOSURES The investments held by the scheme and the reconciliation of the scheme assets and liabilities to the Balance Sheet were: EQUITIES UK equities and equity funds Overseas equities funds . Multi- asset diversified funds BONDS Government gilt funds Corporate bond funds OTHER Cash . . . . . . . . . . . . Fair value of scheme assets Present value of scheme liabilities Scheme surplus/(deficit) . Deferred taxation . Net pension scheme surplus/(deficit) . . Valuation 2014 £000 8,531 12,373 2,475 480 2,399 3,273 29,531 (27,902) 1,629 (326) 1,303 Valuation 2013 £000 7,913 11,475 2,406 2,102 1,627 3,128 28,651 (26,084) 2,567 (513) 2,054 Valuation 2012 £000 6,718 9,746 2,248 1,800 1,391 3,174 25,077 (26,567) (1,490) 343 (1,147) The assets of the scheme are invested in funds managed by Standard Life Wealth, in direct investments via Speirs & Jeffrey, in insurance policies with companies belonging to the AEGON UK Group and in bank accounts. The assets do not include any directly owned ordinary shares issued by J. Smart & Co. (Contractors) PLC. The following amounts are incorporated into the financial statements 2014 £000 2013 Restated (note 1) £000 Analysis of amounts charged to operating profit: . Current service cost . . . . . Analysis of amounts charged to net finance income/(costs): . Interest income . Interest costs . . . . . . . . . . . . . . . Movement in present value of defined benefit obligations: . . . At 1st August 2013 . . . Current service cost . . . . Interest cost . . . Charges paid . . . . Benefit payments . Actuarial movements due to scheme experiences . . Actuarial movements due to changes in demographic assumptions . . Actuarial movements due to changes in financial assumptions . . . . . . . . . . . . . . . . . . . . . At 31st July 2014 . . . . . . . 70 . . . . . . . . . . . . (566) (488) 1,239 (1,114) 976 (1,016) 125 (40) 26,084 566 1,114 (38) (874) 300 9 741 27,902 26,567 488 1,016 (36) (1,505) 130 (29) (547) 26,084 71 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 26. RETIREMENT BENEFIT OBLIGATIONS (continued) Movement in fair value of scheme assets: . At 1st August 2013 . Interest income . . Employer contributions . . Employee contributions . . . Benefits paid . . . Charges paid Return on plan assets excluding amount shown in interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At 31st July 2014 . . . . . Movement in scheme surplus: . . . At 1st August 2013 . . . Current service cost . . . Contributions Net finance income/(cost) . . Actuarial remeasurement of pension scheme liability . . . . . . . . . At 31st July 2014 . . . . . . . . . . . . . . . . . . . 2014 £000 28,651 1,239 1,245 51 (874) (38) (743) 2013 Restated (note 1) £000 25,077 976 1,308 55 (1,505) (36) 2,776 29,531 28,651 2,567 (566) 1,296 125 (1,793) (1,490) (488) 1,363 (40) 3,222 1,629 2,567 . . . . . . . . . . . . . . Analysis of the actuarial (loss)/gain included in the statement of comprehensive income: Return on scheme assets excluding amounts shown in interest income Changes in assumptions underlying present value of scheme liabilities (743) (1,050) . . 2,776 446 At 31st July 2014 . . . . . . . . (1,793) 3,222 History of experience gains and losses: Return on scheme assets Amount (£000) . Percentage of market value of scheme assets Changes in assumptions underlying present value of scheme liabilities . . . 2014 2013 2012 2011 2010 . . (743) 2.5% 2,776 9.7% (1,574) 6.3% 1,315 5.3% 1,284 5.9% . . . . Amount (£000) Percentage of market value of scheme liabilities . Total amounts included in Consolidated Statement of Comprehensive Income . Amount (£000) Percentage of market value of scheme liabilities . . . . . . (1,050) 3.8% 446 1.7% 122 0.5% (480) 2.1% 1,736 7.6% (1,793) 3,222 6.4% 12.4% (4,517) 17.0% 1,847 8.1% 2,489 10.8% 70 71 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 26. RETIREMENT BENEFIT OBLIGATIONS (continued) DEFINED CONTRIBUTION SCHEMES In the year to 31st July 2003 the Group commenced operation of a defined contribution Group Personal Pension Plan for eligible employees. The plan is externally administered and managed professionally by AEGON UK. The net contribution to the plan for the year was £129,000 (2013, £132,000). STAKEHOLDER SCHEMES The Group has stakeholder pension arrangements for those employees not eligible for membership of either the Defined Benefit or Defined Contribution schemes. The Group makes contributions to these schemes and has no liability beyond these contributions. The contributions to these schemes in the year amounted to £54,000 (2013, £81,000) and are expensed through the Income Statement as incurred. 27. CONTINGENT LIABILITIES The Company and certain of its Subsidiaries have, in the normal course of business, entered into counter-indemnities in respect of performance bonds relating to their contracts. As at 31st July 2014 these amounted to £2,325,000. 28. OPERATING LEASE ARRANGEMENTS GROUP – AS LESSEE Future minimum lease payments payable under non-cancellable operating leases: Within one year . . In two – five years exclusively . . After five years . . . . . . . . . . . . . . . . . . . . . 2014 £000 70 189 2013 £000 71 214 30 58 289 343 GROUP – AS LESSOR Gross property rental income earned in the year amounted to £4,798,000 (2013, £4,901,000). At the Balance Sheet date, the Group had contracted with its tenants for the following future minimum lease payments: Within one year . . In two – five years exclusively . . After five years . . . . . . . . . . . . . . . . . . . . . 4,540 11,291 5,393 4,758 13,458 7,236 21,224 25,452 72 73 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 29. RELATED PARTY TRANSACTIONS (a) SUBSIDIARIES Transactions between the Company and its Subsidiaries, which are related parties of the Company, have been eliminated on consolidation. Details of transactions between the Company and Subsidiaries are as follows: SUBSIDIARY 2014 £000 2013 £000 Sale of goods and services McGowan & Co. (Contractors) Limited Cramond Real Estate Company Limited Thomas Menzies (Builders) Limited . Concrete Products (Kirkcaldy) Limited C. & W. Assets Limited . . Edinburgh Industrial Estates Limited . . 136 . – . 124 . . 80 . 2,945 – . 137 – 78 39 4,039 – 2014 £000 2013 £000 Purchase of goods and services 748 – 9 17 – – 1,615 – 50 39 – 725 The Company also received dividends and a repayment of capital from Subsidiaries in the year amounting to £1,005,000 (2013, £nil). SUBSIDIARY Amounts owed by Subsidiaries Amounts owed to Subsidiaries McGowan & Co. (Contractors) Limited Cramond Real Estate Company Limited . Thomas Menzies (Builders) Limited Concrete Products (Kirkcaldy) Limited C. & W. Assets Limited . . Edinburgh Industrial Estates Limited . . . . . . . . – – – – 2,004 – – – – – 2,250 – 10 – – – 90 – 4 2 – – – – The amounts outstanding are unsecured and will be settled for cash. No expense has been recognised in the year for bad or doubtful debts in respect of the amounts owed by Subsidiaries. (b) JOINT VENTURE COMPANIES Transactions between the Group and its Joint Venture Companies included recharge of construction costs of £32,000 (2013, £5,000), receipt of interest on a loan to one of the joint venture companies of £6,000 (2013, £6,000) and receipt of a dividend of £nil (2013, £2,115,000). During the year the Group was repaid £200,000 (2013, £330,000) of outstanding loans to Joint Venture Companies and advanced £nil (2013, £10,000) to Joint Venture Companies. As at 31st July 2014 loans outstanding from Joint Venture Companies amounted to £3,471,000 (2013, £3,671,000), also due to the Group at 31st July 2014 was £3,000 (2013, £3,000) in respect of the loan interest charged. The amounts outstanding are unsecured and will be settled for cash. No expense has been recognised in the year for bad or doubtful debts in respect of the amounts owed by Joint Venture Companies. In the year to 31st July 2013, the Group transferred land to Invertiel Developments Limited which, with the exception of one piece thereof, was immediately sold to a third party. This generated a profit before tax in Invertiel Developments Limited of £4,240,000 of which J. Smart & Co. (Contractors) PLC received half. 72 73 J. Smart & Co. (Contractors) PLC and Subsidiary Companies NOTES TO THE ACCOUNTS (continued) 31st JULY 2014 29. RELATED PARTY TRANSACTIONS (continued) (c) DIRECTORS’ INTEREST IN CONTRACTS John M Smart, David W Smart and John R Smart, throughout the year had material beneficial interests in Plean Precast Limited, Sterling Precast Limited and The Roofing and Building Supply Co. Limited, which have interests in continuing contracts for the purchase of materials and services from and for the sale of materials and services to the Group. During the year to 31st July 2014 the Group purchased materials amounting to £147,000 (2013, £393,000) from these companies and sold materials and services amounting to £164,000 (2013, £75,000) to these companies. In the year to 31st July 2013 the Group sold property to The Roofing and Building Supply Co. Limited for £1,000,000 and also purchased from the same company property costing £180,000. All transactions were at normal commercial rates. As at 31st July 2014 the Group owed these companies £23,000 (2013, £19,000) and was owed £155,000 (2013, £31,000). (d) DIRECTORS’ REMUNERATION The remuneration of the Directors, who are the only key management of the Company, is set out in note 4 to the Accounts with further information contained in the audited part of the Directors’ Remuneration Report. (e) DIRECTORS’ DIVIDENDS During the year the Directors received dividends from the Company as follows: 2014 £000 11 109 3 109 . John M Smart David W Smart . Alasdair H Ross . . John R Smart . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 £000 34 344 3 109 (f) DIRECTORS’ TRANSACTIONS The following Directors received goods and services from Group Companies in the year amounting to: John M Smart David W Smart 41 9 . . . . . . . . 4 1 . . . . . . . . All transactions were at normal commercial rates. (g) PENSION SCHEMES Disclosures in relation to the pension schemes are included in note 26 to the Accounts. 74 75 74 75 Printed by Multiprint (Scotland) Limited, Kirkcaldy 

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