St Mark Homes Plc - Final Results PR Newswire

22 May 2020

St Mark Homes Plc

(''SMH'' or “the Company'')

Final results

St Mark Homes (AQSE: SMAP), the housebuilder operating mainly in London and the South of England, today announces its Final Results for the year ended 31 December 2019.

Strategic report

The directors present their strategic report for the year ended 31 December 2019.

Review of the business

The Group continues to develop residential led projects located in London and the Southern regions of the United Kingdom. We primarily target the sub £1,000 per square foot residential sales market with a particular emphasis on developing schemes which consist of units that can be made available for sale under the £600,000 London Help to Buy limit.

The Group typically undertakes its business within special purpose vehicles and on a joint venture/profit sharing basis with other house builders. This strategy has helped the Group to generate profits and increase distributions to shareholders in recent years. With customers being slower to commit to property purchases and property prices and volumes under pressure 2019 has been a testing year. Notwithstanding these market challenges the directors are pleased to report a profit before tax for the current year amounted of £113,977 (2018: £117,442). Dividend distributions to shareholders were maintained at 5.5p per share.

Our strategic priorities

The Board remain keen to grow the Group into a significant regional house builder. We have an established and profitable method of operation and intend to participate in additional projects in the coming years.

We believe the key Group assets are its people, capital base and market listing. Our primary aim is to maximise shareholder value by utilising each of these assets to best effect. We also are committed to the highest standards of sustainability.

People and partnering

We have an intentionally small but experienced team with demonstrable competency in the areas of finance, property development, project appraisal and project delivery. Our strategy is to match those core skills and our capital with partners who can assist with project design, construction and sales.  Our people are motivated through a management incentive scheme which aligns their interests with that of the shareholders and only rewards performance after attainment of profit targets linked to the return on shareholders’ funds.

Capital 

The Group commenced 2019 with a capital base just over £5.73m (2018: £5.87m). We have previously set a performance target to grow that base by a minimum of 5% on opening shareholders’ funds per annum through organic growth.  In 2019 we achieved a pre-tax profit of 2% (2018: 2%) on opening shareholders’ funds during testing market conditions .

The Group will be repaying the 30  month bond (which carries a 6% coupon) in 2020. .

AQSE Growth Market Listing

The market mid-price on 20 May 2020 of £0.875 represents a discount of 33% to the net asset value of £1.27 per share reported at 31 December 2019. The 2019 dividend yield based on this market mid price is 6.28%.

We will continue to monitor the effectiveness of the market and as the Group grows we may in future consider a move to AIM. In the interim the Board believe the continued expansion of the capital base and the continuation of profit and dividend growth are steps that can broaden investor appeal.

Sustainability

We recognise that there are financial and operational benefits of working sustainably and we are committed to the highest standards of sustainability. While many environmental requirements are embedded within the planning process, sustainability is a broader issue than that and encompasses both Health & Safety and the supply chain.

Health & Safety continues to remain the Group’s first priority and we work with our joint venture partners to attain best practice standards. We are happy to report that there were no reportable incidents on any of our projects during 2019 and we remain committed to the highest standards of Health & Safety.

Having the right supply chain is also crucial to sustainability. We do have long term working relationships with our main suppliers but continue to carefully monitor the financial health of our design teams and main contractors. We aim to pay suppliers to agreed timescales and to work collaboratively with them for the benefit of all.

Project Portfolio

At present we have live joint venture projects on sites in Sutton, Battersea and Hanwell which we anticipate will deliver profits in 2020 through to 2022. As these projects are completed we will seek replacement schemes.

Completed Developments

London Road, Hounslow TW3:

The Group holds a joint venture interest of 40% in the development of 34 flats in Hounslow with its development partners. The construction works on site were completed at the end of July 2018. A total of 33 residential units had either legally exchanged or legally completed at 31 December 2019.  In accordance with our revenue recognition policy we have recognised a profit of £260,179 (2018: £134,703) and project management fees of £nil (2018: £43,200) during 2019. The final remaining unit on the project sold in early 2020.

Heron House, Wembley:

The Group had a joint venture interest of up to 40% in the development of 40 flats and commercial space in Wembley.  Project management fees of £216,000 were recognised during 2019 (2018: £208,000). The site was sold to a Housing association in December 2019 and the company capital committed to the project has been repaid.

Continuing Developments

Sutton High Street, Sutton:

The Group retains a 40% interest in a development site at Sutton High Street. Planning has been challenging on the project with an appeal failing in July 2019. This did however provide clarity on development that would be acceptable and following extensive consultation with the local authority our joint venture partner has submitted a new application for a comprehensive redevelopment of the site for a mixed use scheme (i.e. residential and commercial) in April 2020 – a decision is expected later in the summer of 2020.

Gwynne Road, London SW11:

The Group has a 40% interest in the redevelopment of this site with its joint venture partner. The initial phase of the project was completed in 2019 providing a mixed use development of commercial/retail at ground and mezzanine levels and 33 residential flats above. The next planned phase of development is to obtain D1 planning consent on the ground floor and as well as consent for an additional penthouse on the top of the building.

At 31 December 2019 sale contracts have been legally exchanged on all residential units.  In accordance with our revenue recognition policy we have recognised a loss of £33,198 (2018: £7,643 loss) and project management fees of £18,000 (2018: £43,200) during 2019.

Uxbridge Road, Hanwell, London W7:

The Group has a 50% interest in the redevelopment of this site with full planning permission in place to provide 43 residential units (7 Houses and 36 Apartments) and ground floor retail fronting Uxbridge Road, Hanwell, West London. In accordance with our revenue recognition policy we have recognised project management fees of £90,000 (2018: £nil) during 2019.

Future Developments

As capital and profits are released from the current project portfolio the Board will seek out further opportunities with similar risk profiles. The Group’s schemes have largely been in the outer London Boroughs and it is intended that the Group will continue to focus on this geographic area.

Principal risks and uncertainties

The Group is exposed to the usual risks of companies constructing and developing residential property, including construction budget overruns, delays in programme, insolvency of clients, general economic conditions, project availability, uninsured calamities and other factors. 

Investments are made in sterling and therefore the Group is not subject to foreign exchange risks. The Group’s credit risk is primarily attributable to its trade debtors.  Credit risk is managed by monitoring payments against contractual agreements.  The Group also reviews the financial standings of its debtors prior to entering into significant contracts.

Key Performance Indicators

The Group’s long term performance target has been to generate a minimum average annual return on shareholders funds of 5%. During 2019 the annual pre-tax return on shareholders’ funds was 2% (2018:  2%). The sales market remained challenging in 2019 and extended sales periods have impacted profit recognition in 2019 and our ability to reutilise capital. The early part of 2020 remains challenging for different reasons and in the current environment the board believe a return of 2% on capital is an acceptable return.

The Group also seeks protection from market downturns by committing no more than 50% of its capital to any one project and by requiring projects in which it is a stakeholder to show a minimum return on cost of 15%.  During 2019 the maximum exposure of capital to any one project was less than 40% of the Group capital.  

Treasury policy

Operations have been financed by the issue of shares in the past and retained profits, the cash from which has been invested in short term cash deposits. In addition, various financial instruments such as trade debtors and trade creditors arise directly from the Group's operations. Loans have been funded by the cash income from previous development projects.  In 2018 and 2019 the 6% bond has also funded the loans to joint venture partners. Further information on financial instruments is contained in note 22 of the financial statements.

On behalf of the Board

Barry Tansey

Chief Executive

Date: 22 May 2020

The Directors of St Mark Homes PLC accept responsibility for this announcement.

For further information, please contact:


St Mark Homes Plc

Sean Ryan, Finance Director                            Tel: +44 (0) 20 8903 2442

                                                        seanryan@stmarkhomes.com

Alfred Henry Corporate Finance Ltd, AQSE Growth Market
Corporate Adviser

Jon Isaacs / Nick Michaels                             Tel: +44 (0) 20 3772 0021

                                                             www.alfredhenry.com



Consolidated statement of comprehensive income
for the year ended 31 December 2019


                                                     2019       2018

                                                        £          £

Turnover                                          324,000    294,400

Cost of sales                                    (28,945)   (27,079)

                                                 ________   ________

Gross profit                                      295,055    267,321

Administrative expenses                         (447,756)  (412,937)

Negative goodwill release                               -     37,993

                                                 ________   ________

Operating loss                                  (152,701)  (107,623)

Share of operating profit of joint ventures       188,708    162,318

Interest receivable and similar income            286,626    266,471

Interest payable and similar charges            (208,656)  (203,724)

                                                 ________   ________

Profit on ordinary activities before taxation     113,977    117,442

Taxation on ordinary activities                  (24,454)   (15,373)

                                                 ________   ________

Profit on ordinary activities after taxation       89,523    102,069

Other comprehensive income                                         -

                                                 ________   ________

Total comprehensive income                         89,523    102,069

                                                ________   ________

Earnings per share – basic and diluted

Ordinary shares                                     2.03p      2.31p



Consolidated Balance sheet
at 31 December 2019


                                       2019       2019       2018         2018

                                          £          £          £            £

Non Current assets

Tangible fixed assets                              592                     789

Investments in joint ventures                  344,123                 374,974

                                              ________                ________

                                               344,715                 375,763

Current assets

Debtors                           3,991,840             7,881,758

Cash at bank and in hand          4,799,690             1,023,754

                                   ________              ________

                                  8,791,530             8,905,512

Creditors: amounts falling

due within one year             (3,550,233)              (76,914)

                                   ________              ________

Net current assets                           5,241,297               8,828,598

                                              ________                ________

Total assets less current                    5,586,012               9,204,361
liabilities

Creditors: amounts falling

due in more than one year                            -             (3,465,157)

                                              ________                ________

Net assets                                   5,586,012               5,793,204

                                              ________                ________

Capital and reserves

Called up share capital                      2,206,501               2,206,501

Capital redemption reserve                   1,009,560               1,009,560

Other reserve                                  211,822                 211,822

Merger reserve                                 327,060                 327,060

Share premium account                          375,246                 375,246

Profit and loss account                      1,455,823               1,609,015

                                              ________                ________

Shareholders’ funds                          5,586,012               5,793,204

                                     ________              ________



Statement of changes in equity
For the year ended 31 December 2019


                   Share     Capital    Other   Merger     Share     Profit      Total
                 Capital  Redemption  Reserve  Reserve   Premium   and loss
                             Reserve                               reserves

                       £           £        £        £         £          £          £

Balance at     2,206,501   1,009,560  211,822  327,060   375,246  1,749,661  5,879,850
31 December
2017

Profit for             -           -        -        -         -    102,069    102,069
the year

                ________    ________  _______  _______  ________   ________   ________

Total                  -           -        -        -         -    102,069    102,069
comprehensive
income for
the year

Dividend               -           -        -        -         -  (242,715)  (242,715)

                ________    ________  _______  _______  ________   ________  _________

Balance at     2,206,501   1,009,560  211,822  327,060   375,246  1,609,015  5,739,204
31 December
2018

Profit for             -           -        -        -         -     89,523     89,523
the year

                ________    ________  _______  _______  ________   ________   ________

Total                  -           -        -        -         -     89,523     89,523
comprehensive
income for
the year

Dividend               -           -        -        -         -  (242,715)  (242,715)

                ________    ________  _______  _______  ________   ________  _________

Balance at     2,206,501   1,009,560  211,822  327,060   375,246  1,455,823  5,586,012
31 December
2019

                ________    ________  _______   ______  ________   ________   ________



Consolidated statement of cashflows
for the year ended 31 December 2019


                                          2019       2019       2018       2018

                                             £          £          £          £

Cash flows from

operating activities

Cash expended from operations                   3,965,135             (378,124)

Interest paid                                   (208,656)             (203,724)

Corporation tax                                  (24,454)              (54,501)

                                                 ________              ________

Net cash outflow from

operating activities                            3,732,025             (636,349)

Investing activities

Interest received                      286,626               266,471

                                      ________              ________

Net cash generated from investing

activities                                        286,626               266,471

Financing activities

Increase in loans                            -             1,122,680

Dividend paid                        (242,715)             (242,715)

                                      ________              ________

Net cash generated from

financing activities                            (242,715)               879,965

                                                 ________              ________

Net increase in cash and cash                   3,775,936               510,087
equivalents

Cash and cash equivalents at

beginning of year                               1,023,754               513,667

                                                 ________              ________

Cash and cash equivalents at

end of year                                     4,799,690             1,023,754

                                                 ________              ________

Relating to:

Cash at bank and in hand                        4,799,690             1,023,754

                                                 ________              ________



Notes to Preliminary Results for the Period Ended 31 December 2019

1.   The financial information set out above does not constitute statutory accounts for the purpose of Section 434 of the Companies Act 2006.   The financial information has been extracted from the statutory accounts of St Mark Homes plc and is presented using the same accounting policies, which have not yet been filed with the Registrar of companies, but on which the auditors gave an unqualified report on 22 May 2020.

      The preliminary announcement of the results for the year ended 31 December 2019 was approved by the board of directors on 22 May 2020.

  1. Accounting policies

Company information

St Mark Homes Plc is a public limited company domiciled and incorporated in England and Wales. The registered office is No 1 Railshead Road, St Margarets, Old Isleworth, Middlesex TW7 7EP.

Accounting convention

These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest pound.

Going concern

The financial statements are prepared on the going concern basis.  The directors have a reasonable expectation that the Group and Company will continue in operational existence for the foreseeable future.

The directors have considered the impact of the COVID-19 pandemic, and the measures taken to contain it, on the Group and because of the nature of the Group’s activities they do not consider that there will be any significant effect on the ability of the Group to continue in business and meet its liabilities as they fall due. Thus they continue to adopt the going concern basis of accounting in preparing these financial statements.

The financial statements have been prepared on the historical cost convention. The principal accounting policies adopted are set out below.

Basis of consolidation

The consolidated financial statements incorporate the results of St Mark Homes Plc and its subsidiary undertaking, St Mark Contracts Limited as at 31 December 2019 using the acquisition method of accounting. Under this method the results of subsidiary undertakings are included from the date of acquisition. 

Jointly controlled operations and interests in joint ventures are accounted for using the equity method of accounting. A jointly controlled operation is an entity that is a joint venture that involves the establishment of a corporation, partnership or other entity in which each venture has an interest. A subsidiary is an entity controlled by the company. Control is the power to govern the financial and operating policies of the entity so as to benefit from its activities.

Turnover 

Turnover represents the amounts recoverable on contracts with developers.

Turnover arising from developments is recognised on exchanged sale contracts:

    --  when costs and revenues associated with the transaction can be reliably
        measured; and
    --  where the probability of non-performance is considered negligible such
        that the risks and rewards of ownership have passed to the buyer.

The return on loans provided for the development of residential property is shown under interest receivable and similar income.

Investments in subsidiaries

Interests in subsidiaries are initially measured at cost and subsequently measured at cost less any accumulated impairment losses. The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in the profit or loss account. A subsidiary is an entity controlled by the company. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.

Intangible fixed assets – goodwill

Negative goodwill represents the discount on the cost of acquisition over the fair value of assets acquired. It is initially recognised as a liability and is subsequently measured at cost less accumulated amortisation. Negative goodwill is being amortised over the useful life of the assets acquired on a systematic basis which is expected to be no more than two years. Negative goodwill arose on the acquisition of St Mark Contracts Limited by the Company on 10 August 2016. The fair value of consideration paid was calculated based on the bid price of the shares issued by the Company as consideration for the entire net assets of St Mark Contracts Limited. The discount in the value of the assets resulted in negative goodwill of £287,125 arising on consolidation. This negative goodwill was fully amortised by 31 December 2018.

Property development loans

Interest receivable on property loans is recognised in the period in which it accrues.  Profit share returns are only recognised when there is sufficient evidence and the project is sufficiently progressed to assess the likely profitability with a reasonable level of accuracy.

Depreciation

Depreciation is provided to write off the cost, less estimated residual values, of all tangible fixed assets on a reducing balance basis over their expected useful lives.  It is calculated at the following rates:

Office equipment             - 25% per annum

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

Deferred tax

Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

Leased assets

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets at the lower of the assets fair value at the date of inception and the present value of the minimum lease payments. The related liability is included in the balance sheet as a finance lease obligation. Lease payments are treated as consisting of capital and interest elements. The interest is charged to the profit and loss account so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Liquid resources

For the purposes of the cash flow statement, liquid resources are defined as short term bank deposits.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

Financial assets

The Company has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments. Financial assets are recognised in the company's balance sheet when the company becomes party to the contractual provisions of the instrument.

Financial assets are classified into specified categories. The classification depends on the nature and purpose of the financial assets and is determined at the time of recognition. Basic financial assets, which include trade and other receivables and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method, unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest.

Financial liabilities and equity

Financial liabilities and equity are classified according to the substance of the financial instrument’s contractual obligations, rather than the financial instrument’s legal form.  Basic financial liabilities are initially measured at transaction price, unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future receipts discounted at a market rate of interest. Other financial liabilities are initially recognised at fair value and are subsequently re-measured at their fair value with changes recognised through the profit and loss account.

Equity instruments

Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.

Dividends

Equity dividends are recognised when they become legally payable.  Interim equity dividends are recognised when paid.  Final equity dividends are recognised when approved by the shareholders at an annual general meeting. Dividends on shares wholly recognised as liabilities are recognised as expenses and classified within interest payable.

3.   Earnings per share

Earnings per ordinary share has been calculated using the weighted average number of shares in issue during the financial year. The weighted average number of Ordinary shares in issue was 4,413,002 (2018: 4,413,002) and the earnings being profit after tax attributable to ordinary shares was £89,253 (2018: £102,069).


                                                              2019     2018

                                                                 £        £

Numerator

Earnings used as the calculation of basic and diluted EPS   89,523  102,069

                                                          ________ ________



   


                                                                Number    Number

Denominator

Weighted average number of ordinary shares used in basic and 4,413,002 4,413,002
diluted EPS

                                                              ________  ________



      There are no share options or other potentially dilutive equity instruments in issue than can dilute the earnings per share.