J Smart & Co (Contractors) PLC on Friday reported a significantly lower annual profit as it took a hit from a swing to a net deficit on valuation of investment properties.

The Edinburgh-based construction contractor said in the financial year that ended July 31, pretax profit dived to £105,000 from £8.2 million a year earlier.

Revenue faded 10% to £13.0 million from £14.4 million, while it swung to a net deficit on valuation of investment properties of £2.2 million from a net surplus of £473,000.

Cost of sales decreased by 22% to £6.9 million from £8.9 million.

Commenting on its private housing development at Winchburgh, Canal Quarter in Scotland’s West Lothian region, J Smart said: ‘The current economic issues of high interest rates and inflation and the cost of living crisis continues to have an impact on consumer confidence in the private housing sector. The majority of reservations at Winchburgh have converted into sales, but sales have been substantially less than expected. The resultant prolonged sales period and accompanying holding costs, coupled with higher construction costs, partly due to a longer than expected build period, has and will continue to lead to a deterioration in the profitability of this development.’

The company declared an unchanged final dividend of 2.27 pence per share, taking the total full-year dividend to a similarly unmoved 3.23p.

Chair David Smart said: ‘At this stage, it is difficult to assess what the headline profit will be for the year to July 31, 2024. If commercial property values fall further, we may make a headline loss. Profits will continue to be eroded by the lack of external contracting work, the lack of recovery of overhead costs, the increase in material costs and prolonged programmes due to statutory approval delays.’

Looking ahead, the company said residential development at Clovenstone Gardens in Edinburgh has started with construction progressing well. First completions are not due until late 2024, ‘so no marketing has yet taken place,’ it added.

‘As with the development at Winchburgh, the rise in construction costs and the longer than expected programme may result in a decrease in profit levels. It remains to be seen if this will be counter-balanced by positive house sales,’ J Smart said.

J Smart shares fell 4.1% to 119.85 pence each on Friday afternoon in London.

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