Final Results

RNS Number : 6760I
Highcroft Investments PLC
23 March 2018
 

Highcroft Investments PLC

 

Preliminary results for the year ended 31 December 2017

 

 

 

KEY HIGHLIGHTS

 

·      22.0% increase in gross property income to £4,765,000 (2016 £3,906,000)

·      16.8% increase in investment property valuation to £77,113,000 (2016 £65,997,000)

·      Property acquisitions of £9,480,000 (net of costs) and disposal proceeds of £2,292,000

·      8.4% increase in net asset value per share to 1161p (2016 1071p)

·      57.5% increase in earnings per share to 132.3p (2016 84.0p)

·      Medium term debt £19,400,000 (2016 £14,900,000); net gearing 29% (2016 21%)

·      Cash and liquid equity investments £4,035,000 (2016 £5,838,000)

·      15.4% increase in final dividend to 30.0p per share (2016 26.0p per share)

·      12.8% increase in total dividend to 46.25p per share (2016 41.0p per share)

 

 

 

Dear Shareholder,

 

I am pleased to announce our preliminary results for the year ended 31 December 2017 and to invite you to our Annual General Meeting on 17 May 2018 which will be held at Thomas House, Langford Locks, Kidlington, Oxfordshire, OX5 1HR at 12 noon.

 

Introduction

I am very pleased to be writing my first chairman's statement and reporting such a strong set of results. Before I do so however I must thank John Hewitt for his contribution to Highcroft through the last 18 years of which 11 were as non-executive chairman.

 

There is no doubt that 2017 has been a year of political events both inside and outside the UK and with that came a year of market uncertainty.  Even with this challenging backdrop I am pleased to report that the company has reported excellent property income growth of 22%, an earnings per share increase of 57.5% to 132.3p and a 13% increase in total dividend to 46.25p per share.

 

Property portfolio

Under the guidance and leadership of Simon Gill we purchased two warehouses during the year which were financed by a combination of existing cashflow, recycled cash from a property sale and a new debt facility which in turn reduced the average cost of debt to 3.64% and left gearing at a modest 29%.  At the year end the portfolio stood at 74% warehouses and retail warehouses with a small amount of residual residential and the remainder split between well let retail and offices.

Property rental growth of 22% for the year is the strongest performance over the last 5 years and with contracted rent at the year end being 21% up on the previous year end this shows the increase in rental income continuing into 2018.

We have stringent criteria for new tenant acceptance and at the year end all properties were fully let to a strong tenant base. Through a combination of stable income yields and active asset management I am pleased to report an 8.4% increase in net asset value and 11.9% return on equity for the year (2016 8.0%).

 

People

I have only been in situ as chairman for a short period however I would like to thank and congratulate the team for their hard work throughout the year. We have a small but dedicated and experienced team at Highcroft and this sets us in good stead for the year ahead.

 

Dividend

The company's interim dividend was increased by 8.3% and as a result of strong revenue growth, efficient use of debt and administration costs falling as a percentage of revenue we have increased the final dividend to 30.0p per share leading to a total dividend of 46.25p per share - an increase of 12.8%. Our stated strategy is to increase dividends in excess of inflation every year and I am pleased to say we have delivered an inflation busting 45.4% increase over the last 5 years.

 

Outlook

Highcroft is well positioned with a high quality income producing portfolio. We go into 2018 with positive momentum gained in 2017 and well positioned to continue our portfolio growth. We are however in a very competitive landscape with continuing political uncertainty so we remain cautious and diligent in our approach in ensuring we select the right properties to deliver long term shareholder value.

 



 

This announcement contains inside information for the purpose of Article 7 of Regulation (EU) No 596/2014.

 

 

 

 

 

 

Charles Butler

Chairman                                                                                                                       

 

                                                                                   

 

 

23 March 2018

 

Enquiries:

 

Highcroft Investments PLC

Charles Butler / Roberta Miles

01865 840023

 

Panmure Gordon (UK) Limited

Fabien Holler / Andrew Potts

0207 886 2500

 



 

Consolidated statement of comprehensive income

for the year ended 31 December 2017

 

 

 


Note


2017



2016




Revenue

Capital

Total

Revenue

Capital

Total



£'000

£'000

£'000

£'000

£'000

£'000









Gross rental revenue


4,765

-

4,765

3,906

-

3,906

Property operating expenses


(259)

-

(259)

(198)

-

(198)

Net rental income


4,506

-

4,506

3,708

-

3,708

 

Net gains on disposal of investment property


 

1

 

-

 

1

 

134

 

-

 

134









Valuation gains on investment property


-

3,365

3,365

-

2,509

2,509

Valuation losses on investment property


-

(77)

(77)

-

(1,536)

(1,536)

Net valuation gains on investment property


-

3,288

3,288

-

973

973









Dividend revenue


92

-

92

144

-

144

Gains on equity  investments


-

230

230

-

546

546

Losses on equity investments


-

(91)

(91)

-

(58)

(58)

Net investment income


92

139

231

144

488

632









Administration expenses


(663)

-

(663)

(651)

-

(651)

Net operating profit before net finance income


3,936

3,427

7,363

3,335

1,461

4,796









Finance income


2

-

2

11

-

11

Finance expense


(651)

-

(651)

(506)

-

(506)

Net finance expense


(649)

-

(649)

(495)

-

(495)









Profit before tax


3,287

 

3,427

6,714

2,840

 

1,461

4,301









Income tax credit

1

61

60

121

72

(30)

42









Total profit and comprehensive income for the year attributable to the owners of the parent


3,348

3,487

6,835

2,912

1,431

4,343

























Basic and diluted earnings per share




132.3p



84.0p

 

 



Consolidated statement of financial position

at 31 December 2017

 




Restated


Note

2017

2016



£'000

£'000

Assets




Non-current assets




Investment property

4

76,315

63,739

Equity investments

5

2,131

2,469

Total non-current assets


68,466

68,466





Current assets




Investment property


798

2,258

Trade and other receivables


537

631

Cash and cash equivalents


1,904

3,369

Total current assets


3,239

4,000





Total assets


81,685

72,466





Liabilities




Current liabilities




Trade and other payables


2,054

1,866

Total current liabilities


1,866

1,866





Non-current liabilities




Interest bearing loan

6

19,400

14,900

Deferred tax liabilities


254

375

Total non-current liabilities


19,654

15,275





Total liabilities


21,708

17,141





Net assets


59,977

55,325





Equity




Issued share capital


1,292

1,292

Revaluation reserve - property


18,015

14,276

                             - other


538

659

Capital redemption reserve


95

95

Realised capital reserve


26,611

27,020

Retained earnings


13,426

11,983

Total equity attributable to the owners of the parent


59,977

55,325







Consolidated statement of changes in equity

 

 

 

 

2017

Issued

Revaluation reserves

Capital

Realised

Retained



share

Property

Other

redemption

capital

earnings

Total


capital



reserve

reserve




£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 January 2017

1,292

14,276

659

95

27,020

11,983

55,325

Transactions with owners:

Dividends

-

-

-

-

-

(2,183)

(2,183)

Reserve transfers:








Non-distributable items recognised in statement of

comprehensive income:








Revaluation gains

-

3,288

124

-

-

(3,412)

-

Tax on revaluation gains/(losses)

-

-

64

-

-

(64)

-

Realised gains

-

-

-

-

16

(16)

-

(Surplus)/loss attributable to assets sold in the year

-

734

(309)

-

(425)

-

-

Excess of cost over revalued amount taken to retained earnings

-

(283)

-

-

-

283

-


-

3,739

(121)

-

(409)

(3,209)

-

Profit and total comprehensive income for the year

-

-

-

-

-

6,835

6,835

At 31 December 2017

1,292

18,015

538

95

26,611

13,426

59,977

 

2016

Issued

Revaluation reserves

Capital

Realised

Retained



share

Property

Other

redemption

capital

earnings

Total


capital



reserve

reserve




£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 January 2016

1,292

14,764

667

95

25,586

10,619

53,023

Transactions with owners:

Dividends

-

-

-

-

-

(2,041)

(2,041)

Reserve transfers:








Non-distributable items recognised in statement of

comprehensive income:








Revaluation losses

-

973

467

-

-

(1,440)

-

Tax on revaluation gains/(losses)

-

-

(26)

-

-

26

-

Realised gains

-

-

-

-

149

(149)

-

Surplus attributable to assets sold in the year

-

(836)

(449)

-

1,285

-

-

Excess of cost over revalued amount taken to retained earnings

-

(625)

-

-

-

625

-


-

(488)

(8)

-

1,434

(2,979)

(2,041)

Profit and total comprehensive income for the year

-

-

-

-

-

4,343

4,343

At 31 December 2016

1,292

14,276

659

95

27,020

11,983

55,325



Consolidated statement of cash flows

 

for the year ended 31 December 2017

 


2017


2016


£'000


£'000





Operating activities




Profit before tax on ordinary activities

6,714


4,301

Adjustments for:




Net valuation gains on investment property

(3,288)


(973)

Net gain on disposal of investment property

(1)


(134)

Net loss on investments

(139)


(488)

Finance income

(2)


(11)

Finance expense

651


506

Operating cash flow before changes in working capital and provisions

 

3,935


 

3,201





Decrease/(increase) in trade and other receivables

94


10

Increase in trade and other payables

196


193

Cash generated from operations

4,225


3,404





Finance income

2


11

Finance expense

(651)


(506)

Income taxes paid

(8)


-

Net cash flows from operating activities

3,568


2,909





Investing activities




Purchase of non-current assets - investment property

(10,086)


(9,896)

                                              - equity investments

-


(3)

Sale of non-current assets        - investment property

2,259


2,972

                                              - equity investments

477


1,176

Net cash flows from investing activities

(7,350)


(5,751)





Financing activities




Dividends paid

(2,183)


(2,041)

New bank borrowings

4,500


3,400

Net cash flows from financing activities

1,359


1,359





Net decrease in cash and cash equivalents

(1,483)


(1,483)

Cash and cash equivalents at 1 January 2017

3,369


4,852

Cash and cash equivalents at 31 December 2017

1,904


3,369

 



Notes

for the year ended 31 December 2017

 

1 Income tax credit

 


2017

2016


£'000

£'000

Current tax:



On revenue profits

(61)

12

On capital profits

3

(80)


(58)

(68)

Deferred tax

(63)

26

Income tax credit

(121)

(42)

 

The tax assessed for the year differs from the standard rate of corporation tax in the UK of 19% (2016 20%). 

The differences are explained as follows:


2017

2016


£'000

£'000

Profit before tax

6,714

4,301

Profit before tax multiplied by the standard rate of corporation tax in the UK of 20% (2015 20%) 

1,276

860

Effect of:



Tax exempt revenues

(40)

(123)

Profit not taxable as a result of REIT status

(1,481)

(963)

Chargeable gains less than accounting profit

55

59

Use of management expenses

82

125

Effect of change in tax rate on deferred tax liability

13

-

Income tax credit

(121)

(42)

 

 

2 Dividends

 

In 2017 the following dividends have been paid by the company:

 

 

2017

2016

 

£'000

£'000

 

 

 

2016 Final: 26.0p per ordinary share (2015 24.50p)

1,343

1,266

2017 Interim: 16.25p per ordinary share (2016 15.0p)

840

775

 

2,183

2,041

 

The directors recommend a property income distribution of £1,550,000, 30.0p per share (2016 £1,343,000, 26.0p per share) payable on 1 June 2018 to shareholders registered at 4 May 2018.

 

 



3 Earnings per share

 

The calculation of earnings per share is based on the total profit for the year of £6,835,000 (2016 £4,343,000) and on 5,167,240 shares (2016 5,167,240) which is the weighted average number of shares in issue during the year ended 31 December 2017 and throughout the period since 1 January 2016.  There are no dilutive instruments.

 

In order to draw attention to the impact of valuation gains and losses which are included in the statement of comprehensive income but not available for distribution under the company's articles of association, an adjusted earnings per share based on the profit available for distribution of £3,348,000 (2015 £2,912,000) has been calculated.

 

 

2017

2016

 

£'000

£'000

Earnings:

 

 

Basic profit for the year

6,835

4,343

Adjustments for:

 

 

Net valuation gains on investment property

(3,288)

(974)

Gains/(losses) on investments

(139)

(488)

Income tax on (profits)/losses

(60)

30

Adjusted earnings

3,348

2,912

Per share amount:

 

 

Earnings per share (unadjusted)

         132.3p

         84.0p

Adjustments for:

 

 

Net valuation gains on investment property

(63.6p)

(18.9p)

Gains/(losses) on investments

(2.7p)

(9.4p)

Income tax on losses

(1.2p)

0.6p

Adjusted earnings per share

64.8p

56.3p

 

4 Investment property

 

 

2017

2016

 

£'000

£'000

Valuation at 1 January

65,997

57,964

Additions

10,086

9,896

Disposals

(2,258)

(2,836)

Revaluation gains/(losses)

3,288

973

Valuation at 31 December

77,113

65,997

Less property categorised as current asset

(798)

(2,258)

Property categorised as fixed asset

76,315

63,739

 

In accordance with IAS 40 the carrying value of investment properties is their fair value as determined by external valuers.  This valuation has been conducted by Knight Frank LLP, as external valuers, and has been prepared as at 31 December 2017, in accordance with the Appraisal & Valuation Standards of the Royal Institution of Chartered Surveyors, on the basis of market value.  This value has been incorporated into the financial statements.

 

The independent valuation of all property assets uses market evidence and also includes assumptions regarding income expectations and yields that investors would expect to achieve on those assets over time. Many external economic and market factors, such as interest rate expectations, bond yields, the availability and cost of finance and the relative attraction of property against other asset classes, could lead to a reappraisal of the assumptions used to arrive at current valuations. In adverse conditions, this reappraisal can lead to a reduction in property values and a loss in net asset value.

 

5   Equity investments

 


2017

2016


£'000

£'000

Valuation at 1 January

2,469

3,155

Additions

-

3

Disposals

(459)

(1,159)

Surplus/(deficit) on revaluation in excess of cost

124

467

Revaluation decrease below cost

(3)

(11)

Revaluation increase still less than cost

-

14

Valuation at 31 December

2,131

2,469

 



6   Interest bearing loans

 


2017

2016


£'000

£'000

Medium term bank loans

19,400

14,900

The medium term bank loans comprise amounts falling due as follows:



Between one and two years

-

-

Between two and five years

4,000

4,000

Over five years

15,400

10,900


19,400

14,900

 

7   Basis of preparation

 

The preliminary announcement has been prepared in accordance with applicable accounting standards as stated in the financial statements for the year ended 31 December 2016. The accounting policies remain unchanged.

 

 

8   Annual General Meeting

 

The Annual General Meeting will be held on 17 May 2018.

 

9   Publication of non-statutory accounts

    

     The above does not constitute statutory accounts within the meaning of the Companies Act 2006.  It is an extract from the full accounts for the year ended 31 December 2017 on which the auditor has expressed an unmodified opinion and does not include any statement under section 498 of the Companies Act 2006.  The accounts will be posted to shareholders on or before 23 April 2017 and subsequently filed at Companies House.


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