Final Results

RNS Number : 5703L
Highcroft Investments PLC
30 April 2020
 

Highcroft Investments PLC

 

Final results for the year ended 31 December 2019

 

 

 

KEY HIGHLIGHTS

 

· 16.4% increase in net property income to £5,656,000 (2018 £4,859,000)

· 11.6% increase in investment property valuation to £86,710,000 (2018 £77,700,000)

· Property acquisitions of £11,898,000, no property disposals

· 2.7% decrease in net asset value per share to 1175p (2018 1207p)

· 10.1% decrease in adjusted earnings per share to 78.5p (2018 87.3p)

· 76.6% decrease in earnings per share to 22.3p (2018 95.3p)

· Total debt increased by £6,800,000 to £26,200,000; LTV 30% (2018 25%)

· Cash and liquid equity investments £1,559,000 (2018 £5,881,000)

· 12.7% total shareholder return (2018 5.2%)

· 20.0% decrease in final dividend to 27.00p per share (2018 33.75p per share)

· 8.6% decrease in total dividend to 48.00p per share (2018 52.50p per share)

 

 

 

 

Dear Shareholder,

 

Introduction

 

I am pleased to say Highcroft has delivered a robust performance in the 2019 financial year. As a result of our proactive asset management strategy, we have reported an increase in net property income of 16.4% and a total shareholder return of 12.7%.

 

This provided a strong starting point for the current financial year; however the Covid-19 pandemic has now introduced a significant level of uncertainty into the marketplace in which we operate and in turn for all our stakeholders. As a consequence, we are in regular dialogue with our tenants to understand their needs and will continue to monitor on-going developments carefully and take any necessary action, if required.

 

Property portfolio

 

Throughout 2019 the property market faced unsettled conditions with different sub sectors affected in different ways. In support of our on-going diversification away from high street retail, we have seen warehouses and logistics continue to perform well as the structural shift to online shopping continues.  During the year we made two property acquisitions, one warehouse and one leisure asset. The total gross acquisition cost for both properties was £11.9m with income of £1.15m giving a strong combined net initial yield of 9.7%.

 

We continue to actively asset manage our portfolio and at the year-end warehouse/industrial accounted for 42% of portfolio valuation (2018 39%). At the other end of the spectrum one of the more challenging sub sectors has been retail where we have very limited exposure to the high street at just 8% (2018 10%).  We also have 27% (2018 33%) of our portfolio in retail warehouses however we have strong tenant covenants, affordable rents and good access for both traditional shoppers or online shoppers using click and collect at these properties.

 

 

During the year we increased the total value of property assets on our balance sheet by 11.6% to £86.7m while maintaining our conservative view on debt with loan to property valuation (LTV) levels of 30% (2018 25%).

 

Our net asset value per share fell by 2.7% (32p per share), comprising income of 78.5p per share, an asset revaluation loss of 55.9p per share and dividends paid in the year of 54.75p per share.  The revaluation loss was 3.6% on a like-for-like basis which compares favourably with an IPD all property capital value decrease of 3.8%.

 

 

 

Covid-19

The global coronavirus pandemic, that was announced by the World Health Organisation on 11 March 2020, has introduced significant levels of uncertainty into most businesses. There are key uncertainties regarding the extent and duration of lockdown and social distancing measures which have impacted some of our tenants' ability to carry on their normal business and generate sufficient cash to pay their rent. While it is too early to assess the full impact that this will have on our tenants we are aware that, notwithstanding our strong tenant covenants, we will be unable to collect a proportion of our full Q2 rent on the usual payment days, or during the quarter.  Whilst we have not agreed to waive any rent due by our tenants, this will influence our short-term cash generation.  Consequently, we have challenged all our future assumptions and forecasts and run a sensitivity analysis and stress test. As a result, we are confident, based on the information available to us at the date of this report, that the group remains robust financially and has a viable model to continue to create shareholder value over the long term.

 

Dividend

 

The company's interim dividend was increased 12.0% as a result of strong revenue growth and this revenue growth continued into the second half of the year. We have very carefully considered the level of final dividend for the year.  Whilst we recorded a robust set of results in 2019, we are in the midst of a global pandemic.  We recognise the importance of the dividend to our shareholders but also that it is the group's most significant cash out-flow and that we need to manage our cash resources prudently at this difficult time.  We are therefore recommending a final dividend of 27.00p per share which is a 20% decrease on the prior year, giving a total dividend of 48.00p per share, a decrease of 8.6% year-on-year. Whilst we have not met our stated strategy of increasing dividends in excess of inflation every year, I am sure that you will agree that we all find ourselves in exceptional circumstances at this time.

 

Outlook

After a turbulent macro-economic environment in 2019, we ended the year with increased confidence levels for the UK property market and a higher degree of political certainty than for some time, following the UK general election result on 12 December and with a Brexit withdrawal agreement. Operationally we achieved a robust result in 2019 and entered 2020 with clear strategic direction, a well-balanced income producing portfolio and modest gearing.

 

During the first quarter of 2020 everything changed significantly as the impacts of the Covid-19 pandemic began to unfold, and undoubtedly 2020 is likely to be an extremely challenging year for us all. Highcroft is however well positioned, with a well-diversified, high-quality property portfolio, a low level of gearing and a strong management team which should position us well to survive the current crisis and continue to create long-term shareholder value.

 

 

 

 

Charles Butler

Chairman  

 

 

 

 

30 April 2020

 

Enquiries:

 

Highcroft Investments PLC

Charles Butler / Roberta Miles

01865 840023

 


N+1 Singer
Peter Steel / Amanda Gray - Corporate Finance

Tom Salvesen - Corporate Broking

 

 

020 7496 3000

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



 

Consolidated statement of comprehensive income

for the year ended 31 December 2019

 

 

 


Note


2019



2018




Revenue

Capital

Total

Revenue

Capital

Total



£'000

£'000

£'000

£'000

£'000

£'000









Gross rental revenue


5,840

-

5,840

5,043

-

5,043

Property operating expenses


(184)

-

(184)

(184)

-

(184)

Net rental income


5,656

-

5,656

4,859

-

4,859

 

Net gains on disposal of investment property


 

-

 

-

 

-

 

967

 

-

 

967









Valuation gains on investment property


-

739

739

-

2,600

2,600

Valuation losses on investment property


-

(3,627)

(3,627)

-

(2,116)

 (2,116)

Net valuation (losses)/gains on investment property


-

(2,888)

(2,888)

-

484

484









Dividend revenue


3

-

3

54

-

54

Gains on equity investments


-

53

53

-

48

48

Losses on equity investments


-

-

-

-

(166)

(166)

Net investment income


3

53

56

54

(118)

(64)









Administration expenses


(826)

-

(826)

(736)

-

(736)

Net operating profit before net finance income


4,833

(2,835)

1,998

5,144

366

5,510









Finance income


6

-

6

6

-

6

Finance expense


(856)

-

(856)

(705)

-

(705)

Net finance expense


(850)

-

(850)

(699)

-

(699)









Profit before tax


3,983

 

(2,835)

1,148

4,445

 

366

4,811









Income tax credit/(charge)

1

72

(66)

6

67

48

115









Profit for the year after tax

 


4,055

(2,901)

1,154

4,512

414

4,926

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


4,055

(2,901)

1,154

4,512

414

4,926

























Basic and diluted earnings per share




22.3p



95.3p

 

 



Consolidated statement of financial position

at 31 December 2019

 






Note

2019

2018



£'000

£'000

Assets




Non-current assets




Investment property

4

86,710

77,700

Equity investments

5

-

679

Total non-current assets


86,710

78,379





Current assets




Trade and other receivables


1,147

471

Cash and cash equivalents


1,559

5,202

Total current assets


2,706

5,673





Total assets


89,416

84,052





Liabilities




Current liabilities




Interest bearing loan


4,000

-

Trade and other payables


2,495

2,235

Total current liabilities


6,495

2,235





Non-current liabilities




Interest bearing loan

6

22,200

19,400

Deferred tax liabilities


-

33

Total non-current liabilities


22,200

19,433





Total liabilities


28,695

21,668





Net assets


60,721

62,384





Equity




Issued share capital


1,292

1,292

Share based payment reserve


12

-

Revaluation reserve - property


12,931

18,770

  - other


-

574

Capital redemption reserve


95

95

Realised capital reserve


28,995

28,378

Retained earnings


17,396

13,275

Total equity attributable to the owners of the parent


60,721

62,384






Consolidated statement of changes in equity

 

 

 

 

2019

Issued

Share

Revaluation reserves

Capital

Realised

Retained



share

Based payment

Property

Other

redemption

capital

earnings

Total


capital

reserve



reserve

reserve



 

 

£'000

£'000

  £'000

£'000

£'000

£'000

£'000

£'000

At 1 January 2019

1,292

-

18,770

574

95

28,378

13,275

62,384

Transactions with owners:

Dividends

-

-

-

-

-

-

(2,829)

(2,829)

Reserve transfers:









Non-distributable items recognised in income statement:









Revaluation losses

-

-

(2,888)

-

-

-

2,888

-

Realised gains/(losses)

-

-

-

-

-

43

(43)

-

Movement in deferred tax on realisation of equities

-

-

-

29

-

(29)

-

-

Surplus attributable to assets sold in the year

-

-

-

(603)

-

603

-

-

Reassessment of carrying value of reserves

-

-

(4,168)

-

-

-

4,168

-

Excess of cost over revalued amount taken to retained earnings

-

-

1,217

-

-

-

(1,217)

-


-

-

(5,839)

(574)

-

617

5,796

-

Share award expensed


12

-

-

-

-

-

12

Total comprehensive income for the year

-

-

-

-

-

-

1,154

1,154

At 31 December 2019

1,292

12

12,931

-

95

28,995

17,396

60,721



 

Consolidated statement of changes in equity continued

 

 

 

2018

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 2018

1,292

18,015

538

95

26,611

13,426

59,977

Transactions with owners:

Dividends

-

-

-

-

-

(2,519)

(2,519)

Reserve transfers:








Non-distributable items recognised in income statement :








Revaluation gains/(losses)

-

484

(121)

-

-

(363)

-

Tax on revaluation gains

-

-

48

-

-

(48)

-

Realised gains/(losses)

-

-

-

-

969

(969)

-

Movement in deferred tax on realisation of equities

-

-

1,161

-

(1,161)

-

-

Surplus attributable to assets sold in the year

-

(907)

(1,052)

-

1,959

-

-

Excess of cost over revalued amount taken to retained earnings

-

1,178

-

-

-

(1,178)

-


-

755

36

-

1,767

(2,558)

-

Total comprehensive income for the year

-

-

-

-

-

4,926

4,926

At 31 December 2018

1,292

18,770

574

95

28,378

13,275

62,384


 

Consolidated statement of cash flows

 

for the year ended 31 December 2019

 


2019


2018


£'000


£'000





Operating activities




Profit before tax on ordinary activities

1,148


4,811

Adjustments for:




Net valuation losses/(gains) on investment property

2,888


(484)

Net gain on disposal of investment property

-


(967)

Net (gain)/loss on investments

(53)


118

Share based payment expense

12


-

Finance income

(6)


(6)

Finance expense

856


705

Operating cash flow before changes in working capital and provisions

4,845


4,177





(Increase)/decrease in trade and other receivables

(667)


66

Increase in trade and other payables

325


89

Cash generated from operations

4,503


4,332





Finance income

6


6

Finance expense

(856)


(705)

Income taxes paid

(93)


(13)

Net cashflows from operating activities

3,560


3,620





Investing activities




Purchase of non-current assets - investment property

(11,898)


(5,226)

Sale of non-current assets - investment property

-


6,090

  - equity investments

724


1,333

Net cash flows from investing activities

(11,174)


2,197





Financing activities




Dividends paid

(2,829)


(2,519)

New bank borrowings

6,800


-

Net cashflows from financing activities

3,971


(2,519)





Net (decrease)/increase in cash and cash equivalents

(3,643)


3,298

Cash and cash equivalents at 1 January

5,202


1,904

Cash and cash equivalents at 31 December

1,559


5,202

 



Notes

for the year ended 31 December 2019

 

1 Income tax credit

 


2019

2018


£'000

£'000

Current tax:



On revenue profits

72

67

On capital profits

(99)

-


(27)

67

Deferred tax

33

48

Income tax credit

6

115

 

The tax assessed for the year differs from the standard rate of corporation tax in the UK of 19% (2018 19%). 

The differences are explained as follows:

2019

2018

£'000

£'000

1,148

4,811

Profit before tax multiplied by the standard rate of corporation tax in the UK of 19% (2018 19%) 

218

914



(11)

13

(216)

(1,199)

103

172

(67)

20

(33)

(48)

-

13

(6)

(115)

 

 

2 Dividends

 

In 2019 the following dividends have been paid by the company:

 

 

2019

2018

 

£'000

£'000

 

 

 

2018 Final: 33.75p per ordinary share (2017 30.00p)

1,744

1,550

2019 Interim: 21.00p per ordinary share (2018 18.75p)

1,085

969

 

2,829

2,519

 

The directors recommend a property income distribution of £1,395,000, 27.00p per share (2018 £1,744,000, 33.75p per share) payable on 19 June 2020 to shareholders registered at 15 May 2020.

 

 



3 Earnings per share

 

The calculation of earnings per share is based on the total profit for the year of £1,154,000 (2018 £4,926,000) and on 5,167,240 shares (2018 5,167,240) which is the weighted average number of shares in issue during the year ended 31 December 2019 and throughout the period since 1 January 2018.  There are no dilutive instruments.

 

In order to draw attention to the profit which is not due 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 £4,055,000 (2018 £4,512,000) has been calculated.

 

 

2019

2018

 

£'000

£'000

Earnings:

 

 

Basic profit for the year

1,154

4,926

Adjustments for:

 

 

Net valuation losses/(gains) on investment property

2,888

(484)

(Gains)/losses on investments

(53)

118

Income tax on profit

66

(48)

Adjusted earnings

4,055

4,512

Per share amount:

 

 

Earnings per share (unadjusted)

  22.3p

  95.3p

Adjustments for:

 

 

Net valuation losses/(gains) on investment property

55.9p

(9.4p)

(Gains)/losses on investments

(1.0p)

2.3p

Income tax on profits

1.3p

(0.9p)

Adjusted earnings per share

78.5p

87.3p

 

4 Investment property

 

 

2019

2018

 

£'000

£'000

Total valuation at 1 January

77,700

77,113

Additions

11,898

5,226

Disposals

-

(5,123)

Revaluation (losses)/gains

(2,888)

484

Valuation at 31 December

86,710

77,700

 

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 2019, 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 at fair value categorised with level 2 inputs.

 

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.  Significant increases or decreases in estimated rental value and rent growth per annum in isolation would result in a significantly lower or higher fair value. Generally a change in the assumption made for the estimated rental value is accompanied by a directionally similar change in rent growth per annum and discount rate and an opposite change in the long-term vacancy rate.

 

5  Equity investments

 


2019

2018


£'000

£'000

Valuation at 1 January

679

2,131

Disposals

(670)

(1,331)

Loss on revaluation in excess of cost

-

(121)

Revaluation decrease below cost

-

-

Valuation at 31 December

9

679

Unlisted investments transferred to other receivable

(9)

-

Equity investments at 31 December

-

679

 

 

 

 

 

6  Interest bearing loans

 


2019

2018


£'000

£'000

Short-term bank loans due within one year

4,000

-

Medium-term bank loans

22,200

19,400

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



Between one and two years

-

4,000

Between two and five years

7,500

7,500

Over five years

14,700

7,900


22,200

19,400

 

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 2019.  The accounting policies remain unchanged.

 

 

8  Annual General Meeting

 

The Annual General Meeting will be held on 10 June 2020.

 

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 2019 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 6 May 2020 and subsequently filed at Companies House.


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