Half-year Report

RNS Number : 4476F
Highcroft Investments PLC
28 July 2016
 

28 July 2016

Highcroft Investments PLC

Interim Report for the six months ended 30 June 2016

 

Key Highlights:

*Gross rental income increased 18% to £1,867,000 (2015 £1,585,000)

*100% occupancy in our property portfolio (2015 97%)

*Net rental income increased 27% to £1,775,000 (2015 £1,394,000)

*Total earnings per share reduced 31% to 44.3p (2015 64.2p)

*Property valuation £57,240,000 (2015 £57,022,000) increased 1% on a like-for-like basis

*Net assets per share increased 8% to 1046p (June 2015 965p, December 2015 1026p)

*Net debt £4,794,000 (2015 £9,490,000)

*Interim property income distribution up 5% to 15.0p (2015 14.3p)

 

Dear Shareholder

I am pleased to report good trading results for the 6 months ended 30 June 2016.  Gross rental income has increased by 18%, reflecting the benefit of a full period's income from our Wisbech property bought in May 2015.  Despite general uncertainty in the pre and post referendum environment, our confidence in the group's future is reflected by a proposed interim property income distribution of 15.0p per share - an increase of 5% on 2015.  This continues our long-standing policy and record of raising our dividend ahead of inflation.

Results for the period

Property

Gross rental income has risen by 18%. This increase primarily reflects the rental income from the Wisbech property purchased in May 2015, net of the rental income foregone from the sale of the Warrington property in August 2015 and the Kingston property in January 2016.  In addition we have benefited from two positive rent reviews and have no voids, whereas in 2015 three properties in our portfolio were vacant for part of the first half of the year.  Our property expenses for the six month period fell to £92,000 (2015 £191,000).  The 2015 figure was abnormally high and arose from significant one-off works, including asbestos removal, which had to be carried out at the Norwich and Leamington Spa retail units.  The 2016 costs include £42,000 of professional fees associated with an aborted acquisition where a decision was taken to withdraw because the covenant weakened significantly during our negotiations.  We disposed of one residential unit, occupied by a regulated tenant, in the period, at a profit of £90,000 over the December 2015 valuation. We have also completed one lease extension in our multi-occupied block of flats.

The external independent valuation of our property portfolio at 30 June 2016 showed a gain of 1% on a like-for-like basis arising from small increases gained, in part from positive rent reviews on our properties at Bicester and Crawley, and also in the granting of planning consent to construct 9 residential units at our property in Staines. In light of the Chancellor's increase in stamp duty on commercial properties, this 1% gain was significant compared with many of our competitors in the market who have had downward adjustments to their portfolios.

The upgrading of the property portfolio continues with the aim of improving the weighted unexpired lease term, strengthening covenants and increasing the average lot-size. 

Our property portfolio is now valued at £57.2 million (2015 £57.0 million).

 

Equities

Equity markets have undergone considerable volatility in the period, and we took advantage of this to reduce our portfolio by £0.5m in line with our stated long-term strategy.  As a result of this approach, together with the sales made in 2015, dividend income from our equity portfolio reduced to £73,000 (2015 £87,000).  We raised £493,000 from the sale of equities at a loss of £13,000 to the year end valuation and made a small purchase, costing £3,000. The net gain on valuation of £200,000 (2015 loss on valuation £210,000) in the half year is a reflection of the prevailing market conditions that existed at 31 December 2015 and also at 30 June 2016.  We intend to continue to reduce our equity portfolio in line with our stated strategy.

Financial

Earnings per share on revenue activities increased to 28.4p (2015 23.1p) due primarily to the increased net rental income, net of increased finance expenses. The more volatile measure of total earnings per share which includes unrealised valuation gains was 44.3p (2015 64.2p).

At 30 June 2016 the cash position was £6,706,000 (2015 £2,010,000), our medium term loans totalled £11,500,000 (2015 £11,500,000) resulting in a net gearing level of 9% (2015 19%).

Dividend

I am pleased to report that we will propose an interim property income distribution of 15.0p (2015 14.3p) per share, payable on 14 October 2016 to shareholders on the register at 16 September 2016 (with an ex dividend date of 15 September 2016).

Outlook

One lease renewal has been completed after the period end and this, together with those completed in the first half of 2016, should enable us to increase the underlying gross rental income in the second half of 2016. However, profits on capital activities may be affected in the second half of the year due to the uncertainties arising in this post referendum period.

Following the vote for 'Brexit' the property market would appear to have polarised. Whilst the large open-ended funds and institutions are facing cash calls from investors, and therefore seek to urgently sell substantial amounts of property, the small company and private investor market is still very acquisitive and is as strong as ever. Our own requirements fall into this latter category which is making it competitive for us to secure suitable investments.  However, having been somewhat cautious since the middle of 2015, when faced with a paucity of suitable properties which fitted our quality and price criteria, we are, I believe, well placed in terms of liquidity and low gearing to take advantage of any purchasing opportunities that may arise in this post referendum period.

Given the subdued outlook for interest rates in both the short and long dated ends of the market, we would consider raising our level of gearing, if opportunities arise, to increase the quality and yield of our portfolio.  

 

John Hewitt
Chairman
27 July 2016

 

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

 

 

For further information, contact:

Highcroft Investments PLC

John Hewitt/Roberta Miles                +44 (0)1865 840023

 

Panmure Gordon (UK) Limited

Karri Vuori/Fabien Holler                 +44 (0)20 7886 2500



 

 

Condensed consolidated interim statement of comprehensive income (unaudited) 

for the six months ended 30 June 2016



Unaudited

Unaudited

Audited



First half 2016

First half 2015

Full year 2015


Note

Revenue

£'000

Capital

£'000

Total

£'000

Revenue

£'000

Capital

£'000

Total

£'000

Revenue

£'000

Capital

£'000

Total

£'000

Continuing operations











Gross rental income


1,867

-

1,867

1,585

-

1,585

3,435

-

3,435

Property operating expenses


(92)

-

(92)

(191)

-

(191)

(329)

-

(329)

Net rental income


1,775

-

1,775

1,394

-

1,394

3,106

-

3,106

Realised gains on investment property


127

-

127

22

-

22

418

-

418

Realised losses on investment property


-

-

-

-

-

-

-

-

-

Net gain on disposal of investment property


127

-

127

22

-

22

418

-

418

Valuation gains on investment property


-

778

778

-

2,329

2,329

-

4,840

4,840

Valuation losses on investment property


-

(165)

(165)

-

-

-

-

(75)

(75)

Net valuation gains on investment property


-

613

613

-

2,329

2,329

-

4,765

4,765

Dividend income


73

-

73

87

-

87

182

-

182

Gains on investments


3

294

297

4

52

56

-

87

87

Losses on investments


(16)

(94)

(110)

(16)

(262)

(278)

-

(502)

(502)

Net investment income/(loss)


60

200

260

75

(210)

(135)

182

(415)

(233)

Administrative expenses


(323)

-

(323)

(243)

-

(243)

(533)

-

(533)

Operating profit before net financing costs


1,639

813

2,452

1,248

2,119

3,367

3,173

4,350

7,523

Finance income


8

-

8

3

-

3

7

-

7

Finance expenses


(235)

-

(235)

(128)

-

(128)

(365)

-

(365)

Net finance costs


(227)

-

(227)

(125)

-

(125)

(358)

-

(358)

Profit before tax


1,412

813

2,225

1,123

2,119

3,242

2,815

4,350

7,165

Income tax credit

4

60

3

63

70

3

73

56

14

70

Total profit and comprehensive income for the financial period


1,472

816

2,288

1,193

2,122

3,315

2,871

4,364

7,235

Basic and diluted earnings
per share

6

28.4p

15.9p

44.3p

23.1p

41.1p

64.2p

55.6p

84.4p

140.0p

 

 

 

Condensed consolidated interim statement of financial position (unaudited) 

as at 30 June 2016


Note

Unaudited

30 June

2016

£'000

Unaudited

30 June

2015

£'000

Audited

31 December

2015

£'000

Assets





Investment property

7

57,240

57,022

57,964

Equity investments

8

2,851

3,695

3,155

Total non-current assets


60,091

60,717

61,119

Current assets





Trade and other receivables


723

612

641

Cash at bank and in hand


6,706

2,010

4,852

Total current assets


7,429

2,622

5,493

Total assets


67,520

63,339

66,612

Liabilities





Current liabilities





Current corporation tax


-

5

-

Trade and other payables


1,613

1,570

1,664

Total current liabilities


1,613

1,575

1,664

Non-current liabilities





Interest-bearing loans and borrowings

9

11,500

11,500

11,500

Deferred tax liabilities


362

423

425

Total non-current liabilities


11,862

11,923

11,925

Total liabilities


13,475

13,498

13,589

Net assets


54,045

49,841

53,023

Equity





Issued share capital


1,292

1,292

1,292

Revaluation reserve - property


15,392

13,661

14,764

Revaluation reserve - other


465

785

667

Capital redemption reserve


95

95

95

Realised capital reserve


26,109

25,137

25,586

Retained earnings


10,692

8,871

10,619

Total equity


54,045

49,841

53,023

 

 

 

Condensed consolidated interim statement of changes in equity

for the six months ended 30 June 2016

First half 2016 - Unaudited


Equity

£'000

Revaluation reserves

Capital

redemption

£'000

Realised

capital

£'000

Retained

earnings

£'000

Total

£'000


Property

£'000

Other

£'000

At 1 January 2016

1,292

14,764

667

95

25,586

10,619

53,023

Dividends

-

-

-

-

-

(1,266)

(1,266)

Reserve transfers:








Non-distributable items recognised in income statement:








Revaluation gains

-

613

200

-

-

(813)

-

Tax on revaluation gains/(losses)

-

-

-

-

-

-

-

Realised gains

-

-

-

-

116

(116)

-

Surplus attributable to assets sold

-

-

(407)

-

407

-

-

Excess of cost over revalued amount taken to retained earnings

-

15

5

-

-

(20)

-

Transactions with owners

-

628

(202)

-

523

(2,215)

(1,266)

Profit and total comprehensive income for the period

-

-

-

-

-

2,288

2,288

At 30 June 2016

1,292

15,392

465

95

26,109

10,692

54,045

 

First half 2015 - Unaudited


Equity

£'000

Revaluation reserves

Capital

redemption

£'000

Realised

capital

£'000

Retained

earnings

£'000

Total

£'000


Property

£'000

Other

£'000

At 1 January 2015

1,292

11,332

1,335

95

24,785

8,863

47,702

Dividends

-

-

-

-

-

(1,176)

(1,176)

Reserve transfers:








Non-distributable items recognised in income statement:








Revaluation gains/(losses)

-

2,329

(210)

-

-

(2,119)

-

Tax on revaluation gains/(losses)

-

-

-

-

-

-

-

Realised gains

-

-

-

-

12

(12)

-

Surplus attributable to assets sold

-

-

(340)

-

340

-

-

Excess of cost over revalued amount taken to retained earnings

-

-

-

-

-

-

-

Transactions with owners

-

2,329

(550)

-

352

(3,307)

(1,176)

Profit and total comprehensive income for the period

-

-

-

-

-

3,315

3,315

At 30 June 2015

1,292

13,661

785

95

25,137

8,871

49,841

 

 

Condensed consolidated interim statement of


changes in equity
for the six months ended 30 June 2016 (continued)

 

Full year 2015 - Audited


Equity

£'000

Revaluation reserves

Capital

redemption

£'000

Realised

capital

£'000

Retained

earnings

£'000

Total

£'000


Property

£'000

Other

£'000

At 1 January 2015

1,292

11,332

1,335

95

24,785

8,863

47,702

Dividends

-

-

-

-

-

(1,914)

(1,914)

Reserve transfers:








Non-distributable items recognised in income statement:








Revaluation gains/(losses)

-

4,765

(278)

-

-

(4,487)

-

Tax on revaluation gains/(losses)

-

-

14

-

-

(14)

-

Realised gains

-

-

-

-

364

(364)

-

(Surplus)/deficit attributable to assets sold

-

(33)

(404)

-

437

-

-

Excess of cost over revalued amount taken to retained earnings

-

(1,300)

-

-

-

1,300

-

Transactions with owners

-

3,432

(668)

-

801

(5,479)

(1,914)

Profit and total comprehensive income for the period

-

-

-

-

-

7,235

7,235

At 31 December 2015

1,292

14,764

667

95

25,586

10,619

53,023

 

 

Condensed consolidated interim statement of cash flows

for the six months ended 30 June 2016

 


Unaudited

First half

2016

£'000

Unaudited

First half

2015

£'000

Audited

Full year

2015

£'000

Operating activities




Profit before tax for the period

2,225

3,242

7,165

Adjustments for:




Net valuation gains on investment property

(613)

(2,329)

(4,765)

Gain on disposal of investment property

(127)

(22)

(418)

Net (gains)/losses on investments

(187)

222

415

Finance income

(8)

(3)

(7)

Finance expense

235

128

365

Operating cash flow before changes in working capital and provisions

1,525

1,238

2,755

Increase in trade and other receivables

(82)

(197)

(226)

(Decrease)/increase in trade and other payables

(50)

263

352

Cash generated from operations

1,393

1,304

2,881

Finance income

8

3

7

Finance expense

(235)

(128)

(365)

Income tax paid

-

-

-

Net cash flows from operating activities

1,166

1,179

2,523

Investing activities




Purchase of fixed assets - investment property

-

(8,574)

(8,590)

                                      - equity investments

(3)

(7)

(7)

Sale of fixed assets  - investment property

1,464

426

2,332

                                      - equity investments

493

623

969

Net cash flows from investing activities

1,954

(7,532)

(5,296)

Financing activities




New bank borrowings

-

7,500

7,500

Dividends paid

(1,266)

(1,176)

(1,914)

Net cash flows from financing activities

(1,266)

6,324

5,586

Net increase/(decrease) in cash and cash equivalents

1,854

(29)

2,813

Cash and cash equivalents at 1 January

4,852

2,039

2,039

Cash and cash equivalents at period end

6,706

2,010

4,852

 

 

 

Notes (Unaudited)

for the six months ended 30 June 2016

1.   Nature of operations and general information

Highcroft Investments PLC ('Highcroft') and its subsidiaries' (together 'the group') principal activity is investment in property and equities. It is incorporated and domiciled in Great Britain. The address of Highcroft's registered office, which is also its principal place of business, is Thomas House, Langford Locks, Kidlington, OX5 1HR. Highcroft's condensed consolidated interim financial statements are presented in Pounds Sterling (£), which is also the functional currency of the group. These condensed consolidated interim financial statements have been approved for issue by the directors on 27 July 2016. The financial information for the period ended 30 June 2016 set out in this interim report does not constitute statutory accounts as defined in Section 404 of the Companies Act 2006. The group's statutory financial statements for the year ended 31 December 2015 have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain statements under Section 498(2) or Section 498(5) of the Companies Act 2006.

2.  Basis of preparation

These condensed consolidated interim financial statements are for the six months ended 30 June 2016. They have been prepared in accordance with IAS 34, Interim Financial Reporting. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the group for the year ended 31 December 2015.

These condensed consolidated interim financial statements have been prepared under the historical cost convention, as modified by the revaluation of investment properties and the measurement of equity investments at fair value. These condensed consolidated interim financial statements have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year to 31 December 2015.

The accounting policies have been applied consistently throughout the group for the purposes of preparation of these condensed consolidated interim financial statements.

The financial statements are drawn up on a going concern basis.  The directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future, and consider that there are no material uncertainties that lead to significant doubt upon the group's ability to continue as a going concern.  Cash flow forecasts are prepared annually as part of the planning and budgeting process and are monitored and reworked regularly.  The group has fixed-term non amortising borrowing and has additional headroom available.  In addition the group has relatively liquid assets in the form of listed equity investments on which it can draw if necessary.


3.  Segment reporting

Segmental information is presented in the condensed consolidated interim financial statements in respect of the group's business segments. The business segment reporting format reflects the group's management and internal reporting structure. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. All gross income is from external tenants or external investments.

The group is comprised of the following main business segments:

·      Commercial property comprising retail outlets, offices, warehouses and retail warehouses in England and Wales

·      Residential property comprising a single-let house and flats in England

·      Financial assets comprising exchange-traded equity investments.

 

 

 

 

 

3.  Segment reporting (continued)


First half

2016

£'000

First half

2015

£'000

Full year

2015

£'000

Commercial property




Gross income

1,855

1,564

3,402

Profit for the period

1,844

3,098

7,297

Assets

64,287

58,456

60,192

Liabilities

12,798

12,798

12,821

Residential property




Gross income

12

21

33

Profit for the period

133

293

131

Assets

375

1,182

460

Liabilities

-

-

-

Financial assets




Gross income

73

87

182

Profit/(loss) for the period

330

(76)

(193)

Assets

2,858

3,701

5,960

Liabilities

677

699

768

Total




Gross income

1,940

1,672

3,617

Profit for the period

2,307

3,315

7,235

Assets

67,520

63,339

66,612

Liabilities

13,475

13,497

13,589

 

In 2016 the largest tenant represented 10% (2015 12%) and the second largest tenant represented 9% (2015 11%) of gross commercial property income for the period.

 

4.   Income tax (credit)/expense


First half

2016

£'000

First half

2015

£'000

Full year

2015

£'000

Current tax:




On revenue profits

(60)

(70)

(13)

On capital profits

(3)

(3)

(43)


(63)

(73)

(56)

Deferred tax

-

-

(14)


(63)

(73)

(70)

The taxation charge has been based on the estimated effective tax rate for the full year. As a Real Estate Investment Trust the group does not pay corporation tax on its profits and gains from its commercial and residential property activities.

 

 

 

5.  Dividends

On 27 July 2016, the directors declared a property income distribution of 15.0p per share (2015 14.3p per share) payable on 14 October 2016 to shareholders registered at 16 September 2016.

The following property income distributions have been paid by the company:


First half

2016

£'000

First half

2015

£'000

Full year

2015

£'000

2015 final: 24.50p per ordinary share (2014 final 22.75p)

1,266

1,176

1,176

2015 interim: 14.30p per ordinary share

-

-

738


1,266

1,176

1,914

6.  Earnings per share

The calculation of earnings per share is based on the profit for the period of £2,288,000 (2015 £3,315,000) and on 5,167,240 shares (2015 5,167,240) which is the weighted average number of shares in issue during the period ended 30 June 2016 and throughout the period since 1 January 2015.

In order to draw attention to the impact of valuation gains and losses which are included in the income statement 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 £1,472,000 (2015 £1,193,000) has been calculated.


First half

2016

£'000

First half

2015

£'000

Full year

2015

£'000

Earnings:




Basic earnings

2,288

3,315

7,235

Adjustments for:




Net valuation profits on investment property

(613)

(2,329)

(4,765)

Gains and losses on investments

(200)

210

415

Income tax on gains and losses

(3)

(3)

(14)

Adjusted earnings

1,472

1,193

2,871

Per share amount:




Basic earnings per share

44.3p

64.2p

140.0p

Adjustments for:




Net valuation gains on investment property

(11.9p)

(45.1p)

(92.2p)

Gains and losses on investments

(3.9p)

4.1p

8.0p

Income tax on gains and losses

(0.1p)

(0.1p)

(0.2p)

Adjusted earnings per share

28.4p

23.1p

55.6p

 

7.   Investment property

 


First half

2016

£'000

First half

2015

£'000

Full year

2015

£'000

Valuation at 1 January

57,964

46,523

46,523

Additions

-

8,574

8,590

Disposals

(1,337)

(404)

(1,914)

Gain on revaluation

613

2,329

4,765

Valuation at period end

57,240

57,022

57,964

 

The directors have used an external independent valuation of properties at 30 June 2016 which has been carried out consistently with the annual valuation.

8.  Equity investments


First half

2016

£'000

First half

2015

£'000

Full year

2015

£'000

Valuation at 1 January

3,155

4,532

4,532

Additions

3

7

7

Disposals

(507)

(634)

(1,038)

Surplus/(deficit) on revaluation in excess of cost

206

(210)

(277)

Revaluation decrease below cost

(32)

(16)

(71)

Revaluation increase still below cost

26

16

2

Valuation at period end

2,851

3,695

3,155

 

9.  Interest bearing loans


First half

2016

£'000

First half

2015

£'000

Full year

2015

£'000

Medium term loans

11,500

11,500

11,500

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




Between two and five years

4,000

-

4,000

Over five years

7,500

11,500

7,500

 

The debt is secured on certain assets within the group's property portfolio.

 

10. Related party transactions

Kingerlee Holdings Limited owns, through its wholly owned subsidiaries, 27.2% (2015 27.2%) of the company's shares and D H Kingerlee is a director of both the company and Kingerlee Holdings Limited.

During the period, the group made purchases from Kingerlee Limited a subsidiary of Kingerlee Holdings Limited, being a service charge in relation to services at Thomas House, Kidlington of £7,000 (2015 £7,000). The amount owed at 30 June 2016 was nil (2015 nil). All transactions were undertaken on an arm's length basis.

 

 

11. Net assets per share


First half

2016

First half

2015

Full year

2015

Net assets

£54,045,000

£49,841,000

£53,023,000

Ordinary shares in issue

5,167,240

5,167,240

5,167,240

Basic net assets per share

1046p

965p

1026p

 

Statement of directors' responsibilities

The directors confirm that, to the best of their knowledge, this condensed consolidated set of half-year financial statements has been prepared in accordance with IAS 34. The half-year management report includes a fair review of the information required by 4.2.7 and 4.2.8 of the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority, namely:

·      an indication of the important events that have occurred during the first six months of the financial year ending 31 December 2016 and their impact on the condensed consolidated set of half-year financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      disclosure of material related party transactions in the first six months of the financial year, and any material changes in the related party transactions described in the last annual report.

 A list of current directors is maintained on the Highcroft Investments PLC website: www.highcroftplc.com.

By order of the board

John Hewitt
Chairman
27 July 2016

 


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