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RNS
Highcroft Investments PLC  -  HCFT   

Half-year Report

Released 07:00 28-Jul-2017

RNS Number : 3635M
Highcroft Investments PLC
28 July 2017
 

28 July 2017

Highcroft Investments PLC

Interim Report for the six months ended 30 June 2017

Key Highlights:

*Gross rental income increased 20% to £2,238,000 (2016 £1,867,000)

*Net rental income increased 19% to £2,119,000 (2016 £1,775,000)

* No voids in our property portfolio (2016 none)

*Total earnings per share increased 18% to 52.1p (2016 44.3p)

*Net investment in property £7,801,000 (2016 net divestment £1,337,000)

*Property valuation £74,819,000 (2016 £57,240,000) increased 2.0% on a like-for-like basis

*Net assets per share increased 2.4% to 1097p (June 2016 1046p, December 2016 1071p)

*Net debt £18,627,000 (June 2016 £4,794,000, December 2016 £11,531,000)

*Interim property income distribution up 8.3% to 16.25p (2016 15.00p)

 

Dear Shareholder

I am pleased to report continued good trading results for the 6 months ended 30 June 2017.

Gross rental income has increased by 20%, reflecting the benefits arising from the ongoing strategy.  Notwithstanding the likely uncertainties during the Brexit process, our confidence in the group's future is reflected in an interim property income distribution of 16.25p per share - an increase of 8.3% on 2016.  This continues our long-standing policy and record of raising the dividend by more than inflation.

Results for the period

Property

Gross rental income has risen by 20%. This increase reflects the benefit of a full period's income from the Coventry and Grantham properties bought in August 2016, one quarter of income from the Nottingham purchase at the end of March 2017 and one month of income from the St Austell purchase.  These increases have been offset by the reduction in income from the disposal of the properties in Staines in February 2017 and Warwick in December 2016.    In addition, we have benefited from one positive rent review and one lease surrender premium.  As in 2016 we have no voids. Property expenses for the six month period increased to £119,000 (2016 £92,000).  A significant portion of these expenses relates to legal and professional fees that we have incurred in dealing with a leasehold enfranchisement claim at our one remaining residential asset.  This claim failed at Tribunal; however, the leaseholders have exercised their right to appeal and we will continue to incur costs on this exercise.  Other property costs remain tightly controlled.  As reported in the 2016 annual report, we completed on the sale of our Staines unit in February 2017 at a £1,000 profit to the year-end valuation.

The external independent valuation of the property portfolio at 30 June 2017 showed a gain of 2.0% on a like-for-like basis arising, in part, from a positive, backdated, rent review on our office building in Oxford, and from market sentiment lifting the value of the warehouse element of the portfolio. This gain mirrored the performance of the property market in general.  Only one asset showed a loss on valuation and this arose on our Nottingham asset which was valued at cost (net of capitalised purchaser's fees).

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 £74.8 million (2016 £57.2 million).

Equities

Equity markets strengthened in the second half of 2016, and we took advantage of this strength to reduce the portfolio by £0.5m in January 2017 in line with our stated long-term strategy.  As a result, and together with the sales made in 2016, dividend income from the equity portfolio reduced to £38,000 (2016 £73,000).  We raised £477,000 from the sale of equities at a gain of £18,000 to the year-end valuation. There was a net gain on valuation of £69,000 (2016 £200,000) in the half year.  We intend to continue to reduce the equity portfolio in line with our stated strategy.

Financial

Earnings per share on revenue activities increased to 31.1p (2016 28.4p) 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 52.1p (2016 44.3p).

At 30 June 2017 the cash position was £657,000 (2016 £6,706,000), while our medium term loans totalled £19,400,000 (2016 £11,500,000) resulting in a net gearing level of 33% (2016 9%).  In the period we have increased our borrowing by £4,500,000 to purchase the St Austell asset and have also put in place a short-term overdraft facility.  The medium term loans are at fixed rates with a weighted average of 3.64%.

Dividend

I am pleased to report an interim property income distribution of 16.25p (2016 15.00p) per share, payable on 13 October 2017 to shareholders on the register at 15 September 2017 (with an ex-dividend date of 14 September 2017).

Outlook

One lease renewal is in negotiation and this, together with the income arising from the acquisitions completed in the first half of 2017, should enable us to increase underlying gross rental income in the second half of 2017.  In addition we also have five rent reviews in process.  We expect the full year results to continue to reflect the benefits of our strategy.

John Hewitt
Chairman
27 July 2017

 

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 2017



Unaudited

Unaudited

Audited



First half 2017

First half 2016

Full year 2016


Note

Revenue

£'000

Capital

£'000

Total

£'000

Revenue

£'000

Capital

£'000

Total

£'000

Revenue

£'000

Capital

£'000

Total

£'000

Continuing operations











Gross rental income


2,238

-

2,238

1,867

-

1,867

3,906

-

3,906

Property operating expenses


(119)

-

(119)

(92)

-

(92)

(198)

-

(198)

Net rental income


2,119

-

2,119

1,775

-

1,775

3,708

-

3,708

Realised gains on investment property


1

-

1

127

-

127

134

-

134

Realised losses on investment property


-

-

-

-

-

-

-

-

-

Net gain on disposal of investment property


1

-

1

127

-

127

134

-

134

Valuation gains on investment property


-

1,337

1,337

-

778

778

-

2,509

2,509

Valuation losses on investment property


-

(316)

(316)

-

(165)

(165)

-

(1,536)

(1,536)

Net valuation gains on investment property


-

1,021

1,021

-

613

613

-

973

973

Dividend income


38

-

38

73

-

73

144

-

144

Gains on investments


19

137

156

3

294

297

-

546

546

Losses on investments


(1)

(68)

(69)

(16)

(94)

(110)

-

(58)

(58)

Net investment income


56

69

125

60

200

260

144

488

632

Administrative expenses


(339)

-

(339)

(323)

-

(323)

(651)

-

(651)

Operating profit before net financing costs


1,837

1,090

2,927

1,639

813

2,452

3,335

1,461

4,796

Finance income


1

-

1

8

-

8

11

-

11

Finance expenses


(295)

-

(295)

(235)

-

(235)

(506)

-

(506)

Net finance costs


(294)

-

(294)

(227)

-

(227)

(495)

-

(495)

Profit before tax


1,543

1,090

2,633

1,412

813

2,225

2,840

1,461

4,301

Income tax credit

4

64

(4)

60

60

3

63

72

(30)

42

Total profit and comprehensive income for the financial period


1,607

1,086

2,693

1,472

816

2,288

2,912

1,431

4,343

Basic and diluted earnings
per share

6

31.1p

21.0p

52.1p

28.4p

15.9p

44.3p

55.7p

28.3p

84.0p

 

 

 

 

Condensed consolidated interim statement of financial position (unaudited) 

as at 30 June 2017


Note

Unaudited

30 June

2017

£'000

Unaudited

30 June

2016

£'000

Audited

31 December

2016

£'000

Assets





Investment property

7

74,819

57,240

65,997

Equity investments

8

2,079

2,851

2,469

Total non-current assets


76,898

60,091

68,466

Current assets





Trade and other receivables


831

723

631

Cash at bank and in hand


657

6,706

3,369

Total current assets


1,488

7,429

4,000

Total assets


78,386

67,520

72,466

Liabilities





Current liabilities





Current corporation tax


8

-

8

Trade and other payables


1,988

1,613

1,858

Total current liabilities


1,996

1,613

1,866

Non-current liabilities





Interest-bearing loans and borrowings

9

19,400

11,500

14,900

Deferred tax liabilities


315

362

375

Total non-current liabilities


19,715

11,862

15,275

Total liabilities


21,711

13,475

17,141

Net assets


56,675

54,045

55,325

Equity





Issued share capital


1,292

1,292

1,292

Revaluation reserve - property


15,855

15,392

14,276

Revaluation reserve - other


423

465

659

Capital redemption reserve


95

95

95

Realised capital reserve


26,611

26,109

27,020

Retained earnings


12,399

10,692

11,983

Total equity


56,675

54,045

55,325

 

 

Condensed consolidated interim statement of changes in equity

for the six months ended 30 June 2017

First half 2017 - Unaudited


Equity

£'000

Revaluation reserves

Capital

redemption

£'000

Realised

capital

£'000

Retained

earnings

£'000

Total

£'000


Property

£'000

Other

£'000

At 1 January 2017

1,292

14,276

659

95

27,020

11,983

55,325

Dividends

-

-

-

-

-

(1,343)

(1,343)

Reserve transfers:








Non-distributable items recognised in income statement:








Revaluation gains

-

1,021

69

-

-

(1,090)

-

Tax on revaluation gains/(losses)

-

-

-

-

-

-

-

Realised gains

-

-

-

-

16

(16)

-

Surplus attributable to assets sold

-

734

(309)

-

(425)

-

-

Excess of cost over revalued amount taken to retained earnings

-

(176)

4

-

-

172

-

Transactions with owners

-

1,579

(236)

-

(409)

(2,277)

(1,343)

Profit and total comprehensive income for the period

-

-

-

-

-

2,693

2,693

At 30 June 2017

1,292

15,855

423

95

26,611

12,399

56,675

 

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

-

-

-

-

-

-

-

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

 



 

Condensed consolidated interim statement of


changes in equity
for the six months ended 30 June 2017 (continued)

 

Full year 2016 - Audited


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

-

-

-

-

-

(2,041)

(2,041)

Reserve transfers:








Non-distributable items recognised in income statement:








Revaluation gains

-

973

467

-

-

(1,440)

-

Tax on revaluation gains

-

-

(26)

-

-

26

-

Realised gains

-

-

-

-

149

(149)

-

Surplus attributable to assets sold

-

(836)

(449)

-

1,285

-

-

Excess of cost over revalued amount taken to retained earnings

-

(625)

-

-

-

625

-

Transactions with owners

-

(488)

(8)

-

1,434

(2,979)

(2,041)

Profit and total comprehensive income for the period

-

-

-

-

-

4,343

4,343

At 31 December 2016

1,292

14,276

659

95

27,020

11,983

55,325

 

 

 

 

Condensed consolidated interim statement of cash flows

for the six months ended 30 June 2017

 


Unaudited

First half

2017

£'000

Unaudited

First half

2016

£'000

Audited

Full year

2016

£'000

Operating activities




Profit before tax for the period

2,633

2,225

4,301

Adjustments for:




Net valuation gains on investment property

(1,021)

(613)

(973)

Gain on disposal of investment property

(1)

(127)

(134)

Net gains on investments

(87)

(187)

(488)

Finance income

(1)

(8)

(11)

Finance expense

295

235

506

Operating cash flow before changes in working capital and provisions

1,818

1,525

3,201

Increase in trade and other receivables

(200)

(82)

10

Increase/(decrease) in trade and other payables

129

(50)

193

Cash generated from operations

1,747

1,393

3,404

Finance income

1

8

11

Finance expense

(295)

(235)

(506)

Income tax paid

-

-

-

Net cash flows from operating activities

1,453

1,166

2,909

Investing activities




Purchase of fixed assets - investment property

(10,058)

-

(9,896)

                                      - equity investments

-

(3)

(3)

Sale of fixed assets  - investment property

2,258

1,464

2,972

                                      - equity investments

477

493

1,176

Net cash flows from investing activities

(7,323)

1,954

(5,751)

Financing activities




New bank borrowings

4,500

-

3,400

Dividends paid

(1,343)

(1,266)

(2,041)

Net cash flows from financing activities

3,157

(1,266)

1,359

Net (decrease)/increase in cash and cash equivalents

(2,712)

1,854

(1,483)

Cash and cash equivalents at 1 January

3,369

4,852

4,852

Cash and cash equivalents at period end

657

6,706

3,369

 

 



 

 

Notes (Unaudited)

for the six months ended 30 June 2017

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 2017. The financial information for the period ended 30 June 2017 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 2016 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 2017. 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 2016.

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 2016.

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 flats in England

·      Financial assets comprising exchange-traded equity investments.



 

 

 

 

3.  Segment reporting (continued)


First half

2017

£'000

First half

2016

£'000

Full year

2016

£'000

Commercial property




Gross income

2,230

1,855

3,886

Profit for the period

2,562

1,844

3,221

Assets

75,718

64,287

67,858

Liabilities

21,057

12,798

16,378

Residential property




Gross income

8

12

20

(Loss)/profit for the period

(49)

133

473

Assets

584

375

584

Liabilities

1

-

-

Financial assets




Gross income

38

73

144

Profit for the period

180

311

649

Assets

2,084

2,858

4,024

Liabilities

653

677

763

Total




Gross income

2,276

1,940

4,050

Profit for the period

2,693

2,288

4,343

Assets

78,386

67,520

72,466

Liabilities

21,711

13,475

17,141

 

In 2017 the largest tenant represented 9% (2016 10%) and the second largest tenant represented 7% (2016 9%) of gross commercial property income for the period.

 

4.   Income tax (credit)/expense


First half

2017

£'000

First half

2016

£'000

Full year

2016

£'000

Current tax:




On revenue profits

(64)

(60)

12

On capital profits

4

(3)

(80)


(60)

(63)

(68)

Deferred tax

-

-

26


(60)

(63)

(42)

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 2017, the directors declared a property income distribution of 16.25p per share (2016 15.0p per share) payable on 13 October 2017 to shareholders registered at 15 September 2017.

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


First half

2017

£'000

First half

2016

£'000

Full year

2016

£'000

2016 final: 26.0p per ordinary share (2015 final 24.5p)

1,343

1,266

1,266

2016 interim: 15.0p per ordinary share

-

-

775


1,343

1,266

2,041

 

6.  Earnings per share

The calculation of earnings per share is based on the profit for the period of £2,693,000 (2016 £2,288,000) and on 5,167,240 shares (2016 5,167,240) which is the weighted average number of shares in issue during the period ended 30 June 2017 and throughout the period since 1 January 2016.

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 £1,607,000 (2016 £1,472,000) has been calculated.


First half

2017

£'000

First half

2016

£'000

Full year

2016

£'000

Earnings:




Basic earnings

2,693

2,288

4,343

Adjustments for:




Net valuation profits on investment property

(1,021)

(613)

(974)

Gains and losses on investments

(69)

(200)

(488)

Income tax on gains and losses

4

(3)

(4)

Adjusted earnings

1,607

1,472

2,877

Per share amount:




Basic earnings per share

52.1p

44.3p

84.0p

Adjustments for:




Net valuation gains on investment property

(19.8p)

(11.9p)

(18.9p)

Gains and losses on investments

(1.3p)

(3.9p)

9.4p

Income tax on gains and losses

0.1p

(0.1p)

-

Adjusted earnings per share

31.1p

28.4p

55.7p

 

7.   Investment property

 


First half

2017

£'000

First half

2016

£'000

Full year

2016

£'000

Valuation at 1 January

65,997

57,964

57,964

Additions

10,058

-

9,896

Disposals

(2,257)

(1,337)

(2,836)

Gain on revaluation

1,021

613

973

Valuation at period end

74,819

57,240

65,997

 

The directors have used an external independent valuation of properties at 30 June 2017 which has been carried out consistently with the annual valuation.

8.  Equity investments


First half

2017

£'000

First half

2016

£'000

Full year

2016

£'000

Valuation at 1 January

2,469

3,155

3,155

Additions

-

3

3

Disposals

(459)

(507)

(1,159)

Surplus on revaluation in excess of cost

72

206

467

Revaluation decrease below cost

(3)

(32)

(11)

Revaluation increase still below cost

-

26

14

Valuation at period end

2,079

2,851

2,469

 

9.  Interest bearing loans


First half

2017

£'000

First half

2016

£'000

Full year

2016

£'000

Medium term loans

19,400

11,500

14,900

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




Between two and five years

11,500

4,000

4,000

Over five years

7,900

7,500

10,900

 

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% (2016 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 (2016 £7,000) and a recharge of costs of £180 (2016 £nil). The amount owed at 30 June 2017 was £nil (2016 £nil). All transactions were undertaken on an arm's length basis.

 

 

11. Net assets per share


First half

2017

First half

2016

Full year

2016

Net assets

£56,675,000

£54,045,000

£55,325,000

Ordinary shares in issue

5,167,240

5,167,240

5,167,240

Basic net assets per share

1097p

1046p

1071p

 

 

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 2017 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 2017

 

 


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Half-year Report - RNS