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Highcroft Investments PLC   -  HCFT   

Preliminary Results

Released 07:00 22-Mar-2019

RNS Number : 6551T
Highcroft Investments PLC
22 March 2019
 

Highcroft Investments PLC

 

Preliminary results for the year ended 31 December 2018

 

 

 

KEY HIGHLIGHTS

 

·      5.8% increase in gross property income to £5,043,000 (2017 £4,765,000)

·      0.8% increase in investment property valuation to £77,700,000 (2017 £77,113,000)

·      Property acquisitions of £5,226,000 (net of costs) and disposal proceeds of £6,145,000

·      4.0% increase in net asset value per share to 1207p (2017 1161p)

·      28.0% decrease in earnings per share to 95.3p (2017 132.3p)

·      34.7% increase in Adjusted earnings per share to 87.3p (2017 64.8p)

·      Medium-term debt unchanged at £19,400,000; net gearing 23% (2017 29%)

·      Cash and liquid equity investments £5,881,000 (2017 £4,035,000)

·      12.5% increase in final dividend to 33.75p per share (2017 30.0p per share)

·      13.5% increase in total dividend to 52.50p per share (2017 46.25p per share)

 

 

 

Dear Shareholder,

 

Introduction

I am very pleased to be delivering another strong set of results. There is no doubt that 2018 has been a year of prolonged political and economic uncertainty, and even against the backdrop of protracted Brexit negotiations the company is reporting continued net property income growth of 7.8%, total shareholder return of 5.2% and a 13.5% increase in the total dividend to 52.50 pence per share.

 

Property portfolio

We purchased one freehold leisure asset during the year. This was financed by a combination of existing cashflow and recycled cash from two property sales and from equity sales. We sold one additional asset in December 2018 at a premium of 34.6% to the June valuation.  This sale at such a significant premium to book value is a reflection of our ability to read the market and move swiftly to capitalise on opportunistic situations when they arise.  At the year-end our portfolio value comprised 72% industrial/retail warehouses, and the remainder split between well-let retail, leisure and offices. We are also pleased to report that we sold our last residential asset during the year. 

 

Gross property rental growth of 5.8% for the year remains robust and follows a particularly strong 2017.  Contracted rent at the year-end was 1.2% up on the previous year-end; however, this was masked by the sale of our Southampton asset close to the year-end with an annual rent of £184,000.  Adjusting back for this would have given an increase of 4.9%.

 

At the year-end we held a cash balance of £5.2m, along with a liquid equity portfolio of £679,000 (sold post year-end for £724,000) and undrawn banking facilities of £10.6m.  This gives the company in excess of £15m capacity to take advantage of opportunities as they arise in 2019.  The company takes a prudent view of bank leverage and, even if fully drawn, this facility would have accounted for less than 35% of the property portfolio value.

 

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 a 4.0% increase in net asset value and an 8.1% return on equity for the year.

 

People

I would like to thank the team for their continued hard work throughout the year during challenging market conditions.  We have a small but dedicated and experienced team at Highcroft and this sets us in good stead for the year ahead.  The board supports the principles of good corporate governance, so, in order to ensure that we comply insofar as is practicable with the principles of the 2018 UK Corporate Governance Code, we are proposing to introduce a new incentive plan for the executive directors in order to further align their interests with those of the shareholders.

 

Dividend

The company's interim dividend was increased by 15.4% and, because of good revenue growth, efficient use of debt and containing our administration costs, we have increased the final dividend to 33.75 pence per share giving a total dividend of 52.50 pence per share, an increase of 13.5%.  Our stated strategy is to increase dividends in excess of inflation each year and I am pleased to say we have delivered this every year since we converted to a REIT.

 

 

Outlook

Highcroft is well-positioned with a high quality income-producing portfolio. However, we expect 2019 to be another challenging year.  We operate in a very competitive landscape with continuing political and economic uncertainty, particularly around Brexit and its potential effects on market sentiment and tenants' ability to continue to pay our rents.  We therefore remain cautious and diligent in our approach to 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        

 

 

 

22 March 2019

 

Enquiries:

 

Highcroft Investments PLC

Charles Butler / Roberta Miles

01865 840023

 

Panmure Gordon (UK) Limited

Fabien Holler

0207 886 2500

 

 

 

Consolidated statement of comprehensive income

for the year ended 31 December 2018

 

 

 

 

Note

 

2018

 

 

2017

 

 

 

Revenue

Capital

Total

Revenue

Capital

Total

 

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

Gross rental revenue

 

5,043

-

5,043

4,765

-

4,765

Property operating expenses

 

(184)

-

(184)

(259)

-

(259)

Net rental income

 

4,859

-

4,859

4,506

-

4,506

 

Net gains on disposal of investment property

 

 

967

 

-

 

967

 

1

 

-

 

1

 

 

 

 

 

 

 

 

Valuation gains on investment property

 

-

2,600

2,600

-

3,365

3,365

Valuation losses on investment property

 

-

(2,116)

(2,116)

-

(77)

(77)

Net valuation gains on investment property

 

-

484

484

-

3,288

3,288

 

 

 

 

 

 

 

 

Dividend revenue

 

54

-

54

92

-

92

Gains on equity  investments

 

-

48

48

-

230

230

Losses on equity investments

 

-

(166)

(166)

-

(91)

(91)

Net investment income

 

54

(118)

(64)

92

139

231

 

 

 

 

 

 

 

 

Administration expenses

 

(736)

-

(736)

(663)

-

(663)

Net operating profit before net finance income

 

5,144

366

5,510

3,936

3,427

7,363

 

 

 

 

 

 

 

 

Finance income

 

6

-

6

2

-

2

Finance expense

 

(705)

-

(705)

(651)

-

(651)

Net finance expense

 

(699)

-

(699)

(649)

-

(649)

 

 

 

 

 

 

 

 

Profit before tax

 

4,445

 

366

4,811

3,287

 

3,427

6,714

 

 

 

 

 

 

 

 

Income tax credit

1

67

48

115

61

60

121

 

 

 

 

 

 

 

 

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

 

4,512

414

4,926

3,348

3,487

6,835

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share

 

 

 

95.3p

 

 

132.3p

 

 

 

Consolidated statement of financial position

at 31 December 2018

 

 

 

 

 

 

Note

2018

2017

 

 

£'000

£'000

Assets

 

 

 

Non-current assets

 

 

 

Investment property

4

77,700

76,315

Equity investments

5

679

2,131

Total non-current assets

 

78,379

78,446

 

 

 

 

Current assets

 

 

 

Investment property

 

-

798

Trade and other receivables

 

471

537

Cash and cash equivalents

 

5,202

1,904

Total current assets

 

5,673

3,239

 

 

 

 

Total assets

 

84,052

81,685

 

 

 

 

Liabilities

 

 

 

Current liabilities

 

 

 

Trade and other payables

 

2,235

2,054

Total current liabilities

 

2,235

2,054

 

 

 

 

Non-current liabilities

 

 

 

Interest bearing loan

6

19,400

19,400

Deferred tax liabilities

 

33

254

Total non-current liabilities

 

19,433

19,654

 

 

 

 

Total liabilities

 

21,668

21,708

 

 

 

 

Net assets

 

62,384

59,977

 

 

 

 

Equity

 

 

 

Issued share capital

 

1,292

1,292

Revaluation reserve - property

 

18,770

18,015

                             - other

 

574

538

Capital redemption reserve

 

95

95

Realised capital reserve

 

28,378

26,611

Retained earnings

 

13,275

13,426

Total equity attributable to the owners of the parent

 

62,384

59,977

 

 

 

 

 

Consolidated statement of changes in equity

 

 

 

 

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

 

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 income statement:

 

 

 

 

 

 

 

Revaluation gains

-

3,288

124

-

-

(3,412)

-

Tax on revaluation gains

-

-

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)

-

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

 

 

Consolidated statement of cash flows

 

for the year ended 31 December 2018

 

 

2018

 

2017

 

£'000

 

£'000

 

 

 

 

Operating activities

 

 

 

Profit before tax on ordinary activities

4,811

 

6,714

Adjustments for:

 

 

 

Net valuation gains on investment property

(484)

 

(3,288)

Net gain on disposal of investment property

(967)

 

(1)

Net gain/(loss) on investments

118

 

(139)

Finance income

(6)

 

(2)

Finance expense

705

 

651

Operating cash flow before changes in working capital and provisions

 

4,177

 

 

3,935

 

 

 

 

Decrease in trade and other receivables

66

 

94

Increase in trade and other payables

89

 

196

Cash generated from operations

4,332

 

4,225

 

 

 

 

Finance income

6

 

2

Finance expense

(705)

 

(651)

Income taxes paid

(13)

 

(8)

Net cash flows from operating activities

3,620

 

3,568

 

 

 

 

Investing activities

 

 

 

Purchase of non-current assets - investment property

(5,226)

 

(10,086)

                                              - equity investments

-

 

-

Sale of non-current assets        - investment property

6,090

 

2,259

                                              - equity investments

1,333

 

477

Net cash flows from investing activities

2,197

 

(7,350)

 

 

 

 

Financing activities

 

 

 

Dividends paid

(2,519)

 

(2,183)

New bank borrowings

-

 

4,500

Net cash flows from financing activities

(2,519)

 

2,317

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

3,298

 

(1,465)

Cash and cash equivalents at 1 January

1,904

 

3,369

Cash and cash equivalents at 31 December

5,202

 

1,904

 

 

Notes

for the year ended 31 December 2018

 

1 Income tax credit

 

 

2018

2017

 

£'000

£'000

Current tax:

 

 

On revenue profits

67

61

On capital profits

-

(3)

 

67

58

Deferred tax

48

63

Income tax credit

115

121

 

The tax assessed for the year differs from the standard rate of corporation tax in the UK of 19% (2017 19%). 

The differences are explained as follows:

 

2018

2017

 

£'000

£'000

Profit before tax

4,811

6,714

Profit before tax multiplied by the standard rate of corporation tax in the UK of 19% (2017 19%) 

914

1,276

Effect of:

 

 

Tax exempt revenues

13

(40)

Profit not taxable as a result of REIT status

(1,199)

(1,481)

Chargeable gains more than accounting profit

172

55

Use of management expenses

20

82

Change in deferred tax liability

(48)

(13)

Adjustment in respect of previous years

13

-

Income tax credit

(115)

(121)

 

 

2 Dividends

 

In 2018 the following dividends have been paid by the company:

 

 

2018

2017

 

£'000

£'000

 

 

 

2017 Final: 30.0p per ordinary share (2016 26.0p)

1,550

1,343

2018 Interim: 18.75p per ordinary share (2017 16.25p)

969

840

 

2,519

2,183

 

The directors recommend a property income distribution of £1,744,000, 33.75p per share (2017 £1,550,000, 30.0p per share) payable on 31 May 2019 to shareholders registered at 3 May 2019.

 

 

 

3 Earnings per share

 

The calculation of earnings per share is based on the total profit for the year of £4,926,000 (2017 £6,835,000) and on 5,167,240 shares (2017 5,167,240) which is the weighted average number of shares in issue during the year ended 31 December 2018 and throughout the period since 1 January 2017.  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 £4,512,000 (2017 £3,348,000) has been calculated.

 

 

2018

2017

 

£'000

£'000

Earnings:

 

 

Basic profit for the year

4,926

6,835

Adjustments for:

 

 

Net valuation gains on investment property

(484)

(3,288)

Losses/(gains) on investments

118

(139)

Income tax on (profits)/losses

(48)

(60)

Adjusted earnings

4,512

3,348

Per share amount:

 

 

Earnings per share (unadjusted)

         95.3p

         132.3p

Adjustments for:

 

 

Net valuation gains on investment property

(9.4p)

(63.6p)

Losses/(gains) on investments

2.3p

(2.7p)

Income tax on profit

(0.9p)

(1.2p)

Adjusted earnings per share

87.3p

64.8p

 

4 Investment property

 

 

2018

2017

 

£'000

£'000

Total valuation at 1 January

77,113

65,997

Additions

5,226

10,086

Disposals

(5,123)

(2,258)

Revaluation gains

484

3,288

Valuation at 31 December

77,700

77,113

Less property categorised as current asset

-

(798)

Property categorised as fixed asset

77,700

76,315

 

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 2018, 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.

 

5   Equity investments

 

 

2018

2017

 

£'000

£'000

Valuation at 1 January

2,131

2,469

Disposals

(1,331)

(459)

(Loss)/surplus on revaluation in excess of cost

(121)

124

Revaluation decrease below cost

-

(3)

Valuation at 31 December

679

2,131

 

 

6   Interest bearing loans

 

 

2018

2017

 

£'000

£'000

Medium-term bank loans

19,400

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

4,000

Over five years

7,900

15,400

 

19,400

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 2017.  The accounting policies remain unchanged.

 

 

8   Annual General Meeting

 

The Annual General Meeting will be held on 16 May 2019.

 

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 2018 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 2019 and subsequently filed at Companies House.


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