HIGHCROFT INVESTMENTS PLC

Earnings Release • Mar 27, 2014

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RNS Number : 2877D

Highcroft Investments PLC

27 March 2014

Highcroft Investments PLC

Preliminary results for the year ended 31 December 2013

KEY HIGHLIGHTS

·      Gross property income increased by 16% to £2,731,000

·      Total profit for the year up 35% to £4,856,000

·      Unadjusted earnings per share up 35% to 94.0p

·      Net asset value per share up 8% to 821p (2012 759p)

·      Total property income distribution up 6.1% to 33.75p per share

·      Medium term debt £4,000,000 (2012 nil)

·      Cash and liquid equity investments £8,355,000 (2012 £8,987,000)

Dear Shareholder,

I am pleased to announce our preliminary results for the year ended 31 December 2013 and to invite you to our Annual General Meeting on 16 May 2014.

Results for the year

I am delighted to report that we have made further progress both in operating profits from our property portfolio, and through returns from the sale of property assets and realisations from our equity portfolio.

Property:  Our gross property rental income rose 16% to £2,731,000 (2012 £2,351,000), with all of this increase being due to the performance of our commercial portfolio.  This growth includes the effect of a full year's income from the warehouse unit in Bedford purchased in August 2012 and from our warehouse unit in Milton Keynes purchased in November 2012. In addition, two new units were purchased in the year.  The first was a retail warehouse property in Bicester let to Wickes Building Supplies Limited and the second a modern office investment in Cardiff let to Arriva Trains Limited.  We have been very pleased with the performance of the portfolio with the only void, arising at the year end, being a single floor of our office building in Bristol. There were no bad debts in the period.  The sale of two of our smaller assets at auction in December 2013 yielded total gross proceeds of £2,370,000 that were 31% in excess of the June 2013 valuations.  The intention is to reinvest these funds into a mixture of both secure income assets and assets which offer the opportunity for further enhancement thus providing both capital and income growth. We have been successful at identifying property investments at attractive yields that sit between private investors and larger corporate property investors and intend to continue taking advantage of our strong financial position and ability to move fast to exploit  such opportunities. The property portfolio showed a net valuation gain of £1,243,000 for the year.  Since the year end we have sold one of our residential properties at its year end valuation.

Equities: Our income of £234,000, coupled with a realised net gain of £146,000 and an unrealised net gain of £623,000, are a result of the strength of our portfolio, and we have outperformed the Wealth Managers Association balanced index by 3%.  We released £1,175,000 in net cash from this portfolio during the year.

Administrative expenses: Our ongoingadministrative expenses increased by 11% in 2013, due primarily to the cost of a handover period for our incoming chief executive. Our costs remain tightly controlled as evidenced by their average increase of only 1.5% pa over the last three years.

Financial highlights:  Our total profit for the year showed a 35% improvement on 2012, driven particularly by the capital performance of our property and equity investment portfolios.  Our profit on revenue activities reduced to £2,921,000 (2012 £3,720,000) as the 2012 performance was significantly affected by the realised gains on investment property of £1,552,000.  Excluding these realised gains on investment property, the underlying profit on revenue activities rose by 16%. Our year end net asset value per share increased to 821p (2012 759p).  Our year end cash position was £3,128,000 (2012 £3,274,000), whilst readily realisable equity investments totalled £5,227,000 (2012 £5,713,000).  During the year we took out two medium term loans and the year end balance was £4,000,000 (2012 nil)

Dividend

We are recommending a final dividend of 21.25p per share (2012 19.80p) to be paid on 30 May 2014 to shareholders registered on 2 May 2014, making a total of 33.75p for the year (2012 31.80p). This increase of 6% for the year continues our recent record of dividend increases well in excess of inflation.

Board

As you are aware Jonathan Kingerlee retired from the Board on 31 July 2013 after 18 years. We are very grateful to Jonathan for his loyal service and contribution to the group.  Simon Gill joined the board on 1 April 2013 as property director, bringing with him a wealth of experience in the property sector. Simon also assumed the role of chief executive upon Jonathan's retirement and has been instrumental in driving the group's recent active acquisition strategy.

Outlook

We are very pleased with the results for the year and remain optimistic that we start 2014 from a position of strength upon which we hope to build through further attractive acquisitions.  We have set ourselves some challenging objectives for 2014 and we expect that our actions will continue to improve shareholder value via increased dividends and asset values.

J HEWITT

Chairman                                                                                                                       

26 March 2014

Enquiries:

Highcroft Investments PLC

John Hewitt / Roberta Miles                01865 840023

Charles Stanley Securities

Dugald J. Carlean / Karri Vuori           0207 149 6000

Consolidated statement of comprehensive income

for the year ended 31 December 2013

	Note		2013			2012
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Gross rental revenue		2,731	-	2,731	2,351	-	2,351
Property operating expenses		(151)	-	(151)	(184)	-	(184)
Net rental income		2,580	-	2,580	2,167	-	2,167
Realised gains on investment property		415	-	415	1,552	-	1,552
Realised losses on investment property		-	-	-	-	-	-
Net gains on investment property		1,552	-	1,552	1,552	-	1,552
Valuation gains on investment property		-	1,833	1,833	-	1,769	1,769
Valuation losses on investment property		-	(590)	(590)	-	(2,355)	(2,355)
Net valuation gains/(losses) on investment property		-	1,243	1,243	-	(586)	(586)
Dividend revenue		234	-	234	251	-	251
Gains on equity  investments		-	832	832	-	677	677
Losses on equity investments		-	(63)	(63)	-	(179)	(179)
Net investment income/(expense)		234	769	1,003	251	498	749
Administration expenses		(345)	-	(345)	(311)	-	(311)
Net operating profit before net finance income		2.884	2,012	4,896	3,659	(88)	3,571
Finance income		7	-	7	8	-	8
Finance expense		(61)	-	(61)	8	-	8
Net finance (expense)/income		(54)	-	(54)	8	-	8
Profit/(loss) before tax		2,830	2,012	4,842	3,667	(88)	3,579
Income tax credit/(expense)	1	91	(77)	14	53	(38)	15
Total profit and comprehensive income for the year		2,921	1,935	4,856	3,720	(126)	3,594
Basic and diluted earnings per share	3	56.5p	37.5p	94.0p	72.0p	(2.5p)	69.6p

Consolidated statement of financial position

at 31 December 2013

	Note	2013	2012
		£'000	£'000
Assets
Non-current assets
Investment property	4	39,415	31,609
Equity investments	5	5,227	5,713
Total non-current assets		44,642	37,322
Current assets
Trade and other receivables		422	254
Cash and cash equivalents		3,128	3,274
Total current assets		3,550	3,528
Total assets		48,192	40,850
Liabilities
Current liabilities
Current income tax		-	-
Trade and other payables		1,160	1,000
# Total current liabilities		1,160	1,000
Non-current liabilities
Interest bearing loan	6	4,000	-
Deferred tax liabilities		604	609
Total non-current liabilities		4,604	609
Total liabilities		5,764	1,609
Net assets		42,428	39,241
Equity
Issued share capital		1,292	1,292
Revaluation reserve - property		7,353	7,050
- other		1,972	1,746
Capital redemption reserve		95	95
Realised capital reserve		24,220	22,366
Retained earnings		7,496	6,692
Total equity		42,428	39,241

Consolidated statement of changes in equity

2013	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 2013	1,292	7,050	1,746	95	22,366	6,692	39,241
Dividends	-	-	-	-	-	(1,669)	(1,669)
Reserve transfers:
Non-distributable items recognised in income statement:
Revaluation gains	-	1,243	610	-	-	(1,853)	-
Tax on revaluation gains/(losses)	-	-	(43)	-	-	43	-
Realised gains	-	-	-	-	527	(527)	-
Surplus attributable to assets sold in the year	-	(986)	(341)	-	1,327	-	-
Excess of cost over revalued amount taken to retained earnings	-	46	-	-	-	(46)	-
Transactions with owners	-	303	226	-	1,854	(4,052)	(1,669)
Profit and total comprehensive income for the year	-	-	-	-	-	4,856	4,856
At 31 December 2013	1,292	7,353	1,972	95	24,220	7,496	42,428

2012	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 2012	1,292	4,904	1,592	95	21,428	7,912	37,223
Dividends	-	-	-	-	-	(1,576)	(1,576)
Reserve transfers:
Non-distributable items recognised in income statement:
Revaluation losses	-	(586)	416	-	-	170	-
Tax on revaluation gains/(losses)	-	-	(20)	-	-	20	-
Realised gains	-	-	-	-	1,608	(1,608)	-
Surplus attributable to assets sold in the year	-	912	(242)	-	(670)	-	-
Excess of cost over revalued amount taken to retained earnings	-	1,820	-	-	-	(1,820)	-
Transactions with owners	-	2,146	154	-	938	(4,814)	(1,576)
Profit and total comprehensive income for the year	-	-	-	-	-	3,594	3,594
At 31 December 2012	1,292	7,050	1,746	95	22,366	6,692	39,241

Consolidated statement of cash flows

for the year ended 31 December 2013

	2013		2012
	£'000		£'000
Operating activities
Profit for the year	4,856		3,594
Adjustments for:
Net valuation (gains)/losses on investment property	(1,243)		586
Gain on disposal of investment property	(415)		(1,552)
(Gain)/loss on investments	(769)		(498)
Finance income	(7)		(8)
Finance expense	61		-
Income tax credit	(14)		(15)
Operating cash flow before changes in working capital and provisions	2,469		2,107
Increase in trade and other receivables	(168)		(37)
Increase/(decrease) in trade and other payables	126		319
Cash generated from operations	2,427		2,389
Finance income	7		8
Finance expense	(27)		-
Income taxes received	7		-
Net cash flows from operating activities	2,414		2,397
Investing activities
Purchase of non-current assets - investment property	(8,488)		(4,827)
- equity investments	(125)		(540)
Sale of non-current assets        - investment property	2,340		4,972
- equity investments	1,382		922
Net cash flows from investing activities	(4,891)		527
Financing activities
Dividends paid	(1,669)		(1,576)
New bank borrowings	4,000		-
Net cash flows from financing activities	2,331		(1,576)
Net (decrease)/increase in cash and cash equivalents	(146)		1,348
Cash and cash equivalents at 1 January 2012	3,274		1,926
Cash and cash equivalents at 31 December 2012	3,128		3,274

Notes

for the year ended 31 December 2013

1 Income tax credit

	2013	2012
	£'000	£'000
Current tax:
On revenue profits	(82)	(53)
On capital profits	34	18
Prior year overprovision	(9)	-
	(57)	(35)
Deferred tax	43	20
Income tax credit	(14)	(15)

The tax assessed for the year differs from the standard rate of corporation tax in the UK of 23.25% (2012 24.5%). 

The differences are explained as follows:

	2013	2012
	£'000	£'000
Profit before tax	4,842	3,579
Profit before tax multiplied by the standard rate of corporation tax in the UK of 23.25% (2012 24.5%)	1,126	877
Effect of:
Tax exempt revenues	(199)	(62)
Profit not taxable as a result of REIT status	(985)	(768)
Chargeable gains/losses less/(more) than accounting profit	48	10
Losses carried forward	12	(22)
Effect of change in tax rate on deferred tax liability	(7)	(50)
Adjustments to tax charge in respect of prior periods	(9)	-
Income tax credit	(14)	(15)

2 Dividends

In 2013 the following dividends have been paid by the company:

	2013	2012
	£'000	£'000
2012 Final: 19.8p per ordinary share (2011 18.5p)	1,023	956
2013 Interim: 12.5p per ordinary share (2012 12.0p)	646	620
	1,669	1,576

On 26 March 2014 the directors declared a property income distribution of £1,098,000, 21.25p per share (2012 £1,023000, 19.80p per share) payable on 30 May 2014 to shareholders registered at 2 May 2014.

3 Earnings per share

The calculation of earnings per share is based on the total profit for the year of £4,856,000 (2012 £3,594,000) and on 5,167,240 shares (2012 5,167,240) which is the weighted average number of shares in issue during the year ended 31 December 2013 and throughout the period since 1 January 2013.  There are no dilutive instruments.

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 £2,921,000 (2012 £3,720,000) has been calculated.

	2013	2012
	£'000	£'000
Earnings:
Basic profit for the year	4,856	3,594
Adjustments for:
Net valuation (gains)/losses on investment property	(1,243)	586
Gains on investments	(769)	(498)
Income tax on gains/(losses)	77	38
Adjusted earnings	2,921	3,720
Per share amount:
Earnings per share (unadjusted)	94.0p	69.6p
Adjustments for:
Net valuation (gains)/losses on investment property	(24.1p)	11.3p
Gains on investments	(14.9p)	(9.6p)
Income tax on gains	1.5p	0.7p
Adjusted earnings per share	56.5p	72.0p

4 Investment property

		2013	2012
		£'000	£'000
Valuation at 1 January		31,609	30,787
Additions		8,488	4,827
Disposals		(1,925)	(3,419)
Revaluation (losses)/gains		1,243	(586)
Valuation at 31 December		39,415	31,609

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 2013, 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

	2013	2012
	£'000	£'000
Valuation at 1 January	5,713	5,598
Additions	127	540
Disposals	(1,236)	(849)
Surplus/(deficit) on revaluation in excess of cost	610	416
Revaluation decrease below cost	(4)	(17)
Revaluation increase still less than cost	17	25
Valuation at 31 December	5,227	5,713

6   Interest bearing loan

	2013	2012
	£'000	£'000
Medium term bank loans	4,000	-
The medium term bank loans comprise amounts falling due as follows:
Between one and two years	-	-
Between two and five years	-	-
Over five years	4,000	-
	4,000	-

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 2012. The accounting policies remain unchanged.

8   Annual General Meeting

The Annual General Meeting will be held on 16 May 2014.

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 2013 on which the auditor has expressed an unqualified 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 17 April 2014 and subsequently filed at Companies House.

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