Final Results

RNS Number : 7199O

Highcroft Investments PLC

12 March 2009

 



Highcroft Investments PLC

Preliminary results for the year ended 31 December 2008

Key highlights

• Gross property income steady at £2,124,000

• Profit for the year on revenue activities up 23.0% to £1,922,000

• Net asset value per share down 24.2% to 612p

• Basic loss per share on all activities was 179.3p

• Adjusted earnings per share (on revenue activities) was 37.3p

• Total property income distribution 18.4p per share

Enquiries:

John Hewitt, Chairman Highcroft Investments plc	01865 840 023
Philip Davies Charles Stanley Securities	020 7149 6000

Financial results - revenue activities

Profit before taxation on revenue activities increased to £1,889,000 from £1,833,000 in 2007, a rise of 3.3%. Gross income for the year ended 31 December 2008 was £2,574,000 (2007 £2,532,000).   

Underlying commercial property income has fallen because of the voids at Warrington, for half the year, and Yeovil for the whole year. In 2007 these two properties provided a total of £220k in commercial rental income. Underlying commercial property income was boosted by four rent reviews which added £57k in backdated rents to 2008. Commercial property income was also boosted by two dilapidations claims totalling £92k.

2008's residential property income benefited from a full year of occupancy of the flats in Cirencester, though future residential income will be reduced because of the sale of one property in the second quarter.

Property operating expenses are high in 2008 because of the dilapidations expenditure, bad debts and rates on vacant properties.

2008's income from equity investments benefited from more special dividends than 2007 and so we saw an 11% increase.

Financial results - capital activities

Commercial property values were on a downward curve during 2008. While the nature of our portfolio means that the fall in value was less than in the market at large, the fall in several individual values means that a number of properties are valued at less than cost. The reduction in values, which mean ten of our properties are valued below cost, is not expected to be permanent but no-one can predict with certainty how soon and how quickly values will recover.

There was a valuation deficit on the property portfolio of £8,926,000 and, after one disposal, the value of the portfolio was £26.3 million (2007 £35.5 million). 

During the course of 2008 there was a net divestment from the equity investment portfolio of £107,000 (2007 £1,265,000).  Sales of equity investments generated £857,000 (2007 £2,429,000) and realised net losses of £441,000 (2007 £27,000 gains).  Equity markets fell dramatically in 2008 and our portfolio was particularly affected because of our holdings in banks but our portfolio is generally a defensive one and so has still performed better than the market.  At the close of business in 10 March 2009, the equity portfolio was valued at £6.1 million.

Summary

The net asset value per share fell by 24.2% to 612p (2006 807p). Total shareholders funds were £31,604,000 (2007 £41,713,000).

The increase in profit for the year on revenue activities, facilitated by the conversion to a REIT, enables us to pay a total property income distribution of 18.4p per share, of which 7p was paid in October 2008 and 11.4p will be paid on 3 June 2009.  The basic earnings per share, which take account of capital activities, are negative and show a loss per share of 179.3p per share but adjusted earnings per share, adjusted to take out the effect of capital activities, are up 23.5% to 37.3p per share.

Current trading and prospects

Given the present economic environment, the directors are aware of the general concern affecting the assessment of the going concern basis for all businesses and have therefore taken particular care in reviewing the 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. For this reason, they continue to adopt the going concern basis in preparing the financial statements.  

The property market continued to fall sharply in 2008 with signs of some distress selling towards the end of the year. While we remain cautious in the short term, we believe that 2009/10 may provide useful buying opportunities which could produce decent medium term financial returns.

Equity markets have continued to be turbulent and nervous but we continue to focus on well run defensive stocks which are likely to provide consistent dividend growth. The overseas holdings, which represented 17.3% of the portfolio at 31 December 2008, have provided some hedge against Sterling weakness. The portfolio is intended to decrease the risks associated with holding 100% of shareholders funds in UK property assets.

J HEWITT

Chairman

11 March 2009

Consolidated income statement

for the year ended 31 December 2008

	Note		2008			2007
		Revenue	Capital	Total	Revenue	Capital	Total
		£’000	£’000	£’000	£’000	£’000	£’000
Gross rental revenue		2,124	-	2,124	2,126	-	2,126
Property operating expenses		(300)	-	(300)	(99)	-	(99)
Net rental revenue		1,824	-	1,824	2,027	-	2,027
Realised gains on investment property		-	-	-	-	107	107
Realised losses on investment property		-	(5)	(5)	-	(6)	(6)
Net realised (loss)/gain on investment property		-	(5)	(5)	-	101	101
Valuation gains on investment property		-	59	59	-	388	388
Valuation losses on investment property		-	(8,985)	(8,985)	-	(3,819)	(3,819)
Net valuation losses on investment property		-	(8,926)	(8,926)	-	(3,431)	(3,431)
Dividend revenue		450	-	450	406	-	406
Gains on equity investments		-	95	95	-	1,592	1,592
Losses on equity investments		-	(3,535)	(3,535)	-	(1,290)	(1,290)
Net investment income		450	(3,440)	(2,990)	406	302	708
Administration expenses		(324)	-	(324)	(391)	-	(391)
Net operating profit/(loss) before net finance expenses		1,950	(12,371)	(10,421)	2,042	(3,028)	(986)
Finance income		27	-	27	28	-	28
Finance expenses		(88)	-	(88)	(237)	-	(237)
Net finance expenses		(61)	-	(61)	(209)	-	(209)
Profit/(loss) before tax		1,889	(12,371)	(10,482)	1,833	(3,028)	(1,195)
Income tax credit/(expense)	1	33	1,180	1,213	(271)	1,027	756
Profit/(loss) for the year		1,922	(11,191)	(9,269)	1,562	(2,001)	(439)
Basic and diluted earnings/(loss) per share	3	37.3p	(216.6p)	(179.3p)	30.2p	(38.7p)	8.5p

  Consolidated balance sheet

at 31 December 2008

	Note	2008	2007
		£'000	£'000
Assets
Non-current assets
Investment property	4	26,344	35,545
Equity investments	5	7,282	10,830
Total non-current assets		33,626	46,375
Current assets
Trade and other receivables		223	326
Cash		963	813
Total current assets		1,186	1,139
Total assets		34,812	47,514
Liabilities
Current liabilities
Interest-bearing loans and borrowings		14	18
Current income tax		440	426
Trade and other payables		826	743
Total current liabilities		1,280	1,187
Non-current liabilities
Interest-bearing loans and borrowings		1,240	1,909
Deferred tax liabilities		688	2,705
Total non-current liabilities		1,928	4,614
Total liabilities		3,208	5,801
Net assets		31,604	41,713
Equity
Issued share capital		1,292	1,292
Revaluation reserve - property		4,080	7,094
- other		2,137	4,203
Capital redemption reserve		95	95
Realised capital reserve		17,773	17,527
Retained earnings		6,227	11,502
Total equity		31,604	41,713

Consolidated statement of cash flows

for the year ended 31 December 2008

		2008	2007
		£'000	£'000
Operating activities
Loss for the year		(9,269)	(439)
Adjustments for:
Net valuation losses on investment property		8,926	3,431
Loss/(profit) on disposal of investment property		5	(101)
Loss/(gain) on investments		3,440	(302)
Finance income		(27)	(28)
Finance expense		88	237
Income tax (credit)/expense		(1,213)	(756)
Operating cash flow before changes in working capital and provisions		1,950	2,042
Decrease in trade and other receivables		103	163
Increase/(decrease) in trade and other payables		83	(94)
Cash generated from operations		2,136	2,111
Finance income		27	28
Finance expenses		(88)	(237)
Income taxes paid		(794)	(521)
Net cash flows from operating activities		1,281	1,381
Investing activities
Purchase of non-current assets - investment property		-	(6)
- equity investments		(750)	(1,164)
Sale of non-current assets - investment property		271	2,619
- equity investments		857	2,429
Net cash flows from investing activities		378	3,878
Financing activities
New medium term loans		-	-
Loan repayments		(669)	(4,004)
Dividends paid		(840)	(723)
Net cash flows from financing activities		(1,509)	(4,727)
Net increase in cash		150	532
Cash at 1 January 2008		813	281
Cash at 31 December 2008		963	813

  Notes

for the year ended 31 December 2008

1 Taxation

		2008	2007
		£'000	£'000
Current tax:
On revenue profits		102	341
On capital profits		-	37
REIT conversion charge		668	-
Prior year under/(over)provision		(34)	(31)
		804	347
Deferred tax		(2,017)	(1,103)
		(1,213)	(756)

The tax assessed for the year differs from the standard rate of corporation tax in the UK of 28.5% (2006 30%). The differences are explained as follows:

	2008	2007
	£'000	£'000
Loss before tax	(10,482)	(1,195)
Loss before tax multiplied by standard rate of corporation tax in the UK of 28.5% (2007 30%).	(2,987)	(358)
Effect of:
Tax exempt revenues	(96)	(93)
Profit not taxable as a result of REIT conversion	(339)	-
REIT conversion charge	668	-
Chargeable losses less than accounting profit	1,507	7
Adjustments to tax charge in respect of prior periods	34	(31)
Deferred taxation change of rate	-	(281)
Income tax credit	(1,213)	(756)

2 Dividends

On 11 March 2009, the directors declared a property income distribution of 11.4p per share (2007 9.25p dividend) payable on 3 June 2009 to shareholders registered at 8 May 2009.

The following dividends have been paid by the group.

	2008	2007
	£'000	£'000
2007 Final: 9.25p per ordinary share (2006 9.00p)	478	465
2008 Interim PID: 7.00p per ordinary share (2007 5.00p)	362	258
	840	723

3 (Loss)/earnings per share

The calculation of earnings per share is based on the total loss for the year of £9,269,000 (2007 £439,000 profit) and on 5,167,240 shares (2007 5,167,240) which is the weighted average number of shares in issue during the year ended 31 December 2008 and throughout the period since 1 January 2007. 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 £1,922,000 (2007 £1,562,000) has been calculated.

	2008	2007
	£'000	£'000
Earnings:
Basic loss for the year	(9,269)	(439)
Adjustments for:
Net valuation losses on investment property	8,931	3,330
Losses/(gains) on investments	3,440	(302)
Income tax on gains and losses	(1,180)	(1,027)
Adjusted earnings	1,922	1,562
Per share amount:
Loss per share	(179.3p)	(8.5p)
Adjustments for:
Net valuation losses on investment property	172.8p	64.4p
Losses/(gains) on investments	66.6p	(5.8p)
Income tax on gains and losses	(22.8p)	(19.9p)
Adjusted earnings per share	37.3p	30.2p

4 Investment property

	2008	2007
	£'000	£'000
Valuation at 1 January 2008	35,545	41,487
Additions	-	6
Disposals	(275)	(2,517)
Revaluation losses	(8,926)	(3,431)
Valuation at 31 December 2008	26,344	35,545

In accordance with IAS 40, the carrying value of investment properties is the fair value of the property as determined by Jones Lang LaSalle. The valuation has been conducted by them as external valuers and has been prepared as at 31 December 2008, 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 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

	2008	2007
	£'000	£'000
Valuation at 1 January 2008	10,830	11,794
Additions	750	1,164
Disposals	(1,299)	(2,403)
Revaluation (losses)/gains	(2,999)	275
Valuation at 31 December 2008	7,282	10,830

6    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 2007.

7    Annual General Meeting

The Annual General Meeting will be held on 12 May 2009.

8    Publication of non-statutory accounts

    The above does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. It is an extract from the full accounts for the year ended 31 December 2008 on which the auditor has expressed an unqualified opinion and does not include any statement under section 237 of the Companies Act 1985. The accounts will be posted to shareholders on or before 8 April 2009 and subsequently filed at Companies House.

 

END

 

 

FR UARBRKBROAAR