Highcroft Investments PLC
Preliminary results for the year ended 31 December 2009
Key highlights
· Gross property income down 8.5% to £1,943,000
· Profit for the year on revenue activities down 13.1% to £1,670,000
· Basic earnings per share on all activities was 76.2p
· Adjusted earnings per share (on revenue activities) was 32.3p
· Net asset value per share up 8.8% to 666p
· Total property income distribution 26.0p 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 decreased to £1,681,000 from £1,889,000 in 2008, a fall of 11.0%. Gross income for the year ended 31 December 2009 was £2,235,000 (2008 £2,574,000).
Underlying commercial property income has fallen because the main Warrington property was a void for the whole of 2009 and because 2008 benefited, to a greater extent than 2009, from rent reviews. Commercial property income in 2008 was also boosted by two dilapidations claims totalling £92,000.
Residential property income reduced in 2009 relative to 2008 because of the sale of one property in 2008 and because of a second property which became empty in the third quarter of 2009.
Property operating expenses remained high in 2009 because of the cost of bad debts, rates and insurance on vacant properties. However there was a lower level of dilapidations expenditure and rent review and other fees.
2009's income from equity investments fell because of a general reduction in the level of dividends from a smaller portfolio but also because of the absence of special dividends and the reduced dividends from the banking sector.
Financial results - capital activities
Commercial property values continued on a downward curve during 2009 and reached their low point in the third quarter. Our portfolio experienced a lower level of voids than did the market at large and the values of many properties improved by 31 December 2009. However, it remains the case that several properties are valued at less than cost. The equity markets recovered in 2009 more positively than we had expected but our portfolio did less well than the market at large because of the more defensive nature of our portfolio.
There was a valuation gain on the property portfolio of £1,200,000 and, after one acquisition, the value of the portfolio was £27.8 million (2008 £26.3 million).
We generated £1,330,000 of cash, net, from the equity portfolio and used this to repay our medium term debt. The condition of the equity and property markets in 2010 are such that we are not averse to making a further transfer of funds out of the equity investment portfolio and into the property portfolio, consistent with maintaining a lower risk profile.
Summary
The net asset value per share rose by 8.8% to 666p (2008 612p). Total shareholders' funds were £34,435,000 (2008 £31,604,000).
Although there was a decrease in profit for the year on revenue activities, we had our REIT status for a whole year and this us enables us to pay a total property income distribution of 26.0p per share, of which 10p was paid in October 2009 and 16p will be paid on 2 June 2010. The basic earnings per share, which take account of capital activities, was 76.2p (in 2008 there was a 179.3p loss) and the adjusted earnings per share, adjusted to take out the effect of capital activities, down 13.4% to 32.3p per share.
Current trading and prospects
The economy in this election year now seems to be heading for a new period of uncertainty and turbulence which may well affect the property market and stock market valuations. We have, therefore, used the recent stock market strength to realise funds thus emphasising the portfolio's defensive stance.
The latest wave of economic uncertainty may bring to the market the kind of assets, in size and quality, which are the mark of our property operation.
Board change
David Bowman has given notification that he will retire from the board when his current contract with the company expires on 30 June 2010. We have begun the process to identify a successor and will make an announcement when a decision has been made.
J HEWITT
Chairman
9 March 2010
Consolidated statement of comprehensive income
for the year ended 31 December 2009
|
Note |
|
2009 |
|
|
2008 |
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
Gross rental revenue |
|
1,943 |
- |
1,943 |
2,124 |
- |
2,124 |
Property operating expenses |
|
(253) |
- |
(253) |
(300) |
- |
(300) |
Net rental revenue |
|
1,690 |
- |
1,690 |
1,824 |
- |
1,824 |
|
|
|
|
|
|
|
|
Realised gains on investment property |
|
- |
- |
- |
- |
- |
- |
Realised losses on investment property |
|
- |
- |
- |
- |
(5) |
(5) |
Net loss on investment property |
|
- |
- |
- |
- |
(5) |
(5) |
|
|
|
|
|
|
|
|
Valuation gains on investment property |
|
- |
1,616 |
1,616 |
- |
59 |
59 |
Valuation losses on investment property |
|
- |
(416) |
(416) |
- |
(8,985) |
(8,985) |
Net valuation gains/(losses) on investment property |
|
- |
1,200 |
1,200 |
- |
(8,926) |
(8,926) |
|
|
|
|
|
|
|
|
Dividend revenue |
|
292 |
- |
292 |
450 |
- |
450 |
Gains on equity investments |
|
- |
1,679 |
1,679 |
- |
95 |
95 |
Losses on equity investments |
|
- |
(234) |
(234) |
- |
(3,535) |
(3,535) |
Net investment income/(expense) |
|
292 |
1,445 |
1,737 |
450 |
(3,440) |
(2,990) |
|
|
|
|
|
|
|
|
Administration expenses |
|
(283) |
- |
(283) |
(324) |
- |
(324) |
Net operating profit/(loss) before net finance expenses |
|
1,699 |
2,645 |
4,344 |
1,950 |
(12,371) |
(10,421) |
|
|
|
|
|
|
|
|
Finance income |
|
2 |
- |
2 |
27 |
- |
27 |
Finance expenses |
|
(20) |
- |
(20) |
(88) |
- |
(88) |
Net finance expenses |
|
(18) |
- |
(18) |
(61) |
- |
(61) |
|
|
|
|
|
|
|
|
Profit/(loss) before tax |
|
1,681 |
2,645 |
4,326 |
1,889 |
(12,371) |
(10,482) |
|
|
|
|
|
|
|
|
Income tax (expense)/credit |
1 |
(11) |
(377) |
(388) |
33 |
1,180 |
1,213 |
|
|
|
|
|
|
|
|
Total profit/(loss) and comprehensive income for the year |
|
1,670 |
2,268 |
3,938 |
1,922 |
(11,191) |
(9,269) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings/(loss) per share |
3 |
32.3p |
43.9p |
76.2p |
37.3p |
(216.6p) |
(179.3p) |
Consolidated statement of financial position
at 31 December 2009
|
Note |
2009 |
2008 |
|
|
£'000 |
£'000 |
Assets |
|
|
|
Non-current assets |
|
|
|
Investment property |
4 |
27,825 |
26,344 |
Equity investments |
5 |
7,397 |
7,282 |
Total non-current assets |
|
35,222 |
33,626 |
|
|
|
|
Current assets |
|
|
|
Trade and other receivables |
|
103 |
223 |
Cash and cash equivalents |
|
946 |
963 |
Total current assets |
|
1,049 |
1,186 |
|
|
|
|
Total assets |
|
36,271 |
34,812 |
|
|
|
|
Liabilities |
|
|
|
Current liabilities |
|
|
|
Interest-bearing loan |
|
- |
14 |
Current income tax |
|
90 |
440 |
Trade and other payables |
|
777 |
826 |
Total current liabilities |
|
867 |
1,280 |
|
|
|
|
Non-current liabilities |
|
|
|
Interest-bearing loan |
|
- |
1,240 |
Deferred tax liabilities |
|
969 |
688 |
Total non-current liabilities |
|
969 |
1,928 |
|
|
|
|
Total liabilities |
|
1,836 |
3,208 |
|
|
|
|
Net assets |
|
34,435 |
31,604 |
|
|
|
|
Equity |
|
|
|
Issued share capital |
|
1,292 |
1,292 |
Revaluation reserve - property |
|
5,696 |
4,080 |
- other |
|
2,656 |
2,137 |
Capital redemption reserve |
|
95 |
95 |
Realised capital reserve |
|
18,229 |
17,773 |
Retained earnings |
|
6,467 |
6,227 |
Total equity |
|
34,435 |
31,604 |
|
|
|
|
Consolidated statement of changes in equity
2009 |
|
Revaluation reserves |
Capital |
Realised |
Retained |
|
|
|
Equity |
Property |
Other |
redemption |
capital |
earnings |
Total |
|
|
|
|
reserve |
reserve |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
At 1 January 2009 |
1,292 |
4,080 |
2,137 |
95 |
17,773 |
6,227 |
31,604 |
Dividends |
- |
- |
- |
- |
- |
(1,107) |
(1,107) |
Transactions with owners |
- |
- |
- |
- |
- |
(1,107) |
(1,107) |
Profit for the year |
- |
- |
- |
- |
- |
3,938 |
3,938 |
Reserve transfers: |
|
|
|
|
|
|
|
Non-distributable items recognised in income statement: |
|
|
|
|
|
|
|
Revaluation (losses)/gains |
- |
1,200 |
1,230 |
- |
- |
(2,430) |
- |
Tax on revaluation gains/(losses) |
- |
- |
(343) |
- |
- |
343 |
- |
Realised gains |
- |
- |
- |
- |
88 |
(88) |
- |
Surplus attributable to assets sold in the year |
- |
- |
(368) |
- |
368 |
- |
- |
Excess of cost over revalued amount taken to retained earnings |
- |
416 |
- |
- |
- |
(416) |
- |
Total comprehensive income for the year |
- |
1,616 |
519 |
- |
456 |
1,347 |
3,938 |
|
|
|
|
|
|
|
|
At 31 December 2009 |
1,292 |
5,696 |
2,656 |
95 |
18,229 |
6,467 |
34,435 |
2008 |
|
Revaluation reserves |
Capital |
Realised |
Retained |
|
|
|
Equity |
Property |
Other |
redemption |
capital |
earnings |
Total |
|
|
|
|
reserve |
reserve |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
At 1 January 2008 |
1,292 |
7,094 |
4,203 |
95 |
17,527 |
11,502 |
41,713 |
Dividends |
- |
- |
- |
- |
- |
(840) |
(840) |
Transactions with owners |
- |
- |
- |
- |
- |
(840) |
(840) |
Loss for the year |
- |
- |
- |
- |
- |
(9,269) |
(9,269) |
Reserve transfers: |
|
|
|
|
|
|
|
Non-distributable items recognised in income statement: |
|
|
|
|
|
|
|
Revaluation (losses)/gains |
- |
(8,926) |
(2,539) |
- |
- |
11,465 |
- |
Tax on revaluation (losses)/gains |
- |
955 |
893 |
- |
- |
(1,848) |
- |
Realised gains |
- |
- |
- |
- |
(446) |
446 |
- |
Surplus attributable to assets sold in the year |
- |
(272) |
(420) |
- |
692 |
- |
- |
Excess of cost over revalued amount taken to retained earnings |
- |
5,229 |
- |
- |
- |
(5,229) |
- |
Total comprehensive income for the year |
- |
(3,014) |
(2,066) |
- |
246 |
(4,435) |
(9,269) |
|
|
|
|
|
|
|
|
At 31 December 2008 |
1,292 |
4,080 |
2,137 |
95 |
17,773 |
6,227 |
31,604 |
Consolidated statement of cash flows
for the year ended 31 December 2009
|
|
2009 |
|
2008 |
|
|
£'000 |
|
£'000 |
|
|
|
|
|
Operating activities |
|
|
|
|
Profit/(loss) for the year |
|
3,938 |
|
(9,269) |
Adjustments for: |
|
|
|
|
Net valuation (gains)/losses on investment property |
|
(1,200) |
|
8,926 |
Loss on disposal of investment property |
|
- |
|
5 |
(Gain)/loss on investments |
|
(1,445) |
|
3,440 |
Finance income |
|
(2) |
|
(27) |
Finance expense |
|
20 |
|
88 |
Income tax expense/(credit) |
|
388 |
|
(1,213) |
Operating cash flow before changes in working capital and provisions |
|
1,699 |
|
1,950 |
|
|
|
|
|
Decrease in trade and other receivables |
|
120 |
|
103 |
(Decrease)/increase in trade and other payables |
|
(49) |
|
83 |
Cash generated from operations |
|
1,770 |
|
2,136 |
|
|
|
|
|
Finance income |
|
2 |
|
27 |
Finance expenses |
|
(20) |
|
(88) |
Income taxes paid |
|
(457) |
|
(794) |
Net cash flows from operating activities |
|
1,295 |
|
1,281 |
|
|
|
|
|
Investing activities |
|
|
|
|
Purchase of non-current assets - investment property |
|
(281) |
|
- |
- equity investments |
|
(515) |
|
(750) |
Sale of non-current assets - investment property |
|
- |
|
271 |
- equity investments |
|
1,845 |
|
857 |
Net cash flows from investing activities |
|
1,049 |
|
378 |
|
|
|
|
|
Financing activities |
|
|
|
|
Loan repayments |
|
(1,254) |
|
(669) |
Dividends paid |
|
(1,107) |
|
(840) |
Net cash flows from financing activities |
|
(2,361) |
|
(1,509) |
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents |
|
(17) |
|
150 |
Cash and cash equivalents at 1 January 2009 |
|
963 |
|
813 |
Cash and cash equivalents at 31 December 2009 |
|
946 |
|
963 |
Notes
for the year ended 31 December 2009
1 Income tax expense
|
2009 |
2008 |
|
£'000 |
£'000 |
Current tax: |
|
|
On revenue profits |
- |
102 |
On capital profits |
34 |
- |
REIT conversion charge |
- |
668 |
Prior year underprovision |
11 |
34 |
|
45 |
804 |
Deferred tax |
343 |
(2,017) |
|
388 |
(1,213) |
The tax assessed for the year differs from the standard rate of corporation tax in the UK of 28% (2008 28.5%). The differences are explained as follows:
|
2009 |
2008 |
|
£'000 |
£'000 |
Profit/(loss) before tax |
4,326 |
(10,482) |
Profit/(loss) before tax multiplied by standard rate of corporation tax in the UK of 28% (2008 28.5%). |
1,211 |
(2,987) |
Effect of: |
|
|
Tax exempt revenues |
(66) |
(96) |
Profit not taxable as a result of REIT conversion |
(809) |
(339) |
REIT conversion charge |
- |
668 |
Chargeable gains/losses (more)/less than accounting profit |
41 |
1,507 |
Adjustments to tax charge in respect of prior periods |
11 |
34 |
Income tax expense/(credit) |
388 |
(1,213) |
2 Dividends
The following dividends have been paid by the company.
|
2009 |
2008 |
|
£'000 |
£'000 |
|
|
|
2008 Final: 11.4p per ordinary share (2007 9.25p) |
589 |
478 |
2009 Interim: 10.0p per ordinary share (2008 7.0p) |
518 |
362 |
|
1,107 |
840 |
On 9 March 2010, the directors declared a property income distribution of 16p per share (2008 11.4p) payable on 2 June 2010 to shareholders registered at 7 May 2010.
3 Earnings/(loss) per share
The calculation of earnings per share is based on the total profit for the year of £3,938,000 (2008 £9,269,000 loss) and on 5,167,240 shares (2008 5,167,240) which is the weighted average number of shares in issue during the year ended 31 December 2009 and throughout the period since 1 January 2009. 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 £1,670,000 (2008 £1,922,000) has been calculated.
|
2009 |
2008 |
|
£'000 |
£'000 |
Earnings: |
|
|
Basic profit/(loss) for the year |
3,938 |
(9,269) |
Adjustments for: |
|
|
Net valuation (gains)/losses on investment property |
(1,200) |
8,931 |
(Gains)/losses on investments |
(1,445) |
3,440 |
Income tax on gains and losses |
377 |
(1,180) |
Adjusted earnings |
1,670 |
1,922 |
Per share amount: |
|
|
Profit/(loss) per share |
76.2p |
(179.3p) |
Adjustments for: |
|
|
Net valuation (gains)/losses on investment property |
(23.2p) |
172.8p |
(Gains)/losses on investments |
(28.0p) |
66.6p |
Income tax on gains and losses |
7.3p |
(22.8p) |
Adjusted earnings per share |
32.3p |
37.3p |
4 Investment property
|
2009 |
2008 |
|
£'000 |
£'000 |
Valuation at 1 January 2009 |
26,344 |
35,545 |
Additions |
281 |
- |
Disposals |
- |
(275) |
Revaluation gains/(losses ) |
1,200 |
(8,926) |
Valuation at 31 December 2009 |
27,825 |
26,344 |
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 2009, 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
|
2009 |
2008 |
|
£'000 |
£'000 |
Valuation at 1 January 2009 |
7,282 |
10,830 |
Additions |
515 |
750 |
Disposals |
(1,723) |
(1,299) |
Revaluation gains/(losses) |
1,323 |
(2,999) |
Valuation at 31 December 2009 |
7,397 |
7,282 |
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 2008, except for the adoption of IAS1, Presentation of Financial Statements (Revised 2007) and IFRS8 Operating Segments and the amendment to IFRS7.
The adoption of IAS 1 (Revised 2007) does not affect the financial position or profits of the group, but gives rise to additional disclosures. The measurement and recognition of the Group's assets, liabilities, income and expenses is unchanged. IAS 1 (Revised 2007) affects the presentation of changes in equity and introduces a statement of changes in equity, which was previously presented as a note to the financial statements. Under IFRS 8 the accounting policy for identifying segments is required to be based on the internal management reporting information that is regularly reviewed by the directors. As this basis has always been used by Highcroft, there is no change.
7 Annual General Meeting
The Annual General Meeting will be held on 11 May 2010.
8 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 2009 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 7 April 2010 and subsequently filed at Companies House.