Final Results

Highcroft Investments PLC 27 March 2003 Highcroft Investments PLC Preliminary Results 2002 Highlights • Gross property income up 7.4% to £1,517,000 • Operating profit up 8.1% to £1,496,000 • Basic earnings per share up 40.4% to 22.6p • Adjusted earnings per share up 1.0% to 20.8p • Continuing improvement in the quality of the property portfolio • Net asset value per share down 3.7% to 597p • Total dividends up 9.7% to 10.15p per share • Final dividend of 6.65p payable on 11 June 2003 • These achievements made despite a background of continued economic uncertainty Chairman's Statement Against a difficult economic background, in particular falling stock markets, our income has shown a satisfactory increase and the rise in operating profits gives us confidence to propose a further increase in dividends well above the rate of inflation. Our broad objectives remain to enhance shareholder value through a combination of rising asset values and increasing profits, intended to sustain long term dividend growth. During the course of 2002, the Board announced that it was making a modest change in the way it would seek to achieve these broad objectives. Essentially, there is a greater focus on the property portfolio. We have purchased a retail investment for £1,405,000 plus costs with a yield of 5.9%, a reliable covenant and the prospect of an upward rent review to increase our income yield. This is the sort of investment which we have been seeking since we made the move to upgrade the quality of the portfolio. We have also looked at a few 'development' opportunities but generally not found them to be sufficiently attractive. In October we bid at auction for another investment but were not successful. Had we been, we would have taken out a medium-term loan. In December, we were pleased that Richard Stansfield joined the Board bringing a high level of property expertise 'in-house'. The general fall in stock market values was disappointing. There was some small compensation in that we have been able to make tax-efficient disposals from the listed investment portfolio and, since our strategy announcement, we reduced the funds held by £322,000. In the absence of a requirement for additional funds for further property investment, we did not make as many disposals from the listed investment portfolio as might otherwise have been the case. I am happy with the start we have made in pursuing our modified strategy though we were not helped by falling stock markets in the second half of the year. We have however generated sufficient income to be able to increase the dividends for the year by 9.7% with a dividend cover of 2.1 times (2001 2.2). Financial results - operating activities Operating profit rose to £1,496,000 from £1,384,000 in 2001, an increase of 8.1%. Total income, including interest on cash deposits, was £1,717,000 as compared with £1,612,000 in 2001. Net property income rose from £1,278,000 to £1,395,000, an increase of 9.2%. Gross rents receivable were up 7.4% on 2001 as the purchases and rent reviews in both 2001 and 2002 took effect. Property income represented 82.5% of total income compared with 80.9% in 2001. Financial results - capital activities Net assets fell back by 3.6% during the year from £32.0 million to £30.9 million. This occurred during the second half of the year and was entirely related to the general fall in stock market values. During the course of the year, the group spent £1,504,000 on property assets (2001 £1,878,000) and invested £935,000 (2001 £893,000) in stock markets. The net proceeds from property disposals during the year amounted to £1,537,000 (2001 £1,377,000) while investment disposals raised £884,000 (2001 £1,247,000). The net gains on these disposals amounted to £154,000 (2001 £76,000), comprising £243,000 of gains on property disposals and £89,000 of losses on disposal of investments. The net gain after taxation of £94,000 (2001 £235,000 loss) was transferred to realised capital reserve. Property The property valuation showed a rise from £22.7 million to £23.1 million. Those properties that remained in the portfolio throughout the period show a rise in value equivalent to 1.5% (2001 4.6%). There are 18 (2001 20) commercial properties in the portfolio with an average value of £1,122,000 (2001 £989,000). There are 17 residential properties in the portfolio and ground rent investments (2001 20). The average value of these residential investments is £171,000 (2001 £147,000). Listed investments 2002 proved to be another disappointing year for equity markets. A harsher business environment, further shocks from some major companies and resultant investor disillusion left the FTSE 100 down from 5,217 to 3,940 a fall of 24.5%. Those listed investments that remained in our portfolio throughout the period showed a fall in value of 20.1% (2001 15.3%). The directors maintained their strategy of looking for long term investments in quality companies. Summary Similar to last year, we have reported an equity portfolio valuation depressed by market falls offset to a degree by a rise in property values. While we are sorry to see that there has been a small fall in net asset value per share (down 3.7% to 597p), we do believe that this is reasonably commendable given the business background. Income has shown a satisfactory increase and the rise in operating profits gives us confidence to propose a further increase in dividends well above the rate of inflation. Dividends for 2002 are up 9.7% on 2001, again with a slightly reduced level of retained profits. Current trading and prospects Finally I have some comments on the start to 2003. On the property side, the search for investments which will give the group long term income and capital growth is continuous but we have not yet added to the portfolio in 2003. Two residential properties have become vacant and are being marketed and offers are being considered on one of the smaller commercial properties. The declining stock market valuations, faltering business confidence and a mixed economic outlook characterised 2001 and 2002 and have continued into 2003. Low interest rates give a modicum of comfort in the UK but profits generally seem likely to come under increasing pressure. We continue to be cautious in our investment approach as regards both equities and property. R CRAIG Chairman 27 March 2003 Group Profit and Loss Account (audited) for the year ended 31 December 2002 Note 2002 2001 £'000 £'000 Income from fixed asset investments and other interest receivable 1,717 1,612 Administrative expenses 221 228 ______ ______ Operating profit 1,496 1,384 Gains on disposals of assets 1 154 76 ______ ______ Profit on ordinary activities before taxation 1,650 1,460 Taxation 2 482 626 ______ ______ Profit for the financial year 1,168 834 (Gain)/loss on disposals of assets after taxation transferred (to)/from realised capital reserve 1 (94) 235 ______ ______ Profit available for distribution 1,074 1,069 Dividends 3 524 478 ______ ______ Profit retained 550 591 ==== ==== Earnings per share: 4 Basic 22.6p 16.1p Adjusted 20.8p 20.6p ______ ______ Balance Sheets (audited) at 31 December 2002 The Group The Company Note 2002 2001 2002 2001 £'000 £'000 £'000 £'000 Fixed assets Tangible assets 5 23,098 22,727 - - Investments 6 7,700 9,654 31,619 32,682 _______ _______ _______ ______ 30,798 32,381 31,619 32,682 _______ _______ _______ ______ Current assets Debtors 916 462 380 347 Cash at bank 395 419 395 419 ______ ______ ______ ______ 1,311 881 775 766 Creditors Amounts falling due within one year 1,254 1,244 1,539 1,430 _______ _______ _______ ______ Net current assets/(liabilities) 57 (363) (764) (664) _______ _______ ________ ______ Net assets 30,855 32,018 30,855 32,018 ===== ===== ====== ===== Capital and reserves Called up share capital 1,292 1,292 1,292 1,292 Revaluation reserve - property 5,442 5,713 - - - other 2,101 4,131 25,692 26,831 Capital redemption reserve 95 95 95 95 Realised capital reserve 14,410 13,822 3,054 3,029 Profit and loss account 7,515 6,965 722 771 _______ _______ _______ ______ Shareholders' funds - equity 30,855 32,018 30,855 32,018 ===== ===== ====== ===== Group Cash Flow Statement (audited) for the year ended 31 December 2002 Note 2002 2001 £'000 £'000 £'000 £'000 Net cash inflow from operating activities 7 1,001 1,398 Taxation Taxation paid (513) (763) Capital expenditure and financial investment Purchase of fixed assets - properties (1,504) (1,878) - listed (935) (893) investments Sale of fixed assets - properties 1,537 1,377 - listed 884 1,247 investments Net cash outflow from capital expenditure and (18) (147) financial investment Dividends Equity dividends paid (494) (449) _____ _____ (Decrease)/increase in cash 8 (24) 39 ==== ==== Total Recognised Gains and Losses and Historical Cost Profits and Losses for the year ended 31 December 2002 Statement of total recognised gains and losses 2002 2001 £'000 £'000 Profit for the financial year 1,168 834 Unrealised surplus on revaluation of investment properties 161 728 Unrealised deficit on revaluation of listed and unlisted investments (1,916) (1,778) Tax on valuation surplus arising in prior years attributable to properties (52) - sold in year Deferred taxation - 100 ______ ______ Total recognised gains and losses for the year (639) (116) ==== ==== Note of historical cost profits and losses 2002 2001 £'000 £'000 Profit on ordinary activities before taxation 1,650 1,460 Realisation of revaluation gains of previous years -attributable to investment properties 432 762 -attributable to listed and unlisted investments 114 561 ______ ______ Historical cost profit on ordinary activities before taxation 2,196 2,783 ==== ==== Historical cost profits retained 1,138 1,679 ==== ==== Notes for the year ended 31 December 2002 1 Gains on disposals of assets 2002 2001 Gains/(losses) on disposals of assets arising on sales of: £'000 £'000 Properties 243 146 Investments (89) (70) _____ _____ Net gain on disposals of assets 154 76 Corporation tax on disposals of assets (60) (311) _____ _____ Net gain on disposals of assets after taxation 94 (235) ==== ==== 2 Taxation The taxation charge at 30% (2001 30%) is based on the profit for the year and is made up as follows: 2002 2001 £'000 £'000 Corporation tax on operating profit 395 315 Corporation tax on disposals of assets 60 311 Prior year underprovision 27 - _____ _____ 482 626 ==== ==== The group has changed the way in which the corporation tax on disposals of assets is accounted for. The taxation on prior years' valuation surpluses is now charged directly to the realised capital reserve, where the surpluses have always been credited, and is also shown in the Statement of Recognises Gains and Losses. This change in treatment is not fundamental and so previous years' taxation charges have not been restated. 3 Dividends 2002 2001 Ordinary shares £'000 £'000 Interim dividend of 3.5p per share paid (2001 3.2p) 181 165 Proposed final dividend of 6.65p per share (2001 6.05p) 343 313 _____ _____ 524 478 ==== ==== 4 Earnings per share The calculation of earnings per share is based on the profit for the financial year of £1,168,000 (2001 £834,000) and on 5,167,240 (2001 5,167,240) ordinary shares of 25p each which is the weighted average number of shares in issue during the year ended 31 December 2002. In view of the uneven nature of capital disposals, an adjusted earnings per share has also been presented, based on the profit available for distribution of £1,074,000 (2001 £1,069,000). The effect of the adjustment is as follows: 2002 2001 Earnings Weighted Per share Earnings Weighted Per share average amount pence average amount pence number of number of shares shares £'000 £'000 Basic earnings per share 1,168 5,167,240 22.6 834 5,167,240 16.1 Adjustment for (gains)/losses on (94) - (1.8) 235 - 4.5 disposals of assets _____ _____ _____ _____ _____ _____ Adjusted earnings per shares 1,074 5,167,240 20.8 1,069 5,167,240 20.6 ==== ==== ==== ==== ==== ==== 5 Tangible assets The group Land and buildings (Investment properties) Total Freeholds Long leaseholds £'000 £'000 £'000 Valuation at 1 January 2002 22,727 20,422 2,305 Additions 1,504 1,504 - Disposals (1,294) (1,294) - Surplus on revaluation 161 146 15 _______ _______ _______ Valuation at 31 December 2002 23,098 20,778 2,320 ===== ===== ===== 6 Investments Total Listed Unlisted The group £'000 £'000 £'000 Valuation at 1 January 2002 9,654 9,654 - Additions at cost 935 935 - Disposals (973) (973) - (Deficit)/surplus on revaluation (1,916) (1,920) 4 _______ _______ _______ Valuation at 31 December 2002 7,700 7,696 4 ===== ===== ===== 7 Reconciliation of operating profit to net cash flow from operating activities 2002 2001 £'000 £'000 Operating profit 1,496 1,384 Increase in debtors (454) (61) (Decrease)/increase in creditors (41) 75 ____________ ____________ Net cash inflow from operating activities 1,001 1,398 ____________ ____________ 8 Analysis of changes in net funds 2002 2001 Cash at bank £'000 £'000 At 1 January 2002 419 380 Net cash (outflow)/inflow (24) 39 ____________ ____________ At 31 December 2002 395 419 ============ ============ 9 Accounting convention The financial statements have been prepared in accordance with applicable accounting standards up to and including FRS19 and under the historical cost convention except for the revaluation of fixed assets and fixed asset investments. 10 Annual General Meeting The Annual General Meeting will be held on 4 June 2003. 11 Final ordinary dividend A final ordinary dividend of 6.65p per share will be paid on 11 June 2003 to shareholders registered at the close of business on 16 May 2003. 12 Limitation The above does not constitute full 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 2002 on which the auditors have expressed an unqualified opinion. The accounts will be posted to shareholders on or before 30 April 2003 and subsequently filed at Companies House. This information is provided by RNS The company news service from the London Stock Exchange

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