Interim Results

Highcroft Investments PLC 07 September 2006 Highcroft Investments PLC Interim results for the six months ended 30 June 2006 Chairman's Statement Highlights â€¢ Profit before taxation excluding capital activities, increased by 15.0% to Â£1,013,000 (2005 Â£881,000) â€¢ Profit before taxation including capital activities increased by 31.2% to Â£3,329,000 (2005 Â£2,538,000) â€¢ Interim dividend increased by 8.0% to 4.70p per share from 4.35p in 2005. â€¢ Net assets per share up to 800p (June 2005 697p and December 2005 758p). Summary The IFRS accounting rules, which require that revaluations of assets are reflected in the 'income statement' (which replaced the profit and loss account under UK GAAP), mean that we are reporting pre-tax profit of Â£3.329 millions - a rise of almost a third. While this does give shareholders a fair view of the increase in total value of the group, we also provide a revenue summary as this reflects the ongoing operating profits from which, after taxation, we pay dividends. On this basis, excluding realised and unrealised gains on assets, pre-tax profits are up 15.0% to Â£1.013 million while after tax profits are ahead by 17.8% to Â£0.775 million. The latter figure produces earnings per share of 15.1p (50.5p including realised and revaluation gains). We are pleased, therefore, to announce an interim dividend of 4.70p - the increase of 8.0% being well in excess of inflation. Revenue activities Profit excluding valuation and capital gains was up 15.0% at the pre-tax level and 17.8% post-tax. This was a result of an increase in rental income (a reflection of rent reviews and new property). Dividend income rose strongly reflecting increases in general but also some exceptional dividend payments. Costs - property and administration - were up 10.5%, while interest charges reflect our higher, but still modest, levels of borrowing. Capital activities For both property and equity investments our strategy continues to be to invest for the long term and in January we purchased a property in Staines at a total cost of Â£3,054,000. In the property sector we also continue to take opportunities to sell residential units and the smaller commercial properties in our portfolio. This resulted in net gains of Â£236,000 in the period, while valuation gains were Â£2,016,000 spread geographically and between the different types of property. We look for further investment opportunities which meet our criteria and expect to increase our borrowings modestly in so doing. The property portfolio value was Â£37.818 millions at 30 June 2006. Equity markets can be much more volatile than property in the short term and this proved to be the case in this half year when virtually all the progress of the first four months was lost in a sharp correction. In the event, our portfolio ended the half year with a slight increase in value over 31 December 2005 at Â£10.645 millions. Net asset value The enhancement in value of our portfolios - principally property - and the retained earnings generated in the business has resulted in net asset value per share rising to 800p compared with 697p at 30 June 2005 and 758p at 31 December 2005. We would remind shareholders that these figures are now calculated after providing for tax potentially payable on the sale of the entire portfolio. Outlook We hope to be able to report further progress in profits and asset values by the end of the year despite the uncertainties which continue to cloud the domestic and international scene. The strength of our balance sheet and our long term focus continue to underpin our confidence. As has already been announced I shall retire from the board on 30 September 2006. John Hewitt will become chairman of the board, Richard Stansfield will take over from John as senior independent director and Christopher Clark will become chairman of the audit committee. G J Kingerlee 6 September 2006 Condensed consolidated income statement (Unaudited) for the six months ended 30 June 2006 First Half First Half Full Year Note 2006 2005 2005 Â£'000 Â£'000 Â£'000 Gross rental income 1,041 943 1,917 Property operating expenses (49) (57) (125) -------------- -------------- -------------- Net rental income 992 886 1,792 Realised gains on investment 243 44 44 property -------------- -------------- -------------- Realised losses on investment (7) - (36) property Profit on disposal of investment 236 44 8 property -------------- -------------- -------------- Valuation gains on investment 2,230 1,191 3,464 property Valuation losses on investment (214) (34) (65) property -------------- -------------- -------------- Net valuation gains on investment 2,016 1,157 3,399 property -------------- -------------- -------------- Dividend income 237 155 339 Gains on investments 352 629 1,748 Losses on investments (288) (173) (142) -------------- -------------- -------------- Net investment income 301 611 1,945 -------------- -------------- -------------- Administrative expenses (141) (115) (222) -------------- -------------- -------------- Operating profit before net financing 3,404 2,583 6,922 costs Finance income 5 4 8 Finance expenses (80) (49) (92) -------------- -------------- -------------- Net financing costs (75) (45) (84) -------------- -------------- -------------- Profit before tax 3,329 2,538 6,838 Income tax expense 4 (722) (617) (1,551) -------------- -------------- -------------- Profit for the financial period 2,607 1,921 5,287 -------------- -------------- -------------- Earnings per share 6 50.5p 37.2p 102.3p Condensed consolidated balance sheet (Unaudited) as at 30 June 2006 30 June 30 June 31 December 2006 2005 2005 Note Â£'000 Â£'000 Â£'000 Assets Investment property 7 37,818 31,446 33,461 Equity investments 8 10,645 9,427 10,620 -------------- -------------- -------------- Total non-current assets 48,463 40,873 44,081 -------------- -------------- -------------- Current assets Trade and other receivables 578 241 301 Cash at bank and in hand 157 201 725 -------------- -------------- -------------- Total current assets 735 442 1,026 -------------- -------------- -------------- Total assets 49,198 41,315 45,107 -------------- -------------- -------------- Liabilities Current liabilities Interest-bearing loans and borrowings 137 69 71 Current corporation tax 422 361 358 Trade and other payables 711 685 725 -------------- -------------- -------------- Total current liabilities 1,270 1,115 1,154 -------------- -------------- -------------- Non-current liabilities Interest-bearing loans and borrowings 10 2,917 1,465 1,429 Deferred tax liabilities 3,669 2,712 3,360 -------------- -------------- -------------- Total non-current liabilities 6,586 4,177 4,789 -------------- -------------- -------------- Total liabilities 7,856 5,292 5,943 -------------- -------------- -------------- Net assets 41,342 36,023 39,164 -------------- -------------- -------------- Equity Issued share capital 9 1,292 1,292 1,292 Revaluation reserve - property 9 10,016 7,039 8,734 Revaluation reserve - other 9 3,865 3,091 3,902 Capital redemption reserve 9 95 95 95 Realised capital reserve 9 15,892 15,153 15,306 Retained earnings 9 10,182 9,353 9,835 -------------- -------------- -------------- Total equity 41,342 36,023 39,164 -------------- -------------- -------------- Condensed consolidated statement of cash flow (Unaudited) for the six months ended 30 June 2006 First Half First Half Full Year 2006 2005 2005 Â£'000 Â£'000 Â£'000 Operating activities Profit for the period 2,607 1,921 5,287 Adjustments for: Net valuation gains on investment property (2,016) (1,157) (3,399) Profit on disposal of investment property (236) (44) (8) Net gains on investments (64) (456) (1,606) Finance income (5) (4) (8) Finance expense 80 49 92 Income tax expense 722 617 1,551 --------------- --------------- --------------- Operating profit before changes in working 1,088 926 1,909 capital and provisions (Increase)/decrease in trade and other receivables (277) 129 68 (Decrease)/increase in trade and other payables (14) 7 46 --------------- --------------- --------------- Cash generated from operations 797 1,062 2,023 Finance income 5 4 8 Finance expense (80) (49) (92) Income tax paid (350) (278) (564) --------------- --------------- --------------- Cash flows from operating activities 372 739 1,375 --------------- --------------- --------------- Investing activities Purchase of fixed assets - investment property (3,054) - - - equity investments (616) (615) (958) Sale of fixed assets - investment property 950 278 469 - equity investments 655 374 675 --------------- --------------- --------------- Cash flows from investing activities (2,065) 37 186 Financing activities New medium term loan 1,602 - - Loan repayments (48) (34) (70) Dividends paid (429) (395) (620) --------------- --------------- --------------- Cash flows from investing activities 1,125 (429) (690) --------------- --------------- --------------- Net increase in cash and cash equivalents (568) 347 871 Cash and cash equivalents at 1 January 2006 725 (146) (146) --------------- --------------- --------------- Cash and cash equivalents at 30 June 2006 157 201 725 --------------- --------------- --------------- Notes 1. Interim report The results for the six months ended 30 June 2006 are unaudited. This interim report will not appear as an advertisement in any newspaper but copies are being sent to all shareholders and are available at the company's registered office. The interim report does not constitute full accounts as defined by the Companies Act 1985 but should be read in conjunction with the most recent financial statements. Full accounts for 2005 have been delivered to the Registrar of Companies, bearing an unqualified audit opinion. 2. Significant accounting policies Highcroft Investments PLC is a company domiciled in the United Kingdom. The interim financial statements of the company for the six months ended 30 June 2006 comprise the company and its subsidiary, together referred to as the group. a. Statement of compliance These interim financial statements have been prepared in accordance with IAS 34 on Interim Financial Reporting. b. Basis of preparation The interim financial statements are presented in pounds sterling, rounded to the nearest thousand. They are prepared on the historical cost basis except that investment property and equity investments are stated at their fair value. The accounting policies have been consistently applied to the results, other gains and losses, assets, liabilities and cash flows of entities included in the consolidated interim financial statements and are consistent with those used in the previous year. 3. Segmental reporting Segmental information is presented in the consolidated interim financial statements in respect of the group's business segments. The business segment reporting format reflects the group's management and internal reporting structure. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. The group is comprised of the following main business segments: - Commercial property comprising retail outlets, offices and warehouses. - Residential property comprising mainly single-let houses. - Financial assets comprising exchange-traded equity investments. First Half First Half Full Year 2006 2005 2005 Â£'000 Â£'000 Â£'000 Commercial property Gross income 967 906 1,833 Profit for the period 1,824 1,430 3,774 Assets 35,825 29,124 31,951 Liabilities 5,559 3,184 3,659 Residential property Gross income 74 37 84 Profit/(loss) for the period 507 13 (19) Assets 2,630 2,753 2,521 Liabilities 643 673 621 Financial assets Gross income 237 155 339 Profit for the period 276 478 1,532 Assets 10,743 9,438 10,635 Liabilities 1,654 1,435 1,663 Total Gross income 1,278 1,098 2,256 Profit for the period 2,607 1,921 5,287 Assets 49,198 41,315 45,107 Liabilities 7,856 5,292 5,943 4. Taxation First Half First Half Full Year 2006 2005 2005 Â£'000 Â£'000 Â£'000 Current tax: On revenue profits 238 223 460 On capital profits 60 20 8 Prior year overprovision - - (1) Deferred tax 424 374 1,084 -------------- -------------- -------------- 722 617 1,551 -------------- -------------- -------------- The taxation charge has been based on the estimated effective tax rate for the full year. 5. Dividends On 6 September 2006, the directors declared an ordinary interim dividend of 4.70p per share (2005 4.35p) payable on 31 October 2006 to shareholders registered at 6 October 2006. The following dividends have been paid by the company. First Half First Half Full Year 2006 2005 2005 Â£'000 Â£'000 Â£'000 8.30p per ordinary share (2005 7.65p) 429 395 395 2005 interim 4.35p per ordinary share - - 225 -------------- -------------- -------------- 429 395 620 -------------- -------------- -------------- 6. Earnings per share The calculation of earnings per share is based on the profit for the period of Â£2,607,000 (2005 Â£1,921,000) and on 5,167,240 shares (2005 5,167,240) which is the weighted average number of shares in issue during the period ended 30 June 2006 and throughout the period since 1 January 2005. 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 Â£775,000 (2005 Â£658,000) has been calculated. First Half First Half Full Year 2006 2005 2005 Â£'000 Â£'000 Â£'000 Earnings: Basic earnings 2,607 1,921 5,287 Adjustments for: Net valuation gains on investment property (2,252) (1,201) (3,407) Gains and losses on investments (64) (456) (1,606) Income tax on gains and losses 484 394 1,092 ------------------ ------------------ ------------------ Adjusted earnings 775 658 1,366 ------------------ ------------------ ------------------ Per share amount: Basic earnings per share 50.5p 37.2p 102.3p Adjustments for: Net valuation gains on investment property (43.6)p (23.2)p (65.9)p Gains and losses on investments (1.2)p (8.8)p (31.1)p Income tax on gains and losses 9.4p 7.6p 21.1p ------------------ ------------------ ------------------ Adjusted earnings per share 15.1p 12.8p 26.4p ------------------ ------------------ ------------------ 7. Investment Property First Half First Half Full Year 2006 2005 2005 Valuation at 1 January 2006 33,461 30,523 30,523 Additions 3,054 - - Disposals (713) (233) (461) Surplus on revaluation 2,016 1,156 3,399 ----------------- ----------------- ----------------- Valuation at 30 June 2006 37,818 31,446 33,461 ----------------- ----------------- ----------------- 8. Equity investments Listed and unlisted First Half First Half Full Year 2006 2005 2005 Â£'000 Â£'000 Â£'000 Valuation at 1 January 2006 10,620 8,731 8,731 Additions 614 615 958 Disposals (740) (343) (643) Surplus on revaluation 151 424 1,574 ----------------- ----------------- ----------------- Valuation at 30 June 2006 10,645 9,427 10,620 ----------------- ----------------- ----------------- 9. Total equity a) First half 2006 Revaluation reserves Capital Realised Retained Equity Property Other Redemption Capital Earnings Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 1 January 2006 1,292 8,734 3,902 95 15,306 9,835 39,164 Total recognised gain and - - - - - 2,607 2,607 expense Dividends to shareholders - - - - - (429) (429) Non-distributable items recognised in income statement: Revaluation gains - 2,016 151 - - (2,167) - Tax on valuation gains and - (419) (6) - - 425 - losses Realised gains - - - - 89 (89) - Surplus attributable to assets - (400) (213) - 613 - - sold Tax on gains attributable to - 85 31 - (116) - - assets sold --------- --------- -------- --------- --------- --------- --------- At 30 June 2006 1,292 10,016 3,865 95 15,892 10,182 41,342 --------- --------- -------- --------- --------- --------- --------- b) First half 2005 Equity Revaluation reserves Capital Realised Retained Property Other Redemption Capital Earnings Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 1 January 2005 1,292 6,322 2,933 95 14,766 9,089 34,497 Total recognised gain and - - - - - 1,921 1,921 expense Dividends to shareholders - - - - - (395) (395) Non-distributable items recognised in income statement: Revaluation gains - 1,156 424 - - (1,580) - Tax on valuation gains and - (269) (105) - - 374 - losses Realised gains - - - - 56 (56) - Surplus attributable to assets - (233) (214) - 447 - - sold Tax on gains attributable to - 63 53 - (116) - - assets sold --------- --------- -------- --------- --------- --------- --------- At 30 June 2005 1,292 7,039 3,091 95 15,153 9,353 36,024 --------- --------- -------- --------- --------- --------- --------- c) Full year 2005 Equity Revaluation reserves Capital Realised Retained Property Other Redemption Capital Earnings Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 1 January 2005 1,292 6,322 2,933 95 14,766 9,089 34,497 Total recognised gain and - - - - - 5,287 5,287 expense Dividends to shareholders - - - - - (620) (620) Non-distributable items recognised in income statement: Revaluation gains - 3,399 1,574 - - (4,973) - Tax on valuation gains and - (653) (431) - - 1,084 - losses Realised gains - - - - 32 (32) - Surplus attributable to assets - (457) (229) - 686 - - sold Tax on gains attributable to - 123 55 - (178) - - assets sold --------- --------- -------- --------- --------- --------- --------- At 31 December 2005 1,292 8,734 3,902 95 15,306 9,835 39,164 --------- --------- -------- --------- --------- --------- --------- 10. Interest-bearing loans and borrowings First Half First Half Full Year 2006 2005 2005 Â£'000 Â£'000 Â£'000 Medium term bank loan 2,917 1,465 1,429 ------------ ------------ ------------ The medium term bank loan comprises amounts falling due as follows: Between one and two years 71 71 71 Between two and five years 238 238 238 Over five years 2,608 1,156 1,120 ------------ ------------ ------------ 2,917 1,465 1,429 ------------ ------------ ------------ 11. Related party transactions Kingerlee Holdings Limited owns 24.5% (2005 24.4%) of the company's shares and D H Kingerlee, G J Kingerlee and J C Kingerlee are directors and shareholders of both the company and Kingerlee Holdings Limited. During the period, the group made purchases from Kingerlee Holdings Limited or its subsidiaries, being repairs to properties of Â£3,000 (2005 Â£1,000) and a service charge in relation to services at Thomas House, Kidlington of Â£7,000 (2005 Â£7,000). The amount owed at 30 June 2006 was nil (2005 Â£7,000). All transactions were undertaken on an arm's length basis. This information is provided by RNS The company news service from the London Stock Exchange

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