REG - Highcroft Invs PLC - Preliminary Results <Origin Href="QuoteRef">HCFT.L</Origin>
RNS Number : 3910AHighcroft Investments PLC24 March 2017Highcroft Investments PLC
Preliminary results for the year ended 31 December 2016
KEY HIGHLIGHTS
Final property income distribution up 6.1% to 26.0p per share (2015 24.5p per share)
Total property income distribution up 5.7% to 41.0p per share (2015 38.8p per share)
Net asset value per share up 4.4% to 1071p (2015 1026p)
Gross property income increased by 13.7% to 3,906,000 (2015 3,435,000)
Total earnings per share down 40% to 84p (2015 140p)
Medium term debt 14,900,000 (2015 11,500,000)
Property acquisitions of 9,325,000 (net of costs) and disposal proceeds of 3,011,000
Investment property valuation up 13.9% to 65,997,000 (2015 57,964,000)
Cash and liquid equity investments 5,838,000 (2015 8,007,000)
Dear Shareholder,
I am pleased to announce our preliminary results for the year ended 31 December 2016 and to invite you to our Annual General Meeting on 12 May 2017 which will be held at Thomas House, Langford Locks, Kidlington, Oxfordshire, OX5 1HR at 12 noon.
Results for the year
I am delighted to report that, following a successful year in 2015, we have continued to make progress in delivering our strategy. We have recorded growth in our four key performance indicators; increasing the value of our property assets, our gross property income, our net assets per share and our dividends payable to shareholders. We have completed two property acquisitions, focused on larger lot sizes, and used a limited amount of additional gearing to achieve our objectives. The valuation of our property portfolio on a like-for-like basis has outperformed the market.
Property: Gross property rental income rose 13.7% to 3,906,000 (2015 3,435,000), with all of this increase arising from our commercial properties. This growth includes the effect of a full year's income from the Wisbech property purchased in May 2015. It also includes a partial year of income from our new acquisitions in Grantham and Coventry, and allows for reduced income from properties which we sold in the year. All our properties are currently let and there were no bad debts in the period. Operating expenses decreased by 131,000 to 198,000; primarily due to the 2015 figure including one-off costs at two properties where we undertook programmes of repair and removal of asbestos. We made two acquisitions; firstly two retail warehouses in Grantham let to B&Q PLC and Marks & Spencer P.L.C., and secondly a multi-let leisure unit in Coventry let to three food outlets. We have been very pleased with the performance of our assets, with the combination of two rent reviews in 2016, and a full year of rent reviews and new leases completed in 2015, helping to increase gross rental income and capital values.
The sale of our Kingston and Warwick properties, together with two residential units, yielded gross proceeds of 3,011,000 - 6.1% in excess of the December 2015 valuations. These proceeds are being re-invested in line with our strategy. We have experienced difficulty in identifying suitable property investments at attractive yields, with the appropriate property fundamentals, as the market is challenging with competition from overseas investors taking advantage of sterling weakness and also from local authorities. We intend to continue to capitalise on our strong financial position and ability to move rapidly to exploit opportunities in order to continue to develop our property portfolio. The availability of reasonably priced debt, combined with the company's strong financial position, allows us to increase the return on our investments through a prudent use of gearing. Our properties showed a net valuation gain of 973,000 for the year, a 2.7% gain on a like-for-like basis, well in excess of the market reduction of 0.8%. The most significant gain related to our retail property in Staines where we obtained planning permission for a residential development above the retail units and where we exchanged contracts for sale prior to the year end. We have subsequently completed the sale in 2017.
We have performed well against our specific property objectives. Our average commercial property lot size has increased to 3.3m from 2.9m in 2015 and 1.5m in 2012. We now have only one pure residential property in the portfolio, reduced from 3 in 2015, and our property sector split has changed as we have spread risk over more sectors of the property market as illustrated below.
2016
2015
2014
2013
2012
%
%
%
%
%
Retail
18
20
23
29
41
Warehouse
29
34
38
33
39
Retail warehouse
39
33
20
15
-
Office
10
12
14
17
13
Leisure
3
-
2
2
3
Residential
1
1
3
4
4
Equities: A fall in income to 144,000 (2015 182,000) and a realised net gain of 18,000, are a result of the reduction in the level of our holdings. Unrealised net gains in 2016 amounted to 470,000 (2015 revaluation loss 346,000). We released 1,174,000 of cash from equities during the year and have released a further 477,000 since the year end.
Administrative expenses: Ongoing administrative expenses increased by 118,000 in 2016, due to a combination of step-changes in certain costs, as the complexity of the business and the regulatory burden continued to increase. Finance costs increased by 141,000 due to the effect of increased bank borrowings in the year.
Financial summary: Total profit for the year fell by 40% due primarily to the lower unrealised property valuation gains in 2016. Excluding the realised gains on investment property, the underlying profit on revenue activities increased by 1% to 2,912,000 (2015 2,871,000). The year-end net asset value per share increased to 1071p (2015 1026p) and our year-end cash position was 3,369,000 (2015 4,852,000). Readily realisable equity investments totalled 2,469,000 (2015 3,155,000). Our year end bank loans totalled 14,900,000 (2015 11,500,000).
Dividend
We are recommending a final property income distribution of 26.0p per share (2015 24.5p), an increase of 6.1%, to be paid on 2 June 2017 to shareholders registered at 5 May 2017 (with an ex-dividend date of 4 May 2017) making a total of 41.0p for the year (2015 38.8p). This increase of 5.7% for the year continues the recent record of increases well in excess of inflation.
Outlook
We are very pleased with the results for the year and remain optimistic that we start 2017 from a position of strength which will help us to secure further attractive acquisitions. We will continue to reduce our investment in equities in line with our medium term strategy and to re-invest the proceeds in commercial property. We have set ourselves challenging objectives for 2017, and we look forward to improving shareholder value through increased dividends and net asset value.
This announcement contains inside information for the purpose of Article 7 of Regulation (EU) No 596/2014.
John Hewitt
Chairman
23 March 2017
Enquiries:
Highcroft Investments PLC
John Hewitt / Roberta Miles
01865 840023
Panmure Gordon (UK) Limited
Karri Vuori / Fabien Holler
0207 886 2500
Consolidated statement of comprehensive income
for the year ended 31 December 2016
Note
2016
2015
Revenue
Capital
Total
Revenue
Capital
Total
'000
'000
'000
'000
'000
'000
Gross rental revenue
3,906
-
3,906
3,435
-
3,435
Property operating expenses
(198)
-
(198)
(329)
-
(329)
Net rental income
3,708
-
3,708
3,106
-
3,106
Realised gains on investment property
134
-
134
418
-
418
Realised losses on investment property
-
-
-
-
-
-
Net gains on investment property
134
-
134
418
-
418
Valuation gains on investment property
-
2,509
2,509
-
4,840
4,840
Valuation losses on investment property
-
(1,536)
(1,536)
-
(75)
(75)
Net valuation gains on investment property
-
973
973
-
4,765
4,765
Dividend revenue
144
-
144
182
-
182
Gains on equity investments
-
546
546
-
87
87
Losses on equity investments
-
(58)
(58)
-
(502)
(502)
Net investment income/(expense)
144
488
632
182
(415)
(233)
Administration expenses
(651)
-
(651)
(533)
-
(533)
Net operating profit before net finance income
3,335
1,461
4,796
3,173
4,350
7,523
Finance income
11
-
11
7
-
7
Finance expense
(506)
-
(506)
(365)
-
(365)
Net finance expense
(495)
-
(495)
(358)
-
(358)
Profit before tax
2,840
1,461
4,301
2,815
4,350
7,165
Income tax credit
1
72
(30)
42
56
14
70
Total profit and comprehensive income for the year attributable to the owners of the parent
2,912
1,431
4,343
2,871
4,364
7,235
Basic and diluted earnings per share
55.7p
28.3p
84.0p
55.6p
84.4p
140.0p
Consolidated statement of financial position
at 31 December 2016
Note
2016
2015
'000
'000
Assets
Non-current assets
Investment property
4
65,997
57,964
Equity investments
5
2,469
3,155
Total non-current assets
68,466
61,119
Current assets
Trade and other receivables
631
641
Cash and cash equivalents
3,369
4,852
Total current assets
4,000
5,493
Total assets
72,466
66,612
Liabilities
Current liabilities
Trade and other payables
1,866
1,664
Total current liabilities
1,866
1,664
Non-current liabilities
Interest bearing loan
6
14,900
11,500
Deferred tax liabilities
375
425
Total non-current liabilities
15,275
11,925
Total liabilities
17,141
13,589
Net assets
55,325
53,023
Equity
Issued share capital
1,292
1,292
Revaluation reserve - property
14,276
14,764
- other
659
667
Capital redemption reserve
95
95
Realised capital reserve
27,020
25,586
Retained earnings
11,983
10,619
Total equity attributable to the owners of the parent
55,325
53,023
Consolidated statement of changes in equity
2016
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 2016
1,292
14,764
667
95
25,586
10,619
53,023
Dividends
-
-
-
-
-
(2,041)
(2,041)
Reserve transfers:
Non-distributable items recognised in statement of
comprehensive income:
Revaluation gains
-
973
467
-
-
(1,440)
-
Tax on revaluation gains/(losses)
-
-
(26)
-
-
26
-
Realised gains
-
-
-
-
149
(149)
-
Surplus attributable to assets sold in the year
-
(836)
(449)
-
1,285
-
-
Excess of cost over revalued amount taken to retained earnings
-
(625)
-
-
-
625
-
Transactions with owners
-
(488)
(8)
-
1,434
(2,979)
(2,041)
Profit and total comprehensive income for the year
-
-
-
-
-
4,343
4,343
At 31 December 2016
1,292
14,276
659
95
27,020
11,983
55,325
2015
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 2015
1,292
11,332
1,335
95
24,785
8,863
47,702
Dividends
-
-
-
-
-
(1,914)
(1,914)
Reserve transfers:
Non-distributable items recognised in statement of
comprehensive income:
Revaluation losses
-
4,765
(278)
-
-
(4,487)
-
Tax on revaluation gains/(losses)
-
-
14
-
-
(14)
-
Realised gains
-
-
-
-
364
(364)
-
Surplus attributable to assets sold in the year
-
(33)
(404)
-
437
-
-
Excess of cost over revalued amount taken to retained earnings
-
(1,300)
-
-
-
1,300
-
Transactions with owners
-
3,432
(668)
-
801
(5,479)
(1,914)
Profit and total comprehensive income for the year
-
-
-
-
-
7,235
7,235
At 31 December 2015
1,292
14,764
667
95
25,586
10,619
53,023
Consolidated statement of cash flows
for the year ended 31 December 2016
2016
2015
'000
'000
Operating activities
Profit before tax on ordinary activities
4,301
7,165
Adjustments for:
Net valuation gains on investment property
(973)
(4,765)
Net gain on disposal of investment property
(134)
(418)
Net loss on investments
(488)
415
Finance income
(11)
(7)
Finance expense
506
365
Operating cash flow before changes in working capital and provisions
3,201
2,755
Decrease/(increase) in trade and other receivables
10
(226)
Increase in trade and other payables
193
352
Cash generated from operations
3,404
2,881
Finance income
11
7
Finance expense
(506)
(365)
Net cash flows from operating activities
2,909
2,523
Investing activities
Purchase of non-current assets - investment property
(9,896)
(8,590)
- equity investments
(3)
(7)
Sale of non-current assets - investment property
2,972
2,332
- equity investments
1,176
969
Net cash flows from investing activities
(5,751)
(5,296)
Financing activities
Dividends paid
(2,041)
(1,914)
New bank borrowings
3,400
7,500
Net cash flows from financing activities
1,359
5,586
Net increase/(decrease) in cash and cash equivalents
1,483
2,813
Cash and cash equivalents at 1 January 2016
4,852
2,039
Cash and cash equivalents at 31 December 2016
3,369
4,852
Notes
for the year ended 31 December 2016
1 Income tax credit
2016
2015
'000
'000
Current tax:
On revenue profits
12
(13)
On capital profits
(80)
(43)
(68)
(56)
Deferred tax
26
(14)
Income tax credit
(42)
(70)
The tax assessed for the year differs from the standard rate of corporation tax in the UK of 20% (2015 21.5%).
The differences are explained as follows:
2016
2015
'000
'000
Profit before tax
4,301
7,165
Profit before tax multiplied by the standard rate of corporation tax in the UK of 20% (2015 20%)
860
1,433
Effect of:
Tax exempt revenues
(123)
33
Profit not taxable as a result of REIT status
(963)
(1,635)
Chargeable gains less than accounting profit
59
56
Use of management expenses
125
57
Effect of change in tax rate on deferred tax liability
-
(14)
Income tax credit
(42)
(70)
2 Dividends
In 2016 the following dividends have been paid by the company:
2016
2015
'000
'000
2015 Final: 24.50p per ordinary share (2014 22.75p)
1,266
1,175
2016 Interim: 15.0p per ordinary share (2015 14.30p)
775
739
2,041
1,914
The directors recommend a property income distribution of 1,343,000, 26.00p per share (2015 1,266,000, 24.50p per share) payable on 2 June 2017 to shareholders registered at 5 May 2017.
3 Earnings per share
The calculation of earnings per share is based on the total profit for the year of 4,343,000 (2015 7,235,000) and on 5,167,240 shares (2015 5,167,240) which is the weighted average number of shares in issue during the year ended 31 December 2016 and throughout the period since 1 January 2015. There are no dilutive instruments.
In order to draw attention to the impact of valuation gains and losses which are included in the statement of comprehensive income 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 2,877,000 (2015 2,871,000) has been calculated.
2016
2015
'000
'000
Earnings:
Basic profit for the year
4,343
7,235
Adjustments for:
Net valuation gains on investment property
(974)
(4,765)
Gains/(losses) on investments
(488)
415
Income tax on losses
(4)
(14)
Adjusted earnings
2,877
2,871
Per share amount:
Earnings per share (unadjusted)
84.0p
140.0p
Adjustments for:
Net valuation gains on investment property
(18.9p)
(92.2p)
Gains/(losses) on investments
(9.4p)
8.0p
Income tax on losses
-
(0.2p)
Adjusted earnings per share
55.7p
55.6p
4 Investment property
2016
2015
'000
'000
Valuation at 1 January
57,964
46,523
Additions
9,896
8,590
Disposals
(2,836)
(1,914)
Revaluation gains/(losses)
973
4,765
Valuation at 31 December
65,997
57,964
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 2016, 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
2016
2015
'000
'000
Valuation at 1 January
3,155
4,532
Additions
3
7
Disposals
(1,159)
(1,038)
Surplus/(deficit) on revaluation in excess of cost
467
(277)
Revaluation decrease below cost
(11)
(71)
Revaluation increase still less than cost
14
2
Valuation at 31 December
2,469
3,155
6 Interest bearing loans
2016
2015
'000
'000
Medium term bank loans
14,900
11,500
The medium term bank loans comprise amounts falling due as follows:
Between one and two years
-
-
Between two and five years
4,000
4,000
Over five years
10,900
7,500
14,900
11,500
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 2015. The accounting policies remain unchanged.
8 Annual General Meeting
The Annual General Meeting will be held on 12 May 2017.
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 2016 on which the auditor has expressed an unmodified 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 18 April 2017 and subsequently filed at Companies House.
This information is provided by RNSThe company news service from the London Stock ExchangeENDFR KMGZFVFDGNZM
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