HCFT.L Regulatory News (HCFT)

RNS Number : 3032I

Highcroft Investments PLC

09 March 2010

 

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.

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