HCFT.L Regulatory News (HCFT)

21 Mar 2007 14:47

Highcroft Investments PLC21 March 2007 Highcroft Investments PLC Preliminary results for the year ended 31 December 2006 Key highlights • Gross property income up 6.3% to £2,038,000 • Profit for the year on revenue activities up 9.8% to £1,500,000 • Basic earnings per share on all activities down 17.1% to 84.8p • Adjusted earnings per share (on revenue activities) up 10.2% to 29.0p • Net asset value per share up 9.5% to 830p • Total dividends up 8.3% to 13.7p per share • Final dividend of 9.0p payable on 6 June 2007 Enquiries: John Hewitt, Chairman 01865 840 023 Highcroft Investments plc Freddy Crossley 020 7149 6000 Charles Stanley Securities Chairman's Statement Financial results - revenue activities Profit before taxation on revenue activities increased to £1,956,000 from£1,825,000 in 2006, an increase of 7.2%. Gross income was £2,527,000 ascompared with £2,256,000 in 2005. Gross property income rose from £1,917,000 to£2,038,000, an increase of 6.3%, arising from the expansion of the portfolio,partly funded by medium term loans. Financial results - capital activities During 2006, £7,437,000 was invested in property acquisitions (2005 Nil) and£1,029,000 was invested in equities (2005 £958,000). The proceeds from propertydisposals during the year amounted to £2,032,000 (2005 £469,000) while equitydisposals generated £1,000,000 (2005 £675,000). The net gains on these disposals amounted to £201,000 (2005 £40,000), comprising£287,000 of gains on property disposals and £86,000 of losses on disposal ofinvestments. The net gain after taxation of £118,000 (2005 £32,000) wastransferred to realised capital reserve. Property The property valuation showed a rise from £33.5 million to £41.5 million. In February 2006 we purchased a terrace of three retail units in Staines at acost including stamp duty and fees of £2.99m. The property benefits fromplanning and other consents to extend upwards to create nine new apartments.Initially the intention had been to develop these new apartments ourselves.However strong interest from developers specialising in such schemes, along withfavourable ground rent terms which will add further value encouraged the boardsimply to dispose of the development site by way of a long lease, and thistransaction will be concluded in 2007. In October 2006 the company purchased a five storey office building in Victoria,London for £4.33m including stamp duty and fees. This represented a rareopportunity to participate in the important central London market wheregenerally the large lot sizes would put the majority of property out ofHighcroft's reach. Initially the yield of 5.77% is a reflection of a moderatelyover-rented position, but the directors are confident further rental growth andcontinuing investor demand will ensure that this property will be a strongperformer over the medium term. Taken with the disposal of the office buildingat Solihull and other disposals of smaller office buildings in Oxford andAbingdon, the directors believe that they have completed a modest butsignificant shift in emphasis within the office sector of the portfolio. Listed investments The All Share Index rose by 13.1% during 2006 and we made several disposals fromthe equity investment portfolio which gave a net loss in the income statement.During the course of 2006 there was a net investment in the equity investmentportfolio of £283,000. Summary We are pleased to report that the net asset value per share has risen by 9.5% to830p (2005 758p). Total shareholders funds were £42,875,000 (2005 £39,164,000). The continuing increase in income and operating profits enables us to meet ourtarget of an increase in dividends well above the rate of inflation. Proposeddividends for 2006 are up 8.3% on 2005. Basic earnings per share, which takeaccount of capital activities, are down 17.1% to 84.8p per share but adjustedearnings per share, adjusted to take out the effect of capital activities, areup 9.8% to 29.0p per share. Current trading and prospects The board has monitored the development of the REITs (Real Estate InvestmentTrusts) legislation over recent years in the hope that this would represent anopportunity for Highcroft and its shareholders. The legislation is not simpleand, more significantly, the proposed provisions in respect of substantialshareholders (those with shareholdings greater than 10%) changed regularly.However, we are now optimistic that during 2007 we will be in a position to callan Extraordinary General Meeting at which we will invite shareholders to approvethe conversion of the company to a REIT. This will reduce significantly the taxliabilities of the group, thus increase net asset value, and substantiallyincrease the dividend returns for shareholders. The property market has steadily risen in recent years contradicting thoseearlier forecasts which suggested it was peaking. The directors believe thatcertain property sectors may already have peaked and that there may well be ashort-term flattening in values. We continue to look for investments which willgive financial return in the medium term while remaining conscious of the forcesaffecting the market in which we operate. Equity markets rose in 2006 and we expect further advances in 2007 although notat the same rate. Our activities in these markets may be more short term,although we predominantly seek return in the medium term. If we are successfulin converting to a REIT, our equity investment portfolio will be limited to amaximum of 25% of the total portfolio. We look forward to seeing as many shareholders as possible at the Annual GeneralMeeting on Wednesday 23 May 2007 which will provide an opportunity for anexchange of views and an update on the issue of REITs. J HEWITTChairman21 March 2007 Consolidated income statementfor the year ended 31 December 2006 Note 2006 2005 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Gross rental revenue 2,038 - 2,038 1,917 - 1,917Property operating expenses (136) - (136) (125) - (125)Net rental revenue 1,902 - 1,902 1,792 - 1,792 Realised gains on investment property - 320 320 - 44 44Realised losses on investment property - (33) (33) - (36) (36)Net realised gain on investment property - 287 287 - 8 8 Valuation gains on investment property - 2,732 2,732 - 3,464 3,464Valuation losses on investment property - (398) (398) - (65) (65)Net valuation gains on investment - 2,334 2,334 - 3,399 3,399property Dividend income 489 - 489 339 - 339Gains on investments - 1,455 1,455 - 1,748 1,748Losses on investments - (309) (309) - (142) (142)Net investment income 489 1,146 1,635 339 1,606 1,945 Administration expenses (247) - (247) (222) - (222)Net operating profit before net finance 2,144 3,767 5,911 1,909 5,013 6,922expenses Finance income 13 - 13 8 - 8Finance expenses (201) - (201) (92) - (92)Net finance expenses (188) - (188) (84) - (84) Profit before tax 1,956 3,767 5,723 1,825 5,013 6,838 Income tax expense 1 (456) (884) (1,340) (459) (1,092) (1,551) Profit for the year 1,500 2,883 4,383 1,366 3,921 5,287 Basic and diluted earnings per share 3 29.0p 55.8p 84.8p 26.4p 75.9p 102.3p The total represents the income statement as defined in IAS1. Consolidated balance sheetat 31 December 2006 Note 2006 2005 £'000 £'000AssetsNon-current assetsInvestment property 4 41,487 33,461Equity investments 5 11,794 10,620Total non-current assets 53,281 44,081 Current assetsTrade and other receivables 489 301Cash and cash equivalents 281 725Total current assets 770 1,026 Total assets 54,051 45,107 LiabilitiesCurrent liabilitiesInterest-bearing loans and borrowings 246 71Current income tax 196 358Trade and other payables 838 725Total current liabilities 1,280 1,154 Non-current liabilitiesInterest-bearing loans and borrowings 5,685 1,429Deferred tax liabilities 4,211 3,360Total non-current liabilities 9,896 4,789 Total liabilities 11,176 5,943 Net assets 42,875 39,164 EquityIssued share capital 1,292 1,292Revaluation reserve - property 10,169 8,734 - other 4,601 3,902Capital redemption reserve 95 95Realised capital reserve 16,055 15,306Retained earnings 10,663 9,835Total equity 42,875 39,164 Consolidated statement of cash flowsfor the year ended 31 December 2006 2006 2005 £'000 £'000Operating activitiesProfit for the year 4,383 5,287Adjustments for:Net valuation gains on investment property (2,334) (3,399)Profit on disposal of investment property (287) (8)Gains on investments (1,146) (1,606)Finance income (13) (8)Finance expense 201 92Income tax expense 1,340 1,551Operating cash flow before changes in working capital and 2,144 1,909provisions (Increase)/decrease in trade and other receivables (188) 68Increase in trade and other payables 113 46Cash generated from operations 2,069 2,023 Finance income 13 8Finance expenses (201) (92)Income taxes paid (650) (564)Cash flows from operating activities 1,231 1,375 Investing activitiesPurchase of non-current assets - investment property (7,437) - - equity investments (1,029) (958) Sale of non-current assets - investment property 2,032 469 - equity investments 1,000 675 Cash flows from investing activities (5,434) 186 Financing activitiesNew medium term loans 4,470 -Loan repayments (39) (70)Dividends paid (672) (620)Cash flows from financing activities 3,759 (690) Net increase in cash and cash equivalents (444) 871Cash and cash equivalents at 1 January 2006 725 (146)Cash and cash equivalents at 31 December 2006 281 725 Notesfor the year ended 31 December 2006 1 Taxation 2006 2005 £'000 £'000Current tax:On revenue profits 363 461On capital profits 83 8Prior year overprovision (11) (1) 435 468Deferred tax 905 1,083 1,340 1,551 The tax assessed for the year differs from the standard rate of corporation taxin the UK of 30% (2005 30%). The differences are explained as follows: 2006 2005 £'000 £'000Profit before tax 5,723 6,838Profit before tax multiplied by standard rate of corporation 1,716 2,051tax in the UK of 30% (2005 30%).Effect of:Tax exempt revenues (119) (87)Chargeable gains less than accounting profit (246) (411)Adjustments to tax charge in respect of prior periods (11) (2)Income tax expense 1,340 1,551 2 Dividends On 21 March 2007, the directors declared an ordinary dividend of 9.0p per share(2005 8.3p) payable on 6 June 2007 to shareholders registered at 4 May 2007. The following dividends have been paid by the company. 2006 2005 £'000 £'000 2005 Final: 8.30p per ordinary share (2004 7.65p) 429 3952006 Interim: 4.70p per ordinary share (2005 4.35p) 243 225 672 620 3 Earnings per share The calculation of earnings per share is based on the profit for the year of£4,383,000 (2005 £5,287,000) and on 5,167,240 shares (2005 5,167,240) which isthe weighted average number of shares in issue during the year ended 31 December2006 and throughout the period since 1 January 2005. In order to draw attention to the impact of valuation gains and losses which areincluded in the income statement but not available for distribution under thecompany's articles of association, an adjusted earnings per share based on theprofit available for distribution of £1,500,000 (2005 £1,366,000) has beencalculated. 2006 2005 £'000 £'000Earnings:Basic earnings (profit for the year) 4,383 5,287Adjustments for:Net valuation gains on investment property (2,621) (3,407)Gains and losses on investments (1,146) (1,606)Income tax on gains and losses 884 1,092Adjusted earnings (operating profit) 1,500 1,366Per share amount:Basic earnings per share 84.8p 102.3pAdjustments for:Net valuation gains on investment property (50.7)p (65.9)pGains and losses on investments (22.2)p (31.1)pIncome tax on gains and losses 17.1p 21.1pAdjusted earnings per share 29.0p 26.4p 4 Investment property 2006 2005 £'000 £'000Valuation at 1 January 2006 33,461 30,523Additions 7,437 -Disposals (1,745) (461)Surplus on revaluation 2,334 3,399Valuation at 31 December 2006 41,487 33,461 In accordance with IAS 40, Jones Lang LaSalle have valued freehold and leaseholdproperties. The valuation has been conducted by them as external valuers andhas been prepared as at 31 December 2006, in accordance with the Appraisal &Valuation Standards of the Royal Institution of Chartered Surveyors, on thebasis of market value. This value has been incorporated into the financialstatements. In accordance with IAS40, a property interest under an operating lease isclassified and accounted for as an investment property on a property-by-propertybasis when the group holds it to earn rentals or for capital appreciation orboth. Any such property interest under an operating lease classified as aninvestment property is carried at fair value. 5 Equity investments 2006 2005 £'000 £'000Valuation at 1 January 2006 10,620 8,731Additions 1,029 958Disposals (1,087) (643)Surplus on revaluation 1,232 1,574Valuation at 31 December 2006 11,794 10,620 6 Basis of preparation The preliminary announcement has been prepared in accordance with applicableaccounting standards as stated in the financial statements for the year ended 31December 2005. 7 Annual General Meeting The Annual General Meeting will be held on 23 May 2007. 8 Final ordinary dividend A final ordinary dividend of 9.00p per share will be paid on 6 June 2007 toshareholders registered at the close of business on 4 May 2007. 9 Publication of non-statutory accounts The above does not constitute statutory accounts within the meaning ofsection 240 of the Companies Act 1985. It is an extract from the full accountsfor the year ended 31 December 2006 on which the auditor has expressed anunqualified opinion. The accounts will be posted to shareholders on or before24 April 2007 and subsequently filed at Companies House. This information is provided by RNS The company news service from the London Stock Exchange