12 Mar 2009 07:00
Highcroft Investments PLC
Preliminary results for the year ended 31 December 2008
Key highlights
Gross property income steady at £2,124,000
Profit for the year on revenue activities up 23.0% to £1,922,000
Net asset value per share down 24.2% to 612p
Basic loss per share on all activities was 179.3p
Adjusted earnings per share (on revenue activities) was 37.3p
Total property income distribution 18.4p 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 increased to £1,889,000 from £1,833,000 in 2007, a rise of 3.3%. Gross income for the year ended 31 December 2008 was £2,574,000 (2007 £2,532,000).
Underlying commercial property income has fallen because of the voids at Warrington, for half the year, and Yeovil for the whole year. In 2007 these two properties provided a total of £220k in commercial rental income. Underlying commercial property income was boosted by four rent reviews which added £57k in backdated rents to 2008. Commercial property income was also boosted by two dilapidations claims totalling £92k.
2008's residential property income benefited from a full year of occupancy of the flats in Cirencester, though future residential income will be reduced because of the sale of one property in the second quarter.
Property operating expenses are high in 2008 because of the dilapidations expenditure, bad debts and rates on vacant properties.
2008's income from equity investments benefited from more special dividends than 2007 and so we saw an 11% increase.
Financial results - capital activities
Commercial property values were on a downward curve during 2008. While the nature of our portfolio means that the fall in value was less than in the market at large, the fall in several individual values means that a number of properties are valued at less than cost. The reduction in values, which mean ten of our properties are valued below cost, is not expected to be permanent but no-one can predict with certainty how soon and how quickly values will recover.
There was a valuation deficit on the property portfolio of £8,926,000 and, after one disposal, the value of the portfolio was £26.3 million (2007 £35.5 million).
During the course of 2008 there was a net divestment from the equity investment portfolio of £107,000 (2007 £1,265,000). Sales of equity investments generated £857,000 (2007 £2,429,000) and realised net losses of £441,000 (2007 £27,000 gains). Equity markets fell dramatically in 2008 and our portfolio was particularly affected because of our holdings in banks but our portfolio is generally a defensive one and so has still performed better than the market. At the close of business in 10 March 2009, the equity portfolio was valued at £6.1 million.
Summary
The net asset value per share fell by 24.2% to 612p (2006 807p). Total shareholders funds were £31,604,000 (2007 £41,713,000).
The increase in profit for the year on revenue activities, facilitated by the conversion to a REIT, enables us to pay a total property income distribution of 18.4p per share, of which 7p was paid in October 2008 and 11.4p will be paid on 3 June 2009. The basic earnings per share, which take account of capital activities, are negative and show a loss per share of 179.3p per share but adjusted earnings per share, adjusted to take out the effect of capital activities, are up 23.5% to 37.3p per share.
Current trading and prospects
Given the present economic environment, the directors are aware of the general concern affecting the assessment of the going concern basis for all businesses and have therefore taken particular care in reviewing the going concern basis. The directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future and consider that there are no material uncertainties that lead to significant doubt upon the group's ability to continue as a going concern. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
The property market continued to fall sharply in 2008 with signs of some distress selling towards the end of the year. While we remain cautious in the short term, we believe that 2009/10 may provide useful buying opportunities which could produce decent medium term financial returns.
Equity markets have continued to be turbulent and nervous but we continue to focus on well run defensive stocks which are likely to provide consistent dividend growth. The overseas holdings, which represented 17.3% of the portfolio at 31 December 2008, have provided some hedge against Sterling weakness. The portfolio is intended to decrease the risks associated with holding 100% of shareholders funds in UK property assets.
J HEWITT
Chairman
11 March 2009
Consolidated income statement
for the year ended 31 December 2008
| | | | | | | | |
| | Note | | 2008 | | | 2007 | |
| | | Revenue | Capital | Total | Revenue | Capital | Total |
| | | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| | | | | | | | |
| Gross rental revenue | | 2,124 | - | 2,124 | 2,126 | - | 2,126 |
| Property operating expenses | | (300) | - | (300) | (99) | - | (99) |
| Net rental revenue | | 1,824 | - | 1,824 | 2,027 | - | 2,027 |
| | | | | | | | |
| Realised gains on investment property | | - | - | - | - | 107 | 107 |
| Realised losses on investment property | | - | (5) | (5) | - | (6) | (6) |
| Net realised (loss)/gain on investment property | | - | (5) | (5) | - | 101 | 101 |
| | | | | | | | |
| Valuation gains on investment property | | - | 59 | 59 | - | 388 | 388 |
| Valuation losses on investment property | | - | (8,985) | (8,985) | - | (3,819) | (3,819) |
| Net valuation losses on investment property | | - | (8,926) | (8,926) | - | (3,431) | (3,431) |
| | | | | | | | |
| Dividend revenue | | 450 | - | 450 | 406 | - | 406 |
| Gains on equity investments | | - | 95 | 95 | - | 1,592 | 1,592 |
| Losses on equity investments | | - | (3,535) | (3,535) | - | (1,290) | (1,290) |
| Net investment income | | 450 | (3,440) | (2,990) | 406 | 302 | 708 |
| | | | | | | | |
| Administration expenses | | (324) | - | (324) | (391) | - | (391) |
| Net operating profit/(loss) before net finance expenses | | 1,950 | (12,371) | (10,421) | 2,042 | (3,028) | (986) |
| | | | | | | | |
| Finance income | | 27 | - | 27 | 28 | - | 28 |
| Finance expenses | | (88) | - | (88) | (237) | - | (237) |
| Net finance expenses | | (61) | - | (61) | (209) | - | (209) |
| | | | | | | | |
| Profit/(loss) before tax | | 1,889 | (12,371) | (10,482) | 1,833 | (3,028) | (1,195) |
| | | | | | | | |
| Income tax credit/(expense) | 1 | 33 | 1,180 | 1,213 | (271) | 1,027 | 756 |
| | | | | | | | |
| Profit/(loss) for the year | | 1,922 | (11,191) | (9,269) | 1,562 | (2,001) | (439) |
| | | | | | | | |
| | | | | | | | |
| Basic and diluted earnings/(loss) per share | 3 | 37.3p | (216.6p) | (179.3p) | 30.2p | (38.7p) | 8.5p |
Consolidated balance sheet
at 31 December 2008
| Note | 2008 | 2007 | |
| £'000 | £'000 | ||
| Assets | |||
| Non-current assets | |||
| Investment property | 4 | 26,344 | 35,545 |
| Equity investments | 5 | 7,282 | 10,830 |
| Total non-current assets | 33,626 | 46,375 | |
| Current assets | |||
| Trade and other receivables | 223 | 326 | |
| Cash | 963 | 813 | |
| Total current assets | 1,186 | 1,139 | |
| Total assets | 34,812 | 47,514 | |
| Liabilities | |||
| Current liabilities | |||
| Interest-bearing loans and borrowings | 14 | 18 | |
| Current income tax | 440 | 426 | |
| Trade and other payables | 826 | 743 | |
| Total current liabilities | 1,280 | 1,187 | |
| Non-current liabilities | |||
| Interest-bearing loans and borrowings | 1,240 | 1,909 | |
| Deferred tax liabilities | 688 | 2,705 | |
| Total non-current liabilities | 1,928 | 4,614 | |
| Total liabilities | 3,208 | 5,801 | |
| Net assets | 31,604 | 41,713 | |
| Equity | |||
| Issued share capital | 1,292 | 1,292 | |
| Revaluation reserve - property | 4,080 | 7,094 | |
| - other | 2,137 | 4,203 | |
| Capital redemption reserve | 95 | 95 | |
| Realised capital reserve | 17,773 | 17,527 | |
| Retained earnings | 6,227 | 11,502 | |
| Total equity | 31,604 | 41,713 | |
Consolidated statement of cash flows
for the year ended 31 December 2008
| 2008 | 2007 | ||
| £'000 | £'000 | ||
| Operating activities | |||
| Loss for the year | (9,269) | (439) | |
| Adjustments for: | |||
| Net valuation losses on investment property | 8,926 | 3,431 | |
| Loss/(profit) on disposal of investment property | 5 | (101) | |
| Loss/(gain) on investments | 3,440 | (302) | |
| Finance income | (27) | (28) | |
| Finance expense | 88 | 237 | |
| Income tax (credit)/expense | (1,213) | (756) | |
| Operating cash flow before changes in working capital and provisions | 1,950 | 2,042 | |
| Decrease in trade and other receivables | 103 | 163 | |
| Increase/(decrease) in trade and other payables | 83 | (94) | |
| Cash generated from operations | 2,136 | 2,111 | |
| Finance income | 27 | 28 | |
| Finance expenses | (88) | (237) | |
| Income taxes paid | (794) | (521) | |
| Net cash flows from operating activities | 1,281 | 1,381 | |
| Investing activities | |||
| Purchase of non-current assets - investment property | - | (6) | |
| - equity investments | (750) | (1,164) | |
| Sale of non-current assets - investment property | 271 | 2,619 | |
| - equity investments | 857 | 2,429 | |
| Net cash flows from investing activities | 378 | 3,878 | |
| Financing activities | |||
| New medium term loans | - | - | |
| Loan repayments | (669) | (4,004) | |
| Dividends paid | (840) | (723) | |
| Net cash flows from financing activities | (1,509) | (4,727) | |
| Net increase in cash | 150 | 532 | |
| Cash at 1 January 2008 | 813 | 281 | |
| Cash at 31 December 2008 | 963 | 813 |
Notes
for the year ended 31 December 2008
1 Taxation
| 2008 | 2007 | ||
| £'000 | £'000 | ||
| Current tax: | |||
| On revenue profits | 102 | 341 | |
| On capital profits | - | 37 | |
| REIT conversion charge | 668 | - | |
| Prior year under/(over)provision | (34) | (31) | |
| 804 | 347 | ||
| Deferred tax | (2,017) | (1,103) | |
| (1,213) | (756) |
The tax assessed for the year differs from the standard rate of corporation tax in the UK of 28.5% (2006 30%). The differences are explained as follows:
| 2008 | 2007 | |
| £'000 | £'000 | |
| Loss before tax | (10,482) | (1,195) |
| Loss before tax multiplied by standard rate of corporation tax in the UK of 28.5% (2007 30%). | (2,987) | (358) |
| Effect of: | ||
| Tax exempt revenues | (96) | (93) |
| Profit not taxable as a result of REIT conversion | (339) | - |
| REIT conversion charge | 668 | - |
| Chargeable losses less than accounting profit | 1,507 | 7 |
| Adjustments to tax charge in respect of prior periods | 34 | (31) |
| Deferred taxation change of rate | - | (281) |
| Income tax credit | (1,213) | (756) |
2 Dividends
On 11 March 2009, the directors declared a property income distribution of 11.4p per share (2007 9.25p dividend) payable on 3 June 2009 to shareholders registered at 8 May 2009.
The following dividends have been paid by the group.
| 2008 | 2007 | |
| £'000 | £'000 | |
| 2007 Final: 9.25p per ordinary share (2006 9.00p) | 478 | 465 |
| 2008 Interim PID: 7.00p per ordinary share (2007 5.00p) | 362 | 258 |
| 840 | 723 |
3 (Loss)/earnings per share
The calculation of earnings per share is based on the total loss for the year of £9,269,000 (2007 £439,000 profit) and on 5,167,240 shares (2007 5,167,240) which is the weighted average number of shares in issue during the year ended 31 December 2008 and throughout the period since 1 January 2007. 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 £1,922,000 (2007 £1,562,000) has been calculated.
| 2008 | 2007 | |
| £'000 | £'000 | |
| Earnings: | ||
| Basic loss for the year | (9,269) | (439) |
| Adjustments for: | ||
| Net valuation losses on investment property | 8,931 | 3,330 |
| Losses/(gains) on investments | 3,440 | (302) |
| Income tax on gains and losses | (1,180) | (1,027) |
| Adjusted earnings | 1,922 | 1,562 |
| Per share amount: | ||
| Loss per share | (179.3p) | (8.5p) |
| Adjustments for: | ||
| Net valuation losses on investment property | 172.8p | 64.4p |
| Losses/(gains) on investments | 66.6p | (5.8p) |
| Income tax on gains and losses | (22.8p) | (19.9p) |
| Adjusted earnings per share | 37.3p | 30.2p |
4 Investment property
| 2008 | 2007 | |
| £'000 | £'000 | |
| Valuation at 1 January 2008 | 35,545 | 41,487 |
| Additions | - | 6 |
| Disposals | (275) | (2,517) |
| Revaluation losses | (8,926) | (3,431) |
| Valuation at 31 December 2008 | 26,344 | 35,545 |
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 2008, 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
| 2008 | 2007 | |
| £'000 | £'000 | |
| Valuation at 1 January 2008 | 10,830 | 11,794 |
| Additions | 750 | 1,164 |
| Disposals | (1,299) | (2,403) |
| Revaluation (losses)/gains | (2,999) | 275 |
| Valuation at 31 December 2008 | 7,282 | 10,830 |
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 2007.
7 Annual General Meeting
The Annual General Meeting will be held on 12 May 2009.
8 Publication of non-statutory accounts
The above does not constitute statutory 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 2008 on which the auditor has expressed an unqualified opinion and does not include any statement under section 237 of the Companies Act 1985. The accounts will be posted to shareholders on or before 8 April 2009 and subsequently filed at Companies House.