HCFT.L Regulatory News (HCFT)

Highcroft 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.

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

Consolidated statement of financial position

at 31 December 2016

Consolidated statement of changes in equity

Consolidated statement of cash flows

Notes

for the year ended 31 December 2016

1 Income tax credit

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:

2 Dividends

In 2016 the following dividends have been paid by the company:

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.

4 Investment property

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

6 Interest bearing loans

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.