RNS Number : 8063A
Highcroft Investments PLC
07 August 2008
Highcroft Investments PLC
Interim results for the six months ended 30 June 2008
Highlights
* Profit after taxation excluding capital activities is up by 41.4% to �976,000 (June 2007 �690,000) following our conversion to a
REIT
* Loss after taxation including capital activities is �3,184,000 (June 2007 �1,375,000 profit). Market falls partially offset, in
the case of property, by the released deferred tax liability.
* Interim property income distribution will be 7.00p per share compared with a 5.00p ordinary interim dividend in 2007 but with
different tax consequences for shareholders.
* Net assets per share down to 736p (June 2007 847p and December 2007 807p)
Enquiries:
David Bowman 01865 840 023
Highcroft Investments plc
Philip Davies
Charles Stanley Securities 020 7149 6000
Dear Shareholder
I suspect that shareholders will not be surprised to see that the interim statement makes for more difficult reading than those of
recent years. The problems of the commercial property sector have been well trailed in the media, with good growth in rental and capital
values over the last decade being brought to a very swift end, and reversed, by the problems of the global credit crunch. Our caution first
expressed in the 2006 Annual Report, stressed more in subsequent communications, is justified by the current economic problems. Many
commentators suggest that these are the most difficult trading conditions since the early 1970s. That having been said, while we expect
circumstances to deteriorate further in the short term and we continue to be cautious about the timing and strength of any recovery, I would
like to reassure shareholders as to our medium term prospects and strategy.
Before moving to the medium term outlook, however, I must say something about how the economic problems have affected us. You will see
from the accompanying figures that we have suffered a further decline in both the value of our property portfolio and of our equity
investments. There are brighter spots in both areas but overall we report that net asset value per share has fallen to 736p from 807p at
December 2007 and a high of 847p a year ago. While it is disappointing to record falls in asset values, we feel that the disposition of our
portfolio, the lack of any meaningful level of gearing and the beneficial tax impact of conversion to a REIT has protected shareholders from
greater declines.
In terms of the reported income statement, I would, once again, emphasise that the headline figure - a loss after taxation of �3.2m - is
calculated under International Financial Reporting Standards which require changes in asset values to be shown in the income statement. If
we look at the revenue figures - the nearest approximation to the old profit and loss account - the picture is a little steadier. On the
minus front our operating expenses are higher - as a result of voids at two of our properties and the costs of the second EGM necessary to
achieve REITs status- but on the plus side we have had higher dividend income, lower finance costs and the start of REITs tax benefits.
Earnings per share on an adjusted basis are therefore 19.0p per share against 13.3p in the comparable period last year.
The outlook for the rest of the financial year and 2009 continues to look difficult and we remain cautious therefore. Our property
portfolio continues, we believe, to look the right shape for the medium term. We are working hard to get new tenants in the Yeovil and
Warrington properties which are currently empty but while success there would aid the valuations, we would expect the overall economic
worries to continue to impact on property values.
I would like to finish by mentioning two items which should cheer shareholders. The REITs regime, effective from 1 April 2008, requires
higher distributions of property earnings as a quid pro quo of tax exemption. The interim dividend is the first to benefit from the new
regime so I am pleased to say that the interim dividend which is to be paid on 29 October will be 7p per share. Shareholders should note
that the taxation treatment of this dividend is different as it is a property income distribution (PID) and also that we would not
necessarily expect the final dividend to show the same increase. The second point is that we are very well placed to take advantage of an
eventual recovery in the property market or of any distressed selling in the meantime. With a sound current portfolio, liquid assets in
equities, significant ability to borrow, and REITs status the next two years might give the opportunity to lay the foundations for the next
10-15 years growth.
Yours sincerely
J Hewitt
7 August 2008
Condensed consolidated income statement (Unaudited)
for the six months ended 30 June 2008
Six months 2008 Six months Twelve months 2007
2007
Note �'000 �'000 �'000
Gross rental income 1,034 1,055 2,126
Property operating expenses (102) (46) (99)
Net rental income 932 1,009 2,027
Realised gains on investment - 109 107
property
Realised losses on investment (5) (6) (6)
property
Loss/(profit) on disposal of (5) 103 101
investment property
Valuation gains on investment 346 428 388
property
Valuation losses on investment (3,594) (81) (3,819)
property
Net valuation (losses)/gains (3,248) 347 (3,431)
on investment property
Dividend income 197 168 406
Gains on investments 161 869 1,592
Losses on investments (1,814) (575) (1,290)
Net investment income (1,456) 462 708
Administrative expenses (212) (136) (391)
Operating (loss)/profit before (3,989) 1,785 (986)
net financing costs
Finance income 17 9 28
Finance expenses (52) (144) (237)
Net financing costs (35) (135) (209)
(Loss)/profit before tax (4,024) 1,650 (1,195)
Income tax credit/(expense) 4 840 (275) 756
(Loss)/profit for the (3,184) 1,375 (439)
financial period
Earnings/(loss) per share 6 (61.6)p 26.6p (8.5)p
Condensed consolidated balance sheet (Unaudited)
as at 30 June 2008
30 June 30 June 31 December
2008 2007 2007
Note �'000 �'000 �'000
Assets
Investment property 7 32,021 39,324 35,545
Equity investments 8 8,857 11,840 10,830
Total non-current assets 40,878 51,164 46,375
Current assets
Trade and other receivables 134 407 326
Cash at bank and in hand 917 433 813
Total current assets 1,051 840 1,139
Total assets 41,929 52,004 47,514
Liabilities
Current liabilities
Interest-bearing loans and borrowings 18 178 18
Current corporation tax 664 405 426
Trade and other payables 733 879 743
Total current liabilities 1,415 1,462 1,187
Non-current liabilities
Interest-bearing loans and borrowings 10 1,304 2,760 1,909
Deferred tax liabilities 1,159 3,997 2,705
Total non-current liabilities 2,463 6,757 4,614
Total liabilities 3,878 8,219 5,801
Net assets 38,051 43,785 41,713
Equity
Issued share capital 9 1,292 1,292 1,292
Revaluation reserve - property 9 4,529 9,723 7,094
Revaluation reserve - other 9 3,096 4,635 4,203
Capital redemption reserve 9 95 95 95
Realised capital reserve 9 17,707 17,152 17,527
Retained earnings 9 11,332 10,888 11,502
Total equity 38,051 43,785 41,713
Condensed consolidated statement of cash flows (Unaudited)
for the six months ended 30 June 2008
First Half First Half Full Year
2008 2007 2007
�'000 �'000 �'000
Operating activities
Profit for the period (3,184) 1,375 (439)
Adjustments for:
Net valuation losses/(gains) on investment 3,248 (347) 3,431
property
Loss/(profit) on disposal of investment 5 (103) (101)
property
Net losses/(gains) on investments 1,653 (294) (302)
Finance income (17) (9) (28)
Finance expense 52 144 237
Income tax (credit)/expense (840) 275 (756)
Operating cash flow before changes in 917 1,041 2,042
working
capital and provisions
Decrease in trade and other receivables 192 82 163
(Decrease)/increase in trade and other (10) 40 (94)
payables
Cash generated from operations 1,099 1,163 2,111
Finance income 17 9 28
Finance expense (52) (144) (237)
Income tax paid (467) (282) (521)
Cash flows from operating activities 597 746 1,381
Investing activities
Purchase of fixed assets - investment - (6) (6)
property
- equity investments (63) (703) (1,164)
Sale of fixed assets - investment property 271 2,621 2,619
- equity investments 382 952 2,429
Cash flows from investing activities 590 2,864 3,878
Financing activities
New medium term loans - - -
Loan repayments (605) (2,993) (4,004)
Dividends paid (478) (465) (723)
Cash flows from investing activities (1,083) (3,458) (4,727)
Net increase in cash and cash equivalents 104 152 532
Cash and cash equivalents at 1 January 813 281 281
2008
Cash and cash equivalents at 30 June 2008 917 433 813
Notes
1. Interim report
The results for the six months ended 30 June 2008 are unaudited. This interim report will not appear as an advertisement in any
newspaper but copies are being sent to all shareholders and are available at the company's registered office. The interim report does not
constitute full accounts as defined by the Companies Act 2006 but should be read in conjunction with the most recent financial statements.
Full accounts for 2007 have been delivered to the Registrar of Companies, bearing an unqualified audit opinion.
2. Significant accounting policies
Highcroft Investments PLC is a company domiciled in the United Kingdom. The interim financial statements of the company for the six
months ended 30 June 2008 comprise the company and its subsidiary, together referred to as the group.
a. Statement of compliance
These interim financial statements have been prepared in accordance with IAS 34 on Interim Financial Reporting.
b. Basis of preparation
The condensed consolidated interim financial information for the six months ended 30 June 2008 is presented in pounds sterling, rounded
to the nearest thousand. They are prepared on the historical cost basis except that investment property and equity investments are stated at
their fair value. The accounting policies have been consistently applied to the results, other gains and losses, assets, liabilities and
cash flows of entities included in the consolidated interim financial statements and are consistent with those used in the previous year.
3. Segmental reporting
Segmental information is presented in the interim financial statements in respect of the group's business segments. The business segment
reporting format reflects the group's management and internal reporting structure. Segment results include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis.
The group is comprised of the following main business segments:
* Commercial property comprising retail outlets, offices and warehouses.
* Residential property comprising mainly single-let houses.
* Financial assets comprising exchange-traded equity investments.
First Half First Half Full Year
2008 2007 2007
�'000 �'000 �'000
Commercial property
Gross income 995 1,026 2,062
(Loss)/profit for the period (2,818) 610 (1,521)
Assets 30,697 37,576 34,088
Liabilities 2,619 5,697 3,429
Residential property
Gross income 39 29 64
Profit for the period 668 348 257
Assets 2,356 2,475 2,553
Liabilities 59 592 656
Financial assets
Gross income 197 168 406
(Loss)/profit for the period (1,034) 417 825
Assets 8,876 11,953 10,873
Liabilities 1,200 1,930 1,716
Total
Gross income 1,231 1,223 2,532
(Loss)/profit for the period (3,184) 1,375 (439)
Assets 41,929 52,004 47,514
Liabilities 3,878 8,219 5,801
4. Taxation
First Half First Half Full Year
2008 2007 2007
�'000 �'000 �'000
Current tax:
On revenue profits 75 216 341
On capital profits (26) 12 37
Prior year overprovision - - (31)
Deferred tax:
On revenue profits (169) - (39)
On capital profits (1,388) 47 (1,064)
REITs conversion charge 668 - -
(840) 275 (756)
The taxation charge has been based on the estimated effective tax rate for the full year. However, on 1 April 2008, the group became a
Real Estate Investment Trust and from that date the group does not pay corporation tax on its profits and gains from its commercial and
residential property activities. For entry to that regime, the group will pay a conversion charge, estimated at �668,000, and a property
income dividend to shareholders equal to at least 90% of the taxable profits from its commercial and residential property activities.
5. Dividends
On 6 August 2008, the directors declared a property income dividend of 7.00p per share (2007 5.00p interim dividend) payable on 29
October 2008 to shareholders registered at 3 October 2008.
The following dividends have been paid by the company.
First Half First Half Full Year
2008 2007 2007
�'000 �'000 �'000
9.00p per ordinary share (2007 8.30p) 478 465 465
2007 interim 5.00p per ordinary share - - 258
478 465 723
6. Earnings per share
The calculation of earnings per share is based on the loss for the period of �3,184,000 (2007 �1,375,000 profit) and on 5,167,240 shares
(2007 5,167,240) which is the weighted average number of shares in issue during the period ended 30 June 2008 and throughout the period
since 1 January 2007.
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
�976,000 (2007 �690,000) has been calculated.
First Half First Half Full Year
2008 2007 2007
�'000 �'000 �'000
Earnings:
Basic earnings (3,184) 1,375 (439)
Adjustments for:
Net valuation gains on investment property 3,253 (450) 3,330
Gains and losses on investments 1,653 (294) (302)
Income tax on gains and losses (746) 59 (1,027)
Adjusted earnings 976 690 1,562
Per share amount:
Basic earnings per share (61.6)p 26.6p (8.5)p
Adjustments for:
Net valuation gains on investment property 63.0p (8.7)p 64.4p
Gains and losses on investments 32.0p (5.7)p (5.8)p
Income tax on gains and losses (14.4)p 1.1p (19.9)p
Adjusted earnings per share 19.0p 13.3p 30.2p
7. Investment property
First Half First Half Full Year
2008 2007 2007
Valuation at 1 January 2008 35,545 41,487 41,487
Additions - 6 6
Disposals (276) (2,516) (2,517)
Deficit/surplus on revaluation (3,248) 347 (3,431)
Valuation at 30 June 2008 32,021 39,324 35,545
The directors have used an external independent valuation of properties at 30 June 2008.
8. Equity investments
Listed and unlisted First Half First Half Full Year
2008 2007 200
�'000 �'000 �'000
Valuation at 1 January 2008 10,830 11,794 11,794
Additions 63 703 1,164
Disposals (470) (962) (2,403)
Deficit/surplus on revaluation (1,566) 305 275
Valuation at 30 June 2008 8,857 11,840 10,830
9. Total equity
a) First half 2008
Equity Revaluation reserves Capital Realised Retained
Property Other Redemption Capital Earnings Total
�'000 �'000 �'000 �'000 �'000 �'000 �'000
At 1 January 2008 7,094 4,2034 95 17,527 11,502 41,713
Total recognised gain and - - - - (3,184) (3,184)
expense
Dividends to shareholders - - - - (478) (478)
Non-distributable items
recognised in income
statement:
Revaluation gains (3,248) (1,566) - - 4,814 -
Tax on valuation gains and 955 433 - - (1,388) -
losses
Realised gains - - - (66) 66 -
Surplus attributable to assets (272) 37 - 235 - -
sold
Tax on gains attributable to - (11) - 11 - -
assets sold
At 30 June 2008 4,529 3,096 95 17,707 11,332 38,051
b) First half 2007
Equity Revaluation reserves Capital Realised Retained
Property Other Redemption Capital Earnings Total
�'000 �'000 �'000 �'000 �'000 �'000 �'000
At 1 January 2008 1,292 10,169 4,601 95 16,055 10,663 42,875
Total recognised gain and - - - - - 1,375 1,375
expense
Dividends to shareholders - - - - - (465) (465)
Non-distributable items
recognised in income
statement:
Revaluation gains - 347 305 - - (652) -
Tax on valuation gains and - (22) (25) - - 47 -
losses
Realised gains - - - - 80 (80) -
Surplus attributable to assets - (972) (306) - 1,278 - -
sold
Tax on gains attributable to - 201 60 - (261) - -
assets sold
At 30 June 2008 1,292 9,723 4,635 95 17,152 10,888 43,785
c) Full Year 2007
Equity Revaluation reserves Capital Realised Retained
Property Other Redemption Capital Earnings Total
�'000 �'000 �'000 �'000 �'000 �'000 �'000
At 1 January 2007 1,292 10,169 4,601 95 16,055 10,663 42,875
Total recognised gain and - - - - - (439) (439)
expense
Dividends to shareholders - - - - - (723) (723)
Non-distributable items
recognised in income
statement:
Revaluation gains - (3,431) 275 - - 3,156 -
Tax on valuation gains and - 861 203 - - (1,064) -
losses
Realised gains - - - - 91 (91) -
Surplus attributable to assets - (822) (962) - 1,784 - -
sold
Tax on gains attributable to - 317 86 - (403) - -
assets sold
At 31 December 2007 1,292 7,094 4,203 17,527 11,502 41,713
10. Interest-bearing loans and borrowings
First Half First Half Full Year
2008 2007 2007
�'000 �'000 �'000
Medium term bank loan 1,304 2,760 1,909
The medium term bank loan comprises
amounts falling due as follows:
Between one and two years 71 202 37
Between two and five years 238 708 220
Over five years 995 1,850 1,652
1,304 2,760 1,909
11. Related party transactions
Kingerlee Holdings Limited owns 25.3% (2007 25.3%) of the company's shares and D H Kingerlee and J C Kingerlee are directors and
shareholders of both the company and Kingerlee Holdings Limited. During the period, the group made purchases from Kingerlee Holdings Limited
or its subsidiaries, being repairs to properties of �1,000 (2007 Nil) and a service charge in relation to services at Thomas House,
Kidlington of �7,000 (2007 �7,000). The amount owed at 30 June 2008 was nil (2007 Nil). All transactions were undertaken on an arm's length
basis.
This information is provided by RNS
The company news service from the London Stock Exchange
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