28 July 2017

Highcroft Investments PLC

Interim Report for the six months ended 30 June 2017

Key Highlights:

*Gross rental income increased 20% to £2,238,000 (2016 £1,867,000)

*Net rental income increased 19% to £2,119,000 (2016 £1,775,000)

* No voids in our property portfolio (2016 none)

*Total earnings per share increased 18% to 52.1p (2016 44.3p)

*Net investment in property £7,801,000 (2016 net divestment £1,337,000)

*Property valuation £74,819,000 (2016 £57,240,000) increased 2.0% on a like-for-like basis

*Net assets per share increased 2.4% to 1097p (June 2016 1046p, December 2016 1071p)

*Net debt £18,627,000 (June 2016 £4,794,000, December 2016 £11,531,000)

*Interim property income distribution up 8.3% to 16.25p (2016 15.00p)

Dear Shareholder

I am pleased to report continued good trading results for the 6 months ended 30 June 2017.

Gross rental income has increased by 20%, reflecting the benefits arising from the ongoing strategy.  Notwithstanding the likely uncertainties during the Brexit process, our confidence in the group's future is reflected in an interim property income distribution of 16.25p per share - an increase of 8.3% on 2016.  This continues our long-standing policy and record of raising the dividend by more than inflation.

Results for the period

Property

Gross rental income has risen by 20%. This increase reflects the benefit of a full period's income from the Coventry and Grantham properties bought in August 2016, one quarter of income from the Nottingham purchase at the end of March 2017 and one month of income from the St Austell purchase.  These increases have been offset by the reduction in income from the disposal of the properties in Staines in February 2017 and Warwick in December 2016.    In addition, we have benefited from one positive rent review and one lease surrender premium.  As in 2016 we have no voids. Property expenses for the six month period increased to £119,000 (2016 £92,000).  A significant portion of these expenses relates to legal and professional fees that we have incurred in dealing with a leasehold enfranchisement claim at our one remaining residential asset.  This claim failed at Tribunal; however, the leaseholders have exercised their right to appeal and we will continue to incur costs on this exercise.  Other property costs remain tightly controlled.  As reported in the 2016 annual report, we completed on the sale of our Staines unit in February 2017 at a £1,000 profit to the year-end valuation.

The external independent valuation of the property portfolio at 30 June 2017 showed a gain of 2.0% on a like-for-like basis arising, in part, from a positive, backdated, rent review on our office building in Oxford, and from market sentiment lifting the value of the warehouse element of the portfolio. This gain mirrored the performance of the property market in general.  Only one asset showed a loss on valuation and this arose on our Nottingham asset which was valued at cost (net of capitalised purchaser's fees).

The upgrading of the property portfolio continues with the aim of improving the weighted unexpired lease term, strengthening covenants and increasing the average lot size. 

Our property portfolio is now valued at £74.8 million (2016 £57.2 million).

Equities

Equity markets strengthened in the second half of 2016, and we took advantage of this strength to reduce the portfolio by £0.5m in January 2017 in line with our stated long-term strategy.  As a result, and together with the sales made in 2016, dividend income from the equity portfolio reduced to £38,000 (2016 £73,000).  We raised £477,000 from the sale of equities at a gain of £18,000 to the year-end valuation. There was a net gain on valuation of £69,000 (2016 £200,000) in the half year.  We intend to continue to reduce the equity portfolio in line with our stated strategy.

Financial

Earnings per share on revenue activities increased to 31.1p (2016 28.4p) due primarily to the increased net rental income, net of increased finance expenses. The more volatile measure of total earnings per share which includes unrealised valuation gains was 52.1p (2016 44.3p).

At 30 June 2017 the cash position was £657,000 (2016 £6,706,000), while our medium term loans totalled £19,400,000 (2016 £11,500,000) resulting in a net gearing level of 33% (2016 9%).  In the period we have increased our borrowing by £4,500,000 to purchase the St Austell asset and have also put in place a short-term overdraft facility.  The medium term loans are at fixed rates with a weighted average of 3.64%.

Dividend

I am pleased to report an interim property income distribution of 16.25p (2016 15.00p) per share, payable on 13 October 2017 to shareholders on the register at 15 September 2017 (with an ex-dividend date of 14 September 2017).

Outlook

One lease renewal is in negotiation and this, together with the income arising from the acquisitions completed in the first half of 2017, should enable us to increase underlying gross rental income in the second half of 2017.  In addition we also have five rent reviews in process.  We expect the full year results to continue to reflect the benefits of our strategy.

John Hewitt
Chairman
27 July 2017

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

For further information, contact:

Highcroft Investments PLC

John Hewitt/Roberta Miles                +44 (0)1865 840023

Panmure Gordon (UK) Limited

Karri Vuori/Fabien Holler                 +44 (0)20 7886 2500

Condensed consolidated interim statement of comprehensive income (unaudited) 

for the six months ended 30 June 2017

Condensed consolidated interim statement of financial position (unaudited) 

as at 30 June 2017

Condensed consolidated interim statement of changes in equity

for the six months ended 30 June 2017

First half 2017 - Unaudited

First half 2016 - Unaudited

Condensed consolidated interim statement of

changes in equity for the six months ended 30 June 2017 (continued)

Full year 2016 - Audited

Condensed consolidated interim statement of cash flows

for the six months ended 30 June 2017

Notes (Unaudited)

for the six months ended 30 June 2017

1.   Nature of operations and general information

Highcroft Investments PLC ('Highcroft') and its subsidiaries' (together 'the group') principal activity is investment in property and equities. It is incorporated and domiciled in Great Britain. The address of Highcroft's registered office, which is also its principal place of business, is Thomas House, Langford Locks, Kidlington, OX5 1HR. Highcroft's condensed consolidated interim financial statements are presented in Pounds Sterling (£), which is also the functional currency of the group. These condensed consolidated interim financial statements have been approved for issue by the directors on 27 July 2017. The financial information for the period ended 30 June 2017 set out in this interim report does not constitute statutory accounts as defined in Section 404 of the Companies Act 2006. The group's statutory financial statements for the year ended 31 December 2016 have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain statements under Section 498(2) or Section 498(5) of the Companies Act 2006.

2.  Basis of preparation

These condensed consolidated interim financial statements are for the six months ended 30 June 2017. They have been prepared in accordance with IAS 34, Interim Financial Reporting. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the group for the year ended 31 December 2016.

These condensed consolidated interim financial statements have been prepared under the historical cost convention, as modified by the revaluation of investment properties and the measurement of equity investments at fair value. These condensed consolidated interim financial statements have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year to 31 December 2016.

The accounting policies have been applied consistently throughout the group for the purposes of preparation of these condensed consolidated interim financial statements.

The financial statements are drawn up on a 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.  Cash flow forecasts are prepared annually as part of the planning and budgeting process and are monitored and reworked regularly.  The group has fixed-term non amortising borrowing and has additional headroom available.  In addition the group has relatively liquid assets in the form of listed equity investments on which it can draw if necessary.

3.  Segment reporting

Segmental information is presented in the condensed consolidated 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. All gross income is from external tenants or external investments.

The group is comprised of the following main business segments:

·      Commercial property comprising retail outlets, offices, warehouses and retail warehouses in England and Wales

·      Residential property comprising flats in England

·      Financial assets comprising exchange-traded equity investments.

3.  Segment reporting (continued)

In 2017 the largest tenant represented 9% (2016 10%) and the second largest tenant represented 7% (2016 9%) of gross commercial property income for the period.

4.   Income tax (credit)/expense

The taxation charge has been based on the estimated effective tax rate for the full year. As a Real Estate Investment Trust the group does not pay corporation tax on its profits and gains from its commercial and residential property activities.

5.  Dividends

On 27 July 2017, the directors declared a property income distribution of 16.25p per share (2016 15.0p per share) payable on 13 October 2017 to shareholders registered at 15 September 2017.

The following property income distributions have been paid by the company:

6.  Earnings per share

The calculation of earnings per share is based on the profit for the period of £2,693,000 (2016 £2,288,000) and on 5,167,240 shares (2016 5,167,240) which is the weighted average number of shares in issue during the period ended 30 June 2017 and throughout the period since 1 January 2016.

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 £1,607,000 (2016 £1,472,000) has been calculated.

7.   Investment property

The directors have used an external independent valuation of properties at 30 June 2017 which has been carried out consistently with the annual valuation.

8.  Equity investments

9.  Interest bearing loans

The debt is secured on certain assets within the group's property portfolio.

10. Related party transactions

Kingerlee Holdings Limited owns, through its wholly owned subsidiaries, 27.2% (2016 27.2%) of the company's shares and D H Kingerlee is a director of both the company and Kingerlee Holdings Limited.

During the period, the group made purchases from Kingerlee Limited a subsidiary of Kingerlee Holdings Limited, being a service charge in relation to services at Thomas House, Kidlington of £7,000 (2016 £7,000) and a recharge of costs of £180 (2016 £nil). The amount owed at 30 June 2017 was £nil (2016 £nil). All transactions were undertaken on an arm's length basis.

11. Net assets per share

Statement of directors' responsibilities

The directors confirm that, to the best of their knowledge, this condensed consolidated set of half-year financial statements has been prepared in accordance with IAS 34. The half-year management report includes a fair review of the information required by 4.2.7 and 4.2.8 of the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority, namely:

·      an indication of the important events that have occurred during the first six months of the financial year ending 31 December 2017 and their impact on the condensed consolidated set of half-year financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      disclosure of material related party transactions in the first six months of the financial year, and any material changes in the related party transactions described in the last annual report.

 A list of current directors is maintained on the Highcroft Investments PLC website: www.highcroftplc.com.

By order of the board

John Hewitt
Chairman
27 July 2017