TIDMHCFT
RNS Number : 3284L
Highcroft Investments PLC
05 September 2023
Highcroft Investments PLC
Interim Report for the six months ended 30 June 2023
Interim management report and statement of directors'
responsibilities
Key Highlights:
*Gross rental income decreased 6% to GBP2,605,000 (2022
GBP2,775,000)
*Net rental income decreased 8% to GBP2,335,000 (2022
GBP2,538,000)
*93% occupancy in the property portfolio (2022 93%) at period
end
*100% of Q1 and Q2 rent, and 96% of Q3 rent, due to date,
collected
*Total earnings per share 31.9p (2022 124.2p)
*Adjusted earnings per share (see note 7), decreased 15% to
25.2p (2022 29.5p)
*Property valuation increased by 3.4% to GBP80,540,000 (December
2022 GBP77,910,000), a 0.8% decrease on a like-for-like basis
*Net assets per share decreased 0.1% to 1080p (June 2022 1364p,
December 2022 1081p)
*Loan to value (see note 11), 33.8% (December 2022 34.9%)
Dear Shareholder
Whilst reporting our half year 2023 results our tenants, their
staff and customers, continue to be affected by global and national
issues including the conflict in Ukraine, high interest rates and
high inflation in the UK. In this context we are pleased that our
results have continued to perform satisfactorily.
Operating environment
The first half of 2023 has seen an economic environment with
some of the highest inflation experienced in recent times in the UK
and increasing interest rates, mainly being used as a tool to try
and curb inflation. These factors have had a negative impact on the
overall property market and have led to very low activity in the
sector. Rental growth has been slightly positive although this has
mainly been in the industrial and retail warehouse sectors. The
office market continues to be under pressure as demand has yet to
pick up and yields on these assets are weakening. The next few
months are likely to remain challenging as rates remain high and it
is likely that activity will only gain momentum once there is
confidence in the market that inflation is under control and that
interest rates may start to decline.
We are pleased with the first half performance of Highcroft and
feel that it is well protected against the negative market
environment with a strong portfolio, fixed interest rates and no
loan facilities expiring before August 2026.
Management
As previously disclosed, Paul Leaf-Wright took over the role of
chief executive from Simon Gill on 1 January 2023 and Simon Gill
resigned from the board on 31 March 2023.
On 1 January 2023 Cube Asset Management Limited were also
appointed to focus on the asset management functions, primarily
asset sourcing, rental negotiations and maintenance together with
the development of our new asset at Roche. To date, this new
arrangement is working very well, and we have seen good results in
the overall management of the portfolio.
Balance sheet
During the first half of the year the Company has been active in
management of the asset base. As previously announced to
shareholders we completed the sale of our Llantrisant asset on 13
February 2023. This sale resulted in a net capital profit on the
sale of the asset of GBP1m (with proceeds 16% above the December
2022 valuation) although we did have to reverse the IFRS rent free
provision of GBP138,000, through the income statement, that had
been accounted for as income in the past periods. The net uplift to
the company is still significant and, as previously disclosed, as
the tenant had already vacated, this was an excellent outcome.
In order to ensure that the balance sheet is fully invested, the
company has completed two property acquisitions. On 13 April 2023
we completed on the Aberdare property with the new Ipswich asset
completing on 25 May 2023. Both these assets are expected to
contribute positively to income and asset growth.
We also are pleased to inform shareholders that on our property
at Roche, St Austell where we had a vacant piece of land, we have
successfully secured a new 15-year lease from DHL to occupy a
brand-new 28,000 sq ft warehouse, construction of which commenced
in April 2023 and is expected to complete by 30 April 2024. This
development, with a total cost of GBP4.3m will be funded from
existing cash resources, and we expect to see an uplift in the
valuation above cost on completion. Once complete the company will
have an optimally invested balance sheet into a diverse portfolio
of assets.
This new warehouse also gives us the opportunity to build a high
standard property with an above average EPC rating which will
improve Highcroft's weighted average EPC position.
The mid-year valuation of the portfolio resulted in a net
downward valuation of GBP664,000, mainly as a result of the lower
valuation of our office assets and in particular the Cardiff
property. The Cardiff asset remains vacant, and the valuers have
marked it down by GBP1m. We have been actively looking at solutions
for this property both to secure a tenant or to exit the property
but given current market conditions this is proving challenging.
The remainder of the portfolio saw some uplifts especially where
new rental terms have been agreed with occupiers and the generally
stable industrial market, offset by reductions on the retail and
office assets. The St Austell development asset has been included
in the portfolio for the first time and the valuation includes the
land value and amounts spent to date. This asset will naturally
increase in value as further capital is spent on construction over
the next twelve months.
Our gearing has remained constant at GBP27.2m with no loan
maturities before August 2026. This has meant we have been
protected against the interest rate rises that the economy has
experienced over the past 18 months. We have comfortably met all
our debt covenants during the reporting period. We recently
completed new property valuations on certain assets held by the
bank as security and are pleased to report that these are all in
line with the lender's requirements.
Whilst we hold some cash at the balance sheet date this is
earmarked, as noted above, for the new development and for
dividends. The positive aspect has been that the group has earned a
fair interest rate on its cash holding given the higher rates on
offer at present.
Income statement
Given that we sold a high yielding asset in Llantrisant and
replaced this with two assets a few months later, our total income
is lower in the first half than the 2022 first half. This income is
also negatively impacted by the reversal of the remaining
GBP138,000 rent free provided on the Llantrisant asset which, in
terms of accounting policy, needs to be accounted through the
income statement (as opposed to being offset against the capital
profit). We do believe that income will thus be higher in the
second half as the new assets will contribute for the full 6-month
period.
Total expenses have generally been well controlled and are
consistent with both our budgets and the prior year.
With a new management structure in place and some of the
functions previously performed by the CEO being outsourced to Cube
Asset management, there are some expenses now reflecting as
property costs as opposed to salaries, which are included in
administration costs.
Following the decision at the 2023 AGM to adopt the new
remuneration policy there has been a, non-cash, adjustment of
GBP114,000 reflecting the immediate vesting of the remaining shares
previously issued under the Highcroft Incentive Plan.
We earned GBP134,000 interest on cash deposits, however this,
together with any intra-group interest, is taxable as residual
income and hence the higher-than-normal tax charge.
Dividend
The board is pleased to confirm an interim property income
distribution of 23p (2022 23p) per share, payable on 20 October
2023 to shareholders on the register at 22 September 2023 (with an
ex-dividend date of 21 September 2023). This dividend is reflective
of the steady performance of the company.
Outlook
While the first half performance has been satisfactory, we are
optimistic that the asset management and other initiatives that
have taken place in this period will lead to an improved
performance in the second half.
We, as a board, take a prudent view and monitor the
macro-economic situation closely. We will continue to work with our
tenants and support them where we can, whilst at the same time
keeping our gearing low and a healthy cash balance to ensure we are
well positioned to assess future opportunities.
Statement of principal risks and uncertainties
The directors review principal risks at each board meeting and
carried out a mid-year review on 4 September 2023. They consider
that there have been no material changes to the group's principal
risks as set out in detail on pages 40 to 43 of the annual report
and accounts for the year ended 31 December 2022. The current
principal risk areas can be summarised as:
External risks Internal risks
Macro-economic and political outlook Business strategy
------------------
Regulatory and compliance burden Key personnel
------------------
Occupier demand and tenant default Sustainability
------------------
Commercial property investor demand
------------------
Availability and cost of finance
and debt covenant requirements
------------------
Related parties and related party transactions
During the period Simon Gill a director and shareholder of the
business resigned, on 31 March 2023. Paul Leaf-Wright was appointed
a director of the business on 1 January 2023. Related party
transactions are disclosed in note 12. There have been no material
changes in related party transactions in the period.
Interim management report and statement of directors'
responsibilities (continued)
Statement of directors' responsibilities
The directors confirm that, to the best of their knowledge, the
half-year report and condensed consolidated set of half-year
financial statements have been prepared in accordance with IAS 34.
The half-year report and condensed consolidated set of half-year
financial statements give a true and fair view of the assets,
liabilities, financial position and return of the Group. The
half-year report and condensed consolidated set of half-year
financial statements include 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 2023 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.
Charles Butler
Chairman
4 September 2023
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014 which is part of UK law
by virtue of the European Union (Withdrawal) Act 2018.
For further information, contact:
Highcroft Investments PLC
Charles Butler/Roberta Miles +44 (0)1869 352766
Singer Capital Markets Advisory
LLP
Peter Steel / Alex Emslie - Corporate
Finance
Tom Salvesen - Corporate Broking +44 (0)20 7496 3000
INDEPENT REVIEW REPORT TO HIGHCROFT INVESTMENTS PLC
Conclusion
We have been engaged by Highcroft Investments plc ("the Group")
to review the condensed set of financial statements in the
half-yearly financial report for the six months ended 30 June 2023
which comprises the condensed consolidated interim statement of
comprehensive income, the condensed consolidated interim statement
of financial position, the condensed consolidated interim statement
of changes in equity, the condensed consolidated interim statement
of cash flows and related notes 1 to 16.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2023 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 (Revised), "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued for use in the United Kingdom. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with UK adopted IFRSs. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with UK adopted
International Accounting Standard 34, "Interim Financial
Reporting.
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis of Conclusion
section of this report, nothing has come to our attention to
suggest that management have inappropriately adopted the going
concern basis of accounting or that management have identified
material uncertainties relating to going concern that are not
appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410 (Revised), however future events or
conditions may cause the entity to cease to continue as a going
concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Group a conclusion on the condensed set of
financial statement in the half-yearly financial report. Our
conclusion, including our Conclusions Relating to Going Concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Mazars LLP
Chartered Accountants and Statutory Auditor
30 Old Bailey
London
EC4M 7AU
4 September 2023
Notes:
The maintenance and integrity of the Highcroft Investments plc's
web site is the responsibility of the directors; the work carried
out by us does not involve consideration of these matters and,
accordingly, we accept no responsibility for any changes that may
have occurred to the interim report since it was initially
presented on the web site.
Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation
in other jurisdictions.
Condensed consolidated interim statement of comprehensive income
(unaudited)
for the six months ended 30 June 2023
Unaudited
Six months ended 30 June
2023 2022
----- ---------------------------- ----------------------------
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----- -------- -------- -------- -------- -------- --------
Continuing operations
----- -------- -------- -------- -------- -------- --------
Gross rental income 2,605 - 2,605 2,775 - 2,775
----- -------- -------- -------- -------- -------- --------
Property operating
expenses (270) - (270) (237) - (237)
----- -------- -------- -------- -------- -------- --------
Net rental income 2,335 - 2,335 2,538 - 2,538
----- -------- -------- -------- -------- -------- --------
Net gain on disposal
of investment property - 1,014 1,014 - - -
----- -------- -------- -------- -------- -------- --------
Valuation gains
on investment property - 1,331 1,331 - 5,232 5,232
----- -------- -------- -------- -------- -------- --------
Valuation losses
on investment property - (1,995) (1,995) - (320) (320)
----- -------- -------- -------- -------- -------- --------
Net valuation (losses)/gains
on investment property 8&9 - (664) (664) - 4,912 4,912
----- -------- -------- -------- -------- -------- --------
Administrative
expenses (693) - (693) (583) - (583)
----- -------- -------- -------- -------- -------- --------
Operating profit
before net financing
costs 1,642 350 1,992 1,955 4,912 6,867
----- -------- -------- -------- -------- -------- --------
Finance income 134 - 134 8 - 8
----- -------- -------- -------- -------- -------- --------
Finance expenses (414) - (414) (422) - (422)
----- -------- -------- -------- -------- -------- --------
Net finance costs (280) - (280) (414) - (414)
----- -------- -------- -------- -------- -------- --------
Profit before tax 1,362 350 1,712 1,541 4,912 6,453
----- -------- -------- -------- -------- -------- --------
Income tax charge 5 (52) - (52) (7) - (7)
----- -------- -------- -------- -------- -------- --------
Total profit and
comprehensive income
for the financial
period 1,310 350 1,660 1,534 4,912 6,446
----- -------- -------- -------- -------- -------- --------
Basic and diluted
earnings
per share 7 31.9p 124.2p
----- -------- -------- -------- -------- -------- --------
The total column represents the statement of comprehensive
income as defined in IAS1
Condensed consolidated interim statement of financial position
(unaudited)
as at 30 June 2023
Unaudited Audited
30 June 31 December
2023 2022
Note GBP'000 GBP'000
Assets
---- --------- ------------
Investment property 8 79,965 71,160
---- --------- ------------
Investment property under development 9 575 -
---- --------- ------------
Total non-current assets 80,540 71,160
---- --------- ------------
Current assets
---- --------- ------------
Trade and other receivables 1,387 1,143
---- --------- ------------
Cash at bank and in hand 4,750 7,206
---- --------- ------------
6,137 8,349
---- --------- ------------
Assets classified as held for sale 10 - 6,750
---- --------- ------------
Total current assets 6,137 15,099
---- --------- ------------
Total assets 86,677 86,259
---- --------- ------------
Liabilities
---- --------- ------------
Current liabilities
---- --------- ------------
Trade and other payables (3,223) (2,883)
---- --------- ------------
Total current liabilities (3,223) (2,883)
---- --------- ------------
Non-current liabilities
---- --------- ------------
Interest-bearing loans and borrowings 11 (27,200) (27,200)
---- --------- ------------
Total non-current liabilities (27,200) (27,200)
---- --------- ------------
Total liabilities (30,423) (30,083)
---- --------- ------------
Net assets 56,254 56,176
---- --------- ------------
Equity
---- --------- ------------
Issued share capital 1,302 1,299
---- --------- ------------
Share premium 312 226
---- --------- ------------
Share based payment reserve - 160
---- --------- ------------
Other equity reserve - (207)
---- --------- ------------
Revaluation reserve - property 11,485 11,499
---- --------- ------------
Capital redemption reserve 95 95
---- --------- ------------
Realised capital reserve 30,437 29,623
---- --------- ------------
Retained earnings 12,623 13,481
---- --------- ------------
Total equity 56,254 56,176
---- --------- ------------
Condensed consolidated interim statement of changes in
equity
for the six months ended 30 June 2023
Issued Share Share Other Capital Realised Retained Total
share premium based equity redemption Capital earnings
capital payment reserve Revaluation
(note reserve
12) property
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
At 1 January 2023 1,299 226 160 (207) 11,499 95 29,623 13,481 56,176
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Transactions with
owners:
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Dividends - - - - - - (1,718) (1,718)
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Issue of shares 3 101 - (104) - - - - -
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Share issue fees (15) - - - - - - (15)
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
3 86 - (104) - - - (1,718) (1,733)
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Reserve transfers:
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Non-distributable
items recognised
in income statement:
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Revaluation losses - - - - (1,995) - - 1,995 -
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Revaluation gains - - - - 1,331 - - (1,331) -
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Realised gains - - - - - - 1,014 (1,014) -
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Deficit attributable
to assets sold in
the period - - - - 200 - (200) - -
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Change in excess
of cost over fair
value through
retained
earnings - - - - 450 - - (450) -
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Share award vested - - (311) 311 - - - - -
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
- - (311) 311 (14) - 814 (800) -
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Share award expensed - - 151 - - - - - 151
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Total profit and
comprehensive income
for the period - - - - - - - 1,660 1,660
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
At 30 June 2023 1,302 312 - - 11,485 95 30,437 12,623 56,254
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Condensed consolidated interim statement of changes in
equity
for the six months ended 30 June 2022
Issued Share Share Other Capital Realised Retained Total
share premium based equity redemption Capital earnings
capital payment reserve Revaluation
(note reserve
12) property
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
At 1 January 2022 1,296 117 102 (121) 19,236 95 29,623 15,769 66,117
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Transactions with
owners:
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Dividends - - - - - - (1,714) (1,714)
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Issue of shares 3 109 - (112) - - - - -
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
3 109 - (112) - - - (1,714) (1,714)
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Reserve transfers:
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Non-distributable
items recognised
in income statement:
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Revaluation losses - - - - (320) - - 320 -
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Revaluation gains - - - - 5,232 - - (5,232) -
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Change in excess
of cost over fair
value through
retained
earnings - - - - (1,326) - - 1,326 -
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
- - - - 3,856 - - (3,856) -
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Share award expensed - - 30 - - - - - 30
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Total profit and
comprehensive income
for the period - - - - - - - 6,446 6,446
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
At 30 June 2022 1,299 226 132 (233) 22,822 95 29,623 16,915 70,879
-------- -------- -------- -------- ----------- ----------- -------- --------- -------
Condensed consolidated interim statement of cashflows
for the six months ended 30 June 2023
Unaudited Unaudited
First First
half half
2023 2022
GBP'000 GBP'000
Operating activities
--------- ---------
Profit before tax for the period 1,712 6,453
--------- ---------
Adjustments for:
--------- ---------
Net valuation losses/(gains) on investment property 664 (4,912)
--------- ---------
Net gain on disposal of investment property (1,014) -
--------- ---------
Share based payment expense 151 30
--------- ---------
Finance income (134) (8)
--------- ---------
Finance expense 414 422
--------- ---------
Operating cash flow before changes in working
capital and provisions 1,793 1,985
--------- ---------
(Increase)/decrease in trade and other receivables (244) 1,128
--------- ---------
Increase/(decrease) in trade and other payables 288 (64)
--------- ---------
Cash generated from operations 1,837 3,049
--------- ---------
Finance income received 134 8
--------- ---------
Finance expense paid (414) (422)
--------- ---------
Income tax paid - (7)
--------- ---------
Net cash flows from operating activities 1,557 2,628
--------- ---------
Investing activities
--------- ---------
Purchase of fixed assets - investment property (9,820) (428)
--------- ---------
Purchase of fixed assets - assets under development (224) -
--------- ---------
Sale of fixed assets - investment property 7,764 -
--------- ---------
Net cash flows from investing activities (2,280) (428)
--------- ---------
Financing activities
--------- ---------
Dividends paid (1,718) (1,714)
--------- ---------
Share issue fees (15) -
--------- ---------
Repayment of bank borrowings - (7,500)
--------- ---------
New bank borrowings - 7,500
--------- ---------
Net cash flows from financing activities (1,733) (1,714)
--------- ---------
Net (decrease)/increase in cash and cash equivalents (2,456) 486
--------- ---------
Cash and cash equivalents at 1 January 7,206 5,715
--------- ---------
Cash and cash equivalents at period end 4,750 6,201
--------- ---------
Notes (Unaudited)
for the six months ended 30 June 2023
1. Nature of operations and general information
Highcroft Investments PLC ('Highcroft' or 'company') and its
subsidiaries' (together 'the group') principal activity is
investment in property. It is incorporated and domiciled in Great
Britain. The address of Highcroft's registered office, which is
also its principal place of business, is Park Farm Technology
Centre, Akeman Street, Kirtlington, OX5 3JQ. Highcroft's condensed
consolidated interim financial statements are presented in Pounds
Sterling (GBP), which is also the functional currency of the group.
These condensed consolidated interim financial statements have been
approved for issue by the directors on 4 September 2023. The
financial information for the period ended 30 June 2023 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 2022
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 unaudited condensed consolidated interim financial
statements are for the six months ended 30 June 2023. They have
been prepared in accordance with IAS 34, Interim Financial
Reporting and the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority. 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
2022.
At the date of authorisation of these financial statements, the
group has adopted the following new and revised IFRS Standards
effective as of 1 January 2023:
-- IFRS 17 Insurance contracts including amendments to IFRS 17
-- Amendments to IAS 1 and IFRS Practice Statement 2-Disclosure of accounting policies
-- Amendments to IAS 8-Definition of accounting estimates
-- Amendment to IAS 12 - International tax reform - pillar two model rules
-- Amendments to IAS 12-Deferred tax related to assets and
liabilities arising from a single transaction
The above effective new and revised IFRS standards have not had
a material impact on the Group's results.
At the date of authorisation of these financial statements, the
group has not applied the following new and revised IFRS Standards
that have been issued but are not yet effective:
-- Amendments to IAS 1-Classification of liabilities as current
or non-current including classification of liabilities as current
or non-current
-- Amendments to IAS 16-Leases on sale and leaseback
-- Amendments to IAS 7 and IFRS 7 on supplier finance arrangements
-- IFRS S1: General sustainability-related disclosures
-- IFRS S2: Climate-related disclosures
None of these standards are anticipated to have a material
impact upon the Group's results.
These unaudited 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 2022 which were prepared in accordance with the
Companies Act 2006 and International Financial Reporting Standards
(IFRS) as adopted for use in the United Kingdom and have been
prepared under the historical cost convention, as modified by the
revaluation of investment properties.
The accounting policies have been applied consistently
throughout the group for the purposes of preparation of these
unaudited condensed consolidated interim financial statements.
In light of the ongoing conflict in Ukraine, the recent issues
in the banking sector, the increasing UK interest rates and the
high cost of living and their combined effects on the UK economy,
and the sectors in which the group and company operates, the
directors have placed a particular focus on the appropriateness of
adopting the going concern basis in preparing the group's and
company's financial statements for the period ended 30 June 2023.
The directors have concluded that the impact of Covid-19 as a
standalone risk is no longer a significant threat to the business.
The group's and company's going concern assessment considers the
group's and company's principal risks, and is dependent on a number
of factors, including cashflow and liquidity, continued access to
borrowing facilities and the ability to continue to operate the
group's and company's borrowings within its financial covenants.
The debt has a number of financial covenants that the group is
required to comply with including an LTV covenant a 12-month
historical interest cover ratio, and the facility agreements have
cure provisions in the event of a breach. The going concern
assessment is based on a 12-month outlook from the date of the
approval of these condensed financial statements, using the group's
five-year forecast. This forecast is based on a plausible scenario,
which includes the following key sensitivities occurring either
separately or together:
- A 10% reduction in net income from our portfolio.
- A 10% increase in the forecast proposed capital expenditure.
- An increase in assumed inflation rates by 8%
Under this scenario, the group and company are forecast to
maintain sufficient cash and liquidity resources and remain
compliant with its financial covenants.
Based on the consideration above, the board believes that the
group and company have the ability to continue in business for at
least 12 months from the date of approval of this interim statement
for the period ended 30 June 2023, and therefore have adopted the
going concern basis in the preparation of this financial
information.
3. Analysis of statement of comprehensive income
The profit or loss section of the statement of comprehensive
income is analysed into two columns, being revenue and capital. The
capital column comprises valuation gains and losses on property,
profits and losses on disposal of property, and all gains and
losses on financial assets and the related tax impact. The revenue
column includes all other items.
4. Segment reporting
The group has one main business segment, property investment
which is based in England and Wales.
In the first six months of 2023 the largest tenant represented
13% (2022 13%) and the second largest tenant represented 8% (2022
11%) of gross commercial property income for the period.
5. Income tax charge
First First
half half
2023 2022
GBP'000 GBP'000
Current tax:
-------- --------
On revenue profits - prior year 8 7
current year 44 -
-------- --------
Total tax 52 7
-------- --------
The current year 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 property activities.
6. Dividends
On 4 September 2023, the directors declared a property income
distribution of 23p per share (2022 23p per share) payable on 20
October 2023 to shareholders registered at 22 September 2023.
The following property income distributions have been paid by
the company:
First First
half half
2023 2022
GBP'000 GBP'000
2022: final 33p per ordinary share (2021
final 33p) 1,718 1,714
-------- --------
7. Earnings per share
Adjusted earnings per share, which is an alternative performance
measure*, is considered by management to provide the best
indication of trading profits and hence the ability of the business
to fund dividend payments. The calculation of earnings per share is
based on the profit for the period of GBP1,660,000 (2022
GBP6,446,000) and on 5,200,843 shares which is the weighted average
number of shares in issue during the period ended 30 June 2023
(2022 5,189,362).
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 GBP1,310,000 (2022 GBP1,534,000) has been
calculated.
*An alternative performance measure is a measure not defined by
IFRS or UK GAAP.
First First
half half
2023 2022
GBP'000 GBP'000
Earnings:
-------- --------
Basic earnings 1,660 6,446
-------- --------
Adjustments for:
-------- --------
Profit on disposal of investment property (1,014) -
-------- --------
Net valuation losses/(gains) on investment
property 664 (4,912)
-------- --------
Adjusted earnings 1,310 1,534
-------- --------
Per share amount:
-------- --------
Earnings per share (unadjusted) 31.9p 124.2p
-------- --------
Adjustments for:
-------- --------
Profit on disposal of investment property (19.5p) -
-------- --------
Net valuation losses/(gains) on investment
property 12.8p (94.7p)
-------- --------
Adjusted earnings per share 25.2p 29.5p
-------- --------
8. Investment property
First
half Full year
2023 2022
GBP'000 GBP'000
Valuation at 1 January 77,910 87,565
-------- ---------
Additions 9,820 726
-------- ---------
Disposals (6,750) -
-------- ---------
Transfers to investment properties under
development (note 9) (281) -
-------- ---------
Net loss on revaluation (734) (10,381)
-------- ---------
Valuation at period end 79,965 77,910
-------- ---------
Less property held for sale categorised as
current asset (note 10) - (6,750)
-------- ---------
Property categorised as fixed asset 79,965 71,160
-------- ---------
The directors have used an external independent valuation of
properties at 30 June 2023 which has been carried out consistently
with the annual valuation.
8. Investment property (continued)
Valuation technique
The fair value of the property portfolio has been determined
using an income capitalisation technique whereby contracted and
market rental values are capitalised with a market capitalisation
rate. The resulting valuations are cross checked against the
equivalent yields and the fair market values per square foot
derived from comparable recent market transactions on arm's-length
terms.
These techniques are consistent with the principles in IFRS 13
Fair Value Measurement and use significant unobservable inputs such
that the fair value measurement of each property within the
portfolio has been classified as level 3 in the fair value
hierarchy. The following tables analyse quantitative information
about these inputs.
30 June 2023 Warehouse Retail Leisure Office High Total
warehouse street
retail
------------------------ --------- ---------- ----------- -------- ------- -------- --------
Valuation technique Income capitalisation
------------------------- --------- ---------------------------------------------------- --------
Fair value of property
portfolio* GBP'000 37,750 21,800 9,925 6,250 4,240 79,965
Sq
Area ft 602,717 133,726 88,145 29,567 12,622 866,777
Gross estimated
rental value (ERV) GBP'000 2,881 1,622 812 610 359 6,284
------------------------- --------- ---------- ----------- -------- ------- -------- --------
ERV per sq
ft
Minimum GBP 2.40 10.78 7.32 20.00 19.41
Maximum GBP 10.57 24.42 26.16 21.60 34.70
Weighted average GBP 5.75 13.02 11.52 20.67 29.55
------------------------- --------- ---------- ----------- -------- ------- -------- --------
Net initial
yield
Minimum % 4.90 6.03 6.69 0.00 0.00
Maximum % 10.23 8.38 8.52 5.68 9.90
Weighted average % 6.28 7.08 7.37 2.37 6.5
------------------------- --------- ---------- ----------- -------- ------- -------- --------
Reversionary
yield
Minimum % 5.78 6.13 6.69 6.37 7.15
Maximum % 9.46 8.18 8.62 13.32 10.56
Weighted average % 6.43 7.08 7.80 10.42 8.14
------------------------- --------- ---------- ----------- -------- ------- -------- --------
Equivalent
yield
Minimum % 5.54 6.13 7.23 6.27 6.99
Maximum % 9.05 7.86 8.70 8.54 8.84
Weighted average % 6.17 6.95 8.01 7.59 7.78
------------------------- --------- ---------- ----------- -------- ------- -------- --------
-- excluding investment properties under development
8. Investment property (continued)
31 December Warehouse Retail Leisure Office High Total
2022 warehouse street
retail
------------------------ --------- ---------- ----------- -------- ------- -------- --------
Valuation technique Income capitalisation
------------------------- --------- ---------------------------------------------------- --------
Fair value of property
portfolio GBP'000 34,875 21,500 9,875 7,600 4,060 77,910
Sq
Area ft 581,386 133,746 87,955 29,323 16,433 848,843
Gross estimated
rental value (ERV) GBP'000 3,457 1,610 812 610 359 6,848
------------------------- --------- ---------- ----------- -------- ------- -------- --------
ERV per sq
ft
Minimum GBP 2.40 10.57 7.35 20.00 13.95
Maximum GBP 12.40 24.35 26.26 22.06 28.72
Weighted average GBP 8.51 12.95 11.53 20.86 23.14
------------------------- --------- ---------- ----------- -------- ------- -------- --------
Net initial
yield
Minimum % 4.90 6.03 6.69 0.00 1.98
Maximum % 11.09 8.66 8.52 5.20 9.45
Weighted average % 8.56 7.19 7.41 2.17 5.87
------------------------- --------- ---------- ----------- -------- ------- -------- --------
Reversionary
yield
Minimum % 5.62 6.31 6.68 5.82 7.17
Maximum % 18.40 8.29 8.75 9.49 10.56
Weighted average % 11.60 7.13 7.85 7.96 8.50
------------------------- --------- ---------- ----------- -------- ------- -------- --------
Equivalent
yield
Minimum % 5.52 6.27 6.75 5.72 7.00
Maximum % 8.98 7.76 8.78 8.02 8.18
Weighted average % 7.41 6.92 7.85 7.06 7.85
------------------------- --------- ---------- ----------- -------- ------- -------- --------
8. Investment property (continued)
Information about the impact of changes in unobservable inputs
on the fair value of the group's investment property portfolio
Sensitivities for changes in assumptions have been set out below
at +/- 5% for ERV and +/- 50bps for EY, which are deemed to be the
levels that give a reasonable worst-case scenario given the
like-for-like valuation fall of 0.9% already recognised in the
period.
30 June 2023 Warehouse Retail Leisure Office High Total
warehouse street
retail
--------------------- --------- ---------- ----------- -------- ------- -------- --------
Fair value
of property
portfolio * GBP'000 37,750 21,800 9,925 6,250 4,240 79,965
Impact on valuation
of:
+5% on ERV 1,903 1,088 495 312 217 4,015
- 5% on ERV (1,898) (1,088) (495) (312) (207) (4,000)
-50bps on IY 293 160 69 43 35 600
+50bps on IY (284) (158) (68) (42) (25) (577)
-------------------------------- ---------- ----------- -------- ------- -------- --------
-- excluding investment properties under development
31 December Warehouse Retail Leisure Office High Total
2022 warehouse street
retail
--------------------- --------- ---------- ----------- -------- ------- -------- --------
Fair value
of property
portfolio GBP'000 34,875 21,500 9,875 7,600 4,060 77,910
Impact on valuation
of:
+5% on ERV 1,717 1,073 492 380 207 3,869
- 5% on ERV (1,719) (1,073) (492) (380) (197) (3,861)
-50bps on IY 249 157 68 58 53 585
+50bps on IY (245) (154) (67) (57) (41) (564)
-------------------------------- ---------- ----------- -------- ------- -------- --------
9. Investment property under development
First
half
2023
GBP'000
Valuation at 1 January -
--------
Additions 224
--------
Transfers from investment properties (note
8) 281
--------
Gain on valuation 70
--------
Valuation at period end 575
--------
The directors have used an external independent valuation of
properties at 30 June 2023.
10. Assets classified as held for sale
30 June 31 December
2023 2022
GBP'000 GBP'000
Assets held for sale - 6,750
--------- -----------
At 31 December 2022 the directors were in the advanced stages of
the potential sale of our Llantrisant property. The purchaser
completed their due diligence in February 2023 and the sale was
exchanged and completed on 8 February 2023. The gross sales
proceeds were GBP7,850,000, GBP1,100,000 in excess of the valuation
at 31 December 2022 and GBP899,000 in excess of cost.
11. Interest bearing loans
30 June 31 December
2023 2022
GBP'000 GBP'000
Short-term bank loans due within one year - -
-------- -----------
Medium-term loans 27,200 27,200
-------- -----------
The medium-term bank loans comprise amounts
falling due as follows:
-------- -----------
Between one and two years - -
-------- -----------
Between two and five years 7,900 7,900
-------- -----------
Over five years 19,300 19,300
-------- -----------
The debt is secured on certain assets within the group's
property portfolio.
Loan to value, which stood at 33.8% as at 30 June 2023 (December
2022 34.9%) is an alternative performance measure. It is defined as
drawn debt divided by the fair value of the property portfolio (see
note 8). Loan to value is considered by management to be a good
indicator of the risk in the indebtedness of the business given the
size of the property portfolio.
12. Share capital
First
half Full year
2023 2022
Allotted, called up and fully paid ordinary
shares of 25p each
--------- ---------
At 1 January 5,194,963 5,183,699
--------- ---------
Issued in the year in connection with the
Highcroft incentive plan 11,696 11,264
--------- ---------
At period end 5,206,659 5,194,963
--------- ---------
13. Related party transactions
Kingerlee Holdings Limited owns, through its wholly owned
subsidiaries, 27.3% (2022 27.1%) of the company's shares and David
Kingerlee (who was a director of the company until 1 August 2022,
and a shareholder of the company throughout the period) and David
Warlow (who was appointed a director of the company on 1 August
2022) are both directors and shareholders of Kingerlee Holdings
Limited.
The group recharged professional fees of GBP14,052 to Kingerlee
Holdings Limited in connection with additional fees connected with
the group reporting requirement for the 2022 audit (2022
GBP13,080). The amount owed at 30 June 2023 was GBPnil (2022
GBPnil). All transactions were undertaken on an arm's length
basis.
During the period GBP469,000 (2022 GBP465,000) of dividend was
paid to the wholly owned subsidiaries of Kingerlee Holdings Limited
in respect of their shareholdings.
During the period, on 30 March 2023, ordinary shares of 25p each
were issued under the Highcroft Incentive Plan to the following
directors of the company: Simon Gill (resigned 31 March 2023) 6,361
(2022 5,984) and Roberta Miles 5,335 (2022 5,280).
During the period the following dividends were paid to directors
of the company, during their period of directorship, in respect of
their shareholdings:
First First
half half
2023 2022
GBP'000 GBP'000
Simon Gill (resigned 31 March 2023) - 5
--------- --------
David Kingerlee (resigned 1 August 2022) - 30
--------- --------
Roberta Miles 8 6
--------- --------
14. Net assets per share
First First
half half Full year
2023 2022 2022
Net assets GBP56,254,000 GBP70,879,000 GBP56,176,000
------------- ------------- -------------
Ordinary shares in issue 5,206,659 5,194,963 5,194,963
------------- ------------- -------------
Basic net assets per share 1080p 1364p 1081p
------------- ------------- -------------
15. Fair value of financial instruments
The fair values of loans and receivables and financial
liabilities held at amortised cost were not materially different
from book values.
16. Capital commitments
There were capital commitments of GBP158,000 at 30 June 2023
(2022 GBP19,000).
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END
IR QZLFBXKLBBBK
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