70093 COV 2006 5/4/07 18:20 Page 2 HIGHCROFT INVESTMENTS PLC HIGHCROFT INVESTMENTS PLC HIGHCROFT INVESTMENTS PLC HIGHCROFT INVESTMENTS PLC 2006 REPORT AND FINANCIAL STATEMENTS 31 December 2006 70093 PRE 5/4/07 18:31 Page ii REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006 Contents Chairman’s introduction Corporate governance Directors and advisers Report of the directors Directors’ remuneration report Report of the independent auditor Consolidated income statement Page 1 2 3 6 13 15 17 Consolidated balance sheet Consolidated statement of cash flows Notes to the financial statements Unaudited supplementary information: Largest investments of the group Five year summary Company statutory financial statements (prepared under UK GAAP) Notice of annual general meeting Page 18 19 20 29 30 31 38 70093 PRE 5/4/07 18:31 Page 1 CHAIRMAN’S INTRODUCTION 1 KEY HIGHLIGHTS ● Gross property income up 6.3% to £2,038,000 ● Profit for the year on revenue activities up 9.8% to £1,500,000 ● Basic earnings per share on all activities down 17.1% to 84.8p ● Adjusted earnings per share (on revenue activities) up 9.8% to 29.0p ● Net asset value per share up 9.5% to 830p ● Total dividends up 8.3% to 13.7p per share ● Final dividend of 9.0p payable on 6 June 2007 Dear Shareholder I am pleased to introduce for my first time as chairman, the report and financial statements for the year ended 31 December 2006, reflecting as they do another good year. I am sure that shareholders would want to join me in wishing my predecessor, Gavin Kingerlee, a very long and happy retirement and sending our thanks for his wise counsel and stewardship as both a director and latterly as chairman. The report includes changes in both presentation and information in response to new legal and good practice guidelines. The introduction of these changes may cause some confusion – in which case, I hope the “Key highlights” summary above will give a sense of what progress was achieved in 2006. I would draw shareholders’ attention to two matters: a more hesitant commercial property market in general may bring opportunities. The equity component of our investments has performed well but in the current year progress has been subject to the volatility evident in the market as a whole. ● We are researching the practical steps needed to switch our status to a Real Estate Investment Trust (REIT) which would give shareholders much enhanced dividends and asset value. We hope to be able to submit proposals to an EGM later in the year. We look forward to seeing as many shareholders as possible at the Annual General Meeting on Wednesday 23 May 2007 which will provide an opportunity for an exchange of views and an update on the issue of REITs. ● Our aim is to invest for the medium term to give shareholders the benefit of steadily rising profits and dividends. We believe our property portfolio to be well structured and of quality and think that John Hewitt Chairman 21 March 2007 70093 PRE 5/4/07 18:31 Page 2 2 CORPORATE GOVERNANCE APPLICATION OF PRINCIPLES The company has applied the principles of good governance contained in the Combined Code 03 (Principles of Good Governance and Code of Best Practice) except as noted in the Compliance Statement below. Compliance The company has complied throughout the year with the Code provisions set out in Section 1 of the Combined Code 03 except that no performance related payments were made to directors, which is not in accordance with Code provision B.1.1. Board effectiveness The board is responsible for leading and controlling the group activities and, in particular: ● approving group objectives, strategy and policies ● business planning ● review of performance ● risk assessment ● dividends ● appointments The board meets at least six times a year and has a schedule of matters specifically reserved for its decision. Executive directors are responsible for the implementation of strategy and policies and the day-to-day decision making and administration. During 2006 the number of board and committee meetings with individual attendances was as follows: Number of Meetings Attendance: J Hewitt R N Stansfield C J Clark G J Kingerlee J C Kingerlee D Bowman D H Kingerlee Board 6 6/6 5/6 6/6 5/5 6/6 6/6 6/6 Audit 3 Remuneration Nomination 1 0 3/3 3/3 3/3 2/2 Not applicable 3/3 (part) Not applicable 1/1 1/1 1/1 1/1 Not applicable Not applicable Not applicable 0 0 0 0 Not applicable Not applicable Not applicable The board receives appropriate and timely information and the directors are free to seek any further information they consider necessary. All directors have access to advice from the company secretary and independent professionals at the company’s expense. Appropriate training is available for new directors and other directors as necessary. During much of 2006 there were seven directors because the appointment of Christopher Clark overlapped with the retirement of Gavin Kingerlee.The board now has six directors again of which three are executive directors and three are non-executive directors.The chairman is John Hewitt, the senior independent director is Richard Stansfield and the chief executive is Jonathan Kingerlee.The board members’ biographies are on page 11. The independent non-executive directors bring additional experience and knowledge and are independent of management and any business or other relationship that could interfere with the exercise of their independent judgement.This provides a balance whereby an individual or small group cannot dominate the board’s decision-making. All directors are subject to re-election every three years and, on appointment, at the first AGM after appointment. The board has established a separate nomination committee, comprising the non-executive directors responsible for making recommendations for appointments to the board. Formal procedures appropriate to the size of the business are in use for performance evaluation of the board and its committees.They include objective-setting and review with the use of an external facilitator. 70093 PRE 5/4/07 18:31 Page 3 CORPORATE GOVERNANCE 3 Directors’ remuneration The directors’ remuneration report is on page 13. It sets out the company’s policy and the full details of all elements of the remuneration package of each individual director. Relations with shareholders The board values the views of its shareholders and recognises their interest in the company’s strategy and performance, board membership and quality of management.The AGM is used to communicate with investors and documents are sent to shareholders at least 20 working days before the meeting. The chairman and chairmen of the audit and remuneration committees are available to answer relevant questions. Separate resolutions are proposed on each substantial issue so that they can be given proper consideration and there is a resolution to receive and consider the annual report and financial statements. The company counts all proxy votes and will indicate the level of proxies lodged on each resolution, after it has been dealt with by a show of hands.We have no institutional shareholders. Accountability and audit The board presents a balanced and understandable assessment of the company’s position and prospects in all interim and other price-sensitive public reports, reports to regulators and information required to be presented by statute. The responsibilities of the directors as regards the financial statements are described on page 4, and that of the auditor on page 15. A statement on going concern appears on page 12. The audit committee of the board comprises all the non-executive directors and is chaired by Christopher Clark. The committee meets not less than three times a year to review the scope and findings of the auditor’s work on audit and non-audit issues, the interim and annual reports prior to their publication, the application of the company’s accounting policies and any changes to the financial reporting requirements. The audit committee also plays an important part in reviewing the company’s systems of internal control which are described below.The audit committee reports on each of its meetings at the next board meeting. The audit committee reviews the terms of engagement with the external auditor and ensures that the external auditor is independent via the segregation of audit-related work from other accounting functions and has referenced fees with similar auditors. Internal control The board is responsible for establishing and maintaining a sound system of internal control and for reviewing its effectiveness.The system of internal control is designed to meet the particular needs of the group and the risks to which it is exposed, and by its very nature provide reasonable, but not absolute assurance against material misstatement or loss. The internal control system was in place for the period under review up to the date of approving the accounts. There is an ongoing process to identify, evaluate and manage the risks facing the business.The entire system of internal control was reviewed during the year. This review has been undertaken in accordance with guidance published by The Institute of Chartered Accountants in England and Wales. The key procedures, which exist to provide effective internal control, are as follows: ● clear limits of authority ● annual revenue, cash flow and capital forecasts, reviewed regularly during the year, monthly monitoring of cash flow and capital expenditure reported to the board, quarterly and half year revenue comparisons with forecasts ● financial controls and procedures ● clear guidelines for capital expenditure and disposals, including defined levels of authority ● two-monthly meetings of the executive directors to authorise share purchases and sales ● an audit committee, which approves audit plans and published financial information and reviews reports from external auditors arising from the audit and dealing with significant control matters raised ● regular board meetings to monitor continuously any areas of concern ● annual review of risks and internal controls ● annual review of compliance with Combined Code. 70093 PRE 5/4/07 18:31 Page 4 4 CORPORATE GOVERNANCE The board has considered the need for an internal audit function but has decided that the size of the company does not justify it at present. However, it does review the position annually. The board has reviewed the operation and effectiveness of the group’s system of internal control, including financial, operational and compliance controls and risk management for the financial year ended 31 December 2006 and the period up to date of approval of the financial statements. Statement of directors’ responsibilities The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The financial statements are required by law to give a true and fair view of the state of affairs of the group and of the profit or loss of the group for that period. In preparing those financial statements, the directors are required to: ● select suitable accounting policies and then apply them consistently ● make judgements and estimates that are reasonable and prudent ● state whether applicable International Accounting Standards as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements ● prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in operational existence for the foreseeable future. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the group and to enable them to ensure that the financial statements are prepared in accordance with the Companies Act 1985. They are also responsible for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as the directors are aware: ● there is no relevant audit information of which the group’s auditor is unaware; and ● the directors have taken all necessary steps to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. The directors confirm that the accounting policies adopted in the preparation of the financial statements are appropriate to the group, have been consistently applied and are supported by reasonable and prudent judgements and estimates. All applicable accounting standards have been followed. By Order of the Board D Bowman Company Secretary 21 March 2007 70093 PRE 5/4/07 18:31 Page 5 DIRECTORS AND ADVISERS 5 Company number 224271 Directors John Hewitt, MA (Non-executive Chairman) Christopher Clark, BA FCIS (Non-executive) Richard Stansfield, BSc FRICS (Non-executive) Jonathan Kingerlee (Chief Executive) David Bowman, BA FCA (Finance) David Kingerlee (Executive) Company secretary David Bowman, BA FCA Independent auditor Bankers Corporate finance advisers Property advisers Independent valuers Registrars Solicitors Registered office Grant Thornton UK LLP Registered Auditors Chartered Accountants 1 Westminster Way Oxford OX2 0PZ Lloyds TSB Bank PLC Black Horse House Wallbrook Court North Hinksey Lane Botley Oxford OX2 0QS Charles Stanley Securities 25 Luke Street London EC2A 4AR King Sturge LLP Churchward House Kemble Drive Swindon SN2 2TA Jones Lang LaSalle 22 Hanover Square London W1A 2BN Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield HD8 0LA Clarks LLP One Forbury Square The Forbury Reading RG1 3EB Thomas House Langford Locks Kidlington Oxon OX5 1HR 70093 PRE 5/4/07 18:31 Page 6 6 REPORT OF THE DIRECTORS The directors are pleased to present the seventy-ninth annual report together with the audited financial statements of the group. Principal activities Highcroft Investments PLC is a group that invests in property and equity investments. Results and dividends The trading results for the year and the group’s financial position at the end of the year are shown in the financial statements, and are discussed further in the business review below. The directors are pleased with the exceptional performance in many aspects of the group’s activities. The property and equity portfolios have generated sufficient income to be able to announce a dividend increase in respect of 2006, from 12.65p to 13.70p, a rise of 8.3%. The net asset value per share increased 9.5% to 830p from 758p and the dividends paid to shareholders during 2006 were as follows: 2005 Final: 8.30p per ordinary share (2004 7.65p) 2006 Interim: 4.70p per ordinary share (2005 4.35p) 2006 £’000 429 243 –––––– 672 –––––– 2005 £’000 395 225 –––––– 620 –––––– The board is proposing a final dividend on the ordinary shares in respect of 2006 of 9.0p (2005 8.3p) per share, making a total dividend of 13.7p (2005 12.65p). Business review Financial performance – revenue activities Gross income for the year ended 31 December 2006 was £2,527,000 – a rise of 12.0% on last year (2005 £2,256,000). Analysis of gross income Commercial property income Residential property income Gross income from property Income from equity investments Total income 2006 £’000 1,933 105 –––––– 2,038 489 –––––– 2,527 –––––– 2005 £’000 1,833 84 –––––– 1,917 339 –––––– 2,256 –––––– 2004 £’000 1,586 81 –––––– 1,667 285 –––––– 1,952 –––––– 2003 £’000 1,484 85 –––––– 1,569 315 –––––– 1,884 –––––– 2002 £’000 1,422 95 –––––– 1,517 333 –––––– 1,850 –––––– Commercial property income rose with the expansion of the portfolio, partly funded by medium term loans, rising by 5.5% over 2005. Residential property income rose, partly due to a premium received for a lease extension and partly due to the back rent on a caretaker’s flat the receipt of which had previously been in doubt. Underlying income from equity investments saw a continuation of a rising trend since 2005 and this was boosted in part by special dividends on certain holdings. 70093 PRE 5/4/07 18:31 Page 7 REPORT OF THE DIRECTORS 7 Analysis of administrative and net finance expenses Directors’ remuneration Auditor’s remuneration including other services Other expenses Administrative expenses Net finance expenses/(income) Total expenses 2006 £’000 141 32 74 –––––– 247 188 –––––– 435 –––––– 2005 £’000 112 36 74 –––––– 222 84 –––––– 306 –––––– 2004 £’000 110 20 75 –––––– 205 (4) –––––– 201 –––––– 2003 £’000 114 20 75 –––––– 209 (15) –––––– 194 –––––– 2002 £’000 124 25 72 –––––– 221 (18) –––––– 203 –––––– For the first time since 2002, non-executive fees were reviewed and this, together with 2006 including a period of overlap prior to the retirement of one director, caused a relatively high increase in total directors’ remuneration. Additional work in respect of the implementation of IFRS also affected total directors’ remuneration. The implementation of IFRS and International Auditing Standards caused a relatively significant increase in the cost of services from our auditor in 2005. While this decreased in 2006, the underlying cost of compliance has nevertheless increased. The implementation in 2004 of a policy to expand the commercial property portfolio with medium term debt generates the increase in net finance expenses and this is more than compensated by the increase in commercial property income. Summary of profit before tax and income tax expense on revenue activities 2006 £’000 Profit before tax Income tax expense Distributable profit 1,956 456 –––––– 1,500 –––––– 2005 £’000 1,825 459 –––––– 1,366 –––––– 2004 £’000 1,624 413 –––––– 1,211 –––––– 2003 £’000 1,549 409 –––––– 1,140 –––––– 2002 £’000 1,491 417 –––––– 1,074 –––––– Financial performance – capital activities We have again seen substantial revaluation net gains in the property and equity portfolios. Analysis of gains and losses on property – capital activities Realised gains on investment property Realised losses on investment property Revaluation gains on investment property Revaluation losses on investment property 2006 £’000 320 (33) –––––– 287 –––––– 2,732 (398) –––––– 2,334 –––––– 2005 £’000 44 (36) –––––– 8 –––––– 3,464 (65) –––––– 3,399 –––––– 2004 £’000 9 – –––––– 9 –––––– 1,042 (139) –––––– 903 –––––– 2003 £’000 119 (37) –––––– 82 –––––– 1,577 (257) –––––– 1,320 –––––– 2002 £’000 257 (14) –––––– 243 –––––– 509 (348) –––––– 161 –––––– 70093 PRE 5/4/07 18:31 Page 8 REPORT OF THE DIRECTORS 8 Analysis of gains and losses on equities – capital activities Realised gains on equity investments Realised losses on equity investments Revaluation gains on equity investments Revaluation losses on equity investments Summary of investment activities Purchase of property Purchase of equity investments 2006 £’000 73 (159) –––––– (86) –––––– 1,382 (150) –––––– 1,232 –––––– 2006 £’000 7,437 1,029 –––––– 8,466 –––––– 2005 £’000 77 (45) –––––– 32 –––––– 1,671 (97) –––––– 1,574 –––––– 2005 £’000 – 958 –––––– 958 –––––– 2004 £’000 89 (51) –––––– 38 –––––– 953 (88) –––––– 865 –––––– 2004 £’000 4,089 1,016 –––––– 5,105 –––––– 2003 £’000 142 (66) –––––– 76 –––––– 1,048 (52) –––––– 996 –––––– 2003 £’000 1,596 624 –––––– 2,220 –––––– 2002 £’000 86 (176) –––––– (90) –––––– 40 (1,960) –––––– (1,920) –––––– 2002 £’000 1,504 935 –––––– 2,439 –––––– Strategy The broad objectives of the group remain unchanged. These are to enhance shareholder value via a combination of increasing asset value, increasing profits and increasing dividends. The strategy by which the board of Highcroft seeks to achieve these objectives and our commentary for 2006, including relevant key performance indicators, is as follows: ● To continue the focus on the commercial property portfolio. Allocation of total investments Commercial property Residential property Equity investments Total 2006 % 73 5 22 –––––– 100 –––––– 2005 % 70 6 24 –––––– 100 –––––– 2004 % 70 8 22 –––––– 100 –––––– 2003 % 67 9 24 –––––– 100 –––––– 2002 % 66 9 25 –––––– 100 –––––– During the year we completed the purchases of two properties, and both are included in the largest property holding schedule on page 29. In February 2006 we purchased a terrace of three retail units in Staines at a cost including stamp duty and fees of £2.99m.The property benefits from planning and other consents to extend upwards to create nine new apartments. Initially the intention had been to develop these new apartments ourselves. However strong interest from developers specialising in such schemes, along with favourable ground rent terms which will add further value encouraged the board simply to dispose of the development site by way of a long lease, and this transaction will be concluded in 2007. In October 2006 the company purchased a five storey office building in Victoria, London, for £4.33m including stamp duty and fees. This represented a rare opportunity to participate in the important central London market where generally the large lot sizes would put the majority of property out of Highcroft’s reach. Initially the yield of 5.77% is a reflection of a moderately over-rented position, but the directors are confident further rental growth and continuing investor demand will ensure that this property will be a strong performer over the medium term. 70093 PRE 5/4/07 18:31 Page 9 REPORT OF THE DIRECTORS 9 Taken with the disposal referred to below and other disposals of smaller office buildings in Oxford and Abingdon, the directors believe that they have completed a modest but significant shift in emphasis within the office sector of the portfolio. During the year the sale of the office buildings at Solihull was agreed for a consideration of £1.89m, and contracts were exchanged on l6 March 2007. The directors continue to seek further opportunities to expand the portfolio. We are aware that certain property sectors may already have seen their peaks. We are also aware that the REITs conversion charge, were the company to convert, would add to the cost of newly acquired property assets without the benefit of eliminating historic tax liabilities. ● To continue to reduce the residential property portfolio when opportunities arise. Number of residential disposals Per annum 2006 2 –––––– 2005 2 –––––– 2004 1 –––––– 2003 2 –––––– 2002 3 –––––– We plan for two residential disposals per year but as we sell only with vacant possession the annual rate is not within our control. ● To have such a proportion of funds in equity investments which maintains a lower risk profile than would attach to a portfolio which was 100% invested in property. We intend that equity investments will represent 15-25% of total investments. The All Share Index rose by 13.1% during 2006 and we made several disposals from the equity investment portfolio which gave a net loss in the income statement. During the course of 2006 there was a net investment in the equity investment portfolio of £29,000. ● To seek property development opportunities from within our own property portfolio. A development to add two residential units to the commercial property in Cirencester was completed. ● To seek, though not exclusively, new property acquisitions with development opportunities where the development risks can be counter-balanced by income from the same investment. We expect to sell the right to add residential units to the commercial property in Staines, acquired in January 2006. ● To use medium term gearing but to a level which would be perceived as cautious by comparison with other real estate businesses. The medium term funding of the property portfolio at 31 December 2006 was £5,931,000 (2005 £1,500,000). The gearing ratio (i.e. medium term funding as a proportion of total equity) at 31 December 2006 was 13.3% (2005 3.6%). 70093 PRE 5/4/07 18:31 Page 10 10 REPORT OF THE DIRECTORS Summary of other key performance indicators The directors have monitored the progress of the group strategy and the individual strategic elements by reference to certain financial and non-financial key performance indicators. Growth in gross income Commercial property income Residential property income Total property income Dividend income Total income Value of voids and bad debts Voids Bad debts 2006 5% 25% 6% 44% 12% –––––– 2006 £’000 10 – –––––– 2005 16% 4% 15% 19% 16% –––––– 2005 £’000 – – –––––– 2004 7% -5% 6% -10% 4% –––––– 2004 £’000 – – –––––– 2003 4% -11% 3% -5% 2% –––––– 2003 £’000 – – –––––– 2002 8% -3% 7% 8% 8% –––––– 2002 £’000 – – –––––– Our first void for many years arose as part of the planned approach to the residential development at Staines. Future developments for the business/future outlook The board has monitored the development of the REITs legislation over recent years in the hope that this would represent an opportunity for Highcroft and its shareholders. The legislation is not simple and, more significantly, the proposed provisions in respect of substantial shareholders (those with shareholdings greater than 10%) changed regularly. However, we are now optimistic that during 2007 we will be in a position to call an Extraordinary General Meeting at which we will invite shareholders to approve the conversion of the company to a REIT.This will reduce significantly the tax liabilities of the group, thus increasing net asset value, and substantially increase the dividend returns for shareholders. The property market has steadily risen in recent years contradicting those earlier forecasts which suggested it was peaking. The directors believe that certain property sectors may already have peaked and that there may well be a short-term flattening in values. We continue to look for investments which will give financial return in the medium term while remaining conscious of the forces affecting the market in which we operate. Equity markets rose in 2006 and we expect further advances in 2007 although not at the same rate. Our activities in these markets may be more short term, although we predominantly seek return in the medium term. If we are successful in converting to a REIT, our equity investment portfolio will be limited to a maximum of 25% of the total portfolio. Principal risks and uncertainties The management of the business and the nature of the group’s strategy are subject to a number of risks.The directors have set out below four principal risks facing the business. The directors are of the opinion that a thorough risk management process is adopted which includes the formal review of all the four risks identified below.Where possible, processes are in place to monitor and mitigate such risks. 1. Business strategy The success of Highcroft is dependent upon establishing the right business strategy to fulfil shareholder expectations. Since 2001, we have been explicit about our strategy and assessed each year’s performance against that strategy in our annual report. In response to this risk, directors use planning and forecasting of the business to help to ensure that outcomes are satisfactory for shareholders. 70093 PRE 5/4/07 18:31 Page 11 REPORT OF THE DIRECTORS 11 2. 3. 4. Potential for unsatisfactory relationship with property advisers and managers The performance of the property portfolio is key to our overall success and the professional advice we receive is critical.We work closely with our advisers to review regularly the performance of the portfolio and also that of the advisers themselves. Internal controls become ineffective, irrelevant or incomplete Potential issues affecting internal control are a continuous part of our thinking. Risks and their control are reviewed annually by the audit committee and by the whole board. Insolvency of a tenant Tenant insolvency leads to bad debts and voids. Rent collections are continuously reviewed by our property managers and regularly reviewed internally.Tenants’ financial status is carefully reviewed when a new lease is entered into and when a property is acquired. Financial instruments Information on financial instruments is included in note 19. Environmental policy The directors have not considered it appropriate, given the size and nature of the group’s activities to have an environmental policy. However, we ensure that action is taken to comply with all relevant legislation. Directors The directors are as follows: Christopher Clark: Christopher Clark, 64, was appointed as an independent non-executive director in January 2006. He is also a board member of Advance Focus Fund Limited, of which he is non-executive chairman, and of William Ransom & Son plc. He previously worked as a stockbroker and is a Fellow of the Chartered Institute of Secretaries. John Hewitt: John Hewitt, 61, worked in the City of London in stockbroking for over 20 years where he became managing director of Scrimgeour Vickers. He now splits his time between advising local and international businesses and organisations, and charitable fund-raising in the medical and academic world. He was appointed as an independent non-executive director in 1999. Richard Stansfield: Richard Stansfield, 49, is a chartered surveyor and director of Savills commercial department in Oxford, a multi discipline practice of property consultants. He was appointed as an independent non-executive director in 2002. Jonathan Kingerlee: Jonathan Kingerlee, 46, became an executive director in 1995 and chief executive in 2001. He is also chief executive of the Kingerlee Group of companies, which trades principally in construction and property development and has various investment interests. Other interests include companies developing and selling environmental building materials, and he is also a founder member of the Good Homes Alliance which is a trade association open to property developers committed to improving the performance of newly constructed homes. David Bowman: David Bowman, 51, became finance director in 2001, having been company secretary since 1993. He is also a consultant for Practical Financial Management and a non-executive director of Traidcraft PLC and of Traidcraft Exchange Limited. David Kingerlee: David Kingerlee, 45, became an executive director in 1996. He is also an executive director and company secretary of the Kingerlee Group of companies, which trades principally in construction and property development and has various investment interests. John Hewitt and David Bowman retire by rotation and, being eligible, offer themselves for re-election. 70093 PRE 5/4/07 18:31 Page 12 12 REPORT OF THE DIRECTORS Interests of the directors in the shares of the company The beneficial and other interests of the directors, and their families, in the shares of the company at 1 January 2006 and at 31 December 2006 were as follows: J Hewitt C J Clark R N Stansfield J C Kingerlee D Bowman D H Kingerlee 31 December 2006 Beneficial Non-beneficial 1 January 2006 Beneficial Non-beneficial 10,000 1,950 – 92,096 14,995 166,250 – – – – 84,854 74,300 10,000 – – 92,096 16,660 168,200 – – – – 91,448 74,300 There is no duplication of directors’ shareholdings, except in respect of: ● 74,300 of the non-beneficial holdings of David Bowman and David Kingerlee; ● 1,715 of the beneficial and non-beneficial holdings of David Bowman; ● 74,300 of the beneficial and non-beneficial holdings of David Kingerlee. There were no changes in the interests of the directors in the period from 1 January 2007 to 21 March 2007. Substantial shareholders As at 21 March 2007 the following notifications of interests in three per cent or more of the company’s ordinary share capital in issue at the date of this report had been received: Kingerlee Holdings Limited D G & M B Conn and associates D H Kingerlee G J Kingerlee Number of shares Beneficial Non-beneficial (24.6%) (17.0%) (3.2%) (3.1%) 1,272,700 878,485 166,250 161,150 – – 74,300 – Going concern The directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Policy on the payment of creditors The group normally agrees payment terms with suppliers as part of the establishment of a contract. It is the group’s normal practice to pay its suppliers before the end of the month following the month of supply.This policy applies at the present time and applied in 2006 when average creditor days were 31 (2005 27). Donations Donations to charitable organisations amounted to £3,600 (2005 £3,600).There were no political donations. Auditor A resolution to re-appoint Grant Thornton UK LLP as auditor for the ensuing year will be proposed at the annual general meeting in accordance with Section 385 of the Companies Act 1985. By Order of the Board D Bowman Company Secretary 21 March 2007 70093 PRE 5/4/07 18:31 Page 13 DIRECTORS’ REMUNERATION REPORT 13 The information contained in this report is not subject to audit except where specified. Composition of the Remuneration Committee The members of the committee are Richard Stansfield (Chairman), Christopher Clark and John Hewitt. None of the committee has any personal financial interest in the matters to be decided (other than as shareholders), potential conflicts of interest arising from cross-directorships nor any day-to-day involvement in running the business. Terms of reference The approved terms of reference of the Remuneration Committee are as follows: The Remuneration Committee is established in order to determine the company’s policy on executive directors’ remuneration and the specific remuneration packages for each of the executive directors, including any pension rights and any compensation payments. The Remuneration Committee consults the chief executive about their proposals relating to the remuneration of other executive directors but he is not present for the discussion of his own remuneration.The committee has access to advice from independent professionals at the company’s expense. Policy Executive directors’ remuneration is reviewed annually having regard to the work done and the profits of the business but without a fixed relationship between profits and any element of pay. Executive directors are given service contracts not longer than three years and with no provision for compensation payments on termination, but in any event having a notice period by either party of six months. The contracts of directors in office have expiry dates as follows, subject to shareholders re-election at annual general meetings when appropriate: C J Clark J Hewitt R N Stansfield J C Kingerlee D Bowman D H Kingerlee Start date Expiry date 1 January 2006 1 October 2006 1 January 2006 1 July 2005 1 July 2004 1 July 2006 30 June 2009 30 June 2007 30 June 2008 30 June 2008 30 June 2007 30 June 2009 The remuneration of the non-executive directors is determined by the whole board. At the beginning of 2006, rates for non-executive directors were reviewed for the first time since 2002 and were benchmarked against available market data. Directors’ interests Directors’ interests are shown in the Report of the Directors on page 12.They are taken from the company’s Register of Directors’ Interests which is open to inspection, by appointment, at the Registered Office. 70093 PRE 5/4/07 18:31 Page 14 DIRECTORS’ REMUNERATION REPORT 14 Performance graph The graph below shows Highcroft’s Total Shareholder Return (TSR) compared to the All Share index over the last five years.TSR over the last five years is defined as share price growth plus reinvested dividends.The All Share index provides a basis for comparison as a relevant equity index of which Highcroft is a constituent member. TSR Performance Graph 220 200 180 160 140 120 100 80 60 2002 2003 2004 2005 2006 HIGHCROFT INVESTMENTS PLC – TOTAL RETURN INDEX Source: Thomson DataStream FTSE ALL SHARE – TOTAL RETURN INDEX Directors’ remuneration (audited) John Hewitt Gavin Kingerlee (until 30 September 2006) Christopher Clark Richard Stansfield Jonathan Kingerlee David Bowman David Kingerlee 2006 £ 11,250 11,250 10,000 10,000 32,000 34,500 17,000 –––––– 126,000 –––––– 2005 £ 7,500 12,500 – 8,295 31,000 27,525 16,250 –––––– 103,070 –––––– These figures, except as stated, represent salaries earned as directors during the relevant financial year. There were no benefits in kind and no performance related payments were made.The group does not have a pension scheme for directors nor an executive share option scheme or other long term incentive plan for directors. R N Stansfield Chairman of the Remuneration Committee 21 March 2007 70093 PRE 5/4/07 18:31 Page 15 REPORT OF THE INDEPENDENT AUDITOR to the members of Highcroft Investments PLC 15 We have audited the group financial statements of Highcroft Investments PLC for the year ended 31 December 2006 which comprise the principal accounting policies, the consolidated income statement, the consolidated balance sheet, consolidated statement of cash flows and notes 1 to 20. These group financial statements have been prepared under the accounting policies set out therein. We have reported separately on the parent company financial statements of Highcroft Investments PLC for the year ended 31 December 2006 and the information in the directors’ remuneration report that is described as having been audited. This report is made solely to the company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor The directors’ responsibilities for preparing the annual report and the group financial statements in accordance with United Kingdom law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the group financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the group financial statements give a true and fair view and whether the group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation.We also report to you if, in our opinion, the information given in the directors’ report is not consistent with the group financial statements, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding director’s remuneration and other transactions is not disclosed. We review whether the corporate governance statement reflects the company’s compliance with the nine provisions of the 2003 FRC Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures. We read other information contained in the annual report and consider whether it is consistent with the audited group financial statements. The other information comprises only the Chairman’s Statement, report of the directors, the unaudited part of the directors’ remuneration report, the corporate governance statement and the unaudited supplementary information detailed in the contents page.We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the group financial statements. Our responsibilities do not extend to any other information. 70093 PRE 5/4/07 18:31 Page 16 16 REPORT OF THE INDEPENDENT AUDITOR to the members of Highcroft Investments PLC Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the group financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the group financial statements, and of whether the accounting policies are appropriate to the group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the group financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the group financial statements. Opinion In our opinion: ● the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group’s affairs as at 31 December 2006 and of its profits for the year then ended; ● the group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation: and the information given in the Directors’ Report is consistent with the financial statements. GRANT THORNTON UK LLP Registered Auditors Chartered Accountants Oxford 21 March 2007 70093 ACC NOTES 5/4/07 19:24 Page 17 CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2006 17 Note Revenue £’000 Gross rental revenue Property operating expenses Net rental revenue Realised gains on investment property Realised losses on investment property Net realised gain on investment property Valuation gains on investment property Valuation losses on investment property Net valuation gains on investment property Dividend revenue Gains on investments Losses on investments Net investment income Administration expenses 3 Net operating profit before net finance expenses Finance income Finance expenses Net finance expenses Profit before tax Income tax expense Profit for the year 5 15 2,038 (136) –––––– 1,902 –––––– – – –––––– – –––––– – – –––––– – –––––– 489 – – –––––– 489 –––––– (247) –––––– 2,144 –––––– 13 (201) –––––– (188) –––––– 1,956 (456) –––––– 1,500 –––––– 2006 Capital £’000 – – –––––– – –––––– 320 (33) –––––– 287 –––––– 2,732 (398) –––––– 2,334 –––––– – 1,455 (309) –––––– 1,146 –––––– – –––––– 3,767 –––––– – – –––––– – –––––– 3,767 (884) –––––– 2,883 –––––– Total £’000 Revenue £’000 2,038 (136) –––––– 1,902 –––––– 320 (33) –––––– 287 –––––– 2,732 (398) –––––– 2,334 –––––– 489 1,455 (309) –––––– 1,635 –––––– (247) –––––– 5,911 –––––– 13 (201) –––––– (188) –––––– 5,723 (1,340) –––––– 4,383 –––––– 1,917 (125) –––––– 1,792 –––––– – – –––––– – –––––– – – –––––– – –––––– 339 – – –––––– 339 –––––– (222) –––––– 1,909 –––––– 8 (92) –––––– (84) –––––– 1,825 (459) –––––– 1,366 –––––– 2005 Capital £’000 – – –––––– – –––––– 44 (36) –––––– 8 –––––– 3,464 (65) –––––– 3,399 –––––– – 1,748 (142) –––––– 1,606 –––––– – –––––– 5,013 –––––– – – –––––– – –––––– 5,013 (1,092) –––––– 3,921 –––––– Total £’000 1,917 (125) –––––– 1,792 –––––– 44 (36) –––––– 8 –––––– 3,464 (65) –––––– 3,399 –––––– 339 1,748 (142) –––––– 1,945 –––––– (222) –––––– 6,922 –––––– 8 (92) –––––– (84) –––––– 6,838 (1,551) –––––– 5,287 –––––– Basic and diluted earnings per share 7 29.0p 55.8p 84.8p 26.4p 75.9p 102.3p The total represents the income statement as defined in IAS1. The accompanying notes form an integral part of these financial statements. 70093 ACC NOTES 5/4/07 19:24 Page 18 CONSOLIDATED BALANCE SHEET at 31 December 2006 18 Note 2006 £’000 2005 £’000 8 8 10 11 12 13 14 15 15 15 15 15 41,487 11,794 –––––– 53,281 –––––– 489 281 –––––– 770 54,051 –––––– 246 196 838 –––––– 1,280 –––––– 5,685 4,211 –––––– 9,896 –––––– 11,176 –––––– 42,875 –––––– 1,292 10,169 4,601 95 16,055 10,663 –––––– 42,875 –––––– 33,461 10,620 –––––– 44,081 –––––– 301 725 –––––– 1,026 45,107 –––––– 71 358 725 –––––– 1,154 –––––– 1,429 3,360 –––––– 4,789 –––––– 5,943 –––––– 39,164 –––––– 1,292 8,734 3,902 95 15,306 9,835 –––––– 39,164 –––––– Assets Non-current assets Investment property Equity investments Total non-current assets Current assets Trade and other receivables Cash and cash equivalents Total current assets Total assets Liabilities Current liabilities Interest-bearing loans and borrowings Current income tax Trade and other payables Total current liabilities Non-current liabilities Interest-bearing loans and borrowings Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Issued share capital Revaluation reserve – property – other Capital redemption reserve Realised capital reserve Retained earnings Total equity These financial statements were approved by the Board of Directors on 21 March 2007. J Hewitt J C Kingerlee Directors The accompanying notes form an integral part of these financial statements. 70093 ACC NOTES 5/4/07 19:24 Page 19 CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2006 Operating activities Profit for the year Adjustments for: Net valuation gains on investment property Profit on disposal of investment property Gains on investments Finance income Finance expense Income tax expense Operating cash flow before changes in working capital and provisions (Increase)/decrease in trade and other receivables Increase in trade and other payables Cash generated from operations Finance income Finance expenses Income taxes paid Net cash flows from operating activities Investing activities Purchase of non-current assets – investment property Sale of non-current assets – investment property – equity investments – equity investments Net cash flows from investing activities Financing activities New medium term loans Loan repayments Dividends paid Net cash flows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 January 2006 Cash and cash equivalents at 31 December 2006 19 2006 £’000 4,383 (2,334) (287) (1,146) (13) 201 1,340 –––––– 2,144 (188) 113 –––––– 2,069 13 (201) (650) –––––– 1,231 –––––– (7,437) (1,029) 2,032 1,000 –––––– (5,434) –––––– 4,470 (39) (672) –––––– 3,759 –––––– (444) 725 –––––– 281 –––––– 2005 £’000 5,287 (3,399) (8) (1,606) (8) 92 1,551 –––––– 1,909 68 46 –––––– 2,023 8 (92) (564) –––––– 1,375 –––––– – (958) 469 675 –––––– 186 –––––– – (70) (620) –––––– (690) –––––– 871 (146) –––––– 725 –––––– 70093 ACC NOTES 5/4/07 19:24 Page 20 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 20 1 Significant accounting policies Highcroft Investments PLC is a company domiciled in the United Kingdom. The consolidated financial statements of the company for the year ended 31 December 2006 comprise the company and its subsidiary, together referred to as the group. Basis of preparation The financial statements are presented in pounds sterling, rounded to the nearest thousand. The consolidated financial statements of the group have been prepared under the historical cost convention, except that investment property and equity investments are stated at their fair value, and in accordance with International Financial Reporting Standards as adopted by the European Union. The preparation of financial statements in conformity with IFRS’s requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses.The estimates and associated assumptions are based on historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affected that period, or in the period of the revision and future periods if the revision affects both current and future periods. Basis of consolidation The group financial statements consolidate the financial statements of the company and its subsidiary, Rodenhurst Estates Limited, which are both made up to 31 December 2006, also following consistent accounting policies. Unrealised profits or losses on intra-group transactions are eliminated in full. Rental revenue Rental revenue from investment property is recognised in the income statement on a straight line basis over the term of the lease. Dividend revenue Dividend revenue relating to exchange-traded equity investments is recognised in the income statement on the ex-dividend date. In some cases, the group may receive dividends in the form of shares rather than cash. In such cases, the group recognises the dividend income for the amount of cash dividend alternative with a corresponding increase in cost of investments. Interest income Interest income and expense is recognised in the income statement as they accrue. Interest income is recognised on a gross basis, including withholding tax, if any. Expenses All expenses are recognised in the income statement on an accrual basis. Income tax Income tax on the profit and loss for the periods presented comprises current and deferred tax, except where they relate to items charged directly to equity in which case the related deferred tax is also charged or credited to equity. Income tax is recognised in the income statement. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The following temporary differences are not provided for: the effect of neither accounting nor taxable profit, and differences relating to the investment in the subsidiary to the extent that it will probably not reverse in the foreseeable future. 70093 ACC NOTES 5/4/07 19:24 Page 21 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 21 1 Significant accounting policies (continued) Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. Investment property Investment property is that which is held either to earn rental income or for capital appreciation or for both. Investment property is stated at fair value. An external, independent valuation company, having an appropriate recognised professional qualification and recent experience in the location and category of property being valued, values the portfolio every six months. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. Acquisitions and disposals are recognised on the date of completion. Any gain or loss arising from a change in fair value is recognised in the income statement. Cash and cash equivalents Cash and cash equivalents comprise cash and cash available at less than 24 hours notice at no penalty. Financial assets The directors have adopted the fair value option for its qualifying financial assets on the basis that to do so is in accordance with its documented investment strategy. Trade and other receivables Trade and other receivables are recognised at fair value on initial recognition and subsequently at amortised cost.An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Trade and other payables Trade and other payables are recognised at fair value on initial recognition and subsequently at amortised cost. Interest-bearing borrowings Interest-bearing borrowings are initially recognised at fair value less attributable costs.Thereafter the carrying amount is stated at amortised cost obtained using the effective interest rate method. Issued share capital Ordinary shares are classified as equity because they do not contain an obligation to transfer cash or another financial asset. Dividends are recognised as a liability in the period in which they are payable. Segment reporting A segment is a distinguishable component of the group that is engaged in generating income and expenses (business segment) which is subject to risks and rewards that are different from those of other segments.The business segment is considered to be the primary reporting segment.There is no secondary reporting because the group trades entirely in the United Kingdom. 70093 ACC NOTES 5/4/07 19:24 Page 22 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 22 2 Segment reporting 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 Commercial property Gross income Profit for the year Assets Liabilities Residential property Gross income Profit/(loss) for the year Assets Liabilities Financial assets Gross income Profit for the year Assets Liabilities Total Gross income Profit for the year Assets Liabilities 3 Administrative expenses Directors (note 4) Auditor’s fees Fees payable to the company’s auditor for the audit of the company’s annual accounts Fees payable to the company’s auditor for other services: The audit of the company’s subsidiary, pursuant to legislation Tax services Other services pursuant to legislation Other expenses 2006 £’000 1,933 2,288 39,312 8,559 105 813 2,874 736 489 1,282 11,865 1,881 2,527 4,383 54,051 11,176 2006 £’000 141 6 11 11 4 74 –––––– 247 –––––– 2005 £’000 1,833 3,774 31,951 3,657 84 (19) 2,521 621 339 1,532 10,635 1,663 2,256 5,287 45,107 5,941 2005 £’000 112 10 9 10 7 74 –––––– 222 –––––– 70093 ACC NOTES 5/4/07 19:24 Page 23 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 4 Directors Remuneration in respect of directors was as follows: Remuneration Social security costs 23 2006 £’000 126 15 –––––– 141 –––––– 2005 £’000 103 9 –––––– 112 –––––– The average number of employees, all of whom were directors, of the group during the year was 7 (2005 6). More detailed information concerning directors’ remuneration is shown in the Directors’ Remuneration Report. 5 Income tax expense Current tax: On revenue profits On capital profits Prior year overprovision Deferred tax (note 13) 2006 £’000 363 83 (11) –––––– 435 905 –––––– 1,340 –––––– 2005 £’000 461 8 (1) –––––– 468 1,083 –––––– 1,551 –––––– The tax assessed for the year differs from the standard rate of corporation tax in the UK of 30% (2005 30%). The differences are explained as follows: Profit before tax Profit before tax multiplied by standard rate of corporation tax in the UK of 30% (2005 30%). Effect of: Tax exempt revenues Chargeable gains less than accounting profit Adjustments to tax charge in respect of prior periods Income tax expense 2006 £’000 5,723 –––––– 2005 £’000 6,838 –––––– 1,716 2,051 (119) (246) (11) –––––– 1,340 –––––– (87) (411) (2) –––––– 1,551 –––––– 6 Dividends On 21 March 2007, the directors declared an ordinary dividend of 9.0p per share (2005 8.3p) payable on 6 June 2007 to shareholders registered at 4 May 2007. The following dividends have been paid by the group. 2005 Final: 8.30p per ordinary share (2004 7.65p) 2006 Interim: 4.70p per ordinary share (2005 4.35p) 2006 £’000 429 243 –––––– 672 –––––– 2005 £’000 395 225 –––––– 620 –––––– 70093 ACC NOTES 5/4/07 19:24 Page 24 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 24 7 Earnings per share The calculation of earnings per share is based on the profit for the year of £4,383,000 (2005 £5,287,000) and on 5,167,240 shares (2005 5,167,240) which is the weighted average number of shares in issue during the year ended 31 December 2006 and throughout the period since 1 January 2005. 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 £1,500,000 (2005 £1,366,000) has been calculated. Earnings: Basic earnings (profit for the year) Adjustments for: Net valuation gains on investment property Gains and losses on investments Income tax on gains and losses Adjusted earnings (operating profit) Per share amount: Basic earnings per share Adjustments for: Net valuation gains on investment property Gains and losses on investments Income tax on gains and losses Adjusted earnings per share 8 Investment property Valuation at 1 January 2006 Additions Disposals Surplus on revaluation Valuation at 31 December 2006 2006 £’000 4,383 (2,621) (1,146) 884 –––––– 1,500 –––––– 2005 £’000 5,287 (3,407) (1,606) 1,092 –––––– 1,366 –––––– 84.8p 102.3p (50.7)p (22.2)p 17.1p –––––– 29.0p –––––– (65.9)p (31.1)p 21.1p –––––– 26.4p –––––– 2006 £’000 33,461 7,437 (1,745) 2,334 –––––– 41,487 –––––– 2005 £’000 30,523 – (461) 3,399 –––––– 33,461 –––––– 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 2006, 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. At 31 December 2006, investment property with a carrying amount of £9,725,000 is subject to registered debentures to secure medium-term bank loans (see note 12). In accordance with IAS 40, a property interest under an operating lease is classified and accounted for as an investment property on a property-by-property basis when the group holds it to earn rentals or for capital appreciation or both. Any such property interest under an operating lease classified as an investment property is carried at fair value. 70093 ACC NOTES 5/4/07 19:24 Page 25 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 8 Investment property (continued) The group leases out its commercial investment property under operating leases. The future minimum lease payments receivable under non-cancellable leases are as follows: 25 Less than one year Between one and five years More than five years Total 9 Equity investments Valuation at 1 January 2006 Additions Disposals Surplus on revaluation Valuation at 31 December 2006 2006 £’000 2,106 7,240 11,078 –––––– 20,424 –––––– 2006 £’000 10,620 1,029 (1,087) 1,232 –––––– 11,794 –––––– 2005 £’000 1,831 6,401 11,166 –––––– 19,398 –––––– 2005 £’000 8,731 958 (643) 1,574 –––––– 10,620 –––––– The directors have adopted the fair value option for its equity investments on the basis that to do so is in accordance with its documented investment strategy. Equity investments are included at their market value. 10 Trade and other receivables Trade receivables Other receivables 2006 £’000 421 68 –––––– 489 –––––– The directors consider that the carrying value of trade and other receivables approximates their fair value. 11 Trade and other payables Trade payables Social security and other taxes Other payables 2006 £’000 531 161 146 –––––– 838 –––––– The directors consider that the carrying value of trade and other payables approximates their fair value. 2005 £’000 277 24 –––––– 301 –––––– 2005 £’000 439 158 128 –––––– 725 –––––– 70093 ACC NOTES 5/4/07 19:24 Page 26 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 26 12 Interest bearing loans and borrowings Medium term bank loans The medium term bank loans comprise amounts falling due as follows: Between one and two years Between two and five years Over five years 2006 £’000 5,685 –––––– 288 1,002 4,395 –––––– 5,685 –––––– 2005 £’000 1,429 –––––– 71 238 1,120 –––––– 1,429 –––––– The medium term bank loans are secured by a fixed charge on three properties, bear interest at 1% over base payable quarterly in arrears and expire as follows: 2019 2021 2006 £’000 1,396 4,289 –––––– 5,685 –––––– 2005 £’000 1,429 – –––––– 1,429 –––––– The medium term bank loans are secured by a fixed charge on investment property which has a carrying value of £9,725,000 (note 8). 13 Deferred tax liabilities Deferred taxation, arising from revaluation gains, provided for in the financial statements is set out below and is calculated using a tax rate of 30% (2005 30%). 2006 At 1 January 2006 Transfer to current tax on sale of assets Transfer from current taxation Provided in the year At 31 December 2006 2005 At 1 January 2005 Transfer to current tax on sale of assets Provided in the year At 31 December 2005 14 Share capital Authorised 8,000,000 ordinary shares of 25p each Allotted, called up and fully paid 5,167,240 (2005 5,167,240) ordinary shares of 25p each Investment property £’000 Equity investments £’000 1,614 (111) 103 734 –––––– 2,340 –––––– 1,746 (46) – 171 –––––– 1,871 –––––– Investment property £’000 Equity investments £’000 1,239 (123) 498 –––––– 1,614 –––––– 1,216 (55) 585 –––––– 1,746 –––––– 2006 £’000 2,000 –––––– 1,292 –––––– Total £’000 3,360 (157) 103 905 –––––– 4,211 –––––– Total £’000 2,455 (178) 1,083 –––––– 3,360 –––––– 2005 £’000 2,000 –––––– 1,292 –––––– 70093 ACC NOTES 5/4/07 19:24 Page 27 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 27 15 Total equity 2006 At 1 January 2006 Profit for the year Dividends to shareholders Non-distributable items recognised in income statement: Revaluation gains Tax on revaluation gains Realised gains Surplus attributable to assets sold in the year Tax on surplus attributable to assets sold in the year At 31 December 2006 2005 At 1 January 2005 Profit for the year Dividends to shareholders Non-distributable items recognised in income statement: Revaluation gains Tax on revaluation gains Realised gains Surplus attributable to assets sold in the year Tax on surplus attributable to assets sold in the year At 31 December 2005 Capital Revaluation reserves redemption reserve Other £’000 £’000 Property £’000 8,734 – – 2,334 (498) – 3,902 – – 1,232 (303) – (512) (276) 95 – – – – – – 111 ––––– 10,169 ––––– 46 ––––– 4,601 ––––– – ––––– 95 ––––– Capital Revaluation reserves redemption reserve Other £’000 £’000 Property £’000 6,322 – – 3,399 (653) – 2,933 – – 1,574 (431) – (457) (229) 95 – – – – – – Equity £’000 1,292 – – – – – – – ––––– 1,292 ––––– Equity £’000 1,292 – – – – – – Realised capital reserve £’000 15,306 – – – – 118 788 (157) ––––– 16,055 ––––– Realised capital reserve £’000 14,766 – – – – 32 686 – ––––– 1,292 ––––– 123 ––––– 8,734 ––––– 55 ––––– 3,902 ––––– – ––––– 95 ––––– (178) ––––– 15,306 ––––– Retained earnings £’000 9,835 4,383 (672) (3,566) 801 (118) – – ––––– 10,663 ––––– Retained earnings £’000 9,089 5,287 (620) (4,973) 1,084 (32) – – ––––– 9,835 ––––– Total £’000 39,164 4,383 (672) – – – – – ––––– 42,875 ––––– Total £’000 34,497 5,287 (620) – – – – – ––––– 39,164 ––––– Revaluation reserves include annual revaluation gains and losses, less attributable deferred taxation.The realised capital reserve includes realised revaluation gains and losses, less attributable income tax. In accordance with the Articles of Association the revaluation and realised capital reserves are not distributable. 16 Capital commitments There were no capital commitments at 31 December 2006 or 31 December 2005. 17 Contingent liabilities There were no contingent liabilities at 31 December 2006 or 31 December 2005. 18 Related party transactions Kingerlee Holdings Limited owns 24.6% (2005 24.5%) 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 2006, the group made purchases from Kingerlee Holdings Limited or its subsidiaries, being repairs to properties of £480 (2005 £200) and a service charge in relation to services provided at Thomas House, Kidlington of £14,000 (2005 £14,000).The amount owed at 31 December 2006 was nil (2005 Nil). All transactions were undertaken on an arm’s length basis. 70093 ACC NOTES 5/4/07 19:24 Page 28 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2006 28 19 Financial instruments Financial instruments Exposure to credit, interest rate and currency risks arises in the normal course of the group’s business. The group has no derivative financial instruments. Credit risk The group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of any allowances for doubtful receivables, estimated by the directors. The group has no significant concentration of credit risk, with exposure spread over a number of tenants. The credit status of tenants is reviewed before properties are acquired and before properties are let. Interest rate risk The group finances its operations through retained profits, medium term borrowings and the use of overdraft facilities.When medium term borrowings or overdraft facilities are used variable rates of interest apply.The weighted average interest rate paid in 2006 was 5.4%. Neither fixed rate instruments nor interest rate swaps have been used. The group places any cash balances on deposit at rates which are fixed in the short term but for sufficiently short periods that there is no need to hedge against the implied risk. Liquidity risk Short term flexibility is achieved by overdraft facilities.These facilities were used during the year, for short periods of time. Maturity of group financial liabilities The analysis at 31 December 2006 of group financial liabilities, which are at variable rates, is as follows: In less than one year or on demand: Bank borrowings In more than one year but less than two years: Bank borrowings In more than two years but less than five years: Bank borrowings In more than five years: Bank borrowings Total 2006 £’000 246 288 1,002 2005 £’000 71 71 238 4,395 –––––– 5,931 –––––– 1,120 –––––– 1,500 –––––– Borrowing facilities The group has various undrawn committed borrowing facilities. The facilities available at 31 December 2006, in respect of which all conditions precedent had been met, were as follows: Expiring in one year or less Expiring after two years Total 2006 £’000 400 4,069 –––––– 4,469 –––––– 2005 £’000 400 8,500 –––––– 8,900 –––––– The facilities included above are subject to review by the provider of the facilities on 30 April 2007. Currency risk The group is not exposed to currency risk as it does not trade in foreign currencies. However, 19.1% (2005 16.7%) of the equity investment portfolio comprises overseas holdings and the inherent currency risk of that part of the portfolio is taken into consideration as part of the overall assessment of investment risk. Fair value and maturity of financial instruments At 31 December 2006 the group had total borrowings of £5,931,000. Fair values were not materially different from book values at 31 December 2006. 20 Post balance sheet event During the year ended 31 December 2006, the sale of office buildings at Solihull was agreed for a consideration of £1,890,000, and contracts were exchanged on 16 March 2007. 70093 ACC NOTES 5/4/07 19:24 Page 29 LARGEST INVESTMENTS OF THE GROUP for the year ended 31 December 2006 Largest property holdings of the group Office building in London, SW1 Distribution centre in Kidlington, Oxfordshire Radio station and office building in north Oxford Office building in central Bristol Retail units in Staines Distribution centre in Southampton Retail unit in Leamington Spa Licensed retail and restaurant property in Warrington Retail units in Cirencester Retail unit in Norwich Nineteen other commercial and residential properties 29 Valuation of holding at 31 December 2006 £’000 4,100 3,350 3,250 3,100 2,825 2,800 2,300 2,200 1,975 1,950 –––––– 27,850 13,637 –––––– 41,487 –––––– The value of the above ten properties represents 67% (2005 69%) of the value of the property investment portfolio of the group at 31 December 2006. Largest equity holdings of the group ANZ Banking Group Royal Bank of Scotland Rio Tinto GlaxoSmithkline HSBC Holdings Slough Estates Tesco Bank of Nova Scotia British Petroleum Standard Chartered Sixty seven other equity holdings Valuation of holding at 31 December 2006 £’000 569 498 476 469 466 399 364 343 329 298 –––––– 4,211 7,583 –––––– 11,794 –––––– The value of the above ten investments represents 36% (2005 38%) of the value of the equity investment portfolio of the group at 31 December 2006. 70093 ACC NOTES 5/4/07 19:24 Page 30 FIVE YEAR SUMMARY 30 Investment properties – at annual valuation Equity investments –at market value Total net assets Net asset value per share in issue at end of each year 2006 £’000 41,487 –––––– 11,794 –––––– 42,875 –––––– 830p –––––– 2005 £’000 33,461 –––––– 10,620 –––––– 39,164 –––––– 758p –––––– 2004 £’000 30,523 –––––– 8,731 –––––– 34,497 –––––– 668p –––––– 2003 £’000 25,436 –––––– 8,062 –––––– 32,161 –––––– 622p –––––– 2002 £’000 23,098 –––––– 7,700 –––––– 29,667 –––––– 574p –––––– Revenue (excluding gains/losses on disposals of assets) £’000 £’000 £’000 £’000 £’000 Gross income from property Dividend income Profit available for distribution Share capital Average number in issue (000’s) Basic earnings per ordinary share Adjusted earnings per ordinary share Dividends paid per ordinary share All-Share Index FTSE 100 Share Index Highcroft year end share price Retail Price Index 2,038 489 1,500 –––––– 5,167 –––––– 84.8p –––––– 29.0p –––––– 13.70p –––––– 3221 –––––– 6221 –––––– 732p –––––– 202.7 –––––– 1,917 339 1,366 –––––– 5,167 –––––– 102.3p –––––– 26.4p –––––– 12.65p –––––– 2847 –––––– 5618 –––––– 615p –––––– 194.1 –––––– 1,667 285 1,211 –––––– 5,167 –––––– 56.5p –––––– 23.4p –––––– 11.70p –––––– 2410 –––––– 4814 –––––– 505p –––––– 189.9 –––––– 1,569 301 1,140 –––––– 5,167 –––––– 58.7p –––––– 22.1p –––––– 11.00p –––––– 2207 –––––– 4477 –––––– 480p –––––– 183.5 –––––– 1,517 322 1,074 –––––– 5,167 –––––– 8.4p –––––– 20.8p –––––– 10.15p –––––– 1894 –––––– 3940 –––––– 357p –––––– 178.5 –––––– The company’s share price is quoted in the Financial Times and included in the “Real Estate” category (code HCFT). Shareholders should note that the current quotation of the company’s shares can also be obtained directly from the Stock Exchange by telephoning FT Cityline - 0906 003 2888 or 0906 843 2888. Calls are charged at 60p per minute at all times. 70093 ACC NOTES 5/4/07 19:24 Page 31 DIRECTORS’ RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS for the year ended 31 December 2006 31 The directors are responsible for preparing the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare financial statements in accordance with United Kingdom accounting standards (United Kingdom Generally Accepted Accounting Practice). The financial statements are required by law to give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing those financial statements, the directors are required to: – – – – select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable United Kingdom accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 1985.They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as the directors are aware: – – there is no relevant audit information of which the company’s auditor is unaware; and the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. By Order of the Board D Bowman Company Secretary 21 March 2007 70093 ACC NOTES 5/4/07 19:24 Page 32 REPORT OF THE INDEPENDENT AUDITOR to the member s of Highcroft Investments PLC 32 We have audited the parent company financial statements (the “financial statements’’) of Highcroft Investments PLC for the year ended 31 December 2006 which comprise the principal accounting policies, the balance sheet and notes 1 to 14. These financial statements have been prepared under the principal accounting policies set out therein.We have also audited the information in directors’ remuneration report that is described as having been audited. We have reported separately on the group financial statements of Highcroft Investments PLC for the year ended 31 December 2006. This report is made solely to the company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor The directors’ responsibilities for preparing the annual report, the directors’ remuneration report and the parent company financial statements in accordance with United Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the statement of directors’ responsibilities. Our responsibility is to audit the parent company financial statements and the part of the directors’ remuneration report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the parent company financial statements give a true and fair view and whether the parent company financial statements and the part of the directors’ remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985.We also report to you if, in our opinion, the information given in the directors’ report is not consistent with the parent company financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We read other information contained in the annual report and consider whether it is consistent with the audited parent company financial statements. The other information comprises only the chairman’s statement, report of the directors, the unaudited part of the directors’ remuneration report, the corporate governance statement and the unaudited supplementary information detailed in the contents page. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the parent company financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the parent company financial statements and the part of the directors’ remuneration report to be audited. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the parent company financial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the parent company financial statements and the part of the directors’ remuneration report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the parent company financial statements and the part of the directors’ remuneration report to be audited. Opinion In our opinion: ● the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the company’s affairs as at 31 December 2006 and of its profit for the year then ended; ● the parent company financial statements and the part of the directors’ remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985; and ● the information given in the directors’ report is consistent with the financial statements. GRANT THORNTON UK LLP Registered Auditors Chartered Accountants Oxford 21 March 2007 70093 ACC NOTES 5/4/07 19:24 Page 33 COMPANY BALANCE SHEET at 31 December 2006 Fixed assets Investments Current assets Debtors Cash at bank Creditors – amounts falling due within one year Net current assets Total assets less current liabilities Capital and reserves Called up share capital Reserves – Realised capital – Capital redemption – Investment revaluation – Profit and loss account Note £’000 5 6 7 8 9 9 9 1,832 281 –––––– 2,113 38 –––––– 3,410 95 39,133 2,950 –––––– Shareholders’ funds 11 These financial statements were approved by the Board of Directors on 21 March 2007. J Hewitt J C Kingerlee Directors The accompanying notes form an integral part of these financial statements. 33 £’000 1,279 725 –––––– 2,004 59 –––––– 2006 £’000 44,805 2,075 –––––– 46,880 –––––– 2005 £’000 40,581 1,945 –––––– 42,526 –––––– 1,292 1,292 3,252 95 35,128 2,759 –––––– 42,588 –––––– 46,880 –––––– 41,234 –––––– 42,526 –––––– 70093 ACC NOTES 5/4/07 19:24 Page 34 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS for the year ended 31 December 2006 34 1 Accounting policies Basis of preparation The financial statements have been prepared in accordance with applicable UK GAAP accounting standards and under the historical cost convention except for the revaluation of fixed assets. The principal accounting policies of the company have remained unchanged from the previous year. Income from fixed asset investments Income from fixed asset investments includes: ● ● dividends received in the year and interest receivable for the year. Dividends payable Dividend payments are dealt with when paid as a change of equity in the revenue reserve. Final dividends proposed are not recognised as a liability. Investments Investments are included at the following valuations: ● ● ● shares in subsidiary undertaking - net assets as shown by its financial statements, equity investments (all listed on a recognised investment exchange) - at market value, unlisted investments - at market value estimated by the directors. Gains and losses arising on revaluation are taken to the revaluation reserve. Deferred taxation Deferred tax is recognised on all timing differences where the transactions or events that give the company an obligation to pay more tax in the future, or a right to pay less tax in the future, have occurred by the balance sheet date. Deferred tax assets are recognised when it is more likely than not that they will be recovered. Deferred tax is measured using rates of tax that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Unprovided deferred taxation would crystallise on the sale of assets at their balance sheet value. Gains on disposals of assets Gains on disposals of assets are the excess of net proceeds over the valuation at the beginning of the year.They are not available for distribution under the company’s articles of association and are taken to realised capital reserve. 2 Company profit for the year after tax The company has not presented its own profit and loss account as permitted under section 230 of the Companies Act 1985. The profit after tax for the year was £791,000 (2005 £2,710,000). Information regarding directors’ remuneration appears on pages 13 and 14 of the consolidated financial statements. 3 Auditor’s fees Fees payable to the company’s auditor for the audit of the company’s annual accounts Fees payable to the company’s auditor for other services: The audit of the company’s subsidiary, pursuant to legislation Tax services Other services pursuant to legislation 2006 £’000 6 11 11 4 –––––– 32 –––––– 2005 £’000 10 9 10 7 –––––– 36 –––––– 70093 ACC NOTES 5/4/07 19:24 Page 35 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS for the year ended 31 December 2006 4 Dividends In 2006, the following dividends have been paid by the company. 2005 Final: 8.30p per ordinary share (2004 7.65p) 2006 Interim: 4.35p per ordinary share (2005 4.35p) 35 2006 £’000 429 243 –––––– 672 –––––– 2005 £’000 395 225 –––––– 620 –––––– On 21 March 2007, the directors declared an ordinary interim dividend of 9.0p per share (2005 8.3p) payable on 6 June 2007 to shareholders registered at 4 May 2007. 5 Equity investments Valuation at 1 January 2006 Additions at cost Disposals Surplus on revaluation Valuation at 31 December 2006 Shares in subsidiary undertaking £’000 29,961 – – 3,049 –––––– 33,010 –––––– Total £’000 40,581 1,029 (1,086) 4,281 –––––– 44,805 –––––– Other investments Listed £’000 Unlisted £’000 10,616 1,029 (1,086) 1,232 –––––– 11,791 –––––– 4 – – – –––––– 4 –––––– Equity investments are included at their market value. If investments had not been revalued they would have been included on the historical cost basis at the following amounts: Cost at 31 December 2006 Cost at 31 December 2005 Shares in subsidiary undertaking £’000 354 –––––– 354 –––––– Total £’000 4,976 –––––– 4,757 –––––– Other investments Listed £’000 Unlisted £’000 4,618 –––––– 4,399 –––––– 4 –––––– 4 –––––– At 31 December 2006, the group held 100% of the allotted ordinary share capital and voting rights of Rodenhurst Estates Limited which is a property owning company, registered in England and Wales and operating in England. 6 Debtors Owed by subsidiary undertaking Taxation Other debtors 2006 £’000 1,746 17 69 –––––– 1,832 –––––– 2005 £’000 1,253 10 16 –––––– 1,279 –––––– 70093 ACC NOTES 5/4/07 19:24 Page 36 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS for the year ended 31 December 2006 36 7 Creditors - amounts falling due within one year Other taxes and social security Other creditors 8 Share capital Authorised 8,000,000 ordinary shares of 25p each Allotted, called up and fully paid 5,167,240 (2005 5,167,240) ordinary shares of 25p each 2006 £’000 12 26 –––––– 38 –––––– 2006 £’000 2,000 –––––– 1,292 –––––– 2005 £’000 1 58 –––––– 59 –––––– 2005 £’000 2,000 –––––– 1,292 –––––– 9 Reserves At 1 January 2006 Profit retained Dividends paid Revaluation gains – equities Revaluation gain – Rodenhurst Estates Limited Realised gains Surplus attributable to assets sold in the year Tax on surplus attributable to assets sold in the year At 31 December 2006 –– Non-distributable –– Distributable Retained Realised earnings capital £’000 £’000 Revaluation £’000 35,128 – – 1,232 3,049 – (276) – –––––– 39,133 –––––– 3,252 – – – – (72) 276 (46) –––––– 3,410 –––––– 2,759 863 (672) – – – – – –––––– 2,950 –––––– 10 Deferred taxation Deferred taxation provided and unprovided for in the financial statements is set out below and is calculated using a tax rate of 30% (2005 30%). Unprovided deferred taxation would crystallise if equity investments were sold at their balance sheet value. Unrealised capital gains Provided Unprovided 2006 £’000 – –––––– 2005 £’000 – –––––– 2006 £’000 9,031 –––––– 2005 £’000 8,036 –––––– 70093 ACC NOTES 5/4/07 19:24 Page 37 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS for the year ended 31 December 2006 11 Reconciliation of movements in shareholders’ funds Profit for the financial year Dividends Other recognised gains and losses: Surplus on revaluation of assets Tax on prior years’ surplus now realised Net increase in shareholders’ funds Shareholders’ funds at 1 January 2006 Shareholders’ funds at 31 December 2006 37 2006 £’000 791 (672) –––––– 119 4,281 (46) –––––– 4,354 42,526 –––––– 46,880 –––––– 2005 £’000 2,710 (620) –––––– 2,090 3,540 (56) –––––– 5,574 36,952 –––––– 42,526 –––––– 12 Capital commitments There were no capital commitments at 31 December 2006 or at 31 December 2005. 13 Contingent liabilities There were no contingent liabilities at 31 December 2006 or at 31 December 2005 except for deferred taxation (note 10). 14 Related party transactions Kingerlee Holdings Limited owns 24.6% (2005 24.5%) 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 2006, the company made purchases from Kingerlee Holdings Limited or its subsidiaries, being a service charge in relation to services provided at Thomas House, Kidlington of £14,000 (2005 £14,000). The amount owed at 31 December 2006 was nil (2005 Nil). All transactions were undertaken on an arm’s length basis. Under the provision of FRS8, transactions between Highcroft Investments PLC and Rodenhurst Estates Limited are exempt from these disclosure requirements as Rodenhurst is a wholly-owned subsidiary. 70093 ACC NOTES 5/4/07 19:24 Page 38 38 NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the seventy ninth Annual General Meeting of the company will be held at The Dog House Hotel, Frilford Heath, Oxon, OX13 6QJ on Wednesday, 23 May 2007 at 12 noon, for the following purposes. To transact the following ORDINARY business: 1 2 3 4 5 6 7 To receive and consider the report and financial statements for the year ended 31 December 2006. To declare a final dividend of 9.00p per share on the ordinary shares of the company for the year ended 31 December 2006 to be paid on 6 June 2007 to shareholders registered on 4 May 2007. In accordance with the Companies Act 1985 s241A(3) to approve the remuneration report for the year ended 31 December 2006. To re-elect John Hewitt as a director of the company (retiring by rotation). To re-elect David Bowman as a director of the company (retiring by rotation). To re-appoint Grant Thornton UK LLP as auditor to hold office from the conclusion of the meeting to the conclusion of the next meeting at which accounts are laid before the company, and to authorise the directors to fix the remuneration of the auditor for the ensuing year. To consider as further business two resolutions received from certain members under section 376 of the Companies Act 2006, a copy of which is included with this notice. By Order of the Board D Bowman Company Secretary Registered Office Thomas House Langford Locks Kidlington Oxon OX5 1HR 21 March 2007 Notes: a Any member entitled to attend and vote at the meeting may appoint a proxy to attend and, on a poll, vote instead of him or her; such proxy need not be a member of the company. The appointment of a proxy will not preclude a member from attending and voting at the meeting in person. b c d e f Admittance to the meeting will be restricted to shareholders. Guests will be admitted only by prior arrangement. The directors encourage, and will appreciate, shareholders giving advance notice of questions to be put to the meeting. The register of the interests of the directors and their families in the share capital of the company, together with directors’ service contracts and the terms and conditions of appointment of the company’s non-executive directors are available for inspection, during normal business hours at the Registered Office by appointment.They will also be available for inspection at the place of the Annual General Meeting from 11.45 am on 23 May 2007 until the conclusion of the Annual General Meeting. Biographical details for John Hewitt and David Bowman are on page 11. To be valid the proxy card must be deposited with the company’s Registrars at Capita IRG PLC, Proxy Processing Centre, Bicester, OX26 4LD not less than 48 hours before the time fixed for the meeting. 70093 ACC NOTES 5/4/07 19:24 Page 39 SHAREHOLDERS NOTES 39 70093 ACC NOTES 5/4/07 19:24 Page 40 SHAREHOLDERS NOTES 40 70093 COV 2006 5/4/07 18:20 Page 1 HIGHCROFT INVESTMENTS PLC Thomas House, Langford Locks Kidlington, Oxon OX5 1HR