Highcroft
Investments PLC
Annual Report & Financial Statements
31 December 2011
STOCK CODE: HCFT
www.highcroftplc.com
21251-04
26/03/2012
Proof 8
Highcroft Investments PLC is a Real Estate
Investment Trust (REIT) that has a portfolio
of property and equity investments.
The broad objectives of the group are to enhance shareholder value via a
combination of increasing asset value, increasing profits and increasing dividends.
Key Highlights
The strategy by which the board of Highcroft seeks to achieve these objectives and
our comments in respect of 2011, including relevant key performance indicators,
follows:
• To continue to focus on the commercial property portfolio; creating
opportunities to enhance valuations and income
• To continue to reduce the residential property portfolio when opportunities arise
•
To have such a proportion of funds in equity investments as maintains a lower
risk profile than would attach to a portfolio which was 100% invested in
property
The directors are well aware that the current economic circumstances increase the risks
for all organisations, but we continue to believe that the strategy remains appropriate.
Contents
01 Chairman’s introduction
02 Our Investments
04 Corporate governance
08 Report of the directors
15 Directors’ remuneration report
17 Consolidated statement of comprehensive income
18 Consolidated statement of financial position
19 Consolidated statement of changes in equity
20 Consolidated statement of cash flows
21 Notes to the financial statements
34 Report of the independent auditor
35 Company balance sheet
36 Notes to the company’s financial statements
40 Five year summary
41 Directors and advisers
• Gross property income
increased by 4% to
£2,129,000
• Profit for the year on revenue
activities up 5% to £2,066,000
• Adjusted earnings per share
(on revenue activities)
up 6% to 40.1p
• Net asset value per share up
from 716p to 720p
• Total property income
distribution up 5% to 30.0p
per share
Dividends payable
2011: 30.0p
2010: 28.6p
2009: 26.0p
2008: 18.4p
Dividends payable for the year are calculated
as the sum of the interim and final dividend.
Net asset value per share
2011: 720p
2010: 716p
2009: 666p
2008: 612p
Net asset value per share is calculated as the net
assets divided by the total number of issued shares
The report of the directors on pages 8 to 14 and the directors’ remuneration report on pages 15 and 16 have each been drawn
up in accordance with the requirements of English law and liability in respect thereof is also governed by English law. In
particular, the responsibility of the directors for these reports is owed solely to Highcroft Investments PLC.
For more information on our
investments go to pages 2 and 3
The directors submit to the members their report and accounts of the group for the year ended 31 December 2011. Pages 1 to
16, including the chairman’s introduction, corporate governance statement, report of the directors and directors’ remuneration
report form part of the report of the directors.
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Proof 8
Highcroft Investments PLC
Annual Report 2011
1
Chairman’s Introduction
Dear shareholder,
I am pleased to introduce our annual
report and accounts for the year ended
31 December 2011. I fear that
shareholders reading this statement may
experience a sense of déjà vu as my
cautionary comments a year ago –
about the national economy, the lack of
prospects for growth, the subdued
consumer attitude and resultant impact
on retailers and commercial rents –
apply equally today, with a European
sovereign debt crisis thrown in for good
measure. That said, I think I can echo
my words of last year in that we have
acquitted ourselves reasonably well in
the circumstances.
Results for the year
I am pleased to report that we have
made further, albeit modest, progress in
a number of areas.
Property: Our gross property income rose
4% to £2,129,000 (2010: £2,053,000),
despite falling residential property income
as a result of disposals. Sales of vacant
residential houses and flats produced
nearly £2,086,000 of cash, very
significantly above cost and £393,000
above the December 2010 valuations. Our
commercial property in Yeovil, which had
been vacant since 2009, was re-let in July
and we then disposed of it in November.
We benefited from a full year of rental
income from the freehold industrial unit in
Warwick that we purchased at the end of
2010. I can now confirm the completion of
the purchase of an industrial unit in
Andover which was mentioned in our
interim report. This has a strong covenant,
is let on a 23 year lease, and currently
yields 6.4%. Again, we have to express our
disappointment at the relative lack of
success in being able to buy properties of
the quality which we are seeking for our
portfolio. The general recession in national
property prices has tended to result in
lower-quality portfolios being sold, often by
banks, while the competition for
properties matching our criteria; (lot size,
lease length, yield, and tenant strength) is
still quite strong.
Equities: Our average income yield of
4.7% on the portfolio, coupled with a
realised net gain of £57,000 and an
unrealised net loss of £247,000, are a
result of the strength of our portfolio
during what has been a turbulent period
for the equities markets.
Administrative expenses: Our ongoing
administrative expenses declined by 4%
when normalised for the £20,000 of
one-off costs associated with the
General Meeting in May.
Financial Highlights: Profit on revenue
activities showed a 5% improvement on
2010. Turning to our capital
performance, both our property and
equity portfolios showed net valuation
losses for the year, although the
defensive strength of the underlying
assets in both classes cushioned us from
the significant losses that have been
seen in some sectors.
Our year-end net asset value edged
ahead very marginally to 720p (2010:
716p), held back by the fall in property
valuations in the second half of the year.
Our year-end cash position was
£1,926,000 (2010: £2,472,000), whilst
readily realisable equity investments
totalled £5,598,000 (2010: £5,608,000).
Dividend
We are recommending a final dividend of
18.5p per share (2010: 17.6p) to be paid
on 1 June 2012, making a total of 30p for
the year (2010: 28.6p). This increase of
5% for the year continues our recent
record of dividend increases in excess of
inflation.
he wishes to retire from the board on
31 May 2012, having reached his 70th
birthday. Christopher has served on the
board, as chairman of the audit
committee and as a member of the
nomination and remuneration
committee since 1 January 2006, and I
would like to thank him for his loyal
and diligent service during this period
and wish him well in his retirement.
Outlook
Our property portfolio currently has no
voids, the ground floor at Victoria having
been let as from 1 March. Recent industry
surveys show that retail voids are running
nationally at 14.3% with evidence of
trading stress in many High Streets. We
continue to monitor closely the health of
our existing and potential tenants. The
location of the bulk of our property
investments, both in terms of dominance
in the southern counties and location
within prime areas of most cities and
towns in which we are represented,
continues to result in a better than average
experience in values, rents and voids. We
continue to manage our assets well and
are alert to possible opportunities within
the portfolio. We see our principal task in
the next year or two being to take
advantage of the weak market to invest in
properties which will enable us to
continue to grow revenues and asset
values over the medium term. We have
the financial strength and the borrowing
capacity; we continue though to be
prudent and do not want to compromise
on our criteria. In continuing uncertain
times, I hope shareholders will draw
comfort from our strategy.
I look forward to welcoming
shareholders to the AGM on 10 May.
Board
It is with regret that I inform you that
Christopher Clark has given notice that
John Hewitt
Chairman
14 March 2012
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Our Investments
Highcroft’s investment portfolio comprise 85% freehold and long
leasehold properties and 15% blue chip equities.
15
MAP
10
9
12
4
3
7/14
11
5
8
1
18
17
16
2
6
13
Property investments by sector
Our properties are located primarily in London and the South East and our
commercial tenants are chosen for their strong covenants and sector diversity.
Retail Property
Warehouse
Office Property
Residential
Leisure
39%
28%
26%
4%
3%
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Property portfolio valuation
Commercial
1 Multi-let office building in London, SW1
2 Industrial Unit in Andover, let to Jewsons
3 Radio station and office building in Oxford, let to the BBC
4 Distribution centre in Kidlington, Oxfordshire, let to Parcelforce
5 Office building in central Bristol, let to Royal & Sun Alliance
6 Distribution centre in Southampton, let to Metabo
7 Retail unit in Oxford, let to Britannia Building Society
8 Multi-let retail units in Staines, with offices above
9 Retail unit in Leamington Spa, let to Thorntons
10 Industrial unit in Warwick, let to Nationwide Car Repair
11 Multi-let retail units in Cirencester, with residential above
12 Retail unit in Norwich, let to Austin Reed
13 Bank premises in Petersfield, let to Barclays
14 Retail unit in Oxford, let to Britannia Building Society
15 Licensed leisure and retail property in Warrington, let to Wetherspoons
16 Bank premises in Reigate, let to Lloyds Banking Group
17 Retail unit in Beckenham, let to Superdrug
18 Retail unit in Kingston, let to Kaleido
Total Commercial
Residential
Total
£’000
3,400
2,725
2,600
2,500
1,925
1,825
1,795
1,750
1,475
1,475
1,375
1,275
1,120
1,050
975
900
875
600
29,640
1,147
30,787
Equity investments
Our equity portfolio has been chosen to be diverse by both geography and sector and the splits are set out below
Geographical split
Split by sector
The split of our equity portfolio by sector is set out below.
England
Australia
Canada
Netherlands
USA
Asia Pacific
Other Markets
66%
9%
6%
5%
5%
3%
5%
Banks
Oil & Gas
Gas, Water & Multiutilities
19%
10%
10%
Pharmaceuticals & Biotechnology 10%
Unit Trusts & Oeics
Mobile Telecommunications
Mining
Beverages
Other
8%
7%
6%
6%
24%
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Corporate Governance
Application of principles
The company has applied the principles of good governance contained in the U.K. Corporate Governance Code (June 2010)
(formerly the Combined Code) hereafter referred to as “the Code” except as noted in the Compliance Statement below.
Compliance
The company has complied throughout the year with the Code provisions except that no performance related payments were made
to directors, which is not in accordance with Code provision D1.1. The remuneration committee and board believe that the directors
do not need to have performance related payments in order to be motivated to give their best in serving the interests of shareholders.
Board effectiveness
The board is responsible for leading and controlling the group activities and, in particular:
zz approving group objectives, strategy and policies
zz business planning
zz review of performance
zz risk assessment
zz dividends
zz 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 2011 the number of board and committee meetings and individual participation was as follows:
Number of meetings
J Hewitt
R N Stansfield
C J Clark
J C Kingerlee
R Miles
D H Kingerlee
Board
6
6
6
6
6
6
6
Audit
3
3
3
3
n/a
3 (part)
n/a
Remuneration
4
4
4
4
n/a
n/a
n/a
Nomination
0
n/a
n/a
n/a
n/a
n/a
n/a
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. The chairman reviews directors’ training needs annually and appropriate training is available for new directors and other
directors as identified by that plan.
The board has six directors 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 8.
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 on a periodic basis.
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Directors’ remuneration
The directors’ remuneration report is on pages 15 and 16. 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. The
proxy votes will in the future be included on the company’s website. The company has no institutional shareholders but has
commenced a programme of meetings with key shareholders, subject to regulatory constraints. It is expected that these will
usually involve the chairman and chief executive. The board is provided with feedback from these meetings.
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 7, and that of the auditor on page 34. A statement on going
concern appears on page 6.
The audit committee of the board comprises all the non-executive directors and is chaired by Christopher Clark and includes one
member who has recent and relevant financial experience. 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. They have also received and reviewed written disclosures
from the auditor regarding independence. The audit committee has referenced audit fees with similar auditors and decides how
frequently the audit should be put out to tender. The audit committee reviews the appointment of the external auditor on an annual
basis and makes a recommendation to the board for their reappointment to be approved at the AGM.
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 and the conclusion
was that the systems are adequate for a group of this size and complexity. 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:
zz clear limits of authority
zz 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
zz financial controls and procedures
zz clear guidelines for capital expenditure and disposals, including defined levels of authority
zz two-monthly meetings of the executive directors to authorise share purchases and sales
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Corporate Governance continued
zz an audit committee, which approves audit plans and published financial information and reviews reports from the external
auditor arising from the audit and dealing with significant control matters raised
zz regular board meetings to monitor continuously any areas of concern
zz annual review of risks and internal controls
zz annual review of compliance with the Code.
The board has considered the need for an internal audit function but has decided that the size of the group does not justify it at
present. However, it does review the position annually.
The directors have 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 2011 and the period up to
the date of approval of the financial statements.
The board also has a nomination committee comprising the non-executive directors whose key objective is to ensure that the board
comprises individuals with the requisite skills, knowledge and experience to ensure that it is effective in discharging its responsibilities.
Going concern
The directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the
foreseeable future and consider that there are no material uncertainties that lead to significant doubt upon the group’s ability to continue
as a going concern. Cash flow forecasts are prepared annually as part of the planning and budgeting process and are monitored and
reworked regularly. For this reason, the directors continue to adopt the going concern basis in preparing the financial statements.
Given the continuing economic uncertainties, the directors are aware of the general concern affecting the assessment of the going concern
basis for all businesses and have therefore taken particular care in reviewing the going concern basis this year. The group has no borrowing.
The group does not currently have an overdraft facility or a loan facility. However, contact is maintained with a number of banks which
regard the group as an attractive lending opportunity. The group carefully monitors its forecast cash balances in order to ensure an overdraft
is not required and it has relatively liquid assets, in the form of listed equity investments, which it can draw on if necessary.
Structure of share capital and rights and obligations attaching to shares
The company’s authorised ordinary share capital as at 31 December 2011 was 8,000,000 of which 5,167,240 shares of 25p each
were allotted, called up and fully paid.
Subject to the Companies Act for the time being in force (the Act) the company’s articles of association confer on holders the
following principal rights:
zz To receive a dividend
The profits of the company available for dividend and resolved to be distributed shall be applied in the payment of dividends to
the members and to persons becoming entitled to shares by transmission, in accordance with their respective rights and
priorities. The company in general meeting may declare dividends accordingly.
zz To a return of capital or assets if available on liquidation
Upon any winding up of the company, the liquidator may, with the sanction of an extraordinary resolution of the company and
any other sanction required by the statutes, divide among the members in specie the whole or any part of the assets of the
company and may, for that purpose, value any assets and determine how the division shall be carried out as between the
members of different classes of members.
zz To receive notice of, attend and vote at an AGM
At each AGM upon a show of hands every member present in person shall have one vote, and upon a poll every member
present in person or by proxy shall have one vote for every share of which he or she is the holder.
zz To have rights in respect of share certificates and share transfers
Every person whose name is entered as a member in the register shall be entitled without payment to one certificate for all the
shares of each class held by him or, upon payment of such reasonable out-of-pocket expenses for every certificate after the first
as the board shall from time to time determine, several certificates each for one or more of his shares.
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On any transfer of shares, the transferor shall be deemed to remain the holder of the share until the name of the transferee is
entered in the register in respect thereof.
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 have
prepared the group financial statements in accordance with International Financial Reporting Standards as adopted by the
European Union (IFRSs) and have elected to prepare the parent company financial statements in accordance with United Kingdom
Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Under company law, the directors must not
approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and of the profit
or loss of the company and group for that period. In preparing these financial statements, the directors are required to:
zz select suitable accounting policies and then apply them consistently
zz make judgements and estimates that are reasonable and prudent
zz state whether applicable IFRSs and UK accounting standards have been followed, subject to any material departures disclosed
and explained in the financial statements
zz 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 adequate accounting records that are sufficient to show and explain the company’s transactions
and 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 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the
assets of the company and group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
In so far as each of the directors is aware:
zz there is no relevant audit information of which the company’s auditor is unaware; and
zz 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 auditor is aware of that information.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the
company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
To the best of my knowledge:
zz the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation
taken as a whole; and
zz the management report includes a fair review of the development and performance of the business and the position of the
company and the undertakings included in the consolidation taken as a whole, together with a description of the principal
risks and uncertainties that they face.
By Order of the board
R Miles
Company Secretary
14 March 2012
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Report of the Directors
Principal activities
Highcroft Investments PLC is a group that invests in property and equity investments.
Directors
The directors are as follows:
John Hewitt
Christopher Clark
Richard Stansfield
John Hewitt, 66, worked in the City of London in stockbroking for over 20 years where he became managing
director of Scrimgeour Vickers. He is currently campaign adviser to Wadham College Oxford and a trustee of
the Oxfordshire Association for the Blind. He also advises a number of other local and international businesses
and organisations. He was appointed as an independent non-executive director in 1999.
Christopher Clark, 69, was appointed as an independent non-executive director in January 2006. He is also
the non-executive chairman of Brookwell Limited and is a marketing consultant with Monument Securities
Limited and with Lehmann Communications plc. He previously worked as a stockbroker and is a Fellow of
the Chartered Institute of Secretaries & Administrators and a Fellow of the Chartered Institute for Securities
and Investment.
Richard Stansfield, 54, is a chartered surveyor and formerly a director of Savills commercial department
based in Oxford where he advised a number of institutional clients on their commercial property portfolios
throughout the U.K. He is now Land Agent for Jesus College Oxford and responsible for a fund of
commercial, residential and rural properties located in England and Wales. He was appointed as an
independent non-executive director in 2002.
Jonathan Kingerlee
Jonathan Kingerlee, 51, became an executive director in 1995 and chief executive in 2001. He is 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 Kingerlee
Roberta Miles
David Kingerlee, 50, 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.
Roberta Miles, 49, was appointed finance director and company secretary in 2010. She is also a director of
Mechadyne Holdings Limited and acts as company secretary or chief financial officer for a number of other
companies.
In accordance with the articles of association Christopher Clark and David Kingerlee retire by rotation and, being eligible, offer
themselves for re-election.
John Hewitt, having served more than nine years on the board, submits himself for re-election. Before recommending John for
re-election the other directors have conducted a rigorous appraisal of performance and consider him to be independent, effective
and to demonstrate commitment to the role.
Richard Stansfield, having also served more than nine years on the board, submits himself for re-election. Before recommending
Richard for re-election the other directors have conducted a rigorous appraisal of performance and consider him to be
independent, effective and to demonstrate commitment to the role.
Christopher Clark has notified the company that he wishes to retire from the board with effect from 31 May 2012 having attained
the age of 70.
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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 2011 and at
31 December 2011 were as follows:
J Hewitt
C J Clark
R N Stansfield
J C Kingerlee
R Miles
D H Kingerlee
Beneficial
beneficial Beneficial
10,000
4,950
–
130,986
–
88,470
10,000
–
4,950
–
–
–
– 130,986
–
–
88,470
77,780
Non-
beneficial
–
–
–
–
–
77,780
31 December 2011
Non-
1 January 2011
There is no duplication of directors’ shareholdings, except in respect of:
zz 38,890 of the beneficial holding of Jonathan Kingerlee and 38,890 of the non-beneficial holding of David Kingerlee.
In the period from 1 January 2012 to 14 March 2012 the following change to director’s shareholdings took place:
On 8 February 2012 a newly created trust, benefiting an infant son of Jonathan Kingerlee, acquired 19,445 ordinary shares in the
company. Jonathan Kingerlee and David Kingerlee are both trustees of this Trust Fund. The beneficial holding of Jonathan
Kingerlee and the non-beneficial holding of David Kingerlee therefore rose by 19,445 as a result of this transaction.
Substantial shareholders
As at 14 March 2012 the following notifications of interests in 3% or more of the company’s ordinary share capital in issue at the
date of this report had been received:
D G & M B Conn and associates
The wholly-owned subsidiaries of Kingerlee Holdings Limited, total 25.36%:
Kingerlee Limited
Kingerlee Homes Limited
T H Kingerlee & Sons Limited
Number of shares
Non-
beneficial
Beneficial
(20.06%) 1,036,567
–
(9.96%) 515,000
(7.70%) 397,673
(7.70%) 397,674
–
–
–
–
Strategy
The broad objectives of the group are 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
comments in respect of 2011, including relevant key performance indicators follows. The directors are well aware that the current
economic circumstances are ones which increase the risks for all organisations but continue to believe that the strategy remains appropriate.
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Report of the Directors continued
zz To continue to focus on the commercial property portfolio.
Allocation of total investments
Commercial property
Residential property
Equity investments
Total
2011
2010
2009
2008
2007
%
82
3
15
100
%
78
7
15
100
%
72
7
21
100
%
72
6
22
100
%
71
6
23
100
In November 2011 we completed the purchase of an industrial unit in Andover which has a good covenant and yield and an
unexpired term that is longer than the average on our portfolio.
zz To continue to reduce the residential property portfolio when opportunities arise.
Number of residential disposals
Per annum
2011
2010
2009
2008
2007
4
1
0
1
1
The group had historically planned for two residential disposals per year but as we sell only with vacant possession the annual rate
is not within its control. We now have only four residential units with regulated tenancies therefore, whilst the group still plans to
dispose of them on an opportunistic basis it is recognised that this is not possible to plan for.
zz 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 and the upper limit is a condition of our REIT status.
At 31 December 2011 equity investments represented 15% (2010: 15%) of total investments.
We invested £180,000 of our net cash flow into the equity portfolio. The board will continue to monitor the condition of the
equity and property markets in 2012 and would consider making a transfer of funds out of the equity investment portfolio and into
the property portfolio, consistent with maintaining a lower risk profile.
zz To seek property development opportunities from within our own property portfolio.
We are continuing to explore potential development opportunities at our properties in High Street Oxford, Staines and in Victoria.
zz 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.
This continues to be one of the potential attractions which we seek from new acquisitions, although there were again no suitable
properties identified in 2011. Our new acquisition of an industrial unit at the end of 2011 was chosen because of the combination
of its yield, its covenant and its unexpired lease length.
zz To use medium-term gearing but to a level which would be perceived as cautious by comparison with other real estate businesses.
We maintained contact with a number of banks, to which we are an attractive lending proposition, and we will use those contacts
to expand the property portfolio in the future when we feel that the timing is appropriate to make significant new acquisitions.
Business review
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.
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Annual Report 2011
11
The board is proposing a final property income distribution on the ordinary shares in respect of 2011 of 18.5p
(2010: 17.6p) per share. The total property income distributions for the year will be 30.0p per share (2010: 28.6p per share).
The dividends paid to shareholders during 2011 were as follows:
2010 Final: 17.6p per ordinary share (2009: 16.0p)
2011 Interim: 11.5p per ordinary share (2010: 11.0p)
2011
£’000
909
594
1,503
2010
£’000
827
568
1,395
Although we have an ambition continuously to increase distributions to shareholders, adherence to the REIT obligations may
cause a less even pattern than has historically been the case.
Financial performance – revenue activities
Gross income for the year ended 31 December 2011 was £2,390,000 (2010: £2,287,000).
Analysis of gross income
Commercial property income
Residential property income
Gross income from property
Income from equity investments
Total income
2011
£’000
2,086
43
2,129
261
2,390
2010
£’000
1,995
58
2,053
234
2,287
2009
£’000
1,877
66
1,943
292
2,235
2008
£’000
2,050
74
2,124
450
2,574
2007
£’000
2,062
64
2,126
406
2,532
Underlying commercial property income has risen in 2011 because the industrial unit in Warwick bought at the end of 2010
generated income all year, Warrington was fully let from August 2010 and the Yeovil property, that was void for all of 2010, was
let in July prior to being sold in November. Additionally we had one void, the ground floor of our Victoria property, throughout
2011. We have now signed a new lease on this unit with effect from 1 March 2012.
Residential property income reduced in 2011 relative to 2010 because of the sale of four of our properties during the year. The
remaining income is generated from four regulated tenancies, and ground rents.
The 2011 income from equity investments rose as a result of one special dividend of £48,000. The underlying drop after taking
this into account reflects the reduction in our equity portfolio during the first six months of 2010.
Analysis of administrative and net finance expenses
Directors’ remuneration
Auditor’s remuneration including other services
Fees in respect of conversion to a REIT
Other expenses
Administrative expenses
Net finance (income)/expenses
Total expenses
2011
£’000
2010
£’000
2009
£’000
2008
£’000
2007
£’000
162
21
–
152
335
(15)
320
156
20
–
154
330
(9)
321
139
22
–
122
283
18
301
166
34
47
77
324
61
385
133
31
147
80
391
209
600
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Report of the Directors continued
The ongoing running costs of the business remain well controlled. The main factor that affected the costs in 2011 was the £20,000
of irrecoverable costs associated with the general meeting in May that was requisitioned by certain of our shareholders.
Donations
Donations to charitable organisations amounted to £11,400 (2010: £4,800). There were no political donations.
Summary of profit before tax and income tax
credit/(expense) on revenue activities
Profit before tax
Income tax credit/(expense)
Profit for the year
Financial performance — capital activities
A summary of our investments is laid out on pages 2 and 3.
Analysis of gains and losses on property
Realised gains on investment property
Realised losses on investment property
Revaluation gains on investment property
Revaluation losses on investment property
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
2011
£’000
2,045
21
2,066
2010
£’000
1,821
144
1,965
2009
£’000
1,681
(11)
1,670
2008
£’000
1,889
33
1,922
2007
£’000
1,833
(271)
1,562
2011
£’000
2010
£’000
2009
£’000
2008
£’000
2007
£’000
360
(82)
278
801
(1,072)
(271)
108
(8)
100
1,735
(158)
1,577
2011
£’000
2010
£’000
81
(24)
57
316
(563)
(247)
2011
£’000
2,871
423
3,294
69
(136)
(67)
649
(73)
576
2010
£’000
1,558
1,028
2,586
–
–
–
1,616
(416)
1,200
2009
£’000
263
(141)
122
1,416
(93)
1,323
2009
£’000
281
515
796
–
(5)
(5)
107
(6)
101
59
(8,985)
(8,926)
388
(3,819)
(3,431)
2008
£’000
5
(446)
(441)
90
(3,089)
(2,999)
2008
£’000
–
750
750
2007
£’000
272
(245)
27
1,320
(1,045)
275
2007
£’000
6
1,164
1,170
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Annual Report 2011
13
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
Income from equity investments
Total revenue income
Cost of voids and bad debts
Voids
Bad debts
2011
£’000
5%
(26%)
4%
12%
5%
2011
£’000
63
–
2010
£’000
6%
(12%)
6%
(20%)
2%
2010
£’000
87
2
2009
£’000
(8%)
(10%)
(9%)
(35%)
(13%)
2009
£’000
108
26
2008
£’000
(1%)
16%
(0%)
11%
2%
2008
£’000
136
42
2007
£’000
7%
(39%)
6%
(17%)
0%
2007
£’000
14
–
The retail property in Yeovil was vacant until July 2011, and the ground floor of our offices in Victoria was vacant throughout the
year. A new lease has been signed for the Victoria vacancy in 2012 and we currently have no voids.
Future developments for the business/future outlook
The group is in a very sound financial position with no gearing, and cash and liquid equity investments of over £7.5m. The
directors anticipate that there will be an increasing number of properties being marketed in the coming months and that the group
is well placed to take advantage of the right opportunities. The board is also considering complementary ways of enhancing the
property portfolio (joint ventures, for instance) which it hopes to progress during 2012.
Principal risks and uncertainties
Operational and financial risks facing the business are monitored through a process of regular assessment by the executive
directors and by reporting and discussion at meetings of the audit committee and the board.
The directors are of the opinion that a thorough risk management process is adopted which includes the formal review of all the
six risks identified below. Where possible, processes are in place to monitor and mitigate such risks.
1. Adverse economic environment
The economic uncertainties which remain globally and in the UK are a current concern for all businesses. We expect this to continue
to impact on consumer spending and on the financial health of businesses in which we are investors and businesses who are our
tenants. We assess the credit worthiness of our current and potential tenants and review any rental arrears on a regular basis.
The independent valuation of all property assets includes assumptions regarding income expectations and yields that investors
would expect to achieve on those assets over time. Many external economic and market factors, such as interest rate
expectations, bond yields, the availability and cost of finance and the relative attraction of property against other asset classes,
could lead to a reappraisal of the assumptions used to arrive at current valuations. In adverse conditions, this reappraisal can
lead to a reduction in property values and a loss in net asset value.
2. Balance of income and assets
Highcroft’s status as a REIT is conditional upon a number of factors, the most critical of which is maintaining a correct balance of income
and assets such that the property side is greater than 75% at the year end. Failure to maintain these balances can lead to exclusion from
the REIT regime. The directors are aware of this risk and it is a key principle underlying our investment decision-making.
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14
Report of the Directors continued
3. Business strategy
The success of Highcroft is dependent upon establishing the right business strategy to fulfil shareholder expectations. We are
explicit about our strategy and assess our performance against that strategy in our annual report. In response to this risk, the
directors use planning and forecasting of the business to help to ensure that outcomes are satisfactory for shareholders. As
noted above, we continue to believe that our strategy is the right one.
4. Insolvency of a tenant
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. The present economic
environment has increased the risk of tenant insolvency which leads to bad debts and voids.
The group has 26 commercial tenants, so that the risks associated with the default of individual tenants are quite well spread. Our
five largest tenants by current passing rent provide 42% (2010: 42%) of current income. The weighted average credit score of these
five tenants is presently 92 (2010: 84). The weighted average credit score of the whole portfolio is currently 85 (2010: 84).
5. 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. As
with all our advisers, the work is occasionally put out to tender.
6. 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.
Corporate environmental and social responsibility policies
In the conduct of the group’s business, the directors aim to act with honesty, integrity and openness and to conduct operations to
the highest standards. We seek to minimise the risk of our activities having any adverse effect on the environment.
Policy on the payment of suppliers
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 2011 when average creditor days were 30 (2010: 30).
Financial instruments
Information on financial instruments is included in note 17.
Auditor
Grant Thornton UK LLP, have expressed willingness to continue in office. In accordance with section 489(4) of the Companies Act
2006 a resolution to reappoint Grant Thornton UK LLP will be proposed at the annual general meeting to be held on 10 May 2012.
By Order of the board
R Miles
Company Secretary
14 March 2012
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Annual Report 2011
15
Directors’ Remuneration Report
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. One-third of the directors are subject to retirement at each annual
general meeting. Executive directors are given service contracts within which there is a notice period by either party of six months,
and with no provision for compensation payments on termination. Each non-executive director has a formal appointment
document for a period of three years, subject, at any time to termination on six months’ notice by either party.
If any director agrees to waiver any element of their remuneration, the board will consider making an additional donation to charity.
The remuneration of the non-executive directors is determined by the whole board.
Director’s service contracts
Non-executive directors
John Hewitt
Christopher Clark
Richard Stansfield
Date of appointment
as director
1 August 1999
1 January 2006
1 December 2002
Date of current
appointment letter
1 July 2010
1 January 2009
1 July 2011
Expiry of term
30 June 2013
*31 May 2012
30 June 2014
* Christopher Clark has given notice that he intends to retire from the board on 31 May 2012, following his 70th birthday.
Executive directors
Jonathan Kingerlee
David Kingerlee
Roberta Miles
Date of appointment
as director
2 February 1995
12 September 1996
1 July 2010
Date of current contract
1 July 2011
1 July 2009
1 July 2010
Notice period
Six months
Six months
Six months
Directors’ interests
Directors’ interests are shown in the report of the directors on page 9. They are taken from the company’s register of directors’
interests which is open to inspection, by appointment, at the registered office.
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16
Directors’ Remuneration Report continued
Performance graph
The graph below shows the company’s Total Shareholder Return (TSR) compared to the FTSE 350 Real Estate index over the last
ten years. TSR over the last ten years is defined as share price growth plus reinvested dividends. This comparison provides, in the
directors’ opinion, a more appropriate comparator than the All Share index used in previous years.
350
300
250
200
150
100
50
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
— Highcroft Investments PLC — Total Return Index
— FTSE 350 SS Real Estate £ — Total Return Index
Source: Thomson Reuters Database
Directors’ remuneration (audited)
John Hewitt
Christopher Clark
Richard Stansfield
Jonathan Kingerlee
David Bowman (to 30 June 2010)
David Kingerlee
Roberta Miles (from 1 July 2010)
2011
£
2010
£
10,500
11,000
11,000
34,750
–
21,000
60,250
16,000
10,700
10,700
34,300
20,800
20,500
29,900
148,500 142,900
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.
The above salaries for 2011 included an amount of £4,000 incurred as a result of the general meeting that was requisitioned by
certain of the shareholders.
R N Stansfield
Chairman of the remuneration committee
14 March 2012
21251.04 21/03/12 Proof 5Stock Code: HCFT
Highcroft Investments PLC
Annual Report 2011
17
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2011
Gross rental revenue
Property operating expenses
Net rental income
Realised gains on investment property
Realised losses on investment property
Net gains on investment property
Valuation gains on investment property
Valuation losses on investment property
Net valuation (losses)/gains on investment property
Dividend revenue
Gains on equity investments
Losses on equity investments
Net investment income/(expense)
Administration expenses
Net operating profit before net finance
income/(expense)
Finance income
Finance expenses
Net finance income
Profit/(loss) before tax
Income tax credit/(expense)
Total profit and comprehensive income for the year
Basic and diluted earnings per share
8
8
9
9
3
5
7
Revenue
£’000
Note
Total
£’000
Revenue
£’000
2010
Capital
£’000
2011
Capital
£’000
–
–
–
–
–
–
801
(1,072)
(271)
–
397
(587)
(190)
–
(461)
–
–
–
(461)
119
(342)
2,129
(303)
1,826
360
(82)
278
–
–
–
261
–
–
261
(335)
2,030
15
–
15
2,045
21
2,066
2,129
(303)
1,826
360
(82)
278
801
(1,072)
(271)
261
397
(587)
71
(335)
1,569
15
–
15
1,584
140
1,724
2,053
(245)
1,808
108
(8)
100
–
–
–
234
–
–
234
(330)
–
–
–
–
–
–
1,735
(158)
1,577
–
718
(209)
509
–
Total
£’000
2,053
(245)
1,808
108
(8)
100
1,735
(158)
1,577
234
718
(209)
743
(330)
1,812
2,086
3,898
10
(1)
9
1,821
144
1,965
–
–
–
10
(1)
9
2,086
(89)
1,997
3,907
55
3,962
40.1p
(6.7p)
33.4p
38.0p
38.7p
76.7p
The total column represents the income statement as defined in IAS 1.
The accompanying notes form an integral part of these financial statements.
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Annual Report 2011
18
Consolidated Statement of Financial Position
at 31 December 2011
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
Current income tax
Trade and other payables
Total current liabilities
Non-current liabilities
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 14 March 2012.
J Hewitt
Directors
Company number — 224271
J C Kingerlee
The accompanying notes form an integral part of these financial statements.
Note
2011
£’000
2010
£’000
2009
£’000
8
9
10
11
12
13
30,787
5,598
36,385
217
1,926
2,143
38,528
–
681
681
624
624
1,305
37,223
1,292
4,904
1,592
95
21,428
7,912
37,223
30,705
5,608
36,313
93
2,472
2,565
38,878
215
897
1,112
764
764
1,876
37,002
1,292
6,670
1,750
95
19,810
7,385
37,002
27,825
7,397
35,222
103
946
1,049
36,271
90
777
867
969
969
1,836
34,435
1,292
5,696
2,656
95
18,229
6,467
34,435
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Annual Report 2011
19
Consolidated Statement of Changes in Equity
2011
At 1 January 2011
Dividends
Reserve transfers:
Non-distributable items recognised in income statement:
Revaluation losses
Tax on revaluation gains/(losses)
Realised gains
Surplus attributable to assets sold in the year
Excess of cost over revalued amount taken to
retained earnings
Transactions with owners
Profit and total comprehensive income for the year
At 31 December 2011
2010
At 1 January 2010
Dividends
Reserve transfers:
Non-distributable items recognised in income
statement:
Revaluation gains
Tax on revaluation gains/(losses)
Realised gains
Surplus attributable to assets sold in the year
Excess of cost over revalued amount taken to
retained earnings
Transactions with owners
Profit and total comprehensive income for the year
At 31 December 2010
Revaluation reserves
Property
reserve
£’000
6,670
–
(271)
–
–
(1,629)
134
(1,766)
–
4,904
Other
reserve
£’000
1,750
–
(238)
109
–
(29)
–
(158)
–
1,592
Revaluation reserves
Property
reserve
£’000
5,696
–
Other
reserve
£’000
2,656
–
1,577
–
–
(254)
(349)
974
–
6,670
572
(93)
–
(1,385)
–
(906)
–
1,750
Capital
redemption
reserve
£’000
95
–
–
–
–
–
–
–
–
95
Capital
redemption
reserve
£’000
95
–
–
–
–
–
–
–
–
95
Issued
share
capital
£’000
1,292
–
–
–
–
–
–
–
–
1,292
Issued
share
capital
£’000
1,292
–
–
–
–
–
–
–
–
1,292
Realised
capital
reserve
£’000
19,810
–
–
–
(40)
1,658
–
1,618
–
21,428
Realised
capital
reserve
£’000
18,229
–
–
–
(58)
1,639
–
1,581
–
19,810
Retained
earnings
£’000
Total
£’000
7,385
(1,503)
37,002
(1,503)
509
(109)
40
–
–
–
–
–
(134)
(1,197)
1,724
7,912
–
(1,503)
1,724
37,223
Retained
earnings
£’000
Total
£’000
6,467
(1,395)
34,435
(1,395)
(2,149)
93
58
–
349
(3,044)
3,962
7,385
–
–
–
–
–
(1,395)
3,962
37,002
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.
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Annual Report 2011
20
Consolidated Statement of Cash Flows
for the year ended 31 December 2011
Operating activities
Profit for the year
Adjustments for:
Net valuation losses/(gains) on investment property
Gain on disposal of investment property
Loss/(gain) on investments
Finance income
Finance expense
Income tax (credit)/expense
Operating cash flow before changes in working capital and provisions
(Increase)/decrease in trade and other receivables
(Decrease)/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
— equity investments
Sale of non-current assets — investment property
— equity investments
Net cash flows from investing activities
Financing activities
Dividends paid
Net cash flows from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January 2011
Cash and cash equivalents at 31 December 2011
2011
£’000
2010
£’000
1,724
3,962
271
(278)
190
(15)
–
(140)
1,752
(124)
(215)
1,413
15
–
(216)
1,212
(2,871)
(423)
2,796
243
(255)
(1,503)
(1,503)
(546)
2,472
1,926
(1,577)
(100)
(509)
(10)
1
(55)
1,712
10
120
1,842
10
(1)
(25)
1,826
(1,558)
(1,028)
355
3,326
1,095
(1,395)
(1,395)
1,526
946
2,472
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Annual Report 2011
21
Notes to the Financial Statements
for the year ended 31 December 2011
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 2011 comprise the company and its subsidiary, together referred to as the group.
The accounting policies remain unchanged except in respect of the new amended standard IAS 24 which has no impact on
these financial statements.
Basis of preparation
These financial statements have been prepared on a going concern basis and in accordance with International Financial
Reporting Standards, as adopted by the European Union (IFRS) and those parts of the Companies Act 2006 applicable to
companies reporting under IFRS. These financial statements have been prepared under the historical cost convention, as
modified by the revaluation of investment properties and the measurement of equity investments at fair value.
Accounting estimates and judgements
The preparation of financial statements requires management to make judgements, assumptions and estimates that affect the
application of accounting policies and amounts reported in the consolidated income statement and consolidated statement of
financial position. Such decisions are made at the time the financial statements are prepared and adopted based on historical
experience and other factors that are believed to be reasonable at the time. Actual outcomes may be different from initial
estimates and are reflected in the financial statements as soon as they become apparent. The measurement of fair value and
carrying investments at fair value through profit and loss constitutes the principal areas of judgement exercised by the directors
in the preparation of these financial statements. The valuations of investment properties and equity investments at fair value are
carried out by external advisers who the directors consider to be suitably qualified to carry out such valuations. The primary
source of evidence for property valuations is recent, comparable market transactions on arm’s-length terms. However the
valuation of the group’s property portfolio is inherently subjective, which may not prove to be accurate, particularly where
there are few comparable transactions. Key assumptions, which are also the major sources of estimation uncertainty used in
the valuation, include the value of future rental income, the outcome of future rent reviews, the rate of voids and the length of
such voids. These assumptions were formed on the basis of historical information of the group and the best judgement of the
directors.
New accounting standards and interpretations
The group’s approach to new accounting standards and interpretations issued during the year is set out below.
Standards amendments and interpretations effective in the year ended 31 December 2011 and adopted for the first time
with no impact on these financial statements
IAS 24 (revised) Related Party Disclosures
zz
Amendments to and interpretations of existing standards that are relevant to the group but are not yet effective and have not
been adopted early
The following amendments to or interpretations of existing standards that have been published and are mandatory for the
group’s future accounting periods beginning on or after 1 January 2012 are:
zz
IFRS 9 Financial Instruments (effective 1 January 2015)
IFRS 10 Consolidated Financial Statements (effective 1 January 2013)
IFRS 13 Fair Value Measurement (effective 1 January 2013)
zz
zz
Basis of consolidation
The group financial statements consolidate the financial statements of the company and its 100% subsidiary, Rodenhurst
Estates Limited, which are both made up to 31 December 2011, also following consistent accounting policies. Unrealised
profits or losses on intra-group transactions are eliminated in full.
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Annual Report 2011
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Notes to the Financial Statements continued
for the year ended 31 December 2011
1 Significant accounting policies continued
Rental revenue as a lessor
Investment properties are leased to tenants under operating leases. The rental income receivable under these leases is
recognised in the income statement on a straight-line basis over the term of the lease. Any rent free period is spread over the
period of the lease. Since the risks and rewards of ownership have not been transferred to the lessee, the assets held under
these leases continue to be recognised in the company’s accounts.
Dividend revenue
Dividend revenue relating to exchange-traded equity investments is recognised in the income statement on the dividend payment
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 and expense
Interest income and expense is recognised in the income statement under the effective interest method 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.
Realised gains and losses
Realised gains and losses are calculated as the difference between the proceeds, less expenses, and the value of the asset at
the beginning of the financial year. The related revaluation gains or losses of previous years are transferred from revaluation
reserve to realised capital reserve when the asset is disposed of.
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. As a REIT, tax is not payable on the income and gains generated in the tax exempt property business.
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.
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 amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of
equity investments, 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.
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23
1 Significant accounting policies continued
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.
Acquisitions and disposals are recognised on the date of completion. Any unrealised gain or loss arising from a change in fair
value is recognised in the income statement.
Equity investments
The directors have designated the group’s qualifying financial assets as fair value through profit and on the basis that to do so is
in accordance with its documented investment strategy. The equity investments are quoted and so are valued at market price.
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 for the amount by which the receivable’s carrying amount is believed to exceed its recoverable
amount. To estimate the recoverable amount, management considers the payment history of the tenant and takes into account
the most recent credit rating of the tenant.
Cash and cash equivalents
Cash and cash equivalents comprise cash available at less than three months’ notice.
Trade and other payables
Trade and other payables are recognised at fair value on initial recognition and subsequently at amortised cost.
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
The group has three main operating segments. In identifying these operating segments, management follows the group’s
distribution of assets in accordance with its investment strategy. Segment results, assets and liabilities include items directly
attributable to a segment as well as those that can be allocated on a reasonable basis. A segment is a distinguishable
component of the group whose operating results are regularly reviewed by the group’s chief operating decision maker. For
management purposes, the group uses the same measurement policies as those used in its financial statements.
2 Segment reporting
The operating segment reporting format identifies the operating segments the performance of which is monitored by the
group’s management using a consistent 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 operating segments:
zz
commercial property comprising retail outlets, offices and warehouses
residential property comprising single-let houses and flats
financial assets comprising exchange-traded equity investments
zz
zz
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Notes to the Financial Statements continued
for the year ended 31 December 2011
2 Segment reporting continued
Commercial property
Gross income
Profit for the year
Assets
Liabilities
Residential property
Gross income
Profit for the year
Assets
Liabilities
Financial assets
Gross income
Profit for the year
Assets
Liabilities
Total
Gross rental and dividend income
Profit for the year
Assets
Liabilities
2011
£’000
2010
£’000
2,086
1,070
31,714
549
1,995
2,690
28,655
743
43
503
1,149
1
261
151
5,665
755
58
654
2,695
23
234
618
7,528
1,110
2,390
1,724
38,528
1,305
2,287
3,962
38,878
1,876
In 2011 the largest tenant represented less than 10% of gross commercial property income. In 2010 21% of gross commercial
property income arose from two tenants each representing more than 10% of income.
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:
Other services pursuant to legislation
Other expenses
2011
£’000
162
2010
£’000
156
19
2
152
335
19
1
154
330
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Annual Report 2011
25
4 Directors
Remuneration in respect of directors was as follows:
Remuneration
Social security costs
2011
£’000
2010
£’000
149
13
162
143
13
156
The average number of employees, all of whom were directors, of the group during the year was six (2010: six). All directors
are considered to be key managers of the company. More detailed information concerning directors’ remuneration is shown in
the directors’ remuneration report.
5
Income tax credit
Current tax:
On revenue profits
On capital profits
Prior year overprovision
Deferred tax (note 12)
Income tax credit
2011
£’000
2010
£’000
(20)
15
(1)
(6)
(134)
(140)
(60)
(19)
(69)
(148)
93
(55)
The tax assessed for the year differs from the standard rate of corporation tax in the UK of 26.25% (2010: 28%). The differences
are explained as follows:
Profit before tax
Profit before tax multiplied by the standard rate of corporation tax in the UK of 26.25% (2010: 28%)
Effect of:
Tax exempt revenues
Profit not taxable as a result of REIT status
Chargeable gains/losses less/(more) than accounting profit
Losses carried forward
Effect of change in tax rate on deferred tax liability
Adjustments to tax charge in respect of prior periods
Income tax credit
2011
£’000
1,584
416
2010
£’000
3,907
1,094
(69)
(431)
20
(25)
(50)
(1)
(140)
(66)
(976)
(38)
–
–
(69)
(55)
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Notes to the Financial Statements continued
for the year ended 31 December 2011
6 Dividends
In 2011 the following dividends have been paid by the company:
2010 Final: 17.6p per ordinary share (2009: 16.0p)
2011 Interim: 11.5p per ordinary share (2010: 11.0p)
2011
£’000
909
594
1,503
2010
£’000
827
568
1,395
On 14 March 2012 the directors declared a property income distribution of £956,000, 18.5p per share (2010: £909,000,
17.6p per share) payable on 1 June 2012 to shareholders registered at 4 May 2012.
7 Earnings per share
The calculation of earnings per share is based on the total profit for the year of £1,724,000 (2010: £3,962,000) and on
5,167,240 shares (2010: 5,167,240) which is the weighted average number of shares in issue during the year ended
31 December 2011 and throughout the period since 1 January 2011. There are no dilutive instruments.
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 £2,066,000 (2010: £1,965,000) has been calculated.
Earnings:
Basic profit for the year
Adjustments for:
Net valuation losses/(gains) on investment property
Losses/(gains) on investments
Income tax on (losses)/gains
Adjusted earnings
Per share amount:
Earnings per share (unadjusted)
Adjustments for:
Net valuation losses/(gains) on investment property
Losses/(gains) on investments
Income tax on (losses)/gains
Adjusted earnings per share
2011
£’000
2010
£’000
1,724
3,962
271
190
(119)
2,066
(1,577)
(509)
89
1,965
33.4p
76.7p
5.3p
3.7p
(2.3p)
40.1p
(30.5p)
(9.9p)
1.7p
38.0p
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8
Investment property
Valuation at 1 January
Additions
Disposals
Revaluation (losses)/gains
Valuation at 31 December
2011
£’000
30,705
2,871
(2,518)
(271)
30,787
2010
£’000
27,825
1,558
(255)
1,577
30,705
2009
£’000
26,344
281
–
1,200
27,825
In accordance with IAS 40 the carrying value of investment properties is their fair value as determined by external valuers. This
valuation has been conducted by Jones Lang LaSalle, and Cluttons (for our new 2011 acquisition only), as external valuers and
has been prepared as at 31 December 2011, in accordance with the Appraisal & Valuation Standards of the Royal Institution of
Chartered Surveyors, on the basis of market value. This value has been incorporated into the financial statements.
The independent valuation of all property assets includes assumptions regarding income expectations and yields that investors
would expect to achieve on those assets over time. Many external economic and market factors, such as interest rate
expectations, bond yields, the availability and cost of finance and the relative attraction of property against other asset classes,
could lead to a reappraisal of the assumptions used to arrive at current valuations. In adverse conditions, this reappraisal can
lead to a reduction in property values and a loss in net asset value.
At 31 December 2011 investment property with a carrying amount of £5,150,000 is charged to Lloyds TSB Bank PLC to
provide security for any future borrowings.
The group leases out its commercial investment property under operating leases. The future minimum lease payments
receivable under non-cancellable leases are as follows:
Less than one year
Between one and five years
More than five years
Property operating expenses are analysed as follows:
Arising from generating rental income
Not arising from generating rental income
2011
£’000
2,091
5,730
8,881
16,702
2010
£’000
2,001
6,025
6,332
14,358
2009
£’000
1,881
6,910
7,374
16,165
2011
£’000
221
82
303
2010
£’000
159
86
245
2009
£’000
123
130
253
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Notes to the Financial Statements continued
for the year ended 31 December 2011
9 Equity investments
Valuation at 1 January
Additions
Disposals
(Deficit)/surplus on revaluation in excess of cost
Revaluation decrease below cost
Revaluation increase still less than cost
Valuation at 31 December
2011
£’000
5,608
423
(186)
(238)
(15)
6
5,598
2010
£’000
7,397
1,028
(3,393)
572
(6)
10
5,608
2009
£’000
7,282
515
(1,723)
1,230
(18)
111
7,397
The analysis of gains and losses on equity investments shown in the income statement is as follows:
Realised gains on equity investments
Revaluation gains on equity investments
Realised losses on equity investments
Revaluation losses on equity investments
10 Trade and other receivables
Trade receivables
Bad debt provision
Net trade receivables
Other receivables
2011
£’000
81
316
397
2011
£’000
24
563
587
2010
£’000
69
649
718
2010
£’000
136
73
209
2009
£’000
263
1,416
1,679
2009
£’000
141
93
234
2011
£’000
2010
£’000
2009
£’000
240
(41)
199
18
217
124
(44)
80
13
93
137
(61)
76
27
103
Amounts due from tenants at each year end include amounts invoiced on 25 December in respect of rents in advance for the
period 25 December to 24 March. At 31 December 2011 amounts due from tenants which were more than 90 days overdue,
which related to rents for 2011 or earlier, totalled £48,000 (2010: £52,000). Provisions against these overdue amounts totalled
£44,000 at the beginning of the year, of which £3,000 was released, to give a provision of £41,000 at 31 December 2011.
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29
11 Trade and other payables
Deferred income
Social security and other taxes
Other payables
2011
£’000
2010
£’000
2009
£’000
438
26
217
681
485
138
274
897
467
115
195
777
The directors consider that the carrying value of trade and other payables approximates to their fair value.
12 Deferred tax liabilities
Deferred taxation, arising from revaluation gains on equity investments, provided for in the financial statements is set out
below and is calculated using a tax rate of 25% (2010: 27%).
At 1 January
Realised in the year
(Released)/provided in the year
At 31 December
13 Share capital
Authorised 8,000,000 ordinary shares of 25p each
Allotted, called up and fully paid 5,167,240 (2010: 5,167,240) ordinary shares of 25p each
2011
£’000
764
(6)
(134)
624
2010
£’000
2,000
1,292
2010
£’000
969
(298)
93
764
2009
£’000
2,000
1,292
2011
£’000
2,000
1,292
The directors monitor capital on the basis of total equity and operate within the requirements of the articles of association.
There was no medium-term debt at 31 December 2011 (2010: nil and 2009: nil). The directors manage the group’s working
capital to take advantage of suitable commercial opportunities as they arise whilst maintaining a relatively low cost capital
base. This capital management is principally carried out by the realisation of liquid equity investments, the sale of vacant
residential properties and the use of surplus cash. In the medium term the directors may again use medium-term debt to
finance future commercial property acquisitions in line with its long-term strategy.
14 Capital commitments
There were no capital commitments at 31 December 2011 or at 31 December 2010.
15 Contingent liabilities
There were no contingent liabilities at 31 December 2011 or 31 December 2010.
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Notes to the Financial Statements continued
for the year ended 31 December 2011
16 Related party transactions
Kingerlee Holdings Limited owns, through its subsidiaries, 25.36% (2010: 25.36%) 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. The transactions
between the group and Kingerlee Holdings Limited or its subsidiaries were as follows:
Property income distribution or dividend
Service charge in relation to services provided at Thomas House, Kidlington
Repairs to properties
Amounts outstanding at the end of the year
2011
£’000
2010
£’000
381
14
–
–
354
14
2
2
The company owns 100% of Rodenhurst Estates Limited. The transactions between the company and Rodenhurst Estates
Limited were as follows:
Dividend received
Management charge receivable
Interest receivable on intercompany loan
Amounts outstanding at the end of the year
2011
£’000
3,500
134
18
3,912
2010
£’000
–
118
5
359
The key management personnel are the directors of the group. Their remuneration is set out in note 4. In addition, the
following directors received dividends during the year in respect of their shareholdings:
J Hewitt
C J Clark
J C Kingerlee
D H Kingerlee
2011
£’000
2010
£’000
3
1
38
26
3
1
35
24
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31
17 Financial instruments and financial risk
The following table presents financial instruments measured at fair value in the statement of financial position in accordance
with fair value hierarchy. This hierarchy groups financial instruments into three levels based on the significance of issues used
in measuring the fair value of the financial instruments. The fair value hierarchy has the following levels:
zz
Level 1: quoted prices in active markets for identical assets or liabilities. The fair value of financial instruments traded in
active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices
are readily and regularly available, and those prices represent actual and regularly occurring market transactions on an
arm’s-length basis.
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(ie as prices) or indirectly (ie derived from prices).
Level 3: the fair value of financial instruments that are not traded in an active market, for example, investments in
unquoted companies, is determined by reference to the last known price at which shares were traded.
zz
zz
There have been no transfers between these classifications in the year (2010: none). The change in fair value for the current
and previous years is recognised through the consolidated statement of comprehensive income.
IFRS 7 measurement classification — 2011
Opening cost
Opening unrealised gain
Opening fair value at 1 January 2011
Additions at cost
Disposal proceeds
Net gain realised on disposal
Change in fair value in the year on assets held at 31 December 2011
Closing fair value at 31 December 2011
Closing cost
Closing unrealised gain
At 31 December 2011
Level 3
Unquoted
equity
investments
£’000
Level 1
Quoted
equity
investments
£’000
Total
Quoted
and
unquoted
£’000
4
5
9
–
–
–
–
9
4
5
9
2,390
3,209
5,599
423
(243)
57
(247)
5,589
2,655
2,934
5,589
2,394
3,214
5,608
423
(243)
57
(247)
5,598
2,659
2,939
5,598
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Notes to the Financial Statements continued
for the year ended 31 December 2011
17 Financial instruments and financial risk continued
IFRS 7 measurement classification — 2010
Opening cost
Opening unrealised gain
Opening fair value at 1 January 2010
Additions at cost
Disposal proceeds
Net loss realised on disposal
Change in fair value in the year on assets held at 31 December 2010
Closing fair value at 31 December 2010
Closing cost
Closing unrealised gain
At 31 December 2010
Categories of financial instruments
Financial assets designated at fair value through the income statement
Equity investments
Loans and receivables
Trade and other receivables
Cash and cash equivalents
Financial liabilities measured at amortised cost
Trade and other payables
Level 3
Unquoted
equity
investments
£’000
Level 1
Quoted
equity
investments
£’000
Total
Quoted
and
unquoted
£’000
4
5
9
–
–
–
–
9
4
5
9
3,371
4,017
7,388
1,028
(3,326)
(67)
576
5,599
2,390
3,209
5,599
3,375
4,022
7,397
1,028
(3,326)
(67)
576
5,608
2,394
3,214
5,608
2011
2010
Carrying
amount
£’000
Income/
(expense)
£’000
Carrying
amount
£’000
Income/
(expense)
£’000
5,598
(247)
5,608
576
217
1,926
2,143
681
681
–
–
–
–
–
93
2,472
2,565
897
897
–
–
–
–
–
Fair value and maturity of financial instruments
The group has no derivative financial instruments. Exposure to credit, liquidity and market risks, arises in the normal course of
the group’s business. At 31 December 2011 the group had no borrowings and fair values of loans and receivables and
financial liabilities held at amortised cost were not materially different from book values.
Market risk
Market risk arises from that portion of the group’s activities relating to investment in equities. This risk relates to the effect of
market conditions on the pricing of the equities which forms the key component of their year-end valuation. This risk is
mitigated by the equity portfolio being spread by both geography and sector.
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17 Financial instruments and financial risk continued
Credit risk
The group’s credit risk, ie the risk of financial loss due to a third-party failing to discharge its obligation, primarily affects its
trade receivables. Creditworthiness of potential tenants is assessed before entering into contractual arrangements. The amount
of trade receivables presented in the balance sheet is calculated after any allowances for doubtful receivables, estimated by the
directors. The allowance as at 31 December 2011 was £41,000 (2010: £44,000).
The group has no significant concentration of credit risk, with exposure spread over a number of tenants. The credit status of
tenants is continuously monitored and particularly reviewed before properties are acquired, before properties are let and
before new leases are granted.
The group’s cash holdings are mainly in Lloyds TSB Bank PLC and cash is also held by the group’s property managers, lawyers
and brokers acting as agents, though not for long periods of time.
Liquidity risk
The group’s liquidity risk, ie the risk that it might encounter difficulty in meeting its obligations, applies to its trade payables
and any medium-term borrowings that the group takes out from time to time. The group has not encountered any difficulty in
paying its trade payables in good time.
Interest rate risk
The group finances its operations through retained profits and also, from time to time, through medium-term borrowings.
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.
When medium-term borrowings are used variable rates of interest apply. There were no borrowings in 2011.
Currency exchange risk
The group is not directly exposed to currency risk as it does not trade in foreign currencies. However, most of the group’s
equity investments are held in international companies and 23.8% (2010: 24.8%) of the equity investment portfolio comprises
overseas holdings. The inherent currency risk affecting those holdings is an indistinguishable factor in determining their market
value and is taken into consideration as part of the overall assessment of investment risk.
Maturity of group financial liabilities
At 31 December 2011 there were no group financial liabilities at variable rates (2010: £nil).
Borrowing facilities
The group has no undrawn committed borrowing facilities.
18 Net assets per share
Net assets
Ordinary shares in issue
Basic net assets per share
2011
£’000
37,223
5,167,240
720p
2010
£’000
37,002
5,167,240
716p
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Report of the Independent Auditor
to the members of Highcroft Investments PLC
Report of the Independent Auditor to the members of Highcroft Investments PLC
We have audited the financial statements of Highcroft Investments PLC for the year ended 31 December 2011 which comprise the consolidated statement of
comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows, the
notes to the consolidated financial statements, the parent company balance sheet and the notes to the parent company financial statements. The financial reporting
framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted
by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and
United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 auditors
As explained more fully in the statement of directors’ responsibilities set out on page 7, the directors are responsible for the preparation of the financial statements and for
being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm.
Opinion on financial statements
In our opinion:
zz the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at
31 December 2011 and of the group’s profit for the year then ended;
zz the group financial statements have been properly prepared in accordance with IFRS, as adopted by the European Union;
zz the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
zz the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements,
Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
zz the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006;
zz the information given in the report of the directors for the financial year for which the financial statements are prepared is consistent with the financial statements; and
zz the information given in the corporate governance statement set out on pages 4 to 7 with respect to internal control and risk management systems in relation to
financial reporting processes and about share capital structures is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
zz adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
zz the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or
zz certain disclosures of directors’ remuneration specified by law are not made; or
zz we have not received all the information and explanations we require for our audit; or
zz a corporate governance statement has not been prepared by the company.
Under the Listing Rules, we are required to review:
zz the directors’ statement, set out on page 6, in relation to going concern;
zz the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the UK Corporate Governance Code specified
for our review; and
zz certain elements of the report to shareholders by the board on directors’ remuneration.
Nicholas Watson
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
OXFORD
14 March 2012
21251.04 21/03/12 Proof 5Stock Code: HCFT Highcroft Investments PLC
Annual Report 2011
35
2011
2010
Note
£’000
£’000
£’000
£’000
5
6
7
8
9
9
9
11
3,936
61
3,997
144
5,783
95
27,229
3,428
33,974
35,819
3,853
37,827
1,292
378
1,917
2,295
356
5,717
95
29,340
1,314
1,939
37,758
1,292
36,535
37,827
36,466
37,758
Company Balance Sheet
at 31 December 2011
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
— Revaluation
— Retained earnings
Shareholders’ funds
These financial statements were approved by the board of directors on 14 March 2012.
J Hewitt
Directors
Company number — 224271
J C Kingerlee
The accompanying notes form an integral part of these financial statements.
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Annual Report 2011
36
Notes to the Company’s Financial Statements
for the year ended 31 December 2011
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 investments. 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:
zz
shares in subsidiary undertaking — at market value (net assets as shown by its financial statements are taken as a
reasonable estimate of market value)
equity investments (all listed on a recognised investment exchange) — at market value
zz
zz unlisted investments — at market value estimated by the directors
The directors manage and evaluate performance on a fair value basis and therefore have designated qualifying financial assets
at fair value through the profit and loss account. Other movements are recognised directly in equity.
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 408 of the Companies Act 2006.
The profit after tax for the year was £3,370,000 (2010: £754,000). Information regarding directors’ remuneration appears on
pages 15 and 16 of the consolidated financial statements.
21251.04 21/03/12 Proof 5Stock Code: HCFT Highcroft Investments PLC
Annual Report 2011
37
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:
Other services pursuant to legislation
4 Dividends
In 2011 the following dividends have been paid by the company:
2010 Final: 17.6p per ordinary share (2009: 16.0p)
2011 Interim: 11.5p per ordinary share (2010: 11.0p)
2011
£’000
2010
£’000
19
2
21
19
1
20
2011
£’000
909
594
1,503
2010
£’000
827
568
1,395
On 14 March 2012 the directors declared a property income distribution of 18.5p per share (2010: 17.6p) payable on 1 June
2012 to shareholders registered at 4 May 2012
5
Investments
Valuation at 1 January 2011
Additions at cost
Disposals
Deficit on revaluation in excess of cost
Revaluation decrease below cost
Revaluation increase still less than cost
Valuation at 31 December 2011
Shares in
subsidiary
undertaking
£’000
30,211
–
–
(1,835)
–
–
28,376
Total
£’000
35,819
423
(186)
(2,073)
(15)
6
33,974
Other investments
Listed
£’000
5,599
423
(186)
(238)
(15)
6
5,589
Unlisted
£’000
9
–
–
–
–
–
9
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 2011
Cost at 31 December 2010
Shares in
subsidiary
undertaking
£’000
3,754
3,754
Total
£’000
6,413
6,148
Other investments
Listed
£’000
Unlisted
£’000
2,655
2,390
4
4
At 31 December 2011, the company 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.
At 31 December 2011 the net cash assets of Rodenhurst Estates Limited were £2,375,000 (2010: £30,211,000) and the profit
for the financial year was £1,936,000 (2010: £1,763,000).
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Annual Report 2011
38
Notes to the Company’s Financial Statements continued
for the year ended 31 December 2011
6 Debtors
Owed by subsidiary undertaking
Other debtors
7 Creditors — amounts falling due within one year
Corporation tax
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 (2010: 5,167,240) ordinary shares of 25p each
9 Reserves
2011
£’000
3,912
24
3,936
2010
£’000
359
19
378
2011
£’000
2010
£’000
–
7
137
144
215
7
134
356
2011
£’000
2,000
1,292
2010
£’000
2,000
1,292
At 1 January 2011
Profit retained
Dividends paid
Revaluation deficit — equities
Revaluation deficit — Rodenhurst Estates Limited
Realised gains
Tax on realised gains
Surplus attributable to assets sold in the year
At 31 December 2011
Revaluation
£’000
29,340
–
–
(247)
(1,835)
–
–
(29)
27,229
Realised
capital
£’000
5,717
–
–
–
–
42
(5)
29
5,783
Retained
earnings
£’000
1,314
3,370
(1,503)
247
–
–
–
–
3,428
The revaluation reserve includes annual revaluation gains and losses, less attributable taxation. The realised capital reserve
includes realised revaluation gains and losses, less attributable taxation. In accordance with the articles of association the
revaluation and realised capital reserves are not distributable.
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
25% (2010: 27%). Unprovided deferred taxation would crystallise if equity investments were sold at their balance sheet value.
Unrealised capital gains
2011
£’000
–
Provided
2010
£’000
Unprovided
2011
£’000
2010
£’000
–
5,622
6,764
21251.04 21/03/12 Proof 5Stock Code: HCFT Highcroft Investments PLC
Annual Report 2011
39
11 Reconciliation of movements in shareholders’ funds
Profit for the financial year
Dividends
Other recognised gains and losses:
(Loss)/surplus on revaluation of assets
Realised gains/(losses)
Tax on prior year’s surplus now realised
Net increase in shareholders’ funds
Shareholders’ funds at 1 January 2011
Shareholders’ funds at 31 December 2011
2011
£’000
3,370
(1,503)
1,867
(1,835)
42
(5)
69
37,758
37,827
2010
£’000
754
(1,395)
(641)
3,341
(49)
(298)
2,353
35,405
37,758
12 Capital commitments
There were no capital commitments at 31 December 2011 or at 31 December 2010.
13 Contingent liabilities
There were no contingent liabilities at 31 December 2011 or at 31 December 2010.
14 Related party transactions
Kingerlee Holdings Limited through its subsidiaries owns 25.36% (2010: 25.36%) 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. The transactions
between the company and Kingerlee Holdings Limited or its subsidiaries, all of which were undertaken on an arm’s-length
basis, were as follows:
Property income distribution or dividend
Service charge in relation to services provided at Thomas House, Kidlington
Amounts outstanding at the end of the year
2011
£’000
381
14
–
2010
£’000
354
14
–
Under the provision of FRS 8, transactions between Highcroft Investments PLC and Rodenhurst Estates Limited are exempt
from these disclosure requirements as Rodenhurst is a wholly-owned subsidiary.
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Annual Report 2011
40
Group Five Year Summary (unaudited)
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
Revenue (excluding gains/losses on disposals of assets)
Gross income from property
Dividend income
Profit available for distribution
Share capital
Average number in issue (000’s)
Basic earnings/(loss) per ordinary share
Adjusted earnings per ordinary share
Dividends payable per ordinary share
FTSE 350 Real Estate Index
Highcroft year end share price
2011
£’000
30,787
5,598
37,223
720p
£’000
2,129
269
2,066
5,167
33.4p
40.1p
30.00p
314
465p
2010
£’000
30,705
5,608
37,002
716p
£’000
2,053
234
1,965
5,167
76.7p
38.0p
28.60p
354
495p
2009
£’000
27,825
7,397
34,435
666p
£’000
1,943
292
1,670
5,167
76.2p
32.3p
26.00p
347
445p
2008
£’000
26,344
7,282
31,604
612p
£’000
2,124
450
1,922
2007
£’000
35,545
10,830
41,713
807p
£’000
2,126
406
1,562
5,167
(179.3p)
37.3p
18.40p
322
305p
5,167
(8.5p)
30.2p
14.25p
596
717p
21251.04 21/03/12 Proof 5Stock Code: HCFT
Highcroft Investments PLC
Annual Report 2011
41
Directors and Advisers
Company number
224271
Directors
John Hewitt, MA (non-executive chairman)
Christopher Clark, BA FCIS FCSI (non-executive)
Richard Stansfield, BSc FRICS (non-executive)
Jonathan Kingerlee (chief executive)
Roberta Miles, MA FCA (finance)
David Kingerlee (executive)
Company secretary
Roberta Miles, MA FCA
Independent auditor
Bankers
Grant Thornton UK LLP
Statutory Auditor
Chartered Accountants
3140 Rowan Place
John Smith Drive
Oxford Business Park South
Oxford OX4 2WB
Lloyds TSB Bank PLC
The Atrium
Davidson House
Forbury Square
Reading RG1 3EU
Corporate finance advisers Charles Stanley Securities
Property advisers
Independent valuers
Registrars
Solicitors
Registered office
131 Finsbury Pavement
London EC2A 1NT
Jones Lang LaSalle Limited
30 Warwick Street
London W1B 5NH
Jones Lang LaSalle Limited
22 Hanover Square
London W1A 2BN
and
Cluttons LLP
Portman House
2 Portman Street
London
W1H 6DU
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Clarkslegal LLP
One Forbury Square
The Forbury
Reading RG1 3EB
Thomas House
Langford Locks
Kidlington
Oxon OX5 1HR
www.highcroftplc.com
www.highcroftplc.com
21251-04
26/03/2012
Proof 8
Highcroft
Investments PLC
Highcroft Investments PLC
Thomas House, Langford Locks
Kidlington, Oxon
OX5 1HR
T: 01865 840023
E: office@highcroftplc.com
21251-04
26/03/2012
Proof 8