Annual Report and Financial Statements
For the year ended 31 December 2017
www.highcroftplc.com
Stock code: HCFT
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Shareholder Focused
Market Aware
Opportunity Driven
Welcome to the
Highcroft Investments
Annual Report 2017
Who we are
Highcroft Investments PLC is a Real Estate Investment Trust (REIT*)
which has a portfolio of property based in England and Wales.
Our strategy
We aim to deliver sustainable income and capital growth through
accretive asset management initiatives and recycling of capital.
We deliver our strategy by leveraging our strengths:
An experienced team
High quality property assets
Financial strength
Moderate gearing
We ensure that we are a sustainable
business through our culture of being:
Shareholder focused
Our actions are centred on our shareholders; investments
are considered in order to execute our strategy and increase
shareholder value.
Market aware
Understanding the industry we operate within enables
us to invest in specific areas and sectors to generate
maximum value.
Opportunity driven
We are able to identify and react quickly to market opportunities
in order to deliver returns above the industry average.
* A REIT is a property company which enables its shareholders to invest in property and
receive benefits as if they owned the property directly.
Highcroft Investments PLC Annual Report and Accounts 2017
www.highcroftplc.com
Highcroft Investments onlineView more information at: www.highcroftplc.comFinancial highlightsIncrease dividends payable to shareholders46.25p 12.8%201746.25p41.00p38.80p36.00p33.75p2016201520142013+37.0%Gross income from property£4.8m 22.0%2017£4.8m£3.9m£3.4m£3.1m£2.7m2016201520142013+74.5%Net property income£4.5m 21.5%2017£4.5m£3.7m£3.1m£2.9m£2.6m2016201520142013+74.7%Occupancy in our portfolio100%2017100%100%100%100%100%2016201520142013Increase value of property assets£77.1m 16.8%2017£77.1m£66.0m£58.0m£46.5m£39.4m2016201520142013+95.6%Total earnings per share132.3p 57.5%2017132.3p84.0p140.0p136.5p94.0p2016201520142013Net gearing£17.5m/29% 8%2017£17.5m/29%£11.5m/21%£2.0m/4%£0.9m/2%2016201520142013+27%£6.6m/13%Increase net asset value per share1161p 8.4%20171161p1071p1026p923p821p2016201520142013+41.4%ContentsBusiness Overview01Financial highlights02Operational highlights03Chairman's statement04Group at a glance06Our PortfolioStrategic Report08Our marketplace09Our business model10Our strategy11Our KPIs12Operating review 15Financial review19Our risks22Corporate social responsibilityGovernance23 Chairman’s introduction to corporate governance24Board of directors 25Corporate governance27Report of the audit committee29Report of the nomination committee 30Directors’ remuneration report 34Report of the directors 36Statement of directors’ responsibilities Financial Statements37Independent auditor’s report 41Consolidated statement of comprehensive income42Consolidated statement of financial position43Consolidated statement of changes in equity 44Consolidated statement of cashflows 45Notes to the consolidated financial statements55Company statement of financial position56Company statement of changes in equity57Notes to the company financial statementsIBCGroup five year summary (unaudited)IBCDirectors and advisers CONTENTS LIST, RUNNING ORDER/PAGE NUMBVERING TO BE UPDATED01Business OverviewHighcroft Investments PLC Annual Report and Accounts 2017Stock Code: HCFT Operational highlightsOver the last five years our activities have improved the quality of our property assets and enabled us to improve returns to shareholders in line with our strategy.‘ In 2017 we continued our confident approach in what we considered a cautious and uncertain market. Our search for well-let secure investments to provide good long-term income streams did not alter in spite of the nervousness witnessed amongst many investors in the market.’Simon Gill Chief executiveRevaluation gains in year£3.3m 2017£3.3m£1.0m£4.8m£3.6m£1.2m2016201520142013AcquisitionsDisposalsType: WarehouseLocation: NottinghamPurchase value: £5.6mType: WarehouseLocation: St AustellPurchase value: £4.5mTotal acquisitions: £10.1m Type: RetailLocation: StainesSales proceeds: £2.3mRealised gain: £nilRealised valuation loss: £0.7m Type: Retail warehouseLocation: GranthamPurchase cost: £7.4mType: Leisure unitsLocation: CoventryPurchase cost: £2.5mTotal acquisitions: £9.9mType: RetailLocation: KingstonSales proceeds: £1.1m Type: WarehouseLocation: WarwickSales proceeds: £1.5mType: Residential x 2Sales proceeds: £0.4m Total sales proceeds: £3.0mRealised gain: £0.1mRealised valuation surplus: £0.8m Type: Retail warehouseLocation: WisbechTotal acquisitions: £8.7mType: LeisureLocation: WarringtonSales proceeds: £1.1m Type: Residential x 2Sales proceeds: £1.3m Total sales proceeds: £2.4mRealised gain: £0.4mRealised valuation surplus: £nil Type: WarehouseLocation: Ash ValePurchase cost: £3.3mType: WarehouseLocation: CrawleyPurchase cost: £2.8mTotal acquisitions: £6.1mType: RetailLocation: BeckenhamSales proceeds: £1.0m Type: OfficeLocation: BristolSales proceeds: £2.3m Type: Residential x 3Sales proceeds: £0.3mTotal sales proceeds: £2.6mRealised gain: £0.9mRealised valuation loss: £0.8m Type: Retail warehouseLocation: BicesterPurchase cost: £6.0mType: OfficeLocation: CardiffPurchase cost: £2.5mTotal acquisitions: £8.5mType: RetailLocation: ReigateSales proceeds: £1.3m Type: RetailLocation: PetersfieldSales proceeds: £1.1m Total sales proceeds: £2.4mRealised gain: £0.4mRealised valuation surplus: £1.0m 2017201620152014201302Highcroft Investments PLC Annual Report and Accounts 2017www.highcroftplc.com Chairman’s statement Charles ButlerNon-executive chairman'An excellent year with property income growth of 22%, an earnings per share increase of 57.5% to 132.3 pence and a 12.8% increase in total dividend to 46.25 pence per share'IntroductionI am very pleased to be writing my first chairman’s statement and reporting such a strong set of results. Before I do so however I must thank John Hewitt for his contribution to Highcroft through the last 18 years of which 11 were as non-executive chairman.There is no doubt that 2017 has been a year of political events both inside and outside the UK and, with that, came a year of market uncertainty. Even with this challenging backdrop I am pleased to report that the company has reported record property income growth of 22%, an earnings per share increase of 57.5% to 132.3 pence and a 12.8% increase in total dividend to 46.25 pence per share.Property portfolioUnder the guidance and leadership of Simon Gill we purchased two warehouses during the year which were financed by a combination of existing cashflow, recycled cash from a property sale and a new debt facility which in turn reduced the average cost of debt to 3.64% and left gearing at a modest 29%. At the year end the portfolio stood at 74% warehouses and retail warehouses with a small amount of residual residential and the remainder split between well let retail and offices.Property rental growth of 22% for the year is the strongest performance over the last 5 years and with contracted rent at the year end being 21% up on the previous year end this shows the increase in rental income continuing into 2018.We have stringent criteria for new tenant acceptance and at the year-end all properties were fully let to a strong tenant base. Through a combination of stable income yields and active asset management I am pleased to report an 8.4% increase in net asset value and 11.9% return on equity for the year (2016 8.0%).PeopleI have only been in situ as chairman for a short period however I would like to thank and congratulate the team for their hard work throughout the year. We have a small but dedicated and experienced team at Highcroft and this sets us in good stead for the year ahead.DividendThe company's interim dividend was increased in by 8.3% and as a result of strong revenue growth, efficient use of debt and administration costs falling as a percentage of revenue we have increased the final dividend to 30.0 pence per share leading to a total dividend of 46.25 pence per share – an increase of 12.8%. Our stated strategy is to increase dividends in excess of inflation every year and I am pleased to say we have delivered an inflation busting 45.4% increase over the last 5 years.OutlookHighcroft is well positioned with a high quality income producing portfolio. We go into 2018 with positive momentum gained in 2017 and well positioned to continue our portfolio growth. We are however in an very competitive landscape with continuing political uncertainty so we remain cautious and diligent in our approach in ensuring we select the right properties to deliver long term shareholder value.Charles ButlerNon-executive chairman03Business OverviewHighcroft Investments PLC Annual Report and Accounts 2017Stock Code: HCFT Group at a glance15216181710191612147161132389201145Our property assetsOur property assets are valued at £77,113,000. During the year our property assets increased in value by 4.9% on a like-for-like basis and by 17% taking into account our acquisitions and disposals during the year.Property£’0001Retail park in Wisbech let to Dunelm, Currys PC World, Carpetright, Halfords and Pets at Home 9,000 2Retail warehouse in Grantham let to M&S and B&Q 7,350 3Retail warehouse in Bicester let to Wickes 6,850 4Warehouse in Nottingham let to Giant Booker5,5755Warehouse in St Austell let to Wyndeham Roche4,7006Warehouse in Milton Keynes let to Ikea 4,350 7Warehouse in Ash Vale, Aldershot let to SIG Trading 4,250 8 9Two retail units in Oxford let to Jigsaw 3,830 10Office building in Cardiff let to Arriva Trains 3,550 11Radio station and office building in Oxford let to the BBC 3,550 12Warehouse in Andover let to Jewsons 3,45013Distribution centre in Kidlington, Oxfordshire let to Parcelforce 3,100 14Retail warehouse in Crawley let to Pets at Home 3,050 15Warehouse in Bedford let to Booker 2,700 16Distribution centre in Southampton let to Metabo 2,650 17Multi-let leisure unit in Coventry2,27518Retail unit in Leamington Spa let to Mint Velvet1,68519Multi-let retail units in Cirencester, with residential above 1,675 20Retail unit in Oxford let to Hotel Chocolat 1,485 21Retail unit in Norwich let to Harriets Tea Rooms 1,240 Total commercial76,315Residential property798Total77,113Our structureThe property owning subsidiaries, Rodenhurst Estates Limited and Belgrave Land (Wisbech) Limited, are wholly owned and carry out the management and administration of the property assets on behalf of the group. Read more about Our business model on page 9Read more about Our portfolio on page 5, 6 and 7Highcroft Investments PLCProperty InvestmentsRodenhurst Estates LimitedBelgrave Land (Wisbech) LimitedGroup AdministrationRetailOfficeWarehouseRetail warehouseLeisure Residential04Highcroft Investments PLC Annual Report and Accounts 2017www.highcroftplc.com Property investments
We own 20 commercial properties, predominantly in southern England and Wales.
Split by sector %
Total property investments %
Retail
Office
Warehouse
Retail warehouse
Leisure
Residential
13%
9%
40%
34%
3%
1%
Commercial 99%
Residential 1%
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Investment properties at annual valuation
£77.113m
Tenure %
16.8%
£77.113m
Freehold
Long leasehold
91%
9%
2017
2016
2015
2014
2013
£65.997m
£57.964m
£46.523m
£39.415m
Weighted average lease length (years)
Movements in property asset value
16.8%
2017
2016
2015
2014
2013
7.2
8.5
8.5
8.7
8.1
Weighted average lease expiries
> 5 years
85.0%
2-5 years
12.2%
1-2 years
2.6%
< 1 year
0.2%
£’000
80
70
60
50
40
30
20
10
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9
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1
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Disposals
£(2.3m)
V a l u a t i o n g a i n s
£ 3 . 4 m
Valuation
losses
£(0.1m)
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Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
05
Our portfolioAndover Long leasehold industrial investment. 19,330 sq ft. Let to Saint-Gobain t/a JewsonAsh Vale Freehold warehouse unit. 25,000 sq ft. Let to SIG Trading LtdBedford Freehold warehouse unit. 40,500 sq ft. Let to Booker LtdBicester Freehold retail warehouse. 29,130 sq ft. Let to Wickes Building Supplies LtdCardiff Freehold offices. 17,800 sq ft. Let to Arriva Trains LtdCirencester Freehold retail and residential property. Let to Ladbrokes, Card Factory and othersCrawley Freehold warehouse unit. 6,900 sq ft. Let to Pets at HomeGrantham Freehold retail warehouse. 42,000 sq ft. Let to B&Q and Marks & SpencerCoventry Freehold leisure investment. Let to The Restaurant Group, Greggs and SubwayLeamington Spa Freehold shop Let to Sabre Retail Ltd t/a Mint VelvetKidlington Freehold warehouse investment. 30,250 sq ft. Let to Parcel Force06Highcroft Investments PLC Annual Report and Accounts 2017www.highcroftplc.com Milton KeynesFreehold warehouse. 43,500 sq ft. Let to IKEANorwich Freehold shop Let to Harriets Tearooms LtdNottingham Freehold warehouse. 84,000 sq ft. Let to Giant Booker LtdOxford Two High Street properties, one long leasehold, one freehold let to Robinson Webster t/a JigsawOxford Freehold offices. 11,500 sq ft. Let to the BBCOxford Freehold High Street property. Let to Hotel ChocolatSouthampton Freehold warehouse. 25,250 sq ft. Let to Metabo (UK) LtdSt Austell Freehold warehouse/industrial. 250,000 sq ft. Let to Wyndham Roche LtdWisbech Freehold retail warehouse park. 55,650 sq ft. Let to PC World, Halfords, Dunelm, Pets at Home and CarpetrightBusiness Overview07Highcroft Investments PLC Annual Report and Accounts 2017Stock Code: HCFT Our marketplace
The marketplace
Macroeconomic landscape
Following the 2016 vote to leave the EU there was a great deal of
uncertainty, but 2017 has seen a positive bounce back in the real
estate investment market throughout the UK. The UK economy
surprised most commentators, with unemployment falling to the
lowest level since 1975, consumer spending robust, and occupier
take-up healthy. The weakening of the pound made investing in UK
property very attractive to foreign investors, who were drawn largely
to London and the South-East. Overall transaction volumes were up
15% on 2016 levels. Despite political and economic concerns, the UK
continues to attract a large inflow of funds from foreign investors not
only due to the value of the pound, but also because of the stability
of the property market, the strength of our legal system and the UK
demographics. Looking forward, potential factors including Brexit, the
ongoing effect of the changes in the business rate regime in 2017,
rising base rates and political uncertainty, may have a negative effect
on occupational activity, investment demand and property returns.
Since the UK and EU reached agreement on phase one of the
Brexit process at the end of 2017, the pound has rallied significantly.
On the other hand, a growth in lending, the shortage of supply for
regional commercial property, new capital sources, greater clarity over
Chinese capital flows, and the predicted global economic recovery
should have a positive effect on the marketplace.
Retail market
Whilst 2017 was a volatile year for the UK economy and for the
retail sector, Q4 2017 was more positive than had been anticipated.
High inflation was the most significant driver of this sector in 2017.
CPI dropped slightly to 3.0% in December but remains above the
government’s target rate. It is expected that this period of relatively
high inflation will last throughout 2018. Whilst consumer confidence
fell at the end of 2017, occupier demand remains strong in prime
regional high street locations in London and the South-East.
Industrial market
Occupier take-up totalled 26.6 million square feet in 2017 and the
occupational market has benefitted from a structural shift towards
e-commerce. Healthy global growth and sterling weakness also drove
export growth in 2017.
The investment market
The retail sector represents circa 35% of investible UK property;
however, it accounted for less than 15% of the trading activity in
2017. It is expected that liquidity will start to rise in 2018. This class of
asset is evolving towards an income stock fitting the need for income
returns.
It is anticipated that good quality secondary towns will become more
attractive given that the yield differential to prime locations and, in
particular, secondary retail warehouse yields have sharpened. Local
authorities are still expected to remain as active buyers in this sector
although it is possible that they may face tighter regulations
on borrowing.
Currently, just 6% of UK industrial stock is in foreign ownership
(less than any of the other major property types), but this is changing.
Overseas investment accounted for almost 50% of activity in the
12 months to September 2017, focused on distribution warehouses.
This activity has resulted in falling industrial yields.
Market aware – What this means for Highcroft
The directors constantly monitor the market and liaise closely with
all of their advisers in order to be fully apprised of market trends and
fluctuations. We take into account the macroeconomic landscape
and ensure that we position and grow our portfolio in areas where
the positive factors will have greatest effect, and the potentially
negative factors will have the lowest impact. This is important in
order to maintain the property valuations and income stream and to
assess when is the right time to either sell a certain property, due to a
possible future decline in value, or to buy a new investment which has
good income and growth prospects.
Opportunity driven – Our response to
these trends
It is not the aim of the directors to follow market trends slavishly,
but instead to consider what is best for Highcroft’s shareholders
on a long-term basis. Our small but efficient team, coupled with
our medium gearing and availability of additional debt facilities, has
the ability to react swiftly to any opportunity, enabling us to take
advantage ahead of our competitors. Over the course of a year we
review many potential transactions. Our reviews include factors such
as location, covenant, quality of asset, development opportunities
and price, and our selection process enables us to choose the
right opportunities that will maximise shareholder value. With our
experienced team we are able to look at opportunistic deals rather
than be directed by an analyst or research team and we have the
ability to source, execute and manage these in a competitive market.
08
Highcroft Investments PLC Annual Report and Accounts 2017
www.highcroftplc.com
Our business model
Our business model
and structure
Our method of value generation is simple: we
aim to maximise our return for shareholders,
primarily via an increase in dividend. We
endeavour to operate a countercyclical
model, buying when the market is low,
generating rental income and selling, if
appropriate, when the market is high in
order to maximise cash to reinvest. We use
a combination of our key resources in order
to select the best opportunities within our
chosen market segments, redevelop and
refurbish in order to increase the value of the
property, thus allowing us to secure higher
rental incomes. We let our properties out on
long leases, guaranteeing consistent income
for our shareholders.
Our key resources and
competitive advantage
People
We are a small team with diverse skill sets.
Our knowledge and understanding of the
marketplace informs decisions. As a source
of competitive advantage, the talent of our
staff is integral in prudent decision making,
ensuring that our performance is in line with
our objectives.
Financial strength
We have a medium level of gearing for
a company investing in property. Our
conservative capital structure and track
record of delivering strong returns make us a
lower risk investment than others.
Our tenants
Our tenants are diverse companies with
wide-ranging requirements. As shown on
page 4, they are mainly large commercial
companies requiring property on long-term
leases.
Our inputs
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Experienced
people
Financial strength
and medium gearing
High quality
property assets
Opportunity driven
Market aware
What we do
We invest predominantly in commercial
property within southern England
and Wales, areas we believe offer
the most opportunity
Asset management
We sell underperforming assets when
the market is in a period of growth,
maximising returns, and reinvest the
proceeds, ensuring that our portfolio
is as profitable as possible in the
changing marketplace
Shareholder focused
Our key activities
We increase shareholder value through strong revenue
streams and capital appreciation
Capital appreciation
We increase the value
of our assets through:
Acquisition
Disposal and reinvestment
Development
Refurbishment
Strong revenue streams
We sustain income through:
Letting our properties to commercial
tenants on long leases
Managing our properties ensuring we
continually meet the needs of our tenants
The value we generate
Shareholders
Strong returns on
investment,
growing revenue
streams, growing
dividend
payments and
capital appreciation
Tenants
Appropriate
space for
their operations,
offered on
long leases
Society
We provide large
employers with the
vital space for their
operations, thus
bringing employment
and economic
prosperity to the
communities
where our properties
are situated
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
09
Our strategy
The objective of the group is to generate secure and sustainable income growth to drive an increasing dividend which, when coupled with
capital value growth, will deliver strong total shareholder returns. We set clear strategic priorities against which we measure our performance.
Strategic
priority
A Continue to grow our
commercial property
portfolio with a bias
towards the south of
England and Wales.
B
Increase the average
lot size.
C Continue to reduce
our residential
property holdings.
D Continue to reduce
the proportion of our
assets held in equities
and reinvest in
commercial property.
How this priority will help us
achieve our objective
The directors regard commercial
assets in these geographical
areas as being best placed to
outperform the market in any
cycle. These locations are also
considered relatively low risk and
fit our risk profile.
As many costs are directly
related to the number of assets
rather than their size, increasing
the average lot size should
reduce average property costs,
thus increasing the net property
income available for distribution.
A focus on commercial property
will improve net property
income. Residential properties
of the size that we owned were
disproportionately cost and
management intensive and there
was limited potential for
future growth.
Progress towards becoming
a pure REIT will ensure
management focus and yield
enhancement, thus increasing
the net property income
available for distribution.
Progress in 2017
Future opportunities
Our new acquisitions in
Nottingham and St Austell
and disposal of our Staines
assets have resulted in a larger
portfolio which retains the
preferred geographical bias.
Our geographical coverage has
spread in order to ensure that
adequate yields are maintained.
Average lot size increased from
£3.3m to £3.6m.
There was a leasehold
enfranchisement process in
progress on our remaining
residential asset. The tenants'
appeals failed at the end
of 2017.
As asset sourcing is likely
to remain challenging, the
geographical spread may need
to be expanded to ensure that
adequate yields are maintained
without increasing the inherent
risk to an unacceptable level.
Future growth will come from
revaluation gains, new assets
being bought that are larger
lots than our average and also
from the disposal of smaller
underperforming units.
It is intended that the property will
be put into auction during 2018.
£0.5m realised from equities
during 2017.
£0.5m of cash released from
the equity portfolio in January
2018 and current valuation of
remaining portfolio is £1.5m.
E
Pursue capital growth
opportunities within our
property asset base.
Identifying growth opportunities
will enable either enhanced sales
prices to be achieved or improve
the yield from our properties.
Detailed planning application
submitted for three A3 units at
our Wisbech property. This was
granted after the year end.
Options are being considered
for additional asset management
opportunities.
F Use medium-term gearing
at a modest level.
The use of keenly priced debt
to expand our property portfolio
should increase our net
property income.
G Provide a dividend increase
in excess of inflation.
Maintenance of a property
income distribution stream that
is increasing in real terms is our
highest priority for enhancing
shareholder value.
£10.1m of acquisitions funded
by a combination of £4.5m of
new debt, £0.5m from equity
disposals, £2.3m from property
disposals, and existing cash
resources.
Increase in property income
distribution payable of 12.8%.
We have negotiated headroom
with one lender of £5.6m and
would consider additional
gearing to fund further
acquisitions.
As a REIT we are required
to distribute 90% of our net
property income.
10
Highcroft Investments PLC Annual Report and Accounts 2017
www.highcroftplc.com
Our Key Performance Indicators (KPIs)
Increase value of property assets
£77.113m 16.8%
Increase gross property income
£4.765m
22.0%
Increase net asset value per share
1161p
8.4%
£77.1m
£66.0m
£58.0m
+95.6%
2017
2016
2015
2014
2013
£46.5m
£39.4m
2017
2016
2015
2014
£4.8m
£3.9m
£3.4m
+74.5%
£3.1m
2013
£2.7m
2017
2016
2015
2014
2013
1161p
1071p
1026p
+41.4%
923p
821p
Link to strategic priorities:
Link to strategic priorities:
Link to strategic priorities:
A D E
A B C D E F G
A
Why this is a measure
The value of our property portfolio and its
movement on a like-for-like basis versus
the market give a good measure of the
performance, and composition, of our assets
on a capital basis in the year.
Commentary on performance
The valuation of our property assets has
increased by 16.8% and 4.9% on a like-for-
like basis in line with the market. For more
details see page 17.
Looking forward
We consider that the sector and geographical
spread of our property assets together with
their lease lengths and covenant strength
result in a portfolio that should perform well.
Why this is a measure
As a REIT we are required to distribute 90%
of our relevant property profits. Increasing
gross property income contributes towards
an increase in our dividend.
Commentary on performance
During the year there has been a 22.0%
increase in gross property income and a 75%
increase over the last five years. For more
details see pages 15 to 16.
Looking forward
Gross property income may increase in 2017
through a combination of investment of
surplus cash, limited additional gearing, lease
events on existing assets and the effect of a
full year’s income on 2017 acquisitions.
Why this is a measure
Net asset value per share gives a simple,
clear measure of the overall group
performance taking into account asset
performance, the result for the year and
dividends to shareholders. It is a measure of
increase in shareholder value.
Commentary on performance
The net asset value per share has increased
by 8.4% in the year which, given the overall
performance of the property market, is a
pleasing result.
Looking forward
Uncertainties arising from the ongoing Brexit
process and foreign currency fluctuations
attracting foreign investors into our market will
create challenges for us in 2018. However,
our asset base is strong and we are well
placed to continue to outperform the market.
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Increase dividends payable
to shareholders
46.25p
12.8%
46.25p
41.00p
38.80p
+37.0%
2017
2016
2015
2014
2013
36.00p
33.75p
Total earnings per share
132.3p
57.5%
Occupancy levels
100%
2017
2016
2015
2014
2013
132.3p
84.0p
136.5p
94.0p
140.0p
2017
2016
2015
2014
2013
100%
100%
100%
100%
100%
Link to strategic priorities:
Link to strategic priorities:
Link to strategic priorities:
G
E G
G
Why this is a measure
This KPI is directly linked to one of our key
strategic priorities of enhancing shareholder
value by increasing dividends payable.
Why this is a measure
Total earnings per share reflects the total
performance in the year of the group,
including both income and capital results.
Why this is a measure
High occupancy levels enable us to maximise
income, reduce costs and maximise
shareholder value.
Commentary on performance
The increase of 12.8% in the year is
significantly in excess of inflation.
Looking forward
It is hoped that in the future dividend
increases will remain in excess of inflation.
Commentary on performance
Our performance was underpinned by a
growing revenue performance and a pleasing
year of capital growth.
Looking forward
We are hopeful that the strength of our
portfolio will enable us to perform well in an
uncertain marketplace.
Commentary on performance
We continue to have 100% occupancy.
Looking forward
We shall endeavour to maintain this level,
notwithstanding the forthcoming lease events
in the portfolio.
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
11
Simon Gill Chief executive‘We have continued with our strategy of purchasing well let high quality property investments. We have improved the quality of the portfolio, increased the weighting towards those sectors that are performing well and delivered an 8.4% increase in net asset value per share to 1161 pence.’Property incomeWe had a strong operational performance in the year. We maintained a 100% occupancy rate across the portfolio and completed one new lease and one rent review and these, together with the effect of our acquisitions and disposals, resulted in an increase in our contracted rent and our gross rental income. 20172016Change in yearContracted rent as at year end£4,966,000£4,110,000+21%Occupancy100%100%-InvestmentsIn line with our stated strategy we continue to:• focus on our commercial property assets;• sell our residential assets; and• reduce our equity portfolio. During the year the group realised £477,000 (2016 £1,174,000) of cash from equities and reinvested this, together with existing cash, a new bank loan of £4,500,000 and the proceeds of disposal of one commercial property, into two commercial property acquisitions. As a result of this activity the proportion of our assets held as equities reduced to 2.7% (2016 3.6%).During the year we obtained planning permission at one of our retail parks for three A3 units and we are progressing our plans for the associated pre-lettings and development.Our property valuation increased by 17% and our like-for-like valuation increased by 4.9% in line with the market. The industrial/warehouse sector performed well generally as evidenced by an increase in excess of 12% on our Bedford property where there had been no asset management changes during the year. This was complemented by an 18% increase in the value of our Oxford office property and a 24% increase in the value of one of the High Street, Oxford retail units where there had been a rent review and a new lease agreed respectively. Property disposalsIn February 2017 we completed on the sale of our multi-let high street retail unit in Staines, where contracts had been exchanged in 2016. This property had been acquired in 2006 when town centre retail trading had not encountered the full effect of internet competition; the loss of two significant tenants led to them being replaced with less high profile occupiers on less attractive terms. The property was identified as having development potential and a detailed planning consent was obtained to build 9 residential units above the existing shops and offices. The sales price of £2,292,000 was 80% in excess of the December 2015 (pre planning permission) valuation. We continue to review our property portfolio for potential disposals. In December 2017, following the failure of the tenants leasehold enfranchisement appeal at our one remaining residential asset, we decided to dispose of this asset during 2018 and it has therefore been classified as a current asset.Property acquisitionsThe group purchased two property investments in the year. More details can be found below and on page 13.In March we acquired a warehouse unit in Nottingham let to Giant Booker Limited on a lease expiring in February 2030. The current rent of £341,046 pa is subject to five yearly reviews to fixed uplifts which will see the rent increase to £436,568 pa in 2025. The purchase price was £5,280,000 (net of costs) to provide a net yield of 6.1%.In June we acquired a large warehouse unit near St Austell, Cornwall, let to Wyndeham Roche Ltd with a lease expiring in April 2021. The rent is £500,000 pa. This property was acquired for £4,200,000 (net of costs) to produce a net yield of 11.2%.These two acquisitions continued our strategy of increasing and improving the quality of our commercial property portfolio whilst reducing our equity and residential property portfolios.Sector balance and outlookDuring the past four years we have gradually reshaped the portfolio to minimise our risk to the weaker sectors of the property market. This has led to the sale of some of our high street retail assets at a time when private investor demand for smaller property investments has been strong, producing good results; the proceeds of these sales have been reinvested into larger properties in stronger sectors. We still have a commitment to sell our remaining residential property in order that our portfolio will consist of only commercial investments.12Highcroft Investments PLC Annual Report and Accounts 2017www.highcroftplc.comOperating review Case studies - recent acquisitions
Wyndeham Complex, St Austell
Occupied by: Wyndeham Roche Ltd
The property is capable of division, if required in the future, and
there is vacant land between the two units which could provide a
development site for the future.
How this links to our strategy
The acquisition is part of our strategy of providing enhanced returns
to our shareholders and increasing the average lot size of our
properties. The low rent provides an opportunity for growth in the
future and units of this size are relatively few in this area of the UK.
Purchased: June 2017
•
•
•
Current tenant: Wyndeham Roche Ltd
Rental income: £500,000 pa
Cost: £4,479,000
(£4,200,000 net of costs)
•
Net initial yield: 11.2%
• December 2017 valuation: £4,700,000
Completion of the purchase was achieved, bank finance arranged
and environmental and structural surveys undertaken, within four
weeks of solicitors being instructed – once again showing our ability
to respond when the right opportunity arises. The attractive, high yield
will help to provide increased returns to our shareholders.
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How this links to our strategy
This acquisition continued our policy of buying properties which
provide long-term, secure income at attractive yields. This is a
regional outlet for Giant Booker Ltd and the only one in Nottingham.
Purchased: March 2017
• Current tenant: Giant Booker Limited
• Rental income: £341,046 pa with fixed increases in 2020 and
2025
• Cost: £5,602,000
(£5,280,000 net of costs)
• Net initial yield: 6.1%
• Reversionary yield: 2020 6.9%,
2025 7.8%
• December valuation: £5,575,000
This acquisition was completed in 3.5 days from solicitors being
instructed, which is our quickest ever transaction, and shows our
ability to perform swiftly when the need arises, especially in such
a competitive market where there is a scarcity of the right stock of
properties.
Reason for acquisition
In June we acquired the freehold interest in the Wyndeham Complex,
St Austell, which comprises two industrial units totalling approximately
250,000 sq ft let on a single lease to Wyndeham Roche Limited until
April 2021. The property was acquired because of the modest rent
being paid (£2.00 per sq ft) and the attractive yield the purchase price
offered, 11.2% net of costs.
The Midway, Nottingham
Occupied by: Giant Booker Limited
Reason for acquisition
In March we acquired the freehold interest in an industrial unit in
The Midway, Lenton Lane Industrial Estate, Nottingham, let to Giant
Booker Ltd on a lease expiring in February 2030. The property was
acquired because of the long lease to a good covenant; the rent is
£341,046 pa and there are fixed uplifts in 2020 and 2025 to £385,862
pa and £436,568 pa respectively. The yield on acquisition was 6.1%
which, based upon the fixed increases, will rise to 6.9% in 2020 and
7.8% in 2025.
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
13
The property portfolio is split, by valuation, as follows:2017%2016%2015%2014%2013%Retail1318202329Warehouse 4029343833Retail warehouse3439332015Office910121417Leisure33-22Residential11134Total10010010010010040% of our portfolio (by valuation) is in warehousing and 34% in retail warehousing and we continue to look for more opportunistic situations, as our recent acquisition in Cornwall displays. We consider that the portfolio has been reconfigured to provide the best shareholder returns for the future. We will, however, also look at other sectors of the property market, where we do not currently have any investment, but which may afford us opportunities to increase our returns and spread our risk.Simon GillChief executive111 High Street, Staines, MiddlesexOccupied by: Princess Alice Hospice, Pampurred Pets, First Call Contract Services LtdReason for disposalThis was a multi-let retail property occupying a secondary location at the end of the trading pitch in Staines. The profile of the tenants was significantly different from when the property was originally acquired in 2006; of the four leases, two had break options in 2018, one was due to expire in 2019 and the fourth was holding over from September 2015. This end of the High Street had many empty shop units due to development proposals which were taking a long time to come to fruition and, in our opinion, the retail pitch was deteriorating.In order to create value from this deteriorating position we obtained detailed planning consent, in June 2016, to build nine residential units above the existing shops and offices. We then considered this to be the optimum time for a disposal.How this links to our strategy• We constantly assess the properties within our portfolio with the purpose of selling the weaker properties and reinvesting the proceeds into investments which are likely to show better performance. The sale of our Staines property was part of the strategy of reducing our exposure to the high street where there are limited growth opportunities.• 2006 cost: £2,991,533• December 2016 valuation: £2,292,000• Tenants: Princess Alice Hospice (2 units), Pampurred Pets, First Call Contract Services Ltd• Rental income: £119,150 pa (excluding holding over income)• Sale price: £2,292,000• Net yield: 4.91%This disposal in February 2017 was 52.8% in excess of the June 2016 valuation and 80% in excess of the December 2015 valuation. The proceeds were swiftly reinvested into our Nottingham purchase.14Highcroft Investments PLC Annual Report and Accounts 2017www.highcroftplc.comOperating review continuedCase study - recent disposal Roberta Miles Finance director‘Our focus on our core strategic objectives has delivered further strong growth for our shareholders with our gross and net rental income being at an all time high.’Overview20172016Change in yearProfitabilityNet rental income£4,506,000£3,708,000+21.5%Adjusted earnings per share64.8p56.3p+15.1%IFRS profit for the year£6,835,000£4,343,000+57.4%Net admin expenses to gross rent13.9%16.7%-280bpsInvestment returnsNet asset value per share1161p1071p+8.4%Dividend per share46.25p41.0p12.8%Return on equity11.9%8.0%+390bpsFinancingNet debt£17,496,000£11,531,000+£5,965,000Gearing (net debt to net assets)29%21%+800bpsAverage cost of debt3.64%3.83%-19bpsThe group has continued to perform strongly during the year; gross rental income increased by 22.0% to £4,765,000 and net rental income by 21.5% to £4,506,000. This has arisen from rental growth, net acquisitions in the year and recognising a full year of income from our two acquisitions completed in August 2016. Whilst our administrative and finance costs also increased in the year, our underlying revenue profit (excluding realised and revaluation gains) has increased by 15% and has supported an increase in our dividend of 12.8%. Net assets have increased by 8.4% to £59,977,000 and we have a modest net gearing level of 29%. The average cost of debt is 3.64%. Our investment properties increased in value by £3,288,000 (4.9% on a like-for-like basis) and our equity investments also showed a gain in value of £121,000 during the year.We are proposing a final dividend this year of 30.0p per share, giving a total dividend for 2017 of 46.25p per share, an increase of 12.8%. Since 2009 (our first full accounting year as a REIT) our dividends have risen by a total of 78% – a compound annual increase of 7.5%. In the same period our net assets per share have increased by 74% from 666p to 1161p per share.IncomeTotal income has increased by 20%.2017£’0002016£’0002015£’0002014£’0002013£’000Commercial property income4,7493,8863,4023,0442,691Residential property income1620333540Gross income from property4,7653,9063,4353,0792,731Income from equity investments92144182437234Total income4,8574,0503,6173,5162,965The income from equity investments has reduced in line with the reduction in our equity portfolio.15Highcroft Investments PLC Annual Report and Accounts 2017Stock Code: HCFTStrategic ReportFinancial review Financial review continued
The annual growth in property income can be summarised as:
Increase in gross income from property
Growth in commercial property income
2017
%
22
2016
%
14
2015
%
12
2014
%
13
2013
%
16
£m
5
4
3
2
1
0
m
6
8
8
.
3
£
6
1
0
2
a
£(0.180m)
b
£0.541m
c
£0.502m
a 2017 disposals
b 2017 acquisitions
c Like-for-like increase
on assets held at
31 December 2016
m
9
4
7
.
4
£
7
1
0
2
Administration and other expenses
Directors’ remuneration
Auditor’s remuneration including other services
Other expenses
Administration expenses
Net finance expense
Total expenses
2017
£’000
492
31
140
663
651
1,314
2016
£’000
451
58
142
651
495
1,146
2015
£’000
378
37
118
533
358
891
2014
£’000
306
34
92
432
170
602
2013
£’000
188
22
135
345
54
399
In 2014 the group introduced a performance related element to directors’ pay and this, together with rises in base salaries, reflecting the
increased demands of the business, has increased directors’ remuneration. These changes are described in more detail in the directors’
remuneration report. Finance costs increased as the group took a further £4,500,000 of medium-term borrowing in June 2017 to help fund
the St Austell acquisition, and from the effect of a full year’s cost of the £3,400,000 debt raised in August 2016 being included. Auditor’s
remuneration including other services has fallen as our new auditor, Mazars LLP, does not, unlike our previous auditor, perform any taxation
services for the group. Other expenses including audit and related services have reduced due to a lower level of professional fees incurred in
the year.
Summary of profit before tax and income tax credit on revenue activities
Profit before tax on revenue activities
Income tax credit
Profit for the year on revenue activities
2017
£’000
3,287
61
3,348
2016
£’000
2,840
72
2,912
2015
£’000
2,815
56
2,871
2014
£’000
3,693
65
3,758
2013
£’000
2,830
91
2,921
The increase in the revenue profit for the year in 2017 was influenced by an increase in net rental income of £798,000 and offset by a decrease
in net realised gains on investment property of £133,000, a decrease in dividend revenue of £52,000, and increases in administration expenses
of £12,000 and finance expenses of £154,000.
Assets
Commercial property*
Residential property
Equities
Total investments*
2017
£’000
76,315
798
2,131
79,244
2016
£’000
65,413
584
2,469
68,466
2015
£’000
57,505
459
3,155
61,119
2014
£’000
45,215
1,308
4,532
51,055
2013
£’000
37,935
1,480
5,227
44,642
* Including assets held for sale classified as current asset investments.
Our investments increased due to a combination of acquisitions, net of disposals, and revaluation gains.
16
Highcroft Investments PLC Annual Report and Accounts 2017
www.highcroftplc.com
Summary of property investment activities
Additions at cost
Net proceeds from disposals
Net investment in property portfolio
Realised and unrealised property gains
2017
£’000
10,086
(2,259)
7,827
2016
£’000
9,896
(2,972)
6,924
2015
£’000
8,590
(2,332)
6,258
2014
£’000
6,084
(3,548)
2,536
Our valuations are undertaken by Knight Frank LLP as reported in note 8 to the consolidated accounts. The capital performance of our
property portfolio can be summarised as follows:
Realised gains on investment property
Realised losses on investment property
Revaluation gains on investment property
Revaluation losses on investment property
2017
£’000
1
-
1
3,365
(77)
3,288
2016
£’000
134
-
134
2,509
(1,536)
973
2015
£’000
418
-
418
4,840
(75)
4,765
2014
£’000
941
(4)
937
3,785
(150)
3,635
2013
£’000
8,488
(2,340)
6,148
2013
£’000
415
-
415
1,833
(590)
1,243
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The realised gains arose from the disposal of our Staines property in February 2017. Overall our property portfolio increased in value during the
year by £3,288,000 which represents 4.9% on a like-for-like basis. Two of our most significant revaluation gains related to our office property
in Oxford where a rent review was successfully concluded, and one of our retail shops in Oxford where a new lease was successfully finalised
with the existing undertenant with no void, no incentive and an increased rent. There were two minor revaluation losses in the year, one relating
to one of our acquisitions where the revaluation has not exceeded the purchase price including costs and the other to a shortening lease at our
Cardiff property.
Equity investments
In 2017, in line with our strategy to sell down the portfolio and reinvest in commercial property, we released £477,000 of cash from our equity
portfolio at the beginning of the year and invested this into our Nottingham asset. Our portfolio is now spread across 13 holdings of which 46%
are in overseas stocks.
Additional information regarding performance is in note 8 to the consolidated financial statements.
Financing and cashflow
Net cash generated from operations was £659,000 higher at £3,568,000 It is the directors’ intention to reinvest surplus cash into the
commercial property portfolio when suitable opportunities arise.
Opening cash
Net cash from operating activities
Investment acquisitions - property
Investment acquisitions - equities
Investment disposals - property
Investment disposals - equities
Dividend paid
Medium-term loan
Closing cash
2017
£’000
3,369
3,568
(10,086)
-
2,259
477
(2,183)
4,500
1,904
2016
£’000
4,852
2,909
(9,896)
(3)
2,972
1,176
(2,041)
3,400
3,369
2015
£’000
2,039
2,523
(8,590)
(7)
2,332
969
(1,914)
7,500
4,852
2014
£’000
3,128
2,910
(6,084)
(649)
3,548
969
(1,783)
-
2,039
2013
£’000
3,274
2,414
(8,488)
(125)
2,340
1,382
(1,669)
4,000
3,128
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
17
Financial review continued
Analysis of borrowing
Handelsbanken term loan 2027
Handelsbanken term loan 2026
Handelsbanken term loan 2022
Handelsbanken term loans 2020
Total debt
Cash
Net debt
Net assets
Gearing (net of cash)
2017
£’000
4,500
3,400
7,500
4,000
19,400
(1,904)
17,496
59,977
29%
2016
£’000
-
3,400
7,500
4,000
14,900
(3,369)
11,531
55,325
21%
2015
£’000
-
-
7,500
4,000
11,500
(4,852)
6,648
53,023
13%
2014
£’000
-
-
-
4,000
4,000
(2,039)
1,961
47,702
4%
2013
£’000
-
-
-
4,000
4,000
(3,128)
872
42,428
2%
Our average cost of total debt was 3.64% (2016 3.83%)
Outlook
The investment and occupational commercial property markets remain cautious in the current macro-economic climate. However we believe
that the quality of our assets, our ongoing asset management programme and spread of sector risk all combined with our concentration of
assets in the south east of England and Wales means that we are in a strong position to deliver a secure dividend return to our shareholders.
We remain optimistic about the prospects for the group and its ability to meet its strategic objectives in the medium and long term.
Approved by the board and signed on its behalf.
Roberta Miles
Finance director
22 March 2018
18
Highcroft Investments PLC Annual Report and Accounts 2017
www.highcroftplc.com
Our risks
Risk management
The board recognises that risk management is essential for the
achievement of the group’s strategic objectives and the board is
responsible for the system of internal control and the review of its
effectiveness. Whilst risk is an inherent part of our business model our
general appetite for risk is low.
Our approach to risk management is to identify both the financial and
non-financial risks that may prevent the attainment of our strategic
objectives, our future performance, solvency or liquidity. We then
evaluate the risks and take any appropriate action to reduce or
remove the likelihood of these having a material impact. This process
is regularly monitored and reviewed.
The audit committee has been delegated responsibility from the
board for the assurance of the risk management process. The
executive board is responsible for the day-to-day management
of risks, which includes the ongoing identification, assessment
and mitigation of risks. They are also responsible for the design,
implementation and evaluation of the system of internal controls and
for ensuring its operational effectiveness. At the point that any key
strategic decision is taken the potential risks are considered. Effective
risk management is an important part of our board decision-making
process. All directors are kept up to date with key issues on at least
a monthly basis. The small size of the management team and regular
consideration of risk areas mean we are able to respond quickly to
changes in the risk environment.
Brexit
There is continued uncertainty surrounding the potential impact of
Brexit and this, coupled with exchange rate fluctuations and the inflow
of foreign funds, has created a more competitive marketplace. Our
ability to react with our advisers, process the required due diligence,
approvals and finance quickly set us apart from other potential
bidders in our acquisition of the Nottingham property. We have not, to
date, seen any material impact on our tenants arising from the Brexit
process, however there is an ongoing risk that investor and occupier
demand could be negatively impacted whilst the Brexit terms are
negotiated. We anticipate that the strengths of our portfolio – in terms
of location, lease lengths, covenants, and sector spread will minimise
the impact of this risk.
Going concern
At 31 December 2017 the group had fixed-term non-amortising
borrowing of £19,400,000 that expires in the period 2020-2027, and
has additional headroom available of £5,600,000. Additionally, the
group has an overdraft facility of £750,000 and has a relatively low
level of gearing of 29%. The group has a secure property income
stream from a number of occupiers with no undue reliance on any
one tenant.
The group carefully monitors its forecast cashflows and it had
£2,122,000 of relatively liquid assets, in the form of listed equity
investments, which it can draw on if necessary.
The directors have reviewed the current and projected position of the
group and its compliance with debt covenants. They have concluded
that there is a reasonable expectation that the group has adequate
resources to continue in operational existence for the foreseeable
future, and that there are no material uncertainties that lead to
significant doubt upon the group’s ability to continue as a going
concern. On the basis of this review, the directors continue to adopt
the going concern basis in preparing the annual report and financial
statements.
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A
Board of directors
Monthly update
Executive committee
Day-to-day management which includes identification,
assessment and mitigation.
Viability statement
In accordance with C.2.2 of the 2014 revision of the UK Corporate
Governance Code, the directors have assessed the viability of the
group over a longer period than the 12 months required by the ‘going
concern’ provision. The board conducted this review for a period of
three years to coincide with its detailed review of the group’s financial
budgets and forecasts. The period is consistent with the periods until
the next lease event on many of our properties, and expires just after
the expiry of our first two loans which represent 21% of our total debt.
The board considered the group’s cashflows including the required
cashflows to meet the dividend requirement of the REIT regime, REIT
compliance, income profile, loan to value and other key financial
metrics. The board has also considered the level of equity and
property capital transactions that are likely to occur.
The board also conducted a sensitivity analysis taking into account
the potential impacts of the group’s principal risks, as set out on
page 20, actually occurring.
Based on the results of the analysis the directors have a reasonable
expectation that the group will be able to continue in operation, and
meet its liabilities as they fall due over the three year period of their
assessment.
Risk heat map
The diagram below illustrates the relative positioning of our risks in
terms of impact and likelihood, and the level of management focus on
each.
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3
6
5
2
1
4
1 Further economic uncertainty
2 Inappropriate business strategy
3 Failure to meet
legislative requirements
4 Inability to source new assets
5 Lack of availability of finance
6 Loss of key personnel
Level of management
priority
Low priority
Medium priority
High priority
w
o
L
Low
Likelihood
High
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
19
Our risks continued
We have reviewed the risks in the year. The table below summarises the key risks that face the business, their potential impact, the details of
how we manage and mitigate the risk and a commentary on how we have performed.
Risk
1
Further economic
uncertainty
Link to strategic
objectives:
A B G
Impact of risk
How we manage/mitigate the risk
Commentary
Movement in risk exposure
The economy falters or enters a
period of uncertainty.
External factors such as macroeconomic conditions and political
risks, including Brexit, are outside of the group’s control.
Impact: Poorer than expected
revenue and capital performance.
We regularly review, with our property advisers, key current and
forecast data for the various sectors in which we operate.
The group ensures that its investments are biased towards the south
of England and Wales and in areas which are considered lower risk,
and spreads its investment risk across a number of sectors (retail,
office, retail warehouse, leisure and warehouse).
We assess, with the aid of our advisers, the financial status and
creditworthiness of existing and potential tenants particularly when a
new lease is entered into, or a new property acquired.
The group spreads its exposure by individual property and covenant
so that the risks associated with the default of an individual tenant
are minimized. Rent collections are regularly reviewed by our property
managers and monitored by the executive directors.
Our property assets have performed well in the period.
During 2017 bad debts were nil and we had no voids. Our rent collections were good
and arrears are low. The group has 29 commercial tenants and our five largest tenants
by current passing rent provide 36% (2016 36%) of current income.
During 2017 our market capitalisation reduced further due to heightened uncertainty
in certain sectors of the equity market. This situation has, however, reversed since the
year-end.
Real estate values are at risk during the
process of exit from the EU.
2
3
4
5
6
Inappropriate business
strategy
Link to strategic
objectives:
The group has the wrong strategy
for the current stage of the
property cycle and the economic
climate.
A B C D G
Impact: Reduced group
profitability and capital value.
Board meetings are held on a regular basis for planning and
forecasting for the business. Forecasts are updated for changes in
economic conditions and opportunities as they arise.
The executive board is very closely involved in the day-to-day
management of the business, and has regular contact with its team of
advisers to ensure that it is fully briefed on market forecasts. The chief
executive has extensive experience in the property sector.
Failure to meet
legislative requirements
Link to strategic
objectives:
G
The group fails to meet its REIT
requirements.
Impact: Potential expulsion from
the REIT regime, higher costs for
the group and reduced dividends
for shareholders.
The board monitors compliance with REIT criteria, including the
distribution requirement, monthly. We have further reduced the equity
portfolio to improve our income and asset ratios. Our gearing and
cost of finance are at a level where the interest cover test is not
an issue.
The group has continued to review its portfolios and considered opportunities to sell
assets that appear to have little opportunity for rental or capital growth, and to acquire
assets that fit our acquisition criteria.
Equity investments are a smaller percentage of our total assets.
Other ratios are well within acceptable limits and do not give a cause for concern.
Inability to source new
assets
Link to strategic
objectives:
A B D G
The group is unable to source
new property with suitable
fundamentals.
The board has an extensive network of contacts in the property
industry and is able to identify both on and off-market opportunities at
an early stage.
suitable assets is low.
Our ability to react swiftly to opportunities meant that we were able to source new
The process of Brexit and the associated
investment property in 2017. The market, however, remains tough and the availability of
Impact: Reduced profitability,
growth and return to shareholders
as our liquid assets and potential
debt facilities are not fully invested.
The board is open to alternative acquisition methods such as
corporate acquisition or development opportunities.
currency market movements have
encouraged overseas investors into
the market resulting in increased
competition.
Lack of availability of
finance
Link to strategic
objectives:
F G
The group is unable to fund
investment opportunities at an
appropriate cost.
Impact: Growth of group curtailed
and increased cost of funding.
Key personnel
Link to strategic
objectives:
A B C
D E F G
The group is unable to retain and
attract high calibre directors.
Impact: Negative impact on the
group’s performance as the team
lack the skills necessary to deliver
business objectives.
The board aims to only assume a moderate level of gearing thus
increasing the likelihood of being seen as an attractive banking
proposition for lenders. Our preference is for fixed interest,
non-amortising debt with a spread of maturity dates.
Our level of debt increased in 2017 to £19.4m (2016 £14.9m). We have headroom with
one lender of £5.6m and a number of lenders have expressed interest in lending to the
group. Net gearing is 29%.
Remuneration packages are reviewed annually to ensure that the
group can retain, motivate and incentivise key staff. There is an
appropriate mix of in-house resource and outsourcing. Succession
planning and the composition of the board are regularly reviewed by
the nomination committee.
There were no executive board changes during the year. The remuneration
committee has carefully considered the performance related element of remuneration.
The board was able to attract a high calibre long-list of potential candidates for the
position of chairman which became vacant during the year.
20
Highcroft Investments PLC Annual Report and Accounts 2017
www.highcroftplc.com
Strategic key
The objective of the group is to enhance shareholder value via a combination of increasing net asset value, profits and dividends.
We set clear strategic objectives against which we measure our performance:
A
Continue to grow our commercial property portfolio with a bias towards the
south of England and Wales
B
Increase the average lot size
C Continue to reduce our residential property holdings
D
Continue to reduce the proportion of our assets held in equities and reinvest in
commercial property
E
Pursue capital growth opportunities within our property asset base
F Use medium-term gearing at a modest level
G Provide a dividend increase in excess of inflation
Risk
1
uncertainty
Link to strategic
objectives:
A B G
2
3
4
5
6
Link to strategic
objectives:
G
assets
Link to strategic
objectives:
A B D G
finance
Link to strategic
objectives:
F G
Key personnel
Link to strategic
objectives:
A B C
D E F G
Impact of risk
How we manage/mitigate the risk
Commentary
Movement in risk exposure
Further economic
The economy falters or enters a
External factors such as macroeconomic conditions and political
Our property assets have performed well in the period.
period of uncertainty.
risks, including Brexit, are outside of the group’s control.
Impact: Poorer than expected
We regularly review, with our property advisers, key current and
revenue and capital performance.
forecast data for the various sectors in which we operate.
The group ensures that its investments are biased towards the south
of England and Wales and in areas which are considered lower risk,
and spreads its investment risk across a number of sectors (retail,
office, retail warehouse, leisure and warehouse).
We assess, with the aid of our advisers, the financial status and
creditworthiness of existing and potential tenants particularly when a
new lease is entered into, or a new property acquired.
The group spreads its exposure by individual property and covenant
so that the risks associated with the default of an individual tenant
are minimized. Rent collections are regularly reviewed by our property
managers and monitored by the executive directors.
During 2017 bad debts were nil and we had no voids. Our rent collections were good
and arrears are low. The group has 29 commercial tenants and our five largest tenants
by current passing rent provide 36% (2016 36%) of current income.
During 2017 our market capitalisation reduced further due to heightened uncertainty
in certain sectors of the equity market. This situation has, however, reversed since the
year-end.
Inappropriate business
The group has the wrong strategy
Board meetings are held on a regular basis for planning and
strategy
Link to strategic
objectives:
A B C D G
for the current stage of the
forecasting for the business. Forecasts are updated for changes in
property cycle and the economic
economic conditions and opportunities as they arise.
climate.
Impact: Reduced group
management of the business, and has regular contact with its team of
profitability and capital value.
advisers to ensure that it is fully briefed on market forecasts. The chief
The executive board is very closely involved in the day-to-day
executive has extensive experience in the property sector.
The group has continued to review its portfolios and considered opportunities to sell
assets that appear to have little opportunity for rental or capital growth, and to acquire
assets that fit our acquisition criteria.
Failure to meet
The group fails to meet its REIT
The board monitors compliance with REIT criteria, including the
Equity investments are a smaller percentage of our total assets.
Other ratios are well within acceptable limits and do not give a cause for concern.
legislative requirements
requirements.
distribution requirement, monthly. We have further reduced the equity
portfolio to improve our income and asset ratios. Our gearing and
cost of finance are at a level where the interest cover test is not
Impact: Potential expulsion from
the REIT regime, higher costs for
the group and reduced dividends
for shareholders.
an issue.
Inability to source new
The group is unable to source
The board has an extensive network of contacts in the property
new property with suitable
industry and is able to identify both on and off-market opportunities at
fundamentals.
an early stage.
Our ability to react swiftly to opportunities meant that we were able to source new
investment property in 2017. The market, however, remains tough and the availability of
suitable assets is low.
Impact: Reduced profitability,
The board is open to alternative acquisition methods such as
growth and return to shareholders
corporate acquisition or development opportunities.
as our liquid assets and potential
debt facilities are not fully invested.
Lack of availability of
The group is unable to fund
The board aims to only assume a moderate level of gearing thus
investment opportunities at an
increasing the likelihood of being seen as an attractive banking
appropriate cost.
Impact: Growth of group curtailed
and increased cost of funding.
proposition for lenders. Our preference is for fixed interest,
non-amortising debt with a spread of maturity dates.
Our level of debt increased in 2017 to £19.4m (2016 £14.9m). We have headroom with
one lender of £5.6m and a number of lenders have expressed interest in lending to the
group. Net gearing is 29%.
The group is unable to retain and
Remuneration packages are reviewed annually to ensure that the
attract high calibre directors.
group can retain, motivate and incentivise key staff. There is an
appropriate mix of in-house resource and outsourcing. Succession
planning and the composition of the board are regularly reviewed by
the nomination committee.
Impact: Negative impact on the
group’s performance as the team
lack the skills necessary to deliver
business objectives.
There were no executive board changes during the year. The remuneration
committee has carefully considered the performance related element of remuneration.
The board was able to attract a high calibre long-list of potential candidates for the
position of chairman which became vacant during the year.
Real estate values are at risk during the
process of exit from the EU.
t
r
o
p
e
R
c
g
e
t
a
r
t
i
S
The process of Brexit and the associated
currency market movements have
encouraged overseas investors into
the market resulting in increased
competition.
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
21
Corporate social responsibilityOur cultureWe strive to conduct our business in an ethical and responsible manner making a positive contribution to society whilst minimising any negative impacts on people and the environment.Our stakeholdersFairness and equality. We value the contributions made by all of our employees and our advisory team. We aim to select, recruit and develop the best employees and advisers and create an environment where everyone is treated with dignity and respect and where individual differences are valued. We achieve this by ensuring that there are equal opportunities in recruitment and selection processes, paying fair and competitive salaries and fees, and being opposed to any form of discrimination for any reason.Employee alignment. We align our executive management team with our shareholders via the performance related element of their remuneration. A performance share plan has not been introduced because David Kingerlee, a member of the management team, would be unable to participate due to the Kingerlee Concert Party restrictions.Diversity. We believe that a diverse team is an important factor in maximising business effectiveness. We aim to maintain the right blend of skills, experience and knowledge in the board and its advisory teams.At 31 December 2017, and throughout the year, the average composition of the group’s employees was as follows:MaleFemaleDirectors 41Other staff-1Total42The environmentWe recognise that natural resources are finite and should be used responsibly. We seek to understand the environmental performance of our portfolio and to implement improvement policies where possible. In particular:• we commission an independent environmental report for all acquisitions. This includes a review of the historic and current site usage and any contamination present;• during refurbishment projects we ensure that materials are chosen that will not damage either health or the environment. We also ensure that any hazardous materials found to be present are removed safely and in accordance with legislation;• all sites are visited at least annually by our asset managers and any environmental issues identified are reported to the chief executive immediately and recorded in the managers’ quarterly management report;• all new leases require occupiers to observe relevant environmental regulations;• all our property maintenance suppliers have SafeContractor accreditation. The vetting, tendering, appointment and management of these suppliers follows the principles of our asset manager’s purchasing policy;• our asset managers recognise the requirement for, and actively encourage, sustainable working practices to minimise environmental impacts both in respect of their own business activities and when managing clients’ properties; and • are committed to operating to an environmental policy and environmental management system that satisfies the requirements of BS EN ISO 14001: 2004 accreditation and as part of which they measure and set targets for improvement.Communities we serveThe board consider the impact on the local communities, including neighbouring tenants, when development and refurbishment activity take place. A project manager is used to oversee the work and only approved suppliers are used. Care is taken to ensure that health and safety is taken into account at all stages of the work.The board also considers the potential impact on the local community and on existing tenants when planning permissions are applied for, and would listen to any legitimate concerns raised.CharityDuring 2017 donations were made to local and national charities totalling £6,000. These charities support the sick, the terminally ill and the disadvantaged. An example of our support is one local hospice where we have donated £7,000 in total over the last 6 years which has enabled them to fund improved equipment for administering pain relief and also replacement bed hoists.This strategic report on pages 8 to 22 was approved by the board and signed on its behalf.Simon GillChief executive22Highcroft Investments PLC Annual Report and Accounts 2017www.highcroftplc.com Chairman’s introduction to corporate governance‘All members of the board support the principles of good corporate governance.’Dear shareholderWelcome to the corporate governance section of the group’s annual report. Whilst Highcroft is a relatively small premium listed group, good corporate governance remains one of our core values and we strive to follow the appropriate guidance and rules. We believe that good corporate governance helps to ensure proper oversight by the board and that we are taking the most appropriate actions in order to achieve our strategic onjectives.We have clear approval procedures and protocols in place, and all our property and equity capital transactions are approved in accordance with these policies. The board carries out a regular review of these protocols.Our strategy is set out on page 10. All the board support this strategy and ensure that any matters that it approves are in line with this strategy.The board recognises the importance of staying up to date with the ever-evolving corporate governance framework within which we operate, and in adopting the spirit of all the recommendations. The board complies with the provisions of the UK Corporate Governance Code other than the fact that it does not have two independent non-executive directors in addition to the independent non-executive chairman. Whilst the board is always mindful of the Code, it has decided that the cost of compliance with this provision would outweigh any benefits given the small size and lack of complexity of the group. This position was further exacerbated during the period after the chairman, John Hewitt, resigned for unforseen personal reasons on 20 September 2017 until a new chairman was appointed on 2 January 2018. I was appointed as acting non-executive chairman for this period. As part of the new chairman, Charles Butler’s, induction in January 2018, all key decisions taken in the above period were reviewed and ratified.Audit committee meetings are attended, by invitation, by the finance director and other executives may be invited to attend from time to time. The committee regularly meets the external auditor without management being present.We recognise the importance of shareholder communication and its place within a sound governance framework. During the year we have had regular contact with our key shareholders. The Kingerlee Concert Party falls within the definition of a controlling shareholder as it owns in excess of 30% of the share capital of the company and there is a Controlling Shareholder Agreement in place as required by the Listing Rules. We look forward to welcoming many of our shareholders to our annual general meeting (AGM) on 17 May 2018.This governance report on pages 23 to 36 highlights our compliance with the UK Corporate Governance Code during the year and explains governance structure. All members of the board support the principles of good corporate governance and believe that we comply with the provisions of the UK Corporate Governance Code as is appropriate.John Hewitt resigned as chairman on 20 September 2017. The board had not had prior notice of this resignation and thus I assumed the role of acting chairman and the board immediately took steps to start the search and appointment process for a successor as chairman. An understanding of the importance of good corporate governance was a key attribute that we sought in every candidate. Simon CostaSenior independent director, and acting chairman 20 September 2017 to 2 January 2018Simon CostaSenior independent director, and acting chairman 20 September 2017 to 2 January 201823Highcroft Investments PLC Annual Report and Accounts 2017Stock Code: HCFTGovernance Board of directors
Highcroft has an experienced team of directors.
Simon Costa
Non-executive director and
senior independent director
(acting non-executive
chairman 20 September
2017 - 2 January 2018)
Appointment
to the board
Simon joined the board as
senior independent director
in May 2015.
Committee membership
Chairman of the
remuneration and audit
committees and member of
the nomination committee.
(nomination committee
chairman 20 September
2017 - 2 January 2018).
Other appointments
Simon is currently senior
bursar at a college of the
University of Oxford. He is
responsible for overseeing
the management of
their endowment, the
management of the finance
function and serves on
several college committees.
Previous experience/
brings to the board
Simon was formerly
an investment banker
specialising in global M&A
activities and then for nine
years ran his own property
company. He advised US
and UK public and private
corporations on finance,
operations, and strategy,
as well as owning a small
property portfolio. Simon’s
particular breadth of
experience provides the
board with a greater range
of market knowledge and
skills, which are particularly
relevant to a company with
growth aspirations.
Charles Butler
Non-executive chairman
Appointment
to the board
Charles joined the group as
non-executive chairman on
2 January 2018.
Committee membership
Chairman of the nomination
committee and a
member of the audit and
remuneration committees.
Other appointments
Charles is a non-executive
director at Mysale Group
PLC, a leading international
online retailer, and of
Avocet Systems Ltd,
an online programmatic
advertising company.
Previous experience/
brings to the board
Charles is a chartered
accountant who until
recently was the CEO of
Market Tech Holdings
where he transformed
a small group of central
London real estate assets
into a profitable, listed
company with £1.3bn of
real estate assets. With a
successful track record in
running public companies,
M&A, raising equity and
debt for expansion, Charles
is well positioned to help
the company navigate its
next phase of growth.
Roberta Miles
Finance director &
company secretary
Appointment
to the board
Roberta joined the group
in April 2010 and was
appointed to the board
as finance director and
company secretary in
July 2010.
Committee membership
Executive committee.
Other appointments
Roberta acts as company
secretary or chief financial
officer for a number of
companies. She is currently
a director of both MCD
Ventures Limited and Cyber
Security Challenge UK
Limited.
Previous experience/
brings to the board
Roberta qualified as a
chartered accountant in
1988 and after leaving
the profession in 1996
has maintained a portfolio
of part-time, executive,
board-level roles in a
variety of businesses at
various stages of their life
cycle. Her acute attention
to detail, financial acumen
and business expertise
are a valuable asset to the
board and her lively and
positive approach to all
matters is something that
all boardrooms should
possess. The board
benefits greatly from the
experience of her varied
executive roles.
Simon Gill
Chief executive
Appointment
to the board
Simon joined the group as
property director in April
2013 and assumed the role
of chief executive in August
2013.
Committee membership
Simon chairs the executive
committee.
Other appointments
Simon runs his own
property investment and
development business and
is a director of Waingate
Management Services
Limited and Solar Estates
Limited.
Previous experience/
brings to the board
Simon is a chartered
surveyor who started
his property career in
one of the major London
practices, subsequently
becoming a partner in
Allsop & Co, before setting
up his own advisory
practice in 1988. Later he
took on the role of principal
by setting up various joint
ventures and becoming
an asset manager to one
of Close Brothers’ private
equity funds. Simon’s
long-term involvement
and experience in the
property market in his
various positions mean that
opportunities for the board
are assessed on a quick
and efficient basis so that
the correct decisions are
reached at an early stage.
David Kingerlee
Executive director
Appointment
to the board
David joined the group as
an executive director in
September 1996.
Committee membership
Executive committee.
Other appointments
David is an executive
director of each of the
Kingerlee group of
companies which trade
in the construction and
property development
sectors. He is chairman
of Kingerlee Limited and
Kingerlee Holdings Limited.
Previous experience/
brings to the board
David’s long-term
involvement and
knowledge of the company
provides a solid bedrock
to the management of the
business. His technical
skills and attention to detail
are invaluable in the day-
to-day running of the group
and our internal IT systems.
His other business activities
provide the directors with
practical solutions and
opinion to any property
issues.
John Hewitt
John was non-executive chairman and chairman of the nomination committee and a member of the audit and remuneration committees until he
stepped down from the board for unforseen personal reasons on 20 September 2017. Our new non-executive chairman Charles Butler joined
the board on 2 January 2018.
24
Highcroft Investments PLC Annual Report and Accounts 2017
www.highcroftplc.com
Corporate governance
Governance structure
The board
The board has three sub-committees comprised of its non-executive
directors and a management committee consisting of the executive
directors. All directors receive an induction on joining the board and
there is an annual review of skills and knowledge and any necessary
training is identified and undertaken.
Chairman
The chairman is responsible for the leadership of the board and
for ensuring its effectiveness. He sets the agenda for meetings
and ensures that adequate, accurate, clear board information is
circulated in a timely manner, that all matters are discussed properly
and promotes a culture that encourages constructive open debate
on all key issues. John Hewitt held this role until 20 September
2017. Simon Costa was appointed acting chairman from then until
2 January 2018 when Charles Butler took up his appointment as
chairman.
Independent non-executive directors
The non-executive directors are deemed to be independent of
management and any business or other relationship that could
interfere with the exercise of their independent judgement. They help
facilitate the strategic decision-making process and the monitoring
of the performance of the executive management in achieving
the agreed strategy and objectives. Drawing on their extensive
experience and knowledge, they act as both a sounding board and
as objective, constructive challengers to the executive board.
Senior independent director
The Code recommends that the board appoints one of the
independent non-executive directors as senior independent director
(SID). The SID is available to shareholders if they have concerns
and also provides a sounding board for the chairman, reviews the
performance of the chairman and serves as an intermediary for other
directors when necessary. Simon Costa has held this role since his
appointment in 2015.
e
c
n
a
n
r
e
v
o
G
Board committees
Executive committee
This committee is comprised of the executive directors and chaired
by the chief executive. It is responsible for the implementation of
strategy and policies and the day-to-day decision making and
administration of the group.
Audit committee
This committee is comprised of the non-executive directors and is
chaired by Simon Costa.
Remuneration committee
This committee is comprised of the non-executive directors and is
chaired by Simon Costa.
Nomination committee
This committee is comprised of the non-executive directors and
was chaired by John Hewitt until 20 September 2017. Simon Costa
chaired this committee during the period 20 September 2017 to
2 January 2018.
The key roles and responsibilities of the audit, remuneration and
nomination committees are set out in the reports on pages 27 to 33.
The terms of reference of these committees are available on the
group’s website.
Compliance with the UK Corporate Governance Code
(the Code)
The company has applied the principles of good governance
contained in the Code, a copy of which is available at www.frc.org.uk.
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
25
Corporate governance continuedBoard effectivenessThe board meets at least six times per year and has a schedule of matters specifically reserved for its decision, including approval of: strategy, all capital transactions, issue of shares, documents to shareholders including annual report and accounts, stock exchange announcements, dividends, board membership and remuneration and related party transactions. It also approves the terms of reference of all sub-committees and conducts an annual evaluation of the board.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.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. In 2017 the board conducted a self-performance evaluation by way of a questionnaire designed to assess the strength of the board and its committees and also to identify areas for improvement. This process was led by the acting chairman and the results were discussed by the board. The board considered itself to be generally effective in all the key areas identified in the questionnaire. These areas included contribution to results and achievement of strategic objectives, management controls and risk, operating styles and methods and shareholder relationships.During 2017 the number of board and non-executive committee meetings and individual participation was as follows: BoardAuditRemunerationNominationNumber of meetings7312John Hewitt (resigned 20 September 2017)4 of 52 of 2nil of nilnil of nilSimon Costa7312Simon Gill 7N/AN/A2 (part)David Kingerlee 7N/AN/A2 (part)Roberta Miles73 (part)N/A2 (part)Relations with shareholdersThe 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 chairman and other directors are available to meet shareholders if required. The AGM provides a forum, both formal and informal, for shareholders to meet and discuss relevant matters with all the directors. Documents are sent to shareholders at least 23 clear days before the meeting. 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 and the directors’ remuneration report. The company counts all proxy votes and will indicate the level of proxies lodged on each resolution. Full details of the AGM voting is included on the company’s website after the meeting. The company has no institutional shareholders but has continued a programme of meetings with key shareholders, subject to regulatory constraints, and the board is provided with feedback from these meetings.The company has a controlling shareholder and this is explained fully on page 35.The directors have put in place measures to ensure that the election or re-election by the shareholders of any independent non-executive director should be approved by an ordinary resolution of the shareholders and separately approved by those shareholders who are not controlling shareholders, namely the independent shareholders.Shareholders who wish to communicate with the board should contact the company secretary in the first instance via our website www.highcroftplc.com.26Highcroft Investments PLC Annual Report and Accounts 2017www.highcroftplc.com Report of the audit committeeSimon CostaChairman of the audit committee‘A robust system of risk management and internal control is an essential element of Highcroft’s processes. The audit committee is committed to monitoring the effectiveness and integrity of these processes and of the group’s reporting.’Welcome to the report of the audit committee. We set out below a summary of our main responsibilities and key activities during the year. As a committee we are responsible for monitoring the integrity of the group’s reporting, and in continuing to develop and maintain a sound system of risk management and internal control.Composition of the committeeThe committee consisted of Simon Costa as its chairman throughout the year and John Hewitt for the period until 20 September 2017. After the year end, on 2 January 2018, Charles Butler joined the committee. The committee meets regularly during the year, in line with the financial reporting timetable and in 2017 met three times for routine business. Roberta Miles, as finance director, attends part of each meeting and the external auditor attends all meetings. The committee has an agenda item at each meeting to discuss business without any executive directors being present. There was one meeting in the period 20 September 2017 to 31 December 2017 and all the business of that meeting – primarily relating to the approval of the audit plan – was reconsidered by a meeting of the committee, once Charles Butler had joined as a member, in early January and ratified.Activities of the committeeFinancial reporting. The committee considers all significant issues in relation to the financial statements, which in 2017 continued to be the valuation of our property and investment portfolios and the changing financial reporting requirements relating, in particular, to United Kingdom accounting standards. The committee considers the valuation process, including the submission of the data by management, the comparable data provided by the valuer and the assumptions used by the valuer. The valuation reports are reviewed and, if necessary, key judgements and assumptions are challenged. The committee also ensures that the external auditor has full access to the valuer and attends the presentation given by the valuer after the year end. The group has a fixed fee arrangement with the valuer in line with best practice. It also considers the results of the auditor’s work, the interim and annual reports prior to their publication, the application of the company's accounting policies and the detail of any changes to the financial reporting requirements. The committee also considered the annual report and accounts, as a whole, on behalf of the board and made a recommendation to the board that it resolve that they were fair, balanced and understandable and provided the information necessary for shareholders to assess the group’s performance. The committee ensures that the board presents a balanced and understandable assessment of the company’s position and prospects in all interim and other price-sensitive public reports to regulators. The responsibilities of the directors as regards the financial statements are described on page 36, and that of the auditor on page 40. External auditor. The audit committee reviews the terms of engagement with the external auditor annually and ensures that the external auditor is independent. It has received and reviewed written disclosures from the auditor regarding independence. Mazars LLP were appointed as auditors to the group in 2017 and carry out no other services for the group other than an review of the interim statement for which the fee is £1,000. The audit fee is £30,000.The audit committee reviews the objectivity and effectiveness of the external auditor annually and makes a recommendation to the board for their reappointment to be approved at the AGM. In 2016 due to the Revised Ethical Standard issued by the Financial Reporting Council in June 2016, and effective for periods commencing on or after 17 June 2016, Grant Thornton were unable to continue with the dual roles of auditor and tax adviser for the 2017 financial year. As previously reported, Mazars LLP were appointed by the board after a tender process carried out during 2016 and their appointment was approved unanimously by the shareholders at the 2017 AGM. The external auditor is required to rotate the group audit partner every five years. In order to ensure that the external audit is as effective as possible the auditors must identify the appropriate risks as part of their planning process. For this financial year Mazars LLP submitted a detailed audit plan at the planning audit committee meeting which outlined key risks (including the valuation of investment property and equities, risk of revenue misstatement due to the inclusion of fraudulent transactions and areas of accounting capable of manipulation). The directors are satisfied that the risks identified by the auditors are consistent with those identified internally. At each audit committee meeting the committee reserves time for a meeting without executive management being present. The committee discuss matters including: the quality of the information provided to the auditor by the executives, confirmation that the auditor has not been restricted in their audit process and a discussion of any areas where they have had to use their professional scepticism.27Highcroft Investments PLC Annual Report and Accounts 2017Stock Code: HCFTGovernance Report of the audit committee continuedRisk management and internal controls. The board is responsible for an ongoing process to identify, evaluate and manage the risks facing the business, establishing and maintaining a sound system of internal control and for reviewing its effectiveness. The audit committee is responsible for overseeing the effectiveness of the risk management and internal control systems. 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, include: clear limits of authority; annual revenue, cash flow and capital forecasts, reviewed regularly during the year, monthly monitoring of cash flow and capital expenditure reported to the board, quarterly and half year revenue comparisons with forecast; financial controls and procedures; clear guidelines for capital expenditure and disposals, including defined levels of authority; meetings of the board to authorise share purchases and sales; an audit committee, which approves audit plans and published financial information and reviews reports from the external auditor arising from the audit and deals with significant control matters raised; regular board meetings to monitor areas of concern; annual review of risks and internal controls; annual review of compliance with the Code.More detail regarding our management of risk within our strategic framework is set out on page 19.The committee has considered the internal control and risk management systems in relation to the financial reporting process and considered them adequate. These include: suitably qualified staff preparing the documents, information being prepared in good time to allow adequate internal review and audit processes to take place and a review with the auditors prior to the release of the financial results.Internal audit. 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. The board reviews this position annually.The audit committee reports on each of its meetings at the subsequent board meeting.Simon CostaChairman of the audit committee28Highcroft Investments PLC Annual Report and Accounts 2017www.highcroftplc.com Report of the nomination committee‘Most of the committee’s work in the year related to the search for a new chairman to succeed John Hewitt.’Welcome to the report of the nomination committee. We set out below a summary of the main responsibilities and key activities during the year. Composition of the committeeThe committee consisted of the non-executive directors John Hewitt (until 20 September 2017) and Simon Costa. It was chaired by the chairman of the board John Hewitt until his resignation on 20 September 2017 when Simon Costa was appointed as acting chairman. If this committee is dealing with the successor to the chairmanship it would, in any case, be chaired by another non-executive director and may involve an external consultant. The key objective of the committee 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. It is responsible for recommending board and board committee membership changes to the board, for board succession planning and for identifying suitable candidates for board vacancies to be nominated for board approval.Activities of the committee Appointment of a new non-executive chairman. During the year our key activity was to appoint a successor to John Hewitt as chairman of the board. Once John Hewitt had resigned the committee consisted of only Simon Costa. Simon Costa therefore ensured that at all stages the other board members were fully aware of, and able to contribute to, the decisions being taken about process and selection. In considering the appointment of a new chairman the committee considered the attributes and values required to help the functioning of the whole board, given the skills and experience of the existing board members. In this context the committee agreed the selection criteria for the new chairman, including: independence; experience and understanding of the role of a chairman of a listed company board; ability to contribute at a strategic level to the future success of the group; relevant corporate experience; an understanding of, and continuing interest in, the property market; an understanding of the requirements of the UK Corporate Governance Code; and an understanding of a small non-hierarchical organisation. The committee did consider using a head-hunter or an external consultant to assist with this process but, given the size and nature of the group, the fact that an appointment had to be made on a timely basis and the cost of either form of assistance, it was considered most appropriate to use internal resources. The committee consulted with external advisers and contacts and drew up a long list of 17 candidates of whom six were shortlisted and four were interviewed. The advisers and contacts included experienced professionals who understand Highcroft’s business but were independent of any individual whose name they put forward. The committee took up references to assist with the selection process. In addition Panmure, as our corporate finance adviser, carried out their own due diligence on the preferred candidate in line with best practice. Both male and female candidates were considered at all stages. The nomination committee recommended that Charles Butler be appointed as chairman with effect from 2 January 2018. They judged that his skills and experience were a good fit to the identified requirements of the group. In addition, Charles Butler was judged to have sufficient time to discharge the requirements of the role. The board accepted this recommendation and Charles Butler was appointed as chairman with effect from 2 January 2018.Succession planning The committee recognises that succession planning is a key part of its remit and also the importance of creating succession plans so that the board can fulfil the group’s long-term strategy. Plans are reviewed regularly in the light of the skills and experience that are required both now and in the medium-term, in a rapidly changing environment in order for the business to achieve its strategy and objectives. Diversity The company recognises the benefits of all aspects of diversity (not limited to gender, ethnic group, background, age or cognitive and personal strengths). The company maintains a policy of ensuring that, during the recruitment process, all aspects of diversity are considered and there is a selection of candidates who have a good balance of skills, knowledge and experience. The company aims to employ the best candidates available in every position on the basis of merit and ability.Simon CostaSenior independent director, and acting chairman of the nomination committee 20 September 2017 to 2 January 2018Simon CostaSenior independent director and acting chairman of the nomination committee 20 September 2017 to 2 January 201829Highcroft Investments PLC Annual Report and Accounts 2017Stock Code: HCFTGovernance Directors’ remuneration reportSimon CostaChairman of the remuneration committee‘The board has prepared this report in accordance with the requirements of the Large and Medium Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (the Regulations). An ordinary resolution for the approval of this report will be put to the members at the forthcoming AGM.’The law requires the group’s auditor, Mazars LLP, to report on whether the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. Where disclosures have been audited, they are indicated as such. The auditor’s opinion is included in the independent auditor’s report on page 37.It is my pleasure to introduce this year’s remuneration report.Membership of the committeeMy fellow member of the committee, until his resignation from the board on 20 September 2017, was John Hewitt. For the period from 20 September 2017 to 2 January 2018, on which date Charles Butler was appointed to the board and to serve on this committee, I was the sole member of the committee. John and I were both non-executive directors. The board considered our independence and the fact that John Hewitt had a shareholding of 0.65% of the company and had served as a director for 18 years. The board concluded that we were both independent. Neither of the committee members had any potential conflicts of interest arising from cross-directorships nor any day-to-day involvement in running the business. The board considered Charles Butler’s independence prior to his appointment to the committee and concluded that he was independent. After Charles Butler's appointment to the committee the key decisions taken by the committee in the period when I was the sole member were reviewed by the new committee and ratified.Remuneration philosophyThe board’s stated objective is to enhance shareholder value through a combination of increasing asset value, profits and dividends. In order to achieve this objective the board must focus its efforts on the strategic priorities that it believes will maximise the likelihood of success. The committee welcomes engagement with shareholders and welcomes feedback on the form and content of this report.Major decisions made during the yearDuring the year the remuneration committee met to:• Agree the performance-related pay scheme for executive directors. It was agreed that this would continue to take the form of a discretionary cash bonus that was calculated by reference to both group and individual performance during the year. Consideration was again given to the use of external independent remuneration consultants but this was decided not to be cost effective.• Review the level of directors’ fees for 2018. It concluded that, having regard for the amount and quality of work that the directors were required to undertake, it was appropriate to increase the salaries for Simon Gill and Roberta Miles for 2018. The executives’ salaries were benchmarked and additional increases for all directors were proposed and confirmed. Remuneration policy The board’s policy is that the remuneration of all directors should reflect their experience and expertise and the particular value that they add to the group. In addition, the packages should be sufficient to attract and retain individuals of an appropriate calibre and capability, and should reflect the duties and responsibilities of the directors and the value and amount of time committed to the group’s affairs. The packages should continue to be aligned with our remuneration philosophy with at least one element of performance-related pay. The remuneration packages of all directors are reviewed annually and include four elements:Base salary. It is intended that the base salaries will be reviewed and benchmarked annually. Incremental increases will be made in line with inflation. In addition, if there are increases due to benchmarks, role changes or other factors, these will be explained in the annual report. Benefits. No benefits are currently payable.Pensions. The auto enrolment date for the company was 1 April 2016. An appropriate scheme was in place by 1 January 2016. The initial minimum level of company contribution of 1% was offered to the three eligible directors of whom two opted out. This employer contribution level will rise at least in line with the regulatory requirements.Performance-related pay. A performance-related pay scheme was introduced in 2014 for the executive directors, in accordance with the remuneration policy, whereby a discretionary bonus is available for superior performance. The cap on the bonus is 10% of distributions paid to shareholders in the year.If any director agrees to waive any element of their remuneration the board will consider making an additional donation to charity. This policy, which was effective from 1 January 2014, was unanimously approved by the shareholders at the 2017 AGM. In accordance with the Regulations, an ordinary resolution to approve the directors’ remuneration policy will be put to shareholders at least once every three years. 30Highcroft Investments PLC Annual Report and Accounts 2017www.highcroftplc.com Components of total reward
During the year, the directors were entitled to a base salary, a pension and a discretionary bonus. They were not eligible to receive any other
benefits. The directors are not entitled to participate in any long-term incentive plan or share option scheme. All base salaries are paid monthly
and are not performance related. There are no provisions for compensation payments on termination.
Directors' service contracts
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. Non-executive directors have a formal appointment document for a period of up to three years
subject, at any time, to termination on six months notice by either party and with no provision for compensation payments on termination. All
directors retire and are subject to election at the first AGM after their appointment. The Board follows the Code recommendations in that all
directors offer themselves for re-election at each AGM.
Future policy
It is intended that future remuneration policy will remain consistent with the current policy. It is intended that any new directors will be paid in
accordance with our remuneration policy and would, if applicable, participate in variable remuneration arrangements on the same basis as
existing directors.
Consideration of consideration of employment conditions elsewhere in the company
There is only one employee of the company, a part-time bookkeeper, whose salary is decided by benchmarking, to the market, her skills,
experience and contribution to the market. The directors did not consult with this employee in setting the directors' remuneration policy as it
was not considered beneficial to do so.
Consideration of shareholder views
During the year a member of the remuneration committee engages with key shareholders to ensure that their views are understood when
considering remuneration policy.
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Directors’ contracts
A summary of the contracts of the directors in office at the end of the year is set out below:
Non-executive directors
Simon Costa
Date of appointment as director
15 May 2015
Executive directors
Simon Gill
David Kingerlee
Roberta Miles
Date of appointment as director
1 April 2013
12 September 1996
1 July 2010
Date of current
appointment letter
22 March 2018
Date of contract
7 December 2017
7 December 2017
7 December 2017
Expiry of term
15 May 2021
Notice period
Six months
Six months
Six months
In addition to the above directors, John Hewitt, who was appointed to the board in 1999, resigned from the board on 20 September 2017 and
Charles Butler was appointed as non-executive chairman with effect from 2 January 2018, with a contract dated 14 December 2017
that expires on 1 January 2021.
Annual remuneration report
Relative importance of spend on pay
The directors are the only employees of the group other than one part-time book-keeper.
Directors’ remuneration
Distributions paid to shareholders
Directors’ remuneration as a percentage of distributions paid to shareholders
2017
£’000
440
2,183
20.2%
2016
£’000
404
2,041
19.8%
2015
£’000
338
1,914
17.7%
Remuneration of the directors undertaking the role of chief executive (CEO)
The table below shows the total remuneration of Simon Gill (from 31 July 2013) and Jonathan Kingerlee (until 31 July 2013) in respect of their
role as CEO.
Simon Gill
Jonathan Kingerlee
Percentage change in total remuneration of CEO
2017
£’000
192
-
192
5%
2016
£’000
182
-
182
19%
2015
£’000
152
-
152
37%
2014
£’000
111
-
111
171%
2013
£’000
21
20
41
17%
2012
£’000
-
35
35
-
2011
£’000
-
35
35
1%
2010
£’000
-
34
34
-
2009
£’000
-
34
34
(8%)
2008
£’000
-
37
37
12%
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
31
Directors’ remuneration report continued
Company performance
The board is responsible for the group’s performance.
The graph below shows the company’s Total Shareholder Return (TSR) compared to the FTSE 350 Super Sector Real Estate Index over
the last ten years which the board considers to be the most appropriate benchmark. TSR is defined as share price growth plus reinvested
dividends.
Total Shareholder Return performance graph
220
200
180
160
140
120
100
80
60
40
20
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Highcroft Investments
FTSE 350 SS Real Estate
Source: Thomson Reuters Datastream
Statement of implementation of remuneration policy in the next financial year
The group does not intend to make any significant changes to remuneration policy during 2018. Base salaries have been reviewed in
accordance with this policy. As laid out in the policy, a pension scheme was introduced with effect from 1 January 2016. The company will,
during 2018, continue with the policy of not paying benefits.
Directors' remuneration (audited)
Base
salary
£
22,500
24,000
97,500
35,000
80,000
259,000
2017
Pension
£
Discretionary
bonus
£
-
-
-
-
800
800
-
-
94,000
32,000
54,000
180,000
Total
£
22,500
24,000
191,500
67,000
134,800
439,800
Base
salary
£
21,250
18,000
95,000
32,500
72,500
239,250
2016
Pension
£
Discretionary
bonus
£
-
-
-
-
725
725
-
-
86,500
30,000
47,500
164,000
Total
£
21,250
18,000
181,500
62,500
120,725
403,975
John Hewitt*
Simon Costa
Simon Gill
David Kingerlee
Roberta Miles
* Resigned 20 September 2017
There were no benefits in kind. The annual discretionary bonus for the financial year was based on personal performance and on the
achievement of the group’s strategic objectives, in the context of the performance of the market and the upper limit approved by shareholders
in the remuneration policy of 10% of distributions paid to shareholders in the year. The total discretionary bonus of £180,000 (2016 £164,000)
represents 8.24% (2016 8.04%) of distributions paid to shareholders in 2017.
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Highcroft Investments PLC Annual Report and Accounts 2017
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Executive directors remuneration
The charts below show the 2017 actual remuneration against potential opportunity for the year and the 2016 remuneration for each executive
director. Full disclosure of the single total figure for remuneration is set out above.
Simon Gill
Chief executive
Roberta Miles
Finance director
David Kingerlee
Executive director
2017 actual
51%
49%
£191,500
2017 actual
59%
40%
£134,800
2017 actual
52%
48%
£67,000
2017 potential*
46%
54%
£211,509
2017 potential*
55%
45%
£146,295
2017 potential*
47%
53%
£73,812
2016 actual
52%
48%
£181,500
2016 actual
60%
39%
£120,725
2016 actual
52%
48%
£62,500
Base Salary
Pension
Discretionary bonus
* 2017 potential assumes that maximum distribution of 10% of distributions paid to shareholders in the year was paid out in the same ratio as the actual
bonuses paid
Interests of the directors in the shares of the company (audited)
The interests of the directors, and their connected persons, in the shares of the company at 31 December 2017 were as follows:
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Directors:
Simon Costa
Simon Gill
David Kingerlee
Roberta Miles
-
-
1,535,803
4,950
The interests of David Kingerlee set out above include the interests of his connected persons who include certain members of the Kingerlee
Concert Party as described on page 35. David Kingerlee's personal beneficial holding at 31 December 2017 was 89,470 (2016 89,470).
Between 1 January 2018 and 22 March 2018, the only movements in the directors share interests were the increase of Roberta Miles'
beneficial holding by 1,000 shares to 5,950.
Statement of shareholder voting
At the AGM in 2017 the resolutions to approve the directors’ remuneration report and to approve the directors’ remuneration policy both
received the following voting from shareholders:
Votes cast in favour
Votes cast against
Total votes cast
Votes withheld
Approved by the board and signed by:
Simon Costa
Chairman of the remuneration committee
22 March 2018
2,914,730
-
2,914,730
-
100%
-
100%
-
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
33
Report of the directors
The corporate governance report on pages 23 to 36 forms part of the report of the directors
The directors present their report together with the audited financial
statements for the year ended 31 December 2017.
The principal activity of the group continues to be property and equity
investment.
Directors
The directors, who served throughout the year, unless stated
otherwise, are listed below:
John Hewitt:
Simon Costa:
Non-executive chairman
(resigned 20 September 2017)
Senior independent non-executive
director (and acting chairman
20 September 2017 to 2 January
2018)
Simon Gill:
Chief executive
David Kingerlee: Executive director
Roberta Miles:
Finance director
Charles Butler was appointed to the board as non-executive
chairman with effect from 2 January 2018.
The board recognises the requirement of the UK Corporate
Governance Code regarding the segregation of roles and division of
responsibilities between the chairman and chief executive and has
complied with this requirement during the year.
The interests of the directors in the shares of the company are
included in the remuneration report on page 33.
In accordance with the Code, all directors will retire and offer
themselves for re-election at the forthcoming AGM on 17 May 2018.
The board confirms that following performance evaluations, the
performance of each director seeking re-election continues to be
effective and that they demonstrate commitment to their role. The
board believes that it is in the best interest of shareholders that these
directors be re-elected.
Financial instruments
The group’s exposure to, and management of, capital risk, market
risk and liquidity risk is in note 18 to the consolidated financial
statements.
Structure of share capital and rights and
obligations attaching to shares
The company's allotted and issued share capital as at 31 December
2017 was £1,291,810 (2016 £1,291,810) divided into 5,167,240
(2016 5,167,240) ordinary shares of 25 pence each, each of which
was called up and fully paid. There have been no changes to the
share capital since the year end.
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:
• 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.
• 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 a special 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.
• To receive notice of, attend and vote at an AGM. At each AGM
upon a show of hands every member present in person or by
proxy 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.
• To have, in the case of certificated shares, rights in respect
of share certificates and share transfers. Every person whose
name is entered as a member in the register as the holder of
any certificated share 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.
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.
Substantial shareholders
As at 31 December 2017 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
Controlling shareholder – Kingerlee Concert Party comprising:
– the wholly owned subsidiaries of Kingerlee Holdings Limited:
Kingerlee Limited
Kingerlee Homes Limited
T H Kingerlee & Sons Limited
Total
– other associates
21.68%
41.89%
1,120,305
2,164,466
9.97%
7.70%
9.58%
27.25%
14.65%
515,000
397,673
494,770
757,023
Between 1 January 2018 and 22 March 2018 no changes in these interests had been notified to the company.
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Highcroft Investments PLC Annual Report and Accounts 2017
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Greenhouse gas emissions
Under the Companies Act 2006 (Strategic and Directors’ Reports)
Regulations 2013, the company is required to report annual
greenhouse gas emissions. The directors have considered this
obligation and taken into account the following factors:
•
•
•
the group operates from a serviced office within a larger building
and has no direct responsibility for energy usage;
the annual energy cost for the limited shared commercial
areas within the property portfolio are less than £1,000 pa;
the car fuel used by the group and its advisers is considered
de minimis.
On this basis the directors do not consider that it is practicable
or valuable to report any detailed data on greenhouse gas
emissions.
Disclosure of information to the auditor
So far as the directors who held office at the date of approval of this
directors’ report are aware there is no relevant audit information of
which the auditor is unaware and each director has taken steps that
he or she ought to have taken as a director to make themself aware
of any audit information and to establish that the auditor is aware of
that information.
Auditor
Mazars LLP have expressed their willingness to continue in office
as auditors and a resolution to appoint them will be proposed at the
forthcoming AGM.
Post balance sheet events
There were no post balance sheet events requiring disclosure.
This report was approved by the board.
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Roberta Miles
Finance director
22 March 2018
Controlling shareholder
A controlling shareholder is defined by the FCA as ‘any person who
exercises or controls, on their own or together with any other person
with whom they are acting in concert, 30% or more of the votes
able to be cast on all or substantially all matters at general meetings
of the company’. The directors are aware that the shareholdings
of Kingerlee Holdings Limited and its subsidiaries referred to in the
above table together with their connected parties and associates
form the Kingerlee Concert Party which, as at 22 March 2018, held
2,164,466 ordinary shares, representing 41.89% of the company’s
issued share capital. The Kingerlee Concert Party is therefore a
controlling shareholder. The persons comprising the Kingerlee
Concert Party were confirmed by the Takeover Panel in 1999. The
company can confirm that, in accordance with these rules:
•
•
it entered into a controlling shareholder agreement (CSA) with the
Kingerlee Concert Party on 13 November 2014
the company has complied with the independence provisions
in the CSA from 1 January 2017 until 31 December 2017 (the
period)
• so far as the company is aware, the independence provisions in
the CSA have been complied with by the controlling shareholder
and its associates in the period
• so far as the company is aware, the procurement obligation in the
CSA has been complied with by the controlling shareholder in the
period.
The CSA contains undertakings that inter alia:
•
transactions and relationships with the controlling shareholder
(and/or any of its associates) will be conducted at arm’s length
and on normal commercial terms
• neither the controlling shareholder nor any of its associates will
take any action that would have the effect of preventing the
company or any member of its group from complying with its
obligations under the Listing Rules and
• neither the controlling shareholder nor any of its associates will
propose or procure the proposal of a shareholder resolution
which is intended or appears to be intended to circumvent the
proper application of the Listing Rules.
The directors have put in place measures to ensure that the election
or re-election by the shareholders of any independent non-executive
director should be approved by an ordinary resolution of the
shareholders and separately approved by those shareholders who are
not controlling shareholders, the independent shareholders.
Directors’ indemnification and insurance
The company’s articles of association provide for the directors and
officers of the company to be appropriately indemnified, subject to
the provisions of the Companies Act 2006. The company purchases
and maintains insurance for the directors and officers of the company
in performing their duties, as permitted by section 233 of the
Companies Act 2006.
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
35
Statement of directors’ responsibilities
The directors are responsible for the maintenance and integrity of
the corporate and financial information included on the company's
website www.highcroftplc.com. Visitors to the website should
be aware that legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of directors in
respect of the annual financial report
We confirm that to the best of our knowledge:
•
•
•
the financial statements, prepared in accordance with IFRSs
as adopted by the European Union for the group and United
Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable laws) for the
parent company, 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
the annual report, including the strategic 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; and
the report and accounts, taken as a whole, are fair, balanced,
and understandable and provide the necessary information for
shareholders to assess the group’s performance, business model
and strategy.
On behalf of the board
Charles Butler
Chairman
22 March 2018
Statement of directors' responsibilities in
respect of the annual report, remuneration
report and the financial statements
The directors are responsible for preparing the annual report,
remuneration 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:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable IFRSs and UK accounting standards
have been followed, subject to any material departures disclosed
and explained in the financial statements;
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business.
The directors are responsible for keeping 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 and the remuneration report 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:
•
•
there is no relevant audit information of which the company’s
auditor is unaware;
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 this information.
Under applicable law and regulations, the directors are also
responsible for preparing a strategic report, directors’ report,
directors’ remuneration report and corporate governance statement
that comply with that law and those regulations.
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Highcroft Investments PLC Annual Report and Accounts 2017
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Independent auditor’s report
To the members of Highcroft Investments PLC
Opinion
We have audited the financial statements of Highcroft Investments PLC (the ‘parent company’) and its subsidiaries (the ‘group’) for the year
ended 31 December 2017 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 company statement of financial position, the company statement of changes in equity and the notes to the company financial
statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation
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 United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice), including FRS102 ‘The Financial Reporting Standard applicable in the United Kingdom and
Republic of Ireland’.
In our opinion:
•
•
•
•
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 2017
and of the group’s profit for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with United Kingdom Accounting Standards (united
Kingdom Generally Accepted Accounting Practice), including FRS102 ‘The Financial Reporting Standard applicable in the United Kingdom
and Republic of Ireland’ and as applied in accordance with the provisions of the Companies Act 2006; and
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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are
independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to listed entities and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Use of the audit report
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.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to
you whether we have anything material to add or draw attention to:
•
•
•
the disclosures in the annual report set out on page 19 that describe the principal risks and explain how they are being managed or
mitigated;
the directors’ confirmation set out on page 20 in the annual report that they have carried out a robust assessment of the principal risks
facing the group, including those that would threaten its business model, future performance, solvency or liquidity;
the directors’ statement set out on page 19 in the financial statements about whether the directors considered it appropriate to adopt the
going concern basis of accounting in preparing the financial statements and the directors’ identification of any material uncertainties to
the group and the parent company’s ability to continue to do so over a period of at least twelve months from the date of approval of the
financial statements;
• whether the directors’ statement relating to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit; or
•
the directors’ explanation set out on page 19 in the annual report as to how they have assessed the prospects of the group, over what
period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable
expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any necessary qualifications or assumptions.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including
those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Stock Code: HCFT
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To the members of Highcroft Investments PLC
Investment property valuation
The group has a significant portfolio of investment properties which is measured in accordance with IAS 40 ‘Investment property’. This
valuation leads to a significant audit risk due to the estimates and judgements required to be made in ascertaining the value under IFRS 13.
Our audit work included but was not restricted to:
• assessing the work completed by the third party property valuers, including whether the valuers have the appropriate expertise and
whether the valuation has been completed using a fair value methodology suitable for audit
• assessing the reasonableness of previous assumptions made by the valuers, by checking to actual disposal sale prices in the year
•
reviewing the key assumptions made and appraising these against available market data such as forecasts for market yield, market growth
and return on investment percentages
• comparing the property valuations to publically available recent comparable property transactions
•
•
testing on a sample basis additions and disposals of properties throughout the year back to supporting documentation (completion
statements)
review the adequacy of the disclosure in the financial statements, including the valuation methodology, assumptions and fair value hierarchy
used.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit and in evaluating the effect of misstatements on the financial
statements and our audit. Materiality is used so we can plan and perform our audit to obtain reasonable, rather than absolute assurance
about whether the financial statements are free from material misstatement. The level of materiality we set is based on our assessment of the
magnitude of misstatements that individually or in aggregate, could reasonably be expected to have influence on the economic decisions the
users of the financial statements may take based on the information included in the financial statements. Based on our professional judgement
the level of overall materiality we set for the financial statements is outlined below:
Overall group materiality:
£817,000
Benchmark applied:
Basis for chosen benchmark:
This has been calculated with reference to the group’s total assets,
of which it represents approximately 1%.
Total assets have been identified as the principal benchmark within
the financial statements as it is considered to be the focus of the
shareholders.
1% has been chosen to reflect the level of understanding of the
stakeholders of the group in relation to the inherent uncertainties
around accounting estimates and judgements.
On the basis of our risk assessments, together with our assessment of the group’s overall control environment, our judgement was that
performance materiality was £572,000 which is approximately 70% of overall group materiality. We also determine a lower level of specific
materiality for certain areas such as the consolidated statement of comprehensive income, directors’ remuneration and related party
transactions.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £25,000 as well as any
misstatements below that amount that, in our opinion, warranted reporting for qualitative reasons.
For each component in the scope of the group audit, we allocated a materiality that is less than our overall group materiality. The range of
materiality allocated across components was between £75,000 and £652,000. The parent company materiality was set at £499,000. For all
components across the group performance materiality was set at 70%
An overview of the scope of our audit
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether
accounting policies are appropriate to the group’s and parent company’s circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial
statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the
audited financial statements and to identify an information that is apparently incorrect, based on, or materially inconsistent with, the knowledge
acquired by us in the course of performing the audit. If we become aware of any apparent material misstatement or inconsistencies we
consider the implications for our report.
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Our group audit was scoped by obtaining an understanding of the group and its environment, including an assessment of risks of material
misstatement at the group level. Based on that assessment, all trading entities within the group were subject to a full statutory audit scope and
at the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there
were no significant risks of material misstatement.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report other than
the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to
be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether
there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information
and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following
conditions:
• Fair, balanced and understandable set out on page 36 – the statement given by the directors that they consider the annual report and
financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to
assess the group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit committee reporting set out on page 27 – the section describing the work of the audit committee does not appropriately address
matters communicated by us to the audit committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 23 – the parts of the directors’ statement
required under the Listing Rules relating to the company’s compliance with the UK Corporate Governance Code containing provisions
specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision
of the UK Corporate Governance Code.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act
2006.
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared
is consistent with the financial statements and those reports have been prepared in accordance with applicable legal requirements;
the information about internal control and risk management systems in relation to financial reporting processes and about share capital
structures, given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Rules and Transparency Rules sourcebook made by the
Financial Conduct Authority (the FCA Rules), is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements; and
•
information about the company’s corporate governance code and practices and about its administrative, management and supervisory
bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
• Matters on which we are required to report by exception
•
•
•
In light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit,
we have not identified material misstatements in:
the strategic report or the directors’ report; or
the information about internal control and risk management systems in relation to financial reporting processes and about share capital
structures, given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our
opinion:
• 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
•
the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specific by law are not made; or
• we have not received all the information and explanations we require for our audit; or
• a corporate governance statement has not been prepared by the parent company.
Stock Code: HCFT
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Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page X, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters which we are required to address
Following the recommendation of the audit committee, we were appointed by the audit committee on 12 May 2017 to audit the financial
statements for the year ending 31 December 2017 and subsequent financial periods. The period of total uninterrupted engagement is 1 year,
covering the year ending 31 December 2017.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we remain
independent of the group and the parent company in conducting our audit
Our audit opinion is consistent with the additional report to the audit committee.
Stephen Eames
Senior Statutory Auditor
for and on behalf of Mazars LLP
Chartered Accountants and Statutory Auditor
The Pinnacle, 160 Midsummer Boulevard, Milton Keynes, MK9 1FF
22 March 2018
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Consolidated statement of comprehensive income
for the year ended 31 December 2017
Gross rental revenue
Property operating expenses
Net rental income
Net gains on disposal of
investment property
Valuation gains on investment
property
Valuation losses on investment
property
Net valuation gains on
investment property
Dividend revenue
Gains on equity investments
Losses on equity investments
Net investment income
Administration expenses
Net operating profit before net
finance expense
Finance income
Finance expense
Net finance expense
Profit before tax
Income tax credit/(charge)
Profit for the year after taxation
Total profit and comprehensive
income for the year attributable
to the owners of the parent
Basic and diluted earnings per
share
Note
8
Revenue
£’000
4,765
(259)
4,506
2017
Capital
£’000
–
–
–
Total
£’000
4,765
(259)
4,506
Revenue
£’000
3,906
(198)
3,708
2016
Capital
£’000
–
–
–
Total
£’000
3,906
(198)
3,708
1
–
–
–
92
–
–
92
(663)
3,936
2
(651)
(649)
3,287
61
3,348
–
1
134
–
134
3,365
3,365
(77)
(77)
3,288
–
230
(91)
139
–
3,427
–
–
–
3,427
60
3,487
3,288
92
230
(91)
231
(663)
7,363
2
(651)
(649)
6,714
121
6,835
–
–
–
144
–
–
144
(651)
3,335
11
(506)
(495)
2,840
72
2,912
2,509
2,509
(1,536)
(1,536)
973
–
546
(58)
488
–
1,461
–
–
–
1,461
(30)
1,431
973
144
546
(58)
632
(651)
4,796
11
(506)
(495)
4,301
42
4,343
3,348
3,487
6,835
2,912
1,431
4,343
–
–
132.3p
–
–
84.0p
8
9
9
3
5
7
The total column represents the statement of comprehensive income statement as defined in IAS1.
The accompanying notes form an integral part of these financial statements.
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Consolidated statement of financial position
at 31 December 2017
Assets
Non-current assets
Investment property
Equity investments at fair value through profit or loss
Total non-current assets
Current assets
Investment property
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Total current liabilities
Non-current liabilities
Interest bearing loans
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 attributable to the owners of the parent
These financial statements were approved by the board of directors on 22 March 2018.
Note
8
9
8
10
11
12
13
14
2017
£’000
76,315
2,131
78,446
798
537
1,904
3,239
81,685
2,054
2,054
19,400
254
19,654
21,708
59,977
1,292
18,015
538
95
26,611
13,426
59,977
Restated
2016
£’000
63,739
2,469
66,208
2,258
631
3,369
6,258
72,466
1,866
1,866
14,900
375
15,275
17,141
55,325
1,292
14,276
659
95
27,020
11,983
55,325
Simon Gill
Charles Butler
Directors
Company number – 00224271
The accompanying notes form an integral part of these financial statements.
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Consolidated statement of changes in equity
2017
At 1 January 2017
Transactions with owners:
Dividends
Reserve transfers:
Non-distributable items
recognised in income statement:
Revaluation gains
Tax on revaluation gains
Realised gains
(Surplus)/loss attributable to
assets sold in the year
Excess of cost over revalued
amount taken to retained earnings
Total comprehensive income for
the year
At 31 December 2017
2016
At 1 January 2016
Transactions with owners:
Dividends
Reserve transfers:
Non-distributable items
recognised in income statement:
Revaluation gains
Tax on revaluation gains
Realised gains
Surplus attributable to assets sold
in the year
Excess of cost over revalued
amount taken to retained earnings
–
–
–
–
–
–
–
–
1,292
Issued
share
capital
£’000
1,292
–
–
–
–
–
–
–
Issued
share
capital
£’000
1,292
Revaluation reserves
Property
£’000
14,276
Other
£’000
659
Capital
redemption
reserve
£’000
95
Realised
capital
reserve
£’000
27,020
Retained
earnings
£’000
11,983
Total
£’000
55,325
–
(2,183)
(2,183)
–
–
3,288
–
–
734
(283)
3,739
–
18,015
124
64
–
(309)
–
(121)
–
538
–
–
–
–
–
–
–
–
–
16
(425)
–
(409)
(3,412)
(64)
(16)
–
283
(3,209)
6,835
13,426
–
95
–
26,611
Revaluation reserves
Property
£’000
14,764
Other
£’000
667
Capital
redemption
reserve
£’000
95
Realised
capital
reserve
£’000
25,586
Retained
earnings
£’000
10,619
–
–
–
–
–
–
–
–
6,835
59,977
Total
£’000
53,023
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a
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–
–
–
–
–
–
–
–
(2,041)
(2,041)
–
–
149
1,285
–
1,434
(1,440)
26
(149)
–
625
(938)
–
–
–
–
–
–
–
95
–
27,020
4,343
11,983
4,343
55,325
973
–
–
(836)
(625)
(488)
467
(26)
–
(449)
–
(8)
–
659
Total comprehensive income for
the year
At 31 December 2016
–
1,292
–
14,276
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Highcroft Investments PLC Annual Report and Accounts 2017
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Consolidated statement of cashflows
for the year ended 31 December 2017
Operating activities
Profit before tax on ordinary activities
Adjustments for:
Net valuation gains on investment property
Net gain on disposal of investment property
Net gain on investments
Finance income
Finance expense
Operating cashflow before changes in working capital and provisions
Decrease in trade and other receivables
Increase in trade and other payables
Cash generated from operations
Finance income
Finance expense
Income taxes paid
Net cashflows from operating activities
Investing activities
Purchase of non-current assets – investment property
– equity investments
Sale of – investment property
– equity investments
Net cashflows from investing activities
Financing activities
Dividends paid
New bank borrowings
Net cashflows from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
2017
£’000
2016
£’000
6,714
4,301
(3,288)
(1)
(139)
(2)
651
3,935
94
196
4,225
2
(651)
(8)
3,568
(10,086)
–
2,259
477
(7,350)
(2,183)
4,500
2,317
(1,465)
3,369
1,904
(973)
(134)
(488)
(11)
506
3,201
10
193
3,404
11
(506)
–
2,909
(9,896)
(3)
2,972
1,176
(5,751)
(2,041)
3,400
1,359
(1,483)
4,852
3,369
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Notes to the consolidated financial statements
for the year ended 31 December 2017
1 Significant accounting policies
Highcroft Investments PLC is a company domiciled in England and Wales. The consolidated financial statements of the company for the year
ended 31 December 2017 comprise the company and its subsidiaries, together referred to as the group. The accounting policies remain
unchanged.
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.
Analysis of statement of comprehensive income
The profit or loss section of the statement of comprehensive income is analysed into two columns being revenue and capital. The capital
column comprises valuation gains and losses on property and all gains and losses on financial assets and the related tax impact. The revenue
column includes all other items.
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 statement of comprehensive income 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 estimate and 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.
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. Estimates and judgements are continually evaluated and are
based on historical information of the group, the best judgement of the directors, and are adjusted for current market conditions.
New accounting standards and interpretations
The group’s approach to new accounting standards and interpretations issued during the year is set out below.
There are no standards, amendments and interpretations effective in the year ended 31 December 2017 and adopted for the first time, other
than the IAS7 initiative.
Amendments to, and interpretations of, existing standards that are relevant to the group but are not yet effective and have not been adopted
early are set out below.
•
IFRS 9 Financial Instruments (effective 1 January 2018)
• Amendments to IFRS 9 Financial Instruments (effective 1 January 2018)
•
•
•
IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)
IFRS 16 Leases (effective 1 January 2019)
IAS 40 Investment Property (effective 1 January 2018)
Management have considered IFRS 9 and IFRS 15 and do not consider that they will have a material impact on the group's accounts.
Management will assess the impact of all the changes required by IFR516 during 2018.
Basis of consolidation
The group financial statements consolidate the financial statements of the company and its 100% subsidiaries: Rodenhurst Estates Limited,
BL (Wisbech) Limited and Belgrave Land (Wisbech) Limited which are all made up to 31 December 2017, also following consistent accounting
policies. Unrealised profits or losses on intra-group transactions are eliminated in full.
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
statement of comprehensive income 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 group’s accounts.
Dividend revenue
Dividend revenue relating to exchange-traded equity investments is recognised in the statement of comprehensive income when the right to
receive the payment is established. 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.
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for the year ended 31 December 2017
1 Significant accounting policies continued
Finance costs
Interest is recognised using the effective interest method which calculates the amortised cost of a financial liability and allocates the interest
income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the
expected life of the financial liability to the net carrying amount of the financial liability.
Expenses
All expenses are recognised in the statement of comprehensive income 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 it relates 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 date of the statement of financial position.
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 properties 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.
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 statement of comprehensive income.
Equity investments
The directors have designated the group’s qualifying financial assets at fair value through profit and loss on the basis that to do so is in
accordance with its documented investment strategy. Over 99.6% of the group’s equity investments are quoted and 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 the present value of the future cashflows. 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 with an original maturity of less than three months.
Financial liabilities
The group’s financial liabilities include trade and other payables and borrowings.
Trade payables and borrowings are recognised initially at fair value less transaction costs and subsequently measured at amortised cost using
the effective interest rate (EIR) method.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the
EIR. The EIR amortisation is included in finance costs in the statement of comprehensive income.
46
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Notes to the consolidated financial statements continued
for the year ended 31 December 2017
Loans and borrowings are classified as current liabilities unless the group has an unconditional right to defer the settlement of the liability for at
least 12 months after the balance sheet date.
A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.
Revaluation reserves
Revaluation reserves include annual revaluation gains and losses less applicable deferred taxation and are non-distributable.
Capital redemption reserve
The capital redemption reserve is a statutory non-distributable reserve into which amounts are transferred following the redemption or purchase
of issued share capital.
Realised capital reserve
The realised capital reserve includes realised revaluation gains and losses on equity investments less attributable income tax and is non-
distributable.
Retained earnings
Retained earnings includes total comprehensive income less revaluation gains on properties and equities and any applicable taxation less
dividends paid.
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
As described in the 2016 annual report the group has two main operating segments: property and financial assets. In identifying these
operating segments, management follows the group’s distribution of assets in accordance with its investment strategy. As the financial assets
comprise less than 3% of total assets the group will operate with only one business segment with effect from 1 January 2018. Segmental
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,
who is the chief executive officer. 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:
• property comprising retail outlets, offices, warehouses and retail warehouses in England and Wales and a small residual interest in a block
of residential flats
•
financial assets comprising exchange-traded equity investments.
Gross income
Profit for the year
Capital expenditure
Assets
Liabilities
2017
Financial
assets
£’000
92
338
–
2,158
654
Property
£’000
4,765
6,497
10,086
79,527
21,054
Total
£’000
4,857
6,835
10,086
81,685
21,708
Property
£’000
3,906
3,694
9,896
68,442
16,380
2016
Financial
assets
£’000
144
649
3
4,024
763
Total
£’000
4,050
4,343
9,899
72,466
17,143
In 2017 no tenant represented more than 8.3% of gross rental income (in 2016 the largest two tenants represented 12% and 10% of gross
rental income).
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
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for the year ended 31 December 2017
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:
– taxation
– other services
Other expenses
4 Directors
Remuneration in respect of directors was as follows:
Remuneration
Pension costs
Social security costs
2017
£’000
492
30
–
1
140
663
2017
£’000
439
1
52
492
2016
£’000
451
29
28
1
142
651
2016
£’000
403
1
47
451
The average number of employees was six (2016 six) all of whom, other than a part-time bookkeeper, were directors of the group. 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
Deferred tax (note 13)
Income tax credit
The tax assessed for the year differs from the standard rate of corporation tax in the UK of 19% (2016 20%).
The differences are explained as follows:
Profit before tax
Profit before tax multiplied by the standard rate of corporation tax in the UK of 19% (2016 20%)
Effect of:
Tax exempt revenues
Profit not taxable as a result of REIT status
Chargeable gains more than accounting profit
Use of management expenses
Effect of change in tax rate on deferred tax liability
Income tax credit
2017
£’000
2016
£’000
(61)
3
(58)
(63)
(121)
2017
£’000
6,714
1,276
(40)
(1,481)
55
82
(13)
(121)
12
(80)
(68)
26
(42)
2016
£’000
4,301
860
(123)
(963)
59
125
–
(42)
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Highcroft Investments PLC Annual Report and Accounts 2017
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6 Dividends
In 2017 the following dividends have been paid by the company:
2016 Final: 26.0p per ordinary share (2015 24.5p)
2017 Interim: 16.25p per ordinary share (2016 15.0p)
2017
£’000
1,343
840
2,183
2016
£’000
1,266
775
2,041
On 22 March 2018 the directors recommended a property income distribution of £1,550,000, 30.0p per share (2016 £1,343,000, 26.0p per
share) payable on 1 June 2018 to shareholders registered at 4 May 2018.
7 Earnings per share
The calculation of earnings per share is based on the total profit after tax for the year of £6,835,000 (2016 £4,343,000) and on 5,167,240
shares (2016 5,167,240) which is the weighted average number of shares in issue during the year ended 31 December 2017 and throughout
the period since 1 January 2016. There are no dilutive instruments.
In order to draw attention to the impact of valuation gains and losses which are included in the statement of comprehensive income 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 £3,348,000 (2016 £2,912,000) has been calculated.
Earnings:
Basic profit for the year
Adjustments for:
Net valuation gains on investment property
Gains on investments
Income tax on (profit)/losses
Adjusted earnings
Per share amount:
Earnings per share (unadjusted)
Adjustments for:
Net valuation gains on investment property
Gains on investments
Income tax on losses
Adjusted earnings per share
8 Investment property
Valuation at 1 January
Additions
Disposals
Revaluation gains
Valuation at 31 December
Less property categorised as current asset
Property categorised as fixed asset
2017
£’000
2016
£’000
6,835
4,343
(3,288)
(139)
(60)
3,348
(973)
(488)
30
2,912
132.3p
84.0p
(63.6p)
(2.7p)
(1.2p)
64.8p
2017
£’000
65,997
10,086
(2,258)
3,288
77,113
(798)
76,315
(18.9p)
(9.4p)
0.6p
56.3p
2016
£’000
57,964
9,896
(2,836)
973
65,997
(2,258)
63,739
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 Knight Frank LLP, as external valuers, and has been prepared as at 31 December 2017, in accordance with the Appraisal
& Valuation Standards of the Royal Institution of Chartered Surveyors, on the basis of market value. This value has been incorporated into the
financial statements at fair value categorised with level 2 inputs (see note 18).
The historical cost of the group's investment properties is £63,957,000 (2016 £56,863,000).
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
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for the year ended 31 December 2017
8 Investment property continued
The independent valuation of all property assets uses market evidence and also 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. Significant increases (decreases) in estimated rental value and rent growth
per annum in isolation would result in a significantly higher (lower) fair value of the properties. Significant increases (decreases) in the long-term
vacancy rate and discount rate in isolation would result in a significantly lower (higher) fair value. Generally a change in the assumption made
for the estimated rental value is accompanied by a directionally similar change in the rent growth per annum and discount rate and an opposite
change in the long-term vacancy rate.
In addition, nine investment properties with a carrying amount of £41,890,000 (2016 seven properties with a valuation of £30,830,000) are
charged to Svenska Handelsbanken AB (publ) to secure the group’s medium-term loans.
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 all analysed as arising from generating rental income.
2017
£’000
4,884
14,282
16,431
35,597
2016
£’000
4,082
12,956
17,707
34,745
9 Equity investments
Valuation at 1 January
Additions
Disposals
Surplus on revaluation in excess of cost
Revaluation decrease below cost
Revaluation increase still less than cost
Valuation at 31 December
The analysis of gains and losses on equity investments shown in the statement of comprehensive income 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
Accrued rent receivable
Other receivables
2017
£’000
2,469
–
(459)
124
(3)
–
2,131
2017
£’000
19
211
230
1
90
91
2017
£’000
–
487
50
537
2016
£’000
3,155
3
(1,159)
467
(11)
14
2,469
2016
£’000
52
494
546
34
24
58
2016
£’000
75
539
17
631
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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 2017 amounts due from tenants which were more than 90 days overdue, which related to rents
for 2017 or earlier, totalled £nil (2016 £nil).
Accrued rent receivable arises from the IFRS treatment of rent free periods and is due to the recognition of rental income on a straight-line
basis over the lease term, with the difference between this and the cash receipt being included as a debtor. Once the rent free periods have
expired the debtor will reduce to £nil over the relevant lease terms. During the year £nil of the balance at 31 December 2017 (2016 £19,000)
was written off to commercial rental income as contracts had been unconditionally exchanged to dispose of the relevant property.
11 Trade and other payables
Deferred income
Social security and other taxes
Other payables
The directors consider that the carrying value of trade and other payables approximates to their fair value.
12 Interest bearing loan
Medium-term bank loans
The medium-term bank loans comprise amounts falling due as follows:
Between one and two years
Between two and five years
Over five years
The average effective interest rate is 3.64% (2016 3.83%).
2017
£’000
1,060
469
525
2,054
2017
£’000
19,400
–
4,000
15,400
19,400
13 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 19% (2016 20%).
At 1 January
Realised in the year
Released in the year
At 31 December
14 Share capital
Allotted, called up and fully paid 5,167,240 (2016 5,167,240) ordinary shares of 25p each
2017
£’000
375
(57)
(64)
254
2017
£’000
1,292
2016
£’000
865
392
609
1,866
2016
£’000
14,900
–
4,000
10,900
14,900
2016
£’000
425
(76)
26
375
2016
£’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
£19,400,000 of medium-term debt at 31 December 2017 (2016 £14,900,000). 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
policy is principally carried out by the realisation of liquid equity investments, the sale of residential property and the use of surplus cash. In the
medium term the directors may use additional medium-term debt to finance future commercial property acquisitions in line with its long-term
strategy.
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
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for the year ended 31 December 2017
15 Capital commitments
There were no capital commitments at 31 December 2017 or at 31 December 2016.
16 Contingent liabilities
There were no contingent liabilities at 31 December 2017 or 31 December 2016.
17 Related party transactions
Kingerlee Holdings Limited owns, through its subsidiaries, 27.2% (2016 27.2%) of the company’s shares and David Kingerlee is a director and
shareholder of both the company and Kingerlee Holdings Limited. The transactions between the group and Kingerlee Holdings Limited or its
subsidiaries were as follows:
Transactions by the company:
Property income distribution paid to related party
Rent paid to related party
2017
£’000
595
14
2016
£’000
556
14
The company owns 100% of Rodenhurst Estates Limited and of BL (Wisbech) Limited and Belgrave Land (Wisbech) Limited. The transactions
between these companies have been eliminated on consolidation. Details of the net assets and profit for the financial year of these companies
are set out on page 58 of this annual report.
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 (or period of office if shorter) in respect of their shareholdings:
John Hewitt (resigned 20 September 2017)
David Kingerlee
Roberta Miles
2017
£’000
7
38
2
2016
£’000
9
35
1
18 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:
• 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 (i.e. as prices) or
indirectly (i.e. derived from prices); and
• 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.
There have been no transfers between these classifications in the year (2016 none). The change in fair value for the current and previous
year is recognised through the consolidated statement of comprehensive income. The reconciliation of the carrying amounts of the financial
instruments classified within levels 1 and 3 is set out below.
Investment properties are carried at fair value categorised with level 2 inputs. Details of the valuation process are included in note 8 to the
financial statements.
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Notes to the consolidated financial statements continued
for the year ended 31 December 2017
IFRS 13 measurement classification
Opening cost
Opening unrealised gain
Opening fair value at 1 January
Additions at cost
Disposal proceeds
Net profit realised on disposal
Change in fair value in the year on assets
held at 31 December
Closing fair value at 31 December
Closing cost
Closing unrealised gain
At 31 December
Level 3
Unquoted
equity
investments
£’000
4
5
9
–
–
–
–
9
4
5
9
2017
Level 1
Quoted
equity
investments
£’000
496
1,964
2,460
–
(477)
18
121
2,122
350
1,772
2,122
Total
Quoted and
unquoted
£’000
500
1,969
2,469
–
(477)
18
Level 3
Unquoted
equity
investments
£’000
4
5
9
–
–
–
121
2,131
354
1,969
2,131
–
9
4
5
9
2016
Level 1
Quoted
equity
investments
£’000
1,204
1,941
3,145
3
(1,176)
18
470
2,460
496
1,964
2,460
Total
Quoted and
unquoted
£’000
1,208
1,946
3,154
3
(1,176)
18
470
2,469
500
1,969
2,469
Gains
£’000
Categories of financial instruments
Financial assets designated at fair value through profit and loss:
Equity investments
Loans and receivables:
Trade and other receivables
Cash and cash equivalents
Financial liabilities measured at amortised cost:
Interest bearing loans
Trade and other payables
2017
Carrying
amount
£’000
Gains
£’000
2016
Carrying
amount
£’000
2,131
537
1,904
2,441
19,400
525
19,925
121
2,469
470
–
–
–
–
–
–
631
3,369
4,000
14,900
609
15,509
–
–
–
–
–
–
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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 2017 the group had £19,400,000 (2016 £14,900,000) of medium-term borrowing of which £4,000,000 is repayable
in 2020, £7,500,000 in 2022, £3,400,000 in 2026 and £4,500,000 in 2027 at fixed interest rates averaging 3.64% (2016 3.83%). The fair
values of loans and receivables and financial liabilities held at amortised cost were not materially different from book values. A maturity analysis
is set out below:
2017
Total
contractual
undiscounted
cashflow
£’000
23,283
525
Carrying
amount
£’000
19,400
525
Due in more
than one but
less than
two years
£’000
706
–
Due in more
than two but
less than
five years
£’000
13,013
–
Due in more
than five
years
£’000
8,858
–
Due within
one year
£’000
706
525
2016
Total
contractual
undiscounted
cashflow
£’000
18,087
609
Carrying
amount
£’000
14,900
609
Due in more
than one but
less than
two years
£’000
571
–
Due in more
than two but
less than
five years
£’000
5,474
–
Due in more
than five
years
£’000
11,471
–
Due within
one year
£’000
571
609
Medium-term bank loans
Trade and other payables
Medium-term bank loans
Trade and other payables
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
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Notes to the consolidated financial statements continued
for the year ended 31 December 2017
18 Financial instruments and financial risk continued
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. If the equity market had been 2% higher (or lower) at the year-end then the profit for the year would
have been £43,000 higher (or lower) and the total equity would have been increased (or decreased) by £43,000.
Credit risk
The group’s credit risk, i.e. 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
2017 was £nil (2016 £nil). The group’s maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at
31 December 2017 as summarised in the table above.
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 Bank plc and Svenska Handelsbanken AB (publ). Cash is also held by the group’s property
managers, lawyers and brokers acting as agents, though not for long periods of time. The group only places cash holdings with major financial
institutions that satisfy specific criteria.
Liquidity risk
The group’s liquidity risk, i.e. the risk that it might encounter difficulty in meeting its obligations as they fall due, 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 and its current assets exceed its current liabilities. The objective of the group in managing liquidity risk is to ensure that it
can meet its financial obligations as and when they fall due. The group expects to meet its financial obligations through operating cash flows.
Interest rate risk
The group finances its operations through retained profits and medium-term borrowings at an interest rate that is fixed over the term of the
loan. Interest rate swaps have not been used. The group places any cash balances on deposit at rates which may be fixed in the short term
but for sufficiently short periods that there is no need to hedge against the implied risk.
Currency exchange risk
The group is not directly exposed to currency risk. However, most of the group’s equity investments are held in international companies and
47.9% (2016 46.2%) 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.
Borrowing facilities
The group has no undrawn committed borrowing facilities.
19 Changes in liabilities arising from financing activities
At 1 January 2017
New loans
Interest charged
Interest paid
At 31 December 2017
20 Net assets per share
Net assets
Ordinary shares in issue
Basic net assets per share
Bank loans
(note 12)
£'000
14,900
4,500
651
(651)
19,400
2017
2016
£59,977,000 £55,325,000
5,167,240
1071p
5,167,240
1161p
21 Prior year adjustment
The prior year balance sheet has been restated to include £2,258,000 of fixed asset investment property as current asset investment property
as contracts had been unconditionally exchanged on the sale of the underlying asset prior to 31 December 2016 and the group expected to
realise this asset within 12 months of the balance sheet date.
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Notes to the consolidated financial statements continued
for the year ended 31 December 2017
Company statement of financial position
at 31 December 2017
Fixed assets
Investments
Current assets
Debtors
Cash at bank
Creditors – amounts falling due within one year
Net current assets
Total assets less current liabilities
Provision for liabilities
Net assets
Capital and reserves
Called up share capital
Reserves
– Realised capital
– Capital redemption
– Revaluation
– Retained earnings
Shareholders’ funds
2017
2016
Note
£’000
£’000
£’000
£’000
5
6
7
8
9
10
57,372
52,982
3,235
22
3,257
398
7,662
95
46,121
4,807
2,859
60,231
254
59,977
1,292
58,685
59,977
1,558
1,546
3,104
386
7,395
95
41,524
5,019
2,718
55,700
375
55,325
1,292
54,033
55,325
The profit and total comprehensive income for the period was £6,835,000 (2016 £4,343,000).
These financial statements were approved by the board of directors on 22 March 2018.
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Simon Gill
Charles Butler
Directors
Company number – 00224271
The accompanying notes form an integral part of these financial statements.
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
55
Company statement of changes in equity
for the year ended 31 December 2017
At 1 January 2017
Profit and total comprehensive
income for the period
Dividends paid
Revaluation loss equities
Revaluation gain of subsidiaries
Realised gains
Tax on realised gains
Surplus attributable to assets sold
in the year
Balance at 31 December 2017
At 1 January 2016
Profit and total comprehensive
income for the period
Dividends paid
Revaluation loss equities
Revaluation gain of subsidiaries
Realised gains
Tax on realised losses
Surplus attributable to assets sold
in the year
Balance at 31 December 2016
Note
2
Note
2
Share
capital
£’000
1,292
Realised
capital
reserve
£’000
7,395
Capital
redemption
reserve
£’000
95
Revaluation
reserve
£’000
41,524
Retained
earnings
£’000
5,019
–
–
–
–
–
–
–
–
–
–
15
(57)
–
1,292
309
7,662
–
–
–
–
–
–
–
95
–
–
121
4,728
–
57
(309)
46,121
6,835
(2,183)
(121)
(4,728)
(15)
–
–
4,807
Share
capital
£'000
1,292
Realised
capital
reserve
£'000
7,008
Capital
redemption
reserve
£'000
95
Revaluation
reserve
£'000
39,469
Retained
earnings
£'000
5,159
–
–
–
–
–
–
–
–
–
–
14
(76)
–
1,292
449
7,395
–
–
–
–
–
–
–
95
–
–
470
1,958
–
76
(449)
41,524
4,343
(2,041)
(470)
(1,958)
(14)
–
–
5,019
Total
£’000
55,325
6,835
(2,183)
–
–
–
–
–
59,977
Total
£'000
53,023
4,343
(2,041)
–
–
–
–
–
55,325
56
Highcroft Investments PLC Annual Report and Accounts 2017
www.highcroftplc.com
Company statement of changes in equity
for the year ended 31 December 2017
Notes to the company financial statements
for the year ended 31 December 2017
1 Accounting policies
Basis of preparation
The financial statements have been prepared in accordance with applicable United Kingdom accounting standards, including Financial
Reporting Standard 102 – ‘The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland’ (FRS 102) and with the
Companies Act 2006. The financial statements have been prepared under the historical cost convention except for the modification to a fair
value basis for subsidiaries and certain financial instruments as specified in the accounting policies below. The principal accounting policies of
the company have remained unchanged from the previous year.
In preparing these financial statements the company has taken advantage of disclosure exemptions allowed by FRS102. The financial
statements do not include:
• a statement of cashflows and related notes
• certain disclosures in respect of financial instruments
• disclosure of related party transactions with wholly-owned members of the group.
Dividend revenue
Dividend revenue relating to exchange-traded equity investments is recognised in the statement of comprehensive income when the right to
receive the payment is established. In some cases, the group may receive dividends in the form of shares rather than cash. In such cases, the
group recognises the dividend income for the amount of cash dividend alternative with a corresponding increase in cost of investments.
Interest income
Interest is recognised under the effective interest rate method.
Dividends payable
Dividend payments are dealt with when declared and recognised in equity in retained earnings. Final dividends proposed are not recognised as
a liability.
Investments
Investments are included at the following valuations:
• shares in subsidiary undertakings – at fair value.
• equity investments (99.6% are listed on a recognised investment exchange) – at market value.
• 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.
Receivables
Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are categorised as
loans and receivables. These are measured at amortised cost using the effective interest rate method, less any impairment. Discounting is
omitted where the effect of discounting is immaterial.
Deferred taxation
Deferred tax is recognised in respect of all timing differences at the reporting date. Deferred tax assets are recognised when it is more likely
than not that they will be recovered. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted by the
reporting date.
Deferred tax liabilities are presented within provisions for liabilities.
Financial liabilities
The group’s financial liabilities include trade and other payables. Trade payables are recognised initially at fair value less transaction costs and
subsequently measured at amortised cost. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.
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.
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
57
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Notes to the company financial statements continued
for the year ended 31 December 2017
1 Accounting policies continued
Revaluation reserves
Revaluation reserves include annual revaluation gains and losses less applicable deferred taxation and are non-distributable.
Capital redemption reserve
The capital redemption reserve is a statutory non-distributable reserve into which amounts are transferred following the redemption or purchase
of issued share capital.
Realised capital reserve
The realised capital reserve includes realised revaluation gains and losses on equity investments less attributable income tax and is non-
distributable.
Retained earnings
Retained earnings includes total comprehensive income less revaluation gains on properties and equities and any applicable taxation less
dividends paid.
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 £6,835,000 (2016 £4,343,000). Information regarding directors’ remuneration appears on pages 30 to 33 of this annual
report.
3 Auditor’s fees
Fees payable to the company’s auditor for the audit of the group’s annual accounts
Fees payable to the company’s auditor for other services:
Taxation compliance services
Other taxation services
Audit related assurance services
4 Dividends
In 2017 the following dividends have been paid by the company:
2016 Final: 26.0p per ordinary share (2015 24.5p)
2017 Interim: 16.25p per ordinary share (2016 15.0p)
2017
£’000
30
–
–
1
31
2017
£’000
1,343
840
2,183
2016
£’000
29
6
3
1
39
2016
£’000
1,266
775
2,041
On 22 March 2018 the directors recommended a property income distribution of £1,550,000, 30.0p per share (2016 £1,343,000, 26.0p per
share) payable on 1 June 2018 to shareholders registered at 4 May 2018.
5 Investments
Valuation at 1 January 2017
Disposals
Surplus on revaluation in excess of cost
Revaluation decrease below cost
Valuation at 31 December 2017
Shares in
subsidiary
undertaking
£’000
50,513
–
4,728
–
55,241
Total
£’000
52,982
(459)
4,852
(3)
57,372
Other investments
Listed
£’000
2,460
(459)
124
(3)
2,122
Unlisted
£’000
9
–
–
–
9
58
Highcroft Investments PLC Annual Report and Accounts 2017
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Notes to the company financial statements continued
for the year ended 31 December 2017
5 Investments continued
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 2017
Cost at 31 December 2016
Shares in
subsidiary
undertaking
£’000
10,271
10,271
Total
£’000
10,621
10,771
Other investments
Listed
£’000
346
496
Unlisted
£’000
4
4
At 31 December 2017 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 and Wales. In turn Rodenhurst Estates Limited owned
100% of the allotted ordinary share capital and voting rights of BL (Wisbech) Limited, which is a holding company registered in England and
Wales and operating in England. In turn BL (Wisbech) Limited owned 100% of the allotted ordinary share capital and voting rights of Belgrave
Land (Wisbech) Limited, a property owning company registered in England and Wales and operating in England. All the subsidiaries had the
same registered office address as the company: Thomas House, Langford Locks, Kidlington, Oxfordshire, OX5 1HR.
At 31 December 2017 the net assets and the profit for the financial year of these subsidiaries were:
Rodenhurst Estates Limited
BL (Wisbech) Limited
Belgrave Land (Wisbech) Limited
6 Debtors
Owed by subsidiary undertakings
Other debtors
7 Creditors – amounts falling due within one year
Other taxes and social security
Other creditors
2017
2016
Profit for
the financial
year
£’000
6,728
–
337
Profit/loss for
the financial
year
£’000
3,957
–
(281)
Net assets
£’000
50,513
–
3,518
Net assets
£’000
55,240
–
3,856
2017
£’000
3,229
6
3,235
2017
£’000
47
351
398
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£’000
1,548
10
1,558
2016
£’000
46
340
386
2016
£’000
425
26
(76)
–
375
2016
£’000
1,292
8 Provision for liabilities – deferred taxation
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 19% (2016 20%).
At 1 January
Additions
Utilised
Reversals
At 31 December
9 Share capital
Allotted, called up and fully paid 5,167,240 (2016 5,167,240) ordinary shares of 25p each
2017
£’000
375
–
(57)
(64)
254
2017
£’000
1,292
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
59
Notes to the company financial statements continued
for the year ended 31 December 2017
10 Capital commitments
There were no capital commitments at 31 December 2017 or at 31 December 2016.
11 Contingent liabilities
There were no contingent liabilities at 31 December 2017 or at 31 December 2016.
12 Related party transactions
Kingerlee Holdings Limited, through its subsidiaries, owns 27.2% (2016 27.2%) of the company’s shares and David Kingerlee is a director and
shareholder 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 paid to related party
Rent paid to related party
2017
£’000
595
14
2016
£’000
521
14
Under the provisions of section 33 FRS 102, transactions between Highcroft Investments PLC and its subsidiaries Rodenhurst Estates Limited,
BL (Wisbech) Limited and Belgrave Land (Wisbech) Limited are exempt from these disclosure requirements as they are all wholly owned
subsidiaries.
13 Employees
The employees of the group are all employees of this company and all their costs are incurred by the company as follows:
Remuneration
Pension costs
Social security costs
2017
£’000
441
1
52
494
2016
£’000
405
1
47
453
The average number of employees of the company was six (2016 six) all of whom, other than a part-time bookkeeper, were directors of the
company. More detailed remuneration concerning directors' remuneration is shown in the directors’ remuneration report on pages 30 to 33.
60
Highcroft Investments PLC Annual Report and Accounts 2017
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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
Net admin expenses to gross rent
Profit available for distribution
Share capital
Average number in issue (000’s)
Basic earnings per ordinary share
Adjusted earnings per ordinary share
Dividends payable per ordinary share
FTSE 350 Real Estate Index
Highcroft year-end share price
Directors and advisers
2017
£’000
77,113
2,131
59,977
1161p
4,765
13.9%
3,348
5,167
132.3p
64.8p
46.25p
568
887.5p
2016
£’000
65,997
2,469
55,325
1071p
3,906
16.7%
2,912
5,167
84.0p
55.7p
41.0p
515
897.5p
2015
£’000
57,964
3,155
53,023
1026p
3,435
15.5%
2,871
5,167
140.0p
55.6p
38.8p
588
987.5p
2014
£’000
46,523
4,532
47,702
923p
3,079
14.0%
3,758
5,167
136.5p
72.7p
36.0p
543
855p
2013
£’000
39,415
5,227
42,428
821p
2,731
12.6%
2,921
5,167
94.0p
56.5p
33.75p
469
720p
Company number
00224271
Directors
Charles Butler BSc ACA
(Non-executive chairman)
appointed 2 January 2018
Simon Costa, BSSc MA MPhil
(Non-executive)
Simon Gill, BSc FRICS (Chief executive)
David Kingerlee (Executive)
Roberta Miles, MA FCA (Finance)
Company secretary
Roberta Miles, MA FCA
Independent auditor
Mazars LLP
Statutory Auditor
Chartered Accountants
The Pinnacle
160 Midsummer Boulevard
Milton Keynes
MK9 1FF
Independent valuer
Knight Frank LLP
55 Baker Street
London
W1U 8AN
Bankers
Lloyds Bank plc
Ground Floor
Canons House
Canons Way
Bristol
BS1 5LL
and
Svenska Handelsbanken AB (publ)
Latimer House
Langford Locks
Kidlington
Oxford
OX5 1GG
Solicitors
Clarkslegal LLP
One Forbury Square
The Forbury
Reading
RG1 3EB
and
Charles Russell Speechly LLP
5 Fleet Place
London
EC4M 7RD
Property managing agents
Workman LLP
Alliance House
12 Caxton Street
London
SW1H 0QS
Corporate finance advisers
Panmure Gordon (UK) Limited
One New Change
London
EC4M 9AF
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Tax advisers
Grant Thornton UK LLP
30 Finsbury Square
London
EC2A 1AG
Registered office and
business address
Thomas House
Langford Locks
Kidlington
Oxon
OX5 1HR
Stock Code: HCFT
Highcroft Investments PLC Annual Report and Accounts 2017
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