Stakeholder focused
Market aware
Opportunity driven
NAVIGATING THE MARKET
FOR LONG-TERM SUCCESS
Leveraging market
opportunities to grow
sustainably
Annual report and accounts for the year
ended 31 December 2021
Stock code: HCFT
www.highcroftplc.com
Highcroft
Investments PLC
Annual report and
accounts 2021
Who we are
Highcroft Investments PLC is an
internally managed Real Estate
Investment Trust (REIT), which invests
in commercial property in England
and Wales.
Our purpose
Highcroft’s purpose is to provide our
tenants with excellent properties, in
optimal locations, enabling them to
succeed, and our stakeholders to benefit
on a long-term sustainable basis.
Our vision
Our vision is to ensure every opportunity
has a positive impact on others.
Our values
Our values are reputation, integrity and good
governance built on long-term relationships,
and on sustainability and responsibility.
Our strategy
Highcroft aims to deliver sustainable long-term
income and capital growth for its shareholders
through accretive asset management
initiatives and recycling of capital in its
regionally-based property portfolio.
We deliver our strategy by leveraging our strengths:
AN EXPERIENCED
INTERNAL TEAM
FINANCIAL
STRENGTH
HIGH-QUALITY
PROPERTY
ASSETS
MODERATE
GEARING
View more online at:
www.highcroftplc.com
HIGHLIGHTS
DIVIDENDS PAYABLE
TO SHAREHOLDERS
55.0p
-3.5%
NET ASSET VALUE
PER SHARE
1,275p
+15.5%
2021
2020
2019
2018
2017
55.0p
57.0p*
48.0p
52.5p
46.25p
2021
2020
2019
2018
2017
1,275p
1,104p
1,175p
1,207p
1,161p
* includes special dividend
of 6p per share
GROSS PROPERTY
INCOME
£5.9m
-2.6%
NET PROPERTY
INCOME
£5.3m
-3.8%
2021
2020
2019
2018
2017
£5.9m
£6.1m
£5.8m
£5.0m
£4.8m
2021
2020
2019
2018
2017
£5.3m
£5.5m
£5.7m
£4.9m
£4.5m
ADJUSTED EARNINGS
PER SHARE
56.7p
-11.0p
TOTAL EARNINGS
PER SHARE
230.5p
2021
2020
2019
2018
2017
56.7p
67.7p
78.5p
87.3p
64.8p
230.5p
2021
2020
2019
2018
2017
(22.2)p
23.3p
95.3p
132.3p
VALUE OF PROPERTY
ASSETS
£87.6m
+6.70%
NET DEBT/GEARING
£21.5m
32%
2021
2020
2019
2018
2017
£87.6m
£82.1m
£86.7m
£77.7m
£77.1m
2021
2020
2019
2018
2017
£21.5m/32%
£23.9m/42%
£24.6m/41%
£14.2m/23%
£17.5m/29%
AVERAGE LOT SIZE
£4.2m
+11.8%
OCCUPANCY IN OUR
PORTFOLIO
93%
2021
2020
2019
2018
2017
£4.2m
£3.7m
£3.9m
£3.9m
£3.6m
2021
2020
2019
2018
2017
93%
99%
100%
100%
100%
Contents
BUSINESS OVERVIEW
Highlights
Chairman’s statement
Group at a glance
Our portfolio
STRATEGIC REPORT
Our marketplace
Our business model
Our strategy
Our key performance indicators
Operating review
Financial review
Our risks
Going concern statement
Stakeholder engagement
Section 172(1) Statement
Sustainability
GOVERNANCE
Chairman’s introduction
to corporate governance
Board of directors
Corporate governance
Report of the
audit committee
Report of the
nomination committee
Directors’ remuneration report
Remuneration at a glance
Report of the directors
Statement of directors’
responsibilities
FINANCIAL STATEMENTS
Independent auditor’s report
Consolidated statement
of comprehensive income
Consolidated statement
of financial position
Consolidated statement
of changes in equity
Consolidated statement
of cashflows
Notes to the consolidated
financial statements
Company statement
of financial position
Company statement
of changes in equity
Notes to the company
financial statements
List of definitions
Group five-year summary
(unaudited)
Directors and advisers
01
02
04
08
18
20
22
24
26
28
32
38
39
40
46
48
50
53
57
59
60
71
73
76
81
82
83
84
85
98
99
100
104
104
IBC
010101
Stock code: HCFTwww.highcroftplc.com
CHAIRMAN’S STATEMENT
CHARLES BUTLER
Chairman
Our portfolio proved to be
very resilient throughout
2021 and I am pleased to
report a very solid set of
results for the year.”
At the time of writing to you
last year, I don’t think we would
have believed that 2021 would
be primarily dominated by
continuing to deal with the
effects of the pandemic. Whilst
the effects of Covid-19 continued
to be felt across the world, we
took a cautious approach in
how we managed the portfolio,
keeping a relatively low LTV,
a healthy level of cash and
taking no unnecessary risks.
Our portfolio proved to be very
resilient throughout 2021 and I
am pleased to report a very solid
set of results for the year.
READ MORE ABOUT
OUR PORTFOLIO
ON PAGES 08 TO 15
READ MORE ABOUT
SUSTAINABILITY ON
PAGES 40 TO 43
0202
Property portfolio
The focus of our asset management has
been on warehouses and retail warehouses
for several years (making up 73% of our
portfolio by asset value). This has proven to
be a successful strategy with a strong sector
performance in 2021. Notwithstanding the
volatile macro environment, we expect to see
this positive momentum continue into 2022.
We did not acquire any properties during the
year and sold one property well at an increase
of 9% over its 31 December 2020 valuation.
Notwithstanding the ongoing pandemic,
we continued to achieve a high level of rent
collection for the year of 97% (2020 94%). Our
gross rental revenue decreased by 2.6% (2020
4% increase) due primarily to the negative
effects of CVAs and voids offset by our asset
management initiatives and one-off income.
When taken together with a very positive like-
for-like property revaluation of 11.1% this led to
an overall increase in net assets of 15.5%.
Dividend
The company’s interim dividend was 22p, a
4.8% increase on 2020 and we are proposing a
final dividend for 2021 of 33p per share, taking
the total dividend for 2021 to 55p per share.
This represents an increase of 8% from the
2020 dividend of 51p per share (excluding the
2020 special dividend of 6p per share).
Sustainability
Highcroft has a clear purpose of providing our
tenants with excellent properties in optimal
locations, enabling them to succeed, and
our stakeholders to benefit on a long-term
sustainable basis. As a board we consider
climate-related risks and opportunities and
over the year have evaluated how any future
developments will be approached, and the
most appropriate strategy for reducing our
impact within the existing portfolio. We are
in a process of identifying what levers we
can operate and influence to ensure the
sustainability of our business.
People
As for many companies, the ongoing impacts
of the Covid-19 pandemic have presented
challenges to the board, the tenants we serve,
and the communities we operate in. During
the year the business has continued to perform
commendably, and I would like to thank my
fellow directors and the employees for the
continued commitment and considerable
efforts over the last year.
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021BUSINESS OVERVIEW During the year, we welcomed Anne-Marie
Palmer as company secretary. Anne-Marie has
20 years’ experience as a chartered secretary
advising listed companies and as reported
last year, recognising both the increase in
governance and reporting requirements, we
welcome her addition to the team.
Outlook
2021 was a strong year for Highcroft despite
the world still being seriously affected by
Covid-19. We now face new macro challenges
with the tragic events in Ukraine. While there
is no doubt the effects of this will be severe
and long lasting, we are confident that with
the cautious approach we take to managing
the portfolio, along with relatively low levels
of gearing, we can continue to deliver robust
shareholder returns against a continuing
volatile global backdrop.
We are planning that our AGM this year will
be back to normal as an open meeting, and I
look forward to meeting those of you who can
make it.
CHARLES BUTLER
Chairman
28 March 2022
0303
Stock code: HCFTwww.highcroftplc.comBUSINESS OVERVIEW GROUP AT A GLANCE
Navigating the market for long-term success
by maintaining the quality of our tenant
covenants, increasing our average lot size,
and being sector aware.
Our portfolio in 2016
PROPERTY WEIGHT
TOTAL VALUE
£66.0m
AVERAGE LOT SIZE
£3.3m
NUMBER OF PROPERTIES
20
NUMBER OF
DISPOSALS SINCE 2016
4*
NUMBER OF
ACQUISITIONS
SINCE 2016
6 including those in 2016
*excluding residential
Warehouse
29%
Retail warehouse
39%
Leisure
Office
3%
10%
High street retail
18%
Residential
1%
The shift in our portfolio enables long-term sustainable success
and increased dividend returns for our shareholders.
2016:
41.0p
2017:
46.25p
2018:
52.50p
KEY ACQUISITION
Giant Booker,
Nottingham: A
freehold cash &
carry warehouse
let to the strong
covenant of Giant
Booker. Price
£5.28m, yield 6%.
8
1
0
2
KEY ACQUISITION
Rubery: Our leisure
sector was increased
with the purchase of
this gym asset let to
Nuffield Health for
£4.925m and a yield
of 7.0%. The lease was
subsequently regeared
for a term of 20 years
with guaranteed
fixed uplifts.
KEY ACQUISITION
KEY DISPOSAL
Staines: We further
reduced our exposure to
the high street by selling
these shops with offices
above for a price of £2.3m.
St Austell: 250,000
sq ft of industrial/
warehouse space
let to Walstead
Roche Limited.
The property was
acquired for £4.2m
and an attractive
yield of 11.2%.
7
1
0
2
0404
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021BUSINESS OVERVIEW Shift in portfolio
The directors have an ongoing strategy to rebalance the portfolio to take advantage
of a changing property market. We have reduced our high street retail weighting as
shopping patterns were changing, principally due to the internet and Covid-19, and
increased the weighting of warehousing and retail warehousing assets.
Our portfolio in 2021
TOTAL VALUE
£87.6m
AVERAGE LOT SIZE
£4.2m
NUMBER OF PROPERTIES
21
PROPERTY WEIGHT
Warehouse
45%
Retail warehouse
28%
READ MORE ABOUT
OUR MARKETPLACE
ON PAGES 18 TO 19
Leisure
Office
12%
9%
Read more about
OUR STRATEGY on
pages 22 TO 23
High street retail
6%
Residential
0%
2019:
48.0p
2020:
57.0p
2021:
55.0p
KEY DISPOSALS
Southampton: We sold the
leasehold interest of our warehouse
unit on the Nursling industrial
estate for 4.7%, £3.67m. The lease
had only 2 years remaining.
Cirencester: Our policy of selling
high street assets continued
with our Cirencester property let
to Ladbrokes and Clinton Cards
and others, where we achieved a
sale at 6%.
9
1
0
2
KEY ACQUISITION
Llantrisant: We
increased our
industrial/warehouse
sector with the
acquisition of 108,000
sq ft let to BAAE.
The acquisition price
was £6.5m and the
yield 11.6%.
1
2
0
2
KEY ACQUISITION
Ipswich: This
purchase comprised
a gym unit let to
DW Fitness on a
long lease with
fixed uplifts, plus
a motorcycle
showroom. The
purchase price was
£4.65m and 7%.
KEY DISPOSAL
Andover: This
leasehold
property let
to Jewson
had shown no
rental growth
and was sold
for a yield
of 4.9%.
1
2
0
2
0505
05
Stock code: HCFTwww.highcroftplc.comBUSINESS OVERVIEW GROUP AT A GLANCE
Our structure
The 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 PAGES
20 TO 21
Highcroft Investments PLC
Group administration
Property investments
Rodenhurst Estates
Limited
Belgrave Land (Wisbech)
Limited
With effect from 10 December 2020, Highcroft has been considered to be an associated
undertaking of Kingerlee Holdings Limited, which owns, through its wholly-owned
subsidiaries, 27.2% of Highcroft. More details are on page 71.
We ensure that we are a sustainable business through our
culture of being:
STAKEHOLDER FOCUSED
Our actions are centred
on our stakeholders;
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.
And we achieve this by being hard-working and flexible, progressive and pragmatic,
collaborative and supportive, efficient and effective.
0606
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021BUSINESS OVERVIEW Why invest in Highcroft?
0 1
02
03
04
Strong balance sheet and cash generative
Our £87.6m, 849,000 sq ft of assets underpin our balance
sheet and financial strength.
READ MORE ABOUT
OUR ASSETS ON
PAGES 08 TO 15
Progressive dividend returns
Our dividends have increased by a compound annual
rate of 6.4% since joining the REIT regime in 2009.
READ MORE ABOUT
OUR DIVIDEND
HISTORY ON
PAGE 28
Diversified and sustainable income from
the UK property market
We have 21 assets, spread across five sectors,
geographically focused in the south of the UK with a
WAULT of 5.6 years.
Strong internal management team,
aligned with stakeholders’ interests, with
a consistent track record
Our experienced executive team has consistently
delivered on our strategy.
READ MORE ABOUT
THE SHIFT IN
PORTFOLIO ON
PAGES 04 TO 05
READ MORE ABOUT
OUR BOARD ON
PAGES 48 TO 49
0707
07
Stock code: HCFTwww.highcroftplc.comBUSINESS OVERVIEW OUR PORTFOLIO
A diversified portfolio well-placed to deliver
long-term success.
KEY
Warehouse
Retail warehouse
Leisure
Office
High street retail
RETAIL WAREHOUSE - CRAWLEY
OFFICES - OXFORD
WAREHOUSE - ST AUSTELL
WAREHOUSE - ASH VALE
0808
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021BUSINESS OVERVIEW BUSINESS OVERVIEW
RETAIL WAREHOUSE - BICESTER
OFFICES - OXFORD
OFFICES - CARDIFF
WAREHOUSE - LLANTRISANT
WAREHOUSE - KIDLINGTON
READ OUR KEY
PERFORMANCE
INDICATORS ON
PAGES 24 TO 25
READ OUR
OPERATING
REVIEW ON PAGES
26 TO 27
Stock code: HCFT
www.highcroftplc.com
0909
09
BUSINESS OVERVIEW OUR PORTFOLIO
RETAIL WAREHOUSE
Retail warehousing was the
‘comeback kid’ of the market in
2021 as shoppers shied away from
the high street and felt more
comfortable with the click-and-
collect, private transport and social
distancing opportunities that a
retail warehouse can provide. With
approximately 28% of our portfolio in
this sector, we are in a good position
to benefit from this resurgence.
Retail warehouse
portfolio
Grantham
Bicester
Wisbech
Crawley
1
2
4
15
Total
Value
£’000
7,400
7,150
6,825
2,875
24,250
LEISURE
2021 was another difficult year for the
leisure industry with lockdowns and
social distancing regulations. However,
restrictions eased throughout the year
which provided confidence for occupiers;
this resulted in the letting of our vacant
gym unit in Ipswich for a 15-year term,
without breaks, and an enhanced year-
end valuation.
Leisure portfolio
Rubery
Ipswich
Coventry
8
13
18
Total
Value
£’000
5,150
3,700
1,900
10,750
WAREHOUSE/INDUSTRIAL
This sector continued its dramatic
growth seen in 2020 with logistics
being the main growth driver and
Amazon grabbing almost a third of
available space. 2022 will be another
year of strong demand from both
occupiers and investors and there is
likely to be further yield compression
to the already record-breaking low
yields. Over 45% of our portfolio is
held in this sector which is likely to
increase once further management
opportunities have been exploited.
Warehouse portfolio
Nottingham
Value
£’000
6,900
Milton Keynes
6,700
St Austell
Llantrisant
Kidlington
Ash Vale
Bedford
6,350
6,250
5,000
4,900
3,700
39,800
3
5
6
7
9
10
12
Total
ALTERNATIVES
We continue to look at this sector but
have not yet acquired any properties.
Moving into this sector – retirement
homes, hospitals etc. would help
balance our portfolio further and
provide a greater spread of risk.
OFFICE
The office sector continued to
suffer from the ‘work from home’
regulations imposed by the
government; this was exacerbated by
people’s general reluctance to return
to the office when restrictions eased
and employers struggled to enforce a
return. This has led to a restructuring
of how much space occupiers need
with some occupiers reducing their
requirements by up to 20%. Offices
account for less than 9% of our
portfolio.
Office portfolio
Oxford
Cardiff
11
14
Total
Value
£’000
4,850
2,950
7,800
HIGH STREET RETAIL
We have concentrated on reducing
our exposure to the high street which
now only represents 5.6% of our
portfolio. 2021 was another difficult
year for high street retailers who were
unable to trade for parts of the year.
Turnover figures were dramatically
reduced with shoppers preferring
online shopping or retail parks
where social distancing and private
transport were possible.
High street retail
portfolio
16 17 Oxford (2 units)
Value
£’000
2,200
19
20
21
Total
Leamington Spa
1,200
Norwich
Oxford
900
665
4,965
1010
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021BUSINESS OVERVIEW Why the south of England and Wales?
Highcroft has benefitted from the growth
in rents and values in these areas whilst
maintaining our risk exposure at an acceptable
level. Our search for new properties is not solely
confined to these areas and we will consider
any opportunity subject to solid property
fundamentals.
Numbering corresponds to order of assets by valuation.
For more detail see pages 13 to 15.
OUR CORE SECTORS
Warehouse
Retail warehouse
Leisure
Office
High street retail
3
1
4
20
8
18
19
12
5
2
9
11
16–17 & 21
10
15
7
14
13
6
111111
Stock code: HCFTwww.highcroftplc.comBUSINESS OVERVIEW OUR PORTFOLIO
Why the quality of our tenants is crucial
to our success; how we assess potential
tenants and manage relationships
The quality of our tenants is crucial to our success so that
we can maintain the dividend growth our shareholders
have witnessed and benefitted from over many years.
We assess the strength and quality of each new tenant
relevant to the property and location in question; if a
tenant trades well, the rental income will be secure
which will be passed on to shareholders via a dividend.
Equally, if the location is good for the tenant this will
attract further occupiers and increase demand, therefore
ensuring future rental growth.
Prior to entering into a lease with a tenant, we will
undertake financial due diligence to ensure the
prospective tenant can meet its financial commitments
under the lease.
Our tenant criteria: ensuring our tenants
are sustainable
We make great efforts to ensure our properties are
let to, and occupied by, tenants and companies that
have sustainable, environmental credentials. We work
together with our occupiers to make sure we comply
with government guidelines on green policies which
includes ensuring that there will be no future ground
contamination issues.
INVESTMENT PROPERTIES AT ANNUAL
VALUATION
£87.6m
+6.7%
2021
2020
2019
2018
2017
£87.6m
£82.1m
£86.7m
£77.7m
£77.1m
WEIGHTED AVERAGE
LEASE LENGTH
5.6 years
-5.4%
2021
2020
2019
2018
2017
5.6 years
5.9 years
6.3 years
6.5 years
7.2 years
WEIGHTED AVERAGE
LEASE EXPIRIES
> 5 years
2-5 years
1-2 years
< 1 year
5%
0%
73%
22%
MOVEMENTS IN INVESTMENT PROPERTY VALUATION
£m
90
80
70
60
SEE HOW WE
ENGAGE WITH
OUR TENANTS
AND OTHER
STAKEHOLDERS
ON PAGE 39
SEE OUR
SUSTAINABILITY
SECTION ON PAGES
40 TO 43 FOR MORE
INFORMATION
ABOUT OUR
APPROACH TO THE
ENVIRONMENT AND
CLIMATE CHANGE
1212
12
Valuation gains
£9.9m
Valuation losses
£(1.2)m
£82.1m
Disposals
£(3.2)m
2020
£87.6m
2021
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021BUSINESS OVERVIEW Warehouses
Total value: £39.8m
Tenure
Let to
Value
£’000
Size
sq ft
10 ASH VALE
12 BEDFORD
9
KIDLINGTON
7
LLANTRISANT
5 MILTON
KEYNES
3 NOTTINGHAM
6
ST AUSTELL
Freehold
warehouse
Freehold
warehouse
Freehold
warehouse
4,900
25,081
3,700
40,536
5,000
30,638
Virtual freehold
warehouse/r&d
facility
6,250
107,684
Freehold
warehouse
Freehold
warehouse
Freehold
warehouse
6,700
43,444
6,900
83,916
6,350
250,087
1313
Stock code: HCFTwww.highcroftplc.comBUSINESS OVERVIEW OUR PORTFOLIO
Retail warehouses
Total value: £24.2m
Tenure
Let to
Value
£’000
Size
sq ft
2 BICESTER
15 CRAWLEY
1
GRANTHAM
4 WISBECH
Leisure
18 COVENTRY
13
IPSWICH
8 RUBERY
1414
Freehold retail
warehouse
Freehold retail
warehouse
Freehold retail
warehouse
7,150
29,130
2,875
6,898
7,400
42,090
Freehold retail
warehouse park
6,825
55,628
Total value: £10.8m
Tenure
Let to
Value
£’000
Size
sq ft
Freehold
leisure
Freehold
leisure/retail
Freehold
leisure
1,900
5,953
3,700
43,738
5,150
38,264
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021BUSINESS OVERVIEW
Office
11 OXFORD
SUMMERTOWN
14 CARDIFF
Total value: £7.8m
Tenure
Let to
Value
£’000
Size
sq ft
Freehold
offices
Freehold
offices
4,850
11,526
Void
2,950
17,797
High street retail
Total value: £5.0m
19 LEAMINGTON
SPA
20 NORWICH
21 OXFORD
HIGH STREET
OXFORD
HIGH STREET
16
17
Tenure
Let to
Value
£’000
Size
sq ft
Freehold
shop
Sabre Retail Limited
t/a
1,200
3,139
Freehold
shop
Freehold
shop
One long
leasehold
One freehold
shop/office
900
4,658
Void
665
1,741
Robinson Webster
t/a
2,200
6,895
1515
Stock code: HCFTwww.highcroftplc.comBUSINESS OVERVIEW T
R
O
P
E
R
C
I
G
E
T
A
R
T
S
16
Contents
Our marketplace
Our business model
Our strategy
Our key performance indicators
Operating review
Financial review
Our risks
Going concern statement
Stakeholder engagement
Sustainability
18
20
22
24
26
28
32
38
39
40
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021
WAREHOUSE – LLANTRISANT
17
Stock code: HCFTwww.highcroftplc.com OUR MARKETPLACE
Economic backdrop
2021 witnessed the UK economy continuing to struggle with the effects of Covid-19 with businesses trying to cope with
changeable government directives over lockdowns and work from home, as well as difficulties with supply chains and new
challenges for imports and exports out of Europe. The marginal increase in interest rates at the end of the year dispelled
the idea of negative interest rates and an element of confidence in the future and a return to normality crept back into the
public domain, despite the forecasted inflation figures for 2022.
The forecasts for 2022 would indicate that there will be a strong investor market with investment volumes pushed high due
to overseas and homegrown investors’ pent-up demand and a limited supply of the right property. The industrial sector will
see another year of strong rental growth and investor interest, whilst demand in the resurgent retail warehouse market will
continue. The uncertainty will be the situation in Ukraine which will have an effect on confidence in the markets and the
likely disruption to supply chains.
ESG will become an even more prominent factor in the considerations of occupiers, landlords and investors with lending
institutions also setting out stricter criteria in this regard.
Total return by sector
%
40
30
20
10
0
-10
-20
-30
Forecast
Standard retail
Office
Industrial
Shopping centre
Retail warehouse
Source: MSCI
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Market trend
What this means for Highcroft
How are we responding?
Covid-19
The pandemic and the ensuing
lockdown measures continued were
a big obstacle for the majority of
businesses in 2021.
Some of our tenants continued to be
affected by the restrictions imposed by
the lockdowns – particularly in the retail
and hospitality sectors.
We work with our tenants to ensure
the continuity of their businesses;
however, high street retail forms the
smallest part of our portfolio.
Online retailing
Online retailing continued its dramatic
growth in 2021.
The high street continued to be badly
affected but there was a resurgence in
the retail warehouse sector as lockdown
sanctions were eased and people could
shop at a social distance afforded by a
retail warehouse.
We have reduced our exposure to the
high street over the past few years
and agreed a new lease on one of our
retail warehouse units.
Economic backdrop
It is forecast the UK will lead the
economic growth in developed
countries with an anticipated 5.8%.
Inflation is expected to be 4.5% by the
end of the year.
Trading will continue to be difficult for
some of our tenants.
Our assets should perform if
consumer spending increases as
forecast.
Brexit
There was a hangover from Brexit
with the disruption of supply chains
from/to the EU.
This potentially slowed turnover in
certain sectors. Additionally, there was a
reduction in supply of the workforce as
EU nationals continued to return home.
Our investments have proved robust
in these circumstances.
18
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021STRATEGIC REPORT Market trend
What this means for Highcroft
How are we responding?
Warehouse
The demand for industrial space in
2021 was the highest on record.
Offices
Yields are getting lower and therefore
prices higher making it difficult
to acquire new properties with an
attractive return. We are looking to
exploit development opportunities
within our portfolio.
This demand has meant Highcroft
has achieved good increases in rents
upon lease renewals and significant
uplifts on valuation of some of our
industrial assets.
The ‘work from home’ directive
frustrated both occupiers and
landlords in the office sector and has
led to companies revising their office
space requirements for the future.
Offices form less than 9% of our
portfolio. During the year one of our
tenants exercised a break option and
we achieved a 27% rental uplift on
review on our Oxford office investment.
The uplift in value following the
rent review at the Oxford office has
maintained the values in this sector.
Retail warehouses
Retail warehouses witnessed a
resurgence in 2021 with shoppers
keen to return to the tills but on a
socially distanced basis, which this
sector afforded.
High street retail
There were further receiverships and
CVAs throughout 2021. Trading was
tough in competition with online
retailing.
Leisure
Our tenants in this sector – Wickes, Pets
at Home, Dunelm, Halfords, PCWorld –
continued to trade well.
Our rent collection rates were high
and all of our units are occupied.
We have a minimal exposure to the
high street.
Where necessary, we work out
payment plans to assist our tenants.
The leisure, food and beverage
industries were again the most
affected by the pandemic lockdowns.
This sector comprises approximately
12% of our portfolio. In 2020 one of our
tenants went into receivership but the
unit has since been re-let on a new
15-year lease.
68% of this sector of our portfolio has
an average weighted unexpired lease
term of 16 years.
Investment
Total returns from the property
market in 2021 were 20% a contrast
to the previous year. This was largely
driven by the industrial sector which
showed returns of 38%.
There were limited opportunities for
Highcroft considered worth pursuing,
to show satisfactory returns.
We took a cautious approach
during 2021 and concentrated on
managing our existing assets, which
resulted in good lease renewals at
enhanced rents.
Overseas investors were still present
in the UK market in 2021.
Overseas investors look mainly at
central London, and trophy buildings.
These are not the sectors in which
Highcroft looks to compete.
Investors still seeking secure, well-
let investments on long leases,
particularly in the warehouse/
distribution sector.
Prices for this category are still
very keen.
Highcroft continues to look at
alternative sectors whilst benefitting
from the uplift in values in the
industrial warehouse and retail
warehouse sectors which constitutes
73% of our portfolio.
19
STRATEGIC REPORTStock code: HCFTwww.highcroftplc.com OUR BUSINESS MODEL
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 cyclical 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
to select the best opportunities within our chosen market sectors. We then redevelop and refurbish these in order to
increase the value of the property, therefore 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 advantages
Key activities
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 pages 13 to 15, they are
mainly large commercial companies
requiring property on long-term leases.
OUR KEY RELATIONSHIPS
Our key relationships are with our
tenants, our advisory team and with
local communities.
1
Highcroft’s purpose
is to provide our
tenants with excellent
properties in optimal
locations, enabling
them to succeed, and
our stakeholders to
benefit on a long-term
sustainable basis.
4
20
2
3
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021STRATEGIC REPORT We are
Stakeholder focused Market aware Opportunity driven
The value we generate
We buy
We look for:
•
•
•
Location
Growth markets
Potential for
development
We are also looking to
increase our average
lot size, to uphold the
quality of our tenants,
grow the portfolio,
and navigate market
uncertainty.
We generate rental income
We work hard to ensure all our properties
are income producing and enjoyed 100%
occupancy for many years until our first vacant
unit in March 2020. Our income stream is
strong and derived from good quality tenants.
We maximise potential
We maximise the value of our portfolio through
redeveloping and refurbishing properties
to meet tenant demands and maintain
relationships to increase lease length and
rental income. This also enables us to make our
properties more sustainable – see pages 40 to 43
for our sustainability journey and future plans.
We sell
We strategically sell smaller lots and properties
in under-performing markets, like high street
retail, to ensure long-term success – see pages
04 to 05 for the evolution of our property over
the last five years
SHAREHOLDERS
Short term: Secure dividend
income stream.
Medium term: Income growth
in excess of inflation.
Long term: Increased
shareholder value via
sustained capital and income
growth, arising from our low-
risk business strategy.
TENANTS
Short term: Supportive
landlord/asset manager/
tenant relationships.
Medium term: Improving
environments as opportunities
to enhance our properties are
identified and actioned.
Long term: High quality
environments that help our
tenants succeed with their
business strategy.
SOCIETY
Short term: Taking cost-
effective action to reduce the
environmental impact of our
properties.
Medium term: Helping to
support the terminally ill
and disadvantaged via our
charitable donations.
Long term: Enabling
economic prosperity by
supporting the provision
of appropriate space in
appropriate locations to
encourage employment and
business to flourish.
READ MORE ABOUT
STAKEHOLDER
ENGAGEMENT ON
PAGE 39
READ MORE ABOUT
SUSTAINABILITY
ON PAGES 40 TO 43
21
STRATEGIC REPORTStock code: HCFTwww.highcroftplc.com OUR STRATEGY
Introduction to our
strategy
The objective of the group is to
generate secure and sustainable
income growth to drive a
progressive dividend, which,
when coupled together with
capital value growth, will deliver
strong total shareholder returns.
We set clear strategic priorities
against which we measure our
performance.
The effect of the global
Covid-19 pandemic on
our strategy
As the pandemic continued to
evolve during 2021, the board
considered the impact of this
on Highcroft’s stated strategy.
It concluded that, whilst there
was no change to the long-term
strategy of the business, in the
short term the actions that
had been carried out to ensure
effective cashflow management
were adequate. Highcroft had
taken advantage of the available
deferral of £316,000 of VAT
payments in 2020 and these
were repaid prior to the deadline
of 31 March 2021. In 2021 the
board approved the reduction
of its 2019 PID pool outstanding
at 31 December 2019 by £1.6m,
incurring a £304k tax liability
but not prejudicing the group’s
REIT status. This enabled £1.3m
of cash to be retained in the
business at a time when our voids
and void costs were increasing
and the risks from the Covid-19
pandemic were still evolving.
More information regarding PID
pool can be found on page 28.
22
Our purpose
Highcroft’s purpose is to provide our
tenants with excellent properties in optimal
locations, enabling them to succeed, and
our stakeholders to benefit on a long-term
sustainable basis.
S
D
N
E
R
T
T
E
K
R
A
M
Our strategic priorities
1. Build a high-quality portfolio
2. Use capital effectively
3. Deliver sustainable growth
S
T
A
K
E
H
O
L
D
E
R
S
’
I
N
T
E
R
ESTS
UNDERSTANDING THE
EXTERNAL ENVIRONMENT
ALIGNING TO OUR
STAKEHOLDERS INTERESTS
All of our strategic priorities and
the associated risk management
strategies are developed with a
focus on our overall objective of
generating progressive returns for
our investors with benefits to all
our stakeholders.
We pay great attention to market
trend forecasts and consider the
impact that these may have on our
strategy. Our decision to rebalance
the portfolio away from residential
and high street retail assets,
and focus more on warehousing
assets, together with a move to
the larger average lot size, was
taken in anticipation of evolving
market trends. Our strategy was
also altered in the short term, as
the Covid-19 pandemic continued
to evolve.
UNDERPINNED BY OUR VALUES:
STAKEHOLDER
FOCUSED
MARKET
AWARE
OPPORTUNITY
DRIVEN
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021STRATEGIC REPORT
Strategic priority
How this priority will help
us achieve our overall
objective
Progress in 2021
Future opportunities
Link to
risks –
page 33
Building a portfolio of high-quality commercial properties in the right places occupied by the right tenants with good
lease fundamentals
A
B
C
Continue
to grow our
commercial
property
portfolio with
a bias towards
the south
of England
and Wales.
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.
Increase the
average lot
size to £5m,
with no asset
representing
more than 15%
of the portfolio.
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, thereby increasing
the net property income
available for distribution.
We disposed of one
leasehold industrial asset
where there was little
opportunity for future
growth. This increased
the cash available to
pursue refurbishment
and development
opportunities in the
portfolio.
Average lot size increased
to £4.2m from £3.7m
wholly due to an increase
in the valuation of the
portfolio.
As asset sourcing
remains challenging in
2022, we are looking at
opportunities within our
portfolio for development
and additional income
generation.
Future growth will come
from revaluation gains,
new assets being bought
that are larger lots than
our average, and from
the disposal of smaller
underperforming units.
Seek 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.
Lease events which
occurred during the
year have led to an
improvement in yields on
those properties.
Options are being
considered for additional
asset management
opportunities with
excellent sustainability
criteria.
Using available capital, including debt, efficiently and effectively
D
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.
Our debt remains at
£27.2m.
We have headroom with
one lender of £2.8m and
would consider additional
gearing to fund further
acquisitions alongside
existing cash resources.
One loan of £7.5m
matures in May 2022 and
a new replacement facility
has been agreed.
1
2
3
4
3
4
1
2
3
4
5
8
5
6
Deliver a sustainable income growth to our investors
E
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.
Following a reduction in
dividends paid in 2020 due
to Covid-19, dividends paid
in 2021 increased 21% to
£3.0m including a special
dividend of £0.3m.
As a REIT we are required
to distribute 90% of our
net property income.
ALL
RISK KEY
1 Macro-economic outlook
including Covid-19
3 Occupier demand
and tenant default
5 Availability and cost
7 Key personnel
of finance
2 Political and regulatory
outlook
4 Commercial property
investor demand
6 Business strategy
8 Sustainability
23
STRATEGIC REPORTStock code: HCFTwww.highcroftplc.com OUR KEY PERFORMANCE
INDICATORS (KPIs)
The following key performance indicators are
considered to be the most appropriate for measuring
how successful the company has been in meeting its
strategic objectives.
KPI key
1–4
5–6
Financial KPIs
Non-financial KPIs
1. MOVEMENT IN VALUE OF
PROPERTY ASSETS
2. MOVEMENT IN NET
PROPERTY INCOME
3. INCREASE IN NET ASSET
VALUE PER SHARE
2021
2020
2019
2018
2017
£87.6m
£82.1m
£86.7m
£77.7m
£77.1m
2021
2020
2019
2018
2017
£5.3m
£5.5m
£5.7m
£4.9m
£4.5m
2021
2020
2019
2018
2017
1,275p
1,104p
1,175p
1,207p
1,161p
Link to strategy
A
C
D
E
Link to risks
1 2 3
Link to strategy
B
C
D
A
E
Link to risks
1 2 3
Link to strategy
A
C
D
E
Link to risks
1 2 3
WHY WE USE THIS
INDICATOR
WHY WE USE THIS
INDICATOR
WHY WE USE THIS
INDICATOR
The value of our commercial
property portfolio and its
movement on a like-for-like
basis versus the market,
give a good measure of the
performance of our assets, on
a capital basis, in the year.
COMMENTARY ON
PERFORMANCE
The value of our assets has
increased by £8,755,000, 11.1%
on a like-for-like basis, which is
slightly below the all-property
MSCI result of 14.1%.
LOOKING FORWARD
The sector and geographical
spread of our assets, together
with the lease lengths and
covenant strength, result in a
portfolio that should perform
well in the current market.
As a REIT, we are required to
distribute 90% of our relevant
property profits. Increasing net
property income contributes
towards an increase in our
dividend.
COMMENTARY ON
PERFORMANCE
Net property income
decreased by £206,000, 3.8%
in the year as a result of a
decrease in rental income
of £156,000 and increased
property costs of £274,000,
offset by a £224,000 reduction
in bad debt charge.
LOOKING FORWARD
In 2022 we hope to build on
the progress made in 2021
where we have dealt with the
ongoing effects of the Covid-19
pandemic and taken steps to
reduce bad debts and to deal
with dilapidations and void
costs arising at our empty
units.
Net asset value per share
measures the value of
shareholders’ equity in the
business. It gives a simple,
clear message of the overall
performance, taking into
account asset performance,
the result for the year and
dividends to shareholders.
COMMENTARY ON
PERFORMANCE
Net asset value per share
increased by 15.5% in 2021,
primarily as a result of the
increase in our property
valuation and also the
net increase arising from
our revenue profits net of
dividends paid in the year.
LOOKING FORWARD
The market remains strong
in 2022, our asset base is
good and we believe that it is
positioned to perform well in
the future.
24
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021STRATEGIC REPORT
4. ACHIEVE AN ADJUSTED
5. AVERAGE OCCUPANCY
6. MAINTAIN THE QUALITY
EPS PER SHARE GROWTH
THAT IS IN LINE WITH
THE MARKET
This KPI was new in 2020
Adjusted
EPS %
return
Weighted
market
return
2021
2020
5.6
5.8
6.6
5.5
2021
2020
2019
2018
2017
LEVELS
OF OUR TENANT
COVENANTS
93%
99%
100%
100%
100%
Link to strategy
E
Link to risks
1 2 3
Link to strategy
E
Link to risks
1 2 3
Link to strategy
E
Link to risks
1 2 3
WHY WE USE THIS
INDICATOR
WHY WE USE THIS
INDICATOR
This KPI measures our
adjusted earnings per share
and compares it to the MSCI
income return for the year
weighted to our portfolio.
This links our performance
for our shareholders to the
performance of the market as
a whole.
COMMENTARY ON
PERFORMANCE
The 2021 performance was
lower than the MSCI income
return for the year which
reflects the costs associated
with our listed status and the
effect of voids and bad debt
provisions.
LOOKING FORWARD
It is hoped that future
performance will return to
market levels.
This indicator is a measure
of the extent to which we
are maximising income and
minimising void costs.
COMMENTARY ON
PERFORMANCE
We had 93% occupancy at
the year-end due to voids
at two of our properties.
An additional property
became void and was re-let
during 2021.
LOOKING FORWARD
We are carrying out
improvement and remedial
works at one of our void units
to improve sustainability and
letting potential.
We are pursuing lease
renewal negotiations at our
2022 lease expiries.
WHY WE USE THIS
INDICATOR
This indicator signals the
quality of our long-term
income stream.
COMMENTARY ON
PERFORMANCE
We continue to have the
majority of our properties let
to strong covenants.
LOOKING FORWARD
The strength of the covenant
will remain important in
assessing new acquisitions
and tenancies and forms part
of our process in assessing
expected credit losses.
READ MORE ABOUT
OUR RISKS ON
PAGES 32 TO 37
READ MORE ABOUT
OUR PORTFOLIO
ON PAGES 08 TO 15
25
STRATEGIC REPORTStock code: HCFTwww.highcroftplc.com
OPERATING REVIEW
a very small minority took full advantage of
the government’s restrictions on enforcing
rent payments. At Highcroft, via diligent
management and good tenant liaison, our 2021
rent collection rate was very high at 97%.
The high street continued to suffer with
the dramatic surge in online retailing, but
retail warehousing witnessed a resurgence
as shoppers were keen to get back to their
favourite activity, and the easing of lockdown
measures meant they could shop in socially
distanced fashion which a warehouse affords,
and a shop does not. High street retail
accounts for less than 6% of our portfolio whilst
retail warehousing is approximately 28%.
The work from home directive meant that the
office sector suffered significantly as occupiers
reviewed their future space requirements in
light of long-term proposals for the workforce
to work remotely for part of their week or,
indeed, permanently. One of our office tenants
exercised their break option in June 2021
which gave us the opportunity to reconfigure
and refurbish the building in preparation for
when the office letting market is active once
again. Planning consent was granted just
prior to Christmas and work commenced in
February 2022.
Our industrial properties, which constitute 45%
of our portfolio, performed well. We achieved
a 20% uplift in rent upon lease renewal at
our St Austell property and at the same time
released a c.1.75-acre site for development.
Plans are being prepared for a new 30,000 sq ft
warehouse unit on the site.
Our occupancy reduced due to the additional
void unit at our office property referred to
above. Our contractual rent also reduced due
to this void and also due to the sale of our
Andover property. These reductions were offset
by rent review uplifts at five of our properties
and the new lease agreed at one of our Ipswich
units where the previous tenant was in CVA
in 2020.
SIMON GILL
Chief executive
In 2021 we improved our rent
collection rate, over the various
government lockdowns, and
concluded a letting of one of
our three vacant units resulting
in a 93% occupancy rate within
the portfolio.”
Introduction
Throughout 2021 we continued our policy of
managing our portfolio under close scrutiny
and within the restrictions imposed by the
enforcement and lifting of lockdowns which
the market had to tolerate in 2020 and which
had become a feature and frustration of
everyday business. Whilst the great majority of
tenants abided by their contractual liabilities,
READ MORE ABOUT
OUR MARKETPLACE
ON PAGES 18 TO 19
PROPERTY INCOME
2021
2020
2019
2018
2017
Contracted annual rent at
year end
(Decrease)/increase in year
Occupancy
£5,700,000
£5,907,000
£6,253,000
£5,025,000
£4,966,000
(3.5)%
93%
(5.5)%
+24.4%
99%
100%
+1.2%
100%
+20.8%
100%
READ MORE ABOUT
OUR BUSINESS
MODEL ON PAGES
20 TO 21
26
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021STRATEGIC REPORT Investments
The industrial sector was, once again,
the star of the property market
show in 2021. Average prime rents
for large distribution warehouses
rose by 15.6% in the UK and a similar
figure for smaller and multi-let
units. This significant growth was
exceeded for those units in the ‘last
mile’ distribution category and also
in London where industrial assets
achieved c.25% annual increase.
This continuing strong demand
for warehouse and distribution
space, together with the increase in
confidence and trading in the retail
warehouse sector, led to an increase
in our portfolio valuation of 11.1%,
compared to the MSCI all property
value increase of 14.1%. Our St Austell
property increased by almost 50%
over the 12 months commencing
January 2021, due to a 10-year lease
renewal and a 20% increase in rent.
Other industrial assets in the portfolio
increased in value in excess of 15%.
£0.4m
Residential x2
Following the settlement of rent
review at our Oxford offices where the
rent increased by 26.6%, the valuation
rose by 16.9%. We let our one vacant
leisure unit in Ipswich on a new 15-
year lease which led to an increase in
valuation of 23%.
Property acquisitions
and disposals
We made one disposal during the year
which was our Andover property let
to Saint Gobain Building Distribution
Limited (t/a Jewson). Our rationale
for sale was the diminishing head
leasehold interest that we held,
with limited opportunity to regear
on favourable terms, together with
the fact that the investment had
witnessed no rental growth over
the past two reviews. We decided to
take advantage of a strong industrial
investment market and we sold our
leasehold interest for £3,550,000 gross,
a yield of 4.8%.
Sector balance
The sector balance in our portfolio is now, by valuation:
£1.5m
Warehouse
Warwick
2
0
1
6
£
3
.
0
m
Retail warehouse
Warehouse
£11.5m
Total
Leisure
disposals
Office
m
0 17 £2.3
2
Retail
Residential
Total
2021
%
£1.1m
45
High street
retail
28
Kingston
12
9
6
£2.3m
High street retail
Staines
100
0
2020
%
2019
%
2018
%
2017
%
46
26
12
9
7
0
42
27
14
9
8
0
39
33
9
9
10
0
40
34
3
9
13
1
100
100
100
100
£0.7m
Residential
£0.7m
Residential
Over the past five years we have reduced our exposure to the high street, and
will continue to do so, whilst concentrating on those sectors which will give
our shareholders a better return. Further detail is provided in the financial
review on page 28.
SIMON GILL
Chief executive
28 March 2022
1
1
5
3
FIVE-YEAR SUMMARY OF
ACQUISITIONS AND DISPOSALS
£7.0m
Warehouse
Llantrisant
£4.5m
Warehouse
St Austell
m
1.9
1
£
9
1
0
2
2
0
1
7
£
1
0
.
1
m
£27.2m
Total
acquisitions
2018 £ 5 . 2 m
£5.6m
Warehouse
Nottingham
£4.9m
Leisure
Ipswich
£5.2m
Leisure
Rubery
Note: There were no property additions in 2020 or 2021
and no disposals in 2019 or 2020.
£3.5m
Warehouse
Andover
1 £3.5 m
2
0
2
£2.3m
High street retail
Staines
2017 £
2.
3
m
£12.0m
Total
disposals
2018 £6. 2 m
£1.8m
High street retail
Cirencester
£3.7m
Warehouse
Southampton
CONTRACTED
RENT AT THE
YEAR-END PA
£5.7m
REDUCTION IN
CONTRACTED
RENT PA
£0.2m
RENTAL
PIPELINE
£32.2m
REDUCTION IN
RENTAL PIPELINE
£2.6m
27
£1.8m
High street retail
Cirencester
m
2
.
6
£
8
1
0
2
£3.7m
Warehouse
Southampton
STRATEGIC REPORTStock code: HCFTwww.highcroftplc.com
FINANCIAL REVIEW
ROBERTA MILES
Finance director
Our 2021 performance showed
a strong bounce-back in terms
of investment returns whilst our
profitability remained strong
notwithstanding the effect of
the Covid-19 pandemic on our
gross and net rental income.”
Overview
Profitability
Net rental income
Adjusted earnings per share
2021
2020
£5,258,000
£5,464,000
56.7p
67.7p
IFRS profit/(loss) for the year
£11,944,000
(£1,147,000)
Net admin expenses to gross rent
19.6%
17.6%
Investment returns
Net asset value per share
Dividend per share*
Total shareholder return
Return on equity
Financing
Net debt
Net debt to property value
Average cost of debt at the year end
1,275p
55p
29.6%
19.4%
1,104p
57p
(18.5%)
(1.90%)
£21,485,000 £23,905,000
25%
3.1%
29%
3.1%
* For 2020 the figure includes a special dividend of 6p per share.
28
The group has again shown resilient
performance during 2021, which continued to
be dominated by the Covid-19 pandemic. Gross
rental income decreased by 2.6% (£156,000) to
£5,928,000, notwithstanding a one-off receipt
of £165,000. This fall was primarily due to the
voids at three of our properties and the sale
of our Andover property. Property operating
expenses increased by £50,000 to £670,000.
These costs comprised a bad debt charge
of £142,000 and property costs arising from
our ongoing asset management, plus the
costs arising from our void properties. Our
administrative and finance costs also increased
in the year, primarily due to the increased costs
associated with being a listed company, and
with our status as an associated undertaking
together with an increase in directors’
remuneration and in staff costs, partly due
to the appointment of our new company
secretary. Our underlying adjusted revenue
profit before tax (excluding revaluation gains
and gains on disposals) decreased by 7.4% as
a result of the 3.8% fall in net rental income,
the 8.9% rise in administration expenses
net of the 4.6% fall in interest payable. The
taxation charge of £304,000 has arisen from
the reduction of our PID pool by £1.6m made
as a result of the Covid-19 pandemic. Further
information on the reduction of the PID pool
is on page 88.
Net assets have increased by 16% to £66,117,000
and we have a low net debt to property
value of 25%. The average cost of debt at the
year-end remains 3.1% with the reduction in
interest payable arising in the year due to the
refinancing of two loans and an additional
£1m of borrowing taken in 2020 at lower rates
than the expiring facilities. Our investment
properties increased in value by £8,755,000 (11%
on a like-for-like basis).
We are proposing a final dividend for 2021 of
33p per share giving a total dividend for 2021
of 55p per share, an increase of 8% from the
2020 dividend of 51p per share (excluding
the 2020 special dividend of 6p per share).
Since 2009 (our first full accounting year as
a REIT), our dividends have risen by a total of
112% – a compound annual increase of 6.4%.
In the same period, our net assets per share
have increased by 92% from £6.66 to £12.75
per share.
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021STRATEGIC REPORT Income
Total income has decreased by 2.6%
6,500
6,000
5,500
0
0
0
£
’
5,000
4,500
4,000
Total
£’000
5,928
6,084
3
5,840
2021
5,928
2020
6,084
2019
5,843
54
8
5,035
2018
5,097
92
16
4,749
2017
4,857
The annual movement in our property income can be summarised as:
Commercial property income
Residential property income
Income from equity investments
Increase in gross rental income
7,000
Negative effects of CVAs
(214)
2021
%
(2.6)
2020
%
4
2019
%
16
2018
%
6
2017
%
22
Negative effects of
sale of asset
(65)
Positive effect of
asset management
184
One-off income
165
6,000
6,084
5,000
0
0
0
£
’
4,000
2020
Reduction in
Covid-19
concessions
12
Negative effect
of voids
(220)
Reduction in
insurance
premiums
chargeable
(18)
Administration and other expenses
Directors’ remuneration
Auditor’s remuneration including other services
Other expenses
Administration expenses
Net finance expenses
Total expenses
2021
£’000
837
64
263
1,164
851
2,015
2020
£’000
801
58
210
1,069
892
1,961
2019
£’000
2018
£’000
597
35
194
826
850
541
32
163
736
699
1,676
1,435
Director’s remuneration rose primarily due to three years of the share element of the Highcroft Incentive Plan being
expensed in the year (2020 two years), the 2021 Incentive Plan award being higher than for 2020, net of the decrease in
base salary and Incentive Plan award reduction for David Kingerlee when he changed status to a non-executive director
on 7 April 2021. More detail can be found in the remuneration report on pages 59 to 70. Other expenses have increased as a
result of the rising professional costs associated with our status as a premium main marked listed entity and the additional
professional work and fees required due to the increased risk of being an associated undertaking of Kingerlee Holdings
Limited. We added a part-time company secretary to our small team in October 2021 in order to strengthen our internal
governance and improve the robustness of our organisation. It is likely that these costs will continue to increase significantly
in the future due to the governance and regulatory demands facing all listed entities. Net finance expenses decreased as
a result of a full year’s saving arising from our £4,000,000 loan refinancing and additional £1,000,000 loan drawn in 2020,
where our new fixed interest rates were significantly lower than those on the maturing loans.
29
5,928
2021
2017
£’000
492
31
140
663
649
1,312
STRATEGIC REPORTStock code: HCFTwww.highcroftplc.com FINANCIAL REVIEW
Summary of profit before tax and income tax credit on revenue activities
Profit before tax
Income tax (charge)/credit
Profit for the year
2021
£’000
3,243
(304)
2,939
2020
£’000
3,503
–
3,503
2019
£’000
3,983
72
4,055
2018
£’000
4,445
67
4,512
2017
£’000
3,287
61
3,348
The decrease in the revenue profit for the year in 2021 was influenced by a decrease in net rental income of £206,000, an
increase in administration expenses of £95,000 and a decrease in net finance expenses of £41,000.
Investments
87,565
82,060
86,710
90,000
80,000
0
0
0
£
’
70,000
679
77,700
2,131
798
76,315
Commercial property*
Residential property*
Equities
* Including assets held for sale
classified as current asset
investments
60,000
Total
£’000
2021
£87,565
2020
£82,060
2019
£86,710
2018
£78,379
2017
£79,244
Our investments increased due to valuation gains net of the disposal of our warehouse property in Andover.
Summary of property investment activities
During 2021 we disposed of our warehouse property in Andover. More details can be found on page 27.
Acquisitions at cost
Net proceeds from disposals
Net (divestment)/investment (from)/into the
property portfolio
2021
£’000
–
(3,500)
(3,500)
2020
£’000
–
–
–
2019
£’000
11,898
2018
£’000
5,226
–
(6,090)
2017
£’000
10,086
(2,259)
11,898
(864)
7,827
Realised and unrealised property gains
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
Revaluation gains on investment property
Revaluation losses on investment property
Net revaluation gains/(losses)
2021
£’000
250
9,925
(1,170)
8,755
2020
£’000
–
2,525
(7,175)
(4,650)
2019
£’000
–
739
(3,627)
(2,888)
2018
£’000
967
2,600
(2,116)
484
2017
£’000
1
3,365
(77)
3,288
The realised gain on disposals arose from the sale of our Andover property in August 2021.
Overall, our property portfolio increased in value during the year by £8,755,000, which represents 11.1% on a like-for-like basis. Our
most significant revaluation gains related to one of our warehouse units where we negotiated a successful lease renewal during
the year with a 20% increase in the basic rent, and one of our leisure units where the tenant had been in administration in 2020
and where we completed a new long-term lease in October 2021. The most significant revaluation losses were in our high street
retail assets, where a further move in market sentiment, has resulted in a reduced valuation and there was also a significant
decrease at our void office property. The revaluation movement is summarised by class of asset in the following table.
30
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021STRATEGIC REPORT
Office
Industrial
Retail
Leisure
Retail warehouse
Valuation
movement
Movement to opening
valuation less disposals
350,000
5,500,000
(570,000)
700,000
2,775,000
8,755,000
4.7%
14.6%
(10.3%)
6.0%
12.9%
11.1%
Financing and cashflow
Net cash generated from operating activities was £282,000 higher at £3,502,000. The increase arose from a £804,000
decrease in working capital requirement and a £41,000 reduction in finance expense, net of a reduced profit from operations
before changes in working capital of £273,000 and an increase in tax paid of £290,000. It is the directors’ intention to reinvest
surplus cash, that is not required for PID payments, into the commercial property portfolio when suitable opportunities arise.
Opening cash
Net cash from operating activities
Investment acquisitions – property
Investment disposals – property*
Investment disposals – equities
Dividend paid
Net new bank borrowings
Closing cash
2021
£’000
3,295
3,502
–
1,925
–
2020
£’000
1,559
3,220
–
–
–
(3,007)
(2,484)
–
5,715
1,000
3,295
2019
£’000
5,202
3,560
(11,898)
–
724
(2,829)
6,800
1,559
2018
£’000
1,904
3,620
(5,226)
6,090
1,333
(2,519)
–
5,202
2017
£’000
3,369
3,568
(10,086)
2,259
477
(2,183)
4,500
1,904
* For 2021 net of proceeds transferred into deposit given as bank security and included in other receivables in Note 10 to the consolidated
financial statements.
Analysis of borrowing
Handelsbanken term loans 2030
Handelsbanken term loans 2029
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)
2021
£’000
5,000
6,800
4,500
3,400
7,500
–
27,200
(5,715)
21,485
66,117
32%
2020
£’000
5,000
6,800
4,500
3,400
7,500
–
27,200
(3,295)
23,905
57,121
42%
2019
£’000
–
6,800
4,500
3,400
7,500
4,000
26,200
(1,559)
24,641
60,721
41%
2018
£’000
–
–
4,500
3,400
7,500
4,000
19,400
(5,202)
14,198
62,384
23%
2017
£’000
–
–
4,500
3,400
7,500
4,000
19,400
(1,904)
17,496
59,977
29%
Our weighted average cost of total debt was 3.13% (2020 3.13%).
The group has a facility letter in place to re-finance its loan that matures on 16 May 2022.
Outlook
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 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
28 March 2022
31
STRATEGIC REPORTStock code: HCFTwww.highcroftplc.com
OUR RISKS
Risk framework
The company has a well-established risk management
and internal control framework. The board has overall
responsibility for risk management with a focus on
determining the nature and extent of exposure to principal
risks the group is willing to take in achieving its strategic
objectives. The amount of risk is assessed in the context
of the core strengths of our business and the external
environment in which we operate. Whilst risk is an integral
part of our business, the general appetite of the group for
risk is low.
The board believes that effective risk management is
integral to our strategy of delivering long-term sustainable
income and capital growth.
Strategic risk management reporting
Board of directors
• Overall responsibility for risk management
• Regular review of effectiveness of system of internal
control
• Regular assessment of emerging and principal risks
Audit committee
• Assurance of risk management process
Executive committee
• Day-to-day risk management
• Ongoing identification, assessment and mitigation
of risk
• Design implementation and evaluation of system of
internal control
• Ensuring operational effectiveness of control system
Our approach to risk management is to identify the
financial operational and compliance 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 any of these having a material impact. This
process is regularly monitored and reviewed.
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 means we can respond
quickly to changes in the risk environment.
32
The principal risks that have been identified and the
management and/or mitigation of these are set out on pages
34 to 37. The board has identified that emerging risks are
likely to be linked to our existing principal risks and these are
also included as appropriate in the table on pages 34 to 37.
Against the backdrop of economic and political challenges
due to the continued impacts of the global Covid-19
pandemic, we have continued to actively manage our
risk exposure by maintaining a high occupancy across
our portfolio and an efficient capital structure and
liquidity position.
Risk appetite
Whilst risk is an integral part of our business the general
appetite of the group for risk is low.
Changes to our principal risks
The principal risks and uncertainties facing the group in 2021
are set out on pages 34 to 37 together with the mitigating
actions and controls in place. We define a principal risk
as one that is currently impacting on the group or could
impact the group over the next 12 months. These principal
risks are not a complete list of all risks facing the group but
are a snapshot of the group’s risk profile as at the date of
this report.
New principal risks or new factors
affecting existing principal risks
International trade negotiations affecting the
political and regulatory outlook
The trade agreement with the EU was completed just prior
to the end of the transition period on 31 December 2020.
Whilst all our properties are in the UK, our tenants operate
global businesses with international supply chains and
recruitment policies. During 2021 we have not become
aware of any significant adverse effect on our tenants that
may have an impact on our income and we have also not
seen any reduction in demand for properties arising from
the Brexit process.
The ongoing Covid-19 pandemic affecting the
macro-economic climate
During 2021 there has been a successful vaccine rollout in
the UK and the potential risks from the ongoing pandemic
have reduced significantly. There have, however, been some
significant shifts in the way that people live their lives with
more working from home and less shopping in the high
street and an increase in online shopping. These cultural
shifts have affected the property marketplace. In general,
property valuations, particularly in the industrial sector, have
performed well and recovered from much of the uncertainty
factored into the 2020 valuations.
The board has established protocols for remote working for
itself and its employees. In the move to new premises during
the year, the related health and safety issues connected
with the virus were taken into account in developing our
workplace operating procedures.
The board continues to pay close attention to the evolving
situation and to mitigating the risks for our business and all
our stakeholders.
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021STRATEGIC REPORT The longer-term operations of the business affected by the sustainability credentials of
the business
During the year the board agreed that expectations relating to environmental, social and governance issues had increased
and as a result the sustainability credentials of the business were now a principal risk. Further details on the company’s
approach to identifying, assessing and managing climate-related risks are in the sustainability section of the report.
Risk heat map
The risk heat map below illustrates the principal risks that have the potential to significantly impact the group’s strategic
objectives, financial position or reputation. It highlights net risk, after taking account of principal mitigations.
1
3
1
3
Principal risk key
External risks
7
6
6
2
2
1 Macro-economic outlook including
Covid-19
2
Political and regulatory outlook
A B E
3 Occupier demand and tenant default A B E
5
7
4
5
4
4
5
Commercial property investor
demand
Availability and cost of finance
Internal risks
h
g
H
i
t
c
a
p
m
I
w
o
L
8
8
Link to
strategic
objectives
A B E
E
D E
A B C
D E
A B C
D E
A D E
6
7
8
Business strategy
Key personnel
Sustainability
Low
Likelihood
High
As at 7 April 2021
As at 28 March 2022
Strategic priorities 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 to £5m with no asset representing more than 15% of the portfolio
C Seek capital growth opportunities within our property asset base
D Use medium-term gearing at a modest level
E
Provide a dividend increase in excess of inflation
33
STRATEGIC REPORTStock code: HCFTwww.highcroftplc.com OUR RISKS
Principal risk
External risks
How we manage/mitigate the risk
Commentary
Change in risk
assessment in
the year
Link to strategic
priority
1
Macro-economic outlook
The UK economic climate, any further adverse
consequences of Covid-19 and the potential global
impact of the conflict in Ukraine, particularly in relation
to future movements in interest rates and cost-of-living,
present both risks and opportunities in the property
and associated financial markets. This could impact the
delivery of our planned revenue and capital strategy.
• Monitoring of economic and property industry
research by the executive team and review at board
meetings and adjustment of strategy as necessary.
• Our activities are restricted solely to the UK with no
foreign exchange exposure.
• Use of advisers as appropriate when considering key
transactions.
• Ongoing review of tenant, asset and sector profile.
Political and regulatory outlook
The end of the Brexit transition period at the end
of 2020 and the effect of the new trade deals could
further impact the profitability of our tenants. The ever-
increasing regulatory framework for listed companies
will increase our cost base.
• We are not able to influence political events and
decisions, however, we review and monitor potential
scenarios and consider them in our planning process.
• We use our advisory team to ensure that the board
remains up to date with the evolving regulatory
requirements for a listed real estate company.
• We have introduced a board portal to enhance our
secretary and further enhancing our reporting procedures.
2
3
Occupier demand and tenant default
Any weakening in the UK economy, reduced consumer
confidence, business activity and investment could result
in tenant administration/CVA and reduce income, rental
growth and capital performance.
4
Commercial property investor demand
Any drop in, inter alia, the health of the UK economy,
or in the availability of finance, or the attractiveness of
sterling, may result in a reduction in investor demand
for UK property, which may result in a fall in our asset
valuations.
5
Availability and cost of finance and debt covenant
requirements
Bank of England monetary policy may result in interest
rate rises and future increased costs of borrowing.
Reduced availability of appropriately priced finance
would affect our ability to refinance and/or increase cost.
Breach of debt covenants could trigger loan defaults and
repayment of facilities.
34
governance systems and procedures.
• We review market data with our advisers, together
with industry trends, to assess whether any risk-
mitigating steps need to be taken.
• Our strategy is to invest in the lower risk areas of the
south of England and Wales.
• Our strategy to invest across different sectors reduces
our exposure to an individual sector or tenant.
• We maintain close relationships with our tenants and
support them through their business cycle.
• We review the managing agents rent collection
reports regularly and take action, where necessary.
We review market data with our advisers, together with
industry trends, to assess whether any risk-mitigating
steps need to be taken.
The board aims to only assume a moderate level of
gearing, thereby 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. We monitor our LTV and debt
requirements and maintain good long-term relationships
with our current and potential financing partners.
During 2021, the economic position in the UK improved from the severe uncertainties
experienced in 2020 because of the pandemic. In addition, the successful vaccine rollout
and move away from the imposition of lockdowns will benefit our tenants. However,
interest rates have now started to rise, inflation is surging and there is still a level of
uncertainty regarding the future outlook.
Our property valuations have risen as a result of the improvement in market sentiment
In 2022, we will continue to carry out our controls, management and mitigation
during 2021.
procedures.
The Brexit transition period expired on 31 December 2020. There have been issues
arising for our tenants, exacerbated by the Covid-19 pandemic and primarily related to
supply chain costs and delays. However, these issues are not causing a fundamental
effect on our tenants.
Listed real estate company compliance requirements continue to increase.
In 2021, we strengthened our team by splitting the role of finance director and company
We have 21 properties with 27 tenants and 25 individual covenants. At the year-end two
of our properties are void representing 6.6% of the annual rent roll. In addition one unit
in a multi-let property representing 3.6% of our annual rent roll became void in the year
as the result of a CVA and has been re-let. Our bad debt charge for the year is £143,000
which represents 2% of gross rental revenue.
The weighted average lease expiry is 5.6 years, which provides a reasonable longevity of
income.
In 2022, we will continue to carry out our frequent reviews and controls.
A B E
A B E
A B E
During 2021, in the light of the improving macro-economic situation, the property
market improved and transaction rate increased. We took advantage of this to dispose
E
of one long-leasehold asset. More details on page 27.
In 2022, we will continue with our current controls and will look to take opportunities to
invest or divest at particularly opportune points in the property cycle.
During 2021, there were no changes to our debt.
Our next loan maturity is in May 2022 and a new replacement facility has been agreed.
In 2022, we will carry out our annual review with our current lender and continue to
carry out our monitoring procedures.
D E
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021STRATEGIC REPORT Principal risk
External risks
How we manage/mitigate the risk
Commentary
Change in risk
assessment in
the year
Link to strategic
priority
increasing regulatory framework for listed companies
remains up to date with the evolving regulatory
Listed real estate company compliance requirements continue to increase.
During 2021, the economic position in the UK improved from the severe uncertainties
experienced in 2020 because of the pandemic. In addition, the successful vaccine rollout
and move away from the imposition of lockdowns will benefit our tenants. However,
interest rates have now started to rise, inflation is surging and there is still a level of
uncertainty regarding the future outlook.
Our property valuations have risen as a result of the improvement in market sentiment
during 2021.
In 2022, we will continue to carry out our controls, management and mitigation
procedures.
The Brexit transition period expired on 31 December 2020. There have been issues
arising for our tenants, exacerbated by the Covid-19 pandemic and primarily related to
supply chain costs and delays. However, these issues are not causing a fundamental
effect on our tenants.
In 2021, we strengthened our team by splitting the role of finance director and company
secretary and further enhancing our reporting procedures.
We have 21 properties with 27 tenants and 25 individual covenants. At the year-end two
of our properties are void representing 6.6% of the annual rent roll. In addition one unit
in a multi-let property representing 3.6% of our annual rent roll became void in the year
as the result of a CVA and has been re-let. Our bad debt charge for the year is £143,000
which represents 2% of gross rental revenue.
The weighted average lease expiry is 5.6 years, which provides a reasonable longevity of
income.
In 2022, we will continue to carry out our frequent reviews and controls.
During 2021, in the light of the improving macro-economic situation, the property
market improved and transaction rate increased. We took advantage of this to dispose
of one long-leasehold asset. More details on page 27.
In 2022, we will continue with our current controls and will look to take opportunities to
invest or divest at particularly opportune points in the property cycle.
Availability and cost of finance and debt covenant
The board aims to only assume a moderate level of
During 2021, there were no changes to our debt.
Our next loan maturity is in May 2022 and a new replacement facility has been agreed.
In 2022, we will carry out our annual review with our current lender and continue to
carry out our monitoring procedures.
1
Macro-economic outlook
The UK economic climate, any further adverse
consequences of Covid-19 and the potential global
• Monitoring of economic and property industry
research by the executive team and review at board
meetings and adjustment of strategy as necessary.
impact of the conflict in Ukraine, particularly in relation
• Our activities are restricted solely to the UK with no
to future movements in interest rates and cost-of-living,
foreign exchange exposure.
present both risks and opportunities in the property
and associated financial markets. This could impact the
delivery of our planned revenue and capital strategy.
• Use of advisers as appropriate when considering key
transactions.
• Ongoing review of tenant, asset and sector profile.
Political and regulatory outlook
The end of the Brexit transition period at the end
of 2020 and the effect of the new trade deals could
• We are not able to influence political events and
decisions, however, we review and monitor potential
scenarios and consider them in our planning process.
further impact the profitability of our tenants. The ever-
• We use our advisory team to ensure that the board
will increase our cost base.
requirements for a listed real estate company.
• We have introduced a board portal to enhance our
governance systems and procedures.
Occupier demand and tenant default
Any weakening in the UK economy, reduced consumer
confidence, business activity and investment could result
• We review market data with our advisers, together
with industry trends, to assess whether any risk-
mitigating steps need to be taken.
in tenant administration/CVA and reduce income, rental
• Our strategy is to invest in the lower risk areas of the
growth and capital performance.
south of England and Wales.
• Our strategy to invest across different sectors reduces
our exposure to an individual sector or tenant.
• We maintain close relationships with our tenants and
support them through their business cycle.
• We review the managing agents rent collection
reports regularly and take action, where necessary.
We review market data with our advisers, together with
industry trends, to assess whether any risk-mitigating
steps need to be taken.
gearing, thereby 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. We monitor our LTV and debt
requirements and maintain good long-term relationships
with our current and potential financing partners.
Commercial property investor demand
Any drop in, inter alia, the health of the UK economy,
or in the availability of finance, or the attractiveness of
sterling, may result in a reduction in investor demand
for UK property, which may result in a fall in our asset
valuations.
requirements
Bank of England monetary policy may result in interest
rate rises and future increased costs of borrowing.
Reduced availability of appropriately priced finance
would affect our ability to refinance and/or increase cost.
Breach of debt covenants could trigger loan defaults and
repayment of facilities.
2
3
4
5
A B E
A B E
A B E
E
D E
35
STRATEGIC REPORTStock code: HCFTwww.highcroftplc.com OUR RISKS
6
7
Principal risk
Internal risks
Business strategy
If the group has the wrong strategy for the current stage
of the property cycle and the macro-economic climate
there will be reduced profitability and capital values.
Key personnel
A number of critical business processes lie in the hands
of a few people. Failure to recruit, develop and retain staff
and directors with the right skills and experience may
result in significant underperformance or impact the
effectiveness of operations and decision making, in turn,
impacting business performance.
8
Sustainability
If the group fails to address climate-related risks in the
short, medium and long term, the company’s assets
and its licence to operate will be challenged. Identifying
future opportunities for operating and the ability of the
executives to manage these risks are also factors.
How we manage/mitigate the risk
Commentary
Change in risk
assessment in
the year
Link to strategic
priority
Our strategy is determined to be consistent with our
stated risk appetite and is based on our evaluation of the
macro-economic environment. Individual investment or
divestment decisions are made by the board and subject
to a risk evaluation.
Remuneration packages are reviewed annually to ensure
that the group can retain, motivate and incentivise key
staff. We outsource a number of key routine processes
to minimise the risk of business interruption. Succession
planning and the composition of the board are regularly
reviewed by the nomination committee and the board
reviews the key advisers at least annually. Future
recruitment may require the use of a head-hunter to
source candidates with the appropriate skillset.
A separate strategic session on sustainability was held by
a sub-group of the board during the year. This covered the
climate-related risks and opportunities to the business.
During 2021, a year still dominated by the global pandemic, our capital performance was
close to the market and our rent collection was 97%.
In 2021, we held an annual strategy away day to discuss the group’s five-year strategy,
monitor our portfolio for further asset management activities and manage the void
rate, examine opportunities for acquisitions and disposals to recycle capital, and we will
continue to monitor and react to the impact of Covid-19 on our business.
There were no changes during the year. This is the third year of operation of the
Highcroft Incentive Plan, designed to enhance the linkage between director
remuneration and performance.
In 2021, we split the role of finance director and company secretary to further reduce
risk. An experienced part-time company secretary was appointed with the use of a
head-hunter.
The remuneration policy was reviewed in the year by the remuneration committee and
no changes were considered necessary.
The board agreed a series of initiatives which included evaluation of the EPC risk
strategy for the portfolio and a series of stakeholder engagements intended to take
place over 2022. Construction at St Austell will incorporate certain sustainable features.
Further details are available on page 41.
A B C
D E
A B C
D E
A B C
D E
36
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021STRATEGIC REPORT Principal risk
Internal risks
Business strategy
6
7
If the group has the wrong strategy for the current stage
of the property cycle and the macro-economic climate
there will be reduced profitability and capital values.
Our strategy is determined to be consistent with our
stated risk appetite and is based on our evaluation of the
macro-economic environment. Individual investment or
divestment decisions are made by the board and subject
to a risk evaluation.
Key personnel
A number of critical business processes lie in the hands
of a few people. Failure to recruit, develop and retain staff
and directors with the right skills and experience may
result in significant underperformance or impact the
effectiveness of operations and decision making, in turn,
impacting business performance.
8
Sustainability
If the group fails to address climate-related risks in the
short, medium and long term, the company’s assets
and its licence to operate will be challenged. Identifying
future opportunities for operating and the ability of the
executives to manage these risks are also factors.
Remuneration packages are reviewed annually to ensure
that the group can retain, motivate and incentivise key
staff. We outsource a number of key routine processes
to minimise the risk of business interruption. Succession
planning and the composition of the board are regularly
reviewed by the nomination committee and the board
reviews the key advisers at least annually. Future
recruitment may require the use of a head-hunter to
source candidates with the appropriate skillset.
A separate strategic session on sustainability was held by
a sub-group of the board during the year. This covered the
climate-related risks and opportunities to the business.
How we manage/mitigate the risk
Commentary
Change in risk
assessment in
the year
Link to strategic
priority
During 2021, a year still dominated by the global pandemic, our capital performance was
close to the market and our rent collection was 97%.
In 2021, we held an annual strategy away day to discuss the group’s five-year strategy,
monitor our portfolio for further asset management activities and manage the void
rate, examine opportunities for acquisitions and disposals to recycle capital, and we will
continue to monitor and react to the impact of Covid-19 on our business.
There were no changes during the year. This is the third year of operation of the
Highcroft Incentive Plan, designed to enhance the linkage between director
remuneration and performance.
In 2021, we split the role of finance director and company secretary to further reduce
risk. An experienced part-time company secretary was appointed with the use of a
head-hunter.
The remuneration policy was reviewed in the year by the remuneration committee and
no changes were considered necessary.
The board agreed a series of initiatives which included evaluation of the EPC risk
strategy for the portfolio and a series of stakeholder engagements intended to take
place over 2022. Construction at St Austell will incorporate certain sustainable features.
Further details are available on page 41.
A B C
D E
A B C
D E
A B C
D E
VIABILITY STATEMENT
Assessment of viability
In accordance with provision 31 of the
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 five 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 includes the
dates of expiry of our next two expiring
term loans, which represent 40% of
our total debt. This five-year period is
considered to be the optimal balance
between the long-term strategy of
delivering sustainable income and
capital growth, and the fact that
property investment is a long-term
business, counterbalanced by the
inherent uncertainties involved in
medium to long-term forecasting
in an industry that has been cyclical
in nature.
The board, in conjunction with the
audit committee, carried out a robust
assessment of the principal risks
and uncertainties facing the group
including those that would threaten
its business model, strategy, future
performance, solvency, or liquidity
over the five-year period. This review
provided the board with assurance
that the mitigations and management
systems are operating as intended.
The board receives regular (at least
monthly) briefings from the executive
team, which include rent collection
data, portfolio updates including
issues and tenant discussions, debt
covenants and a review of the principal
risks and any adverse movements in
risk exposure.
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 property capital transactions
that are likely to occur and noted the
agreement of a facility letter to re-
finance the loan maturing in 2022.
The board also conducted a sensitivity
analysis, considering the potential
impacts of one, or more, of the group’s
principal risks, as set out on page 33,
occurring. In particular the board
considered the effect of the following
sensitivities during the forecast period:
•
•
•
•
a 20% drop in income during the
forecast period,
a 100% increase in the financing
cost of the debt maturing in 2022,
a 25% increase in our
proposed capital expenditure
programme, and
the effect of the non-release of the
£1.6m held by Handelsbanken plc
as cash security for borrowing.
Viability statement
Having considered the forecast
cashflows, covenant compliance, and
the impact of the sensitivities, the
directors confirm that 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 to 31 December 2026.
37
STRATEGIC REPORTStock code: HCFTwww.highcroftplc.com The directors have also stress tested
the forecasts considering the level
of fall in income and valuations that
would cause the business to be unable
to pay its liabilities as they fall due and
have concluded that the possibility of
these scenarios occurring is remote.
The audit committee reviewed the
analysis, on page 85, supporting the
going concern basis of preparation
of the accounts. This review included
the forecast 12-month cashflows,
loan maturities, headroom on debt
covenants, undrawn loan facilities
and the quality and parameters of the
stress testing. Having completed their
review, the committee recommended
to the board that it was appropriate to
adopt a going concern basis.
Going concern statement
The directors are not aware of any
material uncertainties that may cast
significant doubt upon the group’s
ability to continue as a going concern.
They have considered the audit
committee recommendation and
concluded that there is a reasonable
expectation that the group has
adequate resources to continue
in operational existence for the
foreseeable future.
GOING CONCERN STATEMENT
Assessment of
going concern
The directors have assessed the
group’s ability to continue as a going
concern. This includes a review of
the continuing uncertainties created
by the ongoing Covid-19 pandemic,
and the potential global impact of
the conflict in Ukraine, particularly in
respect of rental income, the group’s
cash resources, borrowing facilities and
dividend distributions.
The group’s business activities,
together with the factors likely to affect
its future development, performance
and financial position are set out in
the strategic report. The financial
performance of the group for 2021
including its cashflows, liquidity and
borrowing facilities are set out in the
financial statements with additional
information in the financial review on
pages 28 to 31. Note 18 to the accounts
on page 95 includes information on
the group’s financial instruments
and on its approach to credit and
liquidity risk.
At 31 December 2021, the group had
£5.7m of cash and cash equivalents
and fixed-term, fixed interest, non-
amortising borrowing of £27.2m that
expires during the period May 2022
– July 2030. In addition, there was a
secured deposit of £1.6m which should
become available in May 2022, an
undrawn overdraft facility of £1m and
additional headroom of £1.8m. The
first facility maturity is in May 2022 for
£7.5m and the company has an agreed
facility letter in place to replace this
with a new £7.5m fixed-term loan. No
other renewals fall due before August
2026. The group has a modest gearing
of 32% and its net debt to investment
property valuation is 23%.
Our primary debt covenants relate
to interest cover and loan-to-value.
They are tested annually, and the LTV
covenant is based on the valuations
addressed to the bank (which may
not be the same as the current
valuations). In order to respond to a
potential shortfall in the LTV covenant
as a result of a reduction in valuation
of our secured properties, the group
gave additional property as security
during the year. The group disposed
of its Andover property, which was
charged to the bank, during the
year. In addition, to maintain the LTV
covenant, £1.6m of the proceeds from
sale were placed into a secured deposit
account. It is anticipated that these
funds will be transferred to cash at or
before the time that the maturing loan
is financed in May 2022. In addition,
one further property will be charged to
the Handelsbanken PLC in 2022.
The group has a secure property
income stream from 27 tenants with
no undue reliance on any one tenant.
The Covid-19 pandemic has, however,
resulted in us being unable to quickly
re-let our unit in Oxford High Street
that went void in March 2020, nor
have we been able to secure a new
tenant for our Cardiff property where
the lease ended in June 2021. We
have, however, managed to re-let
our leisure unit in Ipswich where the
previous tenant went into CVA in 2020.
Based on this experience, the board
has carefully reviewed its forecast
assumptions regarding potential void
periods and lease incentives at break
dates and lease ends. In addition, we
have three tenants with whom we
are in detailed discussion regarding
their arrears positions and with one
of these we have taken further action
to recover the sums owed to us.
Notwithstanding the fact that Covid
restrictions are easing in England and
Wales and the Ukraine conflict does
not directly impact our assets which
are all in England and Wales, there
remain uncertainties regarding our
tenants’ ability to carry on their normal
business and generate cash to pay
their rent. We have taken this into
account in our sensitivity analyses.
The group’s most significant
outflows are its PID and bank interest
payments, which made up 54% and
15% of the 2021 cashflow respectively.
The directors have reviewed the
projected cashflows of the group and
its compliance with debt covenants.
They have also overlaid their best
estimates of the impact of the
ongoing Covid-19 pandemic and the
potential global impact of the conflict
in Ukraine onto their forecasting and
debt covenant reviews and considered
scenarios including:
• Rent collections continuing to be
reduced throughout 2022, affecting
cash generation and covenant
compliance
• Void properties and those that
may become void at lease end
and/or break dates remaining
void for a longer than usual period
thereby reducing income and
increasing costs
•
The ongoing pandemic and
global conflict affecting property
valuations and related debt
covenants
38
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021STRATEGIC REPORT STAKEHOLDER ENGAGEMENT
Effective engagement enables the
board to ensure stakeholder interests
are considered when making decisions.”
CHARLES BUTLER
Chief executive
Section 172(1) statement
The board of directors confirms that it has, during the year,
acted to promote the long-term success of the company
for all of its stakeholders, including its shareholders, whilst
having due regard to the matters set out in section 172 (1) (a)
to (f) of the Companies Act 2006 being:
(a) the likely consequences of any decision in the long term
(b) the interests of the company’s employees
(c) the need to foster the company’s business relationships
with suppliers, customers and others
(d) the impact of the company’s operations on the
community and the environment
(e) the desirability of the company maintaining a reputation
for high standards of business conduct
(f) the need to act fairly between members of the company.
The nature of our business means that we have an ongoing dialogue with a wide group of stakeholders, as summarised below.
Stakeholder
Our
shareholders
Our tenants
Why is it important
to engage?
In order to
understand
the views and
aspirations of
shareholders as
the owners of our
business
In order to have
the ability to react
swiftly to issues and
opportunities and
to understand how
tenant demands are
changing to help us
evolve our strategy
Ways we engage
Key interests
How do we respond?
Direct and indirect shareholder
engagement via the annual
report, shareholder meetings
and calls with our two main
shareholder groups. We also
seek all shareholders’ views via
our website and at the AGM.
Further details on page 52
• Growth strategy
and healthy returns
whilst meeting our
environmental and
social responsibilities
We had several meetings
with our two main
shareholder groups in
the year and sought their
views on strategy and risk
We build relationships with
tenants, directly if possible, and
also via our asset managers
•
Tenant satisfaction,
with fit-for-purpose
spaces that are able
to evolve with their
business
• Ability to
meet future
tenants’ needs
We had direct dialogue
with 13 of our tenants
and also with prospective
tenants during the year
and considered their views
in our decision-making
With the general concern
over the environment,
we took a ‘green’
approach to our proposed
development in St Austell
with the ambition of
providing a BREEAM very
good building
Our employees
We value the input
and insight that all
team members can
provide
As we only have only two
employees outside the board,
our engagement is informal
• Wellbeing
• Health and safety
• Personal
development
Informal reviews were held
with the employees by a
director who is not their
line manager
Our advisory
team and other
suppliers
In order to have
the ability to
react swiftly to
opportunities
and issues
To ensure we are
aware of emerging
trends and risks in
the marketplace
Building close relationships,
where advisers have a detailed
understanding of the business,
its purpose, culture, and
objectives
• Responsible
payment practices
• No conflicts of
interest
• Mutually beneficial
relationships,
supporting both
parties’ interests
A director took
responsibility for each key
relationship and ensured
that communication
and feedback loops were
appropriate and effective
Our local
communities and
the environment
We wish to
ensure that our
activities have a
positive impact on
communities and
the environment
Engagement with tenants
and local communities to
understand their views and
concerns and, in 2021, their
Covid-19 related issues, either
directly or via our asset
managers
•
Making a positive
contribution to
communities and
the environment
Quarterly meetings with
asset managers that
include environmental
matters as an agenda item
• Charitable donations
(detailed on page 43)
39
STRATEGIC REPORTStock code: HCFTwww.highcroftplc.com
STRATEGIC REPORT
SUSTAINABILITY
During the year we have undertaken deep
dives into our strategy and approach to climate
change and strengthened our governance and
risk management processes.”
SIMON GILL
Chief executive
Our culture
At Highcroft, we 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 stakeholders
Our key stakeholders are our shareholders,
tenants, employees, advisory team and other
suppliers, and our local communities and the
environment. Our engagement with them and
their key interests is set out in our stakeholder
engagement statement on page 39.
The environment and climate
change
We 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.
Streamlined energy and
carbon reporting regulations
(SECR)
The nature of our business and the ultimate
responsibilities of our tenants for power
supplies within our investment properties,
means we fall below the de minimis limit for
required reporting under the SECR.
The taskforce on climate-
related financial disclosures
(TCFD)
In accordance with Listing Rule 9.6.8 (8)
requiring premium-listed companies to include
a statement in the annual report confirming
the extent to which they have made disclosures
consistent with TCFD on a comply or explain
basis, we have summarised our compliance to
date with the TCFD guidelines on the following
pages. Our focus for the coming year will be
to further analyse and prioritise the strategic
and financial impacts of our most material
climate-related issues to inform our strategy
and manage these risks and opportunities
across our businesses.
READ MORE ABOUT
OUR PORTFOLIO
ON PAGES 08 TO 15
READ MORE ABOUT
OUR RISKS ON
PAGES 32 TO 37
40
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021 STRATEGIC REPORT
TCFD Theme
Recommended Disclosure
Our Approach
Governance
Disclose the
organisation’s
governance around
climate-related risks
and opportunities
Describe the
board’s oversight of
climate-related risks
and opportunities
Describe management’s
role in assessing and
managing climate-related
risks and opportunities.
The board is responsible for approving the group’s climate change
targets and monitoring portfolio performance.
• During the year our audit committee, a principal committee
of the main board, oversaw the management of our climate-
related risks and opportunities. It was agreed that expectations
relating to environmental, social and governance issues had
increased and as a result the sustainability credentials of the
business were now deemed a principal risk. Separate sessions
on sustainability were also held by a sub-group of the board,
to ensure that the company adopted a strategic approach to
planning for climate change. These sessions considered what
additional expertise may be required to assist the board in
addressing the challenges posed by climate-related issues and
the board will continue to regularly analyse its approach and the
data available, recognising these matters will evolve.
• Simon Gill, CEO, is the main board member with overall
accountability for climate and sustainability. Through engagement
with our property managing agents, Workman LLP, work is
underway to identify the most appropriate strategy for reducing
the impact on the environment of the company’s properties and
promoting the health and wellbeing of occupiers and visitors and
generating positive social value within the local community.
• Future developments will be undertaken with the intention of
identifying the opportunities available to build and produce
properties that are aligned with both our sustainability
commitments and those of our prospective tenants. In particular
our development project at St Austell will consider sustainability
as a key criterion and where we are aiming to construct a
BREEAM very good or excellent building.
41
Stock code: HCFTwww.highcroftplc.com SUSTAINABILITY
TCFD Theme
Recommended Disclosure
Our Approach
Disclose the actual and
potential impacts of
climate-related risks and
opportunities on the
organisation’s businesses,
strategy and financial
planning where such
information is material.
Describe the climate-
related risks and
opportunities the
organisation has
identified over the short,
medium and long term.
Describe the impact of
climate-related risks and
opportunities on the
organisation’s businesses,
strategy, and financial
planning.
Describe the resilience
of the organisation’s
strategy, taking into
consideration different
climate-related scenarios,
including a 2°C or lower
scenario.
Disclose how the
organisation identifies,
assesses, and manages
climate-related risks.
Describe how processes
for identifying, assessing,
and managing climate-
related risks are
integrated into the
organisation’s overall risk
management.
The board considers climate change as part of its decision making,
particularly around acquisitions and refurbishment projects. As
part of its approach to evaluating the climate-related risks and
opportunities, it will assess which of those could have a material
financial impact on the organisation.
• Short term (0–5 years) – market shift in terms of stricter
legislation, such as the introduction in the UK of the new
minimum energy efficiency standards (MEES) for commercial
and domestic property.
• Medium term (5–15 years) – market demand from occupiers for
buildings and spaces with higher levels of efficiency and lower
carbon footprints.
•
Long term (15+ years) – changing climate conditions in the south
east of England and Wales, principally temperature increases
and flooding and their potential impact on our buildings.
• As a REIT, we invest in, maintain, and manage property in the
south of England and Wales and, as such, climate-related issues
affect the way we assess properties for acquisition and how we
and our tenants develop and maintain existing ones.
• As part of our assessment of our existing portfolio, we consider
the geographical location, access to utilities and other
relevant factors when evaluating any climate-related risks and
opportunities on properties within our existing portfolio.
• We will be evaluating the company’s EPC risk strategy over the
coming year with a view to identifying appropriate actions for
particular properties.
• Physical climate-related risks, such as increasing temperatures,
could increase the stresses on our properties and, in turn,
increase our cost base and/or make them less attractive to
existing or potential tenants. We will continue to consider
energy and carbon reduction, ensuring that our buildings
operate as efficiently as possible.
Potential climate change risks are identified and monitored as
part of our wider risk management procedures. As noted, the
sustainability credentials of the business are deemed to be a
principal risk.
• Our asset managers report on climate change as part of their
quarterly reporting and the CEO considers whether any issues
arising from this or other matters are material enough to be
considered further. During 2021, as part of the overall review
of principal and emerging risks, the audit committee and in
turn the board considered the position on the sustainability
credentials of the business and a sub-group of the board met
to consider the specific issues involved.
Disclose the metrics and
targets used to assess
and manage relevant
climate-related risks and
opportunities where such
information is material.
Due to our size and the limited amount of carbon emissions that
we are able to influence as a business, we are still considering
the extent of metrics and targets that will be appropriate for us
to adopt. As we evolve our strategy to addressing climate-related
risks and opportunities, it is intended that identifying metrics and
targets will form part of this.
Strategy
Risk
management
Metrics &
targets
42
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021STRATEGIC REPORT The environment – energy efficiency
actions taken during 2021
During 2021, we have continued to ensure that:
• Subject to the limitations imposed by the Covid-19
restrictions, 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
and appropriate actions are taken;
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. The diverse experience of the board
is highlighted on pages 48 and 49.
At 31 December 2021, the average composition of the group’s
employees was as follows:
• All new leases require occupiers to observe relevant
1
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;
• Our asset managers are committed to operating to an
environmental policy and 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;
•
The weighted average of the EPCs on the 19 of our 22
properties where we have certificates remains at a C
or above. It is currently 66 which is a C rating. The only
change in the year arose from the weighting calculation
as relative property valuations moved;
• We continue to adopt a paperless strategy with our
shareholders, which has reduced our paper mailings to
shareholders by 64% in the last three years; and
• We make recommendations to the landlord of our
serviced office for energy savings that could be made.
Fairness and equality
We value the contributions made by all of our employees,
including our directors and our advisory team, and
believe that a diverse team is key to maximising business
effectiveness. 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. We encourage effective communication with
all our stakeholders ensuring that everyone understands our
culture and purpose.
Employee alignment
We align our executive management team with our
shareholders via the Highcroft Incentive Plan, which
includes a share-based element for those executive directors
eligible to participate. More details of the incentive plan can
be found on page 62.
Director
diversity
3
Total
staff
4
4
Male
Female
Communities we serve
The board considers 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.
Charity
During 2021, donations were made to local and national
charities totalling £12,000. These charities support the sick,
terminally ill and disadvantaged. Examples of our support
include:
• Contributions towards the funding of palliative care in
three hospices, in a day centre, in hospitals and at home.
• Funding towards the support of those with learning
disabilities in the local community to help them to live
life to the full.
• Contributions towards national campaigns for support of
those who suffer from abuse, neglect, autism and heart
disease.
Future focus
In 2022, we will continue to conduct our business in an
ethical and responsible manner. Highcroft will endeavour to
find the correct balance between regulation, cost, and the
absolute impact of any changes that it is able to influence.
This strategic report on pages 16 to 43 was approved by the
board and signed on its behalf.
SIMON GILL
Chief executive
28 March 2022
43
STRATEGIC REPORTStock code: HCFTwww.highcroftplc.com E
C
N
A
N
R
E
V
O
G
44
Contents
Chairman’s introduction to corporate
governance
Board of directors
Corporate governance
Report of the audit committee
Report of the nomination committee
Directors’ remuneration report
Remuneration at a glance
Report of the directors
Statement of directors’ responsibilities
46
48
50
53
57
59
60
71
73
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021 RETAIL WAREHOUSE – GRANTHAM
45
Stock code: HCFTwww.highcroftplc.com CHAIRMAN’S INTRODUCTION TO GOVERNANCE
The effective delivery of our
strategy, the sustainability of
our business and the creation
of value for all our stakeholders
continues to be supported by
our governance structures and
processes.”
CHARLES BUTLER
Chairman
Our corporate governance
On behalf of the board, I am pleased to present
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 key
values and the board endeavours to follow the
appropriate guidance and rules. The board
maintains good governance at the centre
of all its decisions and discussions and our
framework continues to serve the Company
well. The effective delivery of our strategy, the
sustainability of our business and the creation
of value for all our stakeholders continues to be
supported by our governance structures and
processes.
Compliance with the UK
Corporate Governance Code
The board acknowledges the intention of
the 2018 UK Corporate Governance Code
(the Code) in promoting the value of good
corporate governance to enable long-term
sustainable success. To the extent that is
reasonable and practical for a company of our
size and structure and the nature and scale of
our activities, these are applied. The company,
therefore, complies with all principles and
provisions of the Code with the exception of
the areas listed on page 47.
These non-compliances relate to the size of
the board and employee base and the board
considers our governance structures and
processes are in line with our corporate culture
and are fit for purpose. The board has concluded
that compliance would outweigh any potential
benefits given the size and lack of complexity
of the group. The board will continue to review
compliance with the Code, and with evolving
best practice at least annually.
Our strategy is set out on pages 22 to 23. All
of the board support this strategy and ensure
that any matters that it approves are in line
with this strategy.
READ MORE ABOUT
OUR STAKEHOLDER
ENGAGEMENT ON
PAGE 39
READ MORE ABOUT
OUR BOARD ON
PAGES 48 TO 49
46
We recognise the importance of stakeholder
engagement 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. Given the
constraints that continued to be faced during
2021 due to Covid-19 restrictions, our annual
general meeting (AGM) was again held with
the minimum quorum in attendance. We
continued to offer a dedicated email address
for any shareholder wishing to raise questions
and encouraged shareholders to appoint the
chairman of the meeting as their proxy to
ensure that the shareholders’ votes would be
counted. Following changes to the Articles of
Association at the 2021 AGM, we will look to
offer, where appropriate and cost-effective,
greater flexibility on shareholder participation
at future AGMs. We have decided that the 2022
AGM will be held face to face in London on 18
May 2022 and we look forward to welcoming
shareholders to that meeting.
This governance report on pages 44 to 73
sets out in more detail our compliance with
the Code during the year and explains our
governance structure. All members of the
board support the principles of good corporate
governance and believe that we complied
with the principles and provisions of the Code
as was appropriate throughout the year, and
have explained any non-compliances and our
explanations for these.
Board and committee
attendance for the year
ended 31 December 2021 100%
Female representation
on our board
20%
(including chairman) 40%
Independent directors
Key governance activities
in 2021
The board’s key governance activities during
the year have included:
•
•
•
•
a separate strategic session on
sustainability, identifying the
climate-related risks and opportunities
to the business and a series of initiatives;
the 2021 annual general meeting (AGM);
evaluation of the board; and
continued review of the issues associated
with David Kingerlee’s change of status
to shareholder representative.
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021GOVERNANCE Compliance with the provisions of the 2018 UK Corporate Governance Code (the Code)
Our governance section evidences our compliance with Principles (A to R) of the Code and illustrates how we have applied
the Code principles and complied with the provisions.
Section
Description
Further information
1. Board leadership and
company purpose
A. Effective board
B. Purposes, values and culture
C. Governance framework and board resources
D. Stakeholder engagement
E. Workforce polices and practices
2. Division of responsibilities
F. Board roles
G. Independence
H. External commitments and conflicts of interest
I. Key activities of the board in 2021
3. Composition, succession
and evaluation
J. Appointments to the board
4. Audit, risk and
internal control
K. Board skills, experience and knowledge
L. Annual board evaluation
M. Financial reporting
external auditor and internal audit
N. Review of the 2021 annual report
O. Internal financial controls
Risk management
5. Remuneration
P. Linking remuneration with purpose and
strategy
Q. Remuneration policy
You can read about the board’s
effectiveness on pages 50 to 51
You can read about our purpose values and
culture on pages 22 and 40
Learn more about our governance framework
and board resources on ages 50 to 51
Learn more about our engagement with
stakeholders on page 39
Learn more about our workforce policies and
practices on page 51
You can read about the division of
responsibilities on page 51
Learn more about the board independence
on pages 48 to 49
You can read about the board’s other roles
on pages 48 to 49
Learn more about the board’s key governance
activities on page 46
You can read about the work of the
nomination committee on page 57 to 58
Learn more about our board on pages
48 to 49
You can read about the board’s
evaluation process on page 51
You can read about our audit process on
pages 55 to 56
Learn more about the our review of the
annual report on page 55
You can read more about our approach to risk
management on page 56
You can read about the Highcroft Incentive
Plan on page 62
Read more on our remuneration policy on
pages 61 to 62
R. Performance outcomes in 2021
Strategic targets
You can read about the board’s
effectiveness on pages 50 to 51
Throughout the financial year ended 31 December 2021, the company fully complied with all the provisions of the Code, except for
five of the 41 provisions and an explanation is provided below. The board agrees that, due to the size of its board and the fact that
there are only two non-board employees, the risks of non-compliance are not significant and that the costs of compliance would
outweigh any potential benefits. The board will review compliance with the Code and evolving best practice, at least annually.
New Code
provision
Detail
Potential action to enable
compliance with the provision
Highcroft decision
11
24
32
36
41
At least half the board, excluding the chair,
should be independent non-executive directors
Audit committee – the chairman of the board
should not be a member
Recruit at least two more
independent non-executive
directors
Compliance would outweigh any potential
benefits given the small size and lack of
complexity of the group
Before appointment as chair of remuneration
committee, the appointee should have served
on a remuneration committee for at least 12
months
Recruit at least one more
independent non-executive
director who had the necessary
experience to assume the role
of committee chair
Compliance would outweigh any potential
benefits given the small size and lack of
complexity of the group. The selection
criteria for a future non-executive director
will include this point
Share awards should have a total vesting and
holding period of five years or more
Amend Incentive Plan and/or
remuneration policy
There should be engagement by the workforce
by remuneration committee
None appropriate
The Remuneration Committee considered
the matter during 2021 and concluded
that an increased vesting period would be
a disincentive to the executive directors
As there are only two employees other
than the board, it is not believed that such
engagement and disclosure thereof would
add value to shareholders
47
Stock code: HCFTwww.highcroftplc.comGOVERNANCE
BOARD OF DIRECTORS
CHARLES BUTLER
Non-executive chairman
SIMON COSTA
Non-executive director and
senior independent director
Division of
responsibilities
SIMON GILL
Chief executive
APPOINTMENT TO THE BOARD
APPOINTMENT TO THE BOARD
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.
Charles joined the group as
non-executive chairman in
January 2018.
COMMITTEE MEMBERSHIP
Chairman of the nomination
committee, and a member of the audit
and remuneration committees.
OTHER APPOINTMENTS
Charles holds the following
appointments:
• non-executive chairman of Mysale
Group PLC, an international online
retailer;
• non-executive director of Essensys
plc, a global provider of SaaS
platforms and on-demand cloud
services to the flexible workspace
industry; and
•
executive director of Belerion
Capital Group Limited, an FCA
regulated firm advising high net
worth individuals and family offices.
PREVIOUS EXPERIENCE/BRINGS TO
THE BOARD
Charles is a chartered accountant
who, prior to joining the board, was
the CEO of Market Tech Holdings PLC,
where he transformed a small group of
central London real estate assets into a
profitable, listed company with a £1.3bn
portfolio. With a successful track record
in running public companies, M&A,
raising equity and debt for expansion,
Charles is well positioned to continue
to help the company navigate its next
phase of growth.
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.
OTHER APPOINTMENTS
Simon is currently University Treasurer
at the Royal Agricultural University,
Cirencester, where his remit includes
financial strategy and balance sheet
management. Until recently, he was
the Finance Director there, where he
oversaw all the financial and related
operations of the university.
PREVIOUS EXPERIENCE/BRINGS TO
THE BOARD
Simon was formerly the Senior Bursar
of a college of the University of Oxford.
He was responsible for overseeing
the management of the endowment,
and the finance and estates functions,
and he served on all the college’s core
committees.
Prior to that, he was an investment
banker specialising in global M&A
activities, and then for nine years he
ran his own property company. In these
roles, he advised US and UK public and
private corporations on financial and
related matters and owned a modest
property portfolio. Simon’s breadth of
experience continues to provide the
board with a greater range of market
knowledge and skills, which are
particularly relevant to a company in
Highcroft’s position.
48
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021GOVERNANCE Effective board
Our board is composed of highly
skilled professionals, all of whom
continue to bring a range of
skills, perspective and corporate
experience to our boardroom.
MEMBERSHIP OF THE BOARD
DAVID KINGERLEE
Non-independent
non-executive director
ROBERTA MILES
Finance director
2
1
1
5
1
APPOINTMENT TO THE BOARD
APPOINTMENT TO THE BOARD
David joined the group as an executive
director in September 1996. With
effect from 7 April 2021, he became
a non-independent non-executive
director.
COMMITTEE MEMBERSHIP
Executive committee to 7 April 2021.
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 has a long-term knowledge
of the group. On 10 December 2020,
David notified the board that he
would be changing his role to that
of a shareholder representative,
representing the interests of Kingerlee
Holdings Limited with immediate
effect. Consequently, with effect
from 7 April 2021, David became a
non-independent non-executive
director. In this role, he does not sit
on any board committees.
Roberta joined the group in April
2010 and was appointed to the board
as finance director and company
secretary in July 2010. From October
2021, she continued in her role as
finance director having relinquished
her role as company secretary.
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 Mechadyne International Limited
and MCD Ventures 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 together with her project
management capabilities. The board
benefits greatly from the experience
of her varied executive roles.
KEY
Division of
responsibilities
Chairman
Member
Executive
committee
Audit
committee
Nomination
committee
Remuneration
committee
Non-executive chairman
Independent non-executive
directors
Non-independent non-executive
directors
Executive directors
EXPERIENCE OF THE BOARD
3
3
2
3
2
Finance
Mergers and acquisitions
Property
Corporate governance
Technology
49
49
Stock code: HCFTwww.highcroftplc.comGOVERNANCE CORPORATE GOVERNANCE
Governance framework
The board has overall responsibility for the group. It has delegated authority to the following committees and there are
terms of reference of these committees available on the group’s website www.highcroftplc.com.
The board
Chairman: Charles Butler
Comprised: Two executive and three non-executive directors
Role: The board is responsible to the shareholders for the long-term strategy, control and leadership of the group
Board committees
Executive
committee
Audit
committee
Remuneration
committee
Nomination
committee
Chair: Simon Gill
Chair: Simon Costa
Chair: Simon Costa
Chair: Charles Butler
This committee is comprised
of the executive directors
and the company secretary
and is chaired by the chief
executive.
Roles: Implementation
of strategy and policies,
day-to-day decision making
and administration of
the group.
This committee is comprised
of the independent
non-executive directors.
Audit committee meetings
are attended, by invitation,
by the auditor and the
finance director, and other
executives may be invited to
attend from time to time.
Roles: Financial reporting,
monitor risk management
and internal control, monitor
external audit process.
This committee is comprised
of the independent
non-executive directors.
This committee is comprised
of the independent
non-executive directors.
Roles: Remuneration
policy, setting of directors’
remuneration packages,
agreeing incentive plan
targets and outcomes.
Roles: Recommends board
appointments, succession
planning, reviewing board
composition, skills and
diversity and performance
evaluation.
Board effectiveness
The board meets at least five 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.
Each of the directors has committed to attend all scheduled and relevant committee meetings. If a director cannot, for
unseen circumstances, attend a meeting, they will be provided with the papers in advance of the meeting as usual and can
discuss them with the chairman or chief executive and provide comments. Attendance at the committee meetings is shown
in the respective committee reports. Attendance at board meetings is shown below:
Charles Butler
Simon Costa
Simon Gill
David Kingerlee
Roberta Miles
50
Attendance
8/8
8/8
8/8
8/8
8/8
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021GOVERNANCE 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.
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.
Division of responsibilities
Chairman
•
Leads the board ensuring it
operates effectively and in
accordance with good governance.
• Sets board agenda for meetings
and ensures that adequate,
accurate and 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.
• Maintains a dialogue with
shareholders.
Charles Butler was considered to be
independent upon appointment and
is considered, by the board, to have
remained independent throughout
the year.
Chief executive
There is a clear division of
responsibilities between the chairman
and the chief executive.
• Oversees the day-to-day running of
the group’s business including the
development and implementation
of the board’s agreed strategy.
•
Leads the executive team.
Company secretary
• Provides advice and assistance
to the board, chairman and other
directors.
• Supports the chairman with
the development of agenda for
board meetings and provision of
information to the board.
• Advises the board on corporate
governance developments.
Non-executive director
• Brings an external perspective,
constructive challenge and
objectivity to the board’s
deliberations and decision making.
• Drawing on their extensive
experience and knowledge, they
act as both a sounding board
and as objective, constructive
scrutinisers and challengers to the
executive board.
• Help facilitate the strategic
decision making process and the
monitoring of the performance
of the executive management in
achieving the agreed strategy and
objectives.
Senior independent director
• Provides a sounding board for
the chairman and serves as an
intermediary for other directors
when necessary.
• Available to discuss concerns
with shareholders that cannot be
resolved by the normal channels of
communication with the chairman
or chief executive.
As previously reported, with effect from
7 April 2021, David Kingerlee changed
his status from executive director
to non-independent non-executive
director.
Governance framework
and board resources
Corporate governance is essential to
ensuring our business is run in the
right way for the benefit of all of our
stakeholders.
Our governance framework, on
page 50, was established to provide
clear lines of accountability and
responsibility. It also assists with
the sharing of information and
facilitates fast decision making and
effective oversight. Our governance
arrangements continue to support
the development and delivery of
strategy by ensuring accountability
and responsibility, facilitating the
sharing of information to inform
decisions, enabling engagement
with key stakeholders, maintaining
a sound system of risk oversight,
management and internal controls,
providing independent insight and
knowledge from the independent
non-executive directors and facilitating
the development and monitoring of
key performance indicators.
The Directors utilise an electronic
board portal, which provides
immediate and secure access to
current and past papers. The chairman
of the board, and the chairs of the
committees, set the agendas for
upcoming meetings with support from
the company secretary. As noted in the
nomination committee report, on page
57, during the year Anne-Marie Palmer
was appointed as company secretary,
providing further support to the board
on corporate governance.
Workforce policies
and practice
Since there are only five directors
and two employees, our policies are
informal. Everyone is aware of the
group’s purpose and understand its
values. We require all directors to notify
the company if there is a situation that
could give rise to a conflict or potential
conflict of interest, and we ensure
that our independent non-executive
directors remain independent of
executive management and free from
any business relationship that might
materially interfere with exercise of
their judgement.
Board evaluation
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. During
the year, the board conducted a
self-performance evaluation by
way of a questionnaire, which was
facilitated by the company secretary.
The questionnaire was designed
to evaluate the effectiveness of the
board and its committees, as well as
identify areas for improvement. The
results were discussed by the board
and action points created to ensure
that any areas needing improvement
were prioritised and addressed. The
effectiveness of the actions taken from
the last evaluation were also analysed.
The board considered itself to be
generally effective in all the key areas
identified in the questionnaire and
areas for improvement identified were:
enhancing stakeholder engagement
and board training.
51
Stock code: HCFTwww.highcroftplc.comGOVERNANCE CORPORATE GOVERNANCE
Relations with shareholders
The board values the views of its shareholders and
recognises their interest in the company’s strategy
and performance, board membership and quality of
management. The 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 21 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 are 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 72.
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.
Directors powers at the year end
At the 2019 AGM, the directors were given powers, as follows:
•
•
To allot new shares, or to grant rights to subscribe for or
convert any security into shares of the company for the
purpose of the satisfaction of awards granted under the
Highcroft Incentive Plan up to an aggregate nominal
amount of £64,591; and
To allot equity securities for cash on a non-pre-emptive
basis, up to an aggregate nominal amount of £64,591.
These authorities will expire in 2024, unless previously
revoked by the Company.
During 2021, new ordinary shares with a nominal amount of
£2,131 were allotted under these authorities in satisfaction of
the 2020 awards under the Highcroft Incentive Plan, leaving
£60,476 of authorities remaining.
52
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021GOVERNANCE REPORT OF THE AUDIT COMMITTEE
Audit, risk and internal control
I am pleased to introduce the audit committee
report for the year ended 31 December 2021.
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 committee
and attendance at meetings
There have been no changes to the membership
of the committee during the year. The
committee continues to be composed solely
of the independent chair of the board and
the independent non-executive director. The
board is satisfied that they both have sufficient
financial experience, business acumen and
real estate sector experience to carry out their
duties effectively. Their attendance at committee
meetings is set out below:
Director
Committee
position
Attendance
SIMON COSTA
Simon Costa
Chairman
Chairman of the audit committee
Charles Butler Member
3/3
3/3
The committee meets regularly during the
year, in line with the financial reporting
timetable and, in 2021, 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.
In addition to the three main meetings, there
were also several informal meetings, and
general discussions between the committee
members and, at times, the finance director
and/or the auditor, primarily as a result of
David Kingerlee’s announcement regarding
his change of status to that of a shareholder
representative.
The terms of reference were reviewed during
the year and are available on the group’s
website at: www.highcroftplc.com.
We monitor the quality and
integrity of the financial
reporting and the valuation
process, and focus on the risks
affecting the group.”
Main responsibilities
In line with the authority delegated by the board, the audit
committee has the following main responsibilities:
• Risk management and internal controls
– reviewing the system of internal controls and risk
management.
• Financial reporting
– monitoring the integrity of the company’s financial
statements and any formal announcements relating to
financial performance, and considering significant financial
reporting issues, judgements and estimates.
• Property valuations
– considering the process and outcome and the effectiveness
and independence of the external valuer.
• External audit
– oversight and remuneration of the external auditor, and
review of the policy for non-audit services provided by the
external auditor.
53
Stock code: HCFTwww.highcroftplc.comGOVERNANCE REPORT OF THE AUDIT COMMITTEE
Principal responsibilities of the committee and its related activities
Financial reporting
The committee is responsible for monitoring the integrity of the group’s financial statements and any formal announcements
relating to performance. It paid particular attention to those matters that were considered to be important to the group due to
their subjectivity, the level of judgement involved or their effect on the financial statements.
In 2021, the key issues relating to our financial statements that were considered are set out below:
Significant
issues
considered
Valuation
of property
portfolio
Potential risk
How those issues were addressed
Conclusion
The valuation of
our investment
property portfolio
is inherently
subjective as it
is undertaken
on the basis of
assumptions made
by valuers, which
may not prove
to be accurate.
The outcome of
the valuation is
significant in terms
of our results,
future investment
decisions and
remuneration.
The external valuers carry out a valuation every year at
30 June and 31 December. They also provide an overview
of the UK property market and the detailed performance
of the group’s assets. The valuer attended a meeting
with the board and the auditor after the year end, where
the agenda included the process adopted by the valuer,
data provision by management, comparable market
data and assumptions used by the valuer, in particular
estimated rental values and yields. It also included a
commentary on the relevant qualifications of the valuer
and on their independence. It noted that the fee for
the recurring valuation work was £18,000 and for other
advisory work, including valuation fees for lenders, was
£16,000 (2020 £18,000 and £16,000). The audit committee
analysed the reports, reviewed the summary of the work
of the executives in reviewing the valuer’s work, reviewed
the valuation outcomes and challenged assumptions
where it believed appropriate. It also noted that the fee
arrangement with the valuer was on a fixed fee basis in
line with best practice.
The committee was
satisfied with the
valuation process,
the independence
and effectiveness
of the group’s
external valuer
and the valuation
disclosures included
in the annual report.
Revenue
recognition
Revenue may
be recorded in
the incorrect
accounting
period, or fail to be
recorded at all, or
fictitious revenues
may be recorded.
REIT status
The group loses its
REIT status.
The committee considered the appropriateness of the
controls in place in the revenue cycle, having particular
regard to the use of external agents and the controls
in place over their work including the reconciliations
performed and reviewed internally.
The committee
concluded that
revenue recognition
policies and controls
were appropriate.
The committee considered the controls in place to
ensure compliance with REIT tests. In particular,
they reviewed the compliance with the distribution
requirement and the impact of forecasted results and
trends on this criterion. They also reviewed the non-close
company status requirement and the professional
advice that had been taken on this during the year.
The committee
concluded that
the group’s REIT
status had been
maintained during
the year.
Going concern
statement
If this basis was
inappropriate
then there could
be material
misstatements
in the financial
statements.
The committee reviewed the analysis supporting the
going concern basis of preparation, particularly in light
of the ongoing Covid-19 pandemic This review included
forecast cashflows, loan maturities, headroom on our
debt covenants and undrawn debt facilities.
The committee
concluded
that the going
concern method
of preparation
remained
appropriate. The
going concern
statement is set out
on page 38.
54
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021GOVERNANCE Significant
issues
considered
Viability
statement
Impact of
Covid-19
Potential risk
How those issues were addressed
Conclusion
If the statement
was incorrect then
corrective action
might need to
be undertaken to
ensure the group’s
viability.
The committee considered whether the period of five
years covered by the statement was reasonable. It also
considered the reasonableness of the assumptions
used, taking into account the market environment
and the group’s strategy. The committee reviewed the
sensitivities identified and stress tested whether they
were the most appropriate.
A detailed analysis of the impacts of Covid-19 on the
group's risk framework is included within the risk review
on pages 32 to 37.
The potential
impacts of the
Covid-19 pandemic
on the assessment
of the group’s
principal risks
and uncertainties,
risk appetite and
viability statement
may have not been
fully considered,
affecting the results
and conclusions
that were drawn
from them.
The committee
concluded that
the statement had
been drawn up on
a reasonable basis
and agreed with
its assessment. The
viability statement,
together with
further details on
the assessment
undertaken, is on
page 37.
The committee
concluded that the
potential impacts
of Covid-19 had
been appropriately
considered.
As noted in the 2020 annual report, David Kingerlee announced to the board on 10 December 2020, that he would, in future,
be representing the interests of Kingerlee Holdings Limited. The committee considered the issue of whether or not Highcroft
should, in the future, consider itself to be an associated undertaking of Kingerlee Holdings Limited. The committee and board
consulted extensively with its advisers on this matter. On 1 February 2021, the audit committee and board agreed that, as a
result of Kingerlee Holdings Limited’s indirect 27% holding in Highcroft, its place in the wider Kingerlee Concert Party, and
David Kingerlee’s new status, Highcroft was, with effect from 10 December 2020, an associated undertaking of Kingerlee
Holdings Limited. The impact of this is that Highcroft’s external auditors, Mazars, have to complete a group audit questionnaire
for the auditors of Kingerlee Holdings Limited’s auditor, and consider the additional risk of this status to the financial reporting
process. Kingerlee Holdings Limited has agreed to pay, each year, any additional fees that relate to the impact of this change.
During 2021, the audit committee recommended to the board that Mazars undertake a full interim review for the first time in
2021 due to the additional risks arising as a result of Highcroft’s status as an associated undertaking.
The committee assessed 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
stakeholders to assess the group’s position, performance, business model and strategy. The committee ensured that the
board continued to present 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 73, and that of the auditor on pages 76 to 80.
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, following a formal competitive tender, and carry out no other
services for the group other than interim review, for which the fee is £10,000. The audit fee is £54,000. The group’s audit
partner is Stephen Eames who has been in role since Mazars were appointed. The committee will ensure that rotation of
audit partner takes place in 2022 in line with regulation.
55
Stock code: HCFTwww.highcroftplc.comGOVERNANCE REPORT OF THE AUDIT COMMITTEE
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 committee has considered the
need for an internal audit function,
but has decided that the size and
complexity of the group does not
justify it at present. The work of the
external auditor provides an element
of comfort that controls are operating
as intended and the executive
team review the operation of the
group’s policies and procedures. The
committee is mindful of the need to
ensure a sufficiently robust evaluation
of the group’s risk management and
internal control systems is undertaken.
In the absence of an internal audit
function, it will keep the arrangements
for achieving internal assurance
under review, at least annually, and
endeavour to improve this.
The audit committee reports on each
of its meetings at the subsequent
board meeting.
SIMON COSTA
Chairman of the audit committee
28 March 2022
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, 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. We 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.
The audit committee reviews
the appointment of the external
auditor on an annual basis, reviews
their objectivity, effectiveness,
independence and remuneration. As
part of this review, Mazars provide the
committee with an annual report on its
integrity, objectivity and independence
and on the policies and procedures
that they have in place to ensure this.
The committee concluded that, on the
basis of this review, the auditor was
objective, effective and independent
and recommended to the board
that a resolution proposing Mazars’
reappointment be put to shareholders
at the 2022 AGM.
Risk 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
committee considered the group’s
risk appetite and concluded that it
remains set at an appropriate level
in line with the group’s strategy. 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 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 and board protocols
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 protocols for capital
expenditure and disposals,
including defined levels of
authority;
• 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; and
• Annual review of compliance with
the Code.
More detail regarding our
management of risk within our
strategic framework is set out on
page 32.
The committee has considered the
internal control and risk management
systems in relation to the financial
reporting process and considered
them adequate.
56
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021GOVERNANCE REPORT OF THE NOMINATION COMMITTEE
Composition, succession and evaluation
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 committee
and attendance at meetings
There have been no changes to the
membership of the committee during the year.
The committee continues to be composed
solely of the independent chairman of the
board and the independent non-executive
director, their attendance at committee
meetings is set out below:
Director
Committee
position
Attendance
Charles Butler Chairman
Simon Costa
Member
1/1
1/1
If this committee is dealing with the successor
to the chairmanship it would be chaired by
another non-executive director and may
involve an external consultant.
Activities of the committee
Appointment of company secretary
Having considered the expanding remit of
the finance director and company secretary,
it was agreed that recognising the significant
increase in governance and financial reporting
requirements, that the role would be split.
During the year, an independent search
consultant was engaged to assist with the
appointment of a company secretary. A
comprehensive appointment process was
undertaken and recognising the skills required
for the role, Anne-Marie Palmer FCG was
appointed with effect from 5 October 2021.
Anne-Marie has 20 years’ experience as a
chartered secretary advising listed companies,
including those with the property sector, and is
working on a part-time basis for the Company.
Succession planning
During the year, succession planning remained
a key focus for the committee. The committee
assessed the skills and experience required
to meet the organisation’s current and future
needs, with the aim of ensuring business
success and long-term shareholder value. The
committee will continue to review the need to
secure any particular or specific skills.
57
Chairman of the board and of the nomination committee
CHARLES BUTLER
Our role in ensuring the
board has the appropriate
balance of skills, experience
and knowledge enabling
the company to achieve its
objectives remains a key
responsibility of the committee.”
Main responsibilities
In line with the authority delegated by the board, the nomination
committee has the following main responsibilities:
• Board appointments
– leads the process for board appointments, ensures plans are
in place for orderly succession to the board.
• Board composition
– reviews the structure, size and composition of the Board
and its committees, recommending to the Board any new
appointees and the reappointment of existing directors and
committee members.
• Board diversity
– ensures there is a balance of skills, knowledge, experience,
and diversity on the board.
• Board evaluation
– oversees a formal and rigorous annual evaluation of the
Board, its committees and directors.
Stock code: HCFTwww.highcroftplc.comGOVERNANCE REPORT OF THE NOMINATION COMMITTEE
Consideration was given to succession planning to fill key
roles in the short, medium and long term and these plans
were written down so that they continue to be reviewed on a
regular basis.
Board composition and tenure
In accordance with the Code, all directors offer themselves
for reappointment on an annual basis at the AGM. The board
carried out an effectiveness evaluation during the year
and the committee concluded that each of the directors
continues to make an effective and valuable contribution,
demonstrates commitment to their role and that it is in
the best interest of the shareholders that each director be
re-elected. The board considers that the length of time that
each director serves on the board should not necessarily be
limited and has not set a finite tenure policy.
Diversity
The company has a culture that 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 its
review of board composition and during any recruitment
process, all aspects of diversity are considered. The company
aims to employ the best candidates available based on
merit and ability. Given the small size of the organisation,
the board does not consider that diversity quotas are
appropriate in determining its composition. As a company
consisting of five directors and two employees, our
diversity in terms of female appointments is 43% as
at 31 December 2021.
CHARLES BUTLER
Chairman of the nomination committee
28 March 2022
58
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021GOVERNANCE DIRECTORS’ REMUNERATION REPORT
Policy, practices, supporting strategy
Annual Statement
I am pleased to introduce the remuneration
report for the year ended 31 December 2021.
This report comprises three sections:
•
•
•
This annual statement;
The summary of directors’ remuneration
policy; and
The annual report on remuneration for
the year.
This report describes the second year of
the application of the remuneration policy
incorporating the Highcroft Incentive Plan and
explains the committee’s intentions for 2022.
Membership of the committee
There have been no changes to the
membership of the committee during the year.
The committee continues to be comprised
solely of the independent chairman of the
board and the independent non-executive
director, and meets at least three times per
year, together with ad-hoc meetings when
required. The attendance at committee
meetings during the year is set out below:
Chairman of remuneration committee
Director
Committee
position
Attendance
SIMON COSTA
The Committee and Board believes
that the remuneration policy
remains appropriate in motivating
and rewarding executive directors,
as well as aligning their interests
with the company’s strategy and
the interests of shareholders.”
Main responsibilities
In line with the authority delegated by the board, the remuneration
committee has the following main responsibilities:
• Role
– assist the Board to fulfil its responsibility to shareholders to
ensure that executive remuneration is designed to support
strategy and promote sustainable success and is aligned to
company purpose and linked to delivery of the company’s
long-term strategy.
• Remuneration Policy
– is responsible for determining and agreeing with the Board
the policy for the remuneration of the executive directors
and ensuring that they are appropriately incentivised to
enhance the group’s performance and are rewarded for their
contribution to the success of the business by designing,
monitoring, and assessing incentive arrangements, and
assessing performance and outcomes against them.
• Dialogue with shareholders
– maintains an active dialogue with shareholders, ensuring
their views are sought and considered when setting
remuneration policy.
Simon Costa
Chairman
Charles Butler Member
3/3
3/3
The board considered our independence
during the year and concluded that both
members were 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.
Major decisions made during
the year
During the year, the remuneration committee
met to:
• Review the current policy in the context
of the ongoing appropriateness for the
company and evolving practice and
determining its proposal to the 2022 AGM;
• Ensure that the Highcroft Incentive Plan
continues to add rigour and transparency
to the determination of awards, while also
rewarding both the delivery of returns to
shareholders and sustained long-term
performance in line with the requirements
of the Code;
• Agree the incentive plan criteria and
awards for executive directors for 2021; and
• Begin to review the level of directors’ fees for
2022. The directors’ salaries were informally
benchmarked against the external market
and changes for all directors were proposed
and confirmed after the year end.
Advisers
The committee did not appoint any external
advisers to carry out any work during 2021.
59
Stock code: HCFTwww.highcroftplc.comGOVERNANCE REMUNERATION AT A GLANCE
Remuneration philosophy
The 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.
Remuneration strategy
The current remuneration policy was approved by the shareholders at the 2019 AGM and remained in place in 2020 and
2021. Having considered the remuneration policy during the year, the Committee and Board have determined that the
existing policy remains appropriate in that it is designed to support strategy and to promote sustainable success. The only
amendment to the existing policy has been to remove the separate section referring to David Kingerlee’s entitlement under
the Highcroft Incentive Plan, as following his transition to non-executive director, he is no longer eligible to participate. As a
non-executive director, David Kingerlee’s remuneration is governed in the same manner as for all non-executives. The policy
will be proposed to shareholders for approval at the 2022 AGM. The Committee consulted major shareholders on renewal of
the policy and no concerns were raised.
Total remuneration – split between fixed and performance-linked elements
43%
2020
57%
2021
40%
43%
49%
2020
2020
57%
51%
2021
40%
Simon Gill
Fixed
Base salary
Pension and other benefits
Performance-linked
60%
Highcroft Incentive Plan – cash
Highcroft Incentive Plan – share award
Roberta Miles
Fixed
Base salary
Pension and other benefits
60%
Performance-linked
Highcroft Incentive Plan – cash
Highcroft Incentive Plan – share award
David Kingerlee (for the period to 7 April
2021 when he became a non-executive
director)
35%
35%
51%
2020
2020
2020
62%
49%
65%
65%
38%
Fixed
2021
Base salary
Pension and other benefits
Performance-linked
Highcroft Incentive Plan – cash
Highcroft Incentive Plan – share award
Single total figure of remuneration for
executive directors for year ended 31 December 2021
Simon Gill
Roberta Miles
£’000
132
116
David Kingerlee*
10 6
16
111
84
327
98
74
288
Fixed pay
Highcroft Incentive Plan – cash
Highcroft Incentive Plan – share award
* David Kingerlee also received remuneration as a non-executive director in 2021 (with effect from 7 April 2021).
60
2020
43%
42%
1%
57%
34%
23%
2020
43%
42%
1%
57%
34%
23%
2020
65%
63%
2%
35%
35%
–
2021
40%
39%
1%
60%
34%
26%
2021
40%
39%
1%
60%
34%
26%
2021
62%
60%
2%
38%
38%
–
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021GOVERNANCE
Summary of directors’ remuneration policy
The objective of the group’s remuneration policy is to embed a clear, transparent remuneration structure, which helps drive
the group’s strategy by properly rewarding performance.
This section of the report summarises the group’s remuneration policy, which was approved by shareholders at the 2019
AGM. During the year, the committee and the Board considered the elements of the policy and its link to strategy and
long-term sustainable success and concluded that the policy’s structure and operation remained appropriate, and the
existing policy will be proposed to shareholders for approval at the 2022 AGM. An ordinary resolution to approve this is put to
shareholders at least every three years. The policy is available on the group’s website: www.highcroftplc.com.
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 for each executive director.
The remuneration packages of all directors are reviewed annually, and these are listed in the table below, together with an
explanation of who they apply to, their purpose, their link to our strategy, the mechanics of the operation of the element and
any maximum amounts or performance criteria that apply.
Element
Purpose
Executive directors
Link to
strategy
Operation
Maximum
Performance target
To assist with
recruitment
and retention.
Reviewed at least annually. Paid
monthly via payroll.
Not set.
N/A
Fixed
Base salary
Pension
Competitive
remuneration
base,
benchmarked
to the market
reflecting role,
responsibilities,
skills and
experience.
To provide the
legal minimum
post-retirement
benefits.
To assist with
recruitment
and retention.
Benefits
Provide a
competitive level
of benefits.
To assist with
recruitment
and retention.
Not set.
N/A
N/A
The
maximum
will be set
at the cost
of providing
the benefits
described.
There is an auto-enrolment
compliant scheme in place.
The group will pay either to this,
or another personal pension
scheme nominated by the
director, at least the minimum
legal level of company
auto-enrolment contribution.
The group may pay a
non-pensionable cash sum in
lieu of pension contributions.
There is no intention to
introduce direct benefit
provision for the executive
directors at this time. However,
the remuneration committee
recognises the need to
maintain suitable flexibility to
ensure it is able to attract and
retain directors. Accordingly,
the remuneration committee
expects to be able to pay
a cash allowance in lieu of
benefits such as private medical
insurance and death in service
life assurance as appropriate.
61
Stock code: HCFTwww.highcroftplc.comGOVERNANCE REMUNERATION AT A GLANCE
Element
Variable
The Highcroft
Incentive Plan
Purpose
Link to
strategy
Operation
Maximum
Performance target
To incentivise
the executive
directors to deliver
both strong
in-year financial
and non-financial
performance
and sustained
longer-term
returns to
shareholders.
To assist with
recruitment
and retention.
To align
executive
director
interests
with those of
shareholders.
Annual
cash award
capped
at 10% of
distributions
paid to
shareholders.
Up to 200%
of base
salary.
Annual awards paid part in cash
and part in shares.
The cash element shall be the
higher of 80% of base salary
or 50% of the total award and
will be paid out after the end of
the financial year to which the
award relates.
Any balance will be paid in the
form of deferred shares that
vest 50% after three years, and
50% after four years subject
to the executive director’s
continued employment at the
date of vesting.
Malus will apply for the period
from grant to vesting with
clawback applying for the
two-year period post vesting.
Performance is measured
over the financial year.
75% of the award is payable
on the achievement of
financial targets, with the
balance being payable
on the achievement of
strategic targets.
The remuneration
committee is of the opinion
that given the commercial
sensitivity arising in relation
to the detailed financial
targets, disclosing precise
targets in advance would
not be in shareholder
interests. Actual targets,
performance achieved
and awards made will be
published at the end of
the performance periods
so shareholders can fully
assess the basis for any
payouts.
The remuneration
committee retains
discretion in exceptional
circumstances to change
performance metrics and
targets and the weightings
attached to metrics part
way through a performance
year if there is a significant
and material event that
causes the remuneration
committee to believe the
original metrics, weightings
and targets are no longer
appropriate. Discretion may
also be exercised in cases
where the remuneration
committee believe that the
formulaic outcome is not a
fair and accurate reflection
of business performance
Shareholding
requirement
To support
long-term
commitment to
the company and
the alignment
of executive
director interests
with those of
shareholders.
To align the
executive
director
interests
with those of
shareholders.
Chairman and non-executive directors
To assist with
recruitment
and retention.
Competitive
remuneration,
benchmarked
to the market
reflecting role,
responsibilities,
skills and
experience.
Fees
62
100% of base
salary.
None
Not set.
N/A
The remuneration committee
has adopted formal
shareholding guidelines
that will encourage the
executive directors to build
up over a five-year period
and then subsequently hold
a shareholding equivalent to
a percentage of base salary.
This requirement will continue
until the audited accounts
for the year of cessation of
employment are finalised and
the sale of any shares will then
be subject to orderly market
provisions.
Fees are reviewed annually
taking into account
responsibilities, time
commitment and benchmark
data for organisations of a
similar size and complexity. Fees
are paid monthly via the payroll
and relevant expenses incurred
are reimbursed.
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021GOVERNANCE DIRECTORS’ REMUNERATION REPORT
The committee addressed the following factors when determining the remuneration policy and practices, as recommended
by the Code.
Code principles
How the committee has addressed these
Clarity
Remuneration arrangements should
be transparent and promote effective
engagement with shareholders and the
workforce.
The committee is satisfied that the remuneration arrangements in the
policy are transparent, comprising simple incentive structures that are
commonplace in the market and in line with best practice remuneration
provisions.
Key shareholders were consulted when the remuneration policy was initially
adopted and are consulted prior to any updated policy being put to an AGM
for approval, which happens at least every three years. Our two employees
are aware of the policy.
Simplicity
Remuneration structures should avoid
complexity and their rationale and
operation should be easy to understand.
Risk
Remuneration arrangements should
ensure reputational and other risks
from excessive rewards, and behavioural
risks that can arise from target-based
incentive plans, are identified and
mitigated.
Predictability
The range of possible values of rewards to
individual directors and any other limits
or discretions should be identified and
explained at the time of approving the
policy.
Proportionality
The link between individual awards, the
delivery of strategy and the long-term
performance of the company should be
clear. Outcomes should not reward poor
performance.
The components of our remuneration policy are straightforward and are
simple to operate and communicate.
The range of performance outcomes is looked at carefully when setting
performance target ranges. Discretion is used where the outcomes lead to
an inappropriate pay outcome.
The deferred share element of the Highcroft Incentive Plan, the shareholding
requirement and clawback and malus provisions all help to mitigate risk.
Incentive plans are determined based on a proportion of base salary so there
is a sensible balance between fixed pay and performance-linked elements.
There is the ability to override a formulaic driven outcome of incentive plans
to minimise the likelihood of a poor link between reward and performance.
The incentive plan is determined based on a proportion of base salary, and is
capped, so there is a sensible balance between fixed pay and performance
linked elements.
Alignment to culture
Incentive schemes should drive
behaviours consistent with company
purpose, values and strategy.
The committee ensure that the Highcroft Incentive Plan criteria are
consistent with the company purpose and values, and that the performance
measures are linked to the business strategy.
63
Stock code: HCFTwww.highcroftplc.comGOVERNANCE DIRECTORS’ REMUNERATION REPORT
Recruitment policy
The remuneration committee’s approach to recruitment remuneration is to apply the same structure as described in the
policy table. On appointment, base salary levels will be set taking into account a range of factors including expected time
commitment, market levels, experience, internal relativities and affordability. The maximum annual opportunity under the
Highcroft Incentive Plan will be no more than 200% of base salary as set out in the remuneration policy.
The remuneration committee’s policy is not to provide sign-on compensation or to provide buyouts as a matter of course.
However, should the remuneration committee determine that the individual circumstances of recruitment justified the
provision of a buyout, the equivalent value of any incentives that will be forfeited on cessation of a director’s previous
employment will be calculated, taking into account the proportion of the performance period completed on the director’s
cessation of employment, the performance conditions attached to the vesting of these incentives and the likelihood of them
being satisfied, and any other terms and conditions having a material effect on their value. The remuneration committee
may then grant up to the same value as this calculated value, where possible, under the company’s incentive plan. To the
extent that it is not possible or practical to provide the buyout within the terms of the company’s existing incentive plan, a
bespoke arrangement would be used.
Loss of office policy
The remuneration committee will honour any contractual arrangements. When determining any loss of office payment for
a departing individual, the remuneration committee will always seek to minimise cost to the company, whilst seeking to
address the circumstances at the time.
Leaving arrangements under the Highcroft Incentive Plan are defined in the plan rules and vary by leaver type as set
out below:
• A ‘good leaver’ is defined as a participant ceasing to be in employment by reason of death, injury, ill health, disability,
redundancy, retirement or otherwise at the remuneration committee’s discretion. In these circumstances, unvested
incentive awards will vest in full on the usual date but pro-rated for time served and the achievement of performance
conditions.
•
The remuneration committee may at its discretion bring forward the vesting date for a good leaver, in which case the
performance would be assessed at that point.
• All other leavers who cease employment prior to the cash element of the incentive award being paid, or who are under
notice of cessation at the time that the cash element of the award is paid, will not be eligible to receive the cash element
of the award for that financial year, and all deferred shares for such leavers will lapse and any dividends paid on such
shares will be clawed back.
Illustration of policy
The tables below illustrate the remuneration opportunity provided to each executive director in line with different levels of
performance for 2022.
Chief executive
Finance director
Maximum
34%
66%
£424,000
Maximum
34%
66%
£376,000
On target
45%
55%
£319,000
On target
45%
55%
£283,000
Minimum
100%
£144,000
Minimum
100%
£128,000
Salary, benefits and pension
Highcroft Incentive Plan
On target performance
Comprising base salary, pension allowances and an incentive plan payment at 62.5% of the maximum opportunity.
Maximum performance
Comprising base salary, pension allowances and an incentive plan payment at 100% of the maximum opportunity.
Minimum performance
Comprising the minimum remuneration receivable being base salary and pension allowances.
Directors’ service contracts
Executive directors are given service contracts, within which there is a notice period by either party of six months.
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. 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.
64
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021GOVERNANCE Consideration of employment conditions elsewhere in the company
There are two other part-time employees in the company, a company secretary and a management accountant, whose
salaries are decided by benchmarking to the market, their skills, experience, and contribution. The directors did not consult
with these employees in setting the directors’ remuneration policy as it was not considered appropriate to do so.
Consideration of shareholder views
During the year, the remuneration committee engages with key shareholders to ensure that their views are understood
when considering remuneration policy.
Audit
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 pages 76 to 80.
Directors’ contracts
A summary of the directors’ contracts is set out below:
Non-executive directors
Date of appointment
as director
Effective date of current
appointment letter
Expiry of term
Notice period
Charles Butler
Simon Costa
2 January 2018
15 May 2015
David Kingerlee*
12 September 1996
2 January 2021
1 January 2024
Six months
15 May 2021
7 April 2021
14 May 2024
6 April 2024
Six months
Six months
* Prior to 7 April 2021, David Kingerlee was an executive director.
Executive directors
Simon Gill
Roberta Miles
Date of appointment
as director
1 April 2013
1 July 2010
Date of contract
7 December 2017
7 December 2017
Notice period
Six months
Six months
Annual report on remuneration for the year
Relative importance of spend on pay
The directors are the only employees of the group, other than two part-time employees, the company secretary and the
management accountant.
Directors’ remuneration
Increase in director’s remuneration*
Distributions paid to shareholders
Directors’ remuneration as a % of distributions paid to shareholders
Cash element of directors’ incentive plan award as % of distributions paid to shareholders
2021
£’000
737
4.8%
3,007
24.5%
7.2%
2020
£’000
703
31.6%
2,484
28.3%
8.4%
* In 2020, the accounting treatment for the PAYE/NI on the share award was altered – see page 67 for more details.
Directors remuneration 2021 (audited)
2021
2020
Base
salary
£
Pension/
pension
allowance
£
Incentive plan
Cash
award
£
Share
award*
£
Total
£
Base
salary
£
Pension/
pension
allowance
£
Incentive plan
Cash
award
£
Share
award*
£
Charles Butler
Simon Costa
Simon Gill
50,000
38,000
127,500
–
–
–
–
–
–
50,000
49,000
38,000
37,000
–
–
–
–
–
–
3,825
111,435
83,931
326,691
125,000
3,750
100,000
68,171
296,921
David Kingerlee
28,250
285
5,928
–
34,463
38,000
1,125
20,944
–
60,069
Roberta Miles
112,500
3,375
98,325
73,756
287,956
110,000
3,300
88,000
58,983
260,283
356,250
7,485
215,688
157,687
737,110
359,000
8,175
208,944
127,154
703,273
* Element relating to the financial year including, where appropriate, the proportion of previous years’ award expensed in financial year. In
2020, the accounting treatment for the PAYE/NI on the share award was altered – see page 67 for more details.
65
2019
£’000
534
10.4%
2,829
18.9%
6.7%
Total
£
49,000
37,000
Stock code: HCFTwww.highcroftplc.comGOVERNANCE DIRECTORS’ REMUNERATION REPORT
Highcroft Incentive Plan 2021
The maximum opportunity under the Highcroft Incentive Plan for 2020 was 200% of salary for Simon Gill and Roberta Miles
and 100% of salary for David Kingerlee (for the period to 31 March 2021).
The 2021 award was based on four performance measures as shown in the table below. The financial performance measures
are related to the weighted average relevant MSCI measure, which is deemed to be an appropriate relevant market
index. The relative weighting, thresholds and outcomes together with the 2021 outcome for the individual directors is
tabulated below.
Weighting Threshold
% of
maximum
payout
Performance
agreed
Agreed
%
outcome
Actual
% of
maximum
awarded
Simon Gill
Roberta Miles
Deferred
shares
Deferred
shares
Cash
Cash
David
Kingerlee
Cash
Award as % of base salary
30%
30%
15%
6.4%
25.8%
2.7%
10.6%
1.0%
4.0%
25%
100%
25%
100%
25%
100%
22%
81%
24.3%
10%
92%
27.6%
3%
70%
10.5%
Performance
measure
Adjusted NAV per
share movement
Adjusted EPS
growth
Gross rent (ERV)
growth
Strategic personal
25%
objectives
Simon Gill
Roberta Miles
David Kingerlee
Total
100%
Simon Gill
Roberta Miles
David Kingerlee*
*For the period to 31 March 2021.
100%
100%
0%
25%
25%
0%
87.4% 87.4% 87.4%
87.4%
62.4%
87.4% 87.4%
62.4%
Deferred share element of award
The cost of the net pay, used to purchase shares for the deferred share element of the award is, for accounting purposes,
spread across the total service and vesting periods of the deferred shares, which are:
50% of the
award
years
50% of the
award
years
3.77
3.37
3.46
4.77
4.37
4.46
Deferral period
2019 award
2020 award
2021 award
66
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021GOVERNANCE Deferred share element
Expensed in
Base
salary
£
% of
base
salary
Gross
pay put
through
payroll
£
MV of
shares
issued
@53%
PAYE/NI
payable
on
award*
2019
£
2020
£
2021
£
2022
£
2023
£
2024
£
2025
£
Simon
Gill
2019
award 113,500 47.50%
53,913 28,574
12,802
768
6,785
5,913
2,306
25,339
–
25,339
–
–
–
–
–
2020
award 125,000 55.23%
69,039
36,591
9,616
9,616
9,616
6,195
1,548
32,448
32,448
–
–
–
–
–
–
–
–
2021
award 127,500 87.40%
111,435
59,061
15,156
15,156
15,156
10,547
3,046
52,374
–
–
52,374
–
–
–
–
12,802
68,171
83,931 30,685
23,657
12,095
3,046
Roberta
Miles
2019
award 95,500 47.50%
45,363 24,042
10,771
646
5,709
4,975
1,941
21,321
–
21,321
–
–
–
–
–
2020
award 110,000 55.23%
60,754 32,200
8,462
8,462
8,462
5,452
1,362
28,554
28,554
–
–
–
–
–
–
–
–
2021
award 112,500 87.40%
98,325
52,112
13,373
13,373
13,373
9,306
2,687
Total
46,213
–
–
46,213
–
–
–
–
10,771 58,983
73,756 26,810 20,765
10,668
2,687
23,573 127,154 157,688 57,495 44,423
22,763
5,733
* In 2020, the accounting treatment for the share award was altered, in that the PAYE/NI on the whole share award is expensed in the service period
and only the expense of the net salary used to acquire shares is spread across the total service and vesting period. This resulted in a net additional
expense of £35,580 related to the 2019 share award being charged in 2020, together with £10,447 of employer’s national insurance.
Awards of prior years
The 2019 and 2020 awards were paid via the payroll in the year after the year of award and the net sum (calculated as 53% of
the gross sum, after deducting PAYE and NI) was used to purchase new shares at the average of the closing share price for
the previous three working days.
2019 award
2020 award
Total
Date shares
purchased
Number of
shares
Purchase
price at £6.63
per share
£
Date shares
purchased
Number of
shares
Purchase
price at £8.07
per share
£
Simon Gill
05 May 2020
Roberta Miles
05 May 2020
4,309
3,626
28,569
12 April 2021
24,040
12 April 2021
4,534
3,990
36,589
32,199
Purchase
price
£
65,158
56,239
Value at
31 December
2021
£
77,376
66,640
67
Stock code: HCFTwww.highcroftplc.comGOVERNANCE
DIRECTORS’ REMUNERATION REPORT
Remuneration of the chief executive (CEO)
The table below shows the total remuneration of Simon Gill (from 31 July 2013) and Jonathan Kingerlee (deceased)
(until 31 July 2013) in respect of their role as CEO, together with the annual percentage change.
2021
£’000
2020
£’000
2019
£’000
2018
£’000
2017
£’000
2016
£’000
2015
£’000
2014
£’000
2013
£’000
2012
£’000
Fixed remuneration
Simon Gill
Jonathan Kingerlee
Variable remuneration
131
–
129
–
113
–
108
–
Simon Gill
195
168
104
101
98
–
94
192
–
192
95
–
87
182
–
182
70
–
82
152
–
152
51
–
60
111
–
111
21
20
–
21
20
41
9%
5%
20%
37%
171%
17%
–
35
–
–
35
35
–
326
–
326
297
–
297
10%
37%
217
–
217
4%
209
–
209
Total remuneration
Simon Gill
Jonathan Kingerlee
Percentage change in total
remuneration of CEO
Annual variable element
award payout against
maximum opportunity*
87%
68%
64%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
* The Highcroft Incentive Plan was introduced in 2019. Prior to that, any bonuses paid were entirely discretionary with no maximum
opportunities defined.
If the share price increased, there would be no effect on the remuneration of the CEO as disclosed above as the value of any
share award is determined at the time that the new shares are issued for more details see page 67.
Executive directors’ remuneration 2021
The charts below show the 2021 actual remuneration against the potential opportunity for the year and also the 2020 actual
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
for the period 1 January 2021 to 7 April 2021
2021 actual
39%
60%
£326,691
2021 actual
39%
60%
£287,956
2021 actual
62% 38%
£34,463
2021 potential*
36%
63%
£352,492
2021 potential*
36%
63%
£310,722
2021 potential*
50% 50%
£19,285
2020 actual
42%
57%
£296,921
2020 actual
42%
57%
£260,283
2020 actual
63%
35%
£60,069
* 2021 potential assumes that maximum incentive plan payment was made and spread evenly over the service and vesting period and takes
into account the revised accounting treatment for the PAYE and NI on the 2019 and subsequent share awards.
Base salary
Pension
Incentive plan/discretionary bonus
Annual percentage change in remuneration of directors and employees
The table below shows a comparison of the annual change of each individual director’s pay. As there are only two
non-board employees, one of whom started in 2021, it is not considered appropriate or beneficial to include that
information as a comparator.
Change in pay between the year ended
31 December 2020 and 31 December 2021
Executive directors
Simon Gill
David Kingerlee (to 7 April 2021) *
Roberta Miles
Non-executive directors
Charles Butler
Simon Costa
Incentive plan
Base salary/
fees
% change
Pension/
pension
allowance %
change
Cash award
% change
Share award
% change**
2%
0%
2%
2%
3%
2%
0%
2%
–
–
11%
1%
12%
–
–
61%
–
62%
–
–
–
David Kingerlee (from 7 April 2021)*
(19%)
(100%)
(100%)
* David Kingerlee’s % change has been calculated on a pro-rata basis and to his 2020 executive remuneration.
** The % change is calculated by reference to the gross value of the award for the year and not the amount expensed in the year (see pages 66 to 67).
68
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021GOVERNANCE 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
86,710
£’000
350
300
250
200
150
100
50
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Highcroft Investments
FTSE 350 SS Real Estate
Statement of implementation of remuneration policy in the next financial year
The board does not intend to make any significant changes to remuneration policy during 2022.
Salaries 2022
The committee undertook a benchmarking exercise with PWC at the beginning of 2019. At the end of each subsequent year,
the committee carried out their own informal internal update of this exercise and reviewed the board salaries against wider
market practice. The following base salaries apply from 1 January 2022:
Simon Gill
Roberta Miles
£140,500
£124,000
Charles Butler
Simon Costa
David Kingerlee
£53,000
£40,500
£25,000
Highcroft Incentive Plan 2022
The maximum opportunity under the Highcroft Incentive Plan for 2022 will continue to be 200% of salary for Simon Gill and
Roberta Miles. The awards will be based on four performance measures:
• NAV per share performance
• Adjusted EPS performance
• Gross rent growth
30% weighting
30% weighting
15% weighting
• Strategic metrics (non-financial)
25% weighting
Performance targets for the Incentive Plan for 2022 are not disclosed here on the grounds of commercial sensitivity, and will
be disclosed in the 2022 directors’ remuneration report.
69
Stock code: HCFTwww.highcroftplc.comGOVERNANCE DIRECTORS’ REMUNERATION REPORT
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 2021,
were as follows:
Charles Butler
Simon Costa
Simon Gill
David Kingerlee
Roberta Miles
Held
under the
Highcroft
Incentive
Plan*
–
–
8,843
Held
directly
–
–
–
Total
–
–
8,843
–
1,498,333
1,498,333
7,616
5,950
13,566
* The shares held under the Highcroft Incentive Plan include all those issued in prior years, see page 67 (awards of prior years) all of which are
subject to malus and clawback in accordance with the remuneration policy (page 62).
Director’s shareholding guideline
Executive directors are subject to within-employment and post-employment shareholding requirements – see page 62.
David Kingerlee was subject to this guideline until he ceased to be an executive director on 7 April 2021.
They are encouraged to build up over a five-year period from May 2020; a holding equivalent to 100% of base salary.
At 31 December 2021, the executive directors are on track to build up, on a straight-line basis, to their shareholding guideline
within the five-year period
Executive director
Simon Gill
Roberta Miles
Beneficially
held shares*
8,843
13,566
2021 base
salary
£
127,500
112,500
Target by
May 2025
£
Achieved at
31 December
2021
127,500
112,500
60.7%
105.5%
Value of
beneficially
held shares
£
77,376
118,703
* The number of shares includes those issued in their name but not yet vested under the Highcroft Incentive Plan.
The value of the executive directors’ shareholdings has been calculated using the closing price at 31 December 2021 of £8.75.
Statement of shareholder voting
At the AGM in 2021, the resolution to approve the directors’ remuneration report received the following voting from
shareholders:
2,672,890
99.96%
1,000
2,673,890
–
0.04%
100%
–
Votes cast in favour
Votes cast against
Total votes cast
Votes withheld
Approved by the board of directors and signed by
SIMON COSTA
Chairman of the remuneration committee
28 March 2022
70
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021GOVERNANCE REPORT OF THE DIRECTORS
The corporate governance report on pages 46
to 73 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 2021.
The principal activity of the group continues to
be property investment.
Directors
The directors, who served throughout the year,
are listed below:
Charles Butler Non-executive chairman
Simon Costa
Senior independent
non-executive director
Simon Gill
Chief executive
David Kingerlee Non-executive director*
Roberta Miles
Finance director
* With effect from 7 April 2021, David Kingerlee became
a shareholder representative for Kingerlee Holdings
Limited and subsequently a non-independent
non-executive director as explained on page 49.
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 between the leadership
of the board and the executive leadership of
the business, and has complied with these
requirements during the year.
The interests of the directors in the shares of
the company are included in the remuneration
report on page 70.
In accordance with the Code, all directors will
retire and offer themselves for re-election at
the forthcoming 2022 AGM.
The board confirms that following
performance evaluations, and review by the
nomination committee, the performance of
each director 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 groups exposure to, and management of, capital 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 2021,
was £1,295,925 (2020 £1,293,794) divided into 5,183,699 (2020 5,175,175)
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 they are 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 them 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 their 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 2021, the following notifications of interests in 3% or more of the company’s ordinary share capital in issue
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 – Kingerlee Holdings Limited
– other associates
Total – Kingerlee Concert Party
Beneficial
Number of shares
23.27%
1,206,205
9.93%
7.70%
9.55%
27.18%
13.86%
515,000
399,093
494,770
1,408,863
718,519
41.04%
2,127,382
71
Stock code: HCFTwww.highcroftplc.comGOVERNANCE REPORT OF THE DIRECTORS
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 previous table, together with their connected parties
and associates form the Kingerlee Concert Party, which, as at
28 March 2022, held 2,127,382 ordinary shares, representing
41.04% 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 2021 until 31
December 2021 (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; and
• 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 Companies
Act 2006.
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 40,000kWh and also less than £5,000pa.
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 collect and report any detailed data
on greenhouse gas emissions.
Engagement with customers, suppliers
and others who have a business
relationship with the company
The directors work closely with tenants, potential tenants
and key members of our advisory team. During 2021, due
to the continued impact of the Covid-19 pandemic, our
interactions have continued to be mixture of face to face and
virtual. More detail can be found on page 39.
Dividends
The dividends paid by the company during the year and
declared prior to the publication of this report are set out in
Note 6 of the consolidated financial statements on page 89.
Charitable donations
During the year, the group made charitable donations of
£12,000. More detail can be found on page 43.
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 they ought to have taken as a
director to make themselves aware of any audit information
and to establish that the auditor is aware of that information.
Likely future developments in the
business of the company
In our strategic report we outlined our business model,
strategy and future opportunities for development. Read
more about this in our strategic report on pages 16 to 43.
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.
ROBERTA MILES
Finance director
28 March 2022
72
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021GOVERNANCE STATEMENT OF DIRECTORS’ RESPONSIBILITIES
in respect of the annual report, remuneration report and the financial statements
Responsibility statement of directors in
respect of the annual financial report
We confirm that to the best of our knowledge:
•
•
•
the financial statements have been prepared in
accordance with the Companies Act 2006 and
International Financial Reporting Standards (“IFRS”) as
adopted for use in the United Kingdom 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;
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
28 March 2022
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 the Companies Act 2006 and International
Financial Reporting Standards (“IFRS”) as adopted for use
in the United Kingdom for the group, 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; and
• 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; and
the directors have taken 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.
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.
73
Stock code: HCFTwww.highcroftplc.comGOVERNANCE S
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N
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74
Contents
Independent auditor’s report
Consolidated statement
of comprehensive income
Consolidated statement
of financial position
Consolidated statement
of changes in equity
Consolidated statement
of cashflows
Notes to the consolidated
financial statements
Company statement
of financial position
Company statement
of changes in equity
Notes to the company
financial statements
List of definitions
Group five-year summary (unaudited)
Directors and advisers
76
81
82
83
84
85
98
99
100
104
104
IBC
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021
WAREHOUSE – ROCHE, ST AUSTELL
75
Stock code: HCFTwww.highcroftplc.com 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’; the
‘company’) and its subsidiaries
(the ‘group’) for the year ended 31
December 2021 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 flow, the notes to
the consolidated financial statements,
including a summary of significant
accounting policies, the company
statement of financial position, the
company statement of changes in
equity and notes to the financial
statements, including a summary of
significant accounting policies.
The financial reporting framework that
has been applied in their preparation
is applicable law and UK-adopted
international accounting standards
and, as regards the parent company
financial statements, as applied in
accordance with the provisions of the
Companies Act 2006.
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
2021 and of the group’s profit for
the year then ended;
• have been properly prepared in
accordance with UK-adopted
international accounting standards
and, as regards the parent company
financial statements, as applied in
accordance with the provisions of
the Companies Act 2006; and
• have been prepared in accordance
with the requirements of the
Companies Act 2006.
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 group and the parent 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 public interest 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.
Conclusions relating to
going concern
In auditing the financial statements,
we have concluded that the directors’
use of the going concern basis of
accounting in the preparation of the
financial statements is appropriate.
Our audit procedures to evaluate the
directors’ assessment of the group’s
and the parent company’s ability to
continue to adopt the going concern
basis of accounting included but were
not limited to:
• Undertaking an initial assessment
at the planning stage of the audit
to identify events or conditions that
may cast significant doubt on the
group’s and the parent company’s
ability to continue as a going
concern;
• Evaluating the directors’ method to
assess the group’s and the parent
company’s ability to continue
as a going concern approved by
the board of directors on 28th
March 2022;
• Making enquiries of directors
to understand the period of
assessment considered by them,
the assumptions they considered
and the implication of those
when assessing the group’s and
the company’s future financial
performance. This included
examining the minimum cash
inflow and committed outgoings
under the cash flow forecasts and
evaluating whether the directors’
conclusion that liquidity headroom
remained in all events was
reasonable;
• Challenging the appropriateness
of the directors’ key assumptions
in their cash flow forecasts, as
described in Note 1, by reviewing
supporting and contradictory
evidence in relation to these key
assumptions and assessing the
directors’ consideration of severe
but plausible scenarios. This
included assessing the viability
of mitigating actions within the
directors’ control;
• Evaluating the key assumptions
used and judgements applied
by the directors in forming their
conclusions on going concern;
•
Testing the accuracy used to
prepare the directors’ forecasts; and
• Evaluating the appropriateness
of the directors’ disclosures in the
financial statements on going
concern.
Based on the work we have performed,
we have not identified any material
uncertainties relating to events
or conditions that, individually or
collectively, may cast significant
doubt on the group’s and the parent
company’s ability to continue as a
going concern for a period of at least
twelve months from when the financial
statements are authorised for issue.
Our responsibilities and the
responsibilities of the directors with
respect to going concern are described
in the relevant sections of this report.
In relation to Highcroft Investments
PLC’s reporting on how it has applied
the UK Corporate Governance Code, we
have nothing material to add or draw
attention to in relation to the directors’
statement in the financial statements
about whether the director’s
considered it appropriate to adopt the
going concern basis of accounting.
76
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021FINANCIAL STATEMENTS 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.
We summarise below the key audit matters in forming our opinion above, together with an overview of the principal audit
procedures performed to address each matter and our key observations arising from those procedures.
These matters, together with our findings, were communicated to those charged with governance through our Audit
Completion Report.
Key Audit Matter
How our scope addressed this matter
Investment property valuation
Our audit work included but was not limited to:
The group has a significant portfolio of investment properties
consisting of warehouse/industrial, retail warehouse, high
street retail, office and leisure in England and Wales. The
group’s investment properties were carried at £87.6m as at 31
December 2021.
The valuation were carried out by the third party valuer Knight
Frank (the ‘valuer’). The valuer was engaged by the Directors and
performed their work in accordance with the Royal Institute of
Chartered Surveyors (“RICS”) Valuation – Professional Standards and
the requirements of IAS 40 ‘Investment property’.
Investment properties make up 91% of total assets by value and is
considered to be the key driver of commercial property return for
the group and involves significant level of judgement in ascertaining
the value under IFRS 13. The valuation of the investment properties
is inherently subjective due to, among other factors, the individual
nature of each property, its location and the expected future rentals
for that particular property. The wider challenges currently facing
the real estate sector as a result of Covid-19 further contributed to
the subjectivity at 31 December 2021. As a result, the valuation of
investment properties is considered to be a key audit matter.
Refer to page 54 (Report of the Audit Committee), page 85 (Note
1 Significant accounting policies, accounting estimates and
judgments and investment property) and pages 90 to 92 (Note 8
Investment property).
• Understanding management’s review controls on the third-
party valuation report by discussing with management and
performing a walkthrough to understand the design and
implementation of review controls;
Evaluating the valuer’s competence, capabilities and objectivity;
•
• Obtaining the valuation reports and evaluating that valuation
approach was in accordance with the RICS standard;
• On a sample basis, engaging our valuation expert to review
reasonableness and suitability of the key valuation assumptions;
•
•
For all properties, reviewing the key assumptions made by the
valuer and appraising these against available market data such
as locations and forecasts for market yield, market growth and
return on investment percentages;
For all properties, comparing the property valuations to publicly
available recent comparable property transactions; and
• Reviewing the adequacy of the disclosure in the financial
statements, including the valuation methodology, assumptions
and fair value hierarchy used.
Our observations
Based on the work performed and evidence obtained, we consider
the methodology and assumptions used to value the investment
properties to be appropriate
77
Stock code: HCFTwww.highcroftplc.comFINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT CONTINUED
to the members of Highcroft Investments PLC
Our application of materiality and an overview of the scope of our audit
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect
of misstatements, both individually and on the financial statements as a whole. Based on our professional judgement, we
determined materiality for the financial statements as a whole as follows:
Group materiality
Overall materiality
£793,000
How we
determined it
The overall group statutory materiality has been calculated with reference to the group’s total assets, of which
it represents approximately 1%. This level has then been capped by the group materiality set by James Cowper
Kreston who is responsible for the audit of the financial statements of Kingerlee Holdings Limited, which from
a group perspective includes the results of the company as an associated entity by virtue of its group holding of
27.2% of the company’s shares.
Rationale for
benchmark applied
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.
Performance
materiality
Performance materiality is set to reduce to an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements in the financial statements exceeds materiality for the financial
statements as a whole.
On the basis of our risk assessments, together with our assessment of the group’s overall control environment,
we set performance materiality at £555,000 which is approximately 70% of overall group materiality.
Reporting threshold We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
£24,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Parent company materiality
Overall materiality
£502,000
How we
determined it
The parent company’s statutory materiality has been calculated with reference to the group’s total assets, of
which it represents approximately 1%. For the purposes of the group audit, we capped the overall materiality for
the company to be 63% of the group overall materiality.
Rationale for
benchmark applied
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.
Performance
materiality
Performance materiality is set to reduce to an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements in the financial statements exceeds materiality for the financial
statements as a whole.
On the basis of our risk assessments, together with our assessment of the group’s overall control environment,
we set performance materiality at £351,000 which is approximately 70% of overall company materiality.
Reporting threshold We agreed with the directors that we would report to them misstatements identified during our audit above
£15,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
We also applied a lower level of specific
materiality for certain areas such as
the revenue return of the consolidated
statement of comprehensive income,
directors’ remuneration and related
party transactions.
As part of designing our audit,
we assessed the risk of material
misstatement in the financial
statements, whether due to fraud
or error, and then designed and
performed audit procedures responsive
to those risks. In particular, we looked
at where the directors made subjective
judgements, such as assumptions on
significant accounting estimates.
We tailored the scope of our audit to
ensure that we performed sufficient
work to be able to give an opinion on
the financial statements as a whole.
We used the outputs of our risk
assessment, our understanding of
the group and the parent company,
their environment, controls, and
critical business processes, to consider
qualitative factors to ensure that we
obtained sufficient coverage across all
financial statement line items.
Our group audit scope included an
audit of the group and parent company
financial statements. Based on our
risk assessment, all components of the
group, including the parent company,
were subject to full scope audit
performed by the group audit team. 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 £70,000 and £688,000. For
all components across the group
performance materiality was set at 70%.
At the parent company level, the
group audit team also tested the
consolidation process and carried
out analytical procedures to confirm
our conclusion that there were
no significant risks of material
misstatement of the aggregated
financial information.
78
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021FINANCIAL STATEMENTS Other information
The other information comprises
the information included in the
annual report and accounts other
than the financial statements and
our auditor’s report thereon. The
directors are responsible for the other
information. 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.
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 course of audit or otherwise
appears to be materially misstated. If we
identify such material inconsistencies or
apparent material misstatements, we
are required to determine whether this
gives rise to a material misstatement in
the financial statements themselves. 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.
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
Guidance 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 parent
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.
Based on the work undertaken as part
of our audit, we have concluded that
each of the following elements of the
Corporate Governance Statement is
materially consistent with the financial
statements or our knowledge obtained
during the audit:
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 their
environment obtained in the course
of the audit, we have not identified
material misstatements in the:
•
•
strategic report or the directors’
report; or
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 and the part of the
directors’ remuneration report to
be audited are not in agreement
with the accounting records and
returns; or
certain disclosures of directors’
remuneration specified 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.
Corporate governance
statement
The Listing Rules require us to
review the directors’ statement in
relation to going concern, longer-
term viability and that part of the
Corporate Governance Statement
relating to Highcroft Investments PLC’s
compliance with the provisions of the
UK Corporate Governance Statement
specified for our review.
• Directors’ statement with regards
the appropriateness of adopting the
going concern basis of accounting
and any material uncertainties
identified, set out on page 38;
• Directors’ explanation as to its
assessment of the entity’s prospects,
the period this assessment covers
and why they period is appropriate,
set out on page 37;
• Directors’ statement on fair,
balanced and understandable, set
out on page 73;
• Board’s confirmation that it has
carried out a robust assessment of
the e-merging and principal risks,
set out on page 34-37;
The section of the annual report
that describes the review of
effectiveness of risk management
and internal control systems, set
out on page 56; and;
The section describing the work
of the audit committee, set out on
page 53-56.
•
•
Responsibilities of
Directors
• As explained more fully in the
directors’ responsibilities statement
set out on page 73, 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.
79
Stock code: HCFTwww.highcroftplc.comFINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT CONTINUED
to the members of Highcroft Investments PLC
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.
The extent to which our procedures
are capable of detecting irregularities,
including fraud is detailed below.
Irregularities, including fraud, are
instances of non-compliance with laws
and regulations. We design procedures
in line with our responsibilities,
outlined above, to detect material
misstatements in respect of
irregularities, including fraud.
Based on our understanding of the
group and the parent company and
their industry, we considered that non-
compliance with the following laws
and regulations might have a material
effect on the financial statements:
compliance with the Real Estate
Investment Trust (REIT) status.
To help us identify instances of
non-compliance with these laws
and regulations, and in identifying
and assessing the risks of material
misstatement in respect to non-
compliance, our procedures included,
but were not limited to:
• Gaining an understanding of the
legal and regulatory framework
applicable to the group and the
parent company, the industry
in which they operate, and the
structure of the group, and
considering the risk of acts by the
group and the parent company
which were contrary to the
applicable laws and regulations,
including fraud;
•
Inquiring of the directors,
management and, where
appropriate, those charged with
governance, as to whether the
group and the parent company
80
is in compliance with laws and
regulations, and discussing their
policies and procedures regarding
compliance with laws and
regulations;
•
Inspecting correspondence with
relevant licensing or regulatory
authorities;
• Reviewing minutes of directors’
meetings in the year; and
• Discussing amongst the
engagement team the laws and
regulations listed above, and
remaining alert to any indications
of non-compliance.
We also considered those laws and
regulations that have a direct effect
on the preparation of the financial
statements, such as: Listing Rules, UK
Corporate Governance Code, Disclosure
Guidance and Transparency Rules, UK
Tax legislation and Companies Act 2006.
In addition, we evaluated the directors’
and management’s incentives
and opportunities for fraudulent
manipulation of the financial
statements, including the risk of
management override of controls,
and determined that the principal
risks related to: posting manual
journal entries to manipulate financial
performance, management bias
through judgements and assumptions
in significant accounting estimates,
in particular in relation to revenue
recognition (which we pinpointed to
the cut-off and accuracy), valuation of
investment property, and significant
one-off or unusual transactions.
Our procedures in relation to fraud
included but were not limited to:
• Making enquiries of the directors
and management on whether
they had knowledge of any actual,
suspected or alleged fraud;
• Gaining an understanding of the
internal controls established to
mitigate risks related to fraud;
• Discussing amongst the
engagement team the risks of fraud;
• Addressing the risks of fraud
through management override
of controls by performing journal
entry testing
The primary responsibility for
the prevention and detection of
irregularities, including fraud, rests
with both those charged with
governance and management. As with
any audit, there remained a risk of non-
detection of irregularities, as these may
involve collusion, forgery, intentional
omissions, misrepresentations or the
override of internal controls.
The risks of material misstatement that
had the greatest effect on our audit are
discussed in the “Key audit matters”
section of this report.
A further description of our
responsibilities is available 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 members on 20 May 2021 to
audit the financial statements for the
year ending 31 December 2021 and
subsequent financial periods. The period
of total uninterrupted engagement is
five years, covering the years ending
31 December 2017 to 31 December 2021.
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
our additional report to the audit
committee.
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.
STEPHEN EAMES
(Senior Statutory Auditor)
for and on behalf of Mazars LLP
Chartered Accountants and Statutory
Auditor
The Pinnacle
160 Midsummer Boulevard
Milton Keynes MK91FF
28 March 2022
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2021
Note
Revenue
£’000
Gross rental revenue
Property operating expenses
8
Net rental income
Profit on disposal of
investment property
Valuation gains on investment
property
Valuation losses on investment
property
Net valuation gains/(losses) on
investment property
Administration expenses
Net operating profit/(loss)
before net finance expense
Finance income
Finance expense
Net finance expense
Profit/(loss) before tax
Income tax charge
Profit/(loss) for the year after tax
Total profit/(loss) and
comprehensive income/(loss)
for the year attributable to the
owners of the parent
Basic and diluted
earnings/(loss) per share
8
3
5
7
2021
Capital
£’000
–
–
–
Total
£’000
5,928
(670)
5,258
Revenue
£’000
6,084
(620)
5,464
250
250
9,925
9,925
(1,170)
(1,170)
8,755
–
8,755
(1,164)
–
–
–
–
(1,069)
2020
Capital
£’000
–
–
–
–
Total
£’000
6,084
(620)
5,464
–
2,525
2,525
(7,175)
(7,175)
(4,650)
–
(4,650)
(1,069)
5,928
(670)
5,258
–
–
–
–
(1,164)
4,094
9,005
13,099
4,395
(4,650)
4
(855)
(851)
3,243
(304)
2,939
–
–
–
9,005
–
9,005
4
(855)
(851)
12,248
(304)
11,944
4
(896)
(892)
–
–
–
3,503
(4,650)
–
–
(255)
4
(896)
(892)
(1,147)
–
3,503
(4,650)
(1,147)
2,939
9,005
11,944
3,503
(4,650)
(1,147)
230.5p
(22.2p)
The total column represents the statement of comprehensive income as defined in IAS 1.
The accompanying notes form an integral part of these financial statements.
81
Stock code: HCFTwww.highcroftplc.comFINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 December 2021
Note
2021
£’000
2020
£’000
8
10
9
12
11
12
13
87,565
87,565
2,876
5,715
–
8,591
96,156
7,500
2,839
10,339
19,700
19,700
30,039
66,117
1,296
102
19,236
(121)
117
95
29,623
15,769
66,117
78,810
78,810
1,692
3,295
3,250
8,237
87,047
–
2,726
2,726
27,200
27,200
29,926
57,121
1,294
43
12,814
(53)
51
95
28,995
13,882
57,121
Assets
Non-current assets
Investment property
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Assets classified as held for sale
Total current assets
Total assets
Liabilities
Current liabilities
Interest bearing loan
Trade and other payables
Total current liabilities
Non-current liabilities
Interest bearing loan
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued share capital
Share-based payment reserve
Revaluation reserve – property
Other equity reserve
Share premium
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 28 March 2022.
Simon Gill
Director
Charles Butler
Director
Company number: 00224271
The accompanying notes form an integral part of these financial statements.
82
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
2021
Issued
share
capital
£’000
Share-
based
payment
reserve
£’000
Revaluation
reserve-
property
£’000
Other
equity
reserve
£’000
Share
premium
£’000
Capital
redemption
reserve
£’000
Realised
capital
reserve
£’000
Retained
earnings
£’000
Total
£’000
At 1 January 2021
1,294
43
12,814
(53)
51
95
28,995
13,882
57,121
Transactions with owners:
Issue of shares
Dividends
Reserve transfers:
Non-distributable items
recognised in income
statement:
Revaluation gains
Realised gains
Surplus attributable to
assets sold in the year
Change in excess of cost
over fair value through
retained earnings
Share award expensed
Total comprehensive
income for the year
2
–
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
59
–
–
–
–
(68)
–
(68)
66
–
66
8,755
–
(378)
(1,955)
6,422
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3,007)
(3,007)
(3,007)
(3,007)
–
(8,755)
250
(250)
378
–
–
1,955
628
(7,050)
–
–
–
–
–
–
–
59
–
11,944
11,944
At 31 December 2021
1,296
102
19,236
(121)
117
95
29,623
15,769
66,117
2020
Issued
share
capital
£’000
Share-
based
payment
reserve
£’000
Revaluation
reserve
property
£’000
Other
equity
reserve
£’000
Share
premium
£’000
Capital
redemption
reserve
£’000
Realised
capital
reserve
£’000
Retained
earnings
£’000
Total
£’000
At 1 January 2020
1,292
12
12,931
–
Transactions with owners:
Issue of shares
Dividends
Reserve transfers:
Non-distributable items
recognised in income
statement:
Revaluation losses
Change in excess of cost
over fair value through
retained earnings
Share award expensed
Total comprehensive loss
for the year
2
–
2
–
–
–
–
–
At 31 December 2020
1,294
–
–
–
–
–
–
(53)
–
(53)
–
(4,650)
4,533
(117)
–
–
–
–
31
–
43
–
–
–
–
–
12,814
(53)
–
51
–
51
–
–
–
–
–
51
95
28,995
17,396
60,721
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,484)
(2,484)
(2,484)
(2,484)
–
4,650
–
–
–
–
–
(4,533)
117
–
–
–
31
(1,147)
(1,147)
95
28,995
13,882
57,121
83
Stock code: HCFTwww.highcroftplc.comFINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASHFLOWS
at 31 December 2021
Operating activities
Profit/(loss) before tax
Adjustments for:
Net valuation (gains)/losses on investment property
Net gain on disposal of investment property
Share-based payment expense
Finance income
Finance expense
Operating cashflow before changes in working capital and provisions
Decrease/(increase) 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
Sale of current assets – investment property
Net cashflows from investing activities
Financing activities
Dividends paid
Repayment of bank borrowings
New bank borrowings
Net cashflows from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Note
2021
£’000
2020
£’000
12,248
(1,147)
(8,755)
(250)
59
(4)
855
4,153
391
120
4,664
4
(855)
(311)
3,502
1,925
1,925
(3,007)
–
–
(3,007)
2,420
3,295
5,715
4,650
–
31
(4)
896
4,426
(545)
252
4,133
4
(896)
(21)
3,220
–
–
(2,484)
(4,000)
5,000
(1,484)
1,736
1,559
3,295
8
84
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2021
1 Significant accounting policies
Highcroft Investments PLC is a company domiciled in the United Kingdom. The consolidated financial statements of the
company for the year ended 31 December 2021 comprise the company and its subsidiaries, together referred to as the group.
The principal activity of the group is investment in commercial property in England and Wales. The accounting policies
remain unchanged.
Basis of preparation
The financial statements have been prepared in accordance with the Companies Act 2006 and International Financial
Reporting Standards (IFRS) as adopted for use in the United Kingdom.
In light of the ongoing impact of Covid-19 on the UK economy, and the sectors in which the group and company operates,
the directors have placed a particular focus on the appropriateness of adopting the going concern basis in preparing
the group’s and company’s financial statements for the year ended 31 December 2021. The group’s and company’s going
concern assessment considers the group’s and company’s principal risks, identified on pages 34 to 37 of this document, and
is dependent on a number of factors, including cashflow and liquidity, continued access to borrowing facilities, in particular
the agreed facility in place to replace the term loan expiring in May 2022, and the ability to continue to operate the group’s
and company’s borrowings within its financial covenants. The debt has a number of financial covenants that the group is
required to comply with including an LTV covenant a 12-month historical interest cover ratio, and the facility agreements
have cure provisions in the event of a breach. The going concern assessment is based on a 12-month outlook from the date
of the approval of these financial statements, using the group’s five-year forecast. This forecast is based on a reasonable
scenario, which includes the following key sensitivities:
−
20% reduction in net income from our portfolio.
− A 100% increase in the financing cost of the debt maturing in 2022.
− A 25% increase in the forecast proposed capital expenditure.
−
The non-release of the £1.6m held by Handelsbanken plc as cash security for borrowing.
Under this scenario, the group and company are forecast to maintain sufficient cash and liquidity resources and remain
compliant with its financial covenants.
Based on the consideration above, the board believes that the group and company have the ability to continue in business
at least 12 months from the date of approval of the financial statements for the year ended 31 December 2021, and therefore
have adopted the going concern basis in the preparation of this financial information.
These financial statements have been prepared under the historical cost convention, as modified by the revaluation of
investment properties.
Analysis of statement of comprehensive income
The profit or loss section of the statement of comprehensive income is analysed into two columns, being revenue and
capital. The capital column comprises valuation gains and losses on property, profits and losses on disposal of property, and
all gains and losses on financial assets and the related tax impact. The revenue column includes all other items.
The directors have also stress tested the forecasts considering the level of fall in income and valuations that would cause
the business to be unable to pay its liabilities as they fall due and have concluded that the possibility of these scenarios
occurring is remote.
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 valuation of
investment properties at fair value is carried out by external advisers who the directors consider to be suitably qualified to
carry out such valuations. The primary source of evidence for property valuations is recent, comparable market transactions
on arm’s-length terms. However, the valuation of the group’s property portfolio is inherently subjective, which may not
prove to be accurate, particularly where there are few comparable transactions. Key assumptions, which are also the major
sources of estimation uncertainty used in the valuation, include the value of future rental income, the outcome of future
rent reviews, the rate of voids and the length of such voids. 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. In the process of applying the group’s accounting policies, management is of the opinion that any instances of
the application of judgements did not have a significant effect on the amounts recognised in the financial statements.
New accounting standards and interpretations
There are no new accounting standards or interpretations issued during the year that would materially affect the group.
There are no amendments to, or interpretations of, existing standards that are relevant to the group but are not yet effective
and have not been adopted.
85
Stock code: HCFTwww.highcroftplc.comFINANCIAL STATEMENTS 1 Significant accounting policies continued
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 2021,
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. Dilapidations’ income is
recognised in the statement of comprehensive income when the amount is receivable from the tenant.
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.
Share-based employee remuneration
Share-based employee remuneration is determined with reference to the fair value of the cash award that is used to
purchase the newly issued shares at the date that the award is agreed and charged to the income statement over the
service and vesting period on a straight-line basis.
Expenses
All expenses are recognised in the statement of comprehensive income on an accrual basis.
Lease expenses
Lease expenses related to short-term leases, that are determinable on less than 12 months’ notice, are recognised on a
straight-line basis over the lease term.
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 or 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 substantively
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 substantively 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.
An asset will be classified as a short-term investment within current assets when the decision has been made by the board
to dispose of it in its present condition and the sale is highly probable.
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.
86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 December 2021Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021FINANCIAL STATEMENTS 1 Significant accounting policies continued
Assets classified as held for sale
Where a board decision has been made to dispose of an investment property in its present condition prior to the year end
and a sale is regarded as highly probable the property is included within current assets and stated at fair value.
Trade and other receivables
Trade and other receivables, which are generally due for settlement, in advance, prior to the relevant quarter or month, are
recognised and carried at the original invoice amount less an allowance for any uncollectable amounts. The group applies
the IFRS 9 simplified approach to measuring expected credit losses, which uses a lifetime expected impairment provision for
all applicable trade receivables. In determining the expected credit losses, the group takes into account any recent payment
behaviours and future expectations of likely default events such as 90 days past due. Trade and other receivables are written
off once all avenues to recover the balances are exhausted. Receivables written off are no longer subject to any enforcement
activity.
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.
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.
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.
Share-based payment reserve
The share-based payment reserve includes the unissued element of the Highcroft Incentive Plan award that has been
recorded in the comprehensive income statement.
Revaluation reserve – property
This revaluation reserve includes annual revaluation gains and losses less applicable deferred taxation and is
non-distributable.
Other equity reserve
The other equity reserve is debited with the value of the shares issued under the Highcroft Incentive Plan and credited with
the value of the shares as they vest.
Share premium
Share premium represents the excess over nominal value of the fair value consideration for equity shares net of expenses of
the share issue.
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 less attributable income tax and are
non-distributable.
Retained earnings
Retained earnings include total comprehensive income less revaluation gains on properties and any applicable taxation less
dividends paid.
Segment reporting
The group has one main operating segment – commercial property – and therefore no additional segmental information
is required. 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. For management purposes, the group uses the same
measurement policies as those used in its financial statements.
87
Stock code: HCFTwww.highcroftplc.comFINANCIAL STATEMENTS 2 Segment reporting
The group is comprised of one main operating segment. All of the revenue is received from England and Wales.
In 2021, one tenant represented £684,000, 11.5% of the gross rental revenue of £5,928,000. In 2020, the largest tenant
represented £684,000, 11.2% of gross rental revenue.
3 Administrative expenses
Directors (Note 4)
Auditor’s fees
– Fees payable to the company’s auditor for the audit of the company’s accounts – current year*
– Additional fee in respect of prior year
– Fees payable to the company’s auditor for other services
Staff costs – (excluding directors’ remuneration)
Other expenses
2021
£’000
837
2020
£’000
801
54
–
10
44
219
48
8
2
28
182
1,164
1,069
*The audit fee for 2021 includes £10,900 (2020 £10,000) related to the completion of a group reporting questionnaire for
the Kingerlee Holdings Limited’s auditor. This amount is recoverable in full from Kingerlee Holdings Limited and has been
netted off other expenses.
4 Directors
Remuneration in respect of directors was as follows:
Remuneration
Pension costs
Social security costs
2021
£’000
2020
£’000
738
–
99
837
703
1
97
801
The average number of employees was six (2020 six) all of whom, other than a part-time management accountant and a
part-time company secretary, 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 charge/(credit)
Current tax:
On revenue profits – current year
– prior year
On write off of part of PID pool
Income tax charge
2021
£’000
2020
£’000
–
–
304
304
8
(8)
–
–
During the year the group took advantage of HMRC Covid-19 concessions and wrote £1.6m off its outstanding PID pool
which resulted in a tax charge of £304,000, 19%.
88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 December 2021Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021FINANCIAL STATEMENTS
5 Income tax charge/(credit) continued
The tax assessed for the year differs from the standard rate of corporation tax in the UK of 19% (2020 19%).
The differences are explained as follows:
Profit/(loss) before tax
Profit before tax multiplied by the standard rate of corporation tax in the UK of 19% (2020 19%)
Effect of:
Profit not taxable as a result of REIT status
Tax due on non-payment of part of PID pool
Adjustment in respect of prior year
Income tax charge
2021
£’000
12,248
2,327
2020
£’000
(1,147)
(218)
(2,327)
220
304
–
304
–
(2)
–
The Finance Act 2016 included legislation to reduce the main rate of UK corporation tax from 20% to 19% from 1 April 2017
and to 17% from 1 April 2020. The rate reduction to 17% was subsequently reversed by the Finance Act 2020, such that
the main rate of UK corporation tax from 1 April 2021 remains at 19%. The Finance Act 2021 confirmed an increase of UK
corporation tax rate from 19% to 25% with effect from 1 April 2023 and this was substantively enacted by the statement of
financial position date and therefore included in these financial statements. Temporary differences have been remeasured
using the enacted tax rates that are expected to apply when the liability is settled or the asset realised.
6 Dividends
In 2021, the following dividends have been paid by the company:
2021
£’000
2020
£’000
2020 Final: 30.00p per ordinary share (2019 27.00p)
2020 Special: 6.00p per ordinary share (2019 nil)
2021 Interim: 22.00p per ordinary share (2020 21.00p)
1,555
311
1,141
3,007
1,397
–
1,087
2,484
On 28 March 2022, the directors declared a final property income distribution for 2021 of £1,711,000, 33.00p per share,
together with a special property income distribution for 2021 of £nil per share (2020 final property income distribution of
£1,555,000, 30.00p per share, and special property income distribution for 2020 of £311,000, 6.00p per share), payable on
7 June 2022 to shareholders registered on 22 April 2022.
7 Earnings per share
The calculation of earnings per share is based on the total profit after tax for the year of £11,944,000 (2020 loss £1,147,000)
and on 5,181,317 shares (2020 5,167,465), which is the weighted average number of shares in issue during the year ended
31 December 2021. There are no dilutive instruments.
In order to draw attention to the profit that is not due to the impact of valuation gains and losses that 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 £2,939,000 (2020 £3,503,000) has been calculated.
Earnings:
Basic profit/(loss) for the year
Adjustments for:
Profit on disposal of investment property
Net valuation (gains)/losses on investment property
Adjusted earnings
Per share amount:
Earnings/(loss) per share (unadjusted)
Adjustments for:
Profit on disposal of investment property
Net valuation (gains)/losses on investment property
Adjusted earnings per share
2021
£’000
2020
£’000
11,944
(1,147)
(250)
(8,755)
2,939
–
4,650
3,503
230.5p
(22.2p)
(4.8p)
(169.0p)
56.7p
–
89.9p
67.7p
89
Stock code: HCFTwww.highcroftplc.comFINANCIAL STATEMENTS 8 Investment property
Total valuation at 1 January
Disposals
Revaluation gains
Revaluation losses
Valuation at 31 December
Less property held for sale categorised as current asset
Property categorised as fixed asset
2021
£’000
82,060
(3,250)
9,925
(1,170)
2020
£’000
86,710
–
2,525
(7,175)
87,565
82,060
–
87,565
(3,250)
78,810
In accordance with IAS 40, the carrying value of investment properties is their fair value as determined by independent
external valuers. This valuation has been conducted by Knight Frank LLP, as external valuers, and has been prepared as at
31 December 2021, in accordance with the Appraisal & Valuation Standards of the Royal Institution of Chartered Surveyors,
on the basis of market value.
The historical cost of the group’s investment properties is £73,961,000 (2020 £76,832,000).
Valuation process
The valuation reports produced by the independent external valuers are based on information provided by the group such
as current rents, terms and conditions of lease agreements, service charges and capital expenditure (if any). This information
is derived from the group’s property management and financial information systems and is subject to the group’s overall
control environment.
In addition, the valuation reports are based on assumptions and models used by the independent valuer. The assumptions
are typically market related such as yields and discount rates and are based on their professional judgement and market
observation. Each property is considered a separate asset class based on the unique nature, characteristics and risks of the
property.
During 2020, many valuations were reported with material valuation uncertainty clauses on certain classes of assets.
However, valuation markets are mostly functioning again, with transaction volumes and other relevant evidence at levels
where an adequate quantum of market evidence exists upon which to base opinions of value. Accordingly, our independent
valuers have confirmed that the valuations at 31 December 2021 and 31 December 2020 were not reported as being subject
to material valuation uncertainty.
The executive director responsible for the valuation process verifies all major inputs to the external valuation reports,
assesses the individual property valuation changes from the prior year valuation report and holds discussions with the
independent valuer. When this process is complete, the whole board then meet the valuer in the presence of the auditor.
The valuation report is recommended to the audit committee, which considers it as part of its overall responsibilities.
Valuation technique
The fair value of the property portfolio has been determined using an income capitalisation technique whereby contracted
and market rental values are capitalised with a market capitalisation rate. The resulting valuations are cross checked against
the equivalent yields and the fair market values per square foot derived from comparable recent market transactions on
arm’s-length terms.
These techniques are consistent with the principles in IFRS 13 Fair Value Measurement and use significant unobservable
inputs such that the fair value measurement of each property within the portfolio has been classified as level 3 in the fair
value hierarchy.
90
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 December 2021Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021FINANCIAL STATEMENTS 8 Investment property continued
Significant unobservable inputs
31 December 2021
Valuation technique
Warehouse
Retail
warehouse
Leisure
Office
High street
retail
Total
Income capitalisation
Fair value of property portfolio £’000
Area
sq ft
39,800
581,386
24,250
133,746
10,750
87,955
7,800
29,323
4,965
16,433
87,565
848,843
Gross estimated rental value
(ERV)
£'000
3,310
1,557
812
600
382
£6,661
ERV per sq ft
Minimum
Maximum
Weighted average
Net initial yield
Minimum
Maximum
Weighted average
Reversionary yield
Minimum
Maximum
Weighted average
Equivalent yield
Minimum
Maximum
Weighted average
31 December 2020
Valuation technique
£
£
£
%
%
%
%
%
%
%
%
%
2.40
12.00
8.18
4.31
11.98
8.31
4.57
19.24
11.22
4.51
8.49
6.73
11.33
24.50
13.37
5.02
8.44
6.45
5.29
7.31
6.13
5.25
7.23
6.10
7.50
28.85
12.12
2.93
7.73
5.16
6.10
8.15
7.22
6.15
7.92
7.12
20.00
22.50
21.02
0.00
4.39
1.78
4.71
11.27
8.61
4.66
7.51
6.35
70.00
125.00
102.55
0.00
8.94
5.12
6.57
7.69
7.31
6.50
7.46
7.01
Warehouse
Retail
warehouse
Leisure
Office
High street
retail
Total
Income capitalisation
Fair value of property portfolio £’000
Area
sq ft
37,550
600,717
21,475
133,746
10,050
87,955
7,450
29,323
5,535
16,433
82,060
868,174
Gross estimated rental value
(ERV)
£’000
3,342
1,539
818
544
399
6,642
ERV per sq ft
Minimum
Maximum
Weighted average
Net initial yield
Minimum
Maximum
Weighted average
Reversionary yield
Minimum
Maximum
Weighted average
Equivalent yield
Minimum
Maximum
Weighted average
£
£
£
%
%
%
%
%
%
%
%
%
2.00
12.00
8.28
4.97
11.52
8.65
5.50
18.50
11.36
4.99
9.00
6.94
11.33
24.00
13.17
5.98
8.43
6.95
6.08
7.98
6.82
6.03
7.92
6.79
7.50
28.85
12.09
3.05
12.11
7.56
6.10
10.24
8.07
6.02
9.09
7.57
19.00
19.00
19.00
4.05
11.31
8.57
4.65
9.57
7.71
4.65
8.42
7.00
70.00
135.00
109.87
0.00
8.47
2.88
6.48
7.22
6.82
5.95
7.07
6.41
91
Stock code: HCFTwww.highcroftplc.comFINANCIAL STATEMENTS 8 Investment property continued
Sensitivities of measurement of significant unobservable inputs
As set out on page 90, the valuation of the group’s property portfolio is open to judgements that are inherently subjective by
nature.
Unobservable input
Estimated rental value
Net initial yield
Reversionary yield
Equivalent yield
Impact on the fair value measurement
of a significant increase in input
Impact on the fair value measurement
of a significant decrease in input
Increase
Decrease
Decrease
Decrease
Decrease
Increase
Increase
Increase
There are inter-relationships between these inputs as they are partially determined by market conditions. An increase in the
reversionary yield may accompany an increase in ERV and would mitigate its impact on the fair value measurement.
Information about the impact of changes in unobservable inputs on the fair value of the group’s
property portfolio
Sensitivities for changes in assumptions have been set out below at +/- 5% for ERV and +/- 50bps for EY, which are deemed
to be the levels that give a reasonable worst-case scenario given the like-for-like valuation rise of 11.1% already recognised in
the year.
31 December 2021
Warehouse
£’000
Retail
warehouse
£’000
Leisure
£’000
Fair value of property portfolio
39,800
24,250
10,750
Office
£’000
7,800
High street
retail
£’000
4,965
Impact on valuation of:
+5% on ERV
-5% on ERV
-50bps on EY
+50bps on EY
31 December 2020
1,989
(1,989)
354
(347)
1,210
(1,210)
204
(200)
Warehouse
£’000
Retail
warehouse
£’000
Fair value of property portfolio
37,550
21,475
Impact on valuation of:
+5% on ERV
-5% on ERV
-50bps on EY
+50bps on EY
1,873
(1,873)
295
(290)
1,072
(1,072)
162
(159)
536
(536)
119
(116)
Leisure
£’000
10,050
501
(501)
110
(107)
390
(390)
69
(68)
Office
£’000
7,450
373
(373)
66
(65)
Total
£’000
87,565
4,370
(4,370)
796
(780)
Total
£’000
245
(245)
50
(49)
High street
retail
£’000
5,535
82,060
274
(274)
66
(64)
4,093
(4,093)
699
(685)
Additional property disclosures including property covenant information
Thirteen investment properties with a carrying amount of £59,165,000 (2020 thirteen properties with a valuation of
£49,850,000) are charged to Handelsbanken plc to secure the group’s short-term and 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
2021
£’000
5,518
14,265
12,393
32,176
2020
£’000
5,161
16,315
13,354
34,830
Property disposals related to our Andover property, which had a net book value at 31 December 2020 of £3,250,000, was
disposed of for net consideration of £3,500,000, of which £1,575,000 was immediately placed as security with Handelsbanken
plc and is disclosed within other receivables (Note 10) and £1,925,000 was added to cash.
Property operating expenses are all analysed as arising from generating rental income and include the movement in the
bad debt provision.
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 December 2021Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021FINANCIAL STATEMENTS 9 Assets classified as held for sale
Investment property held for sale
The asset held for sale at 31 December 2020; our Andover property was sold in August 2021.
10 Trade and other receivables
Trade receivables
Accrued rent receivable
Other receivables
2021
£’000
–
2021
£’000
310
868
1,698
2,876
2020
£’000
3,250
2020
£’000
783
871
38
1,692
Included in trade receivables are amounts due from tenants at each year end and include amounts invoiced on
25 December in respect of rents in advance for the period 25 December to 24 March. At 31 December 2021, amounts
due from tenants that were more than 90 days overdue, which related to rents for 2021 or earlier, totalled £432,000
(2020 £281,000). Trade and other receivables are shown after deducting a provision for bad and doubtful debts of £471,000
(2020 £366,000). The provision for doubtful debts is calculated as an expected credit loss on trade and other receivables
in accordance with IFRS 9 (see Note 1). The charge to the income statement in relation to write offs and provisions made
against doubtful debts was £189,000 (£2020 £366,000). The expected credit loss is recognised on initial recognition of
a debtor and is reassessed at each reporting period. In order to calculate the expected credit loss, the group applies a
forward-looking outlook to historic default rates. In the current reporting period, the forward-looking outlook has considered
the impacts of Covid-19. The historic default rates used are specific to receivables that are 90 days past due. Specific
provisions are also made in excess of the expected credit loss where information is available to suggest that a higher
provision than the expected credit loss is required. In the current reporting period, an additional review of tenant debtors
was undertaken to assess recoverability in light of the Covid-19 pandemic and other factors. The directors consider that the
carrying amount of trade and other receivables is approximate to their fair value. There is no concentration of credit risk with
respect to trade and other receivables as all of the group’s tenants have terms that require them to pay their rent in advance.
Other receivables includes £1,575,000 given as security to Handelsbanken plc from the proceeds of sale of our secured
Andover property. It is anticipated that this cash will be available in May 2022 as part of the re-financing of our term loan
maturing then.
11 Trade and other payables
Deferred income
Social security and other taxes
Other payables
2021
£’000
1,040
628
1,171
2,839
2020
£’000
983
960
783
2,726
The directors consider that the carrying value of trade and other payables approximates to their fair value.
93
Stock code: HCFTwww.highcroftplc.comFINANCIAL STATEMENTS 12 Interest-bearing loan
Short-term bank loans due within one year
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
2021
£’000
7,500
19,700
–
3,400
16,300
19,700
2020
£’000
–
27,200
7,500
–
19,700
27,200
Further analysis of the short-term and medium-term bank loans, including the £5,000,000 drawn and the £4,000,000 repaid
in 2020, is set out on page 31. The group has a facility letter in place to re-finance its loan that matures on 16 May 2022.
The weighted average effective interest rate is 3.13% (2020 3.13%).
13 Share capital
The movement in the number of 25p ordinary shares in issue is shown below:
At 1 January
Issued under the Highcroft Incentive Plan
At 31 December
2021
2020
Number
5,175,175
8,524
£’000
Number
1,294
5,167,240
2
7,935
5,183,699
1,296
5,175,175
£’000
1,292
2
1,294
The directors monitor capital on the basis of total equity and operate within the requirements of the articles of association.
There was £7,500,000 of short-term debt and £19,700,000 of medium-term debt at 31 December 2021 (2020 £27,200,000
short and medium-term debt).
The rights and obligations relating to the company’s share capital is summarised on page 71.
14 Share premium
At 1 January
Issued under the Highcroft Incentive Plan
At 31 December
15 Capital commitments
There were no capital commitments at 31 December 2021 or at 31 December 2020.
16 Contingent liabilities
There were no contingent liabilities at 31 December 2021 or at 31 December 2020.
2021
£’000
2020
£’000
51
66
117
–
51
51
94
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 December 2021Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021FINANCIAL STATEMENTS 17 Related party transactions
Kingerlee Holdings Limited owns, through its subsidiaries, 27.2% (2020 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
Licence fee for use of property and recharge of sundry costs paid to related party
2021
£’000
2020
£’000
817
1
676
14
The company terminated its licence with Kingerlee Limited, a subsidiary of Kingerlee Holdings Limited, on 20 January 2021.
The company owns 100% of Rodenhurst Estates Limited and 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 102 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 in respect of their shareholdings:
Simon Gill
David Kingerlee
Roberta Miles
18 Financial instruments and financial risk
Categories of financial instruments
Financial assets measured at amortised cost:
Trade and other receivables
Cash and cash equivalents
Financial liabilities measured at amortised cost:
Interest-bearing loans
Trade and other payables
2021
Carrying
amount
£’000
1,301
5,715
7,016
27,200
1,171
28,371
2021
£’000
2020
£’000
2
43
5
5
52
8
2020
Gains/
(losses)
£’000
Carrying
amount
£’000
Gains/
(losses)
£’000
–
–
–
–
–
–
1,692
3,295
4,987
27,200
783
27,983
–
–
–
–
–
–
95
Stock code: HCFTwww.highcroftplc.comFINANCIAL STATEMENTS 18 Financial instruments and financial risk continued
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 2021, the group had £7,500,000 of short-term borrowing and £19,700,000
of medium-term borrowing (2020 £27,200,000 of medium-term borrowing), of which £7,500,000 is repayable in 2022,
£3,400,000 in 2026, £4,500,000 in 2027, £6,800,000 in 2029 and £5,000,000 in 2030 at fixed interest rates with a weighted
average of 3.13% (2020 3.13%). The fair values of loans and receivables and financial liabilities held at amortised cost were not
materially different from book values. A maturity analysis, based on contractual, undiscounted payments is set out below:
2021
Total
contractual
undiscounted
cashflow
£’000
Due in more
than 1 but
less than
2 years
£’000
Due in more
than 2 but
less than
5 years
£’000
Due within
1 year
£’000
Due in more
than 5 years
£’000
30,991
1,171
8,166
1,171
2020
557
–
5,037
–
17,231
–
Total
contractual
undiscounted
cashflow
£’000
Due in more
than 1 but
less than
2 years
£’000
Due in more
than 2 but
less than
5 years
£’000
Due within
1 year
£’000
Due in more
than 5 years
£’000
31,863
783
850
783
8,166
–
1,672
–
21,175
–
Carrying
amount
£’000
27,200
1,171
Carrying
amount
£’000
27,200
783
Bank loans
Trade and other payables
Bank loans
Trade and other payables
Credit risk
The group’s credit risk, that is 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 credit losses, estimated by
the directors. The allowance as at 31 December 2021 was £392,000 (2020 £366,000). The group’s maximum exposure to credit
risk is limited to the carrying amount of financial assets recognised at 31 December 2021 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 Handelsbanken plc and Lloyds Bank plc. Cash is also held by the group’s property
managers, lawyers and registrars acting as agents, though not, other than for tenant deposits, for long periods of time. The
group only places cash holdings with major financial institutions that satisfy specific criteria.
Capital risk
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 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.
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 short and 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. The group has a facility letter in place to re-finance
its loan that matures on 16 May 2022. 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
that may be fixed in the short term but for sufficiently short periods that there is no need to hedge against the implied risk.
96
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 December 2021Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021FINANCIAL STATEMENTS 18 Financial instruments and financial risk continued
Currency exchange risk
The group is not directly exposed to currency risk.
Market risk
The group is not directly exposed to market risk.
Borrowing facilities
The group has no undrawn committed borrowing facilities.
19 Changes in liabilities arising from financing activities
At 1 January
New loans
Loans repaid
Interest charged
Interest paid
At 31 December
20 Net assets per share
Net assets
Ordinary shares in issue
Basic net assets per share
Bank loans (Note 12)
2021
£’000
27,200
–
–
850
(850)
2020
£’000
26,200
5,000
(4,000)
896
(896)
27,200
27,200
2021
2020
£66,117,000
£57,121,000
5,183,699
5,175,175
1,275p
1,104p
97
Stock code: HCFTwww.highcroftplc.comFINANCIAL STATEMENTS COMPANY STATEMENT OF FINANCIAL POSITION
at 31 December 2021
Fixed assets
Investments
Current assets
Debtors
Cash at bank
Creditors – amounts falling due within one year
Net current assets
Total assets less current liabilities
Net assets
Capital and reserves
Called-up share capital
Reserves
– Share-based payment
– Realised capital
– Other equity
– Share premium
– Capital redemption
– Revaluation
– Retained earnings
Shareholders’ funds
Note
£’000
£’000
£’000
£’000
2021
2020
5
6
7
8
2,597
3,860
6,457
758
102
8,728
(121)
117
95
50,155
5,745
60,418
50,784
5,699
66,117
66,117
1,296
6,337
57,121
57,121
1,294
5,006
2,040
7,046
709
43
8,728
(53)
51
95
40,521
6,442
64,821
66,117
55,827
57,121
The company reported total profit and comprehensive income for the financial year ended 31 December 2021 of £11,944,000
(2020 loss £1,147,000).
These financial statements were approved by the board of directors on 28 March 2022.
Simon Gill
Director
Charles Butler
Director
Company number: 00224271
The accompanying notes form an integral part of these financial statements.
98
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021FINANCIAL STATEMENTS
COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2021
Share-
based
payment
reserve
£’000
Share
capital
£’000
Realised
capital
reserve
£’000
Other
equity
reserve
£’000
Share
premium
£’000
Capital
redemption
reserve
£’000
Note
2
2
At 1 January 2021
Profit for the year
Other comprehensive
income for the year
Dividends paid
Revaluation gain of
subsidiaries
Issue of shares
Share award expensed
1,294
43
8,728
(53)
–
–
–
–
2
–
–
–
–
–
–
59
–
–
–
–
–
–
–
–
–
–
(68)
–
51
–
–
–
–
66
–
117
Revaluation
reserve
£’000
Retained
earnings
£’000
Total
£’000
40,521
6,442
57,121
–
–
–
2,310
2,310
9,634
9,634
(3,007)
(3,007)
9,634
(9,634)
–
–
–
–
–
–
59
95
–
–
–
–
–
–
At 31 December 2021
1,296
102
8,728
(121)
95
50,155
5,745
66,117
Other
equity
reserve
£’000
Share
premium
£’000
Capital
redemption
reserve
£’000
Note
2
2
Share
capital
£’000
1,292
–
–
–
–
2
–
At 1 January 2020
Profit for the year
Other comprehensive
loss for the year
Dividends paid
Revaluation loss of
subsidiaries
Issue of shares
Share award expensed
At 31 December 2020
1,294
Share-
based
payment
reserve
£’000
12
–
–
–
–
–
31
43
Realised
capital
reserve
£’000
8,728
–
–
–
–
–
–
8,728
–
–
–
–
–
(53)
–
(53)
–
–
–
–
–
51
–
51
Revaluation
reserve
£’000
Retained
earnings
£’000
Total
£’000
44,294
6,300
60,721
–
–
–
2,626
2,626
(3,773)
(3,773)
(2,484)
(2,484)
(3,773)
3,773
–
–
–
–
–
–
31
95
–
–
–
–
–
–
95
40,521
6,442
57,121
99
Stock code: HCFTwww.highcroftplc.comFINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2021
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 certain financial instruments as specified
in the accounting policies below. The principal accounting policies of the company have remained unchanged from the
previous year.
These financial statements have been prepared on a going concern basis and in adopting the going concern basis the
directors have, based on the information available at the date of this report, considered the financial implications of Covid-19.
In preparing these financial statements, the following disclosure exemptions have been taken:
•
The requirement to present a cashflow and related notes
• Financial instrument disclosures including:
− Categories of financial instruments;
−
Items of income, expenses, gains or losses relating to financial instruments; and
− Exposure to, and management of, financial risks.
Dividend revenue
Dividend revenue is recognised in the statement of comprehensive income when the right to receive the payment
is established.
Share-based employee remuneration
Share-based employee remuneration is determined with reference to the fair value of the cash award that is used to
purchase the newly issued shares at the date at which the award is agreed and charged to the income statement over the
service and vesting period on a straight-line basis.
Interest income
Interest is recognised under the effective interest method.
Dividends payable
Dividend payments are dealt with when paid as a change of 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 market value (net assets as shown by their financial statements are taken as a
reasonable estimate of market value as their assets and liabilities are carried at fair 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 including shares in subsidiary undertakings at fair value through the profit and loss account. Other movements are
recognised directly in equity.
Receivables
Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market
are categorised as financial assets at amortised cost. 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 tax
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 company’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.
100
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021FINANCIAL STATEMENTS 2 Company profit/(loss) 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 £11,944,000 (2020 loss £1,147,000). Information regarding directors’ remuneration appears
on pages 59 to 70 of this annual report.
3 Auditor’s fees
Fees payable to the company’s auditor for the audit of the group’s annual accounts*
Additional fee in respect of prior year
Fees payable to the company’s auditor for other services:
Audit-related assurance services
2021
£’000
2020
£’000
54
–
10
64
48
8
2
58
* The audit fee for 2021 includes £10,900 (2020 £10,000) related to the completion of a group audit questionnaire for the Kingerlee Holdings
Limited’s auditor. This amount is recoverable in full from Kingerlee Holdings Limited and has been netted of other expenses.
4 Dividends
In 2021, the following dividends have been paid by the company:
2020 Final: 30.00p per ordinary share (2019 27.00p)
2020 Special: 6.00p per ordinary share (2019 nil)
2021 Interim: 22.00p per ordinary share (2020 21.00p)
2021
£’000
1,555
311
1,141
3,007
2020
£’000
1,397
–
1,087
2,484
On 28 March 2022, the directors declared a final property income distribution for 2021 of £1,711,000, 33.00p per share,
together with a special property income distribution for 2021 of £nil per share (2020 final property income distribution
of £1,555,000, 30.00p per share, together with a special property income distribution for 2020 of £311,000, 6.00p per share),
payable on 7 June 2022 to shareholders registered on 22 April 2022.
5 Investments
Valuation at 1 January 2021
Surplus on revaluation in excess of cost
Valuation at 31 December 2021
Shares in
subsidiary
undertaking
£’000
50,784
9,634
60,418
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 2021
Cost at 31 December 2020
Shares in
subsidiary
undertaking
£’000
10,271
10,271
101
Stock code: HCFTwww.highcroftplc.comFINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2021
5 Investments continued
At 31 December 2021, the company held 100% of the following companies which are all registered in England and Wales and
which all have the same registered office address as the company: Park Farm Technology Centre, Akeman Street, Kirtlington,
Oxon, OX5 3JQ.
Subsidiary
Primary activity
Immediate parent company
Ownership
Rodenhurst Estates Limited
Property investment
Highcroft Investments PLC
BL (Wisbech) Limited
Holding company
Rodenhurst Estates Limited
Belgrave Land (Wisbech) Limited
Property investment
BL (Wisbech) Limited
100%
100%
100%
At 31 December 2021, the net assets and the profit for the financial year of these subsidiaries were:
Rodenhurst Estates Limited
BL (Wisbech) Limited*
Belgrave Land (Wisbech) Limited
2021
2020
Profit
for the
financial
year
£’000
Loss for the
financial
year
£’000
Net assets
£’000
Net assets
£’000
60,418
12,634
50,784
–
3,509
–
1,097
–
2,142
(773)
–
(628)
* BL (Wisbech) Limited is a dormant intermediate holding company between Belgrave Land (Wisbech) Limited and Rodenhurst Estates
Limited. It holds the shares in Belgrave Land (Wisbech) Limited at cost.
6 Debtors
Owed by subsidiary undertakings
Other debtors
7 Creditors – amounts falling due within one year
Other taxes and social security
Other creditors
8 Share capital
The movement in the number of 25p ordinary shares in issue is shown below:
2021
£’000
2,567
30
2,597
2021
£’000
251
507
758
At 1 January
Issued under the Highcroft Incentive Plan
At 31 December
2021
2020
Number
5,175,175
8,524
£’000
Number
1,294
5,167,240
2
7,935
5,183,699
1,296
5,175,175
2020
£’000
4,982
24
5,006
2020
£’000
295
414
709
£’000
1,292
2
1,294
102
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021FINANCIAL STATEMENTS 9 Share premium
At 1 January
Issued under the Highcroft Incentive Plan
At 31 December
2021
£’000
2020
£’000
51
66
117
–
51
51
10 Capital commitments
There were no capital commitments at 31 December 2021 or at 31 December 2020.
11 Contingent liabilities
There were no contingent liabilities at 31 December 2021 or at 31 December 2020.
12 Related party transactions
Kingerlee Holdings Limited, through its subsidiaries, owns 27.2% (2020 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
Licence fee for use of property and recharge of sundry costs paid to related party
2021
£’000
817
1
2020
£’000
676
14
The company terminated its licence with Kingerlee Limited, a subsidiary of Kingerlee Holdings Limited, on 20 January 2021.
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 the company and all their costs are incurred by the company as follows:
Remuneration
Pension costs
Social security costs
2021
£’000
777
–
103
880
2020
£’000
728
1
100
829
103
Stock code: HCFTwww.highcroftplc.comFINANCIAL STATEMENTS LIST OF DEFINITIONS
Company voluntary arrangement (CVA): A procedure
that allows a company to settle debts by paying only a
proportion of the amount that it owes to creditors.
Estimated rental value (ERV): The rent at which the space
could be let out in the market conditions prevailing at the
date of valuation.
Interest cover ratio (ICR): The number of times net
interest payable is covered by rental income of the secured
properties.
Loan-to-value (LTV): Drawn debt divided by the fair value
of the property portfolio. For bank facility purposes, the ‘fair
value of the property portfolio’ is replaced by the valuation
included on valuation reports addressed to the bank.
provides a liquid and publicly available vehicle that opens
the property market to a wide range of investors. A REIT
is exempt from corporation tax on qualifying income and
gains of its property rental business providing various
conditions are met. It remains subject to corporation tax
on non-exempt income and gains. Subject to concessions
granted during the Covid-19 pandemic, REITs must
distribute at least 90% of their income profits from their
tax-exempt property rental business, by way of dividend,
known as a property income distribution (PID). These
distributions can be subject to withholding tax at 20%. If the
REIT distributes profits from the non-tax-exempt business,
the distribution will be taxed as an ordinary dividend in the
hands of the investors (non-PID).
Net debt: Borrowings plus bank overdraft less cash and cash
equivalents.
Return on equity: Total profit and comprehensive income
divided by average total equity.
Net initial yield: The initial gross income as a percentage of
the market value plus standard costs of purchase.
Reversionary yield: The yield that would be achieved if the
passing rent adjusts to the level of the ERV.
Property income distribution (PID): Dividends from profits
of the group’s tax-exempt property rental business under
the REIT regulations.
Real Estate Investment Trust (REIT): The UK REIT regime
was launched on 1 January 2007. On 1 April 2008, Highcroft
elected to convert to REIT status. The REIT legislation was
introduced to provide a structure that closely mirrors the
tax outcomes of direct ownership in property and removes
tax inequalities between different real estate investors. It
Total shareholder return: The growth in the ordinary
share price as quoted on the London Stock Exchange plus
dividends per share received for the year, expressed as a
percentage of the share price at the beginning of the year.
Weighted average unexpired lease term (WAULT): The
average lease term remaining to the first to occur on each
lease of a tenant break option, or lease expiry, across the
portfolio, weighted by rental income.
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
Weighted average number in issue (000s)
Basic earnings per ordinary share
Adjusted earnings per ordinary share
Dividends payable per ordinary share
2021
£’000
2020
£’000
87,565
82,060
–
64,117
1,275p
5,928
19.6%
2,939
5,184
230.5p
56.7p
55.00p
–
57,121
1,104p
6,084
17.6%
3,503
5,172
(22.2p)
67.7p
2019
£’000
86,710
–
60,721
1,175p
5,840
14.1%
4,055
5,167
22.3p
78.5p
2018
£’000
77,700
679
62,384
1,207p
5,043
14.6%
4,512
5,167
95.3p
87.3p
2017
£’000
77,113
2,131
59,977
1,161p
4,765
13.9%
3,348
5,167
132.3p
64.8p
57.00p
48.00p
52.50p
46.25p
FTSE 350 Real Estate Index
Highcroft year-end share price
623
491
602
468
568
875.0p
720.0p
942.5p
885.0p
887.5p
104
Highcroft Investments PLC Annual report and accounts for the year ended 31 December 2021FINANCIAL STATEMENTS DIRECTORS AND ADVISERS
Company number
00224271
Directors
Charles Butler, BSc ACA
(Non-executive chairman)
Simon Costa, BSSc MA MPhil
(Non-executive)
Simon Gill, BSc FRICS
(Chief executive)
David Kingerlee
(Non-executive)
Roberta Miles, MA FCA
(Finance)
Company secretary
Anne-Marie Palmer LLB FCG
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
Handelsbanken plc
Latimer House
Langford Locks
Kidlington
Oxon
OX5 1GG
and
Lloyds Bank plc
Ground Floor
Canons House
Canons Way
Bristol
BS1 5LL
Solicitors
Clarkslegal LLP
5th Floor
Thames Tower
Station Road
Reading
RG1 1LX
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
Singer Capital Markets Advisory LLP
One Bartholomew Lane
London
EC2N 2AX
Registrars
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Tax advisers
Grant Thornton UK LLP
30 Finsbury Square
London
EC2A 1AG
Registered office and
business address
Park Farm Technology Centre
Akeman Street
Kirtlington
Oxon
OX5 3JQ
United Kingdom
Stock code: HCFTwww.highcroftplc.comFINANCIAL STATEMENTS H
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Park Farm Technology Centre
Akeman Street
Kirtlington
Oxon
OX5 3JQ