TIDMCNN
RNS Number : 2603I
Caledonian Trust PLC
31 March 2020
Information contained within this announcement is deemed by the
Company to constitute inside information as stipulated under the
Market Abuse Regulations (EU) No. 596/2014 ("MAR").
31 March 2020
Caledonian Trust plc
("Caledonian Trust", the "Company" or the "Group")
Unaudited interim results for the six months ended 31 December
2019
Caledonian Trust plc, the Edinburgh-based property investment
holding and development company, announces its unaudited interim
results for the six months 31 December 2019.
Enquiries:
Caledonian Trust plc
Douglas Lowe, Chairman and Chief Executive Officer Tel: 0131 220 0416
Mike Baynham, Finance Director Tel: 0131 220 0416
Allenby Capital Limited
(Nominated Adviser and Broker)
Nick Athanas Tel: 0203 328 5656
Alex Brearley
Introduction
The Group made a pre-tax loss of GBP196,000 in the six months to
31 December 2019 compared with a pre-tax loss of GBP43,000 for the
same period last year. The loss per share for the six months to 31
December 2019 was 1.66p and the NAV per share as at 31 December
2019 was 202.01p compared with a loss per share of 0.36p and a NAV
per share of 185.83p last year. The Group's emphasis will continue
to be to secure, improve and realise the development value in our
property portfolio.
Review of Activities
I provided a comprehensive review of activities in the
announcement of our audited results released in December 2019. The
current measures that have been put in place across the UK to
reduce the spread of Covid-19 have had and will continue to have a
significant impact on our activities in the short term.
Income from our investment portfolio may be reduced in the short
term if some tenants fail to pay the rent or seek its deferral. In
some instances, to assist them, we may agree to a rent deferral,
but, as all our retail tenants should qualify for the available
business grants to meet their fixed overheads, the Board are of the
view that any such deferral should be minimal.
The contingent purchaser of St. Margaret's House, Drum Property
Group, submitted the requisite planning application to secure the
detailed consent for their proposed development on 23 September
2019. Drum report that good progress has been made with the
application and that all the additional detailed reports and
information requested by statutory consultees have all been
provided. The application was expected to be submitted to the
Planning Committee for determination shortly, but as City of
Edinburgh Council have extended the Easter recess from 20 March
2020 until 27 April 2020, during which time due to the Covid-19
outbreak the planning committee will not convene, the application
is not now expected to be considered until after 27 April 2020. It
is understood that the City of Edinburgh Council are developing an
alternative process to deal with matters during the current
crisis.
Drum's proposal underlying its conditional purchase of St
Margaret's House involved Drum entering into a pre-let agreement
with a third-party tenant of undoubted covenant in respect of the
property. The Board were advised that Drum had identified a
suitable prospective tenant for such a pre-letting, but have now
been informed that this tenant will no longer pursue its interest
in the location. As a consequence of this, in order for Drum to
proceed with the purchase of St Margaret's House, the missives in
relation to the proposed purchase ("Missives") are being varied and
this variation is expected to be concluded in the shorter-term. The
amendment to the Missives will contain a significant reduction in
the consideration for the conditional purchase, which is currently
GBP15.0 million (exclusive of VAT), payable to the Company on
completion in cash. A further announcement is expected to be made
in relation to St Margaret's House in due course.
Construction work at the Company's site at Brunstane in East
Edinburgh was suspended last week in accordance with Government
guidance. The Horsemill phase, which has a Gross Development Value
of GBP2.5m, and has been funded by a construction loan from Bank of
Scotland peaking at GBP1.4 million of which GBP1.03 million was
drawn down as at 31 December 2019, is virtually complete with all
internal work finished and the show house furnished. Extensive soft
landscaping has been carried out and only the tarmacking remains
uncompleted.
The marketing photographs for this phase at Brunstane were
scheduled to be taken last week and the marketing launched this
week, but government restrictions are pre-emptive. We will commence
marketing as soon as practical, and, given the undoubted quality of
the development, we expect considerable interest even in a
prospectively restrained market.
In Perthshire, at Tomperran, a 34-acre smallholding in Comrie on
the River Earn, we hold a consent for twelve detached houses
totalling over 19,206ft(2) which has been endured by the demolition
of the farm buildings. We have recently gained consent to change
the current terrace of four houses into three detached and two
semi-detached houses. West of this site, nearer Comrie, we hold a
consent for a further thirteen houses on our adjoining two-acre
area, previously zoned for industrial use. In total the twenty-five
new houses covering these two areas will occupy over 33,912ft(2) .
The original farmhouse, currently let, will remain intact within
the development.
When we sold Chance Inn farmhouse near Kinross in 2013, we
retained land in the former garden on which we gained consent for
two new houses of 2,038ft(2) and 2,080ft(2) . One of these two
plots was sold in October 2016 for over GBP100,000 together with a
small paddock for GBP34,000. The second much smaller plot was sold
in September 2019 for GBP90,000. These two plot sales confirm the
attraction of this location.
There are no changes on our other development sites. In the
present circumstances we have postponed virtually all development
work and will confine expenditure to that which is essential. Our
budgets indicate that we can meet all the reasonably expected
changes from within our current resources. However, as a contingent
reserve Leafrealm Limited a company controlled by me has confirmed
that, if necessary, it would be willing to provide further
financial support via an additional loan facility of GBP100,000. At
this stage the terms of any further loan from Leafrealm have not
been agreed or documented between Leafrealm and the Company.
Further announcements will be made should the Company decide to put
such a loan facility in place.
Economic Prospects
Current economic prospects are very poor, and the prospective
economic downturn is daily more extensive. Indeed, as soon as the
"human to human" transmission of the Covid-19 virus was recognised,
infectivity before the disease became symptomatic established, and
the speed and extent of the disease spread in Wuhan unveiled it
became obvious that, given that a vaccine would take at least a
year to develop, the disease would probably affect the majority of
the world's population, except any populations with inherent
genetic protection - of which there is so far no evidence - until
vaccination or prophylactic measures become available. There is the
potential for most of the population to be infected with the virus,
with the outcome varying with age, metabolic and physical
integrity, immune system capability, and, for those who are
becoming seriously ill, the quality and quantity of the health
services. Thus, until the virus is integrated into the defence
systems of the population, there will be serious economic
consequences. Until then, if the spread of the infection is rapid
enough to result in a greater requirement for appropriate care than
is available, mortality rates will be much much higher than if such
care were available.
Since the epidemic started estimates of the likely extent of the
damage to the economy have continued to increase, as evidenced by
comparing early economic forecasts with later ones. The March OBR
forecast was based on information available on 11 February 2020 and
says "since we closed our premeasures forecast news of the spread
of the Coronavirus has prompted large movements in asset prices
.... the ultimate spread and economic impact of Coronavirus as at
this stage highly uncertain .... most likely to be concentrated in
the near term." For our central forecast, we assumed that the
associated economic disruption would be relatively short lived and
concentrated in China, with some transmission through supply chains
to other parts of Asia and Europe. This implied a temporary impact
on global GDP and trade, weighing modestly on UK activity in the
first part of this year - a mild 'V-shaped' shock ... we were
guided by the impact of the 2003 SARS outbreak, which is estimated
to have knocked around 1 percentage point off Chinese GDP growth
that year. The associated impact on world GDP and trade, was,
though, quite limited. Bearing this in mind, we lowered our
forecast for Chinese GDP growth in 2020 by 1 percentage point (to 5
per cent), ... and reduced world GDP growth by 0.3. percentage
points ... this was expected to knock 0.1 percentage points off UK
GDP growth this year."
The OBR forecast growth of 1.1% in 2020 and of 1.8% in 2021,
similar to the NIESR February forecast of 1.3% and 1.6% and the
IMF's January forecast of 1.4% and 1.5%, but all slightly higher
than the Bank of England's January 2020 forecast of 0.8% and 1.4%.
The OBR forecasts are made after adjusting for a loss of potential
growth from "Brexit" of 4% over 15 years (0.25% per year) but with
a negotiated Free Trade Agreement (FTA) which included unfavourable
trade changes and an associated loss of productivity.
How quickly these have all faded into the past. On 17 February
2020, the FT forecasted that, following a "stagnant" three months
to January 2020, the UK economy "will contract in the first half of
this year" and quoted on 17 March 2020 three previous members of
the Monetary Policy Committee (MPC). Andrew Sentance thought a
"recession in the UK ... was likely" in the first half of the year
with a two to five percent drop in GDP in the second quarter
followed by a rebound ... ; Professor David Miles thought a
recession was quite likely but not the "near Armageddon" scenario
implied by the stock market of a 'hit to GDP that lasts for many
years; ....'" and Martin Weale said "The key point is that recovery
may be rapid."
The former MPC members' sanguine attitude had been widely shared
in "the City". Writing in the FT on 23 February 2020 Megan Green of
the Harvard Kennedy School reported that City investors considered
"the virus is temporary" like mad cow disease and Sars. Evidence of
such views was that a recent survey of America's fund managers
found that cash was only 4% of portfolios, the lowest since 2013,
while global equities hit record highs - hardly a sign of concern!
Meanwhile, she said, across the world in China, "the Chinese
authorities are already throwing the kitchen sink at their
economy".
A notable change in tone was provided by Capital Economics whose
central projection, published in late March, is that the economic
activity will fall 16% in the next few weeks, regain the present
output in early 2021 and then grow at a marginally greater rate
than previously forecast to reach the previously forecast level in
a few years. A more optimistic, but most unlikely, view is that,
following such a catastrophic fall, the economy will rebound
quickly with current spending foregone quickly made up later.
Realistically, this is highly improbable as Billy Bunter knew: "a
meal missed is a meal gone forever". A more pessimistic view, but
one not unlikely is that, following the catastrophic fall, more
lasting economic damage occurs resulting from production and
service closures, atrophy or redundancy of skills or reduced trade
because of reduced reliance on distant or overseas suppliers.
Additionally, more stocks may be held or suppliers diversified to
reduce the cost of one-off business interruptions, but at a
continuing higher supply cost.
Martin Wolff writing in the FT forecasts the Coronavirus
epidemic may be a bigger economic threat than the financial crisis
of 2008 - 2009. The last pandemic, the Spanish flu, resulted in the
UK GDP, after rising 1.9% in 1918, but falling by 7.8%, 5.8% and
9.7% respectively in the following three years after the Great War!
Fortunately, such a severe outcome is most unlikely to recur
because of the much-improved understanding of the role of economic
management and the extensive use of monetary and fiscal measures,
because of the much-improved curative and preventative health
measures, and because of the high prospects of discovering or
manufacturing more effective drugs and vaccines. However, the speed
of economic recovery, its extent and the subsequent growth rate
will depend on the compensatory monetary and fiscal measures being
implemented.
The present crisis may be a bigger threat, as Martin Wolff says,
than the 2008-2009 financial crisis, but it is a different crisis.
In 2008-2009 there was a systemic threat to the financial system
and a collapse of liquidity and credit leading to, or due, to a
crisis of confidence in the solvency of major institutions. For
instance, the RBS, then the largest bank in the world, had loans
outstanding at 25 times its "Common Equity Tier 1", which now
stands at a conservative six times. Thus, compared to 2008, as the
Investors Chronicle says, (") to that end regulators have done
their job by making banks safer and better equipped for scenarios
such as this. Remember, though, that they always solve for the last
crisis and that is why, perhaps so far, this isn't a credit issue."
Unfortunately, as I discuss below, an equivalent pre-emptive
planning process has not taken place in UK therapeutic and
preventative medicine or in public health.
The Government measures to control the disease are dramatic and
unprecedented in peacetime, and continue to become more stringent.
Welcome though these measures are, regrettably, they are arguably
far later than optimal, or even desirable, given the etiology of
the disease, of which an understanding may be made simpler with an
analogy with investment returns. Seven and a half might be
considered a high rate of return comprising say 2.5% inflation,
2.5% real rate of growth and 2.5% equity risk premium, doubling
every 10 years. In contrast, the growth rate of the Covid-19 virus
in a non-immune UK population is estimated at R=1.157 or 15.7% per
day, thus doubling every five days. In mid-March the UK had 1,547
diagnosed cases which with a 15.7% growth rate would become 1m
cases on 1 May 2020, and at the same rate of increase would in
theory have infected the UK's entire population of 66m by 30 May
2020. In practice the operational R rate declines, inter alia, as
the immune population increases - obviously, if 99% of the
population is immune, the rate of spread would effectively be
nil.
One of the reasons the UK's invocation of protective measures
was delayed may be that the UK relied on an estimate of the extent
of the disease on a formula producing much lower estimates than the
illustrative worked example below. On 16 March 2020 there were 20
deaths reported, and given that the mortality rate is considered to
be 1%, the 20 deaths reported infers an infected number of 2,000.
However, if we assume that the interval between infection and death
is 20 days, then 20 days earlier, say 25 February 2020, there were
2,000 infected, but by 20 days later i.e. 16 March 2020 there had
been four compounding periods each of five days on the original
2,000 infected and the number infected on 16 March 2020 would have
been 32,000 (2, 4, 8, 16, 32)! For containment speed is of the
essence.
There is not presently evidence of inherent or acquired immunity
in the UK population against Covid-19. Without other measures it
has previously been predicted that the disease would probably
spread to over 80% of the population before a "herd" immunity
developed - a position where, because the infected persons'
contacts were immune, transmission would be minimal. If all UK
cases could receive the full current intensive care treatment
levels on which mortality is based, an estimated 500,000 deaths
would occur by the end of the summer, a figure roughly 1% of the
80% required in a population before "immuning" supervenes. However,
such a spread of the disease would give a peak demand for intensive
care far in excess of current intensive care capacity resulting in
death rates of which the Economist said "many more deaths that the
model did not attempt to compute."
There are two possible public health responses to the Covid-19
epidemic - mitigation and suppression. Initially, the UK chose
mitigation, a less socially demanding and economically inhibiting
policy, based on isolating infected cases and quarantining infected
households. However, as this policy - effectively letting the virus
run through the population relatively gradually - would give a
death rate quoted above of over 500,000, even if current treatment
standards were available to every needy patient, the policy was
changed on 23 March 2020 when a policy of suppression was
announced, one of reducing the rate of passing on infection by
precluding contact. Those already known to be infected are
isolated, restricting transmission, and those not known to be
infected kept apart from each other to minimise spread from
infected carriers to those uninfected. To achieve such separations
extensive measures were announced on 23 March 2020 including
banning "gatherings", keeping the population indoors and
substituting "home working" for "business" location working. The
Economist noted that social "distancing" was intended to cut peak
intensive care beds by 2/3 but still required eight times the
current number available.
The Investors' Chronicle considered that on 16 March 2020 there
were 32,000 infections and if, as argued above, the effective UK
reported rate "R" is 1.157 then in the seven days from 16 March
2020 to 23 March 2020 the infected population had grown by 2.78
times (1.157) to 88,800, and, if mortality is 1%, this implied a
commensurate increase in deaths of 568. Speed indeed is of the
essence!
There has been some criticism of the UK's delay in adopting a
suppression policy: as the Guardian says "It's a mystery it took so
long". The UK had its 100(th) case on 5 March 2020 three to five
days after the 100(th) death in France, Germany and Spain, all of
whom had taken suppressive measures a week to ten days earlier in
the widening spread of their infections. Suppression tactics by
then had been shown to be effective in South Korea where within 11
days of the 100(th) death the rate of infection spiral fell sharply
from doubling every second day (sic!) to increasing by less than
10% over 10 days to the 28(th) day after the first 100 cases. An
important benefit in the UK of spreading the cases over a long
period, apart from the obvious ones of a prospective cure or
vaccine, possible attenuation of the virus by mutation or by
sunlight and UV, is that the hospital bed provision in the UK at 3
per 1,000 is poorer than in France (6); Germany (8); and South
Korea (12). In the UK any given peak would result in a higher
percentage of fatalities than in those countries with wider
provision.
The slow response to and the lack of preparedness to combat
infectious diseases is not unique to the UK. By this challenge
health services throughout the world now appear to have been
complacent, possibly, as over the years, plague, smallpox, whooping
cough, cholera, typhoid, measles and even polio have been subdued
or largely eradicated. More importantly, of the "new" viruses
crossing from other animals into humans only HIV, for which they
are now effective controls, went "viral". Others, including swine
flu, bird flu, zika and Sars have not proved able to effect a
large-scale attack on humans or, if so, have been relatively easily
controlled. Recent advances now allow rapid reading of the viral
genomes so providing the possibility of more rapidly obtainable
cures or vaccines.
Coronaviruses, of which Covid-19 is one as are some forms of the
common cold and so initially, to some Covid-19 seemed likely to be
relatively innocuous. However, this is not so, as the virus has
proved to engender a range of greatly adverse factors: being highly
contagious; having asymptomatic carriers and causing a significant
death rate!
We have possibly developed a culpable complacency about plagues
which have ravaged the world at least since classical times,
including that in Athens in 430BC which killed a third of the
population, including the great Pericles, and led to the defeat of
Athens by Sparta. The Roman Empire was undermined by the plague in
Rome in the third century AD and its successor in Constantinople in
the sixth century AD. Of the plague in Italy Machiavelli said:
"Prudent men ... reflect on what has been, for everything that
happens in the world ... resembles what has happened in ancient
times"
The present suppression programme, demonstrating Machiavelli's
prescience has a precedent in medieval Italy where, during the
pandemic of 1348, the plague, caused by a bacterium Yersinia pestis
carried by fleas but from its primary host rats, became endemic in
Europe. Consequently, a public health system was established in
Northern Italy, based on special Magistracies whose main purpose
was the prevention and control of epidemics, principally the plague
to which they accreted other powers including executive powers in
all matters pertaining to public health food standards, the sewage
system, burials, and oversight of hospitals and hostelries and of
prostitution. But their main power related to their control of
society in a plague including quarantining and prohibition of
assembly, burning of infected goods and furnishings, and
requisition of premises for use as hospitals.
The plague was considered to emanate from "venomous" atoms from
debris or infected persons making salubrious air miasmatic; so
giving rise to poisonous atoms which adhere like perfumes to humans
and penetrate the skin or are inhaled. The Italians thought that,
as the poisonous atoms passed from one object to another, from one
person to another and from one object or an animal to a person,
they logically concluded that to control the spread of the disease
it was necessary to stop all contact with people animals and
objects coming from areas affected by the disease. They cleaned
infected areas burning everything considered contaminated. The
spread of disease between ports led contemporary doctors to
conclude human transmission was primarily responsible for the
propagation of the plague and when an epidemic broke out nearby
most trade and communication with that community was forbidden by
the Magistracies. If the plague reached a community a "general
quarantine" was often invoked requiring many of the population to
be locked up in their homes for forty days. For instance, in
Florence, in the general quarantine of 1630, all males and all
females under 14 were quarantined in their homes.
The diagnosis of the disease, "venomous atoms" may have been
wrong but many of the public health procedures were clearly very
beneficial. The theory of protection from the disease was also
wrong although the result were beneficial. It was recognised that
people who handled rough textiles, wool, cotton, hemp and carpets
and hessian bags of grain were more likely to catch the plague and
these materials were considered dangerous, their rough nature
harbouring the venomous atoms making air miasmatic and it was
recognised that all those handling such materials were particularly
prone to the plague. Separately, as developed in Florence, it was
recognised that the garb of the "plague doctors", a long-hooded
cloak made of fine linen with no rough "sticking" points for the
atoms, imbued with aromatic herbs and soaked with a fine wax gave
immunity to its wearers. To filter the air the costume included a
long ten-inch beak packed with aromatic herbs while the eyes were
protected by goggles.
These costumes were a Florentine speciality. The plague doctors
clad overall in red penitent like cloaks with painted long leather
beaks and glass eye lenses must have been a sinister reminder of
the perils of the plague. Tragically, all might have been
different. In 1657 Father Antonio who administered the pest house
in Genoa noted that almost invariably those working there, who had
not previously suffered the plague, almost invariably contracted
it: he wrote "The waxed robe is good only to protect one from the
fleas which cannot nest in it" ... He knew from experience "I have
to change my clothes frequently, if I do not want to be devoured by
the fleas, armies of which nest if my gown ... and I need great
strength of mind to keep still at the altar". How near was he, but
yet so far ... a short but too deep a chasm to cross in a culture
of supremacy authority over observation. Professor Carlo Copolla,
author of Fighting the Plague in Seventeenth Century Italy,
incisively remarks: "people find it easier to manipulate the facts
to fit their theories than to adapt their theories to the facts
observed".
Suppression methods bearing some similarity to those used in
medieval times are now in place in the UK. Evidence from China and
South Korea is that suppression stabilises the infection. The
extent of a rise in infection subsequent to the release of the
suppression will be reduced by the increasing immunity in the
population. It is also expected that by then there will be a
dramatic rise in testing capacity, allowing very early diagnosis
and subsequent isolation of those showing early symptoms, so
further limiting spread.
During this suppression dramatic damage to the economy is
occurring, described by the Economist as prospectively the "most
brutal recession in living memory", as "the economy takes a much
worse battering than analysts had expected". While in the UK
evidence of such a "battering" is self-evident, in China for the
months of January and February an earlier forecast of falls year on
year (i.e. for these two months compared to last year) in
industrial output of 3% was revised to 13.5% and a 3% retail fall
revised to 20.5% and fixed asset investment fall of 6% revised to
24%. The UK's economic short-term recession may be less severe,
because of the exceptional Government support.
In respect of long-term economic damage, the OBR consider that
only after the epidemic has passed would its scars become evident.
The FT says: -
"There is no doubt Britain is entering a deep recession: the
answer to the question about scarring remains the big unknown
economic element of the Coronavirus crisis."
The Institute of International Finance's recent forecasts "The
world economy is heading for a slump" are sharply down from those
made in October 2019 and the Institute now forecasts an economic
contraction of about 1.5% worldwide, 3.3% in "mature" markets,
encompassing 2.8% in the US, 2.6% in Japan and 4.7% in the
Eurozone.
The dramatic drop in the oil price from over $60 in February to
the current $20's will provide a small long-term boost to the
ailing UK economy. The $30 fall is expected to add directly 0.6% to
the UK GDP over a year. Scotland, particularly the North East
centre of the oil industry, inevitably will not benefit from the
falling oil price!
The causes of the oncoming recession are different from the
financial crisis of 2008, the cyclical inflationary recessions that
occur regularly and from those induced by war. There is unlikely to
be a debt crisis like 2008, whose expunging is taking so long, or
the deep physical, financial and supply damage of war or even the
slow "squeezing" of inflation to slow the recovery from this
recession. Unfortunately, I forecast the UK economic contraction
will approach 20% in the short term, but, if the suppression levels
ease within 10 weeks, then any long-term damage to the economy will
be limited, allowing a subsequent more rapid recovery. While the
immediate damage is certain the economy, should recover in a much
shorter time than the many years required following the 2008
financial crisis.
Property Prospects
I reviewed property prospects comprehensively in December 2019.
Until February 2020 that analysis continued to be current. Since
then, as Lady Thatcher's Deputy, Willie Whitelaw famously said in
the Commons "the future has changed".
In line with my December forecasts the IPF forecast for
Commercial Property in February 2020 was for a total return to "All
Property" of 3.5% comprising about a 5.0% income return and a fall
in capital value of 1.4%, improving over the next three years to
5.0% overall. The OBR forecast a smaller fall in capital values
this year followed by an average increase in value of 1.5% until
2025.
Similarly, the residential property market until February 2020
was commensurate with my forecast in December 2019. The OBR
forecast based on the ONS for 2019/2020 was for a rise of 1.6%
followed by rises of about 3.1% per annum. The Halifax(306)
reported prices had risen 2.8% in the year to February 2020, saying
"the sustained level of buyer and seller activity is strong
compared to previous years: The Nationwide reported a similar
change of 2.3% saying, "the strongest rate for 18 months". The
Acadata figure for England and Wales for 2020 was lower than the
two-above mortgage-based indices, but reported a rise in the year
to February 2020 of 1.0%, the highest for 13 months. The Acadata
figures for Scotland for January 2020 was higher than for England
and Wales at 2.8%, and the highest for a year. In Edinburgh the
ESPC City Centre prices in February were 6.9% higher than in the
previous year, "All" City prices were 4.4% higher and a strong
continuing rise of 12.7% in two-bedroom New Town/West End flats led
to an astonishing average price of GBP461,101.
Current market data is not available for commercial or
residential markets. However, as the "future has changed" I
forecast that transactions will have fallen rapidly and will
continue to do so for several months. Prices will fall but much
less quickly as supply is reduced, especially by householders
reluctant to sell at lower prices, but owners under financial or
other pressures to sell will lead the market lower. I suspect that,
assuming my economic forecast is accurate this adjustment will
continue until the autumn. Later this year, as there is a recovery
in the economy, prices should stabilise and start to recover.
Subsequently, price rises will continue as the full economic
recovery completes, forecast to be two to three years hence. In the
present circumstances the likely margin of error in these forecasts
is very much wider than any I have made over the years. In the past
years I have said: -
"House prices are difficult to forecast and historically errors
have been large, especially around the timing of reversals or
shocks. I repeat my previous forecasts, "... the key determinant of
the long-term housing market will be a shortage in supply,
resulting in higher prices."
This was never more accurate than as of now.
Conclusion
The conclusion is self-evident and unpalatable. I believe that
the measures to reduce the spread of Covid-19 will inflict an
unprecedented shock to the economy, possibly resulting in an
unprecedented 20% short term economic contraction.
Evidence from countries subject to similar measures shows that
the measures now being adopted, primarily "lock down" (as in
medieval Italy) bring a rapid stabilisation in the numbers of new
infections within 4 - 6 weeks. Thereafter stricter quarantine
measures, extensive testing - equipment will become available for
this - higher NHS capacity, potentially the effect of higher
daytime temperatures and UV levels, better personal hygiene and the
use of existing or the discovery of new drugs and vaccines should
allow the rate of infection and the mortality rate to fall. All the
time the proportion of the population immune to the disease will
rise reducing the propagation rate of the disease for any given
circumstances. Like "true" influenza it will become a continuing
endemic disease, but no longer significantly influencing the
economy. I estimate that this process will take one to two
years.
The release of or a qualified use of "lockdown" will provide an
immediate upsurge in the UK economy, but it is unlikely to recover
immediately more than 80% of the "lost" ground. It is the estimate
of rate of recovery of the balance of GDP that is subject to a very
wide margin of error. The delay to the return to the present level
of GDP will be determined by the damage to the supply side of the
economy by the current pre-emptive slow down: it is as if a fast
revving highly tuned machine had been abruptly cut off rather than
progressively closed down.
Other recessions normally impair the demand side of the economy
- squeezing inflation, making credit expensive and sometimes
unobtainable even for the creditworthy. The current and proposed
government measures seem likely to support demand. In the current
economic situation Brexit and the Oil price are "bit" players,
Brexit exerting a downward influence, and lower oil prices an
upward influence except in oil producing areas.
My current forecast is for a full recovery in GDP within two
years.
The specific circumstances of the Group will determine how such
economic conditions affect us. The prospects for the covenants of
our major tenants, including Edinburgh Palette are good, but for
our retail tenants less so. Sales of our completed houses at
Brunstane or development plots are unlikely to be achievable at
acceptable prices in the near future. Accordingly, we have budgeted
for lower rental receipts and delayed sales. The conditional sale
of St Margaret's, House is still expected to complete by May 2021
unless the planning committee do not reconvene for an extended
period and an alternative process for determining applications
during the current crisis is not forthcoming.
Given these circumstances we have delayed all long-term
development work, are reducing maintenance work to a short-term
minimum, and are reviewing all expenditure and staffing costs. Our
budgets indicate that we can meet all of the reasonably expected
changes with our current resources. However, as a contingent
reserve Leafrealm Limited a company controlled by me has confirmed
that, if necessary, it is willing to provide additional financial
support via an additional loan facility of GBP100,000. At this
stage the terms of any further loan from Leafrealm have not been
agreed or documented between Leafrealm and the Company. Further
announcements will be made should the Company decide to put such a
loan facility in place.
The short-term outlook is disappointing. However, I am confident
that, apart from the emergencies caused by the current epidemic,
the future prospects of the Group are fundamentally unchanged, but
their realisation is delayed. Hence, I conclude, as previously:
-
"In our existing portfolio, most development properties are
valued at cost, usually based on existing use, and when these sites
are developed or sold, I expect their considerable upside will be
realised. Some investment properties may also have considerable
development value, as we expect to realise at St Margaret's."
I D LOWE
Chairman
31 March 2020
Caledonian Trust PLC
Registered Number 01040126
Consolidated income statement for the six months ended 31
December 2019
__________________________________________________________________________________
Note 6 months 6 months Year
ended ended ended
31 Dec 31 Dec 30 Jun
2019 2018 2019
GBP000 GBP000 GBP000
Revenue
Revenue from development property
sales 90 440 440
Gross rental income from investment
properties 219 214 441
---------------- ---------------- --------------
309 654 881
Total Revenue
Cost of development property
sales (82) (232) (243)
Property charges (86) (104) (173)
---------------- ---------------- --------------
Cost of Sales (168) (336) (416)
---------------- ---------------- --------------
Gross Profit 141 318 465
Administrative expenses (324) (348) (755)
Other income 6 5 11
---------------- ---------------- --------------
Net operating loss before investment
property
disposals and valuation movements (177) (25) (279)
---------------- ---------------- --------------
Valuation gains on investment
properties 4 - - 3,025
Valuation losses on investment
properties - - (650)
---------------- ---------------- --------------
Net gains on investment properties - - 2,375
---------------- ---------------- --------------
Operating (loss)/profit (177) (25) 2,096
---------------- ---------------- --------------
Financial expenses (19) (18) (37)
---------------- ---------------- --------------
Net financing costs (19) (18) (37)
---------------- ---------------- --------------
(Loss)/profit before taxation (196) (43) 2,059
Income tax 5 - - -
(Loss)/profit and total comprehensive
income
for the financial period attributable
to equity
holders of the parent Company (196) (43) 2,059
(Loss)/profit per share
Basic and diluted (loss)/profit
per share (pence) 6 (1.66p) (0.36p) 17.47p
Caledonian Trust PLC
Registered Number 01040126
Consolidated statement of changes in equity as at 31 December
2019
__________________________________________________________________________________
Share Capital Share Retained Total
Capital redemption premium earnings
reserve account
GBP000 GBP000 GBP000 GBP000 GBP000
At 1 July 2019 2,357 175 2,745 18,723 24,000
Loss and total
comprehensive income
for the period - - - (196) (196)
At 31 December 2019 2,357 175 2,745 18,527 23,804
At 1 July 2018 2,357 175 2,745 16,664 21,941
Loss and total
comprehensive income
for the period - - - (43) (43)
At 31 December 2018 2,357 175 2,745 16,621 21,898
At 1 July 2018 2,357 175 2,745 16,664 21,941
Profit and total
comprehensive income
for the period - - - 2,059 2,059
At 30 June 2019 2,357 175 2,745 18,723 24,000
Caledonian Trust PLC
Registered Number 01040126
Consolidated balance sheet as at 31 December 2019
__________________________________________________________________________________
31 Dec 31 Dec 30 Jun
2019 2018 2019
Note GBP000 GBP000 GBP000
Non-current assets
Investment property 7 17,470 15,095 17,470
Plant and equipment 15 8 6
Investments 1 1 1
Total non-current assets 17,486 15,104 17,477
Current assets
Trading properties 12,861 11,707 12,398
Trade and other receivables 160 153 151
Cash and cash equivalents 38 536 131
Total current assets 13,059 12,396 12,680
Total assets 30,545 27,500 30,157
Current liabilities
Trade and other payables (1,281) (1,172) (1,206)
Interest bearing loans and
borrowings (1,390) (360) (881)
Total current liabilities (2,671) (1,532) (2,087)
Non-current liabilities
Interest bearing loans and
borrowing (4,070) (4,070) (4,070)
Total liabilities (6,741) (5,602) (6,157)
Net assets 23,804 21,898 24,000
Equity
Issued share capital 8 2,357 2,357 2,357
Capital redemption reserve 175 175 175
Share premium account 2,745 2,745 2,745
Retained earnings 18,527 16,621 18,723
----------------- ----------------- --------------
Total equity attributable
to equity
holders of the parent Company 23,804 21,898 24,000
NET ASSET VALUE PER SHARE 202.01p 185.83p 203.7p
Caledonian Trust PLC
Registered Number 01040126
Consolidated cash flow statement for the six months ended 31
December 2019
__________________________________________________________________________________
6 months 6 months Year
ended ended ended
31 Dec 31 Dec 30 Jun
2019 2018 2019
GBP000 GBP000 GBP000
Cash flows from operating
activities
(Loss)/profit for the period (196) (43) 2,059
Adjustments for:
Gain on sale of investment - - -
property
Net gains on revaluation of
investment properties - - (2,375)
Depreciation - - 5
Net finance expense 19 18 37
Operating cash flows before
movements (177) (25) (274)
in working capital
(Increase) in trading properties (463) (57) (748)
(Increase)/decrease in trade
and other receivables (9) (16) (14)
Increase in trade and other
payables 55 184 199
Cash (absorbed by)/generated
from operations (594) 86 (837)
Interest received - - -
Net cash (outflow)/inflow
from operating activities (594) 86 (837)
Investment activities
Proceeds from sale of plant 1 - -
and equipment
Acquisition of plant and equipment (9) (1) (4)
Cash flows (absorbed by) investing
activities (8) (1) (4)
Increase in borrowings 509 - 521
Cash flows generated from
financing activities 509 - 521
Net (decrease)/increase in
cash and cash equivalents (93) 85 (320)
Cash and cash equivalents
at beginning of period 131 451 451
Cash and cash equivalents
at end of period 38 536 131
Caledonian Trust PLC
Registered Number 01040126
Notes to the interim statement
1 This interim statement for the six-month period to 31 December
2019 is unaudited and was approved by the directors on 31 March
2020. Caledonian Trust PLC (the "Company") is a company
incorporated in England and domiciled in the United Kingdom. The
information set out does not constitute statutory accounts within
the meaning of Section 434 of the Companies Act 2006.
2 Going concern basis
The Group and parent Company finance their day to day working
capital requirements through related party loans and have bank
funding for a specific development project. The related party
lender has indicated its willingness to continue to provide
financial support and not to demand repayment of its principal loan
during 2020. Accordingly, the directors continue to adopt the going
concern basis in preparing this interim statement.
3 Basis of preparation
The consolidated interim financial statements of the Company for
the six months ended 31 December 2019 comprise the Company and its
subsidiaries, together referred to as the "Group". The financial
information set out in this announcement for the year ended 30 June
2019 does not constitute the Group's statutory accounts for that
period within the meaning of Section 434 of the Companies Act 2006.
Statutory accounts for the year ended 30 June 2019 are available on
the Company's website at www.caledoniantrust.com and have been
delivered to the Registrar of Companies. These accounts have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union. The auditors
have reported on those financial statements; their reports were (i)
unqualified, (ii) did not include references to any matters to
which the auditors drew attention by way of emphasis without
qualifying their reports, and (iii) did not contain statements
under Section 498 (2) or (3) of the Companies Act 2006.
The financial information set out in this announcement has been
prepared in accordance with International Accounting Standard IAS34
"Interim Financial Reporting". The financial information is
presented in sterling and rounded to the nearest thousand.
The interim financial statements have been prepared based on
IFRS that are expected to exist at the date on which the Group
prepares its financial statements for the year ending 30 June 2020.
To the extent that IFRS at 30 June 2019 do not reflect the
assumptions made in preparing the interim statements, those
financial statements may be subject to change.
In the process of applying the Group's accounting policies,
management necessarily makes judgements and estimates that have a
significant effect on the amounts recognised in the interim
statement. Changes in the assumptions underlying the estimates
could result in a significant impact to the financial information.
The most critical of these accounting judgement and estimation
areas are included in the Group's 2019 consolidated financial
statements and the main areas of judgement and estimation are
similar to those disclosed in the financial statements for the year
ended 30 June 2019.
4 Accounting policies
The accounting policies used in preparing these financial
statements are the same as those set out and used in preparing the
Group's audited financial statements for the year ended 30 June
2019, except for the adoption of new Standards by the Group.
New Standards adopted
IFRS 16 'Leases' replaces the current guidance in IAS 17 and is
effective for the Group from 1 July 2019. It establishes principles
for the recognition, measurement and disclosure of leases. One
impact is the requirement for lessees to recognise "right of use
assets" and corresponding lease liabilities. The Group has no
relationships where it is lessee and so there is no impact as
lessee from the adoption of IFRS 16. IFRS 16 may also affect
lessors whose tenants are affected by its adoption. Due to the size
and nature of its business tenants, none are expected to be subject
to IFRS 16 and so there is no impact on the Group at 1 July
2019.
Valuation gains/(losses) on investment properties
31 Dec 31 Dec 30 Jun
2019 2018 2019
GBP000 GBP000 GBP000
Valuation gains in investment
properties - - 3,025
Valuation losses on investment
properties - - (650)
Net valuation gains on investment
properties - - 2,375
As set out in note 7, the valuation gain in the period ended 30
June 2019 relates to progress on St Margaret's House, Edinburgh,
which is the subject of a conditional agreement for sale for GBP15
million entered into on 2 February 2018.
5 Income tax
Taxation for the 6 months ended 31 December 2019 is based on the
effective rate of taxation which is estimated to apply to the year
ending 30 June 2020. Due to the tax losses incurred there is no tax
charge for the period.
In the case of deferred tax in relation to investment property
revaluation surpluses, the base cost used is historical book cost
and includes allowances or deductions which may be available to
reduce the actual tax liability which would crystallise in the
event of a disposal of the asset. At 31 December 2019 there is a
deferred tax asset which is not recognised in these accounts.
6 Profit or loss per share
Basic profit or loss per share is calculated by dividing the
profit or loss attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during the
period as follows:
6 months 6 months Year
ended ended ended
31 Dec 31 Dec 30 Jun
2019 2018 2019
GBP000 GBP000 GBP000
(Loss)/profit for financial
period (196) (43) 2,059
No. No. No.
Weighted average no. of
shares:
For basic and diluted profit
or
loss per share 11,783,577 11,783,577 11,783,577
Basic (loss)/profit per
share (1.66p) (0.36p) 17.47p
Diluted (loss)/profit per
share (1.66p) (0.36p) 17.47p
7 Investment Properties
31 Dec 31 Dec 30 Jun
2019 2018 2019
GBP000 GBP000 GBP000
Valuation
Opening valuation 17,470 15,095 15,095
Revaluation in period - - 2,375
Closing valuation 17,470 15,095 17,470
The carrying value of investment property is the fair value at
the balance sheet date at directors' valuation and based on
valuations as at 30 June 2019 by Montagu Evans, Chartered
Surveyors, and for one property, by Rettie & Co. Neither
external valuers are connected with the Company. As disclosed
previously, a conditional agreement for sale of St Margaret's House
was entered into on 2 February 2018.
8 Financial instruments
Fair values
Fair values versus carrying amounts
The fair values of financial assets and liabilities, together
with the carrying amounts shown in the balance sheet, are as
follows:
31 Dec 2019 31 Dec 2018 30 Jun 2019
Fair Carrying Fair Carrying Fair Carrying
value amount value amount value amount
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Trade and other
receivables 119 119 107 107 124 124
Cash and cash
equivalents 38 38 536 536 131 131
157 157 643 643 255 255
------- --------- ------- --------- ------- ---------
Loans from related
parties 4,430 4,430 4,430 4,430 4,430 4,430
Bank loan 1,030 1,030 - - 521 521
Trade and other
payables 1,273 1,273 1,170 1,170 1,188 1,188
6,733 6,733 5,600 5,600 6,139 6,139
======= ========= ======= ========= ======= =========
Estimation of fair values
The following methods and assumptions were used to estimate the
fair values shown above:
Trade and other receivables/payables - the fair value of
receivables and payables with a remaining life of less than one
year is deemed to be the same as the book value.
Cash and cash equivalents - the fair value is deemed to be the
same as the carrying amount due to the short maturity of these
instruments.
Other loans - the fair value is calculated by discounting the
expected future cashflows at prevailing interest rates.
9 Issued share capital
31 Dec 2019 31 Dec 2018 30 Jun 2019
No. GBP000 No. GBP000 No. GBP000
000 000 000
Issued and
Fully paid
Ordinary shares
of 20p each 11,784 2,357 11,784 2,357 11,784 2,357
10 Seasonality
Property sales in the Group are largely unaffected by seasonal
variations and tend to be driven more by opportunity on investment
and by progress on development sites.
11 Bank loan
The Group has a loan facility from Bank of Scotland of
GBP1,415,000 to finance the next stage of its Brunstane
Development. The loan drawn down at 31 December 2019 was
GBP1,030,000 and interest is payable at a margin of 5.1% over Bank
of Scotland base rate. The loan is secured by a floating charge
over the assets of a subsidiary and by a standard security over
Phases 2 and 3 of the development site. The parent Company has also
given a guarantee which is limited to GBP145,000.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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