TIDMCNN
RNS Number : 1680U
Caledonian Trust PLC
31 March 2021
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") which forms part
of Domestic UK Law pursuant to the European Union (Withdrawal) Act
2018.
31 March 2021
Caledonian Trust plc
("Caledonian Trust", the "Company" or the "Group")
Unaudited interim results for the six months ended 31 December
2020
Caledonian Trust plc, the Edinburgh-based property investment
holding and development company, announces its unaudited interim
results for the six months 31 December 2020.
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 GBP327,000 in the six months to
31 December 2020 compared with a pre-tax loss of GBP196,000 for the
same period last year. The loss per share for the six months to 31
December 2020 was 2.77p and the NAV per share as at 31 December
2020 was 201.7p compared with a loss per share of 1.66p and a NAV
per share of 202.01p 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 my statement
accompanying our audited results for the year ended 30 June 2020,
released in December 2020.
The Group's property investment business continues - but is
changing as a result of the conditional sale of St. Margaret's
House ("St Margaret's"), our investment property held for
development. However, the rate of change has slowed due to the
extended time taken, partially due to Covid-19 restrictions earlier
last year, to gain planning consent for the Reserved Matters
application lodged by the purchaser, Drum Property Group ("Drum"),
on 24 September 2019, but which consent was only issued on 14
August 2020. The sale is now conditional solely on Drum securing a
pre-let of the student housing element of the development, which
under the missives in relation to the proposed disposal of St.
Margaret's is required to be achieved by 30 June 2021. The effect
of the current uncertainty caused by Covid-19 to teaching and
travel on University entrance rolls and their rental receipts from
student accommodation has resulted in the widespread postponement
of procurement of further student accommodation, which we currently
believe is likely to result in a further delay in realising the
sale of St. Margaret's. We expect to have better understanding
regarding the timing of the proposed disposal of St. Margaret's by
30 June 2021. We continue to hold a high yielding retail parade, a
high yielding retail / industrial property, our North Castle Street
offices and four central Edinburgh garage investments.
As announced on 16 December 2020, we concluded unconditional
missives for the sale of Ardpatrick Estate for GBP2.7m in cash with
completion originally on 24 March 2021 but, by mutual agreement,
completion has been delayed until late April 2021.
We completed the construction of the five new house units in the
listed former farm steading on our site at Brunstane and commenced
marketing in July 2020 following the lifting of Covid-19
restrictions. The sales of all five properties have now completed,
two prior to 31 December 2020 and the other three in the past
month, all at prices in excess of their home report valuations,
which itself was in excess of our budgeted figures, for a combined
consideration of GBP2.66m or GBP360/ft(2) .
We have recently issued tender documentation for the
construction of the next phase of five new houses over 8,650ft(2)
to form the east most courtyard of the farm steading area with a
view to commencing construction of this next phase in early summer
2021. The application for consent for 12 new houses in addition to
the large farmhouse in the Stackyard field to the east of the
steading continues through the planning process and it is expected
that consent for this phase will be granted in the next few
months.
Investment in all other development sites has been delayed,
primarily because of current, very restrictive, credit conditions.
The increased demand for family homes within commutable distance of
Edinburgh has resulted in making many of these sites more
attractive. Major road improvements locally are bringing more of
these sites within acceptable commuting times. We will extend our
development programme to such sites whenever conditions permit.
As announced on 14 July 2020, Leafrealm Limited, a company
controlled by me, provided an additional loan of GBP115,000 to the
Company, all of which has been drawn down.
Economic Prospects
Economic prospects currently relate less to that discipline than
to the disciplines of epidemiology, molecular biology and
statistics. The intrinsic danger of the Covid-19 plague is starkly
illustrated in economic terms. A "safe" investment that doubled
every eight years would represent a compound yield of 9.03%. In
investment terms, such a return represents an outstanding
opportunity, but in epidemiological terms such a compound increase
is catastrophic, as it represents the rate at which the severity of
the disease compounds with age. A 0.5% chance of serious illness at
the age of 30 increases to about 32% by the age of 72.
Covid-19, caused by the Coronavirus SARS-CoV-2, could have
devastated the economy as other plagues have through the centuries.
Indeed, it has already caused a UK recession of 10%, the largest
since the Great Frost in 1709. That cold spell persisted for three
months, lasting into the late Spring and was followed by flooding
from the eventual thaw, ruining crops and causing famine, disease
and death, resulting in a 23% fall in GDP.
Another virus caused the Spanish flu in 1918 - 1922, which
claimed about 50m lives. The death toll from subsequent coronavirus
diseases was less than 1,000 from SARS and MERS. Death tolls from
other virus epidemics include 10,000 from Ebola, 200,000 from Swine
flu but over 1m from Russian flu 1889, Asian flu 1952 and Hong Kong
flu 1968. Covid-19's toll is already over 2.6m.
Other plagues caused by other pathogens have caused greater
economic damage. The Plague, the black death, the bacterial curse
of the Western world for nearly 200 years, killed 10% of the Roman
Mediterranean population in AD 165-180, while the later Justinian
plague killed 55% of those in the Western European Roman empire in
the sixth century. Its manifestation in Europe as the "Black Death"
in the 14(th) century killed about 40% of that population. The
highest death toll from a plague occurred in the "New World" where
over several centuries the imported smallpox virus, Variola major,
killed 93% of the indigenous population.
Until recently, the devastation caused by such pandemics was
considered historic. Indeed, in 1962 the Nobel prize winner,
Professor Sir Frank Burnet declared the virtual elimination of
"infectious diseases". And so it then appeared. In the 19(th)
century improvements to water and sewage systems, rodent control
and better nutrition controlled infectious diseases. Subsequently
antibiotics and vaccines cured bacterial diseases and pre-empted
viral diseases. Sir Frank's complacency was confirmed by the
ephemeral nature of subsequent plagues such as SARS, MERS, Ebola
and various "flus" that proved short-lived. Even the spread of the
HIV virus, killing over 31m people, did not set aside such
complacency, as it was deemed controllable by social behaviour and,
latterly, by drugs. Sir Frank Burnet was proved wrong by the
long-term and continuing changes in human behaviour, chiefly those
of closer contact with different ecologies, higher population
densities and more rapid and extensive travel. Such conditions
allow diseases to transmit easily, spread quickly and disseminate
widely. Between 1940 and 2004, 335 new infectious diseases were
noted in humans, of which 60% leaped from animals, mostly
wildlife.
Smallpox has a long pedigree, having been found in Egyptian
mummies, but its origin is unknown. It was not widely distributed,
being absent in the New World where 93% died on its introduction,
so indicating it was not endemic in humans, but arising in a
specified geographic area. "New" virus diseases frequently have
animal origins - SARS from horseshoe bats, MERS from camels via
bats and SARS-CoV-2 from bats, HIV from other primates, certain
influenzas from avian flu and measles from the rinderpest virus in
farmed cattle. Many of these transmissions seem likely to have
occurred as a result of close contact with animals, probably
associated with farming and animal domestication. Farming,
commencing in about 10,000BC in the fertile crescent of the Middle
East, was necessarily associated with settled close communities
whose increased economic output permitted such higher denser
populations. As many virus diseases "jumping" in uncertain ways
between species are then transmitted by air, and have very short
half-lives outside the host, these denser settled populations
facilitated the subsequent spread and the transmission of the
"jumped" diseases.
In early farming communities the spread of any such "new"
disease would have been limited by the separation between
communities and by the infrequency of communication between them,
even over short distances. It is reasonable to postulate that many
"new" diseases ran their course confined to a local community where
at times they may all have perished, so eliminating the disease or,
possibly, the few survivors gained immunity and so did not develop
it and then transmit it. Such conditions, restricting the spread of
disease, are self-evidently diametrically opposed to those
prevailing today in the Western world.
Treatments to prevent disease caused by viruses have, until the
recent success of the HIV virucides, been via vaccines, a name
originating from Vacchus, a cow, originally used as a source of
live but attenuated virus to create immunity. Vaccines have been
developed against 24 major virus diseases, including Rubella,
Measles, Diptheria(208) and Smallpox, effective to over 90% and
against influenza but effective only to about 40%. Historically,
these vaccines took many years from the isolation of the virus to
the licencing of the vaccine - nine years for measles and as long
as 20 years for polio. An exceptional feat of scientific endeavour
and skill combined with administrative efficiency, including 24
hour working, has produced a vaccine in a year - and not just one
vaccine but several all based on four different methods of
introducing SARS-CoV-2's specific spike proteins into the body, so
triggering a response from the body's immune system and preparing
its defence systems to counter any subsequent real attack. The
astonishingly rapid development of vaccines is a tribute to the
discoveries over many years of the biological sciences: as the
comedian, Eddie Cantor says: it takes 20 years to be an overnight
success.
One method involving inactivated whole virus is being produced
by Valneva in its Scottish plant. The virus' genetic material is
destroyed, but the protein on the spikes of the virus, allowing
access to the host cell, is recognised by the host and triggers the
host's defensive system, boosting immunity to subsequent
infections. This method is currently used for flu and some other
vaccines, and is now being used by Sinovac and Sinopharm in China
and Bharat Biotech in India for their Covid-19 vaccines. A second
established vaccine system uses an Adenovirus into which a gene
from SARS-CoV-2 which codes for the SARS-CoV-2 spike protein has
been introduced. This imported gene instructs the host cell to make
the spike protein characteristic of SARS-CoV-2 and its production
activates the host's antigen system and other defence mechanisms.
This method is used in both the Oxford / AstraZeneca and the
Janssen vaccines.
Two other "new" vaccines systems have been developed. The
genetic material of SARS-CoV-2 is mRNA, not DNA. In one new system
the mRNA (messenger ribonucleic acid) strand is produced
chemically, i.e., synthesised and not, unlike other vaccines,
produced biologically by growing "natural" live cultures.
"Chemical" synthesis has the great advantage of allowing the mRNA
to be altered easily to give different results as may be necessary,
for example, to combat future variants of the SARS-CoV-2. mRNA,
including the virus gene that encodes for the spike protein, is
synthesised but the whole virus genome is not synthesised. This
synthetic mRNA harnesses the host cells to produce the spike
proteins which activate the immune system, but as the genetic
material is incomplete the virus is not reproduced. The technique
is used by BioNTech / Pfizer and Moderna, both of whose vaccines
are approved.
The other new system developed by Novavax and GlaxoSmithKline,
and Sanofi Pasteur directly introduces the virus' spike protein,
fortified by an activating adjuvant, into the body stimulating the
body's immune system to attack the spike protein and so confer
immunity. These systems are currently in combined phase 1 and 2
clinical trials. Like the Pfizer system, this system is synthetic
and so facilities modification at short notice and can be scaled up
quickly, allowing vaccines for any "variant" of the Covid-19 virus
to be easily produced and quickly manufactured on a large
scale.
Certainly, speed has been of the essence. The Covid-19 virus has
a high reproduction rate and a high mortality rate amongst older
people even after intensive treatment. For women mortality is 5% at
75, rising to 10% at 85, and for men about 10% at 75 rising to 20%
at 85. For both sexes mortality below 50 is less than 1%.
There are 6.5m people over 75 in the UK and unchecked it seems
likely at least 10% or 650,000 would die, even if hospitalised.
Without such hospitalisation, due to the hospital facilities being
overwhelmed, at least 1m would probably die. In such circumstances
it is difficult to imagine anything other than a major economic
breakdown. The "lockdown" and safety procedures have saved hundreds
of thousands of lives but at great economic cost. It is difficult
to envisage that such economic cost could be supported for more
than 18 months without itself causing an economic breakdown. The
UK's great achievement has been the development, delivery and
deployment of effective vaccines that will permit the removal of
current restrictions without, in the worst case, unacceptable
resultant rises in disease and death. Truly, the economy has been
rescued.
The questions now are how quickly will economic output be
restored to its former health and will output grow at a rate at
least equivalent to that prevailing pre-pandemic? And, if so, how
and when can a higher growth rate be achieved? The present
recession bears no relationship to the only larger recession, the
Great Frost in 1709, which was caused by freak weather conditions
ruining an agricultural economy. But equally the present recession
bears little resemblance to recessions over the last 100 years.
These previous recessions were generally consequent to long periods
of expansion and inflation, at times following wars or, unusually,
a supply driven production failure, such as the oil induced
recession of the 1970s, all these cycles lasting only a few years.
Rare exemptions to the recessions caused by reactions to
inflationary cycles have been those caused by financial crashes
such as the Great Depression, starting in 1929, and the recent
Great Recession, starting in 2008, whose effects lasted
considerably longer and were much more damaging to the economy.
In contrast the current recession is the result of a policy
induced severe curtailment of economic activity. An interesting
anomaly of this recession is that, whereas normally the
discretionary expenditure in the manufacturing sector is more
affected, in this recession the service sector is more affected
because person-to-person interaction is so severely limited. Thus,
the Covid-19 recession, while much deeper than an inflation or
financially induced crisis, when policy is reversed, is expected to
last less than two years.
Just as the cause of the Covid recession is singular so will be
the recovery. Andy Haldane, the Bank's chief economist, described
the UK economy as a "coiled spring" awaiting to jump up when the
Covid restrictions are lifted. The energy stored in the "spring" is
represented by the increase in the average UK Household Savings,
which are usually about 6% of total disposable income, but which
increased to 25.5% in Q2 2020 and to 16.5% in Q3. There is a
widespread agreement of the reaction to the lifting of
restrictions. Pubs, restaurants and services, especially personal
services, will boom; increased house moves - mortgage approvals at
the end of 2020 were at the highest since 2007 - will increase
associated spending, particularly on home improvements; and
"difficulties" in holidaying abroad will increase staycations. The
surge in spending will be modulated by two important factors.
Firstly, several habits will have been altered by recent experience
and may not revert to the same pattern of eating out, drinking in
pubs and going on leisure shopping trips. However, I suspect such
influences will be concentrated on those in the older age brackets
where greater Covid "fear" may persist. Secondly, unemployment may
rise steeply when the current and recently extended Government
support measures expire.
Unemployment averaged 4% in 2019 but rose to 5.1% in 2020 Q1 and
to 5.5% in 2021 Q1 and is expected, in the Bank's February
forecast, to peak at 7.7% in mid-2021 before falling back to 6.6%
in Q4 2021, 5.4% in 2022 and 5.0% in 2023. The OBR, writing after
the budget, and the further continuation of the Coronavirus Job
Retention Scheme (CJRS), is more optimistic than the Bank's
pre-budget February forecast, expecting unemployment to peak at the
much lower figure of 6.5% falling over 2 years to 5.5%. Even at the
higher unemployment levels that the Bank expects, it forecasts that
GDP, after falling 10% in 2020, will rise 5% in 2021, 7 1/4 % in
2022 and 1 1/4 % in 2023, when it will be 2 1/4 % larger than
before the pandemic. In November they forecast a slightly earlier
recovery, but one resulting in an economy in 2023 only 1 1/4 %
higher than the pre-pandemic level.
The Bank's forecast for 2021 takes account of a drop in GDP in
Q1 2021 before the subsequent "spring" back, starting in Q2. Thus,
if the end Q1 2021 figure is compared with the forecast end Q1 2022
figure, the annual growth is an astonishing 14.2% over that 12
months. Truly, the recovery forecast is exceptional, as indeed was
the actual fall in early 2020 at a rate of around 20% per annum.
The Bank's central forecast is for GDP to return to the 2019 Q4
level in 2022 Q1 when it estimates that it is 67% likely that GDP
will be between 93% and 103% of the 2019 Q4 level.
The OBR forecast is slightly more cautious than the Bank with
lower 2021 growth of 4.0%, delaying the recovery to the 2019 level
to the end of 2022 when it is expected to be just 0.5% higher than
in 2019. HMT, NIESR, IMF, PWC and EY forecasts are also slightly
more conservative than the Bank's forecast to differing degrees,
although the difference among all these forecasts is most unlikely
to be statistically significant. Thus, a quite remarkable "spring
back" is generally forecast after which the OBR expects growth to
stabilise at 1.7% in the three years to Q4 2025 (The Banks's
forecast period does not extend beyond end 2023).
The "spring back" does not recover the "lost growth" of this
economic cycle, and with a future forecast growth of 1.7%, below
the 1.87% average of the ten years to 2019 before the effects of
the pandemic lockdowns, this "lost growth" is not forecast to be
recovered in years subsequent to the "spring back". It is, as the
cartoon character, Billy Bunter, "The Owl of the Fourth Remove",
complained, "a meal lost is lost forever". The lost growth of GDP
has been the result of the non-recoverable damage to the economy
caused by the huge shrinkage in output, 20% at one time causing
permanent economic "scarring". Scarring causes a loss in GDP
equivalent to the output forecast in future years before the Covid
shock and the output now expected after the Covid shock in these
same future years. Thus, unlike most inflation cycles, there is no
compensatory post-recession high growth rate that allows a
"catch-up".
Scarring is one of three economic factors already adversely
affecting the growth of the UK economy, in addition to Brexit and
low increases, by historic standards, in productivity. For the
Scottish economy there is a further burden, the expectation of
Scexit, Scottish Independence, and the accompanying economic cost
of such a political choice.
The expected scarring effect is evident by comparing the OBR's
estimates of future real GDP for 2025 made in March 2020 and in
March 2021 - that estimate is now a little over 3% lower than it
was in March 2020. Recently, the UK Government has said that
scarring would be less than the 1980s recession where over a long
period extensive areas of heavy industry closed, assets scrapped as
the economy shifted further towards a service based economy and
resultant unemployment was higher. In this recession a quick
recovery is expected as jobs have been very extensively protected
and financial and monetary support has been unprecedented, the
scarring is likely to be less than the 3% of GDP originally
feared.
Brexit imposes a second long-term reduction in output whose
effect cannot be ascertained by comparison of GDP output
expectations used for "scarring" as Brexit's probable outcome has
been a conditioning factor in OBR and Bank forecasts for some
years. Of the UK / EU agreement the OBR says:
"Overall, the TCA goes beyond a typical FTA with regards to
tariffs on goods, by not introducing tariffs on the agriculture
sector, but that has a relatively small aggregate economic impact.
While some extra commitments have been achieved with respect to
non-tariff barriers to goods trade, many of these are similar to
other FTAs. The introduction of non-tariff barriers in services,
which accounted for 42 per cent of the UK's exports to the EU in
2019, is far more significant. It is this channel that accounts for
much of the long-term reduction in [UK] productivity".
The total loss in output from Brexit is estimated by the OBR at
4% of which a 1.6% loss has already occurred and a further 2.4%
will be lost, or say 0.24% p.a. for 10 years. The Bank estimates
that loss as being 3.25% cumulated over a shorter period.
Unless the UK, leaving the EU, gains extensive Free Trade
arrangements elsewhere or uses independence to break the sclerotic
effect of many of its monopolies, quasi-monopolies, institutional
arrangements and distributional coalitions or unless the EU changes
from its current mercantilist political stance and embraces free
trade or unless, for some unlikely reason, the EU integrationist
project stalls, the UK will continue to pay an economic price for
this political choice.
The price the UK incurs by leaving the EU is a small one
compared to that which Scotland will pay if it separates from the
UK. The percentage of Scottish trade between Scotland and the rest
of the UK is very much higher than it was between the UK and the
rest of the EU. The LSE consider that "Independence" would reduce
Scottish GDP 4.5 - 6.7 percent, even if Scotland stayed in a
"common market" with the rest of the UK - and that re-joining the
EU would do little to reduce the impact", or, as it puts it, cost
Scotland "three times more than Brexit" will cost the UK.
Additionally, Scotland's 2019 revenue per head is GBP11,531, GBP307
lower than the UK, but expenditure per head is GBP13,854 or
GBP1,661 more, or a net subsidy of GBP1,968 per head. In 2019
Scotland had a budget deficit of 7.0% of GDP compared with 1.1% for
the whole of the UK. The income figures quoted included Scotland's
share of North Sea revenues (i.e. the overwhelming majority of
them) but the current policy is to phase out North Sea oil and gas
in favour of "Greener Policies", so further decreasing Scotland's
revenues. Unfortunately, it is inconceivable that an independent
Scotland could finance the borrowing required by its budget deficit
on the very fine terms enjoyed by the UK, appreciably raising the
costs of independence. Scexit will be a political decision taken at
a very great cost.
For Scexit that cost, fortunately, would be primarily economic.
There are distinct appalling parallels with other heroic failures,
particularly with the second uprising of 1745, the struggle in the
UK for a Catholic Stuart claimant, supported mainly by Highland and
Western Scots, against the mainly Protestant Scottish and English
Hanoverian supporters, which was supressed at Culloden, a boggy
moor near Inverness. The Highlanders attempted a daring night
attack on the enemy rear, but, having failed to reach the target
timeously, returned to camp for a meal of "ain single biskit a man"
before unexpectedly battle was joined at 1pm. Out at night and
unfed, many were tired and the boggy moor was unsuitable for the
Highlanders' normal tactics - discharge and then discard muskets
before charging, wielding hand weapons. The boggy ground slowed
their assault while grapeshot racked them before confronting
musketeers armed with the then newly improved "brown bess" bayonet,
a hand weapon out-reaching other hand weapons. Even their great
valiance could not then secure victory. Independence implies an
avoidable economic sacrifice, a heroic failure worthy of a Greek
Tragedy: "Econo-loden".
Economic prospects depend on their base from which they are
viewed. In the UK, compared to March 2020, they are disappointing,
but compared to the prospects as they have unfolded, given the
extent of the plague and its potential for catastrophe, the
prospects are excellent: some output has been lost, but strong
recovery is almost certain. Unlike other extensive plagues,
courtesy of great scientific advances in many disciplines, its
control and the subsequent economic recovery are within our
grasp.
Property Prospects
I reviewed property prospects comprehensively in December 2020
when the incidence of Covid-19, as gauged by infections and
hospital admissions, was falling and the lockdown of economic
activity was being eased: there was a bright light at the end of
the tunnel. But property surveys reported in 2021 have been taken
during a return to severe lockdown restrictions, when the outlook
had become less favourable. The only major sector previously
forecast to have a positive return, industrials, now has a better
forecast return, whereas those sectors previously forecast to have
poor or negative returns have got worse forecasts: the trends are
accentuated.
Industrials, reflecting the extensive growth of online shopping
and associated delivery services, have improved forecasts with
rents expected to increase further and investment yields to fall,
giving an expected investment return increased to 8.7%(301) from
5.8%. The office sector forecast is only slightly less favourable
than previously with a February forecast of a total return of 1.1%,
subsequent to a further fall in capital values and the positive
total return resulting from rental income.
Forecast retail sector returns have declined even further than
previously forecast. Retail warehouses had the smallest downgrade
with the total forecast return falling from 0.5% to -0.7% for 2021.
For standard retail shops the forecast return fell to -6.6% from
-3.8% as rental value growth fell to -8.3% from -6.8% and capital
value growth fell from -8.5% to -10.9%. Shopping centres had the
largest forecast fall as total return fell from -4.2% to -7.0% as
capital value growth fell from -10.5% to -13.1% and rental value
dropped from -8.4% to -10.5%. Forecasts for 2022 show all retail
sectors continuing to fall in capital value and in rental value. In
contrast, returns for all other sectors are positive in 2022 and by
2023 returns have "normalised" but with industrials continuing to
give the highest total return.
It is quite extraordinary how quickly the retail sector, so long
the "darling" of the property sector, has fallen from grace.
Equally extraordinary is how the industrial sector, so long the
ugly duckling, has fledged into a beautiful swan. These abrupt,
particular, changes highlight a general rule. Trends continue over
a long period, but when they change, the change is rarely
identified before it engulfs the market. Like the explanation given
in Hemingway's The Sun Also Rises to "How did you become
bankrupt?". Two ways, "Gradually, then suddenly".
The figures and forecasts quoted above all refer to "prime",
large investments, but analyses of smaller property investments
might reveal a much more varied and less extreme situation.
Following the "lockdown in March 2020", high street footfall
fell by a minimum 80% in all but small cities. However, by August,
while it had fallen 70% in London and was 45% lower in large and
medium cities, footfall was only 20% lower in medium and small
cities and is likely that in even smaller settlements the drop in
footfall might even be less. Additionally, it seems likely that
small shops, single traders and speciality shops may be less
affected by any change in the retail pattern and may even gain from
the distress of retail parks and shopping centres. Anecdotal
evidence of footfall in suburbs around Edinburgh certainly supports
such a hypothesis.
The anomalous rise in house prices up to October 2020 that I
noted in my December report has continued with prices in England
and Wales rising by 8.7% to January 2021 (10.7% excluding London
and the S.E.) and by 9.0% in Scotland, the highest rise since
October 2014. Prices reported for Edinburgh, Lothian, Fife and
Borders mirror these national changes with a price rise of 7.4% to
end January 2021, although the City centre flatted areas had only
moderate rises. Notable increases were East Fife 26.6%; Portobello
21.7%; Borders 15.6% and Dunfermline 14.5%, all such changes
probably being influenced by being "out of town" while the City
centre suffered from being "in town"!
The OBR ascribes the rapid general rise in prices on the lesser
impact on incomes of higher earners, who account for a
disproportionate share of house purchases, the build-up of forced
savings in the pandemic and, particularly in England, the current
short-term tax concessions, especially valuable to higher priced
purchasers. Other commentators ascribe the rapid rise to delays due
to Brexit uncertainty; low interest rates; and increased demand for
space, home working and gardens. The OBR expects the momentum to be
exhausted and for prices to fall on a quarter-by-quarter basis over
the second half of 2021 and in 2022, but to resume their
historically more typical rate of rise of 3.0%, just above earnings
growth, from 2023 onwards.
Savills have a quite different opinion to the OBR. While they
expect UK price rises in 2021 to fall from the current high level
of a 7.3% rise, the fall will be limited to 4.0%, and will average
over 4.0% for the next four years, or 21.1% for five years.
Northerly areas are forecast to have a higher five-year increase -
28.8% in the N.W.; Scotland 22.8%; and Southerly areas of England
less than 20%, but London rising only 12.6%, the lowest rise in
G.B.
Savills' forecasts for prime house values are similar to their
mainstream forecast with all prime regional prices rising 20.5%
over four years and with "outlying" areas showing higher price
growth with Scotland, the highest of all, at 22.8% closely followed
by Prime Central London's 21.6% and the suburbs and commuting areas
of London around 19.0%. In essence, there is no appreciable
difference among the prime areas and little only between mainstream
and prime price rises.
House prices command considerable academic attention and are of
great political significance because of their social and economic
implications. Many studies of house prices have concluded that
there is a "problem" - high house prices. Martin Wolf, writing in
the FT, quotes the ratio of average house prices to earnings as
currently 8.4, the same as just before the 2008 financial crisis
and higher than any other year since the 1880s. For fifty years
until 2000 it averaged 4.8. However, the average figures disguise a
huge variation - in many rural areas and some cities - the ratio is
below 5.0. In some areas of Scotland, the average house price is
under GBP150,000. If there is a housing "problem" it is not a
universal problem but a localised one. The perceived localised
problem arises because only at that "problem" price can demand be
satisfied and self-evidently, as the market clears at that price,
there is no shortage of houses at that price.
The manufacturer of houses, the builders, are dependent on the
supply of their raw material just as oil refiners producing petrol
are dependent on the supply of crude oil. In oil the supply is
dependent on the cartel OPEC+ and, similarly, the builders are
dependent on the supply of land.
The land supply is determined by centrally set rules and
regulations based on social and political objectives, interpreted
locally, which invariably restricts the supply of land, raising its
price. These supply restrictions are deeply entrenched and closely
guarded with considerable political influence and thus, without
equivocation, I repeat my forecast: "the key determinant of the
long-term housing market will be a shortage of supply, resulting in
higher prices". I consider this unlikely to change in the near
future.
Conclusion
Last year I concluded:
"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 rates of infection and 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 one no longer influencing the economy.
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 slowed 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 for a full recovery in GDP is within two
years".
I now forecast a full recovery of GDP in Q3 2022, six months
later than last year's forecast, due primarily to the extent of the
post-Christmas lockdown and a few weeks delay in the expected
vaccination programme.
The long-term cost to the economy is equivalent to about two
years of normal 1.5% growth, say 3%, and current forecasts are that
this gap will not be made-up or closed by increased output above
the normal 1.5% p.a. It will be a permanent "scar" due to damage to
the supply side of the economy, in contrast to "normal" recessions
induced by measures that bear primarily on the demand side of the
economy.
Covid-19 and the lockdown measures have adversely affected the
Group, directly and indirectly. Our property investment business
has only suffered mildly as the smaller businesses tenanting our
properties have proved resilient and have not been so affected by
the inroads made by online ordering. Nevertheless, the reduced
staffing levels of the Registers at Meadowbank in Edinburgh has
resulted in the Registers not continuing the car parking lease,
which has been re-let to Edinburgh Palette at a nominal sum. The
principal adverse effect on the Group has been the grave
uncertainty that teaching and travel has had on the University
entrance rolls and their rental collection from student
accommodation. Such uncertainty has caused the widespread
postponement of securing further student accommodation which
contributed to delays to the sale of St. Margaret's. However,
recent market information is that university UCAS clearing
applications are at record numbers and that purpose-built
accommodation for students will continue to increase. Such
specialist student accommodation is becoming more attractive
compared to "flats" as the cost margin continues to reduce,
multiple occupation of flats is becoming increasingly complex for
private landlords and legislation and tax changes increasingly
disadvantage landlords, while the value to the students and to
their parents of the safer inclusive nature of specialist
accommodation is increasingly appreciated as being well worth any
marginal cost. Traditionally, universities, especially the old
established collegiate ones, did "provide" a more encompassing,
catered for and cared for environment and these qualities may being
increasingly valued in today's "safer" society. Notwithstanding an
expected increase in market activity, we believe that the current
uncertainty will likely occasion a further delay in the sale of St.
Margaret's.
The successful sale prices achieved at Brunstane and the
strength of the housing market, especially for large family homes,
has, as a result of this pandemic, spread to wider commuting areas
and will enable us to extend our development programme,
concentrating on specialist sites in which the disadvantage of our
small scale are not applicable. The constraints to the development
programme are the current low availability of finance and its cost.
Most of the sites were bought without planning consent and at low
cost. Unfortunately, for loan purposes only the cost is allowable
in calculating the Loan to Cost for loan purposes and this is most
restrictive for our house sites, some of which have a "cost" of
only GBP10,000 - GBP20,000 a plot. The real cost of finance is now
exorbitant compared to all previous experience, as, for instance,
the Brunstane development finance cost overall more than 10% on a
site secured at less than 50% Loan to Value. The sale of Ardpatrick
to a purchaser, who will be resident, into an improved rural market
will release funds which can generate 10% at the margin and
increase at an accelerating rate the scale of the projects that can
be developed.
I am confident that, apart from the short continuing delay
caused by the current epidemic, the future prospects of the Group
are fundamentally unchanged, only their realisation has been
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 also have considerable
development value, as we expect to realise at St Margaret's."
I D LOWE
Chairman
31 March 2021
Caledonian Trust PLC
Registered Number 01040126
Consolidated income statement for the six months ended 31
December 2020
__________________________________________________________________________________
Note 6 months 6 months Year
ended ended ended
31 Dec 31 Dec 30 Jun
2020 2019 2020
GBP000 GBP000 GBP000
Revenue
Revenue from development property
sales 947 90 90
Gross rental income from investment
properties 193 219 446
---------------- ---------------- ---------------
Total Revenue 1,140 309 536
Cost of development property
sales (787) (82) (82)
Impairment adjustment on development
property 13 (165) - -
Property charges (56) (86) (172)
---------------- ---------------- ---------------
Cost of Sales (1,008) (168) (254)
---------------- ---------------- ---------------
Gross Profit 132 141 282
Administrative expenses (233) (324) (428)
Other income 6 6 20
---------------- ---------------- ---------------
Net operating loss before investment
property
disposals and valuation movements (95) (177) (126)
---------------- ---------------- ---------------
Valuation gains on investment
properties 5 - - 250
Valuation losses on investment
properties 5 (165) - -
---------------- ---------------- ---------------
Net (losses)/gains on investment
properties (165) - 250
---------------- ---------------- ---------------
Operating (loss)/profit (260) (177) 124
---------------- ---------------- ---------------
Financial expenses (67) (19) (29)
---------------- ---------------- ---------------
Net financing costs (67) (19) (29)
---------------- ---------------- ---------------
(Loss)/profit before taxation (327) (196) 95
Income tax 6 - - -
(Loss)/profit and total comprehensive
income
for the financial period attributable
to equity
holders of the parent Company (327) (196) 95
(Loss)/profit per share
Basic and diluted (loss)/profit
per share (pence) 7 (2.77p) (1.66p) 0.81p
Caledonian Trust PLC
Registered Number 01040126
Consolidated statement of changes in equity as at 31 December
2020
__________________________________________________________________________________
Share Capital Share Retained Total
Capital redemption premium earnings
reserve account
GBP000 GBP000 GBP000 GBP000 GBP000
At 1 July 2020 2,357 175 2,745 18,818 24,095
Loss and total
comprehensive income
for the period - - - (327) (327)
At 31 December 2020 2,357 175 2,745 18,491 23,768
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 2018 2,357 175 2,745 18,527 23,804
At 1 July 2019 2,357 175 2,745 18,723 24,000
Profit and total
comprehensive income
for the period - - - 95 95
At 30 June 2020 2,357 175 2,745 18,818 24,095
Caledonian Trust PLC
Registered Number 01040126
Consolidated balance sheet as at 31 December 2020
__________________________________________________________________________________
31 Dec 31 Dec 30 Jun
2020 2019 2020
Note GBP000 GBP000 GBP000
Non-current assets
Investment property 8 17,555 17,470 17,720
Plant and equipment 10 15 10
Investments 1 1 1
Total non-current assets 17,566 17,486 17,731
Current assets
Trading properties 12,146 12,861 13,006
Trade and other receivables 150 160 122
Cash and cash equivalents 62 38 72
Total current assets 12,358 13,059 13,200
Total assets 29,924 30,545 30,931
Current liabilities
Trade and other payables (1,206) (1,281) (1,213)
Interest bearing loans and
borrowings 12 (830) (1,390) (1,503)
Total current liabilities (2,036) (2,671) (2,716)
Non-current liabilities
Interest bearing loans and
borrowing (4,120) (4,070) (4,120)
Total liabilities (6,156) (6,741) (6,836)
Net assets 23,768 23,804 24,095
Equity
Issued share capital 10 2,357 2,357 2,357
Capital redemption reserve 175 175 175
Share premium account 2,745 2,745 2,745
Retained earnings 18,491 18,527 18,818
----------------- ----------------- --------------
Total equity attributable
to equity
holders of the parent Company 23,768 23,804 24,095
NET ASSET VALUE PER SHARE 201.7p 202.01p 204.5p
Caledonian Trust PLC
Registered Number 01040126
Consolidated cash flow statement for the six months ended 31
December 2020
__________________________________________________________________________________
6 months 6 months Year
ended ended ended
31 Dec 31 Dec 30 Jun
2020 2019 2020
GBP000 GBP000 GBP000
Cash flows from operating
activities
(Loss)/profit for the period (327) (196) 95
Adjustments for:
Net loss/(gain) on revaluation
of investment properties 165 - (250)
Impairment adjustment on development 165 - -
property
Depreciation - - 5
Net finance expense 67 19 29
Operating cash flows before
movements 70 (177) (121)
in working capital
Decrease/(increase) in trading
properties 695 (463) (608)
(Increase)/decrease in trade
and other receivables (28) (9) 29
(Decrease)/increase in trade
and other payables (74) 55 (22)
Cash generated from/(absorbed
by) operations 663 (594) (722)
Interest received - - -
Net cash inflow/(outflow)
from operating activities 663 (594) (722)
Investment activities
Proceeds from sale of plant - 1 -
and equipment
Acquisition of plant and equipment - (9) (9)
Cash flows (absorbed by) investing
activities - (8) (9)
(Decrease)/increase in borrowings (673) 509 672
Cash flows (absorbed by)/generated
from financing activities (673) 509 672
Net (decrease) in cash and
cash equivalents (10) (93) (59)
Cash and cash equivalents
at beginning of period 72 131 131
Cash and cash equivalents
at end of period 62 38 72
=================== ================= ==============
Caledonian Trust PLC
Registered Number 01040126
Notes to the interim statement
1 This interim statement for the six-month period to 31 December
2020 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 bank and other
funding for specific development projects. The directors have
assessed the impact of the Covid-19 pandemic on its cash flow
forecasts and expect that current rental streams and property sales
in the normal course of business will provide sufficient cash
inflows to allow the Group to continue to trade.
The related party lender has indicated its willingness to
continue to provide financial support and not to demand repayment
of its principal loan during 2021. 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 2020 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
2020 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 2020 are available on
the Company's website at www.caledoniantrust.com and have been
delivered to the Registrar of Companies. The accounts for the year
ended 30 June 2020 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 2021.
To the extent that IFRS at 30 June 2021 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 2020 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 2020.
Caledonian Trust PLC
Registered Number 01040126
Notes to the interim statement (continued)
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
2020 .
5 Valuation (losses)/gains on investment properties
31 Dec 31 Dec 30 Jun
2020 2019 2020
GBP000 GBP000 GBP000
Valuation gains in investment
properties - - 250
Valuation losses on investment
properties after transaction (165) - -
costs
Net valuation (losses)/gains
on investment properties (165) - 250
As set out in note 13, the valuation loss in the period to 31
December 2020 reflects the estimated effect of the agreement to
sell the Ardpatrick Estate which, as announced by the Company on 25
March 2021, is expected to complete in late April 2021. The
valuation gain in the period ended 30 June 2020 relates to progress
on the site at Belford Road, Edinburgh.
6 Income tax
Taxation for the six months ended 31 December 2020 is based on
the effective rate of taxation which is estimated to apply to the
year ending 30 June 2021. 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 2020 there is a
deferred tax asset which is not recognised in these accounts.
Caledonian Trust PLC
Registered Number 01040126
Notes to the interim statement (continued)
7 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
2020 2019 2020
GBP000 GBP000 GBP000
(Loss)/profit for financial
period (327) (196) 95
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 (2.77p) (1.66p) 0.81p
Diluted (loss)/profit per
share (2.77p) (1.66p) 0.81p
8 Investment Properties
31 Dec 31 Dec 30 Jun
2020 2019 2020
GBP000 GBP000 GBP000
Valuation
Opening valuation 17,720 17,470 17,470
Revaluation in period (165) - 250
Closing valuation 17,555 17,470 17,720
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 valuer is connected with the Company. As disclosed in note
13 an agreement for sale of Ardpatrick Estate was entered into on
15 December 2020 and as disclosed previously, a conditional
agreement for sale of St Margaret's House, Edinburgh was entered
into on 2 February 2018.
Caledonian Trust PLC
Registered Number 01040126
Notes to the interim statement (continued)
9 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 2020 31 Dec 2019 30 Jun 2020
Fair Carrying Fair Carrying Fair Carrying
value amount value amount value amount
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Trade and other
receivables 81 81 119 119 89 89
Cash and cash
equivalents 62 62 38 38 72 72
143 143 157 157 161 161
------- --------- ------- --------- ------- ---------
Loans from related
parties 4,595 4,595 4,430 4,430 4,480 4,480
Bank loan 355 355 1,030 1,030 1,143 1,143
Trade and other
payables 1,201 1,201 1,273 1,273 1,196 1,196
6,151 6,151 6,733 6,733 6,819 6,819
======= ========= ======= ========= ======= =========
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.
Caledonian Trust PLC
Registered Number 01040126
Notes to the interim statement (continued)
10 Issued share capital
31 Dec 2020 31 Dec 2018 30 Jun 2020
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
11 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.
12 Bank loan
At 31 December 2020, the Group had a loan facility from Bank of
Scotland to finance the next stage of its Brunstane Development.
The amount of the loan drawn down and not repaid at 31 December
2020 was GBP355,000 and interest was payable at a margin of 5.1%
over Bank of Scotland base rate. The loan was repaid in full on 1
March 2021.
13 Post balance sheet events
On 15 December 2020, the Company entered into an agreement to
sell all of its remaining interest in the Ardpatrick Estate for
cash consideration of GBP2.70 million. The carrying value of the
property at 30 June 2020 was GBP2.99 million attributable partly to
investment property and partly to trading properties. The sale
price reflects the decision to sell the properties comprising the
Estate as a single asset. The transaction is expected to complete
in late April 2021. Pending agreement of the allocation of the sale
consideration between stock and investment property, impairment
adjustments, including estimated transaction costs, have been made
on an estimated basis as follows:
31 Dec 31 Dec 30 Jun
2020 2019 2020
GBP000 GBP000 GBP000
Valuation of investment property (165) - -
Write down of stock to net realisable (165) - -
value
Total estimated adjustment at (330) - -
31 December 2020
Since 31 December 2020, sales of the remaining three properties
at Phase 2 of the Brunstane development have completed. The
aggregate profit on Phase 2 of the Brunstane development, after
finance costs, will exceed GBP450,000.
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END
IR XFLFXFXLLBBF
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March 31, 2021 09:23 ET (13:23 GMT)
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