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RNS Number : 7129T
Caledonian Trust PLC
31 March 2016
Caledonian Trust PLC
(the "Company" or the "Group")
Unaudited interim results for the six months ended 31 December
2015
Caledonian Trust PLC, the Edinburgh-based property investment
holding and development company, announces its unaudited interim
results for the six months ended 31 December 2015.
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
Nick Athanas Tel: 0203 328 5656
Alex Brearley
Introduction
The Group made a pre-tax loss of GBP180,000 in the six months to
31 December 2015 compared with a pre-tax loss of GBP187,000 for the
same period last year. The loss per share was 1.53p and the NAV per
share was 150.5p compared with a loss per share of 1.59p and NAV
per share of 145.6p last year.
In the period under review one investment property was sold at a
gain and remaining investment property values are unchanged from 30
June 2015. Income from rent and service charges was GBP175,000
compared with GBP156,000 last year. Administrative expenses were
GBP332,000 compared with GBP363,000 last year.
Review of Activities
The Group's emphasis continues to be on development, including
works to secure existing planning consents, and the provision of
infrastructure for development plots, and the marketing of house
plots and houses.
We have four main development sites in Edinburgh. Brunstane Home
Farm is in the Green Belt in east Edinburgh, but is just off the A1
and lies immediately adjacent to Brunstane railway station with
services to Edinburgh (seven minutes) and south via the
recently-reopened Borders Railway to Tweedbank/Galashiels. Last
year we completed the extensive alterations to four listed Georgian
stone-built, two-bedroom cottages together with the infrastructure
necessary for the next stages of the development. Following the
sale of the first two cottages the sale of the remaining two others
was hampered by the ongoing adjacent construction of the next phase
of development, but the third cottage sold in September 2015 and
the last cottage is under missive with completion due on 31 March
2016. Prices of cGBP275/ft(2) augur well for the larger phases of
the development which follow. The cottages, flanked by the stone
steading to the east and an amenity plantation to the west, form
part of a courtyard. Last year we obtained planning consent for two
larger stone-fronted houses over 2,300ft(2) to the south which will
complete this attractive courtyard. We also obtained vacant
possession of some garden ground which has allowed us to expand and
redesign these houses, incorporating important changes in
construction which also reduce costs. The site has been cleared
ready to start construction as soon as the preferred tender has
been adjusted and confirmation has been received of the proposed
small design changes.
Work started over a year ago on the next phase of five
stone-built houses, "The Horsemill Phase", which comprises five
stone arched cartsheds, a single storey cottage, the main grain
barn and an unusual hexagonal horsemill. The very extensive stone
repairs and renewals should be completed shortly leaving only the
Horsemill to be rebuilt, largely from existing tooled stone. The
Horsemill is only single storey and the stonework, although
complex, should complete in the autumn. The Horsemill phase of c
7,000ft(2) should produce a surplus over further construction costs
of over GBP0.75m. The next phase, "the Steading", has been cleared
of all the previous unlisted farm buildings, allowing the
development to follow the Horsemill phase, to which it is
similar
in size. The Steading phase will be all "new build", allowing higher development margins.
East of the main steading, on the now derelict stackyard and
piggery sites, lies a detached stone building with consent for
conversion and extension to form a detached farmhouse extending to
3,226ft(2). The farmhouse site is on open ground with clear views
to the Forth estuary to the north and to the Pentland Hills to the
south. Beyond the farmhouse in open ground to the east we hold a
two-acre site, whose abstraction from the Green Belt is proposed in
the Finalised Draft Edinburgh Local Plan which we expect to be
adopted this year. Proposals for the development of this two acre
former stackyard and piggery site, together with the proposed
farmhouse site, have been accepted in principle as suitable for a
development of fifteen - twenty-five new-build houses.
We hope to recommence development this year at Wallyford,
Musselburgh, where we have implemented a consent for six detached
houses and four semi-detached houses over 12,469ft(2). The site
lies within 400m of the East Coast mainline station, is near the
A1/A720 City Bypass junction and is contiguous with a
recently-completed development of 250 houses. Taylor Wimpey are
building over 400 houses nearby, but on the other side of the
mainline railway, which are selling rapidly at prices that have
risen modestly to the current GBP214/ft(2) for smaller terraced
houses and Persimmon are building 49 houses on the eastern fringe
of the settlement. The ground works for over 1,000 new houses and a
new secondary school campus on the southern edge of the settlement
have also recently started. These large schemes are expected to be
very successful, drawing a large number of people to the
settlement, but will not be directly competitive with our small
specialist development. The southerly site will assist in the
remediation of the "bing" and former colliery site at Wallyford so
contributing a further major improvement of the environment at
Wallyford, now being slowly transformed from a former mining
village to a modern, well-located suburb on the fertile East
Lothian coastal strip.
In Edinburgh at Belford Road, a quiet cul-de-sac less than 500m
from Charlotte Square and the west end of Princes Street, we have
implemented an office consent for a development over 22,500ft(2)
and fourteen car spaces. We also hold a separate residential
consent, which has also been implemented, for a development of
twenty flats over 21,000ft(2) together with indoor parking for
twenty cars.
In preparation for development, long overdue maintenance work
has started for which an appropriate access has been reformed which
will become the vehicular access to the site. When the current
maintenance work is complete a more accurate assessment of the
practicality and costs of the required excavation, groundworks and
possible retention works can be made. From initial observations it
appears probable that none of the present ruinous structures are
loadbearing and they can therefore be removed without providing an
alternative structural element. Once the current maintenance work
is complete it will allow construction costs to be more accurately
assessed and the risk of construction cost overruns reduced,
facilitating lower tender prices. The lower costs we expect to
achieve, combined with the possibility of higher values for the
usable areas obtained, should allow the current design to be built
more profitably.
St Margaret's House, London Road, is our largest Edinburgh
development site where PPP for a 231,000ft(2) development was
renewed in June 2015. We continue to consider a variety of possible
developments under improving conditions. Immediately west of St
Margaret's lies the Meadowbank sports complex which the City of
Edinburgh Council (CEC) proposes to redevelop to form a more
compact sports centre together with accommodation for up to 1200
students and 360 residential units, including 126 affordable
houses. Currently the CEC estimates that there is a capital
shortfall of GBP5.98m, which it is recommended is met from the
Capital Investment Programme 2016/20. The Council meeting agreed to
this proposal on 10 March 2016 and allocated GBP700,000 to complete
a detailed design to RIBA Stage 4 to allow the project to be
tendered. The report to the Council noted that Meadowbank is
"Edinburgh's biggest "driver" of indoor and outdoor sport" for all
ages, that "the facility cannot be refurbished to a satisfactory
standard", that the current facility costs GBP0.33m a year to run
and that "Meadowbank would help to meet the city's housing needs,
including affordable housing."
The almost certain redevelopment of Meadowbank will greatly
improve the amenity of the area and provide an exceptional leisure
facility next door, factors already improving site values. We have
commissioned architects to produce detailed proposals for the "West
Point" of the St Margaret's site to provide up to sixty flats for
sale.
We have taken several measures to improve the rental income at
St Margaret's. We have obtained planning consent for an advertising
hoarding which is being let and will provide an annual rental
income of about GBP35,000. We are negotiating a rental increase for
the car park with our neighbours, Registers of Scotland, and have
agreed a stepped rental increase with the tenants, Edinburgh
Palette. I intend rents to be at an annual rate of over GBP0.25m by
the end of 2017 with further rises likely if redevelopment is
further delayed.
The company has three large development sites in the Edinburgh
and Glasgow catchment areas. Two sites are at Cockburnspath on the
A1 just east of Dunbar and the East Lothian border where we have
implemented the two planning consents for 72 detached and four
semi-detached family houses. We have delayed development as market
conditions were not favourable in 2015. In the Scottish Borders
houses prices fell 7.3% in 2015 and in the adjacent East Lothian,
while average prices rose 3.1% in 2015, prices of detached houses
were unchanged.
(MORE TO FOLLOW) Dow Jones Newswires
March 31, 2016 06:26 ET (10:26 GMT)
The third large development site is seven miles from central
Glasgow at Gartshore, Kirkintilloch, on the Forth and Clyde Canal
and comprises the nucleus of the large estate formerly owned by the
Whitelaw family. In order to meet local house building objectives
we are promoting the creation of a new village of a few hundred
cottages and houses together with local amenities within the
existing designed landscape. Such a development would complement
our proposals for a high-amenity business park in a rural setting,
including an hotel and a destination leisure centre. This is a
long-term project which meets existing needs and development
criteria and for which we are gaining support in the local
community. To illustrate our proposals we are refurbishing a period
stable and associated hayloft as a 500ft(2) exhibition centre
illustrating both the history of the Estate and our proposals. The
exhibition room is housed in the most attractive 12,000ft(2)
purpose-built stables complete with elegant clock tower where
essential repairs and overdue maintenance are now taking place. We
expect to open the exhibition in the summer.
The company owns fourteen separate rural development
opportunities, nine in Perthshire, three in Fife and two in Argyll
and Bute, all set in areas of high amenity. In Perthshire at
Tomperran, a thirty acre smallholding in Comrie on the River Earn,
we hold a consent for twelve detached houses over 19,206ft(2). We
have now submitted an application for a revised layout for this
site and another planning application for a further thirteen houses
on our adjoining two-acre area previously zoned for industrial use.
These two applications for twenty-five new houses will occupy over
40,000ft(2). This application continues to be considered. The rural
market in 2015 in Argyll and Bute and Perth and Kinross and Fife
continues to be unsatisfactory and consequently we have deferred
most planning and almost all development work. Against this poor
background we are negotiating the sale of a plot in Chance Inn at
our target price.
Nearby at Carnbo, on the A91 Kinross to Stirling road, we
recently completed negotiations for the Section 75 Agreement to
enable the development of four houses over 7,900ft(2). It is
intended to market these plots in the summer.
Our largest rural development site is at Ardpatrick, a peninsula
of great natural beauty on West Loch Tarbert within two hours'
drive of Glasgow and central Scotland. We are marketing several
development sites: Bay Cottage, a bothy for conversion with consent
for an extension to form a three-bedroom house set in a paddock
with views to Achadh-Chaorann Bay; Oak Lodge, a waterfront site
with consent for a 1,670ft(2) house; two plots set in a small field
just off the B8024 Kilberry Road; and a further three sites on the
UC33, a cul-de-sac, which leads to the estate.
The repair of the infrastructure necessary to maintain the more
productive agricultural land continues. The exceptional wet winter
has proved the value of this work and it is expected that as a
result of these repairs the land will retain its improved status,
maintaining agricultural payments and improved land values. A study
of the woodland is being made which should allow the realisation of
the asset value of the existing commercial forest followed by
replanting it, together with the less productive land, using
woodland grant schemes. In order to improve house plot values small
amenity improvements are being undertaken and the servicing of
plots implemented to establish their planning consents. Further, it
is proposed to improve the potable water supply to make the
residential units more valuable and saleable.
Economic Prospects
The EU referendum is the main determinant of the UK's immediate
economic prospects and its outcome may have a significant influence
on the UK's long-term economic prospects. The influence of the
referendum will be experienced in two phases if the vote is
"remain", and in three phases, if the vote is "leave".
Irrespective of whether the vote is "remain" or "leave" the
first phase is common. The prospect of the consequences of "leave"
has several immediate unfortunate implications for the economy
which are likely to amplify as the referendum date approaches. The
principal concern arises over the prospects for UK trade which may
become restricted and lead to a larger balance of payments deficit,
poorer economic growth and greater fiscal deficits. When the
referendum was announced in late February the GBP weakened against
the $, falling below $1.39 its lowest since 2009, although it
recovered slightly in March to the current $1.1415, considerably
lower than its average of $1.70 since the Bretton Woods agreement
was suspended in 1971. A cumulative position of GBP11bn has been
taken on the foreign exchange markets that the pound will fall to
$1.35 or below if the UK votes "leave". The UK runs a considerable
current account deficit in which it requires a continuing inflow of
foreign capital which might only be available at greater cost. The
threat to the exchange rate is likely to increase the cost of
Government borrowing as each month the UK must borrow about GBP10bn
from international markets primarily to meet budget deficits.
Unfortunately, demand for Government debts has fallen sharply and
in January 2016 a sale of five year gilts came closer to failure
than any auction since 2009 as there were bids for only 1.07 times
the gilts auctioned. Any consequent rise in gilt yields increases
the cost of government borrowing. In the commercial property market
a significant number of deals are being conducted conditional on a
"remain" vote while others are being delayed until after the vote.
In such an environment it is likely that many industrial and
commercial investment decisions are also being postponed, reducing
economic growth and delaying improvements in productivity.
If the "remain" vote wins, the first phase leads to the second
phase, largely a reversal of the changes and delays induced by the
waiting period up to the referendum. However, if the vote to remain
is won only by a slender margin, say less than 55:45, then there
will be an appreciable risk that, given the decision appears not to
be final, that some of the first phase symptoms are not reversed.
The "yes" campaign in Scotland has been exceptionally skilled in
maintaining the prospect of "yes"; largely because in Scotland the
"yes" movement has the support of the Scottish Government with all
the power, wealth and patronage of office to continue the campaign
for "independence". In contrast in the UK even with a narrow
"remain" vote such powers lie with the UK Government.
A "leave" vote will trigger the first of two further phases: the
negotiations of the withdrawal. Unfortunately for the "leave"
campaign, even if the third phase, the final settlement,
subsequently provides an economic and political climate that is
equal to or even more favourable than the existing conditions, the
intermediate period will be one of considerable economic stress.
Investment will be delayed, and some inward investment will be
diverted to the EU and some businesses may pre-emptively relocate
within the remaining EU. The stock market and the GBP will fall.
The third phase of a "leave" vote is the effect of the final
negotiated settlement, which is required under EU law within two
years. The prospective outcome is highly uncertain and very
difficult to estimate, but it is a presumption of what this final
settlement will be that underlies, if only implicitly, the various
and very varied estimates of the consequences of a "leave"
vote.
The probability of "leave" will influence the first phase
whether the outcome is "leave" or "remain". This probability has
been increasing as reflected in the gaming odds, notably following
the snap resignation of Iain Duncan Smith. Amusingly, betting is on
or against the wrong steed, Brexit, who is not running, but a
related stable mate, a stallion, UK exit, whose Jockey Club name is
United Kingdom of Great Britain and Northern Ireland.
The betting odds on 16 January 2016 were 3/1 against (15/5)
Brexit, or a 25% probability, but this fell to 12/5 on 17 March and
has recently fallen further to 2/1 (10/5), or a 33% probability and
currently stands at 15/8.
"Polls" proved poor indicators of the result of the May 2015
General Election. Just before the election the average of the polls
showed Labour and Conservative parties each at 34%, but on the
election day the Conservatives led by 7 percentage points. The
pollsters, on whom very large sums of money appear to have been
wasted, have provided two explanations for their failure to be more
accurate, both based on the proposition that in the polls the
respondents failed to reveal their true underlying preference. The
failure arose because either there was a post-polling late swing to
the Conservatives or there were "shy Tories" declining to admit
their Toryism or "lazy Labour" voters who failed to vote. No doubt
both these variants occurred to some extent. However, Professor
Curtice suggests that an ongoing enquiry into the variation in the
results will conclude that the main source of error was the
pollsters' sampling techniques. In particular those sampled were
not representative. Specifically, internet polling is likely to
have been even more inaccurate than the average as such systems
rely on volunteers who sign up - such volunteers obviously being
far from
representative. Thus the exact pollsters' results require a heavy caveat.
(MORE TO FOLLOW) Dow Jones Newswires
March 31, 2016 06:26 ET (10:26 GMT)
The rolling average of the results collated by the Telegraph
currently shows 51% in favour of "remain" and 49% in favour of
"leave". These results exclude "undecided", accounting for about
15% of those polled. The FT Brexit Poll Tracker, a rolling average,
currently shows 45% "remain", 40% "leave" and 14% (sic)
"undecided". "Remain" peaked at 52% in summer 2015, possibly
following the General Election, but declined in the autumn and fell
at the beginning of winter, fluctuating around the current 45%
level. A nationwide survey by the Guardian provides the basis for
an analysis of the relationship between poll returns and actual
voting, showing three significant tendencies. Of all those polled
61% replied that they "definitely would vote", but amongst "leave"
voters 76% "definitely would vote" compared with 59% of "remain"
voters. The survey found that Euro scepticism is closely correlated
with age with older Britons more likely to vote "leave". Of voters
aged 65 or over, 88% will definitely vote compared with 37% of
those aged 25 - 34 and 34% of those aged 18-24. Clearly older
voters, proportionately, more likely to vote "leave", are likely to
turn out to vote than the younger voters, likely to vote "remain",
are. Thirdly, 76% of "leave" supporters say they will definitely
vote compared with 59% of the "remain" supporters. These three
factors indicate that the actual poll results from those "not
undecided" will give a much higher proportion of "leave" vote than
the polls indicate.
The "undecided" comprise about 14-16% of the FT's rolling
average poll tracker over the last year. Some polls are understood
to make a pro rata appointment over the "leave" and "remain"
supporters. While such an allocation is neat and convenient, I find
there is no evidence for such an allocation. "Undecideds" seem
likely not to hold strong views and are therefore less likely than
the "average" to vote and when they do vote, not holding strong
views, to be against change. I conclude that the "undecideds" will
not split pro rata but rather will be skewed towards "remain".
The "undecideds" will be a key constituency, a most important
variable. The other important variables are the evolution of the
immigrant crisis in continental Europe and the long time - three
months - until the referendum.
The resignation of Iain Duncan Smith was unexpected and other
unexpected events, equally relevant to the outcome of the
referendum, may occur. The polls, as interpreted, indicate a much
closer race than the current betting which gives "leave" a 35%
probability.
Despite the polls, the downwards movement of the odds against
Brexit and the rocket fuel of immigration propelling the "leave"
cause there is, as the FT says, "an unwillingness among mainstream
politicians to believe the warning signs ....." a stance mirroring
the conventional wisdom in the USA that maintained Donald Trump
would never win the Republican nomination, an outcome now
increasingly more likely.
The "remain" campaign has a powerful champion in the Prime
Minister. Not only does he have the full power of office, patronage
and publicity behind him, as did Salmond who used all three so
successfully in the Scottish independence campaign, but he is also
a seasoned, successful campaigner who unexpectedly won the General
Election and assisted materially in achieving a "No" vote in the
Scottish referendum. Such skills and talents may be required to
retrieve the "remain" position, a referendum challenge that he
brought on himself in order to make a short-term accommodation with
dissident elements in his party. The Prime Minister's credibility
is undermined by his undertaking to secure reformation in the EU
because UK's "best future lies within a reformed EU". Patently this
means that the UK's future does not lie with an unreformed EU but
with the reformed one promised after the negotiation.
Unfortunately, in Martin Wolf's words: "Mr Cameron has laboured to
produce a mouse". Given that the UK's place was in a reformed EU
and, given that no real reform has been achieved, the logic of Mr
Cameron's position is "leave", but political expedience overrides
consistency.
Many commentators consider a "leave" vote will damage the
economy. This itself will damage the economy before the referendum.
Subsequently, anti-climax will mark the start of the next phase.
The day after a "leave" result - the sun will still rise and
everything will appear as before. However, that day heralds the
onset of the two-year "leave" negotiations during which time the
threat, or the impending reality, of the economic consequences of
leaving will affect sentiment, investment activity and growth,
depending on the perception of the likely outcome and its effects.
I suspect two years of ebb and flow depending on these perceptions,
but, however favourable the terms ultimately agreed are, economic
growth in that negotiating period is almost certain to be
sub-optimal. Moreover, while the negotiating period is normally
within two years, if past EU timetables are any guide, this could
easily be exceeded, possibly by a long time.
In phase three, after the negotiated settlement, the economic
effects are the subject of wide and varying analysis and
speculation, based largely on the eventual outcome of the
settlement. Put simply, there are two main variables: what will the
settlement be and what are the effects of such a settlement? Most
economic studies report that Brexit would damage the UK economy.
Three recent reports from Centre for Economic Performance, the
CBI/PWC and Oxford Economics all consider that in the worst case
scenario the long-term effects would average about minus GBP4,000
per annum per household, while the best outcome would vary from
minus GBP680 to plus GBP70. Martin Wolf, associate editor and chief
economic commentator of the FT, forthright as usual, says: "A vote
for Brexit is a leap into the abyss". UK Industry and Financial
"establishment" figures are prominent amongst those predicting an
unfavourable outcome for Brexit.
The argument for Brexit has interesting arguments based on
precedent and credibility of the components of "leave". The
precedents include the shrill cry of "Wolf" over the potential
threat of the millennium Y2K: the lifts stopped in remarkably few,
if any, unprepared places; a huge amount of capital was wasted; and
nominally highly qualified committees made bad judgements.
Similarly the perceived wisdom of the City, including notably the
FT and the Economist, was that the exclusion from the EZ would be
specifically damaging to the City and generally damaging to the
economy. In reality nothing could be further from the outcome.
Proponents of Brexit argue that "remain" companies include many
that wrongly advocated EZ membership and many that have been
psychologically "captured" by oligarchal and European institutional
influences. On the specific arguments for "leave" eminent
individual economists are among those considering Brexit as only
slightly economically unfavourable, or neutral or slightly
favourable, although like "establishment" figures they acknowledge
that such views are generally predicated on "favourable" trading
arrangements with the EU and with the rest of the world, an outcome
that classic economics would hold as rational and therefore
appropriate. Economists expressing such views include Professor
Patrick Minford, Cardiff Business School, John Redwood, Fellow of
All Souls, Oxford, Nigel Lawson, the former conservative
Chancellor, and Roger Bootle, Executive Chairman of Capital
Economics. A common thread amongst these economists is the mutual
benefit obtainable from free trade. Thus they expect better and
wider trade agreements between the UK and the world outside the EU
and a "good" settlement with the EU.
If there is one single point that distinguishes the economic
argument between remaining in the EU and leaving the EU, it is the
question of free trade. For the UK the significance of EU
membership is being "inside" and the fear of leaving the EU is
being "outside". The EU inside/outside argument only arises because
there is a trade wall and there are other barriers to trade outside
it. For instance, there are EU external tariffs on most
manufacturing, including cars at 10%, a highly protectionist regime
for agriculture and there is a high wall of non-tariff barriers
which, for US manufacturers, are estimated to be equivalent to a
tariff barrier of 14.7%. The EU, as Professor Minford says, has a
"protectionist mind set" while an independent UK "establishes free
trade and intelligent regulation aimed at UK economic interests."
Professor Minford is playing a variation on the rallying call of
laissez-faire economics while the proponents of the EU prefer the
more protectionist dirigiste "indicative planning" system.
In the short term economic activity will be greatly influenced
by the expectation of the results of the referendum and any
continuation of the present evidence for a growing probability of a
"leave" vote will depress economic growth. A "leave" vote in June,
now only three months away, is likely to cause a further
contraction in growth, at least until a negotiated settlement is
reached, after which the terms of that settlement become
paramount.
(MORE TO FOLLOW) Dow Jones Newswires
March 31, 2016 06:26 ET (10:26 GMT)
The OBR condition their March report: "We have made no
assessment of the potential long-term impact of 'Brexit' on the
economy and the public finances, as Parliament requires us to base
our forecasts on current Government policy and not to consider
alternatives". The significant and most disappointing feature of
the OBR report is that since November 2015 forecasts of economic
growth have largely been revised down with revisions extended back
as far as Q2 2015 totalling 1.5 percentage points by the end of
2020. Growth is still expected to be 2.0% in 2016 and 2.1% in each
of the next three years, a large downturn from the 2.9% out turn
for 2014. The growth in GDP in Q4 masks a significant fall in
productivity as output was increased by higher employment and more
hours worked per employee, but output per hour fell by 1.2%
compared with an expected increase of 0.2%. Productivity growth
since the recession has been extremely disappointing and the output
gap between what the output level would have been had it grown
according to previous trend and what now exists is at least 15% of
total output. The OBR estimate is conditional on a continuation of
low oil prices forecast by them in November 2015 at $51.2 and in
March 2016 at $32.7. The OBR projections are conditioned by a lower
price at $50 which for the UK, a net importer of oil, is estimated
to raise GDP by about 0.2% per annum for five year. As the OBR
includes an adjustment for the benefit of such an oil price fall,
the underlying growth figures are lower than those projected.
There is remarkably little divergence of view among economists
on the immediate prospects for the UK economy. HMT report that the
average of "new" forecasts is for 2.0% growth in 2016 and 2.2% in
2017; the Economist's poll of forecasters average 2.0% in 2016 and
2.1% in 2017; the Bank of England, more optimistic than the
Economist's poll, has a central expectation at 2.2% in 2016
(previously 2.5% in November 2015) rising to 2.4% in 2017
(previously 2.7% in November 2015). The reduced estimate of
post-2015 growth highlights the slowing growth of the UK economy
from 2.9% in 2014.
The Scottish economy is being affected by the downturn in the
oil industry as, unlike the UK as a whole, a lower oil price
depresses the Scottish economy. Mackay Consultants forecast
Scottish GDP to gain only 1.7% in 2016 and 1.9% in 2017, figures
similar to the EY Scottish Item Club's downward revision to 1.8%
for two years. The Fraser of Allander Institute gives higher
estimates but, as the Mackay report says: " .....their forecasting
records have been very poor in recent years"! The Scottish average
figures disguise a wide variation in regional performance as the
economy in the oil-intensive north east has been particularly badly
affected. For example while in the year to 31 January 2016
unemployment fell by 8.2% in Scotland and by 15.4% in Edinburgh it
rose by 68.5% in Aberdeen and by 92.1% in Aberdeenshire.
The depressing current oil mantra "lower for longer" is,
unfortunately, probably accurate, as futures prices indicate. Last
year on 15 March the five-year Brent future was $74.29 and this
year on 18 March it was $52.71; although higher than the sub-$50
low in late January 2016. It would be most unwise to formulate
policy based on any recovery of the oil industry in Scotland.
Indeed, the continuation of prices at or slightly above the current
range will undoubtedly produce further contractions in the
industry.
The economic prospects for the UK, and for Scotland, after
allowance for the "oil factor", appear steady and reasonable by
historical standards but such prospects are subject to a short term
hesitation prior to the referendum and overlain by the
unpredictable outcomes triggered by the referendum.
Property Prospects
The IPD Index commercial property returns were 13.1% in 2015,
17.8% in 2014, 10.7% in 2013, 2.7% in 2012, 8.1% in 2011, 14.5% in
2010, 2.1% in 2009 and - 22.5% in the disaster year of 2008. The
2015 return comprised 4.8% "Income" return and 8.0% "Capital"
return. Equities returned -2.2%, Property Equities 5.1% and Gilts
1.0%. Over ten years, Property has returned 5.7%, Equities 4.7%,
Property Equities 1.1% and Bonds 5.6% while inflation has been
3.0%.
The CBRE All Property Yield in December 2014 was 5.3%, a 0.2
percentage point decrease in the year. The 10 Year Gilt Yield rose
0.16 percentage points in the year to December 2015 to 1.96%, 3.4
percentage points lower than the All Property Yield. At the market
peak in May 2007 the all Property Yield was 4.8% compared with the
current 5.3%, or equivalent to a fall in property values of
9.4%,assuming unchanged rents. The All Property Rent Index was 189
in December 2015 which is the first occasion that it has exceeded
the previous 2007 peak. The 2007 rental index adjusted for RPI is
232 and the current rent index of 189 represents a fall in real
value of 18.5%.
Over the year the yields fell for all sectors in all
geographical areas apart from Retail Warehouses which were broadly
unchanged. The largest sectoral fall was 0.42 percentage points in
"All Shopping Centres" and the largest geographical fall was 0.74
percentage points in the north east for Industrials. Overall it is
noticeable that yields have fallen more in areas outwith the south
east than elsewhere with the exception of Shops in Central London
which, at December 2015 yielded only 2.86%. In 2007 10 year gilts
yielded 4.6%, much higher than the current 1.8%, and the All
Property Yield has fallen to 1.8%, a yield gap of 2.8 percentage
points. Yields for all sectors, apart from Retail Warehouses, have
also fallen below the 2007 levels but only by a maximum of 0.6
percentage points for Offices, largely due to low London office
yields. In Scotland, by exception, all sectors continue to have
higher yields than for the UK as a whole by 0.6% for Scottish Shops
and Scottish Industrials and by 1.2% for Scottish Offices.
In the UK rental growth took place in 2015 in all sectors,
averaging 5.0%, an increase from 3.8% in 2014. Shop rentals rose
overall by 3% and by 18% in central London but they declined in
most areas immediately adjacent to London: office rentals improved
by 6.5% primarily due to continuing large rent rises in Central
London.
The recovery in the commercial property market, which began in
2013, accelerated to return 17.8% in 2014, and returned 13.1% in
2015, is expected to fall back in 2016. The Investment Property
Forum (IPF) forecast "Total Returns" of 9.3% in 2016, one
percentage point above their previous forecast, but they now
forecast returns to continue to fall to 5.4% in 2017 and 5.7% in
2018 as rental value growth declines from 3.4% in 2016 to about
2.5% in 2017 and 2018, while capital growth falls from 4.1% in 2016
to around nil for the next three years. For the next five years
they forecast an income return of about 5.0% and a capital return
of about 2.5%.
The commercial property market has continued to recover strongly
from a very significant fall and seems likely to continue to give
reasonable returns. Some investment property values, notably in
London and the South East, will probably exceed 2007 peak levels
but many are unlikely to regain such levels for many years. In
particular, the continuing revolution in retailing is having
widespread significant effects. I repeat my previous assessment
that segments of the investment market will continue to suffer a
secular erosion caused by technical obsolescence, loss of
locational primacy and competition from new formats.
In 2015 the residential market maintained the improvement
started in 2013 after three years of little change. In Scotland the
LSL House Price Index rose 2.5%, lower than the rises of 4.2% in
2014 and of 3.1% in 2013. In December 2015 the average house price
in Scotland was GBP170,641. In England and Wales the LSL House
Price Index rose 6.6%, lower than the exceptional 9.0% in 2014 but
similar to the 6.0% rise in 2014. In Dec 2015 the average house
price in England and Wales was GBP292,077. In 2015 prices in
Central London fell by 8.7% but prices in the remainder of England
and Wales rose by 7.3%. In contrast to 2014, when in the year to
June house prices in Greater London rose 20.4%, prices in London's
more expensive boroughs fell sharply in 2015 and in Kensington
& Chelsea, London's most expensive borough, prices fell 14.2%
in 2015. In contrast "Outer" boroughs rose by 11% with "cheaper"
boroughs having even higher growth rates - Newham, in particular,
rose by 23.8%. (312) The London market is sub-divided: falls in
Central London but rises of over 10% in twenty of London's
thirty-three boroughs, almost all outlying.
The "ripple out" effect from Central London appears to operate
over a widening area. Average prices in East Anglia, East Midlands
and the South East all increased at over 6% with commuting cities
such as Luton, Reading and Swindon all experiencing over 15% price
rises.
The peripheral and lower value regions almost all experienced
lower price rises. In the North, the North West and the West
Midlands rises were between 2.9% and 4.1% and in Wales only 2.5%
but still a little higher than the 1.9% rise in Scotland.
The property market in Scotland appears to run faster but make
little progress. Total sales in Scotland were 6% higher in 2015 in
contrast with a fall of 2.5% England and Wales and the high sales
volume was evident in all house types particularly in the last
quarter as detached house sales rose 8.8% and flat sales 18.4%.
Unlike England and Wales there are few regional differences in
performance, but Scotland's main cities, apart from Aberdeen, have
experienced above average increases. In Aberdeen prices fell 6.8%
in the year to December 2015 but Glasgow, Dundee and Stirling
experienced rises of around 10% or more, and Edinburgh a more
modest 4.3%.
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The past is no guide to the future! However, in Scotland it is
likely the house markets in areas associated with the oil industry
will continue to fall, while cities will tend to continue to grow
more rapidly than the Scottish average.
Independent forecasts for UK house prices are published by HMT
whose forecast for 2016 is for a median rise of 6.0% with a range
from 2.5% to 8.3%. Their forecast for 2017 is for a lower median
rise of 4.3% with a range from 2.2% to 6.3%. The HMT forecasts are
for the UK and are based on indices that are normally higher
(Halifax) or lower (Nationwide) than the LSL Acadata house price
data quoted above.
The OBR March 2016 review has raised their forecast of HPI in
20016 from 5.0% to over 6.0% and expect prices to have risen by
26.4% in five years' time. They consider: "house price inflation to
persist at rates somewhat above earnings growth, consistent with
historical trends in the UK." Savills distinguish between
"Mainstream" and "Prime" housing markets. UK Mainstream prices,
including London, are expected to rise by 5.0%, 3.0%, 3.0%. 2.5%
and 2.5% from 2016 onwards, rising 17.0% over five years. In
Scotland, "Mainstream" prices are anticipated to rise by 3.0% in
2016 and then 3.0%, 2.5%, 2.5% and 2.5% or by 14.2% over five
years. These projections are slightly lower than those made last
year, and even lower than those made two years ago, due in their
opinion to restriction on demand because of the Banks' tougher
lending conditions and many potential buyers, especially in the
South East, do not meet these stricter criteria. In the longer term
they consider interest rate rises will further reduce demand.
The "Prime" housing market is being affected by the more
progressive and higher stamp duties now in force. In 2016 Prime
house prices are not expected to change appreciably although they
are expected to fall in London. The five year "Prime" forecast
shows a 20% gain in central London, 24% gains in "commuting" areas
near London and gains of around 19% elsewhere, including
Scotland.
The continuing growth in the UK economy together with the
increased availability of credit, at least within the limits of the
Bank's criteria, and crucially for first-time buyers, the
Government Help to Buy schemes, will increase demand substantially.
The available short-term supply, principally an overhang of
sellers, mainly outwith the South East, previously unable to get
their sale prices, has cleared in all but peripheral areas.
Longer-term supply entails a long production cycle, including
particularly planning, and continues to be restricted by the
elimination of many small house builders and by the cost and
availability of finance for them. I conclude that, given political
stability, prices will continue to increase, especially for family
homes for which the supply seems most constrained and for which the
potential demand seems greatest.
Conclusion
The UK has emerged from the longest depression in recorded
history but it is not unscarred. As the Cambridge economist Alfred
Marshall said: "The commercial storm leaves its path strewn with
ruin. When it is over there is calm, but a dull, heavy calm." In
particular the financial sector continues to be restricted by
penalties, capital shortages and internal and external
restructuring.
On balance UK economic prospects are favourable, especially
compared with many EU countries. The UK housing market is expected
to continue to improve steadily, subject always to specific
regional variations.
We continue to promote our strategic land sites, but we are
concentrating on bringing some of these sites to the development
stage as I judge market conditions to be sufficiently promising,
subject to no economic disruption following the referendum. In our
existing portfolio most development properties are valued at cost,
usually based on existing use, and, when these sites are developed
or sold, it is anticipated that their considerable upside will be
realised.
I D Lowe
Chairman 31 March 2016
Consolidated statement of comprehensive income for the six
months ended 31 December 2015
6 months 6 months Year
ended ended ended
31 Dec 31 Dec 30 June
2015 2014 2015
Note GBP000 GBP000 GBP000
Revenue from properties 175 156 334
Property charges (114) (112) (224)
Sale of trading properties
220 440 440
Cost of sale of trading
properties (217) (273) (272)
____ ____ _____
Net rental and related
property income 64 211 278
____ ____ _____
Other income 2 27 28
Other expenses (1) (4) -
____ ____ _____
Net other income 1 23 28
____ ____ _____
Administrative expenses (332) (363) (726)
____ ____ _____
Operating loss before
investment
property disposals and
valuation movements (267) (129) (420)
Profit on sale of investment
property 99
Valuation gains on investment
properties - - 1,100
____ ____ ____
Operating (loss)/profit
before net financing
costs (168) (129) 680
Finance income - - 1
Finance expenses (12) (58) (116)
____ ____ ____
(Loss)/profit before
taxation (180) (187) 565
Income tax expense 5 - - -
____ ____ ____
(Loss)/profit for the
financial period attributable
to equity holders of
the company (180) (187) 565
=== === ===
(Loss)/profit per share
Basic (loss)/profit
per share (pence) 4 (1.53p) (1.59p) 4.79p
Diluted (loss)/profit
per share (pence) 4 (1.53p) (1.59p) 4.79p
Consolidated statement of changes in equity for the six months
ended 31 December 2015
Share Other Retained
capital reserves earnings Total
GBP000 GBP000 GBP000 GBP000
At 1 July 2015 2,357 2,920 12,633 17,910
Loss for the period - - (180) (180)
_____ _____ ______ ______
At 31 December 2015 2,357 2,920 12,453 17,730
==== ==== ===== =====
At 1 July 2014 2,357 2,920 12,068 17,345
Loss for the period - - (187) (187)
_____ _____ ______ ______
At 31 December 2014 2,357 2,920 11,881 17,158
==== ==== ===== =====
At 1 July 2014 2,357 2,920 12,068 17,345
Profit for the period - - 565 565
_____ _____ ______ ______
At 30 June 2015 2,357 2,920 12,633 17,910
==== ==== ===== =====
Other reserves consist of the share premium account GBP2,745,000
and the capital redemption reserve of GBP175,000.
Consolidated balance sheet as at 31 December 2015
31 Dec 31 Dec 30 June
2015 2014 2015
Note GBP000 GBP000 GBP000
Non current assets
Investment properties 10,415 9,415 10,515
Plant and equipment 25 38 24
Investments 1 1 1
______ ______ ______
Total non-current
assets 10,441 9,454 10,540
Current assets
Trading properties 11,273 11,308 11,418
Trade and other receivables 161 99 96
Cash and cash equivalents 179 285 131
______ ______ ______
Total current assets 11,613 11,692 11,645
______ ______ ______
Total assets 22,054 21,146 22,185
______ ______ ______
Current liabilities
Trade and other payables (694) (658) (645)
Interest bearing loans
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and borrowings (3,530) (3,330) (3,530)
______ ______ ______
Total current liabilities
Non current liabilities (4,224) (3,988) (4,175)
Interest bearing loans
and borrowings (100) - (100)
______ ______ ______
Total liabilities (4,324) (3,988) (4,275)
______ ______ ______
Net assets 17,730 17,158 17,910
===== ===== =====
Equity
Issued share capital 6 2,357 2,357 2,357
Other reserves 2,920 2,920 2,920
Retained earnings 12,453 11,881 12,633
______ ______ ______
Total equity attributable
to equity holders
of the parent company 17,730 17,158 17,910
===== ===== =====
Net asset value per
share 150.5p 145.6p 147.2p
Consolidated cash flow statement for the six months ended 31
December 2015
6 months 6 months Year
ended ended ended
31 Dec 31 Dec 30 June
2015 2014 2015
GBP000 GBP000 GBP000
(Loss)/profit for the
period (180) (187) 565
Adjustments
Profit on sale of investment (99) - -
property
Investment property valuation
movements - - (1,100)
Depreciation - - 14
Net finance expense 11 58 116
____ ____ ___
Operating cash flows
before movements
in working capital (268) (129) (405)
Decrease in trading properties 144 190 80
(Increase)/decrease in
trade and other receivables (65) (32) (29)
Increase in trade and
other payables 39 75 3
_____ _____ _____
Cash inflows/(outflows)
from operating (150) 104 (351)
activities
Interest received - - 1
_____ _____ _____
Cash inflows/(outflows)
from operating (150) 104 (350)
activities _____ _____ _____
Investing activities
Proceeds from sale of 200 - -
investment property
Purchases of property,
plant and equipment (2) (3) (3)
_____ _____ _____
Cash inflows/(outflows)
from investing activities 198 (3) (3)
_____ _____ _____
Financing activities
Increase in borrowings - 150 450
_____ _____ _____
Cash flows from financing
activities - 150 450
_____ _____ _____
Net increase in cash
and
cash equivalents 48 251 97
Cash and cash equivalents
at beginning
of period 131 34 34
_____ _____ _____
Cash and cash equivalents
at end of period 179 285 131
==== ==== ====
Notes to the interim statement
1 This interim statement for the six month period to 31 December
2015 is unaudited and was approved by the directors on 31 March
2016. Caledonian Trust PLC (the "Company") is a company 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
After making enquiries, the Directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in
preparing this interim statement.
3 Accounting policies
Basis of preparation
The consolidated interim financial statements of the Company for
the six months ended 31 December 2015 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
2015 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 2015 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 Financial Reporting
Standards as adopted by the European Union ("adopted IFRS"). The
financial information is presented in sterling and rounded to the
nearest thousand.
The financial information has been prepared applying the
accounting policies and presentation that were applied in the
preparation of the company's published consolidated financial
statements for the year ended 30 June 2015.
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 2015 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 2015.
4 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
ended ended Year
ended
31 Dec 31 Dec 30 June
2015 2014 2015
GBP000 GBP000 GBP000
(Loss)/profit for financial
period (180) (187) 565
=== === ===
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 (1.52p) (1.59p) 4.79p
Diluted (loss)/profit
per share (1.52p) (1.59p) 4.79p
5 Income tax
Taxation for the 6 months ended 31 December 2015 is based on the
effective rate of taxation which is estimated to apply to the year
ending 30 June 2016. 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 2015 there is a
deferred tax asset which is not recognised in these accounts.
6 Issued share
capital
31 December 31 December 30 June 2015
2015 2014
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
===== ==== ===== ==== ===== ====
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR WGUWPWUPQGUG
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