Interim Results
Caledonian Trust PLC
28 March 2008
Caledonian Trust plc
('Caledonian Trust' or the 'Group')
Interim results for the six months ended 31 December 2007
CHAIRMAN'S STATEMENT
Introduction
The Group made a pre-tax loss of £361,000 in the six months to 31 December 2007
compared with a loss of £399,000 for the same period last year. The loss per
share after tax was 2.40p and the NAV per share was 214.5p compared with a loss
of 2.39p and a NAV of 213.1p last year and earnings, as restated under IFRS of
4.40p and a NAV of 217.1p at the 30 June 2007 year end. A property was sold at
Ardpatrick, Argyll, for a trading profit of £105,000, but there were no sales in
the comparable period last year. Revenue from properties was little changed at
£355,000 but property charges fell by £123,000 due to lower costs on unoccupied
properties but administrative expenses rose by £70,000 while other expenses fell
by £45,000. Net financing costs rose by £98,000 as weighted base rates were
almost 1.0 percentage point higher than last year, and LIBOR rates considerably
higher, due to current financial stress, and because last year benefited from an
one-off £55,000 credit from our joint venture at Herne Bay, Kent. No interim
dividend will be paid.
Review of Activities
The Group's recent major strategy has been the acquisition and creation of
development opportunities, particularly those with a reasonable probability of
achieving high returns and a small probability of a nil or, at worst, a negative
return. Since June 2007 we have bought another rural development comprising a
farmhouse with a one-acre garden within the settlement and a three-acre field
just outside it at Carnbo, four miles east of the M90 at Kinross. The Group's
development sites now include fifteen rural development opportunities in
addition to four large city centre sites, two sites in or near suburban
Edinburgh and a consented scheme for at least seventy-three large house plots
near Dunbar, East Lothian.
The Group's main emphasis has now switched to the exploitation of development
opportunities where the realisation of many excellent prospects is often
frustrated by the increasingly ponderous planning process.
After a long delay work on two local sites should start in 2008. Eight
detached houses will be built at Wallyford, a settlement near the city bypass/
A1junction with a rail station on the east coast line, and ten varied houses,
including some new build, totalling 18,000ft(2), will be fashioned from an
existing B- listed stone steading at Brunstane Farm, in east Edinburgh, near the
A1 and the Brunstane railway halt. Planning proposals are under consideration
or shortly will be further submitted for six separate rural developments
totalling over 100,000ft(2) and two applications will be submitted shortly. All
these developments require intensive individual design and are subject to a
variety of delays and constraints, usually absent from 'new build'.
Development work continues and our city centre sites and the development brief
for St Margaret's, Edinburgh, should be published in the summer and, if
acceptable, approved this year.
Our investment portfolio is subject to minor changes. The rent review at South
Charlotte Street was settled by arbiters at £94,850, a rise of 46% and in
Aberdeen our small industrial unit at Dyce was re-let in December at £70,000 an
increase of 27% Recently the existing tenants at both 17 Young Street and at
57 North Castle Street exercised their break options. Fortunately, the market
for such properties continues to be resilient. We expect also to market the
vacant ground and first floors of 61 North Castle Street shortly. Quite
different summer sales will be of the refurbished 'Old Post Office', a detached
stone and slate cottage set back from the Kilberry road on the northern march of
Ardpatrick Estate, and of Carnbo farmhouse, Perthshire.
Economic Prospects
Chaos theory propounds that over the Amazon randomly a butterfly flutters its
wings and in far-off lands a typhoon results. The current turmoil in western
financial markets has been ascribed to the distant flutter of the sub-prime
market in 'Hicksville' USA: a present manifestation of a remote ephemeral
malady.
This malady is proving to be a plague that is enduring, epidemic and systemic.
The remedy prescribed was liquidity delivered in larger and larger doses and
without effecting a cure, culminating in the recent $230bn Fed boost.
The presenting symptom may be illiquidity but the disease, the systemic cause of
the symptom, is solvency. A Financial Times leader puts in succinctly:
'subprime mortgage-backed bonds have fallen to new lows, but that is the least
of it ..... in contrast to last year, it is clear that it is not primarily a
problem of bank liquidity: it is a widespread problem of solvency at leveraged
institutions'. The disease has been highly contagious spreading from subprime to
mortgages and their manifold securitized manifestations, municipal debt,
corporate debt and now to many other obscure sectors.
There are three separate but interlocking vicious spirals: solvency, liquidity
and economic activity. The solvency part of a chain affects the whole; the
fear of insolvency affects liquidity and liquidity affects solvency; and
solvency and liquidity via financial intermediaries affect economic activity,
which economic activity affects solvency and liquidity, all of which are
self-reinforcing.
The focus of the disease is the USA. House prices fell 9% in 2007 and futures
contracts reflect a further 18% fall in 2008. Goldman Sachs estimate present
total losses at $1.165bn but Professor Roubini's analysis, based on further
large house price falls and the consequent effects on economic activity,
projects further losses of $1.0bn to $2.0bn. Financial losses result in credit
shrinkage which reduces GDP by an estimated 1.25% per $1.0bn loss. GDP is
further reduced by the direct effect of falling house prices estimated at about
0.65% of GNP per 10% fall. Any extrapolation of recent trends indicates a severe
US downturn which monetary policy alone is unlikely to reverse, due to the
solvency crisis. The solvency crisis will end if nominal prices fall
sufficiently, giving mass bankruptcy, or, if incomes are inflated, reducing real
debts. The Fed's mandate encompasses financial stability and so, in extremis, is
unlikely to eschew policies that are inflationary: let us hope so.
In the UK the Chancellor is re-arranging the 'non-doms' on the deck of the
Treasury Titanic whose future speed is forecast at 2% while the boilermen
compute the narrow margin, 0.2%, by which public sector debt will now meet the
golden rule by 2010-11, excluding Northern Rock - and, one may ask, how many
angels can dance on the head of a pin?
The Treasury view is that the effect of the 'credit crunch' will be minimal. The
alternative view is that the UK economy, closely integrated in the US and world
financial markets, still has to experience the consequences of a readjustment
which is only partially complete. The extent to which the real economy will
suffer will depend on regulatory assistance, and, if a recession, possibly a
deep one, is to be avoided, interest rates may have to be reduced to a level
which may prejudice the short-term inflation target: a sacred cow slaughtered!
Capital Economics do 'not rule out' an all time repo low of 2%. I suspect many
commentators will reduce their estimates of UK growth in 2008 to c1% with a
significant chance of a recession.
Property Prospects
Commercial property returned -5.5% in 2007, due principally to capital values
falling about 10% in the last quarter. In January 2008 capital values fell a
further 2% and IPF forecast a further capital fall of 7.6% in 2008. The
derivatives market implies an incredible capital fall of 16.9% in 2008.
Residential Property values rose in 2007, although almost all sources monitored
by the FT House Price Index showed falls in December 2007. In February 2008
surveys were equally divided between rises and falls, but the February RICS
survey of UK prices, a lead indicator, showed a continuing rise in the % balance
of surveyors reporting price falls and a continuing rise - to its highest level
since 1996 - in the ratio of unsold houses to new enquiries. The reduced
availability of mortgages and their increased cost is likely to be adversely
affecting the retail market and any contraction in the economy will exacerbate
this trend. The market in Scotland has risen 14% over the last year and,
although now slowing, is likely to be less affected than the UK because of lower
prices, lower prices-to-earnings ratios and the higher proportion of economic
contributions of the government and the oil sector.
Conclusion
The economic background of and the immediate prospects for the UK are very much
poorer than for many years. However, the Group's first developments, if
commenced in the autumn, are not expected to be marketed before next spring by
which time the worst of any downturn should be passing. The Group's investment
assets generally have development or rental growth prospects and are protected
from significant changes in yields. Most development properties are valued at
cost, usually based on existing use and these values substantially understate
the realisable value if and when planning consent is gained. We will advance as
many of our developments to the consented stage as quickly as we can, so adding
value which can be released by development or by disposal. I see no diminution
in the long-term prospects for the Group.
I D Lowe
Chairman
27 March 2008
For further information please contact:
Douglas Lowe, Chairman and Chief Executive Officer Tel: 0131 220 0416
Michael Baynham, Finance Director Tel: 0131 220 0416
David Ovens, Noble & Company Limited Tel: 0131 225 9677
Consolidated income statement for the six months ended 31 December 2007
Unaudited Unaudited
Unaudited 6 months ended
6 months ended Year ended
31 Dec 31 Dec 30 June
2007 2006 2007
Note £000 £000 £000
Revenue from properties 355 375 684
Property charges - occupied properties (80) (77) (145)
Property charges - unoccupied properties (30) (156) (196)
____ ____ _____
Net rental and related income 245 142 343
____ ____ _____
Proceeds from sale of trading properties 175 - 1,477
Carrying value of trading properties sold (70) - (1,074)
____ ____ _____
Profit from disposal of trading properties 105 - 403
____ ____ _____
Other income 31 78 163
Other expenses - (45) (51)
____ ____ _____
Net other income 31 33 112
____ ____ _____
Administrative expenses (415) (345) (807)
____ ____ _____
Operating (loss)/profit before investment
property disposals and valuation movements (34) (170) 51
Profit on disposal of investment properties - - 15
Valuation gains on investment properties - - 867
Valuation losses on investment properties - - (225)
____ ____ ____
Operating (loss)/profit before net financing
costs
(34) (170) 708
Finance income 13 92 257
Finance expenses (340) (321) (567)
____ ____ ____
(Loss)/profit before taxation (361) (399) 398
Taxation 5 76 115 125
____ ____ ____
(Loss)/profit for the financial period
attributable to equity holders of the company
(285) (284) 523
=== === ===
(Loss)/earnings per share
Basic (loss)/earnings per share (pence) 4 (2.40p) (2.39p) 4.40p
Diluted (loss)/earnings per share (pence) 4 (2.40p) (2.39p) 4.40p
Consolidated statement of recognised income and expenditure for the six months
ended 31 December 2007
Unaudited Unaudited
Unaudited 6 months ended
6 months ended Year ended
31 Dec 31 Dec 30 June
2007 2006 2007
£000 £000 £000
Change in the fair value of equity securities
available for sale (19) - (2)
____ ____ _____
Net loss recognised directly in equity (19) - (2)
(Loss)/profit for the period (285) (284) 523
____ ____ _____
Total recognised income and expense for the
period attributable to equity holders of the
parent (304) (284) 521
==== === ====
Consolidated balance sheet as at 31 December 2007
Unaudited Unaudited Unaudited
31 Dec 31 Dec 30 June
2007 2006 2007
Note £000 £000 £000
Non current assets
Investment properties 24,075 24,057 24,075
Property, plant and equipment 17 27 17
Investments 22 43 41
______ ______ ______
Total non-current assets 24,114 24,127 24,133
Current assets
Trading properties 11,205 8,965 10,767
Trade and other receivables 423 756 539
Cash and cash equivalents 274 1,316 824
______ ______ ______
Total current assets 11,902 11,037 12,130
______ ______ ______
Total assets 36,016 35,164 36,263
______ ______ ______
Current liabilities
Trade and other payables (499) (409) (654)
Interest bearing loans and borrowings (1,984) (1,710) (696)
Income tax liabilities - - -
______ ______ ______
(2,483) (2,119) (1,350)
Non current liabilities
Interest bearing loans and borrowings (7,400) (7,000) (8,400)
Deferred tax liabilities (641) (727) (717)
______ ______ ______
(8,041) (7,727) (9,117)
______ ______ ______
Total liabilities (10,524) (9,846) (10,467)
______ ______ ______
Net assets 6 25,492 25,318 25,796
===== ===== =====
Equity
Issued share capital 7 2,377 2,377 2,377
Other reserves 2,920 2,920 2,920
Retained earnings 6 20,195 20,021 20,499
______ ______ ______
Total equity attributable to equity holders
of the parent
6 25,492 25,318 25,796
===== ===== =====
Consolidated interim cash flow statement for the six months ended 31 December
2007
Unaudited Unaudited Unaudited
6 months ended 6 months ended Year ended
31 Dec 31 Dec 30 June
2007 2006 2007
£000 £000 £000
(Loss)/profit for the period (361) (399) 398
Adjustments
Profit on sale of investment property - - (15)
Investment property valuation movements - - (642)
Loss on sale of plant and equipment - - 4
Depreciation - - 6
Net finance expense 327 229 310
____ ____ ____
Operating cash flows before movements
in working capital (34) (170) 61
Increase in trading properties (439) (1,931) (3,732)
Decrease in trade and other receivables 116 212 429
(Decrease)/increase in trade and other payables (71) (20) 162
_____ _____ _____
Cash generated from operating activities (428) (1,909) (3,080)
Interest paid (424) (373) (557)
Interest received 13 92 257
_____ _____ _____
Cash flows from operating activities (839) (2,190) (3,380)
_____ _____ _____
Investing activities
Purchases of investment property - (26) -
Proceeds from sale of investment properties - - 613
Purchases of plant and equipment - (6) (6)
_____ _____ _____
Cash flows from investing activities - (32) 607
_____ _____ _____
Financing activities
Proceeds from new long term borrowings 289 1,334 1,720
Repayment of borrowings
Dividends paid - - (327)
_____ _____ _____
Cash flows from financing activities 289 1,334 1,393
_____ _____ _____
Net decrease in cash and
cash equivalents (550) (888) (1,380)
Cash and cash equivalents at beginning
of period 824 2,204 2,204
_____ _____ _____
Cash and cash equivalents at end of period 274 1,316 824
==== ==== ====
Notes to the accounts
1 This interim statement for the six month period to 31 December 2007 is
unaudited and was approved by the directors on 26 March 2008. The information
set out does not constitute statutory accounts within the meaning of Section 240
of the Companies Act 1985.
2 Report and financial statements
The comparative figures for the financial year ended 30 June 2007 which
are now presented under International Financial reporting Standards as adopted
by the EU ('Adopted IFRSs') are not the statutory financial statements for that
financial year. Those financial statements were presented under UK GAAP,
reported on by the Group's auditors and delivered to the Registrar of Companies.
The report of the auditors was unqualified and did not contain a statement
under section 237 (2) or (3) of the Companies Act 1985. Copies of the Annual
Report for 2007 are available from the Company's head office by applying to the
Company Secretary.
3 Accounting policies
Basis of preparation
The AIM rules require that the next annual consolidated financial statements of
the company for the year ending 30 June 2008, be prepared in accordance with
Adopted IFRSs.
This interim financial information has been prepared on the basis of the
recognition and measurement requirements of IFRSs in issue that either are
endorsed by the EU at 30 June 2008 or are expected to be endorsed and effective
at 30 June 2008, the Group's first annual reporting date at which it is required
to use adopted IFRSs. Based on these adopted and unadopted IFRSs, the directors
have made assumptions about the accounting policies expected to be applied,
which are as set out below, when the first annual IFRS financial statements are
prepared for the year ending 30 June 2008.
In addition, the Adopted IFRSs that will be effective in the annual financial
statements for the year ending 30 June 2008 are still subject to change and to
additional interpretations and therefore cannot be determined with certainty.
Accordingly, the accounting policies for that annual period will be determined
finally only when the annual financial statements are prepared for the year
ending 30 June 2008.
As required by IFRS 1, the impact of the transition from UK GAAP to IFRSs is
explained in note 8.
The accounting policies set out below have been applied consistently to all
periods presented in this interim financial information and in preparing an
opening IFRS balance sheet at 1 July 2006 for the purposes of the transition to
IFRS. The group has taken advantage of the exemption available under IFRS1 and
has not restated business combinations prior to the date of transition.
The financial statements are prepared on the historical cost basis except for
investment properties, and available for sale financial assets which are stated
at their fair values.
The preparation of financial statements in conformity with Adopted IFRSs
requires the directors to make judgements, estimates and assumptions that affect
the application of policies and reported amounts of assets and liabilities,
income and expense. The estimates and judgements are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making judgements
about carrying amounts of assets and liabilities that are not readily apparent
from other sources . Actual results may differ from these estimates.
Notes to the accounts (continued)
3 Accounting policies (continued)
Basis of preparation (continued)
In particular the most significant area of estimation and judgement is in
relation to the valuation of investment property which is explained below.
The significant accounting policies that have been used in the preparation of
the financial statements are summarised below.
Basis of consolidation
The financial statements incorporate the financial statements of the
company and all its subsidiaries. Subsidiaries are entities controlled by the
group. Control exists when the group has the power to determine the financial
and operating policies of an entity to obtain benefits from its activities. The
financial statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date it ceases.
Revenue
Rental income from properties leased out under operating leases is
recognised in the income statement on a straight line basis over the term of the
lease. Lease incentives granted are recognised as an integral part of total
rental income.
Other income comprises income from former leisure operations and other
miscellaneous and is stated net of VAT.
Revenue from the sale of trading properties is recognised in the income
statement on the date at which the significant risks and rewards of ownership
are transferred to the buyer.
Investment properties
Investment properties are properties owned by the group which are held
either for long term rental growth or for capital appreciation or both.
Investment property is initially recognised at cost including related
transaction costs and is valued at each balance sheet date to reflect fair value
either by the directors or by independent professional valuers. Independent
professional valuations are prepared at least once every three years. The fair
values are based on market values, being the estimated amount for which a
property could be exchanged on the date of valuation between a willing buyer and
a willing seller in an arms' length transaction after proper marketing wherein
the parties had each acted knowledgeably, prudently and without compulsion.
Purchases and sales of investment properties
Purchases and sales of investment properties are recognised in the
financial statements on the date at which the significant risks and rewards of
ownership are transferred to the buyer.
Notes to the accounts (continued)
3 Accounting policies (continued)
Property, plant and equipment
Property, plant and equipment are stated at cost, net of depreciation
and any provision for impairment. Depreciation is provided on all property,
plant and equipment at varying rates calculated to write off cost to the
expected current residual value by equal annual instalments over their estimated
useful economic lives. The principal rates employed are:
Office equipment - 11 - 33.3 per cent
Fixtures and fittings - 10 per cent
Motor vehicles - 33.3 per cent
Investments
The group's investments in equity securities are classified as
available for sale financial assets. They are initially recognised at fair
value plus any directly attributable transaction costs. Subsequent to initial
recognition they are measured at fair value and changes therein, other than
impairment losses, are recognised directly in equity. The fair value of
available for sale investments is their quoted bid price at the balance sheet
date. When an investment is disposed of, the cumulative gain or loss in equity
is recognised in profit or loss.
Trading properties
Trading properties (inventories) are stated at the lower of cost or net
realisable value. Net realisable value is based on estimated selling price less
estimated cost of disposal.
Income tax
Income tax on the profit or loss for the year comprises current and
deferred tax. Income tax is recognised in the income statement except to the
extent that it relates to items recognised directly in equity, in which case it
is recognised in equity. Current tax is the expected tax payable on taxable
income for the current year, using tax rates enacted or substantively enacted at
the reporting date, adjusted for prior years under and over provisions.
Deferred tax is provided using the balance sheet liability method in
respect of all temporary differences between the values at which assets and
liabilities are recorded in the financial statements and their cost base for
taxation purposes. Deferred tax includes current tax losses which can be offset
against future capital gains.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against which the asset
can be utilised.
Notes to the accounts (continued)
4 Loss/(earnings) per share
Basic (loss)/earnings per share is calculated by dividing the (loss)/
earnings attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the period as follows:
6 months ended 6 months ended Year ended
31 Dec 31 Dec 30 June
2007 2006 2007
£000 £000 £000
(Loss)/profit for financial period (285) (284) 523
=== === ===
No. No. No.
Weighted average no of shares:
For basic earnings per share and for diluted
earnings per share 11,882,923 11,882,923 11,882,923
======== ======== ========
Basic (loss)/earnings per share (2.40p) (2.39p) 4.40p
Diluted (loss)/earnings per share (2.40p) (2.39p) 4.40p
5 Taxation
Taxation for the 6 months ended 31 December 2007 is based on the
effective rate of taxation which is estimated to apply to the year ending 30
June 2008.
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.
6 Capital and reserves Share Other Retained
capital reserves earnings Total
£000 £000 £000 £000
At 1 July 2007 2,377 2,920 20,499 25,796
Total recognised income and expense - - (304) (304)
_____ _____ ______ ______
At 31 December 2007 2,377 2,920 20,195 25,492
==== ==== ===== =====
At 1 July 2006 2,377 2,920 20,305 25,602
Total recognised income and expense - - (284) (284)
_____ _____ ______ ______
At 31 December 2006 2,377 2,920 20,021 25,318
==== ==== ===== =====
At 1 July 2006 2,377 2,920 20,305 25,602
Total recognised income and expense - - 521 521
Dividends - - (327) (327)
_____ _____ ______ ______
At 30 June 2007 2,377 2,920 20,499 25,796
==== ==== ===== =====
The other reserves consist of the share premium account and the capital redemption reserve.
Notes to the accounts (continued)
7 Issued share capital
31 December 2007 31 December 2006 30 June 2007
No £000 No. £000 No. £000
000 000 000
Authorised
Ordinary shares of 20p each 20,000 4,000 20,000 4,000 20,000 4,000
===== ==== ===== ==== ===== ====
Issued and
fully paid
Ordinary shares of 20p each 11,883 2,377 11,883 2,377 11,883 2,377
===== ==== ===== ==== ===== ====
8 Transition to International Financial Reporting Standards
The group will prepare its group accounts for the financial year ending
30 June 2008 using adopted International Financial Reporting Standards (adopted
IFRSs). Previously the group has applied United Kingdom Generally Accepted
Accounting Principles (UK GAAP). These interim financial statements are the
group's first published financial statements under adopted IFRSs.
The areas of accounting that are most significantly impacted are:
(1) The treatment of investment property revaluations - under UK GAAP gains
or losses on revaluation of investment properties were recorded in a revaluation
reserve. Under IFRS revaluation gains and losses are recorded in the income
statement
(2) Accounting for investments - under UK GAAP investments were held at cost
less permanent impairments in value. Under IFRS investments are held as
available for sale financial assets and are held at fair value with gains or
losses recorded directly in equity unless there is a permanent impairment which
is recorded in the income statement
(3) Deferred taxation - under UK GAAP deferred taxation on investment
property revaluation gains was not provided for in the balance sheet unless
there was a commitment to sell the property. Under IFRS deferred tax provisions
are made for the tax that would potentially be payable on the sale of investment
properties where their carrying value is different from their cost for tax
purposes. Where current tax losses can be offset against future capital gains,
the related deferred tax asset has been recognised and offset against the
deferred tax liability.
The following table summarises the impact of the adoption on the
group's profit for the six months ended 31 December 2006 and the year ended 30
June 2007.
Unaudited Unaudited
6 months ended Year ended
31 Dec 30 June
2006 2007
£000 £000
Loss for the period as reported under UK GAAP (399) (244)
IFRS adjustments
Revaluation of investment properties (1) - 642
Deferred taxation (3) 115 125
____ ____
(Loss)/profit before tax as reported under IFRS (284) 523
=== ===
Notes to the accounts (continued)
8 Transition to International Financial Reporting Standards (continued)
The impact on total equity (and net assets) at 30 June 2006, 31
December 2006 and 30 June 2007 is shown in the table below:
30 June 31 December 30 June
2006 2006 2007
£000 £000 £000
Net assets as previously reported under
UK GAAP 26,444 26,045 26,515
IFRS adjustments
Fair value of financial assets (2) - - (2)
Deferred taxation (3) (842) (727) (717)
______ ______ ______
Net assets as reported under IFRS 25,602 25,318 25,796
===== ===== =====
9 Availability of Results
Copies of the Interim Results for the six months to 31 December 2007 will be
posted to shareholders shortly and will be available, free of charge, from the
Group's Nominated Adviser, Noble & Company Limited, 76 George Street, Edinburgh,
EH2 3BU, for a period of one month from the date thereof. The Interim Results
are also available on the Group's website www.caledoniantrust.com .
This information is provided by RNS
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