Final Results
Caledonian Trust PLC
23 December 2002
CALEDONIAN TRUST PLC ( 'the Group') -
AUDITED RESULTS FOR YEAR ENDED 30 JUNE 2002
Caledonian Trust PLC, the Edinburgh based property investment and development
company, announces its audited results for the year to 30 June 2002.
CHAIRMAN'S STATEMENT
Introduction
The Group made a profit of £3,237,578 in the year to 30 June 2002 compared to
£88,047 last year including £2,589,353 profits from the sales of investment
property. NAV per share on 30 June 2002 was 163.5p compared to 138.6p last
year.
Rent and service charges increased by £61,819 primarily because St Magnus was
fully income producing until its disposal in April 2002 whereas in the previous
year the main income stream there did not commence until May 2001. This rise in
income more than offset net falls elsewhere, including a reduction of about
£200,000 in rents at Stoneywood as tenants left or were granted rent free
occupation as part payment for early surrenders.
Property rental outgoings were £440,112 lower, almost wholly due to reduced
refurbishment expenditure at St Magnus. Administrative expenses fell by £47,783
largely due to reduced professional fees at St Magnus. Net interest paid fell
by £474,489 as bank debt fell from £16,949,912 to £5,250,176 at the year end and
the average base rate fell to 4.32% from 5.81% last year.
On 30 June 2002 the Group's portfolio comprised by value 63.21% office
investment property (of which 73.45% is open plan), 10.36% retail property and
26.43% development property.
Review of Activities
Aberdeen has been the main focus of our property activities during the financial
year. As I reported previously we concluded a contract in September 2001 to
sell the Stoneywood Business Centre, our 15 acre office and industrial property
in Dyce, Aberdeen, to BP for their proposed new 380,000 ft2 Northern hemisphere
headquarters. Some discussions had been going on for almost a year but once BP
had determined to proceed the detailed negotiations for this very complex
transaction were concluded in fifteen working days. The consideration of £9.05m
was paid in two tranches, £7m in January 2002 and the balance of £2.05m in
October 2002.
I also reported last year that on 5 November 2001 we had let the remaining
vacant 4,834 ft2 area of St Magnus House Aberdeen, our 80,173 ft2 modern
open-plan office to our principal tenant Enterprise Oil for £17.50 per ft2..
Thus St Magnus, for the first time for many years, was fully let, almost wholly
refurbished to the highest standards and almost entirely let to outstanding
covenants on leases which largely ran until 2015. In view of these improvements
we considered that the value of St Magnus had peaked and in view of the strategy
of the Company to reinvest in other opportunities offering higher returns we
decided to market St Magnus. After a brief targeted marketing campaign St
Magnus was sold for £13.05m. Just prior to the exchange of missives Shell bid
for Enterprise Oil and then transferred the Enterprise Oil office to their
existing premises.
Changes in the remainder of our investment portfolio have been important, albeit
significantly less dramatic than those in Aberdeen. After a long delay, caused
primarily by the strict New Town planning conditions, we completed the letting
in December 2001 of 9 South Charlotte Street, a traditional Georgian building on
three floors, to La Tasca Restaurants Limited, a themed tapas chain, on a full
repairing lease for 25 years where the rent free period ended in June 2002. The
improvements to the property have been very significant and, lying just off
Princes Street on the main thoroughfare from Princes Street to Charlotte Square
and George Street, the property has been transformed from a traditional Georgian
office to a near prime retail investment, which we expect to perform very well.
We refurbished the offices at 57 North Castle Street, and in February 2002 let
them to John Menzies for 10 years on full repairing and insuring terms. The
rent was reviewed on 17/19 Young Street, just off Charlotte Square, where two
charming Georgian townhouses are let to Lloyds TSB until 2006. An increase of
11% on the rent was agreed, the first increase since 1991. The residential
value is now probably higher than the office value. At 61 North Castle Street
we intend to refurbish the four floors presently vacant. Detailed planning
consent and listed building consent has been obtained for the conversion of the
second and third floors together with the attic above the third floor, into two
self-contained flats opening off the original entrance at 59 North Castle
Street. The reconversion to residential use will create two very fine Georgian
properties, the upper one including the interesting attic with commanding views.
Our largest investment property in Edinburgh, St Margaret's House, a 92,845ft2
open-plan office was let to the Secretary of State for the Environment until 28
November 2002. The Scottish Parliament operates a dispersal programme whereby
there is a presumption against location of offices for civil servants in
Edinburgh where new agencies or departments are formed, or where leases on
existing properties determine. In accordance with this policy one of the two
occupiers of St Margaret's House has relocated to new purpose-built premises in
the Scottish Borders near Galashiels, and the second occupier The Registers of
Scotland has transferred all their staff into their other existing premises.
Over the last few years we have considered several possible uses for the
building, and for it together with a contiguous site which forms part of a large
triangular island site bounded by the A1 London Road, the main line railway and
Restalrig Road. An overall scheme which has considerable planning advantages
would provide up to 400,000ft2 of offices, or up to 500 residential units,
possibly with ancillary retail and leisure uses. However such a scheme would
entail a very long planning period and given the Government ownership of most of
the adjacent property there would be considerable administrative, financial and
political difficulties. Thus we have decided that the best use of the site is
for continued office use and we are considering different levels of
refurbishment. The St Margaret's site is probably unique in offering the
possibility of a large-scale office in the city centre near to the Scottish
Parliament and to the rapidly improving east centre of the city.
In Berwick-upon-Tweed we have re-let the only vacant unit in our parade of 7
small retail units at Golden Square. This investment property is now fully let
and producing £66,022 per year, and if market indicators for such investments
show further improvement, we may seek to realise it for reinvestment.
We are developing and extending our residential sites within the Edinburgh area.
At Eskbank, near the City bypass, we have completed an elegant development of
five four bedroom houses at Weir Court, which have just been released to the
market at prices starting from £295,000. Our second residential site for eight
detached houses borders Musselburgh and is within 400 yards of the mainline
station at Wallyford. A contiguous area is to be developed for a large number
of private houses, subject to agreeing road improvements to the adjacent A1 near
the junction with the City bypass, and this development should radically alter
the character of the existing settlement and greatly enhance the value of our
site. We expect development to take place here in two or three years. Our
third site, lying just east of Dunbar, should accommodate 17 houses. The A1 is
presently a dual carriageway to a point just east of Haddington and this dual
carriageway is being extended to a point east of Dunbar, 5 miles from our site.
This new road, together with the rapid expansion of Dunbar as an improving town
with comprehensive community facilities contributes to the excellent long-term
prospects for this development. In order to minimise unit overhead costs we
have agreed terms for the acquisition of a further 2.5 acres of building land
and some adjacent amenity ground, and are negotiating to purchase some adjoining
land.
We have a site in an established residential area in north Edinburgh under offer
which would provide 20 large high quality flats.
Residential options are being considered for our development site in Belford
Road Edinburgh where there is a consent for 22,500 ft2 of Grade A offices.
Belford Road is an excellent residential area with new flats selling for about
£350/ft2.
We have negotiated a new three year stepped rental lease with mutual breaks from
29 September 2001 with the tenants of our properties at Baylis Road/Murphy
Street, near Waterloo, SE1. Residential values continue to rise in this area
and we have recently received two unsolicited approaches for the sites.
In central south Glasgow we have just completed the purchase of a medium sized
commercial investment property yielding prospectively 8% where, like our
Waterloo properties, there are considerable medium term residential development
opportunities.
Economic Prospects
The economic uncertainties confronting the UK last year and this year have
interesting similarities : 'asset bubbles and wars'. Last year the TMT asset
bubble had burst and the Afghanistan war had been won, but this year the UK
asset bubble may be about to burst and the outcome in Iraq is unknown. I argued
last year that the cumulative effect of the brilliantly successful Afghan
military campaign, of astute economic management, and of fortunate economic
circumstances would allow an upturn in the US economy in 2002. Fortunately this
view has proved correct as US growth in the third quarter was at an annual rate
of 4.0% and is expected to be 2.4% for 2002 and 2.7% for 2003. Since the TMT
bubble burst the UK economy has proved less volatile than the US and although
growth dropped to only 0.1% in the first quarter of 2002 there has been no
recession and growth of 1.6% is expected in 2002, the slowest rate recorded
since 1992, increasing to 2.5% next year.
The first main risk facing the UK economy in 2003 is a significant disruption to
oil supplies as a result of an Iraqi war raising oil prices significantly for
more than a few months. The readmission of the UN inspection teams has reduced
the immediate risk and if inspection continues until the spring the likelihood
of war then is also reduced as the US military advantage is compromised by the
deleterious effect on troops operating in hot weather wearing protective
clothing. If war breaks out oil prices would rise if supplies through or from
the Gulf were curtailed. However, as the Gulf will contain the most formidable
naval and air forces ever assembled facing an enemy almost totally devoid of
these resources, tankers should continue to enjoy relatively safe passage.
Most OPEC producers will decide that the balance of their advantage lies with
maintaining adequate supplies as, if they seek political advantage, this could
more easily be achieved by overt disassociation with any anti-Iraq forces. A
dramatic price rise might have short term economic advantages but their long
term advantage lies in maintaining the world economy, in which they have
considerable investment, and preventing the development of an alternative
supply.
Paradoxically OPEC economic interests are best served by a continuance of the
restriction in oil output imposed on the current regime in Iraq as a 'sanitised'
Iraq, restored to economic and political power under the current leader would
destabilise the region and OPEC : their worst outcome is Saddam repentant and in
power.
The second main risk to the UK economy is a pricking of the house price 'bubble'
resulting in a sharp contraction of consumption which has been the main support
for increased economic activity since 1996. Increased consumption has been
financed partly by reduced saving and partly by mortgage equity withdrawal which
has now risen from nil four years ago to 6% of personal disposable income, a
level approaching the 1980's peak. These factors together with house prices up
to 30% higher have resulted in an 11% increase in secured lending and a 15%
increase in unsecured lending in the year to June 2002 and have caused borrowing
secured on, but not invested in, housing to rise to £8bn, the highest in
relation to disposable income since the late 1980's housing boom. Household
debt is now an unusually high 120% of income, but low nominal interest rates
have maintained the ratio of interest payments to income below historical
averages and below the late 1980's peak. Such borrowing has allowed household
consumption to rise 1.9% in the first half of 2002 compared with a growth in GDP
of only 0.7%.
The Economist Intelligence Unit forecasts for GDP growth of 1.8% in 2003 and
2.0% in 2004 are predicated on similar growth in expenditure implying continuing
consumer confidence. Asset prices are key factors in determining confidence and
OECD studies indicate that a 20% fall in the real value of the UK stockmarket
cuts consumer spending by 1% and GDP by 0.4% . In the UK falling equity wealth
has largely been offset by rising housing wealth, but house price falls would
reinforce continuing stockmarket falls, the effect being more severe due to the
higher gearing of the housing market and so leading to a much larger reduction
in consumption.
It is self evident that houses will not continue to rise indefinitely at the
current rate of 30% per annum and some commentators suggest that they are
already 25-30% overvalued. The Bank of England's central projection is that
house inflation will fall to zero before 2005, but it also warns 'of a more
abrupt slowdown'. A rise in interest rates has been one of two main traditional
causes of an 'abrupt slowdown' as two-thirds of debt is floating. However, as 25
year projections of future short-term interest rates are benign, peaking at just
over 5% in five years' time, interest rates should not be a major cause of any '
abrupt slowdown'.
A rise in unemployment is the second possible major cause of falling house
prices, but economic forecasts by the Economist Intelligence Unit show growth
until 2005 at or near long-term trends indicating little employment change.
This year in spite of below trend growth of 1.6% employment rose by 37,000 .
Thus, it seems likely if economic growth continues and if the Government
continues it's public service policies, public sector jobs will continue to
replace job losses elsewhere, and rising unemployment should not cause an '
abrupt slowdown'.
Notwithstanding this analysis there are many signs of a fall in the market.
Rents in inner and central London fell by 10% in the year to March 2002 with
further falls reported later. Prices in high value central London boroughs have
fallen about 10% over the year to October 2002 although low value areas such as
Newham and Tower Hamlets have risen over 30%. A similar trend is evident
nationally : growth is now lower in London than many outlying commuting areas
such as East Anglia and some more remote areas such as the West Country,
Yorkshire and the Scottish Borders have recently had the greatest growth. Some
commentators see price rises starting in the London area and rippling out: now
falls starting in London may ripple out.
House prices are dependent also on housebuyers expectations. Rapidly rising
prices lead to an investment psychology expressed for example as 'buy now while
stocks last'; 'house prices always go up/never fall'; and 'residential
investment has done much better than equities/pensions': in investment terms
'momentum investing' which can create 'a bubble'. Several factors together or
separately could deflate such a housing market : potential first time buyers are
unable to finance purchases leaving property unsold; a supply of one sector, say
letting properties, exceeds demand; adverse comment reduces demand; or an
external shock reduces demand. If, as a result of any one or any combination of
adverse factors, prices stabilise or fall, speculators and investors will close
positions and prospective purchasers will hold back waiting for further falls,
and the 'bubble' bursts.
Notwithstanding the risk of a burst bubble, the Bank of England's central
projection is for house price inflation to fall to 0% in two years but other
commentators expect continuing rises: Council of Mortgage Lenders 7%;
Nationwide and the Halifax 10%; and Hometrack 4%. However the outcome depends
on whether the current high levels represent a market response to the current
supply and occupational demand or whether demand has been increased by investors
speculating and by demand being brought forward on a momentum basis. I suspect
that throughout many areas of the UK there is an element of such momentum
investing but that there is a significantly much higher element in London and
the South East, and in these areas I suspect that prices will drop noticeably,
especially as occupational demand in these areas is likely to decline due to the
continuing downturn in financial services.
A moderate reduction in house prices would severely damage the economy,
primarily by reducing consumption and GDP growth resulting in lower tax revenues
and further increasing Government borrowing requirements. The Government
expenditure programme already appears unsustainable and after seven months of
the fiscal year borrowings are already 30% over budget. The programme is
predicated on GDP growth of 2.5% until 2006/7 but following a probable growth of
only 1.6% in 2002, growth of 3% is needed in subsequent years to meet the
target. Most estimates show lower growth in 2003 and 2004 before any allowance
for reduced GDP growth as a result of house price falls in some areas. The
future political choices will be between maintaining public service expansion by
borrowing or by reducing planned expenditure. Economic growth rate seems likely
to be below trend, an outcome reinforced by house price adjustment in some
areas.
Property Prospects
The CB Hillier Parker All Property Yield Index fell 0.2% point to 7.2% in the
year to November 2002 due to a 0.35% point fall in retail yields. The 10 year
Gilts yield was 4.7%, increasing the 'Yield Gap' to 2.5% points, the largest
since the index was first compiled in 1971.
Property yields lower than Gilt yields traditionally reflected the perception of
property as in part an 'equity' stock where growth in rents compensates for the
low initial yield. However this year the All Property Rental Index fell 2.9%
and over the last five years has averaged 5.9%, say 3.5% in real terms, and the
average of forecasts published in Estates Gazette are for growth of 0.2% in 2003
and 1.8% in 2004. Low rental growth would be consistent with the high current
yields. Over the last ten years the IPD all property index returned 10.3%
annualised, of which 7.8% represented income return and 2.5% capital growth.
Property investment now more clearly resembles a higher yield fixed interest
investment with a much reduced element of potential equity growth.
In Edinburgh Ryden report the takeup of offices in the six months to 30
September 2002 as 340,000ft2, similar to last year, but significantly down on
the average 603,000ft2 for the same period in the previous four years. Total
supply is 1,968,924ft2, of which a significant amount is peripheral, but is
still higher than the previous peak of 1,915,692ft2 in March 1993 and current
developments will further increase supply. Rents have reportedly declined from
a peak of £29 to £25 in central Edinburgh and from £25 to £20 in Edinburgh Park.
In Aberdeen property prices are more sensitive to oil prices than to the general
economy. Brent Oil was $21.20 this time last year, dipped below $20 in January/
February 2002 and has since stayed above $24 rising recently to $27. In real
terms the 2002 price is about double the price before the 1973 Yom Kipper war
but only a quarter of the price subsequent to the Iranian revolution in 1979.
At 2002 prices UK North Sea oil and gas output is expected to peak in 2002 and
2005 respectively with UK oil production falling 12% by 2005. The drilling of
exploration and appraisal wells, development expenditure and total offshore
expenditure are all expected to fall sharply in the next three years. Reduced
activity in the oil sector together with continuing declines in manufacturing,
fishing and agriculture seem likely to damage the local economy. Office take up
in the year to September 2002 was 402,554ft2, 16% higher than the previous year.
However, supply is 1,124,804ft2, an all time record, and should BP build their
new HQ at Stoneywood, sold by us last year, another 300,000ft2 becomes
available. With the benefit of hindsight, the timing of the sale of our
Aberdeen investments seems most opportune.
The office markets in London and the South East have fallen significantly and
the prospects are unfavourable. The Investors Chronicle reports City rents
have fallen 20% to £50 and West End rents 21% to £65 and the increase in rent
free periods is equivalent to a further fall of 5%. Take up has fallen, supply
has risen and vacant space is 11.5% in the City and 8.5% in Central London.
Moreover JP Morgan estimate that speculative City developments started in the
first half of this year were 2.3m ft(2), the highest level for ten years and
around London 17.3m ft(2) is under construction with completions peaking next
year. Rents have been falling within the M25 and particularly in the Thames
Valley area where take up dropped from the TMT peak of 8.0m ft(2) in 2000 to a
rate of 2.4m ft(2) in 2002. The rest of the UK has largely escaped the malaise
affecting the South East and rents are showing an annualised growth of 2.6%.
The South East rents largely peaked in 2001 and apart from Docklands where rents
have doubled, rental levels were about 10% higher than the previous peak, 1989/
1990. However in real terms the peak 2001 rental figure for the all-offices
index was only 80% of the previous peak and the City below 70%. Most of the
regions have current real rental levels below previous levels except the North
East. Only Scotland, the North East and Yorkshire and Humberside are at or
slightly above previous real levels. Other investment sectors have performed
less badly: real shop rents equal those of the 1990 peaks; real industrial
rents are 85% of peak and the all property rents are 87% of peak. With few
exceptions real rents have fallen from peak to peak, notably in some cases.
This disappointing real rental performance has been exacerbated by yield
movements. In May 1990 Gilt Yields were about 12.35% and are now 4.85%. The
Hillier Parker All Property Yield then was 7.6% but is now approximately 8.2%.
Property yields on a comparable basis have therefore risen although Gilts have
fallen 7.5% points while real rentals have fallen from peak to peak. Thus over
the cycle 'All Property' has not maintained real rental values while the
investment value of those reduced rents has fallen: a doubly poor outcome!
The immediate future for property does not appear encouraging. The earlier
analysis of the Edinburgh office market indicates a significant downturn even
without an economic recession. The London market is poor and Savills expect the
City and West End office rents to stagnate and not to recover recent highs until
2005. Richard Ellis expect further falls in office rentals, especially in
London and the South East and retail and industrial sectors to have no real
overall growth until 2005 or 2006. The prices of quoted property companies
probably reflect these poor prospects, as the sector discount in mid November
was 36% with the blue chip Land Securities at a 40% discount.
The cyclicality of the property market, especially the office market, is readily
understood but the poor performance of property peak to peak is less easily
understood. The main factor has been the increase in supply due to the
relaxation of market, locational or planning restrictions. Examples include the
new office centres in Edinburgh, Docklands in London and the large increase in
out-of-town retail space. Another factor may be that supply has been provided
at a price insufficient to cover the many largely hidden costs, including tenant
failure, under-priced short-term leases, depreciation of the fabric, inadequate
recovery under repairing provisions and technical and locational obsolescence.
The high cost of serviced offices after stripping out staff and facilities costs
give one estimate of the full cost of space on a flexible basis. Unfortunately
the factors currently limiting returns in the commercial investment property
market are likely to persist and overall the market is unattractive.
Fortunately the Company is a 'niche player' and we have identified new
opportunities. With few exceptions Edinburgh office space is polarised between
central townhouses and new high quality Grade A office space in the Exchange and
Edinburgh Park predominantly occupied by Institutions, Financial Services and
top tier professional firms. There is little open plan 'commercial' property
available to tailored specifications, on flexible leases, serviced or
partly-serviced, well located and with generous car parking. St Margarets House
meets this niche market requirement.
The Edinburgh area housing market provides insulation from any short-term price
instability and excellent long-term prospects, and offers a second niche
opportunity. Earlier analysis showed the UK residential market to be
overpriced, especially in London and the South East, where in places prices are
already falling. Any Edinburgh house market downward adjustment should be
significantly less than in the South East or even the UK as prices have
traditionally been much less volatile. Between the 1989-90 peak and the
1993-94 trough real prices fell by 40% in the South East, 37% in London and 30%
in the UK overall. Prices for four categories of Edinburgh City Centre were
monitored by the Edinburgh Solicitors' Property Centre over the cycle : one
category rose by 3.9% and the other three fell by between 3.5% and 10.5%. In
the four suburban Edinburgh categories monitored one was unchanged, two fell
about 5% but one category, modern detached villas, fell 15.3%, by far the
largest of all changes. In the area immediately nearby Midlothian fell 8% but
East and West Lothian only 3.9% and 3.5% respectively.
The buy-to-let market in Edinburgh has increased recently but represents a very
much smaller proportion of central property than in London. In any downturn the
proportion of resales depressing prices will be much lower in Edinburgh than in
London.
The ratio of house prices to earnings is a useful indicator of the volatility of
house prices. In London the long-term average is 4.1 but is now 5.7 just below
the 1980s' peak of 6.1. The UK ratio is 4.4 now, also near the 4.8 high, but
in Scotland it is only 2.7, largely unchanged for 61/2 years with the Lothian
ratio currently about 3.5.
Economic conditions, especially employment levels are a major determinant of
prices. Overall the Scottish economy has performed poorly compared with the
UK's and is expected to continue to grow by about 1% point less than the UK in
2002 and 2003, primarily due to recent and continuing heavy falls in the
manufacturing sector. Edinburgh's manufacturing sector is small and the Scottish
service sector is expected to expand by about 2% over the next two years.
Cambridge Econometrics expect Edinburgh's growth until 2006 to be just over 2%,
marginally less than London, but expect employment in Edinburgh to grow more
rapidly than in London.
Edinburgh's economic success is expected to continue to attract incomers - last
year the East of Scotland had the highest such rate in the EU - contributing to
the expected rise in the population in the Lothian area from 783,000 to 832,115.
This population increase together with smaller-sized households, projected to
fall from 2.3 persons in 2000 to 2.0 in 2014, is estimated to result in a 19.3%
increase in households, or 65,600 more, say 4,373 per year. The most rapid
increases in Scottish households, 24% and 22%, are expected in West Lothian and
East Lothian.
There will be a long term increase in demand for houses in the Edinburgh area.
If supply of land was unrestricted real house prices would rise in line with
construction costs in the long run, but supply restrictions are severe in the
Edinburgh area. Only a few sites, mostly brownfield sites or a dwindling
number of office reconversions, remain in central Edinburgh but planning
restrictions are onerous. Outside the city centre development continues on the
very few remaining gap sites and redevelopment occurs on some industrial and
other premises. These supply limitations have resulted in planning proposals
for peripheral and outlying areas. In North Edinburgh proposals have been made
for about 5,000 houses on the large gas works site and associated grounds at
Granton. An equally large proposal, the South East Wedge, is situated inside
the City Bypass in South Edinburgh and North Midlothian where 4,500 houses are
proposed. Further afield substantial housing estates are being added to
existing settlements usually near good road or rail links where houses sell at
up to a 40% discount to more central equivalent property. Historically these
very large scale developments fall well behind schedule and these major
proposals will also almost certainly be implemented much later than the time
planned to meet the perceived need and so maintain the current limitation on
supply.
Future Progress
The Group should make satisfactory investment and trading profits, including
those from Eskbank, in the current year. Rental income will fall as a result of
the disposals of St Magnus and Stoneywood, and the determination of the St
Margaret's lease on 28 November 2002. However, net interest received should
exceed interest paid. The full outcome for the financial year will depend
crucially on any change in net valuation.
We have just completed a comprehensive costing of the dilapidations at St
Margaret's where a claim for damages of over £4.0m has been intimated to the
Scottish Ministers. We will pursue this claim as strongly and quickly as
possible but settlement could be delayed into the next financial year. The
refurbishment of St Margaret's is being planned, subject to an assessment of the
optimum market specification. Our main future interests are the acquisition or
creation of development opportunities and the realisation of existing
development opportunities, all within a five year period, with particular
emphasis on the residential market.
The mid-market price is currently 118p, a considerable improvement on the 98.5p
reported last year, and a discount of 27.83% to the NAV of 163.5p. During the
year we bought in 507,500 shares and this contributed to the higher NAV and a
lower discount. The Board recommends a final dividend of 1p and we intend to
increase the dividend at a pace consistent with profitability and with
consideration for other opportunities.
The current tax charge this year relates primarily to the sale of Stoneywood as
indexation, losses carried forward and capital allowances offset the profits on
St Magnus. The Group currently has losses and allowances of over £1m, of which
trading losses of £432,785 will be allowable against development profits.
Conclusion
UK growth will be below earlier estimates but still over 2%, unless the house
price asset bubble deflates quickly and widely. In Scotland conditions will be
poorer than the UK but the service based Edinburgh economy should at least
equal UK performance. Scottish house prices will stabilise but avoid the falls
expected in London and the South East.
Most of the Group's investments have now matured and have been realised and the
existing portfolio consists mostly of potential developments, in areas with
excellent prospects. The Group has substantial cash reserves to effect these
developments, to acquire others and to take advantage of other opportunistic
investments including corporate acquisitions. I envisage good medium term
returns and continued growth in NAV.
I D Lowe
Chairman
20 December 2002
Consolidated profit and loss account
for the year ended 30 June 2002
2002 2001
Audited Audited
Note £ £
Income - continuing operations
Rents and service charges 2,730,696 2,668,877
Other trading sales 340,328 397,999
_________ _________
3,071,024 3,066,876
Operating costs
Property rental outgoings (99,644) (539,756)
Cost of other sales (396,129) (398,042)
Administrative expenses 2 (816,113) (863,896)
_________ _________
(1,311,886) (1,801,694)
_________ _________
Operating profit 1,759,138 1,265,182
Profit on disposal of investment property 2,589,353 -
Gain on sale of investments - 24,116
Interest receivable 158,527 62,153
Interest payable 3 (885,289) (1,263,404)
_________ _________
Profit on ordinary activities before taxation 3,621,729 88,047
Taxation 6 (384,151) -
_________ _________
Profit for the financial year 3,237,578 88,047
Dividends 7 (172,667) (60,089)
_________ _________
Retained profit for the financial year 16 3,064,911 27,958
_________ _________
Earnings per ordinary share 19 27.56p 0.72p
______ _____
Diluted earnings per ordinary share 19 24.96p 1.79p
_______ _____
Profit for the financial year is retained as follows:
In holding company 691,110 686,512
In subsidiaries 2,373,801 (658,554)
_________ _________
3,064,911 27,958
_________ _________
All activities of the group are continuing.
Statement of total recognised gains and losses
for the year ended 30 June 2002
2002 2001
Audited Audited
£ £
Profit for the financial year 3,237,578 88,047
Unrealised surplus on revaluation of properties 450,000 525,454
Taxation arising on disposal of previously revalued property (860,849) -
_________ _______
Total gains recognised since the last annual report 2,826,729 613,501
_________ _______
Note of historical cost profits and losses
for the year ended 30 June 2002
2002 2001
Audited Audited
£ £
Reported profit on ordinary activities before taxation 3,621,729 88,047
Realised surplus on previously revalued property 7,534,683 -
__________ ______
Historical cost profit on ordinary activities before taxation 11,156,412 88,047
Taxation on profit for year (384,151) -
Taxation in respect of previously revalued property (860,849) -
__________ ______
Historical cost profit for the year after taxation 9,911,412 88,047
__________ ______
Historical cost profit for the year retained after taxation 9,738,745 27,958
__________ ______
Consolidated balance sheet
at 30 June 2002
Note 2002 2001
Audited Audited
£ £ £ £
Fixed assets
Tangible assets:
Investment properties 8 14,404,759 32,274,454
Other assets 9 10,439 159,919
__________ __________
14,415,198 32,434,373
Investments 10 20 20
__________ __________
14,415,218 32,434,393
Current assets
Debtors 11 2,532,398 749,066
Cash at bank and in hand 12 8,762,235 1,369,614
__________ __________
11,294,633 2,118,680
Creditors: amounts falling
due within one year 13 (3,830,372) (15,377,944)
_________ __________
Net current assets/(liabilities) 7,464,261 (13,259,264)
__________ __________
Total assets less current liabilities 21,879,479 19,175,129
Creditors: amounts falling
due after more than one year 13 (3,064,058) (2,515,905)
__________ __________
Net assets 18,815,421 16,659,224
__________ __________
Capital and reserves
Called up share capital 15 2,302,053 2,403,554
Share premium account 16 2,530,753 2,530,753
Capital redemption reserve 16 155,846 54,345
Revaluation reserve 16 6,885 7,091,568
Profit and loss account 16 13,819,884 4,579,004
__________ __________
Shareholders' funds - equity 18,815,421 16,659,224
__________ __________
These financial statements were approved by the Board of Directors on 20
December 2002 and were signed on its behalf by:
ID Lowe
Director
Consolidated cash flow statement
for the year ended 30 June 2002
2002 2001
Audited Audited
note £ £
Net cash (outflow)/inflow from operating (a)
activities 1,972,072 (535,720)
Returns on investments and servicing of finance (b) (808,758) (1,199,093)
Corporation tax (450,000) -
Capital expenditure and financial investment (b) 18,994,560 (1,065,211)
Equity dividends paid (117,653) (61,147)
__________ __________
Cash (outflow)/inflow before management of
liquid resources and financing 19,590,221 (2,861,171)
Financing (b) (12,197,601) 2,343,275
__________ __________
(Decrease)/increase in cash in period 7,392,620 (517,896)
Reconciliation of net cash flow to movement in
net debt (c)
£ £
(Decrease)/increase in cash in period 7,392,620 (517,896)
Cash outflow from decrease in debt 11,699,736 (2,489,119)
_________ _________
Movement in net debt in the period 19,092,356 (3,007,015)
Net debt at the start of the period (15,580,298) (12,573,283)
_________ _________
Net debt at the end of the period 3,512,058 (15,580,298)
Notes to the cash flow statement
(a) Reconciliation of operating profit to net cash inflow from
operating activities
2002 2001
Audited Audited
£ £
Operating profit 1,759,138 1,265,182
Profit on 538,102 -
disposal of property
Depreciation 12,717 33,922
charges
Decrease in - -
stocks
Decrease / (266,189) 158,894
(increase) in debtors
(Decrease)/increase in (71,696) (1,993,718)
creditors
_________ _________
Net cash (outflow)/ 1,972,072 (535,720)
inflow from operating activities
Notes to the cash flow statement (ctd)
(b) Analysis of cash flows
2002 2002 2001 2001
£ £ £ £
Returns on investment and servicing of finance
Interest received 158,527 62,153
Interest paid (967,285) (1,261,246)
_________ _________
(808,758) (1,199,093)
Capital expenditure and financial investment
Purchase of tangible fixed assets (194,907) (1,064)
Purchase of investment property - (1,122,603)
Sale of investment property 19,189,467 -
Sale of investments - 58,456
_________ _________
18,994,560 (1,065,211)
_________
Financing
Purchase of ordinary share capital (497,865) (145,844)
Debt due within a year
(Decrease)/ Increase in short-term borrowings (11,536,331) (7,172,344)
Debt due beyond a year
Increase/Decrease in (163,405) 9,661,463
long-term borrowings
_________ _______
(12,197,601) 2,343,275
(c) Analysis of net debt
At beginning of Cash flow Other non-cash At end of year
year changes
£ £ £ £
Cash at bank and in hand 1,369,614 7,392,620 - 8,762,234
Overdrafts (109,729) - - (109,729)
__________
7,392,620
Debt due after one year (2,515,905) 1,163,405 (1,711,558) (3,064,058)
Debt due within one year (14,324,278) 10,536,331 1,711,558 (2,076,389)
__________ __________
11,699,736 -
__________ __________ _________ __________
Total (15,580,298) 19,092,356 - 3,512,058
Notes:-
1. The above financial information represents an extract
taken from the audited accounts for the year to 30 June 2002 and does not
contain the full accounts within the meaning of Section 240 of the Companies Act
1985 (as amended). The full accounts for the year ended 30 June 2002 were
reported on by the auditors and received an unqualified report and contained no
statement under section 237 (2) of (3) of the Companies Act 1985 (as amended).
Full accounts will be delivered to the Registrar of Companies.
2. All activities of the group are ongoing. The board recommends
the payment of a 1p per share final dividend (2001 : 0.5p), which will be
payable, subject to shareholders approval, on 21 January 2003 to all
shareholders on the register on 6 January 2003.
3. Earnings per ordinary share
The calculation of earnings per ordinary share is based on the
reported profit of £3,237,578 (2001 : £88,087) and on the weighted average
number of ordinary shares in issue in the year, as detailed below. The
calculation of diluted earnings per ordinary share is calculated adjusting
profit for the period in respect of interest on loan stock deemed to have been
converted. The weighted average number of shares has been adjusted for deemed
conversion of loan stock and deemed exercise of share options outstanding.
2002 2001
Weighted average no. of ordinary shares in issue 11,747,541 12,204,577
during year - undiluted
Weighted average of ordinary shares in issue during 13,586,787 14,776,194
year - fully diluted
4. Copies of the Annual Report and Accounts are being posted to
shareholders on or before 27 December 2002 and will be available free of charge
for one month from the Company's head office, 61 North Castle Street, Edinburgh,
EH2 3LJ.
END
Contacts:
Douglas Lowe, Chairman 0131 220 0416
Mike Baynham, Finance Director 0131 220 0416
Alasdair Robinson, Noble & Company Limited 0131 225 9677
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