Information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").

31 March 2020

Caledonian Trust plc

("Caledonian Trust", the "Company" or the "Group")

Unaudited interim results for the six months ended 31 December 2019

Caledonian Trust plc, the Edinburgh-based property investment holding and development company, announces its unaudited interim results for the six months 31 December 2019.

Enquiries:                                                                             

Introduction

The Group made a pre-tax loss of £196,000 in the six months to 31 December 2019 compared with a pre-tax loss of £43,000 for the same period last year.  The loss per share for the six months to 31 December 2019 was 1.66p and the NAV per share as at 31 December 2019 was 202.01p compared with a loss per share of 0.36p and a NAV per share of 185.83p last year.  The Group's emphasis will continue to be to secure, improve and realise the development value in our property portfolio.

Review of Activities

I provided a comprehensive review of activities in the announcement of our audited results released in December 2019.  The current measures that have been put in place across the UK to reduce the spread of Covid-19 have had and will continue to have a significant impact on our activities in the short term.

Income from our investment portfolio may be reduced in the short term if some tenants fail to pay the rent or seek its deferral.  In some instances, to assist them, we may agree to a rent deferral, but, as all our retail tenants should qualify for the available business grants to meet their fixed overheads, the Board are of the view that any such deferral should be minimal.

The contingent purchaser of St. Margaret's House, Drum Property Group, submitted the requisite planning application to secure the detailed consent for their proposed development on 23 September 2019.  Drum report that good progress has been made with the application and that all the additional detailed reports and information requested by statutory consultees have all been provided.  The application was expected to be submitted to the Planning Committee for determination shortly, but as City of Edinburgh Council have extended the Easter recess from 20 March 2020 until 27 April 2020, during which time due to the Covid-19 outbreak the planning committee will not convene, the application is not now expected to be considered until after 27 April 2020.  It is understood that the City of Edinburgh Council are developing an alternative process to deal with matters during the current crisis.

Drum's proposal underlying its conditional purchase of St Margaret's House involved Drum entering into a pre-let agreement with a third-party tenant of undoubted covenant in respect of the property.  The Board were advised that Drum had identified a suitable prospective tenant for such a pre-letting, but have now been informed that this tenant will no longer pursue its interest in the location.  As a consequence of this, in order for Drum to proceed with the purchase of St Margaret's House, the missives in relation to the proposed purchase ("Missives") are being varied and this variation is expected to be concluded in the shorter-term.  The amendment to the Missives will contain a significant reduction in the consideration for the conditional purchase, which is currently £15.0 million (exclusive of VAT), payable to the Company on completion in cash.  A further announcement is expected to be made in relation to St Margaret's House in due course.

Construction work at the Company's site at Brunstane in East Edinburgh was suspended last week in accordance with Government guidance.  The Horsemill phase, which has a Gross Development Value of £2.5m, and has been funded by a construction loan from Bank of Scotland peaking at £1.4 million of which £1.03 million was drawn down as at 31 December 2019, is virtually complete with all internal work finished and the show house furnished.  Extensive soft landscaping has been carried out and only the tarmacking remains uncompleted. 

The marketing photographs for this phase at Brunstane were scheduled to be taken last week and the marketing launched this week, but government restrictions are pre-emptive.  We will commence marketing as soon as practical, and, given the undoubted quality of the development, we expect considerable interest even in a prospectively restrained market.

In Perthshire, at Tomperran, a 34-acre smallholding in Comrie on the River Earn, we hold a consent for twelve detached houses totalling over 19,206ft² which has been endured by the demolition of the farm buildings.  We have recently gained consent to change the current terrace of four houses into three detached and two semi-detached houses.  West of this site, nearer Comrie, we hold a consent for a further thirteen houses on our adjoining two-acre area, previously zoned for industrial use.  In total the twenty-five new houses covering these two areas will occupy over 33,912ft².  The original farmhouse, currently let, will remain intact within the development.

When we sold Chance Inn farmhouse near Kinross in 2013, we retained land in the former garden on which we gained consent for two new houses of 2,038ft² and 2,080ft².  One of these two plots was sold in October 2016 for over £100,000 together with a small paddock for £34,000.  The second much smaller plot was sold in September 2019 for £90,000.  These two plot sales confirm the attraction of this location.

There are no changes on our other development sites.  In the present circumstances we have postponed virtually all development work and will confine expenditure to that which is essential.  Our budgets indicate that we can meet all the reasonably expected changes from within our current resources.   However, as a contingent reserve Leafrealm Limited a company controlled by me has confirmed that, if necessary, it would be willing to provide further financial support via an additional loan facility of £100,000.  At this stage the terms of any further loan from Leafrealm have not been agreed or documented between Leafrealm and the Company.  Further announcements will be made should the Company decide to put such a loan facility in place.

Economic Prospects

Current economic prospects are very poor, and the prospective economic downturn is daily more extensive.  Indeed, as soon as the "human to human" transmission of the Covid-19 virus was recognised, infectivity before the disease became symptomatic established, and the speed and extent of the disease spread in Wuhan unveiled it became obvious that, given that a vaccine would take at least a year to develop, the disease would probably affect the majority of the world's population, except any populations with inherent genetic protection  - of which there is so far no evidence - until vaccination or prophylactic measures become available.  There is the potential for most of the population to be infected with the virus, with the outcome varying with age, metabolic and physical integrity, immune system capability, and, for those who are becoming seriously ill, the quality and quantity of the health services.   Thus, until the virus is integrated into the defence systems of the population, there will be serious economic consequences.  Until then, if the spread of the infection is rapid enough to result in a greater requirement for appropriate care than is available, mortality rates will be much much higher than if such care were available.

Since the epidemic started estimates of the likely extent of the damage to the economy have continued to increase, as evidenced by comparing early economic forecasts with later ones.  The March OBR forecast was based on information available on 11 February 2020 and says "since we closed our premeasures forecast news of the spread of the Coronavirus has prompted large movements in asset prices …. the ultimate spread and economic impact of Coronavirus as at this stage highly uncertain …. most likely to be concentrated in the near term."   For our central forecast, we assumed that the associated economic disruption would be relatively short lived and concentrated in China, with some transmission through supply chains to other parts of Asia and Europe.  This implied a temporary impact on global GDP and trade, weighing modestly on UK activity in the first part of this year - a mild 'V-shaped' shock … we were guided by the impact of the 2003 SARS outbreak, which is estimated to have knocked around 1 percentage point off Chinese GDP growth that year.  The associated impact on world GDP and trade, was, though, quite limited.  Bearing this in mind, we lowered our forecast for Chinese GDP growth in 2020 by 1 percentage point (to 5 per cent), … and reduced world GDP growth by 0.3. percentage points ... this was expected to knock 0.1 percentage points off UK GDP growth this year."

The OBR forecast growth of 1.1% in 2020 and of 1.8% in 2021, similar to the NIESR February forecast of 1.3% and 1.6% and the IMF's January forecast of 1.4% and 1.5%, but all slightly higher than the Bank of England's January 2020 forecast of 0.8% and 1.4%.  The OBR forecasts are made after adjusting for a loss of potential growth from "Brexit" of 4% over 15 years (0.25% per year) but with a negotiated Free Trade Agreement (FTA) which included unfavourable trade changes and an associated loss of productivity.

How quickly these have all faded into the past.  On 17 February 2020, the FT forecasted that, following a "stagnant" three months to January 2020, the UK economy "will contract in the first half of this year" and quoted on 17 March 2020 three previous members of the Monetary Policy Committee (MPC).  Andrew Sentance thought a "recession in the UK … was likely" in the first half of the year with a two to five percent drop in GDP in the second quarter followed by a rebound … ; Professor David Miles thought a recession was quite likely but not the "near Armageddon" scenario implied by the stock market of a 'hit to GDP that lasts for many years; ….'" and Martin Weale said "The key point is that recovery may be rapid."

The former MPC members' sanguine attitude had been widely shared in "the City". Writing in the FT on 23 February 2020 Megan Green of the Harvard Kennedy School reported that City investors considered "the virus is temporary" like mad cow disease and Sars.   Evidence of such views was that a recent survey of America's fund managers found that cash was only 4% of portfolios, the lowest since 2013, while global equities hit record highs - hardly a sign of concern!  Meanwhile, she said, across the world in China, "the Chinese authorities are already throwing the kitchen sink at their economy".

A notable change in tone was provided by Capital Economics whose central projection, published in late March, is that the economic activity will fall 16% in the next few weeks, regain the present output in early 2021 and then grow at a marginally greater rate than previously forecast to reach the previously forecast level in a few years.  A more optimistic, but most unlikely, view is that, following such a catastrophic fall, the economy will rebound quickly with current spending foregone quickly made up later.  Realistically, this is highly improbable as Billy Bunter knew: "a meal missed is a meal gone forever".   A more pessimistic view, but one not unlikely is that, following the catastrophic fall, more lasting economic damage occurs resulting from production and service closures, atrophy or redundancy of skills or reduced trade because of reduced reliance on distant or overseas suppliers.  Additionally, more stocks may be held or suppliers diversified to reduce the cost of one-off business interruptions, but at a continuing higher supply cost.

Martin Wolff writing in the FT forecasts the Coronavirus epidemic may be a bigger economic threat than the financial crisis of 2008 - 2009.  The last pandemic, the Spanish flu, resulted in the UK GDP, after rising 1.9% in 1918, but falling by 7.8%, 5.8% and 9.7% respectively in the following three years after the Great War!  Fortunately, such a severe outcome is most unlikely to recur because of the much-improved understanding of the role of economic management and the extensive use of monetary and fiscal measures, because of the much-improved curative and preventative health measures, and because of the high prospects of discovering or manufacturing more effective drugs and vaccines.  However, the speed of economic recovery, its extent and the subsequent growth rate will depend on the compensatory monetary and fiscal measures being implemented. 

The present crisis may be a bigger threat, as Martin Wolff says, than the 2008-2009 financial crisis, but it is a different crisis.  In 2008-2009 there was a systemic threat to the financial system and a collapse of liquidity and credit leading to, or due, to a crisis of confidence in the solvency of major institutions.  For instance, the RBS, then the largest bank in the world, had loans outstanding at 25 times its "Common Equity Tier 1", which now stands at a conservative six times.   Thus, compared to 2008, as the Investors Chronicle says, ^"to that end regulators have done their job by making banks safer and better equipped for scenarios such as this.  Remember, though, that they always solve for the last crisis and that is why, perhaps so far, this isn't a credit issue."  Unfortunately, as I discuss below, an equivalent pre-emptive planning process has not taken place in UK therapeutic and preventative medicine or in public health.

The Government measures to control the disease are dramatic and unprecedented in peacetime, and continue to become more stringent.  Welcome though these measures are, regrettably, they are arguably far later than optimal, or even desirable, given the etiology of the disease, of which an understanding may be made simpler with an analogy with investment returns.  Seven and a half might be considered a high rate of return comprising say 2.5% inflation, 2.5% real rate of growth and 2.5% equity risk premium, doubling every 10 years.  In contrast, the growth rate of the Covid-19 virus in a non-immune UK population is estimated at R=1.157 or 15.7% per day, thus doubling every five days.  In mid-March the UK had 1,547 diagnosed cases which with a 15.7% growth rate would become 1m cases on 1 May 2020, and at the same rate of increase would in theory have infected the UK's entire population of 66m by 30 May 2020.  In practice the operational R rate declines, inter alia, as the immune population increases - obviously, if 99% of the population is immune, the rate of spread would effectively be nil.

One of the reasons the UK's invocation of protective measures was delayed may be that the UK relied on an estimate of the extent of the disease on a formula producing much lower estimates than the illustrative worked example below.  On 16 March 2020 there were 20 deaths reported, and given that the mortality rate is considered to be 1%, the 20 deaths reported infers an infected number of 2,000.  However, if we assume that the interval between infection and death is 20 days, then 20 days earlier, say 25 February 2020, there were 2,000 infected, but by 20 days later i.e. 16 March 2020 there had been four compounding periods each of five days on the original 2,000 infected and the number infected on 16 March 2020 would have been 32,000 (2, 4, 8, 16, 32)!  For containment speed is of the essence.

There is not presently evidence of inherent or acquired immunity in the UK population against Covid-19.  Without other measures it has previously been predicted that the disease would probably spread to over 80% of the population before a "herd" immunity developed - a position where, because the infected persons' contacts were immune, transmission would be minimal. If all UK cases could receive the full current intensive care treatment levels on which mortality is based, an estimated 500,000 deaths would occur by the end of the summer, a figure roughly 1% of the 80% required in a population before "immuning" supervenes.  However, such a spread of the disease would give a peak demand for intensive care far in excess of current intensive care capacity resulting in death rates of which the Economist said "many more deaths that the model did not attempt to compute."

There are two possible public health responses to the Covid-19 epidemic - mitigation and suppression.  Initially, the UK chose mitigation, a less socially demanding and economically inhibiting policy, based on isolating infected cases and quarantining infected households.  However, as this policy - effectively letting the virus run through the population relatively gradually - would give a death rate quoted above of over 500,000, even if current treatment standards were available to every needy patient, the policy was changed on 23 March 2020 when a policy of suppression was announced, one of reducing the rate of passing on infection by precluding contact.  Those already known to be infected are isolated, restricting transmission, and those not known to be infected kept apart from each other to minimise spread from infected carriers to those uninfected.  To achieve such separations extensive measures were announced on 23 March 2020 including banning "gatherings", keeping the population indoors and substituting "home working" for "business" location working.  The Economist noted that social "distancing" was intended to cut peak intensive care beds by 2/3 but still required eight times the current number available.

The Investors' Chronicle considered that on 16 March 2020 there were 32,000 infections and if, as argued above, the effective UK reported rate "R" is 1.157 then in the seven days from 16 March 2020 to 23 March 2020 the infected population had grown by 2.78 times (1.157) to 88,800, and, if mortality is 1%, this implied a commensurate increase in deaths of 568.  Speed indeed is of the essence! 

There has been some criticism of the UK's delay in adopting a suppression policy: as the Guardian says "It's a mystery it took so long".  The UK had its 100^th case on 5 March 2020 three to five days after the 100^th death in France, Germany and Spain, all of whom had taken suppressive measures a week to ten days earlier in the widening spread of their infections.  Suppression tactics by then had been shown to be effective in South Korea where within 11 days of the 100^th death the rate of infection spiral fell sharply from doubling every second day (sic!) to increasing by less than 10% over 10 days to the 28^th day after the first 100 cases.  An important benefit in the UK of spreading the cases over a long period, apart from the obvious ones of a prospective cure or vaccine, possible attenuation of the virus by mutation or by sunlight and UV, is that the hospital bed provision in the UK at 3 per 1,000 is poorer than in France (6); Germany (8); and South Korea (12).  In the UK any given peak would result in a higher percentage of fatalities than in those countries with wider provision.

The slow response to and the lack of preparedness to combat infectious diseases is not unique to the UK.  By this challenge health services throughout the world now appear to have been complacent, possibly, as over the years, plague, smallpox, whooping cough, cholera, typhoid, measles and even polio have been subdued or largely eradicated.  More importantly, of the "new" viruses crossing from other animals into humans only HIV, for which they are now effective controls, went "viral".  Others, including swine flu, bird flu, zika and Sars have not proved able to effect a large-scale attack on humans or, if so, have been relatively easily controlled.  Recent advances now allow rapid reading of the viral genomes so providing the possibility of more rapidly obtainable cures or vaccines.

Coronaviruses, of which Covid-19 is one as are some forms of the common cold and so initially, to some Covid-19 seemed likely to be relatively innocuous.  However, this is not so, as the virus has proved to engender a range of greatly adverse factors:  being highly contagious; having asymptomatic carriers and causing a significant death rate!

We have possibly developed a culpable complacency about plagues which have ravaged the world at least since classical times, including that in Athens in 430BC which killed a third of the population, including the great Pericles, and led to the defeat of Athens by Sparta.  The Roman Empire was undermined by the plague in Rome in the third century AD and its successor in Constantinople in the sixth century AD.  Of the plague in Italy Machiavelli said:

"Prudent men … reflect on what has been, for everything that happens in the world … resembles what has happened in ancient times"

The present suppression programme, demonstrating Machiavelli's prescience has a precedent in medieval Italy where, during the pandemic of 1348, the plague, caused by a bacterium Yersinia pestis carried by fleas but from its primary host rats, became endemic in Europe.  Consequently, a public health system was established in Northern Italy, based on special Magistracies whose main purpose was the prevention and control of epidemics, principally the plague to which  they accreted other powers including executive powers in all matters pertaining to public health food standards, the sewage system, burials, and oversight of hospitals and hostelries and of prostitution.  But their main power related to their control of society in a plague including quarantining and prohibition of assembly, burning of infected goods and furnishings, and requisition of premises for use as hospitals.

The plague was considered to emanate from "venomous" atoms from debris or infected persons making salubrious air miasmatic; so giving rise to poisonous atoms which adhere like perfumes to humans and penetrate the skin or are inhaled.  The Italians thought that, as the poisonous atoms passed from one object to another, from one person to another and from one object or an animal to a person, they logically concluded that to control the spread of the disease it was necessary to stop all contact with people animals and objects coming from areas affected by the disease.  They cleaned infected areas burning everything considered contaminated.  The spread of disease between ports led contemporary doctors to conclude human transmission was primarily responsible for the propagation of the plague and when an epidemic broke out nearby most trade and communication with that community was forbidden by the Magistracies.  If the plague reached a community a "general quarantine" was often invoked requiring many of the population to be locked up in their homes for forty days.  For instance, in Florence, in the general quarantine of 1630, all males and all females under 14 were quarantined in their homes.

The diagnosis of the disease, "venomous atoms" may have been wrong but many of the public health procedures were clearly very beneficial.  The theory of protection from the disease was also wrong although the result were beneficial.  It was recognised that people who handled rough textiles, wool, cotton, hemp and carpets and hessian bags of grain were more likely to catch the plague and these materials were considered dangerous, their rough nature harbouring the venomous atoms making air miasmatic and it was recognised that all those handling such materials were particularly prone to the plague.  Separately, as developed in Florence, it was recognised that the garb of the "plague doctors", a long-hooded cloak made of fine linen with no rough "sticking" points for the atoms, imbued with aromatic herbs and soaked with a fine wax gave immunity to its wearers.  To filter the air the costume included a long ten-inch beak packed with aromatic herbs while the eyes were protected by goggles.

These costumes were a Florentine speciality.  The plague doctors clad overall in red penitent like cloaks with painted long leather beaks and glass eye lenses must have been a sinister reminder of the perils of the plague.  Tragically, all might have been different.  In 1657 Father Antonio who administered the pest house in Genoa noted that almost invariably those working there, who had not previously suffered the plague, almost invariably contracted it: he wrote "The waxed robe is good only to protect one from the fleas which cannot nest in it" … He knew from experience "I have to change my clothes frequently, if I do not want to be devoured by the fleas, armies of which nest if my gown … and I need great strength of mind to keep still at the altar".  How near was he, but yet so far … a short but too deep a chasm to cross in a culture of supremacy authority over observation.  Professor Carlo Copolla, author of Fighting the Plague in Seventeenth Century Italy, incisively remarks: "people find it easier to manipulate the facts to fit their theories than to adapt their theories to the facts observed".

Suppression methods bearing some similarity to those used in medieval times are now in place in the UK.  Evidence from China and South Korea is that suppression stabilises the infection.  The extent of a rise in infection subsequent to the release of the suppression will be reduced by the increasing immunity in the population.  It is also expected that by then there will be a dramatic rise in testing capacity, allowing very early diagnosis and subsequent isolation of those showing early symptoms, so further limiting spread. 

During this suppression dramatic damage to the economy is occurring, described by the Economist as prospectively the "most brutal recession in living memory", as "the economy takes a much worse battering than analysts had expected".  While in the UK evidence of such a "battering" is self-evident, in China for the months of January and February an earlier forecast of falls year on year (i.e. for these two months compared to last year) in industrial output of 3%  was revised to 13.5% and a 3% retail fall revised to 20.5% and fixed asset investment fall of 6% revised to 24%.  The UK's economic short-term recession may be less severe, because of the exceptional Government support.

In respect of long-term economic damage, the OBR consider that only after the epidemic has passed would its scars become evident.  The FT says: -

"There is no doubt Britain is entering a deep recession: the answer to the question about scarring remains the big unknown economic element of the Coronavirus crisis."

The Institute of International Finance's recent forecasts "The world economy is heading for a slump" are sharply down from those made in October 2019 and the Institute now forecasts an economic contraction of about 1.5% worldwide, 3.3% in "mature" markets, encompassing 2.8% in the US, 2.6% in Japan and 4.7% in the Eurozone.

The dramatic drop in the oil price from over $60 in February to the current $20's will provide a small long-term boost to the ailing UK economy.  The $30 fall is expected to add directly 0.6% to the UK GDP over a year.  Scotland, particularly the North East centre of the oil industry, inevitably will not benefit from the falling oil price! 

The causes of the oncoming recession are different from the financial crisis of 2008, the cyclical inflationary recessions that occur regularly and from those induced by war.  There is unlikely to be a debt crisis like 2008, whose expunging is taking so long, or the deep physical, financial and supply damage of war or even the slow "squeezing" of inflation to slow the recovery from this recession.  Unfortunately, I forecast the UK economic contraction will approach 20% in the short term, but, if the suppression levels ease within 10 weeks, then any long-term damage to the economy will be limited, allowing a subsequent more rapid recovery.  While the immediate damage is certain the economy, should recover in a much shorter time than the many years required following the 2008 financial crisis.

Property Prospects

I reviewed property prospects comprehensively in December 2019. Until February 2020 that analysis continued to be current. Since then, as Lady Thatcher's Deputy, Willie Whitelaw famously said in the Commons "the future has changed".

In line with my December forecasts the IPF forecast for Commercial Property in February 2020 was for a total return to "All Property" of 3.5% comprising about a 5.0% income return and a fall in capital value of 1.4%, improving over the next three years to 5.0% overall. The OBR forecast a smaller fall in capital values this year followed by an average increase in value of 1.5% until 2025.

Similarly, the residential property market until February 2020 was commensurate with my forecast in December 2019.  The OBR forecast based on the ONS for 2019/2020 was for a rise of 1.6% followed by rises of about 3.1% per annum. The Halifax³⁰⁶ reported prices had risen 2.8% in the year to February 2020, saying "the sustained level of buyer and seller activity is strong compared to previous years:  The Nationwide reported a similar change of 2.3% saying, "the strongest rate for 18 months".   The Acadata figure for England and Wales for 2020 was lower than the two-above mortgage-based indices, but reported a rise in the year to February 2020 of 1.0%, the highest for 13 months.  The Acadata figures for Scotland for January 2020 was higher than for England and Wales at 2.8%, and the highest for a year.  In Edinburgh the ESPC City Centre prices in February were 6.9% higher than in the previous year, "All" City prices were 4.4% higher and a strong continuing rise of 12.7% in two-bedroom New Town/West End flats led to an astonishing average price of £461,101.

Current market data is not available for commercial or residential markets. However, as the "future has changed" I forecast that transactions will have fallen rapidly and will continue to do so for several months.  Prices will fall but much less quickly as supply is reduced, especially by householders reluctant to sell at lower prices, but owners under financial or other pressures to sell will lead the market lower.  I suspect that, assuming my economic forecast is accurate this adjustment will continue until the autumn.  Later this year, as there is a recovery in the economy, prices should stabilise and start to recover.  Subsequently, price rises will continue as the full economic recovery completes, forecast to be two to three years hence.  In the present circumstances the likely margin of error in these forecasts is very much wider than any I have made over the years.  In the past years I have said: -

"House prices are difficult to forecast and historically errors have been large, especially around the timing of reversals or shocks.  I repeat my previous forecasts, "… the key determinant of the long-term housing market will be a shortage in supply, resulting in higher prices."  

This was never more accurate than as of now.

Conclusion

The conclusion is self-evident and unpalatable.  I believe that the measures to reduce the spread of Covid-19 will inflict an unprecedented shock to the economy, possibly resulting in an unprecedented 20% short term economic contraction.

Evidence from countries subject to similar measures shows that the measures now being adopted, primarily "lock down" (as in medieval Italy) bring a rapid stabilisation in the numbers of new infections within 4 - 6 weeks. Thereafter stricter quarantine measures, extensive testing - equipment will become available for this - higher NHS capacity, potentially the effect of higher daytime temperatures and UV levels, better personal hygiene and the use of existing or the discovery of new drugs and vaccines should allow the rate of infection and the mortality rate to fall.  All the time the proportion of the population immune to the disease will rise reducing the propagation rate of the disease for any given circumstances.  Like "true" influenza it will become a continuing endemic disease, but no longer significantly influencing the economy.  I estimate that this process will take one to two years.

The release of or a qualified use of "lockdown" will provide an immediate upsurge in the UK economy, but it is unlikely to recover immediately more than 80% of the "lost" ground.  It is the estimate of rate of recovery of the balance of GDP that is subject to a very wide margin of error.  The delay to the return to the present level of GDP will be determined by the damage to the supply side of the economy by the current pre-emptive slow down:  it is as if a fast revving highly tuned machine had been abruptly cut off rather than progressively closed down.

Other recessions normally impair the demand side of the economy - squeezing inflation, making credit expensive and sometimes unobtainable even for the creditworthy.  The current and proposed government measures seem likely to support demand.  In the current economic situation Brexit and the Oil price are "bit" players, Brexit exerting a downward influence, and lower oil prices an upward influence except in oil producing areas.

My current forecast is for a full recovery in GDP within two years.

The specific circumstances of the Group will determine how such economic conditions affect us.  The prospects for the covenants of our major tenants, including Edinburgh Palette are good, but for our retail tenants less so.  Sales of our completed houses at Brunstane or development plots are unlikely to be achievable at acceptable prices in the near future.  Accordingly, we have budgeted for lower rental receipts and delayed sales.  The conditional sale of St Margaret's, House is still expected to complete by May 2021 unless the planning committee do not reconvene for an extended period and an alternative process for determining applications during the current crisis is not forthcoming.

Given these circumstances we have delayed all long-term development work, are reducing maintenance work to a short-term minimum, and are reviewing all expenditure and staffing costs.  Our budgets indicate that we can meet all of the reasonably expected changes with our current resources.  However, as a contingent reserve Leafrealm Limited a company controlled by me has confirmed that, if necessary, it is willing to provide additional financial support via an additional loan facility of £100,000.  At this stage the terms of any further loan from Leafrealm have not been agreed or documented between Leafrealm and the Company.  Further announcements will be made should the Company decide to put such a loan facility in place.

The short-term outlook is disappointing.  However, I am confident that, apart from the emergencies caused by the current epidemic, the future prospects of the Group are fundamentally unchanged, but their realisation is delayed.  Hence, I conclude, as previously: -

"In our existing portfolio, most development properties are valued at cost, usually based on existing use, and when these sites are developed or sold, I expect their considerable upside will be realised.  Some investment properties may also have considerable development value, as we expect to realise at St Margaret's."

I D LOWE

Chairman

31 March 2020

Caledonian Trust PLC

Registered Number 01040126

Consolidated income statement for the six months ended 31 December 2019

__________________________________________________________________________________

Caledonian Trust PLC

Registered Number 01040126

Consolidated statement of changes in equity as at 31 December 2019

__________________________________________________________________________________

Caledonian Trust PLC

Registered Number 01040126

Consolidated balance sheet as at 31 December 2019

__________________________________________________________________________________

Caledonian Trust PLC

Registered Number 01040126

Consolidated cash flow statement for the six months ended 31 December 2019

__________________________________________________________________________________

Caledonian Trust PLC

Registered Number 01040126

1          This interim statement for the six-month period to 31 December 2019 is unaudited and was approved by the directors on 31 March 2020.  Caledonian Trust PLC (the "Company") is a company incorporated in England and domiciled in the United Kingdom.  The information set out does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006.

2          Going concern basis

The Group and parent Company finance their day to day working capital requirements through related party loans and have bank funding for a specific development project.  The related party lender has indicated its willingness to continue to provide financial support and not to demand repayment of its principal loan during 2020.  Accordingly, the directors continue to adopt the going concern basis in preparing this interim statement.

3          Basis of preparation

The consolidated interim financial statements of the Company for the six months ended 31 December 2019 comprise the Company and its subsidiaries, together referred to as the "Group".  The financial information set out in this announcement for the year ended 30 June 2019 does not constitute the Group's statutory accounts for that period within the meaning of Section 434 of the Companies Act 2006.  Statutory accounts for the year ended 30 June 2019 are available on the Company's website at www.caledoniantrust.com and have been delivered to the Registrar of Companies.  These accounts have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.  The auditors have reported on those financial statements; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports, and (iii) did not contain statements under Section 498 (2) or (3) of the Companies Act 2006.

The financial information set out in this announcement has been prepared in accordance with International Accounting Standard IAS34 "Interim Financial Reporting".  The financial information is presented in sterling and rounded to the nearest thousand.

The interim financial statements have been prepared based on IFRS that are expected to exist at the date on which the Group prepares its financial statements for the year ending 30 June 2020.  To the extent that IFRS at 30 June 2019 do not reflect the assumptions made in preparing the interim statements, those financial statements may be subject to change.

In the process of applying the Group's accounting policies, management necessarily makes judgements and estimates that have a significant effect on the amounts recognised in the interim statement.  Changes in the assumptions underlying the estimates could result in a significant impact to the financial information.  The most critical of these accounting judgement and estimation areas are included in the Group's 2019 consolidated financial statements and the main areas of judgement and estimation are similar to those disclosed in the financial statements for the year ended 30 June 2019.

4          Accounting policies

            The accounting policies used in preparing these financial statements are the same as those set out and used in preparing the Group's audited financial statements for the year ended 30 June 2019, except for the adoption of new Standards by the Group. 

            New Standards adopted

IFRS 16 'Leases' replaces the current guidance in IAS 17 and is effective for the Group from 1 July 2019. It establishes principles for the recognition, measurement and disclosure of leases.  One impact is the requirement for lessees to recognise "right of use assets" and corresponding lease liabilities.  The Group has no relationships where it is lessee and so there is no impact as lessee from the adoption of IFRS 16.  IFRS 16 may also affect lessors whose tenants are affected by its adoption.  Due to the size and nature of its business tenants, none are expected to be subject to IFRS 16 and so there is no impact on the Group at 1 July 2019.

Valuation gains/(losses) on investment properties

As set out in note 7, the valuation gain in the period ended 30 June 2019 relates to progress on St Margaret's House, Edinburgh, which is the subject of a conditional agreement for sale for £15 million entered into on 2 February 2018.

5          Income tax

Taxation for the 6 months ended 31 December 2019 is based on the effective rate of taxation which is estimated to apply to the year ending 30 June 2020.  Due to the tax losses incurred there is no tax charge for the period.

In the case of deferred tax in relation to investment property revaluation surpluses, the base cost used is historical book cost and includes allowances or deductions which may be available to reduce the actual tax liability which would crystallise in the event of a disposal of the asset.  At 31 December 2019 there is a deferred tax asset which is not recognised in these accounts.

6          Profit or loss per share

           Basic profit or loss per share is calculated by dividing the profit or loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period as follows:

7          Investment Properties

The carrying value of investment property is the fair value at the balance sheet date at directors' valuation and based on valuations as at 30 June 2019 by Montagu Evans, Chartered Surveyors, and for one property, by Rettie & Co.  Neither external valuers are connected with the Company.  As disclosed previously, a conditional agreement for sale of St Margaret's House was entered into on 2 February 2018.

8          Financial instruments

            Fair values

            Fair values versus carrying amounts

The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:

            Estimation of fair values

            The following methods and assumptions were used to estimate the fair values shown above:

Trade and other receivables/payables - the fair value of receivables and payables with a remaining life of less than one year is deemed to be the same as the book value.

Cash and cash equivalents - the fair value is deemed to be the same as the carrying amount due to the short maturity of these instruments.

Other loans - the fair value is calculated by discounting the expected future cashflows at prevailing interest rates.

9          Issued share capital

10        Seasonality

           Property sales in the Group are largely unaffected by seasonal variations and tend to be driven more by opportunity on investment and by progress on development sites.

11        Bank loan

The Group has a loan facility from Bank of Scotland of £1,415,000 to finance the next stage of its Brunstane Development.  The loan drawn down at 31 December 2019 was £1,030,000 and interest is payable at a margin of 5.1% over Bank of Scotland base rate.  The loan is secured by a floating charge over the assets of a subsidiary and by a standard security over Phases 2 and 3 of the development site.  The parent Company has also given a guarantee which is limited to £145,000.