REG - Caledonian Trust PLC - Audited Results for the year ended 30 June 2017 <Origin Href="QuoteRef">CNN.L</Origin> - Part 2

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22/12/2017 13:00

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against the
present development.  But the step was politically important, since Germany
needed friends", adding "as one does, when one is trying to unite Germany
without blood and iron".  At the time one wit quipped "the whole of
Deutschland for Kohl, half the deutsche Mark for Mitterrand".  Superb French
diplomacy secured a further tether on Germany binding with France tying them
into the EU, away from the East and hitching a ride on the pre-eminent
economic power in Western Europe. 
 
The achievement of French diplomacy, the pan European cause predominantly
fostered by them represented "une grande réussite".  The efforts of Monn et,
Schuman, Delors etc over many  years appeared to have come to fruition and
France, having established political leadership over the rest of the members,
had fired a harpoon as a mooring line to the German economy to secure it for
them.  Professor Ash, writing in Foreign Affairs, says "the pact was to gain
some control over Germany's currency, not for Germany to gain control over
France's budget".  But the harpoon deployed, rather than reeling in the
Germany economy, caused the elegant French schooner to be tethered to a German
quayside where the tide was ebbing from Kohl's vision of a European Germany
towards a German Europe. 
 
The transition to a German Europe, an unannounced policy, has been facilitated
by events outside Europe and within Europe it has been unopposed.  Paul
Volcker, former Chairman, US Federal Reserve Board, 2007 describes it: "the
French made a very honourable effort to cling to the D-Mark.  They didn't like
to play second fiddle to the Germans, yet they didn't have the power, the
authority or the currency to do otherwise.  They learned over a period of
years a rather ironic lesson: that in order to stand up to the Germans, you
had to be subservient to them - by following their lead in key questions of
monetary affairs".  The strong French diplomatic positions so carefully and
successfully nurtured since the Schuman Plan founded on the torments and guilt
of the war ebbs away being in the memory of fewer and fewer.  The formative
years of the young of today have been in a Europe of peace, freedom and ever
greater prosperity.  The struggle for Europe is one in which it has been
proved vital not to fight yesterday's wars.  Just as the French Maginot line
which served as a bulwark against a formal frontal attack was simply bypassed
to the North by the Blitzkrieg, so the French diplomatic strategy, certainly
vis-a-vis Germany, while having succeeded in constructing an elaborate
defence, became bypassed.  In real politic terms France is now the co-driver
to Germany's driver, but commands the continuing position as navigator, a
position confirmed by M Barnier as European Chief Negotiator. 
 
The EU's concern over the UK departure and the terms of its departure has an
earlier manifestation.  Greenland, part of Denmark, voted to leave the EU in
1982 and left in 1985, following negotiations which Lars Vertebirk described
as "surprisingly unpleasant … they were not willing to accept that you should
or could leave …" 
 
The unification of the EU is unfinished business whose underlying basis has
changed with world circumstances, proceeding by what has been called the
"Monnet method" of unification, after Jean Monnet, a founding father who
proposed moving forward, step by step, with technocratic measures of economic
integration, hoping there would catalyse political unification.  He
promulgated that "Crises are a great unifier!" and they have been, but such
destabilisation by crises also have great inherent risks.  I believe that the
current destabilisers are the failure of the Euro, the political winds of
change, populism and low economic growth, ISIS and immigration, and the
departure of the UK which is both a symptom and a cause of the crisis.  The
political necessity is one of damage limitation, a necessity far outweighing
any economic damage which, however great, is difficult to attribute to a
particular cause and whose effects are almost certainly a long way away.  To
secure the political integrity of the whole EU differences have to be bypassed
a requirement that empowers centralised bureaucracies for whom control of
decision making procedures is important - a process lampooned in the 1980 UK
sitcom "Yes, Minister".  Ironically this was ennunciated most clearly not by a
bureaucrat but by the Monarch, the sun King, Louis XIV (Louis - Dieudonné!)"
L'Etat c'est moi."  Similarly M. Barnier, former Vice-President of the
European Commission, emphasises continued integrity of the existing
protocols. 
 
"Power tends to corrupt and absolute power corrupts absolutely" and may also
impair judgement.  To avoid the UK referendum David Cameron sought limited
reforms of the EU, notably an opt out of the need to forge "ever closer
union", but the nominal concessions granted were insufficient to avoid the
referendum: a further gesture would probably have deflected the UK's choice. 
The EU has a long history of late night compromises - the clock "stopped", for
instance, and of "fudging" obligations and even downright disavowal of Treaty
obligations as in Germany's (indeed!), and France's violation of the Stability
and Growth Pact of the Maastricht Treaty without penalty in 2003-4.  Surely
within the rules, or whatever the rules, a sufficient accommodation could have
been found for the UK.  Was it bad judgement?  Was it just a mistake?  Or it
was motivated by a bureaucratic defence of the status quo as in "Yes,
Minister?".  Such traits are evident in all such bureaucratic institutions,
although at a less imperious level than occurred in the EU in 1992 when the
Danish referendum rejected the Maastricht Treaty.  Trichet, the French
Treasury Minister, subsequently Governor of the ECB, declared "Denmark should
be punished for its foolishness".  Punishment of the UK may be implicit in the
UK negotiations:  if defectors are punished, a Roman style decimation, "pour
encourager les autres", then the central authority is reinforced. 
 
Fear for the integrity of the European concept is inherent in the removal of
the external threats - the necessity is gone - and by its outstanding early
success.  After conception post 1945 it went from war to peace, from
deprivation to prosperity and from fear to hope.  At the time Cameron sought
modest reform part of the EU had inverted from prosperity to high
unemployment, from a centripetal to a centrifugal force and from hope to fear,
a widespread stirring of populism so evident across Western society and then
clearly manifested in the USA and the UK.  Such fear was most manifest in
Greece where the anti-EU factions were only narrowly defeated, depicted by the
cartoonist  Patrick Chappelte by  a tramp  at a  ballot  box  under  the 
Acropolis,  exclaiming  "Good news!   Fear Triumphed over Despair".  With
success and changed circumstances the European cause has lost many roles and
has dissident elements threatening its most important goal.  Perhaps the UK
withdrawal removes an obstacle to that goal of "ever closer union", an end, by
definition, never achievable!! 
 
Empires wax and wane.  Two thousand years ago just south of the Caspian Sea
the Great Empires of Rome and of the Han Dynasty nearly met, together dominant
from the Atlantic to the China Sea, for nearly five hundred years.  Others,
India, Persian, Greek and Phoenician had come before and others Byzantine,
Mongol, the Islamic Abbasid Caliphate and the Frankish empire, ultimately
under Charlemagne, followed before the Western maritime empires of the
Netherlands, France, Britain, Spain and Portugal.  For the maritime powers
empire followed trade - as in India, but central political domination
followed.  Such external political control is likely to have contributed to
their ultimate failure. 
 
One empire was different.  The empire of Charlemagne occupied an area
strikingly similar to the EU's precursor, the ECSC, i.e. Western Europe
without Spain and the UK.  Charlemagne had the added distinction of being
crowned Emperor (or Caesar, hence Kaiser) in Rome by the Pope in 800AD.  The
tripartite division of the empire under Salic Law on Charlemagne's death
formed the fault line, the central Kingdom (Lothmagia) Lorraine, between the
Western Kingdom of Charles the Bold and the Eastern Germanic Kingdom under
Ludvik which has persisted until the 20th Century.  Otto extended the Germanic
Kingdom, regaining the West and extending his boundary east to Hungary and
south to Italy.  By 1500 this empire composed an area similar to Charlemagne's
except for France, but containing a whole mix of political entities, a
Bassett's "All Sorts"!  The emperor was an elected office, chosen latterly by
10 electors (George I was Elector of Hanover!), the leading secular and
ecclesiastical princes.  But within that hierarchy there were 180 secular and
136 ecclesiastical cities and 83 imperial cities, some of them republics,
which all considered themselves free, or autonomous, with religious
self-determination.  Frederick II attempted to reverse such freedoms,
prompting the famous defenestration in Prague in 1618, a prelude to the Thirty
Years War, a proxy for religious intolerance in which all the European powers
joined, and cost the lives of about 1/3 of its population until the peace
conference of Westphalia in 1648. 
 
Five years later the 1653 Reichstag settled the governance of the Empire until
its formal demise, "a chaotic mess of rotted imperial forms and unfinished
territories" as described by the Prussian von Treitschke in 1806.  But not so
in the peace negotiations in Regensburg, the Brussels of the time, when
Ferdinand III, Hapsburg Emperor of the Holy Roman Empire, descended with 3,000
attendants including an opera cast, 60 musicians and three dwarves.  A year
later in similar style he left for Vienna in a flotilla of 164 ships!  The
chief debate was between a centralised union as advocated by the Emperor's
administration or, alternatively, a decentralised federation, favoured by the
princes led by the "upstart" Elector of Brandenburg.  The Emperor's proposals
included tax raising powers authorised by the Reichstag for redistribution by
the central body - a transfer union - as exists only partially but
prospectively in the EU.  The defeat of the Emperor's centralist proposals
dispersed power to the constituent "states" and allowed considerable
subsidiarity to evolve, resulting in a political structure that has some
similarities to the EU. 
 
The Reichstag sat in perpetual session consisting of three legislative
chambers - electors; other princes; and free imperial cities, which considered
proposals put to them by the elector of Mainz, a position similar to the
Council of Ministers, decision making was never codified: should members from
over 300 territories get one vote, or should votes be weighted by territory,
or should decisions be taken by majority, qualified majority or unanimity?  In
these matters the empire was as the EU: characteristically "it-all-depends!" 
This, like the EU, gave a balance between protection for small states and
action as a federation.  For religious matters there were separate Protestant
and Catholic councils, tasked to reach agreement, an attractive vision of
peaceful settlement following the Thirty Years War. 
 
The empire, and the EU, adopt the juridical principle embodying the
requirement to resolve disputes by law rather than by force.  The judicial
system gave territories recourse to two imperial courts in Speyer and in
Vienna, analogous to the ECJ in Luxembourg, which were open to all citizens,
including peasants.  The Reichstag allowed wide public access both for
conflict resolution and for proposed legislation.   As the EU legislated on
the curvature of cucumbers - and I had an enforcement order served on me for
not so observing - so the Reichstag declined to ban indigo dyes (to protect
the woad industry) but agreed to ban ribbon-making machinery to protect
employment …!  Such detail provided a rich "diet" for bureaucracy - so often
complained of in the EU as "etwas auf die lange Bank schieben", a phrase
originating in the "everlasting".  Reichstag files of "decisions pending"
being left on a long bench - one being still visible in the Regensburg's
former city hall.  In the Empire, like the EU, the doctrine of subsidiarity
applied with simple cases determined at village level.  For more complex cases
jurisdiction fell to the "Kreise", ten circles or blocks of states'
administration units that crucially regulated its monetary system and the
tariffs between the Kreise.  The currencies in the Empire were diverse and
were minted independently by the separate princes and states within the Kreis,
so allowing opportunities to debase the coinage, a widespread practice.  Each
Kreis monitored those  separate  currencies  and  constantly converted them to
fixed independent units within the Kreise jurisdiction.  Such arrangements
adumbrated the EU Exchange Rate Mechanism, the precursor to the Euro. 
 
Religious tolerance, social pluralism, peace and prosperity brought the Empire
a rich and varied culture.  Individual rights were safeguarded, diversity and
culture flourished attracting highly qualified Jewish, Mennonite and Huguenot
immigrants, reinforcing the social milieu that attracted them.  Such
prosperity did not weaken the empire, as is often alleged of the Roman Empire:
but supported a strong military that repelled eight successive Ottoman attacks
over 300 years.  The Empire did pass, eventually, as all empires do, crushed
by Napoleon in 1806, having grown weaker due to the political imbalances that
had developed over the centuries between the constituent members.  The
structure of the Empire was determined in the Reichstag in 1653 when the
strong elector of Prussia thwarted the then Emperor's attempt at
centralisation, including a tax system that would have transferred funds from
richer areas to poorer areas.  Over the long successful period of the Empire
two members, Prussia and Austria, outgrew all others and fell outside the
"loose" control of the Empire, whose authority was weakened.  It was those
remains of Empire which fell to Napoleon in 1806, who dissolved it. 
 
For the EU the history and development of the Empire contains an ominous, if
very unlikely, precedent, but one to be guarded against - an insurance not
against arson but a chance fire.  The pivotal point in the development of the
EU has not been the rapid growth in members, mostly smaller states or those
sheltering from historic eastern threats, but the change in the power status
within the EU, when a seemingly impenetrable wall was breached.  Physically,
the wall collapsed in Berlin in November 1989, but, politically, the wall
between the existing Germanic states was eliminated on 3 October 1990 when
East Germany (GDR) was amalgamated into West Germany (FRG), as an "enlarged
continuation of the Federal Republic of Germany", so adding an area
geographically similar to that of Brandenburg-Prussia as it existed during the
Empire.  Post the 2000 amalgamation Germany suffered a long period of high
unemployment and low economic growth causing budget deficits that breached the
fiscal rules of the EU's stability and Growth Pact.  Cavalierly, Germany
abandoned any attempt to adhere to the Pact and in November joined with France
to suspend the sanctions mechanism of the Pact, overriding the resistance of
many smaller states which claimed the EMU's largest members should be
exemplars. 
 
A union of the two great powers varied the terms of the binding disciplinary
pact.  In very different circumstances following the financial crisis, it
could be argued less leeway was afforded the smaller nations of Ireland,
Portugal and Greece.  Recent evidence has shown the pre-eminent position
Germany now holds in determining most monetary and much political and social
policy in the EU, a production by the same company of the same play on a
different stage, that, at a different time contributed to the overshadowing
and weakening of the Empire.  Even without such an unlikely and distant
precedent it is incumbent on the EU nations that wish to secure the solidarity
of the EU that its policies are highly controlled, emphasising the centre,
allow little latitude, make entry difficult, or reasonably so, but make an
exit even more difficult.  Big nations must be bound into the norms of the
club, supranationally.  These carefully cultured norms were threatened by the
decision of the UK to leave the EU and any weakness might threaten it further,
a threat especially to France, given France's increasing dependency and
Germany's increasing independency.  Unsurprising, therefore, that a very
senior French official leads the negotiations and is uncompromisingly robust. 
 
The analogy is often made between the EU and a Club - you join the club,
sometimes with difficulty, as the UK experienced with de Gaulle's "black
ball", but then you are free to resign, to leave.  The EU is more like a
long-term Hire Purchase agreement: you sign up to it, you pay instalments and
you get the great benefit of it but you cannot trade it for anything else and
you cannot change or easily abandon the agreement: the contract is highly
asymmetric.  You can decide irrevocably to break the agreement but you only
have two years to reach any settlement, for which the EU has little incentive.
 It is alleged that during the Japanese reconstruct after WWII the Japanese
hosts, having solicitously enquired about their visiting American guests'
return travelling arrangements, would invoke all manner of cultural guises to
delay serious negotiations until it was almost, but not quite, too late!  Time
pressure gained negotiating advantage.  Similarly once the UK invoked Article
50 its position becomes ever more weakened, an advantage which is and will
continue to be fully exploited by the EU.  The pro-EU FT columnist Philip
Stephens says "it makes perfect sense for Michel Barnier" … "to allow the
pressure of time to build up before agreeing to move on from discussions about
past financial obligations on the rights of EU citizens to talking in detail
about the shape of the future relationship". 
 
The EU have used their asymmetric time clock advantage to great effect.  The
UK has made concessions on the financial "settlement" that are far removed
from those that were originally promulgated.  Indeed when we invited the EU to
"whistle for it" they got it!  This asymmetry will have a great influence in
the trade negotiations due to start early in 2018. 
 
The long-term benefits of free trade are widely recognised but are not
normally implemented, a disparity particularly  apparent  in  some  sectors,
notably  agriculture  where highly protectionist policies applied:  politics
outweighs economics.  The EU endorses free trade within the EU, but practises
highly protectionist policies within the EU in very many service areas, and
outwith the EU it is highly protectionist, despite a long-term economic
advantage.  Indeed, historically the EU and the predecessor organisations were
more protectionist than the UK, a nation with a long-established international
trading history.  Thus, the political necessity for the EU to reach a "free
trade" deal with the UK is largely absent.  Unfortunately for the UK the
practical economic requirements of the EU to reach such a deal with the UK are
also limited, as the economic benefits of free trade are largely indefinable,
take place over a long period, may involve transition costs and disbenefits
and often disadvantage specific sections of the economy.  In agriculture,
where 50% of income derives from subsidy, free trade could provide a long-term
economic boost but a larger political and social cost. 
 
Politics is much more important than economics in the EU27 because of the
asymmetry of size.  The EU comprises 27 nations with an economy about 10 times
the size of the UK's.  If protectionism is equally damaging then each EU
individual's welfare is reduced by only 1/10 of the UK's!  If all economies
grow at 2.25% and the economic contractions caused by any trade disturbance
was 2.5% then the UK would sink into recession but the EU growth would drop
from 2.25% to 2.00% - a small change, statistically insignificant.  The
economics, the politics, the culture, and the over-riding ambitions of "ever
closer union" will not lead the trade talks, any more than the financial
settlement talks did, to a position that the promoters or voters for "leave"
expected or even now do expect! 
 
An extreme position is unlikely.  Of course there will be agreement on
mutually important areas such as aircraft movements, security, travel
arrangements, diplomacy, health, and the "nuts and bolts" of co-operating non
antagonistic neighbours.  Equally there will be no enhanced trading position,
almost a return to a status quo ante by securing a "Norway" option, i.e.
membership of EEA (conditional on being admitted first to EFTA) but with
special trading rights.  It is most unlikely that either the UK will reapply
to re-join the EU, or get unfettered EU market access from outside the single
market.  An enhanced WTO deal seems the most likely outcome, but any such
arrangement could not be negotiated and implemented in the available
timescale, which is unlikely to be extended, but could be implemented
following a transition period for practical and logistical adjustments to meet
the already agreed policy.  All possible outcomes will have a deleterious
effect on the UK economy in the short term due to investment delay and in the
long-term, depending on the trading terms agreed with the EU27 and the
consequent balance between trade destruction and trade creation caused by
leaving the EU. 
 
The extent of the damage to the growth of the UK economy could vary
significantly, and is subject to wide and inter-related variables, and
reliable forecasts are unavailable.  The forecasts made before and in the
immediate post-referendum outcome were very unfavourable and the initial
reaction to the referendum vote appeared to justify the projections of the
established economic forecasters.  The £ fell from over $1.50 before the vote
to a 31 year low of under $1.30 in early July; the Governor of the Bank
declared risks "were starting to crystallise"; Standard Life and other
property funds froze their redemptions; the FT's headline "Brexit sell-off
signals house price fall" reported that investors were pricing in a 5% fall in
home values, that shares in the UK's four largest housebuilders had fallen
between 28% and 37%, and that trading in Barratt Developments, Crest
Nicholson, Taylor Wimpey and Berkeley had been suspended briefly after each
company had dropped precipitously enough to trigger the FTSE "circuit
breaker": Merrill Lynch expected a 10% house price drop over the coming year;
estate agents' shares fell - Savills 26%, Countrywide 32% and Foxtons' 37%;
and shares in the UK's three principal banks, fell by over 25%.  Martin Wolf,
the FT's Chief Economics Commentator stated, "So far, the experts, dismissed
by Michael Gove, Justice Secretary, have been proved right … it would be
astonishing if there were to be no recession". 
 
While such exaggerated fears proved entirely misplaced, the medium term
effect, say over five years, is independent of this short-term recovery and is
likely to be significant.  In October 2016 Ernst & Young forecast that a
Brexit reversion to WTO rules would result in a 4% reduction in GDP by 2030,
compared to continued membership of the single market.  In November 2017 they
revised their 2016 forecast of 0.8% growth of the economy in 2017 up to 1.5%
and revised other forecasts, including for 2016, by about 0.2% points so that
by 2020 the upward revision totalled 1.3 percentage points.  Even if revisions
in subsequent years to 2030 were as little as 0.1 percentage points, then the
forecast damage to the UK economy by 2030 is less than 2% spread over many
years. 
 
Influences of forecast damage to the UK economy from leaving the EU can be
deduced from the OBR figures, provided these are adjusted for the change in
the rate of productivity increase that the OBR have recently introduced into
their forecasts.  In November 2015 OBR forecast growth of 2.2% in 2017 and
2.1% in subsequent years.  In November 2017 they forecast growth of 1.5% in
2017, 1.4% in 2018, 1.3% in 2019 and 2020 and 1.3% in 2021.  However, much of
the decrease of growth now predicted is due to an assessed change in the rate
of productivity growth resulting in a 0.45% lower growth per annum than in the
OBR November 2015 forecast.  Adding back this 0.45% results in the growth rate
being about 0.25% points lower in each of the next five years, a trend which,
if continued, would result in the UK economy suffering a fall of about 2.5%
over 10 years as a result of leaving the UK - "Brexit" on terms assumed by the
OBR but unspecified! 
 
The estimated loss of GDP from leaving the EU is very damaging, but much
greater losses have occurred.  In the Great Recession of 2008 real GDP dropped
by 5% over two years, in contrast to a lesser potential loss of 2.0% over
several years.  A much greater thief of actual GDP growth, compared to
potential GDP, has been the significant reduction in productivity.  In the
eight years before the 2008 recession productivity rose 19% or about 2.35% per
annum following a 20% rise in the previous eight years, but since 2008
productivity has risen less than 0.2% per annum.  The ONS estimates that
output per hour is currently 21% below an extrapolation of the pre-crisis
trend.  By the beginning of 2023 the OBR, assuming an improvement in
productivity to about 1% per annum, estimates that output per hour in 2023
will be 27% below its pre-crisis trend.  "Productivity" is much less tangible
than images of queued ports and extensive bonded warehouses and factory
closures and so may seem less important than the loss of trading
opportunities, but as Paul Krugman, the Nobel Laureate, says "productivity
isn't everything, but in the long run it is almost everything".  More output
per unit of input underlies all economic advance. 
 
A sustained fall in productivity has not historically followed a recession,
but productivity has normally surpassed the previous peak.  Within eight years
after the 1961 and 1950 recessions productivity was over 19% above the
preceding peak, and following the 1973 and 1979 recessions it was over 12%
above the pre-recession peak. 
 
Prior to its recent change the OBR forecast a return to previous growth in
productivity, in line with accepted economic thinking, exemplified by two
common explanations.  The first, advocated by Lord King, former Bank of
England Governor, was that as there was no reason to believe the productive
potential of the economy had changed, growth in output per unit labour would
return to the pre-recession (1997-2007) level.  Similarly, but more
colourfully, Adam Posen, an MPC member, has argued that the level of potential
productivity could not have fallen "because no-one woke up one morning to find
their left arm had fallen off" and that one should not "reason backwards from
a period of growth shortfall ….. that growth potential has fallen".  Wisely,
the OBR say "it seems sensible to place more weight on recent trends" and
there are many examples of countries experiencing varying growth in
productivity, including the US, as the UK may now be.  In economics nothing is
immutable, and productivity changes do not depend on the number of arms, but
how they are used! 
 
In assessing productivity growth an overriding concern is mensuration.  Are
the right things being measured and how does one measure convenience and
access, especially in a service economy - the ease and convenience of
computers in phones, emails, and the advent of advanced delivery systems?  In
pre-politically correct days such difficulties were colourfully illustrated -
about the man that reduced national income by marrying the housekeeper, so
eliminating what is termed "accountable employment"!  The advantages of
computer technology in all applications are undoubted, but like all
innovations brings disadvantages, offsetting and underreported, as, for
example, an academic study that Finnish public sector workers waste, on
average, four hours per week troubleshooting computer problems - an estimated
productivity loss of 10%.  Similarly in the introduction of IT systems,
apocryphal and anecdotal reports abound of disruption, of high capital
requirements, of time investment, of aborted systems and the transition of
productivity gains from the technology originator, say utility providers, to
the productivity losses by the users, the consumers.  There are widespread
horrifying failures in IT in banking, central and local government, defence
and the NHS, spectacularly abandoning a programme in which £10bn had already
been spent!  A poignant current illustration is the continued failure of the
Scottish Agricultural support computer systems. 
 
These failures are of "big systems".  The cumulative costs at the other end of
the spectrum - the users of these systems - is more easily, and amusingly,
illustrated.  Lucy Kellaway, the FT columnist, one familiar with IT, describes
returning to work after a vacation and embarking on the menial duty of
claiming her expenses, £92.29 "I started the job at 3.30 pm and by 5.00 pm was
close to tears.  At times I had to interrupt other people for help, disturbing
them by shouts of "I hate  expletive  this [ expletive ] expenses system" ….
"I could not get it to work in Chrome; it kept telling me to disable my pop-up
blocker but, as I do not know what that is, I could not oblige.  Then every
time I tried to fill in its baffling boxes, it replied "invalid value ….." and
so on.  She continues "You have to print out the report, photocopy all
receipts then work out how to scan them all together and email them …."  As
well as such trials and tribulations, distractions at work from computers and
smart phones via emails and social media and "browsing" damage productivity. 
The US Chamber of Commerce Foundation finds that people typically spend one
hour of their workday on social media - rising to 1.8 hours for millennials
and that traffic to shopping sites surges between 2 pm and 6 pm on weekdays. 
 
Is it just a coincidence that productivity growth in advanced economics
averaged 1.0% from 1970 to 2007 and global annual smartphone shipments were
small, say 0.1bn, but productivity growth post 2007 was negative while global
smartphone shipments ballooned to 1.5bn?  If there is not a correlation, is
there a common underlying cause producing both phenomena?  The global
financial crisis - it's over!  Low interest rates, low inflation?  Or is it
just coincidence?  Dan Nixon of the Bank of England has reviewed evidence that
shows smartphone users touch their device between twice a minute to once every
seven minutes. 
 
"Economic prospects" will resume after you have returned from checking your
notification. 
 
Interruptions are not new: a knock on the door, the twice daily post and the
telephone ringing have provided these for many years, but the constant news
feed on the web, the social network "hum" and the barrage of emails represent
a quantum change. 
 
Working while receiving emails and telephone calls reduces the IQ by about ten
points relative to an uninterrupted period, a reduction in cognitive ability
equivalent to losing a night's sleep and twice as debilitating as using
marijuana.  One study showed that it takes half an hour to regain the previous
understanding of the task in hand and, much more sinisterly, those interrupted
by these external stimuli become "addicted" to the interruption and are much
more likely to self-interrupt during a task in hand.  The more you do it, the
more you do it! 
 
"All things are poison … and nothing is without poison … "only the dose makes
the poison", so said Paracelsus, and so suggests a paper by Aral of MIT in
relation to smartphone and associated technologies.  He points out that the
introduction of these technologies contributed vastly to the productivity
surge in the late 1990s and early 2000s as they were used to enhance output. 
However, once a critical network mass had been reached, the benefits were
increasingly masked by the universal availability: important time saving calls
have been swallowed in a morass of distracting chit-chat: as Paracelsus said:
"the dose is the poison". 
 
John Kay the FT columnist argues that in any treatment the "dose" as in
medical treatment not only has to be appropriate but for optimal effect it has
to be delivered as part of the overall treatment: for "flu" take the pills but
keep warm, drink lots of liquids and go to bed …!  He concludes that to gain
full advantage of modern computer and IT technology not only do the machines
and their capabilities have to be available, i.e. the hardware and the
software, but the necessary changes in behaviour and routine have to be
engaged by their users.  Kay observes from his university teaching that, while
the simple clerical administration and communication within the university has
changed, the delivery of the university teaching programmes, all capable of
modification, is hardly changed: the new toys affect the mechanics of the
system but not the established routines.  Essentially, treatment that comes
with a machine or in a pill or an injection is easily adopted, but innovation
that manages a process better is not: ready acceptance of the gimmick, the
silver bullet or the better machine contrasts with innate reluctance to change
behaviour or the process. 
 
Unsurprisingly the Bank advances more tangible hypotheses for the poor growth
of productivity.  In "Hypothesis I", "cyclicity", the Bank states productivity
"often deteriorates in the initial stages of a recession" as output falls
faster than employment and, during the last recession, this tendency was more
marked, resulting in a greater productivity fall.  Such productivity falls may
occur for many reasons.  Management are slow to react; some operations require
minimum staffing levels; management expect an imminent recovery in demand; the
costs of firing and rehiring are too great; and staff get redirected to
sales/business development which do not quality as "output".  However, the
Bank concedes Hypothesis I is not well supported by the change in productivity
during the recent growth in the economy and, moreover, the Bank surveys show
"little evidence of spare capacity".  The fall in productivity owes little to
cyclical changes. 
 
Hypothesis II examines non-cyclical factors, including capital and resource
allocation.  Capital is less available and borrowing costs are higher during a
recession and investment is reduced in labour-saving devices, in product
innovation and development and in their introduction and in intangibles such
as patents and brands, all factors reducing or pre-empting growth in labour
productivity.  Further, working capital may be restricted leading to less
efficient working practices.  Resources normally transfer from lower return to
higher return enterprises.  The rate of transfer accelerates normally in
recessions as liquidations rise, but in the most recent recession they were
relatively lower, whereas the number of loss-making firms was relatively
higher.  In essence, more firms struggled on due to forbearance, the banks'
reluctance to admit to the extent of their own financial distress and to low
interest rates.  The Bank estimates that, of the 15 percentage points
shortfall at the time of the study only 3 - 4 percentage points might be
ascribed to "capital" and  3-5 percentage points to resource allocation and
survival. 
 
The OBR accepts that low productivity will persist: "and as various
explanations pointing to a temporary slowdown become less compelling - it
seems sensible to place more weight on recent trends as a guide to the next
few years.  But huge uncertainty remains around the diagnosis for recent
weakness and the prognosis for the future.  On average, we have revised trend
productivity growth down by 0.7 percentage points a year.  It now rises from
0.9 per cent this year to 1.2 per cent in 2022.  This reduces potential output
in 2021-22 by 3.0 per cent.  The ONS estimates that output per hour is
currently 21 per cent below an extrapolation of its pre-crisis trend.  By the
beginning of 2023 we expect this to have risen to 27 per cent."  The effect of
the loss of productivity growth far exceeds all estimates of economic damage
from any prospective, but yet of uncertain extent, loss of economic growth
resulting from leaving the EU. 
 
UK Economic prospects will benefit from the current buoyant state of the EU,
USA and World economies all of which are expected to experience higher growth
than the UK.  The Bank expects world growth to be around 3.0% in 2018 and
Eurozone (EZ) growth to be 2.1%.  The Economist Poll of forecasters also
expects EZ growth of 2.1%, USA growth of 2.4% and continuing strong growth of
over 6.0% in China and India.  In spite of the strong growth of the UK's
trading partners.  UK growth is expected to be below long-term averages, due
as stated above partly by the consequences of leaving the EU and the
uncertainty of these consequences, but more importantly,  partly by the slow
rate of growth of productivity. 
 
The OBR, due to a reassessment of productivity, have recently downgraded its
forecast of growth over the next five years to only 1.4% per annum, with
growth reduced in 2017 to 1.5% from its earlier forecast in March 2017 of 2.0%
and smaller reductions in subsequent years to a low of 1.3% in 2019 and 2020. 
In general, other forecasters are more optimistic than the OBR and even the
Bank's forecasts are over 1.6% for the next four years while the Ernst and
Young Item Club forecast is just under 2.0%.  These higher forecasts may not
take full account of the continuation of the low growth in productivity
forecast very recently by the OBR. 
 
The essence of all the forecasts is very favourable: no recession is forecast;
no cataclysm associated with leaving the EU is expected; and the main
constraint on higher growth is the low rate of increase in productivity.  For
this malaise there is no one cause and no one solution, but unfortunately many
of the causes may lie in deep cultural tenets, not subject to economic
motivation or management. 
 
The Scottish economy has performed significantly less well than the UK's, due
probably to two main factors: the recession in the North Sea oil and gas
industry; and the political differences in Scotland compared to the rest of
the UK.  In 2016 Scottish growth was only 0.4% and is broadly expected to rise
to about 1.2% this year.  The Ernst and Young Item Club forecast is for
Scottish growth to be below the UK growth by about 0.5 percentage points for
the next few years.  The spot oil price has recovered from the sub $40 price
in early 2016, due largely to OPEC and Russian supply restriction, to over
$60, a price that with the cost reductions effected allows most of the North
Sea to "lift" oil profitably, but it will not support further large-scale
exploration and development.  Moreover, as the 5 year futures Brent price
remains in a $51 to $62 range, there seems little prospect of a North Sea
revival.  A managed decline, provided supply is limited by the newly formed
cartel and the US shale industry does not expand further, seems the most
likely outcome. 
 
Political damage to the Scottish economy appears to be abating.  Certainly
anecdotal evidence cites increased interest in investment since a second
referendum became progressively less likely and as the power of the SNP
appears to have peaked some time before the UK elections in which they lost so
many seats.  Regrettably, in contrast to the UK and probably in a response to
falling support, the Scottish Government policies have been increasingly
socialist, policies which may deliver short term social benefits but long term
will result in lower living standards.  But a week is a long time in politics
and the horizon is never beyond the next vote. 
 
Scotland is far from uniform, as the economic crisis in the north east
exemplifies.  However, as London and South East is to the UK so is Edinburgh
to Scotland.  The ONS Regional GVA figures show that in 2015 (the latest
available), whereas the UK had a growth in GVA of 2.1%, and Scotland had a
lower growth of 1.8%, the lowest "NUTS" region growth in the UK, except for
Northern Ireland (1.4%), and the City of Edinburgh had a GVA growth of 4.5%,
higher than London's 1.5% per head.  Edinburgh's total growth in GVA was 5.8%,
the highest in the UK. 
 
The economic dynamics in Edinburgh are palpable, particularly in tourism and
related services, TMT and education.  It is axiomatic that high growth
economies do not spread growth evenly over geographic areas, activities or
technologies and that, to ensure growth overall, growth "hot spots" should be
encouraged and resources moved to support such growth.  Per contra any attempt
to dilute, spread or even out such growth will result in diminished
performance.  Scotland's growth opportunity lies in supporting the dynamics of
its most actively growing economies and regions not in one of attempting to
redistribute growth and support secularly declining areas and industries. 
 
Property Prospects 
 
In the previous investment cycle the CBRE All Property Yield Index peaked at
7.4% in November 2001, then fell steadily to a trough of 4.8% in May 2007,
before rising in this cycle to a peak of 7.8% in February 2009, a yield
surpassed only twice since 1970, on brief occasions when the Bank Rate was
over 10%.  Since then yields fell to 6.1% in 2011, rose to 6.3% in 2012 and
fell steadily to 5.4% in 2015 and have just fallen in August 2017 to 5.3%. 
 
Yield changes within components of the All Property Index have been small. 
Yields rose 0.75 percentage points to 8.50% in Secondary Shopping Centres but
fell 1.25 percentage points to 7.0% in Secondary Industrial Estates and by
about 0.5 percentage points in Prime Distribution Units and Prime Industrial
Estates to about 4.5%.  The lowest yield 4.0% occurred in Prime Shops, City
Offices and, most interestingly, in Central London University RPI Student
leases.  London City and Major Provincial City office yields fell 0.25
percentage points to 4.0% and 5.0% respectively.  Student leases are notable
in that even regional properties are at 5.50% or lower. 
 
The peak All Property yield of 7.8% in February 2009 was 4.6 percentage points
higher than the 10-year Gilt, then the widest "yield gap" since the series
began in 1972 and 1.4 percentage points wider than the previous record yield
gap in February 1999.  The 2012 yield of 6.3% marked a record yield gap of 4.8
percentage points, due largely to the then exceptionally low 1.5% Gilt yield. 
The yield gap fell to a low of 3.3% in 2014 but has risen a little each year
and is now 4.1%, a rise due largely to the current 10-year Gilt yield of
1.30%. 
 
The All Property Rent Index, which apart from the brief fall in 2003, had
risen consistently since 1994, fell 0.1% in the quarter to August 2008 and
then fell by 12.3% in the year to August 2009.  Since 2009 there have been
small increases of only 0.9%, 0.1% and 0.6% in the years to August 2012, but
since then rental growth has improved slightly by 2.6%, 2.9%, 5.0% and 4.6% in
the four years to 2016 and by 2.6% this year to a level 4% above the previous
peak attained in 2008, just before the Great Recession. 
 
Rent rises in the individual sectors were 2.4% Shops, 9.1% Industrials, 0.4%
Offices, 1.0% Shopping Centres and -0.3% Retail Warehouses, these two last
sectors having the lowest growth in 2016 and in 2015.  Retail Warehouse rents
have declined by 0.1% per annum in the five years before this year's larger
fall.  Since the depression began nine years ago, the All Property Rent Index
has risen by 4%; Shops by 5%; Offices by 8% and Industrials by 18%, but Retail
Warehouses have fallen by 16%.  Since the market peak of 1990/91 the CBRE rent
indices, as adjusted by RPI for inflation, have all fallen: All Property 29%;
Offices 34%; Shops 19%; and Industrials 28%. 
 
Property returns as measured by IPD were 10.5% in the year to October 2017, a
much better return than the 2.9% in 2016 when capital values dropped following
the "Leave" vote in the referendum, with capital values falling by 2.0% in
July 2016 due, primarily, to large falls in London offices.  The last property
boom ended in 2007 and by December 2008, a month when the index fell a record
5.3%, the index had fallen 26.6%.  In the nine years since then the total
return has been 115.3% or nearly 9% per annum.  Since just before the boom
ended the return has been 58.0% or only just over 4% per annum. 
 
Last year forecasts for the full 2016 year and for 2017 and beyond had a
notable inflexion point, depending which side of the June Referendum date they
were made.  In August 2015, the IPF Survey Report forecast overall returns of
9.2% in 2016, modified to 7.1% in May 2016 but downgraded in August 2016 to
-0.4%, due primarily to a fall in capital values of 5.3%.  The forecast then
for 2017 was downgraded to 0.6%, but has been raised progressively to 8.2% in
November 2017.  Forecasts for 2018 to 2021 have all fallen slightly between
February 2017 and November 2017, a fall which may be due in part to the
outcome of the snap 8 June 2017 election.  The November forecasts show a 4%
return in 2018, with increases each year up to 5.9% in 2021.  Capital returns
increase the total return to 8.2% in 2017 but are slightly negative in 2018
and 2019 but turn positive in 2020 and 2021 to give an average return from
2017 to 2021 of 5.4% of which 5.0% in income.  Stability is forecast. 
 
Colliers provide the most comprehensive surveyors' forecast, giving detailed
consideration to each sector.  The near-term forecast for 2017 is an All
Property return of 7.7% and of 4.1% for 2018 similar to IPF, but Colliers has
a higher forecast of 5.9% for 2018 - 2021.  This higher forecast derives from
a forecast of higher Retail returns of 5.7% per annum, compared to 4.6%,
higher Office returns of 5.3% compared to 3.9% and higher Industrial returns
of 7.4% compared to 6.0%.  Colliers forecast about 2% per annum capital growth
in Offices and Industrials, and virtually none for Retail (0.3%), but IPF
forecasts almost no capital growth in the four years to 2021.  Colliers
forecasts long-term rental growth of about 1.0% in the Retail and Office
Sectors and 2.5% for Industrials, but IPF forecasts All Property rental growth
of less than 1.0%.  The difference in the two forecasts results primarily from
differing forecasts of capital growth. 
 
Colliers continue to forecast a difference between the South East and the rest
of the UK, particularly for "Standard" Retails where Central London rents are
expected to grow by almost 15% in the next five years as opposed to about 1%
elsewhere.  For Offices, while they expect Central London rents to fall by up
to 1% in 2018, growth will be almost 1.0% pa in 2018 - 2021 and other offices
in London and the South East will grow by about 1.5% following recent
quarterly increases of 4.4% and 5.1% in the South East and the South
respectively.  Rents in the "Rest of the UK" will increase only slightly
except where specific local conditions apply -  for instance rents increased
in Yorkshire by 3.7% in the last quarter, but are unchanged in the "Big Six"
provincial markets where Edinburgh and Glasgow rents are unchanged at £31 and
£30 respectively, although Scottish rents overall declined, presumably due to
fall  in the Aberdeen market.  Industrial rents in London and the South East
are expected to rise by 4.5% and 3.5% (UK average 2.5%) respectively this year
and continue to outperform other areas in 2018 - 2021. 
 
Forecasters are notoriously unable to detect pivotal points such as the
unexpected Referendum vote which was largely responsible for the marked
reduction in the IPF forecast property returns between March 2016 and August
2016, a downgrade which has since been slowly upgraded.  Current forecasts are
for a recovery in 2017, a fall in returns in 2018 and for a small continuing
improvement thereafter - a trend analysis following the reaction to the
Referendum.  However, economic growth is forecast by the OBR at 1.4% in 2018
and steady thereafter, no recession is premised, and the response of the
economy to leaving the EU appears much less disruptive than previously feared.
 The effect on the economy of leaving the EU will be small, as I argued above,
but the perception is of much greater change and this perception will
influence current analysis and decisions.  Cautious investors will "wait and
see" and act at present as though the outcome would be more unfavourable -
behaviour that principally alters the timing of investments.  The low recent
rate of productivity growth, previously thought to be temporary, is now
considered endemic, at least by the OBR, and will reduce economic growth and
demand for property and be more influential than the changed trading patterns
as yet to be established on leaving the EU.  Notwithstanding this risk, I
consider the forecasters over compensate for the effects of leaving the EU and
therefore, in general, I think that returns over the 2017 - 2021 period will
be above those currently forecast. 
 
This time last year forecasts for house prices in 2017 were muted.  HMT's
"Average of Forecasts" was for a rise of 2.2%, and the OBR forecast 4.0%,
forecasts in line with current 2017 estimates of 2.8%, by the HMT survey and
4.4% by the OBR.  Increases in house prices in the twelve months to the end of
October 2017 are reported as: 4.5% Halifax; 2.5% Nationwide; 0.8% UKHPI
(September); and 0.8% Acadata, or 2.8% excluding London and the South East. 
The UKHPI and Acadata indices include cash purchases excluded from the
Mortgage providers' figures.  The downturn has been more severe in London than
most regions, and as a higher percentage of houses are bought with cash in
London, rises reported in the UKHPI and Acadata indices are reduced compared
to those indices excluding cash buyers. 
 
Early in 2017 Acadata reported prices (England and Wales) were rising 5% - 6%
with monthly increases of over 0.5% per month for over 6 months, but since
April 2017 monthly changes have been negative.  There is a large disparity
between the regions reported by Acadata.  For the three months centred on
September the average house price in Greater London fell 2.4% but rose 4.6% in
the North West, the first occasion in which the North West has led the rise in
house prices for a very long time.  The "rippling" out of house prices has not
affected the North East where prices are only 0.8% above last year, although
Wales after a long period of low growth now shows a 2.6% rise. 
 
The market in Scotland, like North West of England and South West of England,
other areas distal to London and the South East has experienced a rapid growth
of 5.6%, in spite of the lower economic growth in Scotland than in the UK. 
Within Scotland there are bigger differences than within the UK as prices have
increased by an astonishing 17.4% in Stirling, although primarily because of
new build expensive houses in Bridge of Allan, by 11% in the Scottish Borders
and by 8.8%, 6.3% and 5.2% in the main Scottish cities Edinburgh, Glasgow and
Aberdeen, where in Aberdeen the previous steep falls in house prices have
reversed. 
 
In Edinburgh price increases of about 9.0% are reported by both Acadata and
UKHPI, figures consistent with anecdotal reports of very high prices being
achieved for city centre high specification flats, with prices at or over
£500/ft2.  The ESPC report New Town flats rising an astounding 26.9% and have
less central areas such as Abbeyhill/Meadowbank rising 13.9%. 
 
The OBR expect house prices to rise by 4.4% in 2018 and 13.3% over the next
four years.  HMT expect prices to rise 2.0% in 2018 and then by about 8.4%
over the following three years.  Forecasts of nil or 1% for 2018 are given by
JLL, Knight Frank and Savills and RICS is "positive" over the next 12 months
except for London and the South East. 
 
Savills provide house price forecasts, carefully distinguishing them as
second-hand, for up to five years for both Mainstream and Prime markets.  The
forecasts are conservative "we've seen the UK's credit rating downgrade, the
pound weakened and the economy subdued.  Inflation has cut people's earning …
we expect to return to growth in 2019 - 2020 as employment growth, wage growth
and GDP recover".  The Mainstream UK market is forecast to have 1% growth in
2017 and to grow by only 14% over five years.  Scottish prices will rise by
only 1.5% next year but increase 17% over five years, almost equal to the 17½%
increase of the three leading English regions North West, North East and
Yorkshire and Humberside.  London is expected to grow only by 7%.  According
to Savills almost all Prime markets will perform poorly in 2018.  However,
Central London prices are expected to grow 20% over five years, but suburban
and outer London only by about 11%.  Scotland's Prime market is expected to
perform in line with other regions with prices rising only 14% over five
years, 3 percentage points less than the Mainstream market. 
 
The Halifax index peaked at the £199,600 recorded in August 2007.  The
equivalent inflation-adjusted price in October 2017 would have been 32.5%
higher, or £264,496 but the current October 2017 Halifax index price is
£223,271 - some way off!  If house prices rise at about 3.9% and inflation is
2.0%, then ten more years will elapse before the August 2007 peak is regained
in real terms.  House prices are difficult to forecast and historically errors
have been large, especially around the timing of reversals or shocks.  I
repeat what I have said previously.  "… the key determinant of the long-term
housing market will be a shortage in supply, resulting in higher prices". 
 
Future Progress 
 
The Group aims to accelerate the rate at which it takes advantage of a housing
market in which prices are increasing rapidly in Edinburgh and its environs. 
We will curtail investment in projects that require long-term planning work. 
We will emphasise the completion and realisation of previously postponed
development opportunities which can be built most profitably.  We will seek to
develop our major sites with the necessary consents and, for the largest
projects, continue our analysis of innovative financial methods and joint
ventures as appropriate. 
 
Our developments require a stable and liquid housing market, but we do not
depend on any increase in prices for the successful development of most of our
sites, as almost all of these sites were purchased unconditionally, for prices
not far above their existing use value and before the 2007 house price peak. 
A major component of the Group's site development value lies in securing
planning permission, and in its extent, and it is relatively independent of
changes in house values.  For development or trading properties, unlike
investment properties, no change is made to the Group's balance sheet even
when improved development values have been obtained.  Naturally, however, the
balance sheet will reflect such enhanced value when the properties are
developed or sold. 
 
The policy of the Group will continue to be considered and conservative, but
responsive to market conditions.  The closing mid-market share price on 21
December 2017 was 157.5p, a small discount to the NAV of 161.7p as at 30 June
2017.  As was the case last year the Board does not recommend a final
dividend, but intends to restore dividends when profitability and
consideration for other opportunities and obligations permit. 
 
Conclusion 
 
The UK recovered from the Great Recession of 2008 and the longest depression
since 1873-96 but growth since then, although restored briefly to nearly the
normal trend level, has been poor, while unusually, there has been no rebound
or "catch up" of above average growth after the recession.  Recently growth in
the UK has been hampered by fear of the consequence of leaving the EU and by
the poor growth in productivity.  These trends are likely to persist, although
the most deleterious effects of leaving the UK will fade over a few years. 
Unfortunately, the low growth of productivity is either part of a very long
cycle or a secular trend. 
 
The continuing restrictive fiscal policies have contributed to a delay in
returning to the pre-recession growth level and the long depression and credit
controls have damaged the economy's productivity and it long-term supply
capability.  The opportunity to expand demand and to invest in capital
projects at low interest cost has been neglected, also contributing to the
virtual stagnation of productivity growth.  Fortunately, while fiscal stimulus
has been limited monetary stimulus is being continued even when inflation
targets are breached.  Moreover, at long last, the view is gaining credence
that the inflation level is "the inflation level" but it is not the "holy
grail" of economic management nor even a necessary pre-condition for a
successful growing economy, but one of many target indicators.  The long delay
in the recovery of many economies in the EZ is a clear example of the
consequences of such misplaced emphasis. 
 
The management of the economy, the inflation target, the fiscal balance, the
previous and varied "golden rules" are derived from forecasts based on
economic modelling.  Such forecasting has proved fallible, at times
contributing to, if not causing, severe economic damage.  Past examples
include the Great Depression, the policies before the New Deal, the recent
Great Recession, the EMU, including particularly the extensive UK lobbying to
join the EZ, the now waning fixation with the inflation target, and most
recently and, quite vividly, the forecast drastic short-term consequences of
leaving the EU.  The accuracy of past economic management of economic
forecasting does not give confidence in the likely accuracy of forecasts of
the consequences of leaving the EU. 
 
Forecasts for the final relationship between the UK and the EZ and for the
economic consequences require to be considered in the knowledge of the
uncertainties of such forecasts.  My forecast is that the economic penalty for
withdrawing from the EU will be measurable but manageable.  Far greater damage
to economic growth is being caused by the opportunity cost of lower
productivity growth, a level around 1% per year on a continuing basis. 
Productivity growth would be improved by cultural and social change, by
changes in political governance, by improved economic and capital analysis and
by more rigorous management.  Political choices in monopoly control social
policies, transport policy, green policy and most fashionably "correct" areas
are often inimical to economic growth but may represent democratically
acceptable choices. The political choice to leave the EU is but one of many
that may not be economically optimal - perhaps economists should accept that
at the margin sometimes other priorities are preferred.  But there is an
economic cost. 
 
I D Lowe 
 
Chairman 
 
22 December 2017 
 
Consolidated income statementfor the year ended 30 June 2017 
 
                                                                                                                          2017        2016   
                                                                                                

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