Cala pulls plug on commercial property as losses continue

CALA Group, the Scottish housebuilder, is ending new investments in the commercial property market to focus on its core homes business after racking up further heavy losses.

• The transformation of Donaldson's College, in Edinburgh, into flats is among Cala's residential projects. Picture: Esme Allen

The Edinburgh-based group, which struck a debt-for-equity deal with Bank of Scotland in December to secure its future, said yesterday that it had reluctantly decided not to invest further capital in its Cala Properties commercial property arm, citing "trading conditions and recovery prospects" in the market. It plans a "managed reduction" in the group's exposure to the sector over time.

Key developments it has been involved in over recent years include the Clydesdale Bank Plaza in Edinburgh, the Clydesdale Bank Exchange in Glasgow and Almondvale Business Park in Livingston.

The company will also not invest in any new projects through Cala Finance, which offers funding to other residential developers. It will close the division once all existing developments have been completed.

The news came as the group reported a pre-tax loss of 33.9 million in the year to 30 June 2009, following a loss of 266.1m in the previous year, which included exceptional costs after write-down provisions for land and goodwill. The bulk of the loss in the latest financial year was made up of interest payments of 29.5m. Turnover was down from 175.2m to 168.9m.

Despite signs of improvement in the housing market, the company said it expected to remain loss-making in the current year "before the prospect of returning to profit" in 2010-11.

The debt-for-equity swap saw loans converted into new preference shares and provided fresh borrowing facilities through to June 2013.

The company would not comment on the figures involved in the deal but according to filings at Companies House some 280m was paid for preference shares, which is also equal to the reduction in the company's short-term loans and borrowings from 292m to 12m since the restructuring. The company's total loans and borrowings have reduced to 142m from 292m at the end of the financial year.

Bank of Scotland also would not comment other than to say its voting rights in the company had remained unchanged.

It emerged yesterday that Gerry More, chairman of Cala Properties and Cala Finance, has stepped down from the group board following the decisions about the businesses although he remains as chairman of the two divisions and a director on the board of Cala Management.

Group founder and executive chairman Geoff Ball and group managing director Alan Downie also resigned as directors last year as part of the restructuring. Senior independent director Professor Ian Percy was appointed interim chairman while Alan Brown was promoted to chief executive.

After a grim period for the housebuilding industry, Cala said signs of stabilisation began to emerge in the second half of the financial year.