Urras Oighreachd Ghabsainn

PAGE 4

4.0  BUSINESS ANALYSIS AND COMMENT

4.1  Income & Expenditure of current Estate Business

Through their factors, the owners of Galson Estate have provided us with information on the current income of the Estate for the period 1999 - 2002. We have also obtained financial information on the profit/loss of the estate business from the annual accounts as submitted to Companies House.

We have not received any details on Estate expenditure, but it has been assumed that minimal outgoings other than management, insurance, legal and accountancy. We anticipate that in 2003 and 2004 there will be additional income and expenditure resulting from the windfarm negotiations, but for the purposes of this analysis we have not included any assessment of this.

We have reconstructed receipts and payments accounts for the period from 1999 – 2002 and this is shown in figure 4.1. From this we have produced a projection of profitability if the business we to continue in its current status (ignoring any impact of the windfarm).

It should be noted that the Decca Mast income ceased in 2003 and has therefore not been included in the forecast.

By comparison with the typical estate, the income annual income to Galson Estate is very small. This is to be expected as most estate’s rely upon the letting of agricultural land and built assets for their main income streams. The level of income and costs reflects the very low level of activity under the current management structure.

The accounts clearly confirm that the Estate business is run on a very low key basis. All income related to ground rents will be, in the main, relatively secure and stable over time. The annual fluctuation in income will be small, the possible exception being the impact of grassums, which may boost some years income.

Croft rental income is unlikely to see much growth, although we have assumed that it would continue. Feu duties will cease from November 2004, as a result of the Feudal Reform (Scotland) Act 2000, but it is not expected that this forms a significant sum. There may be some feudal burdens that it would be advantageous for the Estate to maintain (with action prior to November 2004), such as reversions of public/authority buildings, although the information is not available to enable us to determine this. The same legislation will also cease the payment of grassums (through the termination of feudal restrictions), where these arise from the exercise of feudal restrictions rather than real burdens.

We note that there are no telecoms (BT) wayleaves and this is an area that could generate more income, either annual (which would contribute to viability) or capitalised which could be used for investment in other assets. We have assumed that the radio mast income is for one mast only. At less than £3,000pa, this rent is low, in a market where new rents for a standard size mast are now closer to £4,000. Dependant on the lease conditions, there may be an opportunity to review the rent to market levels. The low rent may however reflect a rent sharing arrangement if the site is located on crofting land. The sporting rental income also seems very low, although this comment is made without knowledge of the area that is subject to lease.

Similarly the expenditure is limited. It is anticipated that the main fluctuations will be in the management costs, which may alter in response to increased activity in, say, dealing with a sale or a rent review. The management level that we have assessed, and which appears commensurate with the accounts, is running at about 10% of rental income.  This is a typical management cost level for an Estate who’s income is derived from property rental. While we have not seen details of the level of fees for accountancy and legal advice, we have assessed what we would regard as typical for a Limited Company of this size that has company reporting obligations. The annual accounts for the company for 2000/2001 indicate an annual retained profit of £1,000 and in 2001/2002 indicate a deficit of around £3,000. Without further information being provided by the Estate, we have assumed that this indicates that either there have been additional items of expenditure that are not apparent (such as wind farm negotiations) or that the margin we have projected is distributed as dividend or remuneration to directors/shareholders. To be certain that there are no other unbudgeted expenditure full figures would have to be received from the Estate.

An analysis of the balance sheet of the Galson Estate Ltd does not appear to include the estate land. There is one unidentified figure on the balance sheet that may be land value but this is very low and if it is the land must reflect a very dated historical value. Alternatively, Galson Estate Ltd is the operating company for the Estate and the land is owned separately and leased to Galson Estate Ltd. It is not possible to confirm which scenario is correct from the information available.

4.2  Viability in the medium and long term of existing business

A forecast of income and expenditure for a typical year for the Estate is given in figure 4.1. This is a reasonable assessment of the ongoing profitability (around £17,000pa) of the Estate business on the assumption that the windfarm does not proceed.

The business is, by nature of its income sources and very limited exposure to activity, stable and viable. Any minor changes in the income stream, are likely to be reflected in proportionate changes in the expenditure, generating a predictable profit level. Ignoring the impact of the potential windfarm, we do not anticipate any significant change to current profitability in the medium term. Under community ownership it is our opinion that the business could remain viable in the short and medium term, providing the management costs were constrained and a requirement to finance an Estate purchase did not draw from the Estate business.  Estate management at this level may however not contribute much to the regeneration of Galson Estate community.

In the longer term, without a more proactive approach to the use of the Estate’s assets it is likely that there could be a gradual erosion of profitability real terms.

It is probable that over time the rate of increase in croft rents would be less than inflation.  The Decca mast leases have already been terminated and in time, should the more advanced means of telecommunications develop, the need for ground based telecoms masts may decline. Wayleaves, we would consider to be relatively secure in the longer term and do increase in line with the general increase in prices.

In contrast, the levels of expenditure are likely to increase in line with the general increase in prices, being linked to service based professions rather than asset rents. The net effect would be a general erosion of profitability without the development of alternative income streams. A three year budget which reflects this is shown in 4.2a.

Overall, the Estate business in its current form is considered to be viable and a relatively risk free in the short to medium term, but with a moderate risk of falling viability in the longer term.

4.3  Viability of Estate business incorporating development options

In order to build further on the ideas and development options already identified at earlier stages of the Consultation process (section 3.0), and recognising the need to convert these and other emerging ideas into more specific financial proposals to support the future viability of the Estate, a workshop was held at the Linux Centre on Friday 26 August, to which 26 delegates were invited representing community groups, local councillors, council officials, commercial interests and housing, enterprise and development agencies. 

After initial presentations by the feasibility study team and the project co-ordinator, the delegates were divided into five working groups, each to focus on one of the prioritised options as concluded at Section 3.9 of the study.  Having considered options using cost/benefit and log frame techniques, each group reported back on their findings.  A synopsis of these, together with sectional and overall Estate Budgets is given below.

What quickly became apparent was the inter-dependent nature of all options considered and it is quite clear that it will be necessary for the Estate to employ an overall co-coordinator/factor with relevant rural, administration and community skills.  The funding of this post has not been included in the undernoted budgets, as it is assumed that it will be 100% externally funded during the formative years of any community purchase of the Estate.

4.3.1  Environmental Projects

Projects reported on: Peatland Management Scheme, Ranger Service, Forestry, Rural Stewardship Scheme, SSSI’s, Biomass Energy, Building Designations.

Peatland Management:
Galson Estate has not yet taken advantage of this scheme, which is available to both Landlords and Tenants.  With very little costs, the annual grant available through SNH is expected to by £2,544.  There would be some effect on possible sporting use of the land concerned.

Ranger and Footpath Service:
The principal beneficiary would be the wider community through employment and increased tourism, rather than to the Estate.  Salary and equipment costs would be 50% funded by SNH.  The other 50% would require to be funded be Western Isles Council who are, it is understood, looking at providing a ranger for this area.

Forestry:
Grant income to encourage biodiversity through active woodland regeneration would be available, however, not considered commercial for the Estate to progress this.

Rural Stewardship Scheme:
Again not considered relevant for the Estate, more practical for individual crofters to enter into.  The Estate however could act as a catalyst for the wider community amenity interests. 

SSSI’s:
Whilst Grants will be available on relevant expenditure, which would be of wider community benefit, this is not considered a Revenue producing area for the Estate.

Biomass Energy:
Ness is considered good land for the growing of coppice; there are potential benefits for individual crofters and the Estate, but by their nature these are long term.

Building Designations:
There is considerable scope for the long-term renovation of derelict listed buildings.  Again the benefits are long term.

Three Year Budget for Environmental Projects

Projects reported on:  Deer shooting, Game Bird shooting, Fishing, Other leisure sports.

The focus group included the head keeper of the neighbouring Barvas Estate; it was generally felt that opportunities and potential for income generation were considerably greater than had been identified in the earlier consultation process.

Deer Stalking
The Estate carries 50 Stags and 65 Females.  Up to 15 stags per annum have to be culled during the season, 1 July to 15 October.  This can generate 10 weeks activity on average 3 days per week for 6 guns at £150 per gun.  A realistic potential income is therefore £27,000, generating significant local activity and wider employment opportunities for local hotels and guesthouses.

Game Shooting
The Estate currently carries Grouse, Woodcock, Snipe, Greylag Geese and three species of Duck.  The shooting season is from mid August to 31 January, creating significant opportunity to extend normal visitor season and in particular attract European visitors. 

Fishing
There is tremendous potential to develop trout fishing on the Estate Rivers and Lochs.  A small investment in boats, river improvement and marketing will generate interest from the angling fraternity. In terms of income generated for the Estate, quite small but of significant wider benefit to the community.  Opportunities for Salmon fishing exist, but require long term planning.

Other
Other sporting potential includes sea angling, surfing, extreme sports, sailing and a golf course.   A site for this latter already has been identified and could attract considerable interest as the most north westerly course in Europe, but will require significant investment as a long term project.

Three year Budget for Sporting Projects
Although there is clearly potential to operate the Sporting Assets of the Estate, the risk of trading at a loss is high. In considering a 3-year budget therefore it is strongly recommended that the Sporting be contracted out to an individual or organisation with the operational and marketing experience necessary to make it profitable. As investment by the contractor will be required, it may be possible to agree a profit sharing arrangement with an initial lower rent to improve returns for both the Estate and the Contractor in later years.

4.3.3  Residential Housing

Housing was identified as a critical issue as a catalyst for the whole Estate, but in many ways poses more question then answers.  Having explained the background to Western Isles Housing issues generally, the Chairman of this group recommended that at an early stage in the Estate’s planning process a survey of Housing Needs is commissioned.  A 70% return on a questionnaire would provide valid information for up to 10 years. 

The options for the Estate include: selling plots to private owners at full and/or discounted prices; transferring land to a Housing Association for letting; the Estate itself developing and letting affordable housing; joint venture arrangements; creation of new crofts.

Private House Sites:

With turnover of houses in the Western Isles at one-third of the Scottish average, house sales are quickly snapped up.  It is believed that plots would therefore be in high demand and could generate capital for the Estate to invest in affordable housing for the long term.

Plots at discounted prices:

These could be sold to relevant buyers linked into Rural House Ownership Scheme Grants (RHOG’s) with built in legal tags (Rural Housing Burdens) as a protection for the Estate against exploitation.

Housing Association:
Development through a Housing Association would require land to be sold to the Association who would be responsible for raising their own finance and providing their own management. 

Self-development of rented affordable housing. 
It was noted that this should only proceed with caution as demand for rental houses becomes apparent.  Finance would be sought through Communities Scotland.

Joint ventures:
Joint Venture arrangements with builders for affordable housing utilising GRO Grants could improve the return to the Estate.

Crofts:
The creation of new crofts from common grazing land would create its own demand for house building with a mixture of private finance and crofting grants.

Three-year budget for housing projects:
Housing by its nature is a long-term project.  In the early years sales of plots on full/discounted bases (4.6a) would be sought to provide long term capital for affordable letting. The budget therefore shows no income for years 1 and 2 (the plots being capital) with year 3 showing letting income with associate operating and financial costs.

4.3.4  Commercial Sites

The group agreed on the fundamental principle that the Estate should adopt a low risk strategy based on its strength, being its control of the availability of land.

Projects considered: Sale or lease of land; new developments; conversions of hall and old school; self-catering accommodation.

Sale or Lease of Land:
It was agreed that the building of advance or starter units would present too much of a risk, and therefore any commercial operator should arrange own finance and relevant grant funding for building costs.  Land would preferably be made available on a long-term lease basis, generating long-term revenue for the Estate.

New investment:
Major new developments could not be considered by the Estate, other than community type projects. 

Existing buildings:
The imminent completion of the Spors Nis Centre will free up space in the already refurbished Ness Community Hall, which could be further converted for commercial letting with in-built E-facilities to attract small-scale businesses.  One graphic design business has already indicated an interest. Similarly, the former schoolhouse at Lionel could in the longer term be converted from commercial letting.  Funding for these projects would be sought from Western Isles Enterprise, Local Authority, Lottery Funds and the Special Transition Program. 

Self Catering Accommodation:
There is a lack of self-catering accommodation in the district, and the Estate would act as facilitators to encourage appropriate development on a self-operated or contracted basis.

Three year Budget for Commercial Letting.