The recent announcement of regulation to import of cultural artifacts to the European Union will have material impacts on all branches of the antique industry. Taking the AIM listed Scholium Group (AIM: SCHO) as a case study, this article aims to survey the impact of this regulation on the rare book industry.
Books on AIM
Scholium Group is a curiosity on any listed market: a rare book and art dealing company, operating and exhibiting internationally. The firm specialises in luxury goods with limited and variable supply, in a market highly dependent economic stability and changing customer preferences. Listed originally at 100p per share, Scholium has found a reasonably consistent equilibrium between 45p and 55p (Chart 1). Operating predominantly through Shapero Rare Books, Scholium predominantly faces risk in the illiquidity of rare books and art as an asset class, and significant key person risk due to the highly specialised knowledge required for commercial success in this industry. Given its international focus, Scholium was affected directly by the 2016 UK referendum, as shown by a realised loss in 2016. The firm returned to profit in 2017 as markets stabilised, however the volatility of international markets and regulatory uncertainty may materially impact the firm’s future earnings capacity.
Chart 1: SCHO Share Price from 2014 to 2018
EU and the Import of Cultural Goods
The recent proposition of EU cultural goods import legislation proves to be a contentious issue in the antiquarian book community. Framed in the context of the worthy aim of limiting transnational terrorist financing, the proposed legislation affects the import of items over the age of 250 years into the European Union. The argument has been made asserting the clumsiness of the legislation when confronting practical issues of international antique and fine art trade, but nonetheless this legislation will significantly affect trade in antiquarian books.
As AIM’s only listed rare book trader Scholium Group stands to be particularly affected by the legislation, even if the implications haven’t been priced into the thinly traded share’s price. With the usual limited financial information available of an AIM-listed company, the impact of the EU proposal on Scholium can be drawn from the recent TEFAF catalogue of Scholium’s subsidiary, Shapero Rare Books.
Should a clean Brexit occur, books and art imported from the United Kingdom or the United States would be subject to the rigorous import standards of the EU proposal. Shapero will be exhibiting €622,500 worth of articles more than 250 years old at TEFAF, all of which originate from nations party to the European Union. That, however, does not exempt the articles from requiring documentation to support their legal export from the country of creation, or source country.
The import of these goods, however, carries a significant level of risk in that member states of the EU will be empowered to retain items for a maximum of six months whilst customs investigates any concerns regarding documentation. Scholium’s explicit reliance on European fairs (see Annual Report & Financial Statements, Year Ended 31 March 2017) highlights the vulnerability of the firm in this area. This vulnerability combined the potential for customs enforced asset lock-ups may see material effects on the firm’s cash flows.
The EU’s effect on the market
The transaction of cultural items and recognition of ownership is subject to numerous international agreement. The introduction of EU legislation on imports, with focus on documentation from items’ source country, could see significant issues for numerous dealers, especially Scholium. As interest in antique material from China and Russia grows additional resources will be devoted to liaising with relevant authorities to secure evidentiary paperwork for materials entering the European Union. Whilst numerous cases of restitution and repatriation occurred in 2017, EU legislation may not increase the just return of cultural artifacts. Investigator scope and powers received a boost, but this may see dealers reposition their holdings to less contentious stock.
Provenance of publications and printed matter with such long lifespans will prove a challenging question. By nature, books and prints are replicated and rarely can an individual piece’s history be tracked precisely. The possible diversion of dealers’ attention from items falling within EU legislation may see liquidity shift from this subsection of the rare book market, affecting realisable prices. In the long run, this may prove a boon to the UK market, however. Dependent on the degree of equivalence between UK and EU regulation, such antique items may find new homes in the UK, with import and sale less burdened by regulation.
As with much of the UK market, however, the ambiguity of Brexit legislation proves a challenge for Scholium and the UK rare book market.