CLS HOLDINGS PLC

("CLS", THE "COMPANY" OR THE "GROUP")

ANNOUNCES ITS HALF-YEARLY FINANCIAL REPORT

FOR THE 6 MONTHS TO 30 JUNE 2017

 

GEOGRAPHICALly DIVERSe portfolio

DELIVERING STRONG RESULTS

 

FINANCIAL HIGHLIGHTS

 

·      EPRA net assets per share: up 9.3% to 268.5 pence (31 December 2016: 245.6 pence¹)

·      Net assets per share: up 10.1% to 236.9 pence (31 December 2016: 215.1 pence¹)

·      Total return² of 12.0% (2016: 7.1%)

·      EPRA earnings per share: 5.3 pence (2016: 8.1 pence¹)

·      Profit after tax: £100.0 million (2016: £29.7 million) including higher property valuation uplift of £48.7 million (2016: £2.4 million) and profit on sale of properties of £41.7 million (2016: £4.4 million)

·      Investment property valuation: up 4.7%, or 3.4% in local currencies

·      Interim fully-covered dividend up 6.6%³ to 2.05p per share; progressive policy with twice yearly distribution, one-third half year, two-thirds full year

 

OPERATIONAL HIGHLIGHTS

 

Active recycling of assets across investment property portfolio:

·      Disposals of £179.3 million at a net initial yield of 2.1% generated profits before tax of £41.7 million, including £41.5 million at Vauxhall Square sold for £144.1 million

·      £209.6 million of acquisitions exchanged since 1 January 2017 at a net initial yield of 6.6%, of which £46.6 million completed by 30 June 2017; £133.7 million portfolio of 12 properties in Germany due to complete in the third quarter of 2017, refocusing the portfolio (see table below)

·      536,000 sq ft (49,850 sqm) of space was vacated in the period, of which 231,000 sq ft (21,500 sqm) was let and 104,500 sq ft (9,700 sqm) was sold with Vauxhall Square

·      Vacancy rate of 4.6% (31 December 2016: 2.9%), following lease expiry on 182,500 sq ft (16,960 sqm) at East Gate, Feldkirchen, of which 25% was relet, and a further 60% is under offer

 

Developments programme on track and on budget:

·      Construction at Spring Mews phase 2 (£8.6 million, 9,181 sq ft office and student accommodation) due to complete Q4 2017

·      Construction at Ateliers Victoires, Paris (€8.2 million, 21,500 sq ft office refurbishment) due to complete Q1 2018

 

Strong financial position:

·      Interest cover high at 3.7 times (2016: 3.6 times)

·      Weighted average cost of debt remains low at 2.94% (31 December 2016: 2.91%)

·      Refinanced £76.6 million of loans at an average all-in rate of 2.05% and, since 1 July, refinanced a further £16.6 million at an average 2.07%

·      70% of loan portfolio at fixed rates (31 December 2016: 67%)

·      Gearing⁴ down to 34.6% (31 December 2016: 43.7%), and loan-to-value ratio⁵ 48.8% (31 December 2016: 49.8%)

·      Over £290 million of liquid resources and undrawn facilities at 30 June 2017

 

Increased geographical diversity from contracted acquisitions:

·      The effect of the 13 German property acquisitions exchanged at 30 June 2017 but not yet completed will be to refocus the portfolio:

 

Value of properties	At 30 June 2017		Pro forma
UK	£911.8m	58%	£911.8m	53%
Germany	£378.4m	24%	£543.4m	31%
France	£275.4m	18%	£275.4m	16%
Total	£1,565.6m	100%	£1,730.6m	100%
Contracted Annual Rent	At 30 June 2017		Pro forma
UK	£54.1m	59%	£54.1m	53%
Germany	£21.9m	24%	£33.2m	32%
France	£15.6m	17%	£15.6m	15%
Total	£91.6m	100%	£102.9m	100%

 

 

 

Henry Klotz, Executive Chairman of CLS, commented:

 

"The first half of 2017 has been transformative for the Group. We crystallised the significant value our team created at the Vauxhall Square scheme and, through our significant recent investments in Germany, we have begun to redeploy the capital in well-located properties with good asset management opportunities, thereby rebalancing the portfolio.  Notwithstanding early signs of weakness in the UK property market, we are well positioned for future growth, with a high quality portfolio across the three largest European economies, a low vacancy rate with good tenants and a strong balance sheet."

 

 

Notes

¹      On 8 May 2017, the Company sub-divided each of its existing ordinary shares of 25 pence each into ten new ordinary shares of 2.5 pence each; consequently, all metrics in this report which are given "per share" are based on the new number of shares in issue, and comparatives have been restated accordingly

²      Increase in net assets plus dividends paid, as a proportion of opening net assets

³      Based on one-third of total distributions in 2016

⁴      Net debt (excluding that of First Camp) to property assets

⁵      Secured loans to the value of assets secured against them

 

-ends-

 

For further information, please contact:

 

CLS Holdings plc                                                                             www.clsholdings.com Sten Mortstedt, Executive Director and Founding Shareholder Henry Klotz, Executive Chairman Fredrik Widlund, Chief Executive Officer John Whiteley, Chief Financial Officer	+44 (0)20 7582 7766
Liberum Capital Limited Richard Crawley	+44 (0)20 3100 2222
Panmure Gordon (UK) Limited                                                             Dominic Morley Andrew Potts	+44 (0)20 7886 2500
Elm Square Advisers Limited                                                              Jonathan Gray	+44 (0)20 7823 3695
Smithfield Consultants (Financial PR)                                                  Alex Simmons	+44 (0)20 3047 2476

 

Forward-looking statements

This document may contain certain 'forward-looking statements'. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from those expressed or implied by such forward-looking statements. Any forward-looking statements made by or on behalf of CLS speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. Except as required by its legal or statutory obligations, the Company does not undertake to update forward-looking statements to reflect any changes in its expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. Information contained in this document relating to the Company or its share price, or the yield on its shares, should not be relied upon as an indicator of future performance.

 

OVERVIEW

The Group continues to pursue its strategy of geographical diversification, operating in both the UK and the

two strongest Eurozone markets. The first half of 2017 was an accomplished period for the Group with strong earnings, including valuation gains across all of our regions, and opportunistic asset management initiatives leading to a record EPRA NAV. The period saw a number of significant acquisitions at attractive yields which together with disposals, including Vauxhall Square, and selective refinancing of debt at low interest rates will translate into higher future core income and solid earnings growth.

 

Over the six months, EPRA NAV increased by 9.3% to 268.5 pence per share (31 December 2016: 245.6 pence) as a result largely of underlying earnings, profits on property disposals and revaluation uplifts. Our most notable achievement was the sale of Vauxhall Square at a premium of 39% to book value. We recorded 21,469 sqm of lettings, £209.6 million of acquisitions, £179.3 million of disposals, and the successful financing or refinancing of some £93.2 million of bank loans.

 

The key elements of our business strategy remain sound. The business is geographically well-diversified, with 58% of its properties in the UK, 24% in Germany and 18% in France. On completion of the acquisition of £165 million of properties in Germany, the UK will represent 53% and Germany 31%. The investment property portfolio contains a broad base of 530 occupiers across the three markets generating rental income well in excess of the Group's cost of debt. Approximately 35% of rents are paid by governments and 21% by major corporations, and around half of rents are subject to indexation. In the UK, 51% of the rent roll is derived from central government departments. The balance sheet is strong, with significant levels of cash and liquid resources, and the Group is funded by a broad spread of 22 banks across Europe, and by other capital market sources.

 

RESULTS AND FINANCING

On 8 May 2017, the Company subdivided each of its existing ordinary shares of 25 pence each into ten new ordinary shares of 2.5 pence each. Consequently, all metrics in this report which are given per share are based on the new number of shares in issue, and comparatives have been restated accordingly.

 

Profit after tax for the six months to 30 June 2017 was £100.0 million (2016: £29.7 million), corresponding to earnings per share of 24.5 pence (2016: 7.1 pence), including profits on property disposals of £41.7 million before tax and a revaluation uplift of the investment property portfolio of £48.7 million. Excluding profits from sales and revaluation gains, EPRA earnings per share were 5.3 pence (2016: 8.1 pence), which, save for foreign exchange gains made in 2016 on translating net monetary assets, were broadly in line with last year.

 

Shareholders' funds rose by 10.1% to £965.3 million, net of dividends of £16.3 million paid to shareholders in April.

 

Interest cover remained high at 3.7 times (2016: 3.6 times), reflecting the Group's ability to generate cash. We have refinanced five loans with a total principal amount of £76.6 million at an average rate of 2.0%. Since 1 July, we have refinanced a further two loans for £16.6 million and at a rate of 2.1%. During the period the weighted average cost of debt was broadly unchanged at 2.94% (31 December 2016: 2.91%), which remains well below the net initial yield of the investment property portfolio of 5.4%. At 30 June 2017, net debt (excluding that of First Camp) as a proportion of property assets was 34.6% (31 December 2016: 43.7%). On completion of the acquisition of £161 million of properties in Germany on which we have exchanged contracts, this measure of gearing will rise to 40.7%.

 

Net debt fell to £585.1 million (31 December 2016: £690.4 million), reflecting net disposal proceeds in the period. Our liquid resources, comprising £238 million of cash and corporate bonds, demonstrate the strength of the balance sheet and our capacity to invest in the future.

 

PROPERTY PORTFOLIO

By 30 June 2017, the value of the property portfolio of £1,565.6 million was around the same level as six months earlier; additions, capital expenditure, the valuation uplift and foreign exchange gains of £129 million in aggregate were broadly matched by disposals with a book value of £137 million.

 

In January we completed the acquisition of a UK portfolio of five properties for £31.4 million, which generated a net initial yield of 8%. We have continued to see good investment opportunities in Germany, exchanging on €203.1 million of acquisitions, of which €15.3 million completed in the period and the majority of the balance are due to complete in the third quarter of 2017. In aggregate, we will have acquired £209.6 million of properties at a net initial yield of 6.6%, and with the prospect of further rental income as vacancies are let.

 

In May, we disposed of Vauxhall Square for £144.1 million, 39% above its book value at the end of December. The site, which was sold with full planning consent, had not been income-producing since the end of 2016. We continued to dispose of peripheral assets which lacked notable asset management opportunities, selling one property in each of the UK, Germany and France. Over the six months we disposed of a total of £179.3 million of properties at a weighted average net initial yield of 2.1%, and producing a profit on sale of £41.7 million. We will continue our strategy to refocus our portfolio with the objective of increasing income and earnings, and at the end of June, we had identified properties for disposal with a combined value of £34.4 million which are held for sale.

 

In the six months to June, the value of the investment property portfolio rose by 4.7% in sterling and by 3.4% in local currencies. The French portfolio rose by 4.8% in local currency and the German portfolio by 4.4%. The UK portfolio grew by 2.5%, excluding profits on disposals, reflecting a resilience, particularly in London and the South East. In March 2018, 14 leases with the Department of Work and Pensions have breaks or expiries which become due; we expect the majority to be relet to the existing tenants, leading to a commensurate uplift in values at that time. At 30 June 2017, the net initial yield of the portfolio of 5.4% (31 December 2016: 5.6%) was over 240 bps above the Group's cost of debt, underpinning the Group's ability to generate cash. Overall, the vacancy rate at 30 June 2017 had risen to 4.6% (31 December 2016: 2.9%), with one property having lost its single tenant recently. The remainder of the portfolio had a vacancy rate of 3.1%.

 

With the successful sale of Vauxhall Square our current focus is on continued investment in and improvement of our property portfolio. We have a small amount of ongoing development which we anticipate finishing in early 2018. Most notable of these is Spring Mews phase 2, an £8.6 million, 7-storey development of 9,181 sq ft (853 sqm) of offices, plus student accommodation, which is expected to reach practical completion in late 2017. Our 21,500 sq ft (2,000 sqm) prime office refurbishment at Ateliers Victoires in central Paris is expected to complete early in 2018 to be launched into a buoyant letting market.

 

Dividends

Following a change in distribution method, in April the Group paid a final dividend for 2016 of 40 pence per share, being the equivalent of 4.0 pence per share following the share subdivision, and are proposing to pay an interim dividend for 2017 in September of 2.05 pence per share, an increase over 2016 of 6.6%.

 

Board Changes

On 16 May, Joe Crawley stepped down as a Non-Executive Director after nine years on the Board, and I extend my thanks to him for his commitment and contribution to the Company during that time.

 

Outlook

We have begun to reinvest the proceeds from the disposal of Vauxhall Square and other non-core assets, into well-located properties with good asset management opportunities, and we expect this process to continue, particularly in Germany and the South East of the UK, where we believe the better opportunities lie. This reinvestment of funds into properties yielding well in excess of our cost of debt will enhance earnings and the prospects for dividend growth, and supports the Group's ability to generate cash.

 

With a strategy of geographical diversification, and a strong balance sheet, we are well placed to take advantage of the challenges and opportunities presented by a changing economic environment.

 

 

Henry Klotz

Executive Chairman

 

16 August 2017

 

BUSINESS REVIEW

 

INVESTMENT PROPERTY

United Kingdom

(58% of the Group's portfolio) The valuation of the UK portfolio rose by £21.3 million, or 2.5%, reflecting rental growth and a marginal tightening of yields.

 

The most significant transaction in the first half of the year was the disposal of Vauxhall Square, SW8 for £144 million before costs, 39% above the aggregate of its valuation at 31 December 2016 and subsequent capital expenditure prior to sale. In addition to creating 7 pence per share of net asset value, the disposal removed from the balance sheet any potential obligation to construct 1.6 million sq ft (151,700 sqm) of mixed-use development, including two 52 storey residential towers, at a likely cost in excess of £700 million.

 

Now is a good time to dispose of smaller, non-core assets around the UK with a view to recycling the proceeds across the Group. In the period, we sold Chailey House, Bedford for £1.9 million, 8.6% above its valuation at the end of December, and at 30 June 2017 six other UK properties with an aggregate value of £34.1 million were held for sale, of which four were under offer.

 

In January we completed the acquisition of a portfolio of five properties comprising 107,000 sq ft (9,940 sqm) of offices in Reigate, Teddington, Sidcup, Maidenhead and Birmingham for £31.4 million generating a net initial yield of 8.0% from ten tenants, and providing short to medium-term asset management opportunities.

 

On average, new lettings and rent reviews were achieved at 5.8% above ervs of 31 December 2016, with notable successes at Spring Gardens, SW8. In the six months to 30 June 2017, ervs across the UK portfolio rose by 1.1%. Of the 300,400 sq ft (27,908 sqm) of space which became vacant in the UK in the first half of 2017, 104,500 sq ft (9,709 sqm) was sold with Vauxhall Square, 38,373 sq ft (3,565 sqm) was taken into development stock and 125,367 sq ft (11,647 sqm) was let. Consequently, the vacancy rate in the UK remained virtually unchanged in the six months at 3.4% (31 December 2016: 3.3%). Occupational demand within the London investment portfolio has remained encouraging overall, albeit there have appeared localised examples of space not being taken up as quickly as a year ago.

 

£7.3 million of the UK rent roll from Central Government departments is subject to expiry or break in March 2018. Discussions are well advanced with the tenants' advisers and we expect most tenants to renew.

 

The development of phase 2 of Spring Mews, SE11, an £8.6 million, 7-storey development of 9,181 sq ft (853 sqm) of offices plus student accommodation is expected to reach practical completion towards the end of the year. Phase 1 of Spring Mews reached practical completion in late 2014 and comprised 378 student rooms, which have been fully let since completion, a 93 room hotel which has recorded over 92% occupancy since opening, and 11,952 sq ft (1,110 sqm) of fully let offices.

 

Germany

(24% of the Group's portfolio) The vacancy rate in our German portfolio has increased to 8.0% (31 December 2016: 1.7%). The single tenant at East Gate, Feldkirchen, vacated at the end of its lease in early January, and whilst we have since let 47,092 sq ft (4,375 sqm) of the building, 135,464 sq ft (12,585 sqm) remain vacant. We also acquired 11,453 sq ft (1,064 sqm) of vacant space on the purchase of Network Perlach. Without these two events, the German portfolio would be only 1.6% vacant. In the six months to 30 June 2017, 59,675 sq ft (5,544 sqm) of space was let or renewed and 187,787 sq ft (17,446 sqm) made vacant. Rents were achieved on new lettings and lease extensions at 8.0% above ervs at 31 December 2016.

 

The value of the German portfolio increased by £26.6 million or 7.7% in sterling, but in local currency it rose by 4.4%, driven by rental growth; ervs in Germany rose by 5.4% in the six months.

 

We continue to see good value in selective opportunities in Germany and low debt costs. In the first half of the year, we exchanged on €203 million of acquisitions, of which €15.3 million completed in the period with the purchase of Network Perlach in Munich. This comprised 101,708 sq ft (9,449 sqm) with an occupancy rate of 88% and a net initial yield of 5.1%, which should rise to 6.2% when fully let.

 

In May, we disposed of our single-let property in Landshut, to the north of Munich, for £26.0 million in line with its valuation at 31 December 2016.

 

The German market continues to be characterised by the low cost of debt. During the six months to 30 June 2017, the Group financed £41.7 million of loans in Germany at an average interest cost of 1.64%.

 

France

(18% of the Group's portfolio) In total, 48,373 sq ft (4,494 sqm) expired in the six months to June, and only 46,048 sq ft (4,278 sqm) was leased, increasing the vacancy rate to 3.6% (31 December 2016: 2.9%). Rents were achieved on new lettings and lease extensions at 4.3 below ervs at 31 December 2016.

 

The value of the French portfolio increased by £20.4 million or 8.0% in sterling, but in local currency it rose by 4.8%, and was driven by a tightening of yields.

 

We have sought to continue to take advantage of opportunities to trim the French portfolio of its outlying investments and in June we sold Le Sully, Mantes la Jolie to the west of Paris for €8.2 million.

 

OTHER INVESTMENTS

Strategically, we maintain liquid resources of over £100 million, but to hold them all in cash would produce an unsatisfactory return. Accordingly, we maintain a portfolio of corporate bonds as a cash management tool, and at the end of June these were valued at £66.0 million (31 December 2016: £65.1 million), and produced a return of 5.0% in the period.

 

The Group owns an 11.2% shareholding in Stockholm-listed Catena AB, and received from Catena a dividend of £1.3 million in the period. Catena's share price rose by 5.4% in the six months to June, and, after foreign exchange gains, the market value of the Group's stake had risen to £49.1 million (31 December 2016: £45.3 million).

 

First Camp Sverige Holding AB, an owner and operator of Swedish vacation sites and in which the Group owns a 58.0% interest, is a seasonal business which is at its most active in the third quarter. Consequently, it made a small loss in the first half of 2017 and we expect a positive contribution in the second half.

 

RESULTS FOR THE PERIOD

On 8 May 2017, the Company subdivided each of its existing ordinary shares of 25 pence each into ten new ordinary shares of 2.5 pence each. Consequently, all metrics in this report which are given per share are based on the new number of shares in issue, and comparatives have been restated accordingly.

 

Headlines

Profit after tax attributable to the owners of the Company of £100.0 million (2016: £29.7 million) generated basic earnings per share of 24.5 pence (2016: 7.1 pence), and EPRA earnings per share of 5.3 pence (2016: 8.1 pence). Gross property assets at 30 June 2017 including those in property, plant and equipment and those held for sale, were largely unchanged, following significant acquisitions, disposals and revaluation uplifts, at £1,637.8 million (31 December 2016: £1,643.0 million), net assets per share increased by 10.1% to 236.9 pence (31 December 2016: 215.1 pence) and EPRA net assets per share by 9.3% to 268.5 pence (31 December 2016: 245.6 pence).

 

Statement of Comprehensive Income

Rental income for the six months to 30 June 2017 of £45.3 million (2016: £44.4 million) was higher than last year by a net £0.9 million, or 2.0%, because £3.6 million from acquisitions, £1.9 million generated from rental indexation and £0.7 million from rent reviews, more than compensated for the rent lost from disposals and lease expiries.

 

Operating profit of £125.7 million (2016: £41.4 million) included a net £41.7 million (2016: £4.4 million) profit on sale of properties, and a net uplift on the revaluation of investment properties of £48.7 million (2016: £2.4 million).

 

Finance income of £5.6 million (2016: £11.6 million) included a far smaller foreign exchange gain than last year of £0.2 million (2016: £6.9 million) on translating overseas monetary assets into sterling at the end of June. Interest costs of £13.4 million were the same as in 2016, but the favourable movement in the fair value of interest rate swaps of £1.7 million was £8.5 million better than the year before, and consequently finance costs of £11.2 million (2016: £19.9 million) were lower than last year. Such fair value movements are excluded in calculating EPRA earnings per share.

 

The gain on property disposals and uplift in property revaluations accounted for the significant rise in the tax charge to £20.4 million (2016: £3.6 million) and represented an estimated weighted average tax rate of the Group for the year of 17.1%.

 

EPRA Net Assets Per Share

EPRA net assets per share rose from 245.6 pence to 268.5 pence in the six months to 30 June 2017, an increase of 22.9 pence per share, or 9.3%. The increase comprised 5.3 pence of EPRA earnings, from which a dividend of 4.0 pence was paid, a profit on disposals of 7.1 pence, a revaluation uplift of 11.7 pence, and 2.8 pence from other items, including foreign exchange gains.

 

Cash Flow, Net Debt and Gearing

Net cash flow from operating activities was £20.8 million (2016: £22.2 million), £16.3 million of which was distributed to shareholders. Proceeds from the sale of properties of £168.9 million exceeded acquisitions of properties and capital expenditure by £99.6 million. A net £42.9 million of loans were repaid and at 30 June 2017 cash balances were £73.0 million higher than six months earlier.

 

In the six months to 30 June 2017, gross borrowings fell by £31.3 million to £823.2 million (31 December 2016: £854.5 million), principally through the natural amortisation of loans. The Group's weighted average property loan to value was 48.8% (31 December 2016: 49.8%) and balance sheet loan to value (net debt to gross assets less cash) fell to 33.3% (31 December 2016: 41.4%) due to the cash received in the disposal of Vauxhall Square.

 

Share Capital

Following the share sub-division on 8 May 2017, there are 407,395,760 shares in issue and 31,382,020 Treasury Shares held by the Company.

 

SUSTAINABILITY

Since the beginning of the year our sustainability team has renegotiated all electricity and gas supplies across the Group, and now all UK and German electricity supplies are from 100% renewable backed supplies.

 

In Bromley, we have installed the Group's seventh photovoltaic array system; we now have 514 photovoltaic panels installed and we intend to install a further 524 panels in 2017.

 

In the six months to 30 June 2017, our reduction in CO₂ emissions of 9% has exceeded our target reduction by 5% on our managed like-for-like assets. Our energy efficiency initiatives and refurbishment projects have delivered on target and we have added more renewable on-site solar photovoltaic panels; these now provide 3% of our managed consumption.

 

In the same period, water usage has reduced by 4.5% against a target reduction of 5%, and we have achieved a recycling percentage of 53%, against a target of 70%.

 

PRINCIPAL RISKS AND UNCERTAINTIES

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause the results for the year to differ materially from expected or historical results. The Directors considered that the principal risks and uncertainties which affected the Group at the time of the publication of the annual report for the year ended 31 December 2016 were those set out below. A detailed explanation of these risks and uncertainties can be found on pages 28 and 29 of the 2016 Annual Report, which is available at www.clsholdings.com:

 

·      Underperformance of property investment portfolio due to:

-    Cyclical downturn in property market

-    Changes in supply of space and/or occupier demand

-    Poor asset management

·      Underperformance of corporate bond investment portfolio

·      Failure to secure planning permission

·      Contractor solvency and availability

·      Downturn in investment or occupational markets

·      Increased construction costs

·      Increasing building regulation and obsolescence

·      Increasing energy costs and regulation

·      Increases in tax rates or changes to the basis of taxation

·      Unavailability of financing at acceptable prices

·      Adverse interest rate movements

·      Breach of borrowing covenants

·      Foreign currency exposure

·      Financial counterparty credit risk

·      Break-up of the Euro

·      UK exit from the EU

·      Failure to recruit and retain key personnel

·      Cyber attacks

·      Major health & safety incidents

·      Security threat/terrorist attack

 

GOING CONCERN

As stated in note 2 to the Condensed Group Financial Statements, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, being a period of not less than 12 months from the date of this Half-Yearly Financial Report. Accordingly, they continue to adopt the going concern basis in preparing the Condensed Group Financial Statements.

 

Responsibility statement

 

We confirm that to the best of our knowledge:

(a)      the condensed set of financial statements, which has been prepared in accordance with IAS 34 'Interim Financial Reporting', gives a true and fair view of the assets, liabilities, financial position and profit of the Group, as required by DTR 4.2.4R;

(b)      the Chairman's Statement and Business Review include a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c)      the Chairman's Statement and Business Review include a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

On behalf of the Board

 

 

Henry Klotz	Sten Mortstedt
Executive Chairman	Executive Director

 

16 August 2017

INDEPENDENT REVIEW REPORT TO CLS HOLDINGS PLC

 

We have been engaged by the Company to review the condensed set of financial statements in the Half-Yearly Financial Report for the six months ended 30 June 2017 which comprises the Condensed Group Income Statement, the Condensed Group Statement of Comprehensive Income, the Condensed Group Balance Sheet, the Condensed Group Statement of Changes in Equity, the Condensed Group Statement of Cash Flows and related notes 1 to 15. We have read the other information contained in the Half-Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

 

Directors' responsibilities

The Half-Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this Half-Yearly Financial Report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Half-Yearly Financial Report based on our review.

 

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Half-Yearly Financial Report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

Deloitte LLP

Statutory Auditor

London, United Kingdom

 

16 August 2017

CONDENSED GROUP INCOME STATEMENT

for the six months ended 30 June 2017

 

	Notes	Six months ended 30 June 2017 £m (unaudited)	Six months ended 30 June 2016 £m (unaudited)	Year ended 31 December 2016 £m (audited)
Continuing operations
Group revenue		60.1	59.5	128.5
Net rental income	3	50.6	51.2	107.1
Administration expenses		(10.3)	(10.0)	(21.3)
Other expenses		(8.1)	(6.2)	(14.0)
Group revenue less costs		32.2	35.0	71.8
Net movements on revaluation of investment properties	9	48.7	2.4	36.1
Profit on sale of properties		41.7	4.4	9.1
Gain/(loss) on sale of corporate bonds and other financial instruments		3.1	(0.4)	3.2
Operating profit		125.7	41.4	120.2
Finance income	4	5.6	11.6	13.6
Finance costs	5	(11.2)	(19.9)	(32.7)
Share of loss of associates after tax		(0.7)	-	(1.0)
Profit before tax		119.4	33.1	100.1
Taxation	6	(20.4)	(3.6)	(1.8)
Profit for the period		99.0	29.5	98.3
Attributable to:
Owners of the Company		100.0	29.7	97.8
Non-controlling interests		(1.0)	(0.2)	0.5
		99.0	29.5	98.3
Earnings per share from continuing operations (expressed in pence per share)
Basic	7	24.5p	7.1p*	23.6p*

 

*      Restated for subdivision of shares (see note 7)

 

 

 

CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2017

 

	Six months ended 30 June 2017 £m (unaudited)	Six months ended 30 June 2016 £m (unaudited)	Year ended 31 December 2016 £m (audited)
Profit for the period	99.0	29.5	98.3
Other comprehensive income
Items that will not be reclassified to profit or loss
Foreign exchange differences	6.7	25.5	33.1
Items that may be reclassified to profit or loss
Fair value gains/(losses) on corporate bonds and other financial investments	5.4	2.7	7.7
Fair value (gains)/losses taken to gain/(loss) on sale of corporate bonds and other financial instruments	(2.0)	1.4	1.3
Revaluation of property, plant and equipment	(0.8)	1.1	2.6
Fair value gains taken to profit on sale of properties	(3.9)	-	-
Deferred tax on net fair value (gains)/losses	-	(2.4)	(3.8)
Total items that may be reclassified to profit or loss	(1.3)	2.8	7.8
Total comprehensive income for the period	104.4	57.8	139.2
Attributable to:
Owners of the Company	105.2	57.9	138.3
Non-controlling interests	(0.8)	(0.1)	0.9
	104.4	57.8	139.2

 

 

 

CONDENSED GROUP BALANCE SHEET

at 30 June 2017

 

	Notes	30 June 2017 £m (unaudited)	30 June 2016 £m (unaudited)	31 December 2016 £m (audited)
Non-current assets
Investment properties	9	1,499.6	1,445.9	1,536.6
Property, plant and equipment	10	103.8	104.7	106.4
Goodwill		1.2	1.1	1.2
Investments in associates		-	1.6	0.2
Other financial investments	11	115.6	91.1	116.4
Deferred tax		3.2	2.1	3.1
		1,723.4	1,646.5	1,763.9
Current assets
Trade and other receivables		65.9	53.9	59.9
Properties held for sale		34.4	15.8	-
Derivative financial instruments		-	-	0.5
Cash and cash equivalents		172.0	91.0	99.0
		272.3	160.7	159.4
Total assets		1,995.7	1,807.2	1,923.3
Current liabilities
Trade and other payables		(51.8)	(51.6)	(50.5)
Current tax		(19.2)	(7.9)	(9.9)
Borrowings	12	(122.6)	(146.6)	(125.8)
Derivative financial instruments		(0.1)	(2.3)	-
		(193.7)	(208.4)	(186.2)
Non-current liabilities
Deferred tax		(126.8)	(125.7)	(120.7)
Borrowings	12	(696.5)	(652.1)	(724.1)
Derivative financial instruments		(8.1)	(12.6)	(9.8)
		(831.4)	(790.4)	(854.6)
Total liabilities		(1,025.1)	(998.8)	(1,040.8)
Net assets		970.6	808.4	882.5
Equity
Share capital	13	11.0	11.1	11.0
Share premium		83.1	83.1	83.1
Other reserves		131.1	113.5	125.9
Retained earnings		740.1	595.6	656.4
Equity attributable to owners of the Company		965.3	803.3	876.4
Non-controlling interests		5.3	5.1	6.1
Total equity		970.6	808.4	882.5

 

 

CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 June 2017

 

Unaudited	Share capital £m	Share premium £m	Other reserves £m	Retained earnings £m	Total £m	Non- controlling interest £m	Total equity £m
Arising in the six months ended 30 June 2017:
Total comprehensive income for the period	-	-	5.2	100.0	105.2	(0.8)	104.4
Dividends	-	-	-	(16.3)	(16.3)	-	(16.3)
Total changes arising in the period	-	-	5.2	83.7	88.9	(0.8)	88.1
At 1 January 2017	11.0	83.1	125.9	656.4	876.4	6.1	882.5
At 30 June 2017	11.0	83.1	131.1	740.1	965.3	5.3	970.6

 

Unaudited	Share capital £m	Share premium £m	Other reserves £m	Retained earnings £m	Total £m	Non- controlling interest £m	Total equity £m
Arising in the six months ended 30 June 2016:
Total comprehensive income for the period	-	-	28.2	29.7	57.9	(0.1)	57.8
Issue of share capital	-	0.1	-	-	0.1	-	0.1
Purchase of own shares	(0.2)	-	0.2	(17.4)	(17.4)	-	(17.4)
Expenses thereof	-	-	-	(0.1)	(0.1)	-	(0.1)
Total changes arising in the period	(0.2)	0.1	28.4	12.2	40.5	(0.1)	40.4
At 1 January 2016	11.3	83.0	85.1	583.4	762.8	5.2	768.0
At 30 June 2016	11.1	83.1	113.5	595.6	803.3	5.1	808.4

 

Audited	Share capital £m	Share premium £m	Other reserves £m	Retained earnings £m	Total £m	Non- controlling interest £m	Total equity £m
Arising in the year ended 31 December 2016:
Total comprehensive income for the year	-	-	40.5	97.8	138.3	0.9	139.2
Issue of share capital	-	0.1	-	-	0.1	-	0.1
Purchase of own shares	(0.3)	-	0.3	(24.7)	(24.7)	-	(24.7)
Expenses thereof	-	-	-	(0.1)	(0.1)	-	(0.1)
Total changes arising in 2016	(0.3)	0.1	40.8	73.0	113.6	0.9	114.5
At 1 January 2016	11.3	83.0	85.1	583.4	762.8	5.2	768.0
At 31 December 2016	11.0	83.1	125.9	656.4	876.4	6.1	882.5

 

 

 

CONDENSED GROUP STATEMENT OF CASH FLOWS

for the six months ended 30 June 2017

 

	Notes	Six months ended 30 June 2017 £m (unaudited)	Six months ended 30 June 2016 £m (unaudited)	Year ended 31 December 2016 £m (audited)
Cash flows from operating activities
Cash generated from operations	14	37.4	32.1	62.0
Interest received		4.6	3.6	5.8
Interest paid		(13.7)	(11.0)	(20.5)
Income tax paid		(7.5)	(2.5)	(7.2)
Net cash inflow from operating activities		20.8	22.2	40.1
Cash flows from investing activities
Purchase of investment properties		(55.8)	(6.4)	(45.7)
Capital expenditure on investment properties		(13.5)	(11.2)	(20.9)
Proceeds from sale of investment properties		168.9	13.3	39.4
Purchases of property, plant and equipment		(2.4)	(19.3)	(20.9)
Proceeds from sale of property, plant and equipment		5.7	-	-
Purchase of corporate bonds		(6.7)	(10.2)	(35.9)
Proceeds from sale of corporate bonds		6.9	46.7	54.3
Dividends received from equity investments		1.3	1.3	1.4
Proceeds from sale of equity investments		5.4	4.4	7.4
Costs of foreign currency transactions		1.0	-	(1.5)
Purchase of equity investments		-	(1.1)	(1.1)
Distributions received from associate undertakings		-	-	0.3
Net cash inflow/(outflow) from investing activities		110.8	17.5	(23.2)
Cash flows from financing activities
Dividends paid		(16.3)	-	-
Purchase of own shares		-	(17.5)	(24.8)
New loans		50.7	87.6	200.2
Issue costs of new loans		(0.4)	(0.5)	(1.5)
Repayment of loans		(93.2)	(125.5)	(199.6)
Net cash (outflow) from financing activities		(59.2)	(55.9)	(25.7)
Cash flow element of net (decrease)/increase in cash and cash equivalents		72.4	(16.2)	(8.8)
Foreign exchange gain		0.6	6.5	7.1
Net (decrease)/increase in cash and cash equivalents		73.0	(9.7)	(1.7)
Cash and cash equivalents at the beginning of the period		99.0	100.7	100.7
Cash and cash equivalents at the end of the period		172.0	91.0	99.0

 

 

 

NOTES TO THE CONDENSED GROUP FINANCIAL STATEMENTS

30 June 2017

 

1       BASIS OF PREPARATION

The financial information contained in this Half-Yearly Financial Report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The results disclosed for the year ended 31 December 2016 are an abridged version of the full accounts for that year, which received an unqualified report from the auditor, did not contain a statement under section 498(2) or (3) of the Companies Act 2006 or include a reference to any matter to which the auditor drew attention by way of emphasis without qualifying the auditor's report, and have been filed with the Registrar of Companies. The annual financial statements of CLS Holdings plc are prepared in accordance with IFRSs as adopted by the European Union. The condensed financial statements included in this Half-Yearly Financial Report have been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union. The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the latest audited annual financial statements.

 

 

2       GOING CONCERN

The Directors regularly stress-test the business model to ensure that the Group has adequate working capital. They have reviewed the current and projected financial position of the Group, taking into account the repayment profile of the Group's loan portfolio, and making reasonable assumptions about future trading performance. In particular, the Directors are confident that loans expiring within the next 12 months will be refinanced, and, therefore, they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and, therefore, they continue to adopt the going concern basis in preparing the Half-Yearly Financial Report.

 

 

3       SEGMENT INFORMATION

The Group has two operating divisions - Investment Property and Other Investments. Other Investments comprise Spring Mews hotel, corporate bonds, shares in Catena AB and First Camp Sverige Holding AB, and other small corporate investments. The Group manages the Investment Property division on a geographical basis due to its size and geographical diversity. Consequently, the Group's principal operating segments are:

 

Investment Property -	United Kingdom
	Germany
	France
	Sweden
Other Investments

 

All transactions between the operating segments have been eliminated on consolidation.

 

Previously, the United Kingdom segment was split between London and the Rest of United Kingdom. From 2017, the management of the United Kingdom portfolio has merged and comparative data has been restated to reflect this change.

 

 

The Group's results for the six months ended 30 June 2017 by operating segment were as follows:

 

	Investment Property
	United Kingdom £m	Germany £m	France £m	Sweden £m	Other Investments £m	Total £m
Rental income	27.2	10.4	7.7	-	-	45.3
Other property-related income	0.9	0.4	0.3	-	5.7	7.3
Service charge income	2.4	2.4	2.7	-	-	7.5
Service charges and similar expenses	(4.2)	(2.5)	(2.8)	-	-	(9.5)
Net rental income	26.3	10.7	7.9	-	5.7	50.6
Administration expenses	(2.6)	(0.7)	(0.9)	(0.1)	(3.1)	(7.4)
Other expenses	(2.9)	(1.1)	(0.5)	-	(3.6)	(8.1)
Group revenue less costs	20.8	8.9	6.5	(0.1)	(1.0)	35.1
Net movements on revaluation of investment
properties	20.8	16.1	11.8	-	-	48.7
Profit on sale of properties	41.7	-	-	-	-	41.7
Gain on sale of corporate bonds	-	-	-	-	3.1	3.1
Segment operating profit/(loss)	83.3	25.0	18.3	(0.1)	2.1	128.6
Finance income	0.1	-	-	1.3	4.2	5.6
Finance costs	(8.1)	(1.5)	(1.0)	-	(0.6)	(11.2)
Share of loss of associates	-	-	-	-	(0.7)	(0.7)
Segment profit before tax	75.3	23.5	17.3	1.2	5.0	122.3
Central administration expenses						(2.9)
Profit before tax						119.4

 

 

The Group's results for the six months ended 30 June 2016 by operating segment were as follows:

 

	Investment Property
	United Kingdom £m (restated)	Germany £m	France £m	Sweden £m	Other Investments £m	Total £m
Rental income	26.7	9.3	7.2	1.2	-	44.4
Other property-related income	0.4	-	0.8	-	6.7	7.9
Service charge income	2.6	2.0	2.5	0.1	-	7.2
Service charges and similar expenses	(2.8)	(2.2)	(2.8)	(0.5)	-	(8.3)
Net rental income	26.9	9.1	7.7	0.8	6.7	51.2
Administration expenses	(1.8)	(0.6)	(0.7)	(0.1)	(3.7)	(6.9)
Other expenses	(1.9)	(0.6)	(0.4)	-	(3.3)	(6.2)
Group revenue less costs	23.2	7.9	6.6	0.7	(0.3)	38.1
Net movements on revaluation of investment
properties	(5.6)	3.9	4.1	-	-	2.4
(Loss)/profit on sale of properties	-	-	(0.9)	5.3	-	4.4
Loss on sale of corporate bonds	-	-	-	-	(0.4)	(0.4)
Segment operating profit/(loss)	17.6	11.8	9.8	6.0	(0.7)	44.5
Finance income	-	-	-	0.4	11.2	11.6
Finance costs	(15.1)	(1.8)	(1.1)	(0.2)	(1.7)	(19.9)
Segment profit before tax	2.5	10.0	8.7	6.2	8.8	36.2
Central administration expenses						(3.1)
Profit before tax						33.1

 

 

The Group's results for the year ended 31 December 2016 were as follows:

 

	Investment Property
	United Kingdom £m (restated)	Germany £m	France £m	Sweden £m	Other Investments £m	Total £m
Rental income	54.9	20.4	14.7	1.3	-	91.3
Other property-related income	3.7	-	0.9	-	16.8	21.4
Service charge income	6.3	4.6	4.8	0.1	-	15.8
Service charges and similar expenses	(9.9)	(5.6)	(5.4)	(0.5)	-	(21.4)
Net rental income	55.0	19.4	15.0	0.9	16.8	107.1
Administration expenses	(5.7)	(1.4)	(1.8)	(0.2)	(7.2)	(16.3)
Other expenses	(5.2)	(1.4)	(0.8)	-	(6.6)	(14.0)
Group revenue less costs	44.1	16.6	12.4	0.7	3.0	76.8
Net movements on revaluation of investment
properties	12.1	12.4	11.6	-	-	36.1
Profit/(loss) on sale of properties	4.8	-	(1.1)	5.4	-	9.1
Gain on sale of corporate bonds	-	-	-	-	3.2	3.2
Segment operating profit	61.0	29.0	22.9	6.1	6.2	125.2
Finance income	-	-	0.1	1.4	12.1	13.6
Finance costs	(23.2)	(3.1)	(2.2)	(0.1)	(4.1)	(32.7)
Share of loss of associates after tax	-	-	-	-	(1.0)	(1.0)
Segment profit before tax	37.8	25.9	20.8	7.4	13.2	105.1
Central administration expenses						(5.0)
Profit before tax						100.1

 

 

 

Segment assets and liabilities

	Assets				Liabilities
	30 June 2017 £m	30 June 2016 £m	31 December 2016 £m		30 June 2017 £m	30 June 2016 £m	31 December 2016 £m
Investment Property
United Kingdom*	902.5	931.0	948.9		553.0	539.7	567.6
Germany	397.7	306.6	368.4		220.0	177.5	206.5
France	281.8	254.9	263.8		186.5	192.2	184.2
Sweden	48.6	49.0	42.8		3.6	3.9	3.4
Other investments	365.1	265.7	299.4		62.0	85.5	79.1
	1,995.7	1,807.2	1,923.3		1,025.1	998.8	1,040.8

 

Segment capital expenditure

	Six months ended 30 June 2017 £m	Six months ended 30 June 2016 £m	Year ended 31 December 2016 £m
Investment Property
United Kingdom*	41.8	15.5	20.2
Germany	15.2	0.8	42.0
France	3.6	1.7	4.4
Other investments	1.8	19.2	20.6
	62.4	37.2	87.2

 

*      2016 restated to reflect merger of London and Rest of United Kingdom

 

 

4       FINANCE INCOME

	Six months ended 30 June 2017 £m	Six months ended 30 June 2016 £m	Year ended 31 December 2016 £m
Interest income	4.1	3.4	7.4
Other finance income	1.3	1.3	1.4
Foreign exchange variances	0.2	6.9	4.8
	5.6	11.6	13.6

 

 

5       FINANCE COSTS

	Six months ended 30 June 2017 £m	Six months ended 30 June 2016 £m	Year ended 31 December 2016 £m
Interest expense
Bank loans	8.1	7.2	15.2
Debenture loan	1.3	1.4	2.8
Zero-coupon note	-	0.5	0.8
Secured notes	1.4	1.5	2.9
Unsecured bonds	1.8	2.0	3.8
Amortisation of loan issue costs	0.8	0.8	1.5
Total interest costs	13.4	13.4	27.0
Less interest capitalised on development projects	(0.5)	(0.3)	(0.7)
	12.9	13.1	26.3
Loss on partial redemption of zero coupon note	-	-	2.4
Movement in fair value of derivative financial instruments
Interest rate swaps: transactions not qualifying as hedges	(1.7)	6.8	4.0
	11.2	19.9	32.7

 

 

6       TAXATION

	Six months ended 30 June 2017 £m	Six months ended 30 June 2016 £m	Year ended 31 December 2016 £m
Current tax	16.7	2.3	8.9
Deferred tax	3.7	1.3	(7.1)
	20.4	3.6	1.8

 

Tax for the six month period has been charged at 17.1% (six months ended 30 June 2016: 10.9%; year ended 31 December 2016: 1.8%), representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income of the six month period.

 

 

7       EARNINGS PER SHARE

Management has chosen to disclose the European Public Real Estate Association (EPRA) measure of earnings per share, which has been provided to give relevant information to investors on the long-term performance of the Group's underlying business. The EPRA measure excludes items which are non-recurring in nature such as profits (net of related tax) on sale of investment properties and of other non-current investments, and items which have no impact to earnings over their life, such as the change in fair value of derivative financial instruments and the net movement on revaluation of investment properties, and the related deferred taxation on these items.

 

Earnings	Six months ended 30 June 2017 £m	Six months ended 30 June 2016 £m	Year ended 31 December 2016 £m
Profit for the period	100.0	29.7	97.8
Net movements on revaluation of investment properties	(48.7)	(2.4)	(36.1)
Change in fair value of derivative financial instruments	(2.1)	9.7	5.4
Impairment of carrying value of associates	0.7	-	1.0
Profit on sale of properties, net of tax	(29.1)	(4.4)	(6.8)
Loss/(gain) on sale of corporate bonds	(3.1)	0.4	(3.2)
Deferred tax relating to the above adjustments	3.7	0.7	(7.2)
EPRA earnings	21.4	33.7	50.9

 

Weighted average number of ordinary shares in circulation	Six months ended 30 June 2017 Number	Six months ended 30 June 2016 Number (restated*)	Year ended 31 December 2016 Number (restated*)
Weighted average number of ordinary shares in circulation	407,395,760	418,395,040	413,798,550

 

Earnings per Share	Six months ended 30 June 2017 Pence	Six months ended 30 June 2016 Pence (restated*)	Year ended 31 December 2016 Pence (restated*)
Basic	24.5	7.1	23.6
EPRA	5.3	8.1	12.3

 

*      On 8 May 2017, the Company subdivided each of its ordinary shares of 25 pence into ten new ordinary shares of 2.5 pence each. In accordance with IAS 33 Earnings per Share, the weighted average number of ordinary shares in circulation and earnings per share have been restated as if the subdivision were effective from 1 January 2016.

 

 

8       NET ASSETS PER SHARE

Management has chosen to disclose the two European Public Real Estate Association (EPRA) measures of net assets per share: EPRA net assets per share; and EPRA triple net assets per share. The EPRA net assets per share measure highlights the fair value of equity on a long-term basis, and so excludes items which have no impact on the Group in the long term, such as fair value movements of derivative financial instruments and deferred tax on the fair value of investment properties. The EPRA triple net assets per share measure discloses net assets per share on a true fair value basis: all balance sheet items are included at their fair value in arriving at this measure, including deferred tax, fixed rate loan liabilities and any other balance sheet items not reported at fair value.

 

Net Assets	30 June 2017 £m	30 June 2016 £m	31 December 2016 £m
Basic net assets attributable to owners of the Company	965.3	803.3	876.4
Adjustment to increase fixed rate debt to fair value, net of tax	(16.6)	(37.9)	(28.3)
Goodwill as a result of deferred tax	(1.1)	(1.1)	(1.1)
EPRA triple net assets	947.6	764.3	847.0
Deferred tax on property and other non-current assets, net of minority interests	121.6	122.1	115.8
Fair value of derivative financial instruments	8.2	14.9	9.3
Adjustment to decrease fixed rate debt to book value, net of tax	16.6	37.9	28.3
EPRA net assets	1,094.0	939.2	1,000.4

 

Number of ordinary shares in circulation	30 June 2017 Number	30 June 2016 Number (restated*)	31 December 2016 Number (restated*)
Number of ordinary shares in circulation	407,395,760	411,510,860	407,395,760

 

Net Assets per Share	30 June 2017 Pence	30 June 2016 Pence (restated*)	31 December 2016 Pence (restated*)
Basic	236.9	195.2	215.1
EPRA	268.5	228.2	245.6
EPRA triple net	232.6	185.7	207.9

 

*      On 8 May 2017, the Company subdivided each of its ordinary shares of 25 pence into ten new ordinary shares of 2.5 pence each. The number of ordinary shares in circulation and net assets per share have been restated as if the subdivision were effective from 1 January 2016.

 

 

9        INVESTMENT PROPERTIES

	30 June 2017 £m	30 June 2016 £m	31 December 2016 £m
United Kingdom	850.7	904.3	921.3
Germany	373.5	298.9	356.9
France	275.4	242.7	258.4
	1,499.6	1,445.9	1,536.6

 

 

The movement in investment properties since the last reported balance sheet was as follows:

 

	United Kingdom £m	Germany £m	France £m	Total £m
At 1 January 2017	921.3	356.9	258.4	1,536.6
Acquisitions	31.7	14.2	0.7	46.6
Capital expenditure	9.9	0.8	2.9	13.6
Disposals	(99.4)	(24.7)	(7.0)	(131.1)
Net movements on revaluation of investment properties	20.8	16.0	11.9	48.7
Rent-free period debtor adjustments	0.5	(0.5)	0.4	0.4
Exchange rate variances	-	11.1	8.1	19.2
Transfer to held for sale	(34.1)	(0.3)	-	(34.4)
At 30 June 2017	850.7	373.5	275.4	1,499.6

 

 

The investment properties (and the hotel and landholding detailed in note 10) were revalued at 30 June 2017 to their fair value. Valuations were based on current prices in an active market for all properties. The property valuations were carried out by external, professionally qualified valuers as follows:

 

United Kingdom: Cushman and Wakefield (30 June 2016 and 31 December 2016: Cushman and Wakefield; Knight Frank)

 

Germany: Cushman and Wakefield

 

France: Jones Lang LaSalle

 

Sweden: L Fällström AB

 

Investment properties include leasehold properties with a carrying value of £37.9 million (30 June 2016: £41.0 million; 31 December 2016: £48.1 million).

 

Where the Group leases out its investment property under operating leases the duration is typically three years or more. No contingent rents have been recognised in the current or comparative years.

 

Substantially all investment properties (and the hotel detailed in note 10) are provided as security against debt.

 

Property valuations are complex and require a degree of judgement and are based on data which is not publicly available. Consistent with EPRA guidance, we have classified the valuations of our property portfolio as level 3 as defined by IFRS 13. Inputs into the valuations include equivalent yields and rental income and are described as 'unobservable' as per IFRS 13. These inputs are analysed by segment in the portfolio statistics on page 2. All other factors remaining constant, an increase in rental income would increase valuations, whilst an increase in equivalent nominal yield would result in a fall in value and vice versa.

 

 

 

10     PROPERTY, PLANT AND EQUIPMENT

	30 June 2017 £m	30 June 2016 £m	31 December 2016 £m
Hotel	27.0	26.6	26.7
Land and buildings	74.4	70.0	71.7
Owner-occupied property	-	5.7	5.7
Fixtures and fittings	2.4	2.4	2.3
Total	103.8	104.7	106.4

 

 

The movement in property, plant and equipment since the last reported balance sheet was as follows:

 

	Hotel £m	Land and buildings £m	Owner- occupied property £m	Fixtures and fittings £m	Total £m
At 1 January 2017	27.1	72.5	5.9	4.9	110.4
Additions	-	2.0	-	0.4	2.4
Exchange rate variances	-	2.0	-	-	2.0
Disposals	-	-	(5.9)	-	(5.9)
Revaluation	0.4	(1.2)	-	-	(0.8)
At 30 June 2017	27.5	75.3	-	5.3	108.1
Comprising:
At cost	-	-	-	5.3	5.3
At valuation 30 June 2017	27.5	75.3	-	-	102.8
	27.5	75.3	-	5.3	108.1
Accumulated depreciation and impairment
At 1 January 2017	(0.4)	(0.8)	(0.2)	(2.6)	(4.0)
Disposals	-	-	0.2	-	0.2
Depreciation charge	(0.1)	(0.1)	-	(0.3)	(0.5)
At 30 June 2017	(0.5)	(0.9)	-	(2.9)	(4.3)
Net book value
At 30 June 2017	27.0	74.4	-	2.4	103.8
At 31 December 2016	26.7	71.7	5.7	2.3	106.4

 

 

11     OTHER FINANCIAL INVESTMENTS

	Investment type	Destination of Investment	30 June 2017 £m	30 June 2016 £m	31 December 2016 £m
Available-for-sale financial investments	Listed corporate bonds	UK	11.1	9.4	10.9
carried at fair value		Eurozone	8.4	3.6	9.8
		Other	46.5	26.7	44.4
			66.0	39.7	65.1
	Listed equity securities	Sweden	49.1	50.9	50.8
	Unlisted investments	Sweden	0.5	0.5	0.5
			115.6	91.1	116.4

 

 

The movement of other financial investments since the last reported balance sheet, based on the methods used to measure their fair value, is given below:

	Level 1 Quoted market price £m	Level 2 Observable market data £m	Level 3 Other valuation methods* £m	Total £m
At 1 January 2017	50.8	65.1	0.5	116.4
Additions	-	6.7	-	6.7
Disposals	(3.5)	(5.7)	-	(9.2)
Fair value movements recognised in reserves on available-for-sale assets	2.5	2.9	-	5.4
Fair value movements recognised in profit before tax on
available-for-sale assets	(1.6)	(0.4)	-	(2.0)
Exchange rate variations	0.9	(2.6)	-	(1.7)
At 30 June 2017	49.1	66.0	0.5	115.6

 

*      Unlisted equity shares valued using multiples from comparable listed organisations.

 

Corporate Bond Portfolio

At 30 June 2017

 

Sector	Banking	Insurance	Travel and Tourism	Telecoms and IT	Energy and Resources	Other	Total
Value	£23.4m	£1.9m	£11.1m	£11.9m	£13.6m	£4.1m	£66.0m
Running yield	7.0%	6.0%	7.2%	7.1%	9.4%	6.6%	7.5%
Issuers	Standard Chartered	Brit Insurance	British Airways	Western Digital	Freeport-McMoRan	Stora Enso
	Societe Generale	Phoenix Life	Air France	Telecom Italia	Arcelor Mittal	L Brands
	Deutsche Bank		Stena	CenturyLink	Transocean
	Credit Agricole		Hertz	Millicom	Seadrill
	Allied Irish		SAS	Seagate	Enel
	Santander			Dell
	Unicredit
	Barclays
	Investec
	Lloyds
	HSBC
	RBS

 

 

12     BORROWINGS

Maturity profile

At 30 June 2017	Bank loans £m	Debenture loans £m	Zero coupon note £m	Unsecured bonds £m	Secured notes £m	Total £m
Within one year or on demand	117.6	2.1	-	-	4.2	123.9
More than one but not more than two years	44.7	2.4	-	-	4.2	51.3
More than two but not more than five years	424.9	8.9	-	65.0	12.5	511.3
More than five years	81.2	11.1	-	-	44.4	136.7
	668.4	24.5	-	65.0	65.3	823.2
Unamortised issue costs	(3.2)	-	-	(0.3)	(0.6)	(4.1)
Borrowings	665.2	24.5	-	64.7	64.7	819.1
Less amount due for settlement within 12 months	(116.5)	(2.1)	-	0.1	(4.1)	(122.6)
Amount due for settlement after 12 months	548.7	22.4	-	64.8	60.6	696.5

 

At 30 June 2016	Bank loans £m	Debenture loans £m	Zero coupon note £m	Unsecured bonds £m	Secured notes £m	Total £m
Within one year or on demand	141.8	1.9	-	-	4.2	147.9
More than one but not more than two years	88.9	2.1	-	-	4.2	95.2
More than two but not more than five years	276.4	8.0	-	65.0	12.5	361.9
More than five years	126.1	15.8	7.4	-	48.6	197.9
	633.2	27.8	7.4	65.0	69.5	802.9
Unamortised issue costs	(3.1)	-	-	(0.5)	(0.6)	(4.2)
Borrowings	630.1	27.8	7.4	64.5	68.9	798.7
Less amount due for settlement within 12 months	(140.7)	(1.9)	-	0.1	(4.1)	(146.6)
Amount due for settlement after 12 months	489.4	25.9	7.4	64.6	64.8	652.1

 

At 31 December 2016	Bank loans £m	Debenture loans £m	Zero coupon note £m	Unsecured bonds £m	Secured notes £m	Total £m
Within one year or on demand	120.9	2.0	-	-	4.2	127.1
More than one but not more than two years	112.2	2.2	-	-	4.2	118.6
More than two but not more than five years	368.5	8.4	-	65.0	12.5	454.4
More than five years	95.0	12.8	-	-	46.5	154.3
	696.6	25.4	-	65.0	67.4	854.4
Unamortised issue costs	(3.6)	-	-	(0.4)	(0.5)	(4.5)
Borrowings	693.0	25.4	-	64.6	66.9	849.9
Less amount due for settlement within 12 months	(119.8)	(2.0)	-	0.1	(4.1)	(125.8)
Amount due for settlement after 12 months	573.2	23.4	-	64.7	62.8	724.1

 

 

Fair values

	Carrying amounts				Fair values
	30 June 2017 £m	30 June 2016 £m	31 December 2016 £m		30 June 2017 £m	30 June 2016 £m	31 December 2016 £m
Current borrowings	122.6	146.6	125.8		122.6	146.7	125.8
Non-current borrowings	696.5	652.1	724.1		716.7	698.2	748.2
	819.1	798.7	849.9		839.3	844.9	874.0

 

The fair value of borrowings represents the amount at which a financial instrument could be exchanged in an arm's length transaction between informed and willing parties, discounted at the prevailing market rate, and excludes accrued interest.

 

 

 

13     SHARE CAPITAL

	Number
	Ordinary shares in circulation	Treasury shares	Total ordinary shares	Ordinary shares in circulation £m	Treasury shares £m	Total ordinary shares £m
At 1 January 2017	40,739,576	3,138,202	43,877,778	10.2	0.8	11.0
Share subdivision1	366,656,184	28,243,818	394,900,002	-	-	-
At 30 June 2017	407,395,760	31,382,020	438,777,780	10.2	0.8	11.0

 

	Number
	Ordinary shares in circulation	Treasury shares	Total ordinary shares	Ordinary shares in circulation £m	Treasury shares £m	Total ordinary shares £m
At 1 January 2016	42,140,581	2,888,103	45,028,684	10.6	0.7	11.3
Issued	5,000	(5,000)	-	-	-	-
Cancelled following tender offer2	(739,396)	-	(739,396)	(0.3)	-	(0.3)
Purchase of own shares:
pursuant to market purchase	(255,099)	255,099	-	-	0.1	0.1
At 30 June 2016	41,151,086	3,138,202	44,289,288	10.3	0.8	11.1

 

	Number
	Ordinary shares in circulation	Treasury shares	Total ordinary shares	Ordinary shares in circulation £m	Treasury shares £m	Total ordinary shares £m
At 1 January 2016	42,140,581	2,888,103	45,028,684	10.6	0.7	11.3
Issued	5,000	(5,000)	-	-	-	-
Cancelled following tender offer2 & 3	(1,150,906)	-	(1,150,906)	(0.3)	-	(0.3)
Purchase of own shares:
pursuant to market purchases	(255,099)	255,099	-	(0.1)	0.1	-
At 31 December 2016	40,739,576	3,138,202	43,877,778	10.2	0.8	11.0

 

1     On 8 May 2017, the Company subdivided each of its existing ordinary shares of 25 pence each into ten new ordinary shares of 2.5 pence each.

2     A tender offer by way of a Circular dated 18 March 2016 for the purchase of 1 in 57 shares at 1,810 pence per share was completed in April 2016. It returned £13.4 million to shareholders, equivalent to 31.8 pence per share.

3     A tender offer by way of a Circular dated 26 August 2016 for the purchase of 1 in 100 shares at 1,750 pence per share was completed in September 2016. It returned £7.2 million to shareholders, equivalent to 17.5 pence per share.

 

 

 

14     CASH GENERATED FROM OPERATIONS

	Six months ended 30 June 2017 £m	Six months ended 30 June 2016 £m	Year ended 31 December 2016 £m
Operating profit	125.7	41.4	120.2
Adjustments for:
Net movements on revaluation of investment properties	(48.7)	(2.4)	(36.1)
Depreciation and amortisation	0.5	0.5	1.1
Non-cash rental income	(0.4)	(1.8)	(2.4)
Share-based payment expense	-	0.1	0.1
Profit on sale of investment properties	(41.7)	(4.4)	(9.1)
(Gain)/loss on sale of corporate bonds	(3.1)	0.4	(3.2)
Changes in working capital:
(Increase)/decrease in receivables	2.3	1.6	(2.7)
Increase/(decrease) in payables	2.8	(3.3)	(5.9)
Cash generated from operations	37.4	32.1	62.0

 

 

15     RELATED PARTY TRANSACTIONS

There have been no material changes in the related party transactions described in the last annual report, other than those disclosed elsewhere in this condensed set of financial statements.

 

 

Glossary of Terms

 

ADJUSTED NET ASSETS OR ADJUSTED SHAREHOLDERS' FUNDS

Net assets excluding the fair value of financial derivatives, deferred tax on revaluations and goodwill arising as a result of deferred tax

 

ADJUSTED NET GEARING

Net debt expressed as a percentage of adjusted net assets

 

ADJUSTED SOLIDITY

Adjusted net assets expressed as a percentage of adjusted total assets

 

ADJUSTED TOTAL ASSETS

Total assets excluding deferred tax assets

 

ADMINISTRATION COST RATIO

Recurring administration expenses of the Investment Property operating segment expressed as a percentage of net rental income

 

BALANCE SHEET LOAN TO VALUE

Net debt expressed as a percentage of total assets less cash and short-term deposits

 

CONTRACTED RENT

Annual contracted rental income after any rent-free periods have expired

 

CORE PROFIT

Profit before tax and before net movements on revaluation of investment properties, profit on sale of investment properties, subsidiaries and corporate bonds, impairment of intangible assets and goodwill, non-recurring costs, change in fair value of derivatives and foreign exchange variances

 

DILUTED EARNINGS PER SHARE

Profit after tax divided by the diluted weighted average number of ordinary shares

 

DILUTED NET ASSETS

Equity shareholders' funds increased by the potential proceeds from issuing those shares issuable under employee share schemes

 

DILUTED NET ASSETS PER SHARE OR DILUTED NET ASSET VALUE

Diluted net assets divided by the diluted number of ordinary shares

 

DILUTED NUMBER OF ORDINARY SHARES

Number of ordinary shares in circulation at the balance sheet date adjusted to include the effect of potential dilutive shares issuable under employee share schemes

 

DILUTED WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES

Weighted average number of ordinary shares in issue during the period adjusted to include the effect of potential weighted average dilutive shares issuable under employee share schemes

 

EARNINGS PER SHARE

Profit after tax divided by the weighted average number of ordinary shares in issue in the period

 

EPRA

European Public Real Estate Association

 

EPRA EARNINGS PER SHARE

Profit after tax, but excluding net gains or losses from fair value adjustments on investment properties, profits or losses on disposal of investment properties and other non-current investment interests, impairment of goodwill and intangible assets, movements in fair value of derivative financial instruments and their related current and deferred tax

 

EPRA NET ASSETS

Diluted net assets excluding the mark-to-market on effective cash flow hedges and related debt adjustments, deferred tax on revaluations and goodwill arising as a result of deferred tax

 

EPRA NET ASSETS PER SHARE

EPRA net assets divided by the diluted number of ordinary shares

 

EPRA NET INITIAL YIELD

Annual passing rent less net service charge costs on investment properties expressed as a percentage of the investment property valuation after adding purchasers' costs

 

EPRA TOPPED UP NET INITIAL YIELD

Annual net rents on investment properties expressed as a percentage of the investment property valuation after adding purchasers' costs

 

EPRA TRIPLE NET ASSETS

EPRA net assets adjusted to reflect the fair value of debt and derivatives and to include the fair value of deferred tax on property revaluations

 

EPRA TRIPLE NET ASSETS PER SHARE

EPRA triple net assets divided by the diluted number of ordinary shares

 

ESTIMATED RENTAL VALUE (ERV)

The market rental value of lettable space as estimated by the Group's valuers

 

INTEREST COVER

The aggregate of group revenue less costs divided by the aggregate of interest expense and amortisation of loan issue costs, less interest income

 

LIQUID RESOURCES

Cash and short-term deposits and listed corporate bonds

 

NET ASSETS PER SHARE OR NET ASSET VALUE (NAV)

Equity shareholders' funds divided by the number of ordinary shares in circulation at the balance sheet date

 

NET DEBT

Total borrowings less liquid resources

 

NET GEARING

Net debt expressed as a percentage of net assets

 

NET INITIAL YIELD

Annual net rents on investment properties expressed as a percentage of the investment property valuation

 

NET RENT

Contracted rent less net service charge costs

 

OCCUPANCY RATE

Contracted rent expressed as a percentage of the aggregate of contracted rent and the ERV of vacant space

 

OVER-RENTED

The amount by which ERV falls short of the passing rent

 

PASSING RENT

Contracted rent before any rent-free periods have expired

 

PROPERTY LOAN TO VALUE

Property borrowings expressed as a percentage of the market value of the property portfolio

 

RENT ROLL

Contracted rent

 

RETURN ON EQUITY

The aggregate of the change in equity attributable to the owners of the Company plus the amounts paid to the shareholders by way of distributions and the purchase of shares in the market, divided by the opening equity attributable to the owners of the Company

 

REVERSIONARY

The amount by which the ERV exceeds the passing rent

 

SOLIDITY

Equity shareholders' funds expressed as a percentage of total assets

 

TOTAL SHAREHOLDER RETURN

For a given number of shares, the aggregate of the proceeds from tender offer buy-backs and change in the market value of the shares during the year adjusted for cancellations occasioned by such buy-backs, as a percentage of the market value of the shares at the beginning of the year

 

TRUE EQUIVALENT YIELD

The capitalisation rate applied to future cash flows to calculate the gross property value, as determined by the Group's external valuers

 

 

DIRECTORS, OFFICERS AND ADVISERS

 

Directors

Henry Klotz	(Executive Chairman)
Anna Seeley ø	(Non-Executive Vice Chairman)
Fredrik Widlund	(Chief Executive Officer)
John Whiteley	(Chief Financial Officer)
Sten Mortstedt ø	(Executive Director)
Malcolm Cooper * † ‡	(Non-Executive Director)
Elizabeth Edwards ‡ ø	(Non-Executive Director)
Christopher Jarvis † ‡	(Non-Executive Director)
Thomas Lundqvist	(Non-Executive Director)
Bengt Mortstedt	(Non-Executive Director)
Lennart Sten † ø	(Non-Executive Director)

 

*      Senior Independent Director

†      member of Remuneration Committee

‡      member of Audit Committee

ø      member of Nominations Committee

 

Company Secretary

David Fuller BA, FCIS

 

Registered Office

86 Bondway

London

SW8 1SF

 

Registered Number

2714781

 

Registrars and Transfer Office

Computershare Investor Services Plc

PO Box 82

The Pavilions

Bridgwater Road

Bristol

BS99 7NH

 

Shareholder Helpline: 0870 889 3286

 

CLS Holdings plc online:

www.clsholdings.com

 

email:

enquiries@clsholdings.com

Clearing Bank

Royal Bank of Scotland Plc

24 Grosvenor Place

London

SW1X 7HP

 

Financial Advisers

Elm Square Advisers Limited

10 Queen's Elm Square

London

SW3 6ED

 

Stockbrokers

Liberum Capital

Ropemaker Place, Level 12

25 Ropemaker Street

London

EC2Y 9LY

 

Panmure Gordon (UK) Limited

One New Change

London

EC4M 9AF

 

Registered Auditor

Deloitte LLP

Chartered Accountants

2 New Street Square

London

EC4A 3BZ

 

Financial and Corporate Public Relations

Smithfield Consultants Limited

10 Aldersgate Street

London

EC1A 4HJ