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CLS Holdings plc Half-Yearly Financial Report 2018
Actively adding value…
CLS
Hol
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c | In
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Actively adding value…We own and actively manage properties in well‑connected locations that satisfy the needs of our customers.Our knowledge of the UK, German and French property markets informs our proactive investment strategy.By understanding customer’s needs and market dynamics, we actively add value for our occupiers and shareholders.
ContentsBusiness review1 Highlights2 Our business at a glance4 Chairman’s statement6 Country business reviews9 Other investments10 Financial review11 Responsibility statement
Financial statements12 Independent review report 13 Condensed group income statement14 Condensed group statement
of comprehensive income15 Condensed group balance sheet16 Condensed group statement
of changes in equity17 Condensed group statement
of cash flows18 Notes to the condensed group
financial statements
Additional information30 Glossary of terms32 Directors, officers and advisers
Reflex, Bracknell
Front cover image:Roßstraße, Dortmund
Jean Jaurès, Levallois, Paris
Statutory and alternative performance measuresThroughout this report we use a range of financial and non-financial measures to assess our performance in accordance with European Public Real Estate Association (EPRA) measures. EPRA is a recognised body in the property industry which is involved in the formulation of accounting metrics and sustainability reporting, which give the European listed real estate sector greater transparency and consistency. These standards also provide visibility and comparability to industry stakeholders in addition to being appreciated by the investment community. Management uses these measures to monitor the Group’s financial performance alongside International Financial Reporting Standards (IFRS) measures because they help illustrate the underlying financial performance and position of the Group. We have defined and explained each of these EPRA measures in the glossary of terms on pages 30 and 31. The EPRA measurements should be considered in addition to measures of financial performance, financial position or cash flows reported in accordance with IFRS.
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dditional information
CLS H
oldings plc | Interim R
eport and Accounts 2018
Business review
Financial highlights
Other highlights
EPRA NAV +3.0%
294.7p(31 December 2017: 286.0p)
EPRA earnings per share +15.1%
6.1p(2017: 5.3p)
Interim dividend +7.3%
2.20p per share(2017: 2.05p per share)
Total accounting return
4.5%(2017: 11.0%)
Interest cover
3.5 times(2017: 3.7 times)
Profit before tax
£64.9m(2017: £119.4m)
Property portfolio valuation1
£1.89bn(31 December 2017: £1.80bn)
Acquisitions in six months
£69.3m(2 properties)
Basic NAV +3.3%
260.2p(31 December 2017: 252.0p)
Basic earnings per share -39.2%
14.9p(2017: 24.5p)
Property valuation uplift1
+1.6%(2017: +4.7%)
Total property return
4.9%(2017: 6.5%)
Average cost of debt2
2.42%(31 December 2017: 2.51%)
Balance sheet loan-to-value
38.4%(31 December 2017: 36.9%)
Occupancy rate
94.3%(31 December 2017: 94.2%)
Disposal proceeds in six months
£26.2m(5 properties)
1 Comprises investment property, properties held for sale, hotel and landholding
2 At 31 July 2018 following redemption of retail bond
HighlightsSolid, stable and diversified portfolio
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Contracted rent by sector
Government – 27.6% Business services – 20.9% Manufacturing – 11.4% IT – 5.9% Student – 4.7% Finance – 4.7% Retail – 4.7% Other – 20.1%
Property value by geography1
UK – 52.5% Germany – 31.6% France – 15.9%
We are a FTSE 250 property investment company with a £1.9 billion portfolio in the UK, Germany and France, offering geographical diversification with local presence and knowledge.
Our business at a glanceSolid, stable and diversified portfolio
£106.1m £1,885.2m
– Our core business is owning and managing high-yielding offices in good, non-prime locations close to major transport links.
– We are an active manager, repositioning properties through lease restructuring, refurbishments and developments, and working closely with our customers.
– We look to achieve long-term capital appreciation with a strong emphasis on cash generation and an opportunistic approach to acquisition, development and disposal.
– We finance our activities through diverse and flexible structures, multiple sources of finance and active cash management.
1 Comprises investment property, properties held for sale, hotel and landholding
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Contracted rent
£106.1mNo. of tenants
711No. of properties
126Total floor space
6.9m sq ft
United Kingdom
£990.3mGermany
£596.0mFrance
£298.9m
Property portfolio by valueThe map shows the value of the property portfolio which comprises investment property, properties held for sale, hotel and landholding.
Portfolio statisticsERV of
contracted rent(£m)
Contracted rent(£m)
Valuation(£m)
6 month revaluation
in local currency
(%)
EPRA NIY1
(%)
EPRA topped-up
NIY2
(%)
Vacancy by rent
(%)
Weighted average
unexpired lease term
(years)
Contracted rent per let sq ft
(£)
United Kingdom 59.9 56.4 962.8 +0.1% 5.4% 5.5% 5.4% 5.5 22.72
Germany 35.0 34.1 592.5 +4.6% 5.1% 5.3% 7.1% 4.7 11.14
France 15.6 15.6 299.0 +2.1% 5.1% 5.3% 3.4% 5.4 18.25
Total Portfolio 110.5 106.1 1,854.3 +1.7% 5.3% 5.4% 5.7% 5.2 16.59
Note: The above table comprises data of the investment properties and properties held for sale; they exclude the hotel, landholding and First Camp land and buildings
1 Excludes developments; calculation based on passing rents2 Excludes developments; calculation based on contracted rents
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Chairman’s statementContinuing to refocus the business
“ The strength of the results underlines the benefits of geographical diversification”
Henry Klotz, Executive Chairman
Overview With 32% of our property assets in Germany and 16% in France, the Group continues to be one of the few real estate companies listed in London with a significant exposure to these countries, two of Europe’s largest economies, and the strength of the results for the first six months of 2018 underlines the benefits of this geographical diversification. In the first half of 2018 the Group produced solid underlying earnings and valuation gains across all of our regions, leading to a growth in NAV. We continued to refocus our portfolio, with selective, strategic acquisitions at attractive yields and the disposal of assets with limited upside. We further reduced our average cost of debt with the early redemption of a retail bond. Together these initiatives will translate into higher future core income and solid earnings growth.
Over the six months, EPRA NAV increased by 3.0% to 294.7 pence per share (31 December 2017: 286.0 pence) mainly through EPRA earnings and revaluation uplifts. We delivered 168,664 sq ft (15,669 sqm) of lettings, £69.3 million of acquisitions, £26.2 million of disposals, and the financing or refinancing of £111.6 million of bank loans. Total property return for the six months was 4.9% (2017: 6.5%), and total accounting return was 4.5% (2017: 11.0%).
Our business strategy is to invest in well-located office properties. The investment property portfolio is well-diversified with over 700 occupiers across three markets generating rental income well in excess of the Group’s cost of debt. Approximately 28% of rents are paid by governments and 28% by major corporations, and 39% of rents are subject to indexation. In the UK, 42% 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 25 lenders across Europe.
Results and Financing Profit after tax for the six months to 30 June 2018 was £60.8 million (2017: £100.0 million), corresponding to earnings per share of 14.9 pence (2017: 24.5 pence), including a revaluation uplift of the property portfolio of £31.2 million (2017: £48.7 million) and profits on disposals. Excluding these, EPRA earnings per share were 6.1 pence (2017: 5.3 pence), 15.1% ahead of last year.
Shareholders’ funds rose in the six months by 3.3% to £1,060.1 million, net of dividends of £17.5 million paid to shareholders in April.
Interest cover remained high at 3.5 times (2017: 3.7 times), reflecting the Group’s ability to generate cash. We financed 8 loans with a total principal amount of £111.6 million. On 31 July we redeemed our £65 million 5.5% unsecured retail bond, reducing our weighted average cost of debt to 2.42% (31 December 2017: 2.51%), the lowest yet recorded by the Group. At 30 June 2018, net debt (after liquid resources) as a proportion of property assets was 38.4% (31 December 2017: 36.9%).
Net debt rose to £765.1 million (31 December 2017: £706.2 million), reflecting net acquisitions in the period. Our liquid resources, comprising £183.5 million of cash and corporate bonds, demonstrate the strength of the balance sheet and our capacity to invest in the future.
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Office –90.7% Student – 4.7% Retail – 2.9% Hotel – 1.7%
Property type
Property Portfolio By 30 June 2018, the value of the property portfolio of £1,885.2 million was £82.3 million higher than six months earlier. This was driven by net additions and capital expenditure of £53.2 million and the valuation uplift of £32.5 million, less a small foreign exchange movement.
We have continued our strategy to refocus our portfolio with the objective to increase income and earnings. We were close to acquiring a pan-German portfolio of five assets with a value of around £80 million but were unwilling to compromise on the rigour of our due diligence. In the UK we acquired two assets: in March we completed the acquisition of Harman House, Uxbridge for £51.3 million, and in April we bought 401 King Street, Hammersmith for £16.1 million.
Since the start of the year we have sold, or exchanged contracts to sell, nine peripheral assets, five in the six months to 30 June 2018 for £26.2 million and three on which we have subsequently exchanged contracts or completed for £20.6 million.
The changing nature of office occupation and the need for employers to offer attractive and flexible work space is accelerating and we have incorporated a more contemporary and co-working design in our recent refurbishments. This has been well received by our customers.
In the six months to June, the value of the investment property portfolio rose by 1.6% in sterling and by 1.7% in local currencies, principally driven by Germany. At 30 June 2018, the net initial yield of the portfolio was 5.3% (31 December 2017: 5.2%), almost 300 bps above the Group’s cost of debt, underpinning the Group’s ability to generate cash.
Overall, the vacancy rate at 30 June 2018 was 5.7%, marginally down on six months earlier (31 December 2017: 5.8%), with the rate in France falling to 3.4% (31 December 2017: 4.4%) and the rest of the portfolio unchanged despite significant volumes of transactions.
Both of our developments, Spring Mews Phase 2, Vauxhall and Ateliers Victoires, Paris, will reach practical completion in the third quarter.
Dividends In April the Group paid a final dividend for 2017 of 4.30 pence per share and, in September, will pay an interim for 2018 of 2.20 pence per share, an increase over 2017 of 7.3%.
Outlook We continue to seek well-located properties with good asset management opportunities, 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 it supports the Group’s ability to generate cash.
The performance of the UK market is likely to be somewhat subdued in the period leading up to at least Spring 2019 as businesses take a “wait and see” approach to the impact of Brexit, and we continue to keep a close eye on any market changes. Increased trade tensions remain a threat to global growth, but the German and French property markets benefit from strong domestic demand and a limited supply of new offices.
We have local, well-established management teams and a strong balance sheet and, therefore, we are well positioned to enhance and grow our business by investing in the right properties and markets. With a strategy of geographical diversification in the UK, Germany and France, I am confident we will continue to deliver value for our shareholders.
Henry KlotzExecutive Chairman15 August 2018
EPRA EPS
6.1pEPRA NAV uplift
3.0%Dividend uplift
7.3%
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London
Cardiff
Aberdeen
Edinburgh
ManchesterLeeds
Newcastle
United KingdomRepositioning for long-term income growth
The valuation of the UK portfolio rose by 0.1%, which is a blend of the effect of the very different characteristics of our portfolios in London and the rest of the UK. In London, values rose by 0.5% when the effect of developments and acquisitions is excluded, which was a reflection of a marginal increase in like-for-like contracted rent; yields rose a little as rent frees expired. In the rest of the UK, the effect of the 14 lease agreements with the Secretary of State which took effect on 1 April was the main driver in the reduction of like-for-like contracted rent, but was compensated by a hardening of yields, and the overall net effect on valuation was a fall of 2.2% at 30 June 2018. Overall in the UK, like-for-like contracted rent fell by 0.2%, whilst the weighted average UK yields were broadly unchanged.
We have been successful in acquiring two investments in London with strong potential. In March, we bought Harman House, a 129,000 sq ft office building adjacent to Uxbridge underground station, for £51.3 million, representing a net initial yield of 6.9%, and with a potential to raise to 7.1% as we capture market rents at rent review. 401 King Street, Hammersmith was acquired in April for £16.1 million including costs. This 24,566 sq ft office is expected to generate 5.9% when all leases revert to market rents, and significantly more after a refurbishment planned for the third floor.
We have continued to reposition the portfolio, selling assets which were either low yielding with limited potential, or provided an unfavourable balance of risks to rewards, or were too small to have a meaningful impact on the Group. Four UK properties were sold in the six months to 30 June 2018, in Peterborough, St Asaph, Datchet and Birmingham, generating proceeds of £20.1 million, and since 1 July we have exchanged contracts to sell a further two, in Chertsey and Notting Hill, for £18.2 million.
The first half of 2018 was a busy period of asset management in which 62,129 sq ft (5,772 sqm) of space expired in the UK and 59,234 sq ft (5,503 sqm) was let, and the vacancy rate in the UK remained unchanged in the six months at 5.4%, based on rental values. On average, new lettings and rent reviews (excluding indexation uplifts) were achieved at 6.3% above ervs of 31 December 2017. Occupational demand within the London investment portfolio has remained encouraging overall, albeit there are localised examples of space not being taken up as quickly as a year ago.
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 will reach practical completion in August, ready for the new student year.
United Kingdom
£962.8mValue of investment properties1
2.7m sq ftLettable space
225Number of tenants
52%Percentage of Group’s property interests
5.4%Vacancy rate
67%Government and major corporates
1 includes properties held for sale
71Number of properties
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Berlin
Hamburg
Munich
Stuttgart
Düsseldorf
GermanyActively looking to invest in major cities
The value of the German portfolio increased by £25.9 million or 4.6% in local currency, driven by a 1.5% increase in like-for-like contracted rent, and a 9 basis point hardening of yields, whilst ervs on a like-for-like basis rose by 1.3% in the six months.
We continue to see good value in selective opportunities in Germany, but the competition in the investment market continues to strengthen, and despite coming close on a couple of potential acquisitions we did not buy any new investments in the first half of the year. In March, we sold a mixed industrial/office asset at Merkurring, near Hamburg, for £6.1 million on which the risk/reward was unfavourably balanced.
There were more lettings in Germany in the six months than expiries, and they were achieved at an average of 8.3% above ervs of 31 December 2017. Whilst 81,235 sq ft (7,547 sqm) of space expired or vacated, 88,904 sq ft (8,259 sqm) renewed or was let. Had the fully let property at Merkurring not been sold, the vacancy rate in Germany would, therefore, have fallen to 7.0%, but lower vacancies in a smaller portfolio meant that it remained unchanged at 7.1%.
Germany
£592.5mValue of investment properties1
3.3m sq ftLettable space
328Number of tenants
32%Percentage of Group’s property interests
7.1%Vacancy rate
36%Government and major corporates
1 includes properties held for sale
32Number of properties
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Paris
Lyon
FranceDelivering value from existing assets
The value of the French portfolio increased by £6.2 million or 2.1% in local currency. Excluding the uplift in the value of the development at Ateliers Victoires, the portfolio rose by 1.0%, primarily from an increase in like-for-like contracted rent of 1.5% as vacancies fell, whilst yields rose on the expiry on rent-free periods.
To consolidate our part ownership in Park Avenue in Lyon, we bought a further floor in the building for £1.1 million. This 7,244 sq ft (673 sqm) was unoccupied (we then let it) and 7,180 sq ft (667 sqm) of space expired in the six months to June. In total, 20,527 sq ft (1,907 sqm) was leased in the period, at an average of 3.8% above December 2017 ervs, and the vacancy rate consequently fell to 3.4% (31 December 2017: 4.4%).
In July we unconditionally exchanged contracts on the sale of a small property, 18 Rue Stephenson in Paris, for £2.5 million.
The development of Ateliers Victoires, our 21,500 sq ft (2,000 sqm) prime office scheme in central Paris close to the Louvre, will reach practical completion in August and terms have been agreed on a pre-letting of the entire building on a 7/9 year lease to a business services company.
France
£299.0mValue of investment properties1
0.9m sq ftLettable space
158Number of tenants
16%Percentage of Group’s property interests
3.4%Vacancy rate
53%Government and major corporates
1 includes properties held for sale
23Number of properties
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Other investmentsGenerating returns from liquid resources
Other investmentsThe Group owns a 10.6% shareholding in Catena AB, a Stockholm-listed logistics real estate company. In the six months to 30 June 2018, we received from Catena a dividend of £1.6 million, and its share price rose by 12.4%, increasing the market value of the Group’s stake to £58.8 million (31 December 2017: £55.9 million). In July the share price rose by a further 7.7%.
Strategically, we maintain liquid resources of over £100 million, and as part of our cash management strategy we invest part of the cash with banks and part in corporate bonds. The corporate bond portfolio was valued at £46.5 million at the end of June (31 December 2017: £65.5 million) and produced a negative return on investment of -1.2% in the six months to June, in line with the relevant benchmark indices.
Catena shareprice
+12.4%
Corporate bond portfolio
£46.5m(31 December: 65.5m)
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Financial review
Cost of debt
2.42%(31 December 2017: 2.51%)
Interest cover
3.5x(2017: 3.7x)
Gearing
38.4%(31 December 2017: 36.9%)
Results for the periodHeadlinesProfit after tax attributable to the owners of the Company of £60.8 million (2017: £100.0 million) generated basic earnings per share of 14.9 pence (2017: 24.5 pence), and EPRA earnings per share of 6.1 pence (2017: 5.3 pence). Gross property assets at 30 June 2018 including those in property, plant and equipment and those held for sale, increased to £1,885.2 million (31 December 2017: £1,802.9 million) through net acquisitions and revaluation uplifts, net assets per share rose by 3.3% to 260.2 pence (31 December 2017: 252.0 pence) and EPRA net assets per share by 3.0% to 294.7 pence (31 December 2017: 286.0 pence). Total accounting return was 4.5% (2017: 11.0%).
Statement of Comprehensive Income Rental income for the six months to 30 June 2018 of £49.9 million (2017: £45.3 million) was higher than last year by a net £4.6 million, or 10.2%, mainly because acquisitions, which added £6.8 million, far exceeded disposals, which lost only £2.7 million.
Operating profit of £76.3 million (2017: £125.7 million) included a net uplift on the revaluation of investment properties of £31.2 million (2017: £48.7 million), and a net £1.7 million (2017: £41.7 million) profit on sale of properties – last year included a large gain on the disposal of Vauxhall Square.
The fall in interest income to £4.6 million (2017: £5.6 million) reflected a lower average balance of corporate bond investments than in 2017. Finance costs of £16.0 million (2017: £11.2 million) contained £4.4 million of negative foreign exchange variances from translating monetary assets into sterling at the balance sheet date (2017: positive £0.2 million).
The tax charge of £4.6 million (2017: £20.4 million), which represents an effective rate of 7.1% (2017: 17.1%) is distorted by a fall in the rate of tax in France which has been applied to the deferred tax on the cumulative revaluation surplus of the French portfolio. Without this, the estimated weighted average tax rate of the Group for the period would have been 19.1%.
EPRA Net Assets Per Share EPRA net assets per share rose from 286.0 pence to 294.7 pence in the six months to 30 June 2018, an increase of 8.7 pence per share, or 3.0%. The increase comprised 6.1 pence of EPRA earnings, from which a dividend of 4.3 pence was paid, a revaluation uplift of 7.4 pence, and a fall of 0.5 pence from other items.
Cash Flow, Net Debt and Gearing Net cash flow from operating activities was £16.8 million (2017: £20.8 million). £33.5 million was raised from new loans, net of repayments, net proceeds from the sale of corporate bonds generated £14.2 million, and £26.2 million was received from property disposals. £76.9 million was spent on acquisitions and capital expenditure, £17.5 million was distributed to shareholders, and at 30 June 2018 the cash balance was less than £5 million different from its position six months earlier.
In the six months to 30 June 2018, gross borrowings rose by £33.2 million to £942.1 million (31 December 2017: £908.9 million), principally through financing the acquisition of Harman House. In total, £111.6 million of new debt was taken out at an average rate of interest of 2.08% and for an average of 5.9 years, and the Group’s balance sheet loan to value at 30 June 2018 was 38.4% (31 December 2017: 36.9%). Interest cover for the six months to 30 June 2018 was 3.5 times (2017: 3.7 times).
On 31 July 2018, we redeemed 17 months early our £65.0 million 5.5% unsecured bonds due 2019 for £68.4 million plus accrued interest. This had been the most expensive debt left in the Group, and its redemption reduced the weighted average cost of debt from 2.65%, at the end of June 2018, to 2.42%, the lowest in the Group’s history.
Debt profile at 31 July 2018
UK Germany France Total
Gross debt (£m) 386.4 308.9 153.9 849.2
Number of loans 18 18 16 52
Gearing 29.3% 49.6% 49.0% 38.6%
Cost of debt 3.55% 1.43% 1.59% 2.42%
Sustainability We are pleased to report a reduction of over 20% in CO
2 emissions across our managed like-for-like
assets in the first half of 2018. 6% of the reduction was through energy efficiency initiatives, on-site renewable installations and refurbishment projects delivering sustainable solutions. The rest of the fall was attributable to the decarbonisation of the UK grid where two-thirds of our energy is consumed. Our water usage has fallen by 8%, and we have exceeded our target of 70% recycling across all our UK assets, with a ban on any waste going to landfill.
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In the second half the year we shall be installing electric charging points at key assets and introducing smart energy reporting which will enable us to engage with our customers to help them identify savings in their own businesses.
Principal risks and uncertaintiesThere 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 2017 were those set out below. A detailed explanation of these risks and uncertainties can be found on pages 20 and 21 of the 2017 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 portfolio• Increasing building regulation and obsolescence• Increasing energy costs and regulation• Unavailability of financing at acceptable prices• Adverse interest rate movements• Breach of borrowing covenants• Foreign currency exposure• Financial counterparty credit risk• Impact of UK exit from the EU• Failure to recruit suitable staff to accommodate
investment expansion• Failure to recruit, develop and retain staff and key
executives with the right skills• Large scale terrorist or cyber attack, environmental
disaster or power shortage
Going concernAs 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.
“ Redeeming the 5.5% unsecured bonds reduced the weighted average cost of debt to 2.42%, the lowest level in the Group’s history”
Responsibility statementWe 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 KlotzExecutive Chairman15 August 2018
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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 2018 which comprise 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 Financial Reporting Council. Our work has been undertaken so that we might state to the Company those matters we are required to state to it 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’ responsibilitiesThe 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 responsibilityOur 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 reviewWe 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 Financial Reporting Council 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 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.
ConclusionBased 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 2018 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 LLPStatutory Auditor London, United Kingdom15 August 2018
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Condensed group income statementfor the six months ended 30 June 2018
Notes
Six months ended
30 June 2018
£m (unaudited)
Six months ended
30 June 2017
£m (unaudited)
Year ended
31 December 2017
£m (audited)
Continuing operationsGroup revenue 67.5 60.1 133.4
Net rental income 3 55.0 50.6 113.1Administration expenses (11.2) (10.3) (21.6)Other expenses (8.0) (8.1) (15.9)
Group revenue less costs 35.8 32.2 75.6Net movements on revaluation of investment properties 9 31.2 48.7 94.2Profit on sale of properties 1.7 41.7 43.7Net movements on revaluation of equity investments 6.6 – –Gain on sale of corporate bonds and other financial instruments,
net of impairments 1.0 3.1 2.5
Operating profit 76.3 125.7 216.0Finance income 4 4.6 5.6 10.1Finance costs 5 (16.0) (11.2) (34.0)Share of loss of associates after tax – (0.7) (0.7)
Profit before tax 64.9 119.4 191.4Taxation 6 (4.6) (20.4) (33.5)
Profit for the period 60.3 99.0 157.9
Attributable to:Owners of the Company 60.8 100.0 157.7Non-controlling interests (0.5) (1.0) 0.2
60.3 99.0 157.9
Earnings per share from continuing operations (expressed in pence per share)
Basic and diluted 7 14.9 24.5 38.7
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Condensed group statement of comprehensive incomefor the six months ended 30 June 2018
Six monthsended
30 June2018
£m (unaudited)
Six monthsended
30 June2017
£m(unaudited)
Year ended
31 December2017
£m(audited)
Profit for the period 60.3 99.0 157.9
Other comprehensive incomeItems that will not be reclassified to profit or lossForeign exchange differences (3.9) 6.7 7.7
Items that may be reclassified to profit or lossFair value (losses)/gains on corporate bonds and other financial investments (4.9) 5.4 13.9Fair value gains taken to gain on sale of corporate bonds and other financial investments,
net of impairments (1.0) (2.0) (0.9)Revaluation of property, plant and equipment (1.0) (0.8) (1.5)Fair value gains taken to profit on sale of properties – (3.9) (3.9)Deferred tax on net fair value (gains)/losses 0.1 – 1.9
Total items that may be reclassified to profit or loss (6.8) (1.3) 9.5
Total comprehensive income for the period 49.6 104.4 175.1
Attributable to:Owners of the Company 50.7 105.2 174.4Non-controlling interests (1.1) (0.8) 0.7
49.6 104.4 175.1
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Condensed group balance sheetat 30 June 2018
Notes
30 June2018
£m (unaudited)
30 June2017
£m (unaudited)
31 December2017
£m (audited)
Non-current assetsInvestment properties 9 1,832.0 1,499.6 1,753.4Property, plant and equipment 10 100.0 103.8 102.8Goodwill and intangibles 1.4 1.2 1.3Other financial investments 11 105.7 115.6 121.8Derivative financial instruments – – 0.1Deferred tax 3.3 3.2 3.3
2,042.4 1,723.4 1,982.7
Current assetsTrade and other receivables 13.9 65.9 9.5Properties held for sale 22.3 34.4 17.9Derivative financial instruments – – 0.6Cash and cash equivalents 137.0 172.0 146.7
173.2 272.3 174.7
Total assets 2,215.6 1,995.7 2,157.4
Current liabilitiesTrade and other payables (56.1) (51.8) (58.9)Current tax (5.6) (19.2) (11.5)Borrowings 12 (132.2) (122.6) (107.1)Derivative financial instruments (2.6) (0.1) –
(196.5) (193.7) (177.5)
Non-current liabilitiesDeferred tax (138.0) (126.8) (137.9)Borrowings 12 (809.9) (696.5) (801.8)Derivative financial instruments (5.4) (8.1) (6.9)
(953.3) (831.4) (946.6)
Total liabilities (1,149.8) (1,025.1) (1,124.1)
Net assets 1,065.8 970.6 1,033.3
EquityShare capital 13 11.0 11.0 11.0Share premium 83.1 83.1 83.1Other reserves 115.4 131.1 143.0Retained earnings 850.6 740.1 789.4
Equity attributable to owners of the Company 1,060.1 965.3 1,026.5Non-controlling interests 5.7 5.3 6.8
Total equity 1,065.8 970.6 1,033.3
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Condensed group statement of changes in equityfor the six months ended 30 June 2018
Unaudited
Share capital
£m
Share premium
£m
Other reserves
£m
Retained earnings
£mTotal
£m
Non-controlling
interest £m
Total equity
£m
At 1 January 2018 11.0 83.1 143.0 789.4 1,026.5 6.8 1,033.3
Arising in the six months ended 30 June 2018:
Total comprehensive income for the period – – (10.1) 60.8 50.7 (1.1) 49.6
Employee Performance Incentive Plan charge – – 0.4 – 0.4 – 0.4
Reclassify fair value movements on equity investments1 – – (17.9) 17.9 – – –
Dividends to shareholders – – – (17.5) (17.5) – (17.5)
Total changes arising in the period – – (27.6) 61.2 33.6 (1.1) 32.5
At 30 June 2018 11.0 83.1 115.4 850.6 1,060.1 5.7 1,065.8
Unaudited
Share capital
£m
Share premium
£m
Other reserves
£m
Retained earnings
£mTotal
£m
Non- controlling
interest £m
Total equity
£m
At 1 January 2017 11.0 83.1 125.9 656.4 876.4 6.1 882.5
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 to shareholders – – – (16.3) (16.3) – (16.3)
Total changes arising in the period – – 5.2 83.7 88.9 (0.8) 88.1
At 30 June 2017 11.0 83.1 131.1 740.1 965.3 5.3 970.6
Audited
Share capital
£m
Share premium
£m
Other reserves
£m
Retained earnings
£mTotal
£m
Non- controlling
interest £m
Total equity
£m
At 1 January 2017 11.0 83.1 125.9 656.4 876.4 6.1 882.5
Arising in the year ended 31 December 2017:
Total comprehensive income for the year – – 16.7 157.7 174.4 0.7 175.1
Employee Performance Incentive Plan charge – – 0.4 – 0.4 – 0.4
Dividends to shareholders – – – (24.7) (24.7) – (24.7)
Total changes arising in 2017 – – 17.1 133.0 150.1 0.7 150.8
At 31 December 2017 11.0 83.1 143.0 789.4 1,026.5 6.8 1,033.3
1 As a result of adopting IFRS 9 for the first time, previously recognised fair value movements have been transferred from other reserves to retained earnings in line with the disclosure made at the year end.
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Condensed group statement of cash flowsfor the six months ended 30 June 2018
Notes
Six monthsended
30 June2018
£m (unaudited)
Six monthsended
30 June2017
£m (unaudited)
Year ended31 December
2017£m
(audited)
Cash flows from operating activitiesCash generated from operations 14 36.8 37.4 75.9Interest received 1.9 4.6 8.8Interest paid (12.3) (13.7) (25.4)Income tax paid (9.6) (7.5) (16.1)
Net cash inflow from operating activities 16.8 20.8 43.2
Cash flows from investing activitiesPurchase of investment properties (71.1) (55.8) (230.8)Capital expenditure on investment properties (5.8) (13.5) (24.2)Proceeds from sale of investment properties 26.2 168.9 241.9Purchases of property, plant and equipment (3.6) (2.4) (3.3)Proceeds from sale of property, plant and equipment – 5.7 –Purchase of corporate bonds (37.3) (6.7) (11.9)Proceeds from sale of corporate bonds 51.5 6.9 12.0Proceeds from sale of equity investments – 5.4 5.6Dividends received from equity investments 1.6 1.3 1.4Purchase of intangibles (0.1) – –Proceeds from/(costs of) foreign currency transactions 2.1 1.0 (3.8)
Net cash inflow/(outflow) from investing activities (36.5) 110.8 (13.1)
Cash flows from financing activitiesDividends paid (17.5) (16.3) (24.7)New loans 108.5 50.7 211.6Issue costs of new loans (1.5) (0.4) (2.5)Repayment of loans (73.5) (93.2) (176.9)
Net cash (outflow) from financing activities 16.0 (59.2) 7.5
Cash flow element of net (decrease)/increase in cash and cash equivalents (3.7) 72.4 37.6Foreign exchange (losses)/gains (0.5) 0.6 4.6
Net (decrease)/increase in cash and cash equivalents (4.2) 73.0 42.2Cash and cash equivalents at the beginning of the period 141.2 99.0 99.0
Cash and cash equivalents at the end of the period1 137.0 172.0 141.2
1 At 31 December 2017, the Group held, on behalf of a third party, cash of £5.5 million which was paid to the third party in January 2018. As the Group held no beneficial interest in this cash at the year end it has been excluded from the group statement of cash flows.
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Notes to the condensed group financial statements30 June 2018
1 Basis of preparationThe 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 2017 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, apart from a number of new standards and amendments to IFRSs which became effective for the financial year beginning on 1 January 2018. These new standards and amendments are listed below:
• IFRS 2 (amendments), Classification and measurement of share-based payment transactions • IFRS 9 Financial Instruments• IFRS 15 Revenue from Contracts with Customers • IAS 40 (amendments) Transfers of Investment Property• IFRIC 22 Foreign Currency Transactions and advance consideration
For the reasons set out on pages 94 and 95 of the latest audited annual financial statements, the adoption of these new standards and amendments to IFRSs did not materially impact the condensed set of financial statements for the six months ended 30 June 2018 except for a reclassification arising as a result of IFRS 9.
Listed equity securities (see note 11) are treated as available for sale assets and held at market value on the balance sheet. Under IAS 39, movements in fair value were recognised directly in equity through other comprehensive income. On derecognition or impairment of these assets, any gains previously recognised in equity were recycled to the income statement. Under IFRS 9, this accounting treatment has changed, and fair value movements are now recognised directly in the income statement. On transition to IFRS 9 this resulted in a material reclassification of the available for sale reserve to retained earnings. The amount reclassified on transition was £17.9 million.
2 Going concernThe Directors regularly stress-test the business model by flexing assumptions 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 repaid or 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 informationThe 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 KingdomGermanyFranceSweden
Other Investments
All transactions between the operating segments have been eliminated on consolidation.
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3 Segment information continuedThe Group’s results for the six months ended 30 June 2018 by operating segment were as follows:
Investment Property
UnitedKingdom
£mGermany
£mFrance
£mSweden
£m
Other investments
£m
Central Head Office
£m
Total Group
£m
Rental income 26.9 15.5 7.5 – – – 49.9Other property–related income 0.6 – 0.1 – 6.3 – 7.0Service charge income 3.3 4.5 2.8 – – – 10.6
Revenue 30.8 20.0 10.4 – 6.3 – 67.5Service charges and similar
expenses (4.8) (4.8) (2.9) – – – (12.5)
Net rental income 26.0 15.2 7.5 – 6.3 – 55.0
Administration expenses (3.0) (1.3) (1.1) – (2.9) (2.9) (11.2)Other expenses (2.7) (1.5) (0.4) – (3.4) – (8.0)
Group revenue less costs 20.3 12.4 6.0 – – (2.9) 35.8
Net movements on revaluation of investment properties 0.9 24.0 6.3 – – – 31.2
Profit on sale of properties 1.5 0.1 – – 0.1 – 1.7Net movements on revaluation
of equity investments – – – – 6.6 – 6.6Gain on sale of corporate bonds – – – – 1.0 – 1.0
Segment operating profit/(loss) 22.7 36.5 12.3 – 7.7 (2.9) 76.3
Finance income – – – – 4.6 – 4.6Finance costs (5.5) (2.4) (1.2) – (4.9) (2.0) (16.0)Share of loss of associates – – – – – – –
Profit/(loss) before tax 17.2 34.1 11.1 – 7.4 (4.9) 64.9
Notes to the condensed group financial statements continued30 June 2018
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3 Segment information continuedThe Group’s results for the six months ended 30 June 2017 by operating segment were as follows:
Investment Property
UnitedKingdom
£mGermany
£mFrance
£mSweden
£m
Other investments
£m
Central Head Office
£mTotal
£m
Rental income 27.2 10.4 7.7 – – – 45.3Other property-related income 0.9 0.4 0.3 – 5.7 – 7.3Service charge income 2.4 2.4 2.7 – – – 7.5
Revenue 30.5 13.2 10.7 – 5.7 – 60.1Service 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) (2.9) (10.3)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) (2.9) 32.2
Net movements on revaluation of investment properties 20.8 16.1 11.8 – – – 48.7
Profit on sale of properties 41.7 – – – – – 41.7Gain on sale of corporate bonds – – – – 3.1 – 3.1
Segment operating profit/(loss) 83.3 25.0 18.3 (0.1) 2.1 (2.9) 125.7
Finance income 0.1 – – 1.3 4.2 – 5.6Finance costs (6.7) (1.5) (1.0) – (0.6) (1.4) (11.2)Share of loss of associates – – – – (0.7) – (0.7)
Profit/(loss) before tax 76.7 23.5 17.3 1.2 5.0 (4.3) 119.4
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3 Segment information continuedThe Group’s results for the year ended 31 December 2017 were as follows:
Investment Property
UnitedKingdom
£mGermany
£mFrance
£mSweden
£m
Other investments
£m
Central Head Office
£mTotal
£m
Rental income 54.1 24.4 15.2 – – – 93.7Other property-related income 2.8 0.6 0.5 – 17.5 – 21.4Service charge income 7.2 5.9 5.2 – – – 18.3
Revenue 64.1 30.9 20.9 – 17.5 – 133.4Service charges and similar expenses (9.1) (5.9) (5.3) – – – (20.3)
Net rental income 55.0 25.0 15.6 – 17.5 – 113.1
Administration expenses (6.0) (1.8) (1.7) – (7.4) (4.7) (21.6)Other expenses (6.2) (2.5) (0.7) – (6.5) – (15.9)
Group revenue less costs 42.8 20.7 13.2 – 3.6 (4.7) 75.6
Net movements on revaluation of investment properties 39.9 34.2 20.1 – – – 94.2
Profit/(loss) on sale of properties 43.7 (0.1) 0.1 – – – 43.7Gain on sale of corporate bonds – – – – 4.5 – 4.5Permanent impairment of value
of corporate bond – – – – (2.0) – (2.0)
Segment operating profit/(loss) 126.4 54.8 33.4 – 6.1 (4.7) 216.0
Finance income – – – 2.2 7.9 – 10.1Finance costs (23.6) (2.9) (2.3) – (1.9) (3.3) (34.0)Share of loss of associates after tax – – – – (0.7) – (0.7)
Profit/(loss) before tax 102.8 51.9 31.1 2.2 11.4 (8.0) 191.4
Segment assets and liabilitiesAssets Liabilities
30 June2018
£m
30 June2017
£m
31 December2017
£m
30 June2018
£m
30 June2017
£m
31 December2017
£m
Investment PropertyUnited Kingdom 980.6 902.5 925.4 529.5 553.0 510.3Germany 607.9 397.7 584.8 340.8 220.0 346.3France 322.5 281.8 296.1 219.0 186.5 201.9Sweden – 48.6 10.6 – 3.6 8.1
Other investments 304.6 365.1 340.5 60.5 62.0 57.5
2,215.6 1,995.7 2,157.4 1,149.8 1,025.1 1,124.1
Notes to the condensed group financial statements continued30 June 2018
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3 Segment information continuedSegment capital expenditure
Six monthsended
30 June2018
£m
Six monthsended
30 June2017
£m
Year ended
31 December2017
£m
Investment PropertyUnited Kingdom 74.5 41.8 66.2Germany 0.6 15.2 190.1France 3.8 3.6 6.0
Other investments 2.0 1.8 –
80.9 62.4 262.3
4 Finance incomeSix months
ended 30 June
2018£m
Six monthsended
30 June2017
£m
Year ended
31 December2017
£m
Interest income 3.0 4.1 6.9Other finance income 1.6 1.3 1.4Foreign exchange variances – 0.2 1.8
4.6 5.6 10.1
5 Finance costsSix months
ended 30 June
2018£m
Six monthsended
30 June2017
£m
Year ended
31 December2017
£m
Interest expenseBank loans 9.2 8.1 17.3Debenture loan – 1.3 2.4Secured notes 1.3 1.4 2.8Unsecured bonds 1.8 1.8 3.6
Amortisation of loan issue costs 0.8 0.8 1.6
Total interest costs 13.1 13.4 27.7Less interest capitalised on development projects – (0.5) (0.5)
13.1 12.9 27.2Loss on early redemption of debt – – 9.7Foreign exchange variances 4.4 – –
Movement in fair value of derivative financial instruments Interest rate swaps: transactions not qualifying as hedges (1.5) (1.7) (2.9)
16.0 11.2 34.0
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6 TaxationSix months
ended 30 June
2018£m
Six monthsended
30 June2017
£m
Year ended
31 December2017
£m
Current tax 3.7 16.7 17.7Deferred tax 0.9 3.7 15.8
4.6 20.4 33.5
Tax for the six months ended 30 June 2018 has been charged at an effective rate of 7.1% (six months ended 30 June 2017: 17.1%; year ended 31 December 2017: 20.7%), representing the best estimate of the average annual effective tax rate expected for the full year adjusted for the tax effect of one-off items, applied to the pre-tax income of the six month period. The effective tax rate for the period of 7.1% is lower than the weighted average tax rate of 19.1%. This is predominantly a result of a deferred tax credit arising from a future decrease in the French corporate income tax rate from 28% to 25% by 2022.
7 Earnings per shareManagement 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, the net movement on revaluation of equity investments net of foreign exchange, and the net movement on revaluation of investment properties, and the related deferred taxation on these items.
Earnings
Six monthsended
30 June2018
£m
Six monthsended
30 June2017
£m
Year ended
31 December2017
£m
Profit for the period 60.8 100.0 157.7Net movements on revaluation of investment properties (31.2) (48.7) (94.2)Loss on early redemption of debt, net of tax – – 7.9Profit on sale of properties, net of tax (1.7) (29.1) (30.8)Gain on sale of corporate bonds, net of tax (0.8) (3.1) (3.6)Permanent impairment of value of corporate bond, net of tax – – 1.6Movements on revaluation of equity investments, net of foreign exchange (2.8) – –Change in fair value of derivative financial instruments (0.3) (2.1) (2.9)Impairment of carrying value of associates – 0.7 0.7Deferred tax relating to the above adjustments 0.9 3.7 15.8
EPRA earnings 24.9 21.4 52.2
Weighted average number of ordinary shares in circulation
Six monthsended
30 June2018
Number
Six monthsended
30 June2017
Number*
Year ended
31 December2017
Number*
Weighted average number of ordinary shares in circulation 407,395,760 407,395,760 407,395,760
* 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 2017.
Notes to the condensed group financial statements continued30 June 2018
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7 Earnings per share continued
Earnings per Share
Six monthsended
30 June2018
Pence
Six monthsended
30 June2017
Pence*
Year ended
31 December2017
Pence*
Basic and diluted 14.9 24.5 38.7EPRA 6.1 5.3 12.8
* 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 2017.
8 Net assets per shareManagement 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 June2018
£m
30 June2017
£m
31 December2017
£m
Basic net assets attributable to owners of the Company 1,060.1 965.3 1,026.5Adjustment to increase fixed rate debt to fair value, net of tax (6.2) (16.6) (5.9)Goodwill as a result of deferred tax (1.1) (1.1) (1.1)
EPRA triple net assets 1,052.8 947.6 1,019.5Deferred tax on property and other non-current assets, net of minority interests 133.5 121.6 133.4Fair value of derivative financial instruments 8.0 8.2 6.2Adjustment to decrease fixed rate debt to book value, net of tax 6.2 16.6 5.9
EPRA net assets 1,200.5 1,094.0 1,165.0
Number of ordinary shares in circulation
30 June2018
Number
30 June2017
Number
31 December2017
Number
Number of ordinary shares in circulation 407,395,760 407,395,760 407,395,760
Net Assets per Share
30 June2018
Pence
30 June2017
Pence
31 December2017
Pence
Basic 260.2 236.9 252.0EPRA 294.7 268.5 286.0EPRA triple net 258.4 232.6 250.2
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9 Investment properties30 June
2018£m
30 June2017
£m
31 December2017
£m
United Kingdom 944.2 850.7 895.0Germany 591.3 373.5 568.4France 296.5 275.4 290.0
1,832.0 1,499.6 1,753.4
The movement in investment properties since the last reported balance sheet was as follows:
United Kingdom
£mGermany
£mFrance
£mTotal
£m
At 1 January 2018 895.0 568.4 290.0 1,753.4Acquisitions 67.4 – 1.9 69.3Capital expenditure 5.8 0.3 1.9 8.0Disposals (9.9) – – (9.9)Net movements on revaluation of investment properties 0.9 24.0 6.3 31.2Rent-free period debtor adjustments 0.3 1.9 (0.1) 2.1Exchange rate variances – (2.1) (1.0) (3.1)Transfer to held for sale (15.3) (1.2) (2.5) (19.0)
At 30 June 2018 944.2 591.3 296.5 1,832.0
The investment properties (and the hotel and landholding detailed in note 10) were revalued at 30 June 2018 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
Germany: Cushman and Wakefield
France: Jones Lang LaSalle
Sweden: L Fällström AB
Investment properties include leasehold properties with a carrying value of £74.1 million (30 June 2017: £37.9 million; 31 December 2017: £73.1 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 3. 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.
Notes to the condensed group financial statements continued30 June 2018
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10 Property, plant and equipment30 June
2018£m
30 June2017
£m
31 December2017
£m
Hotel 27.1 27.0 27.0Land and buildings 69.2 74.4 73.2Fixtures and fittings 3.7 2.4 2.6
Total 100.0 103.8 102.8
The movement in property, plant and equipment since the last reported balance sheet was as follows:
Hotel£m
Land and buildings
£m
Fixtures andfittings
£mTotal
£m
At 1 January 2018 27.6 74.3 5.8 107.7Additions 0.1 2.1 1.4 3.6Exchange rate variances – (4.8) – (4.8)Disposals – – (0.9) (0.9)Revaluation 0.1 (1.1) – (1.0)
At 30 June 2018 27.8 70.5 6.3 104.6
Comprising:At cost – – 6.3 6.3At valuation 30 June 2018 27.8 70.5 – 98.3
27.8 70.5 6.3 104.6
Accumulated depreciation and impairmentAt 1 January 2018 (0.6) (1.1) (3.2) (4.9)Disposals – – 0.9 0.9Depreciation charge (0.1) (0.2) (0.3) (0.6)
At 30 June 2018 (0.7) (1.3) (2.6) (4.6)
Net book valueAt 30 June 2018 27.1 69.2 3.7 100.0
At 31 December 2017 27.0 73.2 2.6 102.8
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11 Other financial investments
Investment typeDestination of Investment
30 June2018
£m
30 June 2017
£m
31 December2017
£m
Available-for-sale financial investments carried at fair value
Listed corporate bonds UK 9.1 11.1 11.5Eurozone 1.8 8.4 6.3Other 35.6 46.5 47.7
46.5 66.0 65.5Listed equity securities Sweden 58.8 49.1 55.9Unlisted investments Sweden 0.4 0.5 0.4
105.7 115.6 121.8
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 Observablemarket data
£m
Level 3 Other
valuationmethods*
£mTotal
£m
At 1 January 2018 55.9 65.5 0.4 121.8Additions – 37.3 – 37.3Disposals – (50.5) – (50.5)Fair value movements recognised in reserves on available-for-sale assets – (4.9) – (4.9)Fair value movements recognised in profit before tax on available-for-
sale assets 6.6 (0.9) – 5.7Exchange rate variations (3.7) – – (3.7)
At 30 June 2018 58.8 46.5 0.4 105.7
* Unlisted equity shares have been valued using multiples from comparable listed organisations.
Corporate Bond PortfolioAt 30 June 2018
Sector Banking InsuranceTravel and
TourismTelecoms
and ITEnergy andResources Other Total
Value £14.9m £1.8m £7.3m £10.2m £5.0m £7.3m £46.5mRunning yield 7.6% 6.1% 7.4% 7.3% 7.7% 3.1% 6.8%
Issuers Standard CharteredSociete Generale
Deutsche BankCredit Agricole
UnicreditBarclays
LloydsHSBC
RBS
Brit InsurancePGH Capital
British AirwaysStenaHertz
SAS
Telecom ItaliaCenturyLink
SeagateXerox
Dell
Freeport-McMoRanTransocean
Enel
Qurate RetailYum! Brands
Stora Enso L Brands
Notes to the condensed group financial statements continued30 June 2018
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12 BorrowingsMaturity profile
At 30 June 2018
Bank loans
£m
Debentureloans
£m
Unsecuredbonds
£m
Secured notes
£mTotal
£m
Within one year or on demand 64.9 – 65.0 4.2 134.1More than one but not more than two years 58.4 – – 4.2 62.6More than two but not more than five years 544.1 – – 52.8 596.9More than five years 155.0 – – – 155.0
822.4 – 65.0 61.2 948.6Unamortised issue costs (5.8) – (0.2) (0.5) (6.5)
Borrowings 816.6 64.8 60.7 942.1Less amount due for settlement within 12 months (63.3) – (64.8) (4.1) (132.2)
Amount due for settlement after 12 months 753.3 – – 56.6 809.9
At 30 June 2017
Bank loans
£m
Debentureloans
£m
Unsecuredbonds
£m
Secured notes
£mTotal
£m
Within one year or on demand 117.6 2.1 – 4.2 123.9More than one but not more than two years 44.7 2.4 – 4.2 51.3More than two but not more than five years 424.9 8.9 65.0 12.5 511.3More than five years 81.2 11.1 – 44.4 136.7
668.4 24.5 65.0 65.3 823.2Unamortised issue costs (3.2) – (0.3) (0.6) (4.1)
Borrowings 665.2 24.5 64.7 64.7 819.1Less 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 31 December 2017
Bank loans
£m
Debentureloans
£m
Unsecuredbonds
£m
Secured notes
£mTotal
£m
Within one year or on demand 104.5 – – 4.2 108.7More than one but not more than two years 55.7 – 65.0 4.2 124.9More than two but not more than five years 501.4 – – 54.9 556.3More than five years 124.4 – – – 124.4
786.0 – 65.0 63.3 914.3Unamortised issue costs (4.9) – – (0.5) (5.4)
Borrowings 781.1 – 65.0 62.8 908.9Less amount due for settlement within 12 months (103.0) – – (4.1) (107.1)
Amount due for settlement after 12 months 678.1 – 65.0 58.7 801.8
Fair valuesCarrying amounts Fair values
30 June2018
£m
30 June2017
£m
31 December2017
£m
30 June2018
£m
30 June2017
£m
31 December2017
£m
Current borrowings 132.2 122.6 107.1 132.2 122.6 107.1Non-current borrowings 809.9 696.5 801.8 817.5 716.7 809.0
942.1 819.1 908.9 949.7 839.3 916.1
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.
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13 Share capitalNumber
Ordinary shares in
circulationTreasury
shares
Total ordinary
shares
Ordinary shares in
circulation£m
Treasury shares
£m
Total ordinary
shares£m
At 1 January 2018 and 30 June 2018 407,395,760 31,382,020 438,777,780 10.2 0.8 11.0
Number
Ordinary shares in
circulationTreasury
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 11.0Share 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
circulationTreasury
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 11.0Share subdivision1 366,656,184 28,243,818 394,900,002 – – –
At 31 December 2017 407,395,760 31,382,020 438,777,780 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.
14 Cash generated from operationsSix months
ended 30 June
2018£m
Six monthsended
30 June2017
£m
Year ended
31 December2017
£m
Operating profit 76.3 125.7 216.0Adjustments for:
Net movements on revaluation of investment properties (31.2) (48.7) (94.2)Net movements on revaluation of equity investments (6.6) – –Depreciation and amortisation 0.6 0.5 1.1Non-cash rental income (2.1) (0.4) (3.5)Share-based payment expense 0.4 – 0.4Profit on sale of investment properties (1.7) (41.7) (43.7)(Gain)/loss on sale of other financial instruments, net of impairments (1.0) (3.1) (2.5)
Changes in working capital:(Increase)/decrease in receivables (0.1) 2.3 2.6Increase/(decrease) in payables 2.2 2.8 (0.3)
Cash generated from operations 36.8 37.4 75.9
15 Related party transactionsThere 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.
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Glossary of terms
Adjusted net assets or adjusted shareholders’ fundsNet assets excluding the fair value of financial derivatives, deferred tax on revaluations and goodwill arising as a result of deferred tax
Adjusted net gearingNet debt expressed as a percentage of adjusted net assets
Adjusted total assetsTotal assets excluding deferred tax assets
Administration cost ratioRecurring administration expenses of the investment property operating segment expressed as a percentage of net rental income
Balance sheet loan-to-valueNet debt expressed as a percentage of property assets, in each case excluding First Camp
Contracted rentAnnual contracted rental income after any rent-free periods have expired
Core profitProfit 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 shareProfit after tax divided by the diluted weighted average number of ordinary shares
Diluted number of ordinary sharesNumber 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 sharesWeighted average number of ordinary shares in issue during the period adjusted to include the effect of potential weighted average dilutive shares issuables under employee share schemes
Earnings per shareProfit after tax divided by the weighted average number of ordinary shares in issue in the period
EPRAEuropean Public Real Estate Association
EPRA earnings per shareProfit 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 assetsDiluted 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 or EPRA NAVEPRA net assets divided by the diluted number of ordinary shares
EPRA net initial yieldAnnual 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 yieldAnnual net rents on investment properties expressed as a percentage of the investment property valuation after adding purchasers’ costs
EPRA triple net assetsEPRA 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 shareEPRA 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 coverThe aggregate of group revenue less costs divided by the aggregate of interest expense and amortisation of loan issue costs, less interest income
Liquid resourcesCash 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 debtTotal borrowings less liquid resources
Net gearingNet debt expressed as a percentage of net assets
Net initial yield (NIY)Annual net rents on investment properties expressed as a percentage of the investment property valuation
Net rentContracted rent less net service charge costs
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Occupancy rateContracted rent expressed as a percentage of the aggregate of contracted rent and the ERV of vacant space
Over-rentedThe amount by which ERV falls short of the passing rent
Passing rentContracted rent before any rent-free periods have expired
Property loan to valueProperty borrowings expressed as a percentage of the market value of the property portfolio
Rent rollContracted rent
Return on equityThe 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
ReversionaryThe amount by which the ERV exceeds the passing rent
SolidityEquity shareholders’ funds expressed as a percentage of total assets
Total accounting returnThe change in EPRA NAV before the payment of dividends
Total property returnNet rental income and capital growth expressed as a percentage of the opening book value of property adjusted for capital expenditure, calculated on a monthly time-weighted basis after taking account of exchange translation movements
Total shareholder returnFor 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 yieldThe capitalisation rate applied to future cash flows to calculate the gross property value, as determined by the Group’s external valuers
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Directors, officers and advisers
DirectorsHenry 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) Bengt Mortstedt (Non-Executive Director)Lennart Sten † ø (Non-Executive Director)
* Senior Independent Director† member of Remuneration Committee‡ member of Audit Committeeø member of Nominations Committee
Company SecretaryDavid Fuller BA, FCIS
Registered Office 16 Tinworth StreetLondonSE11 5AL
Registered Number2714781
Registrars and Transfer Office Computershare Investor Services Plc PO Box 82The Pavilions Bridgwater Road BristolBS99 7NH
Shareholder Helpline: 0870 889 3286
CLS Holdings plc online:www.clsholdings.com
email:[email protected]
Clearing BankRoyal Bank of Scotland Plc 24 Grosvenor Place LondonSW1X 7HP
Financial AdvisersElm Square Advisers Limited 10 Queen’s Elm Square LondonSW3 6ED
StockbrokersLiberum Capital Ropemaker Place Level 12 25 Ropemaker Street LondonEC2Y 9LY
Whitman Howard Connaught House1–3 Mount StreetLondonW1K 3NB
Registered Auditor Deloitte LLP Statutory Auditor 1 New Street Square LondonEC4A 3HQ
Financial and Corporate Public RelationsSmithfield Consultants (part of Edelman) Southside105 Victoria StreetLondonSW1E 6QT
www.clsholdings.com
CLS Holdings plc16 Tinworth StreetLondonSE11 5AL
Tel: +44 (0)20 7582 7766Fax: +44 (0)20 7840 7797email: [email protected]