Half-yearly Report
Immediate Release: Friday 29 August 2008
CLS Holdings plc
(`CLS', the `Company' or the `Group')
Interim Report 2008
For the six month period ended 30 June 2008
FINANCIAL HIGHLIGHTS
* Adjusted Net Asset Value per share* 765.8 pence, up by 0.2 per cent from
764.2 pence at 31 December 2007 (Statutory NAV per share 623.9 pence, up
4.8 per cent from 595.1 pence at 31 December 2007).
* Adjusted net assets* compared to market capitalisation £501.3 million
compared to market capitalisation of £223.4 million as at 30 June 2008, a
discount of 55 per cent. (Statutory net assets including deferred tax
provision, £408.4 million).
* Property portfolio valued at £876.0 million, down 25.5 per cent from £
1,175.3 million at December after taking into account disposals of £315.6
million and a revaluation decrement of £26.6 million.
* Period end cash £176.9 million up by 45 per cent from £122.0 million at 31
December 2007.
* Borrowings £593.2 million down by 26 per cent from £798.7 million at 31
December 2007.
* Adjusted gearing* was 83.7% compared to 131.7% at 31 December 2007
(Statutory gearing was 102.8% compared to 169.1% at year end).
* Foreign currency translation gains on net assets of £15.2 million were
taken to reserves.
* Net rental income £34.2 million, up 5.6 per cent from £32.4 million for six
months to 30 June 2007.
* Underlying profit* £13.6 million up 63.9 per cent from £8.3 million for the
six months ended 30 June 2007.
* Loss before tax £24.6 million,(six months to 30 June 2007: profit £31.9
million).
* Profitafter tax attributable to equity shareholders £1.2 million (six
months to 30 June 2007: profit £58.2 million).
* Proposed distribution of 1 in every 25 ordinary shares by way of a tender
offer at 425 pence per share, equivalent to 17 pence per share.
* see glossary of terms
Results at a glance
30 Jun 08 30 Jun 07 Up /
6 months (Down)
6 months
£m £m
INCOME STATEMENT (NON STATUTORY FORMAT)
Net Rental Income 34.2 32.4 5.6%
Other income and expense (8.5) (9.5) (10.5%)
Net finance costs (18.2) (20.7) (12.1%)
Fair value gains on financial instruments 6.2 6.3 (1.6%)
Share of loss of associates (0.1) (0.2) (50.0%)
Underlying profit 13.6 8.3 63.9%
Fair value (loss)/gain on investment (26.6) 23.5 (213.2%)
properties
Gains on sale of investment properties and 0.5 0.1 400.0%
subsidiaries
Non recurring finance costs incurred on (0.3) - -
sales
Non-recurring re-organisation costs (1.8) - -
Impairment charge (10.0) - -
(Loss)/profit before tax (24.6) 31.9 (177.1%)
Tax - current (2.0) (1.3) (53.8%)
Tax - deferred 27.7 27.6 0.4%
Profit for the period 1.1 58.2 (98.1%)
Minority interest (0.1) - -
Profit for the period attributable to equity 1.2 58.2 (97.9%)
holders
Adjusted (loss)/earnings per share* 0.0 p 9.8 p
Earnings per share * 1.6 p 80.6 p
Interest Cover * 1.7 1.4 times
times
30 Jun 08 31 Dec 07 Up /
£m £m (Down)
BALANCE SHEET (NON STATUTORY FORMAT)
Property portfolio 876.0 1,175.3 (25.5%)
Borrowings (593.2) (798.7) (25.7%)
Cash 176.9 122.0 45.0%
Other (51.3) (95.5) (46.3%)
Net asset value 408.4 403.1 1.3%
Share Capital 18.1 18.7 (3.2%)
Reserves 390.3 384.4 1.5%
Shareholders' funds 408.4 403.1 1.3%
Adjusted Net Assets * 501.3 m 517.6 m
Statutory Net Assets 408.4 m 403.1 m
Adjusted NAV per share * 765.8 p 764.2 p
Statutory NAV per share * 623.9 p 595.1 p
Adjusted gearing * 83.7% 131.7%
Statutory gearing * 102.8% 169.1%
Distribution per share from tender offer - p 31.5 p
buy-backs
Shares in issue (000's) - excluding treasury 65,452 67,740
shares
Weighted average shares in issue (000's) 67,265 71,092
Diluted weighted average shares in issue 67,265 71,092
(000's)
* See glossary of terms
BUSINESS HIGHLIGHTS
Six months to 30 June 2008
PROPERTY DISPOSALS
* Wholly owned subsidiaries of the Group completed the sale of 14 properties
in France via a corporate sale in which the properties were valued at €
142.4 million (£110.3 million). At 31 December 2007 the properties were
valued in CLS' accounts at €132.6 million (£97.7 million) representing a
premium of 7.4 per cent.
* One Leicester Square, London WC2 and Coventry House, London SW1 were sold
in a combined sale for £57.2 million which represented a premium of 8.4 per
cent over 31 December 2007 valuations.
* The sale of shares in the company owning the London Bridge Quarter
developments was completed on 9 January for a valuation on our share of the
property of £110.2 million and net proceeds of £30.0 million in cash. The
loss on disposal was recognised in the 2007 financial year.
* Brent House, Wembley HA9 was sold for £17.1 million representing a 10.0 per
cent premium on 31 December 2007 valuation.
* Vista Centre, Heathrow was sold for £12.8 million representing a 2.5 per
cent discount on the 31 December 2007 valuation.
* Conoco House, London SE1 was sold for £8.8 million representing a 21.0 per
cent premium on 31 December 2007 valuation.
* 2 Boulevard Georges Clemenceau in Courbevoie, France was sold for €7.0
million (£5.4 million) which was 3.4 per cent more than 31 December 2007
valuation.
* 22 Dukes Road, London WC1 was sold for £5.0 million representing a 2.0 per
cent premium on 31 December 2007 valuation.
* Satellite House, London N1 was sold for £3.0 million representing a 4.4 per
cent premium on 31 December 2007 valuation.
* Two flats located at Victoria, London were sold for a total of £1.7 million
which represented a premium of 12.0 per cent over 31 December 2007
valuations.
See financial review section for reconciliation of gain/loss on sale of
investment properties, subsidiaries and joint venture.
PROPERTY DISPOSALS AFTER 30 JUNE 2008
* King Street and London House both in Hammersmith, London have been sold for
the amount of £7.8 million, which represents a discount of 1.3% on the 30
June 2008 valuation.
* Citadel Holdings plc completed the sales of the Belin properties in Paris
via a corporate sale in which the properties were valued at €87.0 million
(£68.5 million) which is 0.7% less than 30 June 2008 valuations.
PROPERTY DEVELOPMENT
* A €20.0 million (£15.9 million) re-development of the Rathaus Centre in the
city of Bochum, Germany has begun and has been leased to the City of
Bochum.
* An €11.0 million (£8.7 million) multiphase development of the property at
Landshut, Germany has commenced and is expected to be completed by June
2009. The properties are rented to the electricity company E.ON on a fully
indexed 10 year lease.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared in accordance
with IAS 34 `Interim Financial Reporting';
(b) the interim management report includes 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 interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related party transactions and changes
therein).
By order of the Board
Sten Mortstedt Henry Klotz
Executive Chairman Chief Executive Officer
Interim management report
INTRODUCTION
In our most recent annual report, we reported that 2007 had been a tough year
and that we did not anticipate life becoming much easier in 2008. There is
still uncertainty caused by the risk of recession in the markets in which we
are active and the continuing lack of financial liquidity and lending capacity.
We have now largely completed our strategy of selling selected properties to
enable the Group to be strongly positioned to take advantage of purchasing
opportunities as they arise in the future. In the first six months of 2008 we
have sold properties for gross proceeds of £331.5 million. This has had the
effect of reducing our adjusted gearing from 132 per cent at 31 December 2007
to 84 per cent and increasing our cash from £122 million at 31 December 2007 to
£177 million at 30 June 2008.
Business overview
UK
At 31 December 2007 the UK portfolio comprised 37 properties valued at £485.7
million plus £112.8 million for the London Bridge Quarter (LBQ) and Fielden
House joint ventures. During the first half, nine investment properties were
sold for gross proceeds of £105.5 million compared to a December 2007 carrying
value of £97.3 million, a premium of 8.5 per cent. The sale of our interest in
LBQ was also completed for £30 million including associated debt (see financial
review section). The property at 86 Bondway that was previously included as an
investment property has now been transferred to property, plant and equipment
as required by International Accounting Standards from the date that we
occupied it as our head office. This property will be held at cost until such
time that it is returned to the investment portfolio or sold.
At 30 June the investment property portfolio comprised 27 properties valued at
£377.6 million plus £2.7 million in respect of CLS' share of the Fielden House
joint venture. This reflects a decrease in the value of unsold properties on a
like for like basis of 2.3 per cent.
On 15 August the Group completed the sale of London House and 275/281 King
Street, Hammersmith for £7.8 million. These properties were valued at £7.9
million at 30 June 2008.
We believe the biggest risks currently facing the property market are the risk
of recession in the UK leading to increased vacancy and the lack of bank
liquidity and lending continuing to affect the market. As approximately 55 per
cent of the portfolio is let to government or semi-government tenants and the
average period to end of lease is 11.5 years we believe that provided there are
no further shocks in the banking sector and any recession is not prolonged, our
UK property values will fall only slightly in the second half of the year.
Vacant space at 30 June was 5.6 per cent compared with 5.8 per cent at the end
of 2007.
France
At 31 December 2007 the French portfolio comprised 42 properties valued at €
482.2 million (£355.3 million).
There was a significant portfolio sale of 29 companies owning 14 properties in
May 2008. Consideration in respect of the properties was €142.4 million (£110.3
million) representing a 7.4 per cent premium on December 2007 valuations. As
these were corporate sales the purchaser also acquired the assets and
liabilities of the companies including certain loans secured on the properties
which led to a loss on the disposal of €7.7 million (£5.9 million). There was
also a release of deferred tax liability on the disposal of €28.8 million (£
22.3 million) which resulted in a net gain on the disposal of €21.1 million or
£16.4 million (see financial review section). A further property in Courbevoie
was sold for €7.0 million (£5.4 million) compared to a December 2007 valuation
of €6.77 million (£5.0 million). We are pleased with the price obtained for all
of these properties which have yielded good returns over our period of
ownership.
At 30 June the portfolio comprised 27 properties with a value of €332.7 million
(£263.9 million), reflecting a fall in value of 3 per cent on a like for like
basis during the first six months of 2008. We expect growth in the French
economy to be low in 2008 and as a result we believe that property valuations
will fall slightly in the second half.
On 30 July the Group completed the corporate sale of three properties in a
western suburb of Paris based on property values of €87.0 million (£68.5
million). These properties were valued at €87.6 million (£69.5 million) at 30
June 2008. As this was a corporate sale there was also a disposal of net assets
and other adjustments and costs and a release of deferred tax liability. We are
pleased to have sold these properties at an attractive price.
The vacancy rate has increased to 6.8 per cent as at 30 June from 4.0 per cent
at the year end which is mainly attributable to the fact that the properties
that have been sold had a lower vacancy rate than the properties retained.
Negotiations are at an advanced stage for re-letting part of the vacant areas
and we have also launched renovation work of the vacant areas for marketing
purposes.
Rental indexation grew in the first half with annualised increases of 4.8 per
cent in the first quarter and 3.5 per cent in the second quarter. New leases
and lease renewals showed an overall uplift of 4 per cent in the period.
Germany
At 30 June the German portfolio comprised 17 properties with a value of €225.2
million (£178.6 million) reflecting a fall in value of 3.4 per cent compared to
€233.2 million (£171.8 million) at 31 December 2007. There have been no
acquisitions or disposals in the first half. Our German operations are entering
an exciting phase with approximately €31 million (£24.6 million) expected to be
spent on major re-developments at the Rathaus Centre in the city of Bochum, and
two new buildings that will form part of our existing property in Landshut,
Munich in the next twelve months. Both of these properties have strong tenants
in place with Bochum being let on a 30 year indexed lease to the City of Bochum
and the Landshut buildings on ten year leases to E.ON Bayem AG with no breaks.
The German economy is expected to continue to slow in the second half of 2008.
However we expect that rental markets will remain strong cushioning property
values which we believe will fall slightly in the second half.
The vacancy rate across the portfolio at 30 June is 2.6 per cent compared with
2.4 per cent at December 2007.
Sweden
The Swedish portfolio remains unchanged with four properties comprising the
Vänerparken portfolio in Vänersborg near Gothenburg. The value of SEK635
million (£53.2 million) is unchanged from its valuation at 31 December 2007.
This portfolio provides important public services accommodation to the town of
Vänersborg, including the provision of healthcare and education facilities,
offices, public swimming pool and a marina. The Swedish economy is showing
signs of slowing growth, inflationary pressures and a tightening bias by the
central bank. This is not expected to significantly impact the Vänerparken
portfolio because the majority of it is let on long leases that will not expire
until 2015 and 2018.
The vacancy rate across the portfolio at 30 June is 7.8 per cent compared with
0.8 per cent at December 2007. Negotiations are currently in process that if
successful will see the vacancy rate reduced to 1.9 per cent.
Wyatt media group
In June of this year the Lunarworks Group was re-branded as the Wyatt Media
Group (Wyatt) to better reflect its developing identity as a multi stranded
media group that provides effective advertising opportunities for its customers
wishing to access the youth market. Wyatt now owns or is associated with seven
websites (see wyatt.se) and is Sweden's leading digital media house with 70 per
cent of the youth market.
In May a new CEO joined Wyatt and a new strategy has been implemented that
includes growth through both in-house development and acquisitions. As part of
this, CLS Group has re-assessed the state of the market Wyatt operates in, the
risks and uncertainties associated with that market and the business in its
current state of development, the rate of growth that can be expected and the
synergies that can be obtained from recent acquisitions within Wyatt. On the
basis of this re-assessment the Board has decided to write down goodwill on
acquisition of Wyatt by £10 million. The carrying amount of the Wyatt Group
after this write-down is £12.3 million at 30 June. The Group has also provided
loans to the Wyatt Group of £3.7 million which are not included in the carrying
amount as they have been eliminated on consolidation.
During the first half, the Wyatt Group exercised its option to acquire the
remaining 60 per cent of Bilddagboken AB for consideration of SEK25 million (£
2.1 million) bringing its shareholding to 100 per cent. It also increased its
shareholding in Internetami AB (Tyda) from 57 per cent to 82.3 per cent for
consideration of SEK5.4 million (£0.4 million) and acquired 40 per cent of blog
collection site, Bloggkoll.com.
Financial review
Income Statement (Non Statutory Format)
Results by location Total UK France Germany Sweden Wyatt Other June
Group
2007
6 months to June 2008 £m £m £m £m £m £m £m £m
Net rental income 34.2 13.8 11.7 5.8 2.9 - - 32.4
Other income 2.5 0.9 0.2 - - 1.7 (0.3) 3.0
Operating expenses (11.0) (2.5) (2.1) (1.4) (1.2) (3.3) (0.5) (12.5)
Net finance costs (18.2) (9.7) (5.7) (2.7) (0.6) (0.1) 0.6 (20.7)
Fair value gains on 6.2 4.8 1.0 0.4 - - - 6.3
financial instruments
Share of loss of (0.1) - - - 0.5 - (0.6) (0.2)
associates
Underlying profit 13.6 7.3 5.1 2.1 1.6 (1.7) (0.8) 8.3
Fair value (loss)/gain (8.3) (8.1) (9.2) (1.0) - - 23.5
on investment properties (26.6)
Gain on sale of 0.5 6.6 (6.0) (0.1) - - - 0.1
investment properties,
subsidiaries and joint
venture
Non recurring finance (0.3) 0.1 (0.4) - - - - -
costs on sales
Non-recurring (1.8) (0.5) (0.5) (0.4) (0.4) - - -
re-organisation costs
Impairment charge (10.0) - - - - (10.0) - -
(Loss)/profit before tax (24.6) 5.2 (9.9) (7.6) 0.2 (11.7) (0.8) 31.9
Taxation - current (2.0) - (1.4) (0.3) (0.4) 0.1 - (1.3)
Taxation - deferred 27.7 10.8 16.5 0.6 (0.2) - - 27.6
Profit for the period 1.1 16.0 5.2 (7.3) (0.4) (11.6) (0.8) 58.2
after tax
Underlying profit
Underlying profit for the six months to 30 June is £13.6 million compared to £
8.3 million for the six months to 30 June 2007 which is an increase of £5.3
million. Net rent has increased in the period by £1.8 million as a result of
strong letting performance and foreign exchange gains in converting the
European currencies into Sterling. Net finance costs are down by £2.5 million
mainly due to increased finance income on higher average cash balances. This is
offset by an increase of £1.5 million in the amortisation of issue costs of
loans repaid in the period. Interest costs have increased from £19.3 million at
30 June 2007 (excluding joint venture interest) to £21.3 million for the six
months ended 30 June 2008 due to increased interest rates in the current
period. The Group caps its floating rate debt and those caps were reached
around the December 2007 year end period. There was also a gain on derivatives
used to hedge the Groups exposure to variable interest rates. This arose
because during the first half of 2008, interest rates increased significantly,
especially at the shorter end of the yield curve, a consequence of the
financial markets turmoil. The effect of property sales are expected to have a
positive impact on underlying profit in the second half of the year.
Gains on sale of investment properties, subsidiaries and joint venture
June
2008
£m
Gain on sale of investment properties 6.4
Loss on sale of subsidiaries (5.9)
Loss on sale of joint venture -
Total 0.5
Gain on sale of investment properties
During the period nine properties were sold in the UK (excluding LBQ joint
venture) and one property was sold in France. UK properties were sold for a
total consideration of £105.5 million and yielded a profit of £6.6 million. The
French property in Courbevoie was sold for total consideration of £5.4 million
and yielded a small loss of £0.1 million. Selling costs on a property currently
under negotiation of £0.1 million have also been included.
Losson sale of subsidiaries
In May 2008 a significant portfolio sale of 29 companies owning 14 properties
in France was completed.
Portfolio sale 5 May 08
£m
Net assets disposed of:
Investment properties 102.7
Intercompany loans 16.9
Trade & other receivables 0.9
Cash & cash equivalents 2.6
Deferred income tax (22.3)
Borrowings including (62.4)
finance leases
Trade & other payables (4.1)
34.3
Gain on disposal 16.4
Costs of disposal:
Fees 1.3
Provision for rent 1.2
guarantee
Write off goodwill on 1.7
acquisition
Recapitalisation 1.7
Total consideration 56.6
Satisfied by:
Cash 37.4
Deferred consideration 2.3
Payment of fees 0.0
Repayment of intercompany 16.9
loans
56.6
The gain on disposal is disclosed in the income
statement as follows:
Loss on disposal of (5.9)
subsidiaries
Release of deferred tax 22.3
Gain on disposal 16.4
Net cash inflow arising
on disposal:
Cash consideration 37.4
Cash and cash equivalents (2.6)
disposed of
34.8
The Group has provided rental guarantees to the purchaser of €5.5 million (£4.4
million). An amount is held in escrow of €2.0 million (£1.6 million) for these
guarantees and a provision has been raised at the time of sale for €1.55
million (£1.23 million) which is the current best estimate of the ultimate
obligation. A warranty agreement was entered into in respect of representations
made at the time of the sale in the amount of €6.7 million (£5.3 million). An
amount of €1.0 million (£0.79 million) is held in escrow in respect of these
warranties. It is not considered probable that any claims will be successful
under the terms of the warranty agreement and no provision has been made
against any potential claims.
Loss on sale of joint venture
LBQ disposal 9 Jan 08
£m
Net assets disposed of:
Investment properties 110.2
Trade & other receivables 0.6
Cash & cash equivalents 1.9
Deferred income tax 0.0
Borrowings including finance leases (66.2)
Trade & other payables (16.5)
30.0
Gain on disposal 0.0
Costs of disposal* 0.0
Total consideration 30.0
Satisfied by:
Cash 30.0
Net cash inflow arising on disposal:
Cash consideration 30.0
Cash and cash equivalents disposed of (1.9)
28.1
* Costs relating to the disposal were incurred in the year ended 31 December
2007 and amounted to £2.5 million.
Balance Sheet (Non Statutory Format)
Total UK France Germany Sweden Wyatt Other*
Group
June 2008 £m £m £m £m £m £m £m
Investment properties 876.0 380.3 263.9 178.6 53.2 - -
Borrowings (566.5) (269.2) (157.2) (109.2) (30.9) - -
Equity in property 309.5 111.1 106.7 69.4 22.3 - -
assets
Equity in Property as 35% 29% 40% 39% 42% - -
% of Valuation
Cash 176.9 101.7 45.3 3.7 12.2 0.7 13.3
Deferred tax asset 1.7 1.7 - - - - -
Other Assets 81.5 8.9 7.7 1.4 1.5 12.9 49.1
Deferred tax (94.6) (24.9) (61.8) (1.4) (6.5) - -
liabilities
Other Liabilities (66.6) (10.8) (10.1) (5.2) (10.7) (1.3) (28.5)
Statutory net assets 408.4 187.7 87.8 67.9 18.8 12.3 33.9
Adjusted net assets 501.3 210.9 149.6 69.3 25.3 12.3 33.9
*'Other' comprises non property investments including investment in associates
and equity investments. Debt of £26.7 million on these investments is included
in other liabilities.
Investment Property
The value of our portfolio is now £876.0 million compared to £1,175.3 million
at 31 December 2007. The analysis of the net decrease is shown below:
Group UK France Germany Sweden
£m £m £m £m £m
Opening assets 1,175.3 598.5 355.3 171.8 49.7
Redevelopment 5.1 0.8 0.4 3.0 0.9
Disposals (315.6) (207.7) (107.9) - -
Transfer to land & (2.1) (2.1) - - -
buildings
Revaluation loss (26.6) (8.3) (8.1) (9.2) (1.0)
Rent free period (1.0) (0.9) (0.1) - -
adjustment
Foreign exchange 40.9 - 24.3 13.0 3.6
gain
Closing assets 876.0 100% 380.3 44% 263.9 30% 178.6 20% 53.2 6%
The majority of redevelopment costs were incurred in Germany in respect of the
Bochum and Landshut developments. Costs in Sweden were fit out costs for new
tenants.
Disposals during the period are discussed above.
Debt Structure
Net debt amounted to £416.3 million (31 December 2007: £676.7 million)
comprising:
June Dec
2008 2007
£m £m
Fixed rate debt 384.6 501.2
Floating rate debt 208.6 297.5
593.2 798.7
Cash (176.9) (122.0)
Net debt 416.3 676.7
The debt maturity is set out below:
June Dec
2008 2007
£m £m
Under 1 year 32.9 104.0
1 to 5 years 279.6 356.9
Over 5 years 284.1 342.8
Arrangement fees (3.4) (5.0)
Total 593.2 798.7
During the first 6 months of 2008, a new loan for £0.3 million was raised in
respect of a property in Paris.
Loans repaid or transferred as a result of the disposal of assets in France and
the UK totalled £202.8 million. In March 2008, the Group also repaid a loan in
respect of properties located in Munich for £16.4 million and received a
discount amounting to £0.76 million which is included in finance income. Other
repayments were also made amounting to £17.4 million.
The weakening of GBP against EUR and SEK also resulted in a £28.4 million
adverse effect on the GBP value of our EUR and SEK denominated debt.
In June 2008, the Group completed financing totalling €29.0 million (£23.0
million) to fund the development costs and the existing investment in the
property located in Bochum, Germany. Drawdown of the development loan is
expected to commence in August 2008, in line with the payment of the
development and refurbishment costs.
In June 2008, the Group agreed terms for financing totalling €26.7 million (£
21.2 million) to fund the existing investment in properties located in Munich
and the development of two new buildings just outside of Munich. Completion for
this financing and drawdown of the corresponding loan is expected to commence
in September 2008.
Guaranteesand contingent liabilities
At 30 June 2008 Group companies had guaranteed £312.4 million of Group
Companies liabilities (December 2007: £476.0 million).
There are also guarantees in respect of the sale of the French portfolio which
are disclosed above.
At 30 June 2008 CLS Holdings plc had guaranteed £125.3 million of Group
Companies liabilities (December 2007: £147.2 million).
Purchase of own shares
The Company has bought back 2,612,985 ordinary shares from the market for
either cancellation or inclusion as treasury shares since the year end for the
total amount of £9.1 million equating to an average cost of 346.28 pence per
share compared to a closing adjusted NAV per share at 30 June 2008 of 765.8
pence.
At 30 June 2008 there were 65,452,472 ordinary shares in circulation (31
December 2007: 67,740,457) and 7,114,209 treasury shares (31 December 2007:
7,109,279). There were no options outstanding at 30 June (31 December 2007:
405,000).
Proposed share buy back
The Board of Directors propose a share buy back to purchase 1 in every 25
ordinary shares by way of a tender offer at 425 pence per share, equal to a
distribution of 17 pence per share. If the EGM which it is proposed will be
held in November 2008, approves the proposed share buy back, the Company will
have distributed £11 million to shareholders by the proposed pro rata buy back.
In addition the Company has paid £11.5 million (to 21 August 2008) to purchase
its own shares in the market.
Related party transactions
No related party transactions have taken place in the first half of 2008 that
have materially affected the financial position or the performance of the Group
during the period.
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 actual results to differ materially from
expected and historical results. Management and mitigation of these risks is
the responsibility of the Board.
Risk: Mitigation:
Property investment risks
Underperformance of investment The senior management team has detailed
portfolio impacting on financial knowledge of core markets and experience
performance due to: gained through many market cycles. This
experience is supplemented by external
* cyclical downturn in property advisors and financial models used in the
market capital allocation decision.
* inappropriate buy/sell/hold
decisions
* changes in supply and/or The Group's property portfolio is
tenant demand affecting rents diversified across four countries. Average
and vacancies time remaining on current leases is 8.23
years and the Groups largest tenant
concentration is with the Government sector
which comprises 38.6 per cent. The largest
single non government tenant represents 5.3
per cent of gross rent and is a major
international bank.
* poor asset management Property teams review the current status of
all properties weekly and provide a written
report to senior management on KPIs
including vacancies, lease expiry profiles
and progress on rent reviews which are
actively managed to mitigate risk.
Funding risks
The risk that financing or The Group has a dedicated Treasury
re-financing will not be obtained department and relationships are maintained
at an acceptable price with approximately 20 banks across the
countries in which we operate thus reducing
credit risk and increasing opportunities to
obtain the best deal. The Groups exposure to
changes in prevailing market rates is
largely hedged on existing debt but there is
an exposure on re-financing of existing debt
although this is mitigated by the lack of
concentration in maturities. For new
property acquisitions the current and
expected future cost of debt is considered
in the initial decision to buy.
Foreign currency exposure Property investments are partially funded in
matching currency. The difference between
the value of the property and the amount of
the financing is generally unhedged but is
monitored on an ongoing basis.
Taxation risks
The risk that there will be The Group monitors legislative proposals and
increases in tax rates and both retains and consults external advisors
changes to the basis of taxation as required to understand and if possible
including corporation tax, VAT mitigate the effects of any such changes.
and stamp duty land tax.
UPDATE ON PROPOSED GROUP RESTRUCTURE
It was announced on 27 March 2008 in the preliminary financial results for the
year ended 31 December 2007, that CLS is considering a number of options to
restructure the Group in order to release reserves for future distributions, to
align the Group's structure to reflect its pan-European operational focus and
to enable the Group to compete more effectively with other UK property
investors enjoying REIT status. This process is ongoing and if a firm proposal
has been established we will seek the shareholders' approval.
Non recurring costs associated with the restructure have been incurred to date
of £1.8 million.
BOARD CHANGES
It was announced on 2 May 2008 that Per Sjöberg had resigned as Chief Executive
Officer and Henry Klotz was appointed with immediate effect. In addition,
Anders Böös resigned from the Board and it was announced that Sten Mortstedt
will continue in his role as Executive Chairman. On 8 May 2008 Steven Board
resigned as Executive Director and Company Secretary. Tom Thomson was appointed
Company Secretary in his place.
CONCLUSION
It is of course impossible to predict the future, but the status of the Company
today is as follows:
* Between 1 January and 21 August we have sold one third of our portfolio by
value for over £400 million including our investment in the Shard. Overall,
our UK disposals have been at 3.7 percent over valuations and the French
disposals at 4 percent over valuations.
* After concluding our sale of properties during July/August this year, the
portfolio value is approximately £800 million at 21 August (using 30 June
valuations).
* Interest bearing debt at 21 August is approximately £545 million compared
to £799 million at 31 December 2007, a reduction of 32%. Refinancing
required between 21 August and 31 December 2009 is £30.4 million
* Our cash deposits of approximately £190 million at 21 August are split 60%
Pound Sterling and 40% Euro and Swedish Kronor, which at current rates
would generate interest of around £8.8 million on a per annum basis.
* Our sales programme is now virtually complete with approximately £13
million currently under negotiation.
* We have a very secure rental income stream with 39 per cent coming from
government and semi-government bodies. The majority of the remainder of our
tenants are solid companies and at this time we foresee no major defaults.
The vacant space in the portfolio is below 6 per cent at 21 August.
* The yield of the total property portfolio is 6.6 per cent at 21 August. The
yield in the UK portfolio is 6.3 per cent, France 6.9 per cent, Germany 6.5
per cent and Sweden 7.11 per cent. All income streams in France, Germany
and Sweden are index linked as is 14 per cent of UK rental income.
* The yield of the property portfolio and that 64.1 per cent of rental income
is index linked provides protection against possible future decreasing
property values. It also provides protection during times of inflation such
as we are facing.
* The Group has implemented a cost saving plan which is budgeted to result in
savings on overhead costs of £4-4.5 million over 2008 and 2009 on an
annualised basis.
* The Group is now looking to acquire new properties in the markets in which
we operate. We believe that there could be interesting property investment
opportunities available to us in the future.
We believe that the Company is in a good shape and look forward to the future
with confidence and hope to make some interesting acquisitions.
Sten Mortstedt
Executive Chairman
29 August 2008
Un-audited Condensed Consolidated Income Statementfor the six months ended 30
June 2008
30 June 30 June
2008 2007
£000 £000
Continuing operations :
Revenue
Rental and similar revenue 35,235 33,771
Service charge and similar revenue 6,105 4,495
Service charge expense and similar charges (7,171) (5,869)
Net rental income 34,169 32,397
Net income from non-property activities 1,694 -
Other operating income/(expense) 836 3,041
Administrative expenses (9,432) (11,170)
Net property expenses (1,639) (1,344)
Operating profit before (losses)/gains on investment 25,628 22,924
properties
Net (loss)/gain from fair value adjustment on (26,618) 23,477
investment property
Profit on disposal of associate/part share joint - -
venture
(Loss)/gain on disposal of subsidiaries (5,923) 127
Profit from sale of investment properties 6,399 38
Operating (loss)/profit (514) 46,566
Finance income 5,413 1,655
Finance costs (17,337) (16,087)
Exceptional finance costs (265) -
Total finance costs (17,602) (16,087)
Share of loss of associates after tax (57) (217)
Exceptional re-organisation costs (1,800) -
Impairment charge (10,000) -
(Loss)/profit before tax (24,560) 31,917
Taxation - current (2,021) (1,344)
Taxation - deferred 27,658 27,651
Tax credit 25,637 26,307
Profit for the period 1,077 58,224
Attributable to equity holders of the parent 1,147 58,224
Attributable to minority interests (70) -
1,077 58,224
Earnings per share for profit attributable to the
equity holders of the Company during the year
(expressed in pence per share)
Basic 1.6p 80.6p
Diluted 1.6p 80.1p
There were no discontinued operations in the periods ended 30 June 2008 or 30
June 2007.
Un-audited Condensed Consolidated Balance Sheetas at 30 June 2008
30-Jun-08 31-Dec-07
ASSETS £000 £000
Non-current assets
Investment property 876,014 1,175,291
Property, plant and equipment 3,607 1,832
Intangible assets 12,297 19,538
Investment in associates 42,416 42,305
Other investments 6,430 8,424
Derivative financial instruments 2,699 1,268
Deferred income tax 1,708 2,880
Trade and other receivables 47 49
945,218 1,251,587
Current assets
Trade and other receivables 11,196 9,070
Derivative financial instruments 2,796 1,208
Cash and cash equivalents 176,917 122,030
190,909 132,308
Total assets 1,136,127 1,383,895
LIABILITIES
Non- current liabilities
Deferred income tax 94,600 117,439
Borrowings, including finance leases 560,951 695,675
655,551 813,114
Current liabilities
Trade and other payables 36,190 59,667
Current income tax 3,799 2,690
Derivative financial instruments - 2,307
Borrowings, including finance leases 32,229 103,025
72,218 167,689
Total liabilities 727,769 980,803
NET ASSETS 408,358 403,092
EQUITY
Capital and reserves attributable to the Company's
equity holders
Share capital 18,142 18,712
Share premium reserve 70,515 69,824
Other reserves 74,455 61,198
Retained earnings 246,445 254,432
409,557 404,166
Minority interest (1,199) (1,074)
TOTAL EQUITY 408,358 403,092
Un-audited Condensed Consolidated Statement of Changes in Equity
Attributable to equity Minority Total
holders of the Company Interest
Share Other Retained
capital reserves earnings
£000 £000 £000 £000 £000
Balance at 1 January 2008 18,712 131,022 254,432 (1,074) 403,092
Arising in the period:-
Fair value gains/(losses)
- available-for-sale - (2,024) - - (2,024)
- cash flow hedges - 84 - - 84
Currency translation - 15,190 - - 15,190
differences on foreign currency
net investments
Expenses of share issue / - - (85) - (85)
purchase of own shares
Purchase of own shares (570) 570 (9,048) - (9.048)
Exercise share options - 691 - - 691
Change in associates reserves - (563) - - (563)
Change in minority interest - - - (55) (55)
Net (expense)/income recognised (570) 13,948 (9,133) (55) 4,190
directly in equity
Profit for the period - - 1,146 (70) 1,076
Total (decrease)/ increase in (570) 13,948 (7,987) (125) 5,266
equity for the period
Balance at 30 June 2008 18,142 144,970 246,445 (1,199) 408,358
Attributable to equity Minority Total
holders of the Company Interest
Share Other Retained
capital reserves earnings
£000 £000 £000 £000 £000
Balance at 1 January 2007 20,020 112,173 316,842 (896) 448,139
Arising in the period:-
Fair value gains/(losses)
- available-for-sale - 1,374 - - 1,374
- cash flow hedges - (343) - - (343)
Currency translation differences - (1,465) - (1,465)
on foreign currency net -
investments
Expenses of share issue / (443) 506 (85) - (22)
purchase of own shares
Purchase of own shares - - (14,935) - (14,935)
Net (expense)/income recognised (443) 72 (15,020) - (15,391)
directly in equity
Profit for the period - - 58,224 - 58,224
Total (decrease)/increase in (443) 72 43,204 - 42,833
equity for the period
Balance at 30 June 2007 19,577 112,245 360,046 (896) 490,972
Un-audited Condensed Consolidated Cash Flow Statement
for the six months ended 30 June 2008
Re-stated
30-Jun-08 30-Jun-07
£000 £000
Cash flows from operating activities
Cash generated from operations 21,489 12,369
Interest paid (22,440) (20,858)
Income tax paid (912) (458)
Net cash outflow from operating activities (1,863) (8,947)
Cash flows from investing activities
Purchase of investment property - (13,906)
Capital expenditure on investment property (6,763) (8,899)
Proceeds from sale of investment property 110,608 -
Exceptional finance costs on disposal in investment (265) -
properties
Purchase of property, plant and equipment (473) (812)
Proceeds from sale of property, plant and equipment 290 190
Purchase of equity investments (2,273) (29,892)
Proceeds from disposal of equity investments 424 -
Purchase of interests in joint venture/associate - (7,918)
net of cash acquired
Proceeds from disposal of interests in joint 28,107 -
venture/associate net of cash sold
Proceeds on disposal of subsidiary undertakings net 34,857 (4,983)
of cash sold
Proceeds from foreign exchange transactions 1,051 -
Dividend received 1,479 -
Interest received 4,048 2,590
Net cash inflow/(outflow) from investing activities 171,090 (63,630)
Cash flows from financing activities
Issue of shares - 65
Purchase of own shares (9,134) (15,020)
Proceeds from exercise of options 691 -
Proceeds from new loans 317 55,064
Issue costs of new loans (651) (157)
Repayment of loans (108,039) (23,321)
(Purchase)/sale of financial instruments (111) 243
Re-organisation costs (528) -
Net cash (outflow)/inflow from financing activities (117,455) 16,874
Net (decrease)/increase in cash and cash 51,772 (55,703)
equivalents
Foreign exchange gain/(loss) 3,115 (1,061)
Cash and cash equivalents at beginning of period 122,030 157,571
Cash and cash equivalents at end of period 176,917 100,807
Cash generated from operations Re-stated
30-Jun-08 30-Jun-07
£000 £000
Operating (loss)/profit from continuing operations (514) 46,566
Loss on discontinued operations
Adjustments for:
- revaluation (gain)/loss on investment properties 26,618 (23,477)
- depreciation and amortisation 790 2,818
- profit on disposal of investment properties (6,399) (38)
- loss/(profit) on disposal of subsidiaries 5,923 (127)
- loss on disposal of equity investments 400 -
Changes in working capital:
Increase in debtors (6,016) (6,937)
Increase/(decrease) in creditors 687 (6,436)
Cash generated from operations 21,489 12,369
In the 2007 consolidated statement of cashflows, proceeds from the disposal of
a subsidiary have been reclassified out of cashflows from operations into
cashflows from investing activities. Gains/losses on foreign exchange have been
reclassified in 2007 from cashflows from operations to the main body of the
cashflow statement.
Note 1 - Basis of Preparation
The annual financial statements of CLS Holdings plc are prepared in accordance
with IFRS 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.
The same accounting policies, presentation and methods of computation are
followed in the condensed financial statements as were applied in the Group's
latest annual audited financial statements.
The information for the year ended 31 December 2007 does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. A copy
of the statutory accounts for that year has been delivered to the Registrar of
Companies. The auditors' report on those accounts was not qualified and did not
contain statements under section 237(2) or (3) of the Companies Act 1985.
This interim statement incorporates the financial review section.
REPORT ON REVIEW OF CONDENSED SET OF FINANCIAL STATEMENTS OF 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
2008 which comprises the income statement, the balance sheet, the statement of
changes in equity, the cash flow statement and related note 1. 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 2410 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 Services 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 2008 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 Services Authority.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
29 August 2008
London, UK
GLOSSARY OF TERMS
Contracted rent
Contracted rent is defined as gross annualised rent supported by a signed
contract
Net rent
Net rent is defined as contracted rent less net service charge costs
Yield
Yields on net rents have been calculated by dividing the net rent by the book
value
Estimated rental value (ERV)
The ERV of lettable space as determined biannually by the Company's valuers.
This may be different from the rent currently
being paid.
Underlying profit
Underlying profit is the profit before tax excluding net gains/losses from fair
value adjustment on investment properties, profit/losses disposal of joint
ventures, subsidiaries, investment properties, non-recurring items and
impairment charges.
Adjusted net assets = Net assets excluding deferred tax liabilities and
deferred tax assets
Statutory net asset = Net assets
value (NAV) per share
Number of ordinary shares in free issue
Adjusted NAV per share = Net assets + deferred tax liabilities - deferred tax
assets
Number of ordinary shares in free issue
Statutory Gearing = Total gross borrowings - cash
Net assets
Adjusted Gearing = Total gross borrowings - cash
Net assets + deferred tax liabilities - deferred tax
assets
Earnings per share = Profit after tax attributable to ordinary
(EPS) shareholders
Weighted average number of ordinary shares in free
issue
Adjusted EPS = Profit after tax attributable to ordinary
shareholders excluding deferred tax and fair value
gains on investment properties
Weighted average number of ordinary shares in free
issue
Interest cover* = EBIT - net gains from fair value adjustments in
investment properties - impairment loss
Net finance costs excluding change in fair value of
financial instruments
*2007 interest cover excludes the effect of LBQ joint venture
Directors, Officers and Advisers
Directors
Sten Mortstedt (Executive Chairman)
Henry Klotz (Chief Executive Officer)
Thomas Thomson BA (Non-Executive Vice Chairman)
Malcolm Cooper ^ (Non-Executive Director)
James Dean FRICS * # ^ (Non-Executive Director)
Thomas Lundqvist * ^ (Non-Executive Director)
Bengt Mörtstedt Juris Cand (Non-Executive Director)
* = member of Remuneration Committee
^ = member of Audit Committee
# = senior independent director
Company Secretary
Thomas Thomson BA
Registered Office
86 Bondway
London SW8 1SF
Registered Number
2714781
Registered Auditors
Deloitte & Touche LLP
Chartered Accountants
1 Little New Street
London EC4A 3TR
Registrars and Transfer Office
Computershare Investor Services Plc
P O Box 82
The Pavillions,
Bridgewater Road
Bristol BS99 7NH
Shareholder helpline: 0870 889 3286
Clearing Bank
Royal Bank of Scotland Plc
24 Grosvenor Place
London SW1X 7HP
Financial Advisers and Stockbrokers
NCB Corporate Finance
51 Moorgate
London EC2R 6BH
CLS Holdings plc on line:
www.clsholdings.com
e-mail: enquiries@clsholdings.com
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