29th Aug 2008 12:05
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 termsResults 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 termsBUSINESS HIGHLIGHTSSix months to 30 June 2008PROPERTY 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 ¢â€š¬
142.4 million (‚£110.3 million). At 31 December 2007 the properties were
valued in CLS' accounts at ¢â€š¬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 ¢â€š¬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 ¢â€š¬87.0 million
(‚£68.5 million) which is 0.7% less than 30 June 2008 valuations.
PROPERTY DEVELOPMENT
* A ¢â€š¬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 ¢â€š¬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 BoardSten 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 yearand that we did not anticipate life becoming much easier in 2008. There isstill uncertainty caused by the risk of recession in the markets in which weare active and the continuing lack of financial liquidity and lending capacity.We have now largely completed our strategy of selling selected properties toenable the Group to be strongly positioned to take advantage of purchasingopportunities as they arise in the future. In the first six months of 2008 wehave sold properties for gross proceeds of ‚£331.5 million. This has had theeffect of reducing our adjusted gearing from 132 per cent at 31 December 2007to 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 ‚£485.7million plus ‚£112.8 million for the London Bridge Quarter (LBQ) and FieldenHouse joint ventures. During the first half, nine investment properties weresold for gross proceeds of ‚£105.5 million compared to a December 2007 carryingvalue of ‚£97.3 million, a premium of 8.5 per cent. The sale of our interest inLBQ was also completed for ‚£30 million including associated debt (see financialreview section). The property at 86 Bondway that was previously included as aninvestment property has now been transferred to property, plant and equipmentas required by International Accounting Standards from the date that weoccupied it as our head office. This property will be held at cost until suchtime 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 Housejoint venture. This reflects a decrease in the value of unsold properties on alike 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 riskof recession in the UK leading to increased vacancy and the lack of bankliquidity and lending continuing to affect the market. As approximately 55 percent of the portfolio is let to government or semi-government tenants and theaverage period to end of lease is 11.5 years we believe that provided there areno further shocks in the banking sector and any recession is not prolonged, ourUK 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 ¢â€š¬ 482.2 million (‚£355.3 million).
There was a significant portfolio sale of 29 companies owning 14 properties inMay 2008. Consideration in respect of the properties was ¢â€š¬142.4 million (‚£110.3million) representing a 7.4 per cent premium on December 2007 valuations. Asthese were corporate sales the purchaser also acquired the assets andliabilities of the companies including certain loans secured on the propertieswhich led to a loss on the disposal of ¢â€š¬7.7 million (‚£5.9 million). There wasalso a release of deferred tax liability on the disposal of ¢â€š¬28.8 million (‚£22.3 million) which resulted in a net gain on the disposal of ¢â€š¬21.1 million or‚£16.4 million (see financial review section). A further property in Courbevoiewas sold for ¢â€š¬7.0 million (‚£5.4 million) compared to a December 2007 valuationof ¢â€š¬6.77 million (‚£5.0 million). We are pleased with the price obtained for allof these properties which have yielded good returns over our period ofownership.At 30 June the portfolio comprised 27 properties with a value of ¢â€š¬332.7 million(‚£263.9 million), reflecting a fall in value of 3 per cent on a like for likebasis during the first six months of 2008. We expect growth in the Frencheconomy to be low in 2008 and as a result we believe that property valuationswill fall slightly in the second half.On 30 July the Group completed the corporate sale of three properties in awestern suburb of Paris based on property values of ¢â€š¬87.0 million (‚£68.5million). These properties were valued at ¢â€š¬87.6 million (‚£69.5 million) at 30June 2008. As this was a corporate sale there was also a disposal of net assetsand other adjustments and costs and a release of deferred tax liability. We arepleased 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 centat the year end which is mainly attributable to the fact that the propertiesthat 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 areasand we have also launched renovation work of the vacant areas for marketingpurposes.Rental indexation grew in the first half with annualised increases of 4.8 percent in the first quarter and 3.5 per cent in the second quarter. New leasesand 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 ¢â€š¬225.2million (‚£178.6 million) reflecting a fall in value of 3.4 per cent compared to¢â€š¬233.2 million (‚£171.8 million) at 31 December 2007. There have been noacquisitions or disposals in the first half. Our German operations are enteringan exciting phase with approximately ¢â€š¬31 million (‚£24.6 million) expected to bespent on major re-developments at the Rathaus Centre in the city of Bochum, andtwo new buildings that will form part of our existing property in Landshut,Munich in the next twelve months. Both of these properties have strong tenantsin place with Bochum being let on a 30 year indexed lease to the City of Bochumand 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 propertyvalues 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 theVƒ¤nerparken portfolio in Vƒ¤nersborg near Gothenburg. The value of SEK635million (‚£53.2 million) is unchanged from its valuation at 31 December 2007.This portfolio provides important public services accommodation to the town ofVƒ¤nersborg, including the provision of healthcare and education facilities,offices, public swimming pool and a marina. The Swedish economy is showingsigns of slowing growth, inflationary pressures and a tightening bias by thecentral bank. This is not expected to significantly impact the Vƒ¤nerparkenportfolio because the majority of it is let on long leases that will not expireuntil 2015 and 2018.The vacancy rate across the portfolio at 30 June is 7.8 per cent compared with0.8 per cent at December 2007. Negotiations are currently in process that ifsuccessful 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 MediaGroup (Wyatt) to better reflect its developing identity as a multi strandedmedia group that provides effective advertising opportunities for its customerswishing to access the youth market. Wyatt now owns or is associated with sevenwebsites (see wyatt.se) and is Sweden's leading digital media house with 70 percent of the youth market.In May a new CEO joined Wyatt and a new strategy has been implemented thatincludes growth through both in-house development and acquisitions. As part ofthis, CLS Group has re-assessed the state of the market Wyatt operates in, therisks and uncertainties associated with that market and the business in itscurrent state of development, the rate of growth that can be expected and thesynergies that can be obtained from recent acquisitions within Wyatt. On thebasis of this re-assessment the Board has decided to write down goodwill onacquisition of Wyatt by ‚£10 million. The carrying amount of the Wyatt Groupafter this write-down is ‚£12.3 million at 30 June. The Group has also providedloans to the Wyatt Group of ‚£3.7 million which are not included in the carryingamount as they have been eliminated on consolidation.During the first half, the Wyatt Group exercised its option to acquire theremaining 60 per cent of Bilddagboken AB for consideration of SEK25 million (‚£2.1 million) bringing its shareholding to 100 per cent. It also increased itsshareholding in Internetami AB (Tyda) from 57 per cent to 82.3 per cent forconsideration of SEK5.4 million (‚£0.4 million) and acquired 40 per cent of blogcollection 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 - - - 6.3financial 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) - - - 0.1investment 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 ‚£5.3million. Net rent has increased in the period by ‚£1.8 million as a result ofstrong letting performance and foreign exchange gains in converting theEuropean currencies into Sterling. Net finance costs are down by ‚£2.5 millionmainly due to increased finance income on higher average cash balances. This isoffset by an increase of ‚£1.5 million in the amortisation of issue costs ofloans repaid in the period. Interest costs have increased from ‚£19.3 million at30 June 2007 (excluding joint venture interest) to ‚£21.3 million for the sixmonths ended 30 June 2008 due to increased interest rates in the currentperiod. The Group caps its floating rate debt and those caps were reachedaround the December 2007 year end period. There was also a gain on derivativesused to hedge the Groups exposure to variable interest rates. This arosebecause during the first half of 2008, interest rates increased significantly,especially at the shorter end of the yield curve, a consequence of thefinancial markets turmoil. The effect of property sales are expected to have apositive 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 jointventure) and one property was sold in France. UK properties were sold for atotal consideration of ‚£105.5 million and yielded a profit of ‚£6.6 million. TheFrench property in Courbevoie was sold for total consideration of ‚£5.4 millionand yielded a small loss of ‚£0.1 million. Selling costs on a property currentlyunder 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 propertiesin 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 1.2guarantee Write off goodwill on 1.7acquisition Recapitalisation 1.7 Total consideration 56.6Satisfied 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 ¢â€š¬5.5 million (‚£4.4million). An amount is held in escrow of ¢â€š¬2.0 million (‚£1.6 million) for theseguarantees and a provision has been raised at the time of sale for ¢â€š¬1.55million (‚£1.23 million) which is the current best estimate of the ultimateobligation. A warranty agreement was entered into in respect of representationsmade at the time of the sale in the amount of ¢â€š¬6.7 million (‚£5.3 million). Anamount of ¢â€š¬1.0 million (‚£0.79 million) is held in escrow in respect of thesewarranties. It is not considered probable that any claims will be successfulunder the terms of the warranty agreement and no provision has been madeagainst any potential claims.Loss on sale of joint ventureLBQ 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 associatesand equity investments. Debt of ‚£26.7 million on these investments is includedin 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 theBochum and Landshut developments. Costs in Sweden were fit out costs for newtenants.
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 andthe UK totalled ‚£202.8 million. In March 2008, the Group also repaid a loan inrespect of properties located in Munich for ‚£16.4 million and received adiscount amounting to ‚£0.76 million which is included in finance income. Otherrepayments 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 ¢â€š¬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 ¢â€š¬26.7 million (‚£21.2 million) to fund the existing investment in properties located in Munichand the development of two new buildings just outside of Munich. Completion forthis financing and drawdown of the corresponding loan is expected to commencein 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 foreither cancellation or inclusion as treasury shares since the year end for thetotal amount of ‚£9.1 million equating to an average cost of 346.28 pence pershare compared to a closing adjusted NAV per share at 30 June 2008 of 765.8pence.
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 25ordinary shares by way of a tender offer at 425 pence per share, equal to adistribution of 17 pence per share. If the EGM which it is proposed will beheld in November 2008, approves the proposed share buy back, the Company willhave 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 purchaseits own shares in the market.
Related party transactions
No related party transactions have taken place in the first half of 2008 thathave materially affected the financial position or the performance of the Groupduring the period.RISKS AND UNCERTAINTIES
There are a number of potential risks and uncertainties which could have amaterial impact on the Group's performance over the remaining six months of thefinancial year and could cause actual results to differ materially fromexpected and historical results. Management and mitigation of these risks isthe 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 andincreases 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 theyear ended 31 December 2007, that CLS is considering a number of options torestructure the Group in order to release reserves for future distributions, toalign the Group's structure to reflect its pan-European operational focus andto enable the Group to compete more effectively with other UK propertyinvestors enjoying REIT status. This process is ongoing and if a firm proposalhas 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 CHANGESIt was announced on 2 May 2008 that Per SjĦberg had resigned as Chief ExecutiveOfficer and Henry Klotz was appointed with immediate effect. In addition,Anders BĦĦs resigned from the Board and it was announced that Sten Mortstedtwill continue in his role as Executive Chairman. On 8 May 2008 Steven Boardresigned as Executive Director and Company Secretary. Tom Thomson was appointedCompany 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 MortstedtExecutive Chairman29 August 2008Un-audited Condensed Consolidated Income Statementfor the six months ended 30June 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) 4,190directly in equity Profit for the period - - 1,146 (70) 1,076 Total (decrease)/ increase in (570) 13,948 (7,987) (125) 5,266equity 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 - 42,833equity 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 12,369In the 2007 consolidated statement of cashflows, proceeds from the disposal ofa subsidiary have been reclassified out of cashflows from operations intocashflows from investing activities. Gains/losses on foreign exchange have beenreclassified in 2007 from cashflows from operations to the main body of thecashflow statement.
Note 1 - Basis of Preparation
The annual financial statements of CLS Holdings plc are prepared in accordancewith IFRS as adopted by the European Union. The condensed set of financialstatements included in this half-yearly financial report has been prepared inaccordance with International Accounting Standard 34 `Interim FinancialReporting', 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 constitutestatutory accounts as defined in section 240 of the Companies Act 1985. A copyof the statutory accounts for that year has been delivered to the Registrar ofCompanies. The auditors' report on those accounts was not qualified and did notcontain 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 financialstatements in the half-yearly financial report for the six months ended 30 June2008 which comprises the income statement, the balance sheet, the statement ofchanges in equity, the cash flow statement and related note 1. We have read theother information contained in the half-yearly financial report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe information in the condensed set of financial statements.This report is made solely to the Company in accordance with InternationalStandard on Review Engagements 2410 issued by the Auditing Practices Board. Ourwork has been undertaken so that we might state to the Company those matters weare required to state to them in an independent review report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the Company, for our review work, for thisreport, 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 areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of financial statements included in this half-yearly financialreport has been prepared in accordance with International Accounting Standard34 "Interim Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview.Scope of Review
We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making inquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof 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 tobelieve that the condensed set of financial statements in the half-yearlyfinancial report for the six months ended 30 June 2008 is not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 asadopted by the European Union and the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
29 August 2008London, UKGLOSSARY OF TERMSContracted 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 profitUnderlying profit is the profit before tax excluding net gains/losses from fairvalue adjustment on investment properties, profit/losses disposal of jointventures, subsidiaries, investment properties, non-recurring items andimpairment 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 MĦrtstedt Juris Cand (Non-Executive Director)
* = member of Remuneration Committee
^ = member of Audit Committee
# = senior independent director
Company SecretaryThomas Thomson BARegistered Office86 BondwayLondon SW8 1SFRegistered Number2714781Registered AuditorsDeloitte & Touche LLPChartered Accountants1 Little New StreetLondon EC4A 3TR
Registrars and Transfer Office
Computershare Investor Services Plc
P O Box 82The Pavillions,Bridgewater RoadBristol BS99 7NH
Shareholder helpline: 0870 889 3286
Clearing BankRoyal Bank of Scotland Plc24 Grosvenor PlaceLondon SW1X 7HP
Financial Advisers and Stockbrokers
NCB Corporate Finance51 MoorgateLondon EC2R 6BHCLS Holdings plc on line:www.clsholdings.com
e-mail: [email protected]
vendorRelated Shares:
CLS Holdings