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CLS Holdings plc
PRESS RELEASE
Release date: 10th September 2004
CLS Holdings plc (“CLS”, the “Company”, or the “Group”)
Interim Report 2004
For the six month period ended 30 June 2004
Financial Highlights
- Adjusted NAV per share* of 454.7 pence, up 2.0 per cent since 31 December 2003 (Statutory NAV per
share of 447.4 pence, up 1.9 per cent since 31 December 2003) - adverse foreign exchange translation
impact on NAV per share was 13.1 pence.
- Profit before tax £8.0 million (£7.7 million for the period to 30 June 2003).
- Financings raised additional funds of £43.4 million.
- Intended distribution for the interim period to 30 June 2004 of £6.4 million by way of tender offer buy-
back on the basis of 1 for 52 at 390 pence per share.
- Portfolio valued at £882.4 million (31 December 2003: £882.4 million), after acquisitions of £16.1
million, capital expenditure of £6.8 million, revaluation uplift of £10.4 million, disposals of £7.3 million
and adverse foreign exchange translation movements of £26.0 million.
- Portfolio value including share of joint ventures £918.5 million (31 December 2003: £918.5 million).
- Total turnover £40.8 million (£39.3 million for the period to 30 June 2003)
- Net rental incomeφ (including JVs) £32.2 million (£31.6 million for the period to 30 June 2003).
- Cash at 30 June 2004 of £60.2 million (31 December 2003: £56.7 million).
- Annualised return to shareholders♠ of 13.9 per cent based on market capitalisation of the Company at 31
December 2003.
- Unrealised gain arising from two investments that were listed during the period amounted to £2.7
million. This gain has not been booked and does not feature in our results as the investments continue to
be held at the lower of cost and net realisable value.
φ Net rental income comprises gross rental income and service charge income, less service charge expenses.
♠ Annualised return to shareholders is calculated by dividing the movement in shareholders funds (net of FRS19 deferred tax
movements) and tender offer distributions, by the Company’s market capitalisation of £236.6 million at 31 December 2003.
Head Office: One Citadel Place Tinworth Street London SE11 5EF
Tel: +44 (0)20 7582 7766 Fax: +44 (0)20 7582 2363
E-mail: enquiries@clsholdings.com Website: www.clsholdings.com
Key statistics and other financial information
30 June 30 June
2004 2003
PROFIT AND LOSS
Adjusted earnings per share* 9.6 p 8.7 p Up 10.3 %
Earnings per share 9.0 p 7.4 p Up 21.6 %
Net rental income (including JVs) £32.2 m £31.6 m Up 1.9 %
Operating profit (including associates and JVs) £24.0 m £21.8 m Up 10.1 %
Net interest payable £16.6 m £14.8 m Up 12.2 %
Core property profit (see page 4) £9.7 m £10.5 m Down 7.6 %
Profit before taxation £8.0 m £7.7 m Up 3.9 %
Retained profit £7.8 m £6.8 m Up 14.7 %
Distribution per share from tender offer buy-back 7.5 p 6.5 p Up 15.4 %
BALANCE SHEET 30 June 31 Dec
2004 2003
Adjusted NAV per share* 454.7 p 445.7 p Up 2.0 %
Statutory NAV per share 447.4 p 439.2 p Up 1.9 %
Property portfolio (excluding joint ventures) £882.4 m £882.4 m - %
Net asset value £382.4 m £385.0 m Down 0.7 %
Cash £60.2 m £56.7 m Up 6.2 %
Adjusted gearing* 129.9% 125.1% Up 4.8 %
Statutory gearing 132.0% 126.9% Up 5.1 %
Solidity (net assets as a ratio of gross assets) 38.8% 39.5% Down 0.7 %
Shares in issue (000’s) 85,461 87,644 Down 2.5 %
FRS13 fair value adjustment after tax (see page 8) 18.4 p 20.7 p Down 11.1 %
* FRS19 requires a tax provision to be made in respect of capital allowances to the extent that they are not covered by available tax losses
brought forward. In practice the Board considers it unlikely that the benefit of these capital allowances will not continue to be available
whether or not the properties are sold in the future. The Board has complied with pronouncements from the APB, ASB and the UK Listing
Authority in showing NAV and Earnings per share including the FRS19 provision with equal prominence as adjusted figures. The effect of
FRS 19 has been excluded from those statistics that are indicated by an asterisk, a reconciliation of which is set out on page 19 of this
document.
At 30 June 2004 the FRS 19 deferred tax charge included in the profit and loss account was £0.5 million and the cumulative reduction to net
assets was £6.2 million (31 December 2003: credit to tax of £0.6 million and £5.7 million respectively). The accounting policies are as set
out in the Group’s 2003 Annual Report and Accounts, with the exception of the presentation of the profit and loss account.
2
Chairman’s Statement
We again achieved a record adjusted NAV per share of 454.7 pence, up 2.0 per cent since 31 December
2003 (Statutory NAV per share 447.4 pence, up 1.9 per cent), after taking account of adverse foreign
exchange translation losses of 13.1 pence per share.
The underlying strength of the property portfolio has been demonstrated by a revaluation uplift in our
three main markets amounting to £10.4 million in the six months to 30 June 2004. The revaluation
excludes any increase in value attributable to the development potential of London Bridge Tower which
now has planning consent.
Profit before tax of £8.0 million showed an increase over the corresponding period last year of 3.9 per
cent. In reviewing our financial results as a whole, retained profit and increases in reserves, I am very
pleased with the performance of the Company.
Added value generated in the six month period can be summarised as follows:
2004 2003
£m £m
Retained profit 7.8 6.8
Unrealised gains on listed investments – not included in financial results 2.7 -
10.5 6.8
Property valuation uplift 10.4 0.4
Added value before foreign exchange translation movement 20.9 7.2
Foreign exchange translation movement (11.2) 10.7
If the net assets of our Swedish and French subsidiaries were to be translated into Sterling at the foreign
exchange rates prevailing at 8 September 2004, the adverse translation movement would have reduced
from £11.2 million to £6.8 million.
The annualised return on market capitalisation of the Company (£236.6 million at 31 December 2003)
was 13.9 per cent (30 June 2003: 24.1 per cent) based on the aggregation of the May 2004 distribution to
shareholders of £9.3 million, retained profits of £7.8 million, valuation uplift of £10.4 million less
adverse foreign exchange translation movements of £11.2 million. Had the adverse exchange translation
movements been neutral the annualised return would have increased to 23.2 per cent (30 June 2003: 14.2
per cent).
Our shares are currently trading at a discount to adjusted NAV per share of 23.9 per cent, based on a
share price of 346 pence. It is for the market to decide what the discount will be, however it is my
personal view that the Company’s NAV per share will continue to increase.
In November we intend to make a further distribution to shareholders of £6.4 million under a proposed
tender offer buy-back equivalent in cash terms to an interim net dividend of 7.5 pence per share, an
increase of 15.4 per cent over the previous interim distribution.
We have seen strong growth in the value of our UK portfolio which in the last six months has
outperformed both Sweden and France, whereas last year the French portfolio showed the strongest
growth. This illustrates the benefit of our strategy to operate in three European markets.
3
The value of our total portfolio, including our interests in joint ventures at London Bridge Tower and
New London Bridge House is £918.5 million.
Significant further lettings have been made in the UK, particularly at Spring Gardens, One Leicester
Square and Vista Office Centre to the West of London.
A major letting at Solna in Sweden of 23,800 sq.m (256,183 sq.ft) was made to ICA, Scandinavia’s
largest food retailer. ICA will occupy this newly refurbished office and retail space during 2005.
In Paris, we sold Seine Défense for €11.0 million (£7.4 million) generating a surplus of £0.5 million over
the valuation at 31 December 2003.
We have successfully reduced overall vacancy rates from 7.1 per cent at 31 December 2003 to 6.6 per
cent at 30 June 2004.
Three new properties have been acquired in the period. In January we purchased 16 Rue Eugene Rupert
in Luxembourg for £6.7 million (€9.7 million) comprising 4,150 sq.m (44,670 sq.ft) of office space fully
let to a government ministry. In February 2/4 Boulevard Georges Clemenceau, a 1,972 sq.m (21,227
sq.ft) office building, was acquired in Paris for £3.4 million (€5.0 million) and in the UK we purchased
Quayside Lodge, Fulham comprising 3,050 sq.m (32,815 sq.ft) of offices for £5.75 million.
The results of our investment division have shown a significant improvement in the six months which is
attributable to the successful flotations of Amino Technologies Plc and Note AB in which our
shareholdings at 30 June had a market value of £8.5 million and £1.0 million respectively.
Financial
Core property profit of £9.7 million (June 2003: £10.5 million) includes the increased cost of borrowings
on floating rate loans of £239.3 million (capped at an average rate of 6.5 per cent including margin),
additional interest and costs on increased borrowings, principally in France, of £21.4 million and lost
contribution from properties sold in the second half of 2003 of £0.6 million.
The calculation of core property profit is set out below:
30 June 30 June
2004 2003
£m £m
Profit before taxation 8.0 7.7
Add back:
Consolidated cable company losses 2.5 2.4
Less:
Lease surrenders and variations - (0.3)
Sale of investment property (0.5) (0.7)
Net (Gains)/Losses and write-downs on equity investment (0.3) 1.4
Core property profit 9.7 10.5
4
The results of the Group analysed by location and main business activity are as set out below:
June Equity June
2004 UK Sweden Franceφ investments 2003
£m £m £m £m £m £m
Net rental income 32.2 15.3 8.0 8.9 - 31.6
Less JV income (1.3) (1.3) - - - (0.5)
Other income 0.8 0.3 0.3 - 0.2 1.9
Net rental and other income
(excluding JV) 31.7 14.3 8.3 8.9 0.2 33.0
Operating expenses (9.1) (3.2) (1.7) (1.1) (3.1) (10.3)
Other operating gains/(losses and write-downs) 0.3 - - - 0.3 (1.2)
JV & Associate operating profit 1.1 1.1 - - - 0.3
Operating profit 24.0 12.2 6.6 7.8 (2.6) 21.8
Gain from sale of investment properties 0.5 - - 0.5 - 0.7
Net interest payable and related charges (16.5) (8.7) (4.9)+ (2.2) (0.7) (14.8)
Profit on ordinary activities before tax 8.0 3.5 1.7 6.1 (3.3) 7.7
Taxation (0.8) (1.7) - (0.2) 1.1 (1.6)
Minority interest 0.6 - - - 0.6 0.7
Retained profit 7.8 1.8 1.7 5.9 (1.6) 6.8
Retained profit 30 June 2003 6.8 2.7 0.7 5.3 (1.9)
Increase/(decrease) in retained profit 1.0 (0.9) 1.0 0.6 0.3
Percentage change in retained profit 14.7% (33.3)% 142.9% 11.3% 15.8%
φ Results relating to Germany and Luxembourg were immaterial in the context of the overall results of the Group and have therefore been
included within the French segment for all analyses.
+ Of the net interest payable of £4.9 million, £1.1 million relates to space undergoing refurbishment at Solna
Balance sheet
Total
Balance
Sheet UK Sweden Franceφ
June 2004 £m % £m % £m % £m %
Investment Properties 882.4 100 422.1 47.9 233.3 26.4 227.0 25.7
Loans (559.6) 100 (272.1) 48.6 (130.8) 23.4 (156.7) 28.0
Equity in Property Assets 322.8 100 150.0 46.5 102.5 31.8 70.3 21.7
Other 59.6 100 15.2 25.5 0.7 1.2 43.7 73.3
Net Equity 382.4 100 165.2 43.2 103.2 27.0 114.0 29.8
Equity in Property as a
Percentage of Investment 36.6% 35.5% 43.9% 31.0%
φ results relating to Germany and Luxembourg were immaterial in the context of the overall results of the Group and have therefore been
included within the French segment for all analyses.
5
Share capital No of shares No of shares
Million Million
2004 2003
(six months) (full year)
Opening shares 87.6 94.1
Tender offer buy-back (2.4) (5.4)
Buybacks in the market for cancellation - (1.5)
Share options exercised 0.3 0.4
Closing shares 85.5 87.6
Options to purchase 621,000 shares were held by staff and management at 30 June 2004.
Turnover and net rental income
Turnover increased by £1.5 million to £40.8 million, mainly due to an increase in service charge income
and turnover from non-property activities derived from cable companies.
Net rental income of £32.2 million comprises gross rental income of £36.1 million (which includes joint
venture income of £1.3 million), service charge income of £3.3 million, less service charge expenses of
£7.2 million. Service charge expense includes property running costs relating to our UK business centres
and Swedish properties, where generally the gross rents charged are inclusive of property running costs.
The increase in net rental income of £0.6 million compared to the six months ended 30 June 2003 reflects
an uplift of £0.9 million in Sweden, mainly due to the stream of income generated from new lettings at
Fräsaren 11, Solna, Stockholm, and an increase in joint venture income of £0.9 million as a result of the
acquisition of New London Bridge House in September 2003. This was offset by the loss of rental
income of £0.8 million due to the sale of property in the UK in the second half of 2003 and £0.4 million
due to space becoming vacant at Great West House prior to the refurbishment of the building.
Non-property income and expenditure
Turnover less cost of sales from non-property activities shows a gross profit from our two cable company
investments amounting to £0.2 million after a write off of £1.1 million principally relating to
disconnections.
Other income
Other income of £0.6 million (30 June 2003: £0.8 million) includes £0.2 million contributions from
dilapidations and other property related income and revenue of £0.3 million from Solna Sports Park.
Administrative expenditure
Administrative expenditure of £7.2 million (30 June 2003: £7.9 million) includes overheads relating to
the cable companies totalling £2.7 million (30 June 2003: £3.5 million). Excluding the results of the two
cable companies, expenditure increased by £0.1 million or 2.3 per cent compared to the six months to 30
June 2003.
Net property expenses
Net property expenses of £1.9 million (30 June 2003: £2.5 million) includes operating costs of £0.4
million in respect of Solna Sports Park, depreciation of equipment of £0.2 million, void space costs of
£0.3 million, letting and related legal fees of £0.3 million and bad debts of £0.2 million.
Other operating gains / (losses)
Other operating gains of £0.3 million arose mainly from the reversal of a previous provision against our
investment in Amino Technologies Plc that has successfully listed on the Alternative Investment Market.
The unrealised gain, which amounted to £2.5 million, has not been recognised in our financial statements.
6
Gains from sale of investment property
The gains from the sale of investment property of £0.5 million were mainly due to the sale of Seine
Défense, which was sold for €11.0 million (£7.4 million).
Financial income and costs
Interest income of £0.9 million included favourable foreign exchange movements of £0.1 million.
Interest payable of £17.5 million comprises bank interest of £16.5 million, net interest rate cap
depreciation of £0.5 million and depreciation of bank loan arrangement fees of £0.5 million. The Group’s
policy is to expense all interest payable and financial costs to the profit and loss account, including
interest incurred in the funding of refurbishment and development projects.
At the period end floating rate loans totalled £239.3 million. All floating rate debt was hedged by interest
rate caps at an average cap rate of 6.3 per cent for Sterling, 5.5 per cent for Swedish Kronor and 4.3 per
cent for Euro (excluding bank margin). Three month LIBOR sterling rate increased from 3.6 per cent at
30 June 2003 to 4.8 per cent at 30 June 2004. The average cost of borrowing for the UK portion of our
debt was 6.9 per cent, inclusive of the cost of fixed rate borrowings, interest rate caps and amortisation of
arrangement fees, and 4.6 per cent for the international portion. Gearing has increased by 5.1 per cent to
132.0 per cent incorporating the effect of the re-financing of a portion of the Citadel portfolio for €32.0
million (£21.4 million) and the refinancing of three UK properties releasing a further £5.4 million.
Interest cover has increased to 1.55 times at 30 June 2004 from 1.52 times at 30 June 2003.
Taxation
The Group’s current taxation charge has benefited from the utilisation of losses, significant capital
allowances and amortisation deductions. These factors will have less effect in the future as corporation
tax losses are used against expected profits and as allowances and amortisation deductions decrease in
existing subsidiaries. We do however anticipate utilising capital allowances on assets held by recently
acquired subsidiary companies
Buy-backs and dividends
A tender offer buy-back was taken up in full in May of this year in lieu of a final dividend for 2003. With
the current share price remaining at a considerable discount to net asset value, we are proposing an
interim distribution of £6.4 million by way of a further tender offer buy-back of shares on the basis of
390.0 pence per share for 1 in 52 shares held. This will enhance net asset value per share and is
equivalent in cash terms to an interim net dividend of 7.5 pence per share (30 June 2003: 6.5 pence per
share), an increase of 15.4 per cent.
At 31 December 2003 there were 87,644,067 ordinary shares in issue. Since that date the Company has
completed the 2003 year end tender offer buy back of 2,437,890 shares (£9.3 million). After the issue of
255,000 shares relating to the exercise of share options, the number of shares in issue at 30 June 2004
was 85,461,177. If the current tender offer proposal to buy back 1,643,484 shares is accepted, ordinary
shares in issue will have been reduced by a further 1.9 per cent to 83,817,693 shares, an overall reduction
in the year of 3,826,374 shares equivalent to 4.4 per cent of opening shares in issue.
In previous tender offers, independent CLS shareholders (being the shareholders other than Sten
Mortstedt, Bengt Mortstedt and Anna Seeley and their respective interests) have voted on resolutions
contained within a tender offer circular to approve a Rule 9 Panel waiver in respect of any resulting
increase in the percentage voting rights held by Sten Mortstedt individually (44.03% interest in CLS),
and the sub-concert party of Sten Mortstedt and Anna Seeley collectively (44.04% interest in CLS), as a
result of both the tender offer and the annual renewal of a general authority to make market purchases.
For future tender offers and annual renewals of CLS’ general authority to make market purchases
however, the Panel on Takeovers and Mergers has deemed that due to the closeness of their relationship
the Mortstedt concert party of Sten Mortstedt, Bengt Mortstedt and Anna Seeley should be viewed as a
single entity and that it should not be divided into various sub-concert parties and individual holdings.
7
As the Mortstedt concert party already holds over 50% of the voting rights of CLS, the Panel on
Takeovers and Mergers has therefore agreed that there is no longer a requirement for a vote of
independent shareholders on a poll to approve the relevant Rule 9 waivers for future tender offers and
annual renewals of CLS’ general authority to make market purchases in respect of Sten Mortstedt’s
individual interests, and Sten Mortstedt’s and Anna Seeley’s combined interests. Further details of these
arrangements will be included in CLS’ forthcoming tender offer circular.
Tangible Assets
Tangible assets of £887.5 million have decreased by a net £1.8 million (0.2 per cent) since 31 December
2003. This movement included foreign exchange translation movements which had the effect of reducing
Swedish and French fixed asset values by £26.0 million, new building purchases amounting to £16.1
million, refurbishment expenditure of £6.8 million, principally at Solna, Stockholm and a revaluation
surplus at 30 June 2004 of £10.4 million.
The revaluation surplus comprises :
£m
UK revaluation 8.2
Sweden revaluation 0.3
France revaluation 1.9
10.4
Cash
Cash at bank amounted to £60.2 million compared with £56.7 million at 31 December 2003.
Debt Structure
The net interest-bearing debt of the Group at 30 June 2004 was £504.8 million (31 December 2003:
£483.8 million). The increase includes re-financing a major portion of the Citadel portfolio, which raised
an additional €32.0 million (£21.4 million), funding of €10.8 million (£7.2 million) to acquire two new
properties, one in Luxembourg and the other in Paris and a refinancing of three UK properties releasing a
further £5.4 million of funds. The strengthening of Sterling against the Swedish Kronor and the Euro
decreased the sterling equivalent of foreign currency loans by £15.2 million. These loans finance
properties located in Sweden and France.
The fair value of the Group’s fixed rate debt was in excess of book value by an amount of £22.4 million
(31 December 2003: £25.9 million) reflecting increased long-term interest rates at 30 June 2004. If we
were to hold loans at fair value, the notional after tax adjustment to NAV, at a corporation tax rate of 30
per cent (31 December 2003: 30 per cent) would be £15.7 million or 18.4 pence per share (31 December
2003: £18.1 million or 20.7 pence per share).
Gearing adjusted for FRS 19 deferred tax, at 30 June 2004 was 129.9 per cent (31 December 2003: 125.1
per cent), statutory gearing was 132.0 per cent (31 December 2003: 126.9 per cent).
Non interest-bearing debt represented by short-term creditors amounted to £33.5 million (31 December
2003: £35.8 million).
Effect of foreign exchange translation on overseas net assets
An adverse foreign exchange movement on translation of net assets in Sweden and France of £11.2
million (13.1 pence per share) was included within the Group net assets at 30 June 2004. The adverse
translation movement on overseas fixed assets was £26.0 million, offset by an exchange translation gain
mainly on bank borrowings, of £14.8 million.
8
Property
The valuation of the Group’s portfolio at 30 June 2004, undertaken by Allsop & Co. in respect of the UK
and Swedish properties and by DTZ Debenham Tie Leung in respect of the French properties, amounted
to £882.4 million (31 December 2003 : £882.4 million).
The portfolio comprises 112 properties of which 48 are located in the UK, 22 in Sweden, 40 in France 1
in Germany and 1 in Luxembourg, with a total lettable area of 571,285 sq.m (6,149,459 sq. ft.).
UK
One Leicester Square took a big step forward towards being fully let in May when planning consent was
granted, at appeal, for MTV to operate their broadcast studio from 743 sq.m (8,000 sq ft) in the lower
three floors of the building. This has enabled us to complete the lease which is for a term of 11 years at
an annual rent of £625,000 per annum.
Another important letting was achieved at Vista, Heathrow where the Metropolitan Police has taken a
lease of 1,568 sq.m (16,876 sq ft) of office accommodation on the 6th and 7th floors. The lease is for a
term of ten years at an annual rent of £232,045 per annum. We believe the flexible approach taken to the
leasing package and the many amenities provided on site were major factors in securing the Metropolitan
Police as tenants.
BSkyB has renewed its lease over the top four floors at Great West House, Great West Road, Brentford.
Providing 1,978 sq.m (21,290 sq ft), BSkyB’s lease is for a term of three years at a rent of £330,000 per
annum. Hammersmith and Fulham Council also renewed their lease at 275 King Street, paying £250,000
per annum for 1,575 sq.m (16,960 sq ft) of office space.
During the first half of 2004 we have achieved a reduction in the vacancy rate across the UK portfolio
from 8.5 per cent to 7.9 per cent by area.
At Ingram House, John Adam Street WC2 planning permission was granted in May to convert the 4th
and 5th floors to form five residential units. The units will consist of four 2 bedroom and one 1 bedroom
flats, which are scheduled for completion in January 2005.
In June, we acquired Quayside Lodge, William Morris Way, SW6 for £5.75m. Built in 1989, this office
building is adjacent to the new Imperial Wharf development in Chelsea Harbour and overlooks the
Thames. It provides 3,050 sq.m (32,815 sq ft) of office accommodation and the price paid equates to
£1,884 per sq.m (£175 sq ft). The property is expected to provide a yield in excess of 8.6 per cent once
fully let as well as offering interesting opportunities to redevelop or introduce new uses in the long term.
We are keen to add further to the UK portfolio, although many of the opportunities currently on offer are
fully priced and do not fully reflect recent increases in the base rate and a relatively flat occupational
market. We are hopeful of finding better value towards the end of the year.
On a like for like basis the value of our UK portfolio increased by 2.0 per cent. After taking into account
our purchase of Quayside Lodge, the value increased to £422.1 million from £408.9 million at 31
December 2003.
Sweden
Major international investors, particularly German funds, have helped to ensure that the property
investment market in Sweden has remained strong. In addition the letting market has become more
positive evidenced by a number of significant lettings, particularly in central Stockholm, Solna and Kista.
One of the largest of these transactions has been our letting of 14,364 sq.m to ICA for its head office and
a further 9,430 sq.m of retail space. The office and retail space are secured by leases of eleven years and
9
nine months and 25 years respectively and there is the opportunity to see increased future rental income
as the terms agreed include additional rent after a turnover threshold has been exceeded. ICA will occupy
their new premises by mid 2005 and have an option to take a further 2,200 sq.m.
At Smeden in Solna, the major façade works to the 170 metre long front elevation are about to be
completed and the launch of a retail concept has resulted in a number of such lettings having been made
in that building. Furthermore, the adult education centre has taken occupation of a further 3,790 sq.m on
a new 4 year lease.
Also at Solna, a business centre comprising 950 sq.m of serviced offices opened at the beginning of the
year of which 52.0 per cent are now let and a 62 room business hotel has also been successfully let to an
hotel operator. To complement these facilities, a large conference centre is planned to be opened in 2004.
France
In France we have seen a less buoyant letting market which has seen an increase in available space in all
major office locations. Notwithstanding the less active letting environment, the vacancy rate in our
portfolio has reduced from 6.7 per cent at 31 December 2003 to 5.4 per cent at 30 June 2004. A
significant factor in this reduction has been the profitable sale of the vacant 2,346 sq.m property Seine
Défense in Courbevoie.
New leases and the prolongation of existing leases totalling 10,815 sq.m or 8.4 per cent of the portfolio
have produced annual rental income of €2.2 million (£1.4 million).
Rent indexation has increased rents by €0.5 million (£0.3 million) at 30 June compared to 31 December
2003.
A new multi-let property comprising 1,972 sq.m has been acquired in Courbevoie, a suburb to the West
of Paris for €5.0 million (£3.4 million) representing an initial yield of 8.8 per cent on rent of €0.4 million
(£0.3 million).
10
Rent, book value and yields are analysed by location as set out below:
Total Net Book Yield Yield
Rent rent Value on net when
fully
rent let
£000 % £000 % £000 % % %
UK
London City Fringes 212 0.3% 212 0.3% 2,525 0.3% 8.4%
London Mid town 6,955 9.9% 6,955 10.8% 98,800 11.2% 7.0%
London West End 3,312 4.7% 3,157 4.9% 71,180 8.1% 4.4%
London West 5,607 8.0% 5,315 8.3% 54,854 6.2% 9.7%
London South Bank 9,318 13.3% 9,305 14.5% 133,255 15.1% 7.0%
London South West 1,158 1.7% 1,038 1.6% 15,650 1.8% 6.6%
London North West 3,510 5.0% 3,386 5.3% 43,375 4.9% 7.8%
Outside London 350 0.5% 350 0.6% 2,400 0.3% 14.6%
Total UK 30,422 43.4% 29,718 46.3% 422,039 47.9% 7.0% 7.6%♦
Sweden
Sweden Gothenburg 6,155 8.8% 2,805 4.4% 41,760 4.7% 6.7%
Sweden Stockholm 10,776 15.4% 9,724 15.1% 145,053 16.4% 6.7%
Sweden Vänersborg 4,457 6.4% 3,782 5.9% 46,519 5.3% 8.1%
Total Sweden 21,388 30.6% 16,311 25.4% 233,332 26.4% 7.0% 7.0%♠
Continental Europe
France Paris 13,839 19.7% 13,839 21.5% 178,016 20.2% 7.8%
France Lyon 2,532 3.6% 2,532 3.9% 29,152 3.3% 8.7%
France Lille 494 0.7% 494 0.8% 5,541 0.6% 8.9%
France Antibes 386 0.6% 386 0.6% 3,883 0.4% 9.9%
Total France 17,251 24.6% 17,251 26.8% 216,592 24.5% 8.0% 8.4%
Luxembourg 768 1.1% 768 1.2% 8,689 1.0% 8.8%
Total Luxembourg 768 1.1% 768 1.2% 8,689 1.0% 8.8% 8.8%
Germany 206 0.3% 188 0.3% 1,738 0.2% 10.8%
Total Germany 206 0.3% 188 0.3% 1,738 0.2% 10.8% 10.8%
Total Continental Europe 18,225 26.0% 18,207 28.3% 227,019 25.7% 8.0% 8.4%
Group Total 70,035 100.0% 64,236 100.0% 882,390 100.0% 7.3% 7.6%
Conversion rates : SEK/GBP 13.6502 Euro/GBP 1.4961
(♦) Yields based on receivable rent and potential rents have been calculated on the assumption that book values at 30 June 2004 will
increase by anticipated refurbishment expenditure of approximately £1.6 million in respect of projects in the UK.
(♠)Yields based on receivable rent and potential rents have been calculated on the assumption that book values will increase by anticipated
refurbishment expenditure of approximately £43.8 million in respect of projects in Solna, Stockholm, Sweden.
11
Rent analysed by length of lease and location is set out below:
Space under
Contracted Contracted Unlet Refurbishment Total Total
Aggregate but not Space or with
Rental income at ERV planning
producing consent
Sq. m Sq.ft £000 £000 £000 £000 £000 %
UK >10 yrs 61,329 660,165 14,082 14,082 43.0%
UK 5-10 yrs 37,492 403,574 8,381 8,381 25.6%
UK < 5 yrs 39,612 426,390 7,959 7,959 24.4%
Development Stock 1,359 14,629 59 59 0.2%
Vacant 11,939 128,511 2,210 2,210 6.8%
Total UK 151,731 1,633,269 30,422 - 2,269 - 32,691 100.0%
Sweden > 10 yrs 37,440 403,014 4,025 4,025 16.2%
Sweden 5-10 yrs 39,968 430,226 3,825 3,825 15.3%
Sweden < 5 yrs 184,499 1,985,996 13,538 13,538 54.4%
Refurbished space 5,578 60,043 2,127♥ 2,127 8.6%
Vacant 19,120 205,813 1,360 1,360 5.5%
Total Sweden 286,605 3,085,092 21,388 - 1,360 2,127 24,875 100.0%
France 5-10 yrs 50,082 539,096 7,188 7,188 39.5%
France < 5 yrs 68,695 739,451 10,064 10,064 55.3%
Vacant 6,799 73,186 938 938 5.2%
Total France 125,576 1,351,733 17,252 - 938 - 18,190 100.0%
Luxembourg < 5 yrs 4,278 46,050 768 768 100.0%
Total Luxembourg 4,278 46,050 768 - - - 768 100.0%
Germany < 5 yrs 3,095 33,315 206 206 100.0%
Total Germany 3,095 33,315 206 - - - 206 100.0%
Summary
Group > 10 yrs 98,769 1,063,179 18,107 18,107 23.6%
Group 5-10 yrs 127,542 1,372,896 19,394 19,394 25.2%
Group < 5 yrs 300,179 3,231,202 32,535 32,535 42.4%
Refurbished space 5,578 60,043 2,127 2,127 2.8%
Development Stock 1,359 14,629 59 59 0.1%
Vacant 37,858 407,510 4,508 4,508 5.9%
Group Total 571,285 6,149,459 70,036 - 4,567 2,127 76,730 100.0%
♥ Of the rental due on refurbished space in Sweden, £0.4 million relates to Fräsaren 11, Solna (3,568 sq.m) which requires further capital
expenditure of £5.1 million. Additional long term rental of £1.4 million, over and above that currently received on existing leases which
expire in September 2004 at Fräsaren 12 (23,794 sq.m), requires further capital expenditure of £33.3 million.
12
Equity investments
During the six months to 30 June 2004 two unlisted companies in which we had invested were brought to
market. Amino Technologies Plc was floated on the Alternative Investment Market in London on 9 June
2004 and Note AB was floated on the Swedish O List in Stockholm 23 June 2004. The unrealised gain if
these shares had been marked to market price would have been £2.5 million and £0.2 million respectively
at 30 June. As at 8 September 2004 the increased share prices of these investments show an unrealised
gain of £5.4 million. The Company has not recognised these gains in its financial results.
A number of other unlisted investments held by the Company have the potential to add value in the near
future through stock market listings or trade sales.
Conclusion
The underlying strength of the business continues to be reflected in our financial results. The UK
portfolio has increased in value reflecting secure lettings recently achieved to high quality tenants.
The refurbishment of Solna Business Park, in Stockholm, one of the largest construction projects
currently being undertaken in Sweden, has been recognised as a high quality development that has
attracted blue chip tenants on long term leases. Results of this success are now evident in our operational
profit streams and cash flows.
The aggregate annualised rent roll of the Group was £76.7 million at 30 June 2004, an increase of £0.6
million over the position at 31 December 2003, which includes further rental income expected to be
received of £6.7 million once vacant space is let and the refurbishment at Solna is completed.
We have a strong financial platform capable of generating growth in profits whilst continuing to benefit
from relatively low charges to taxation. We are focused on our proven strategy of enhancing our asset
base principally located in three strong European markets.
S. A. Mortstedt
Executive Chairman
10 September 2004
13
Consolidated Profit and Loss Account
for the six months ended 30 June 2004 30 June 30 June 31 Dec
2004 2003 2003
£000 £000 £000
Gross rental income (including joint ventures) 36,128 35,005 70,723
Less: Joint ventures (1,310) (453) (1,421)
Service charge income 3,264 2,877 5,699
Turnover from property activities 38,082 37,429 75,001
Turnover from non-property activities 2,721 1,890 4,657
Total turnover (continuing operations) 40,803 39,319 79,658
Service charge expenses (7,234) (6,255) (12,589)
Cost of sales of non-property activities (2,536) (755) (2,007)
31,033 32,309 65,062
Other income 627 800 1,253
31,660 33,109 66,315
Administrative expenses (7,185) (7,881) (15,437)
Net property expenses (1,896) (2,467) (4,179)
(9,081) (10,348) (19,616)
Other operating gains/(losses) 318 (1,246) (1,406)
Group operating profit (continuing operations) 22,897 21,515 45,293
Share of joint ventures’ operating profit (continuing operations) 1,180 414 1,343
Share of associates’ operating loss (continuing operations) (40) (154) (258)
Operating profit including joint ventures and associates 24,037 21,775 46,378
Gains from sale of investment property 539 688 1,932
Profit on ordinary activities before interest 24,576 22,463 48,310
Interest receivable and similar income:
Group 883 1,472 2,135
Joint ventures 14 3 3
Interest payable and similar charges:
Group (16,568) (15,799) (31,777)
Joint ventures (889) (432) (1,098)
Profit on ordinary activities before taxation 8,016 7,707 17,573
Tax on profit on ordinary activities:
Group - current (242) (347) (655)
- deferred (551) (1,250) 591
Joint ventures (10) (10) (21)
Profit on ordinary activities after taxation 7,213 6,100 17,488
Equity minority interest 613 724 1,285
Retained profit for the period 7,826 6,824 18,773
Basic Earnings per Share 9.0 p 7.4 p 20.7p
Diluted Earnings per Share 8.8 p 7.2 p 20.5p
14
Consolidated Balance Sheet
at 30 June 2004 30June 30 June 31 Dec
2004 2003 2003
£000 £000 £000
Fixed assets
Tangible assets 887,453 893,556 889,289
Investments:
Interest in joint ventures:
Share of gross assets 39,537 17,306 38,337
Share of gross liabilities (30,983) (14,257) (29,838)
8,554 3,049 8,499
Interest in associates 3,731 3,355 3,225
Other investments 171 730 171
899,909 900,690 901,184
Current assets
Debtors – amounts falling due after more than one year 3,379 4,032 3,695
Debtors – amounts falling due within one year 15,049 5,490 7,976
18,428 9,522 11,671
Investments 8,036 2,918 3,963
Cash at bank and in hand 60,189 62,083 56,693
86,653 74,523 72,327
Creditors: amounts falling due within one year (67,136) (70,029) (53,249)
19,517 4,494 19,078
Total assets less current liabilities 919,426 905,184 920,262
Creditors: amounts falling due after more than one year (530,823) (515,407) (529,575)
Provisions for liabilities and charges (6,207) (11,229) (5,713)
Net Assets 382,396 378,548 384,974
Capital and reserves
Called up share capital 21,365 22,398 21,911
Share premium account 69,257 68,928 68,928
Revaluation reserve 225,793 227,606 222,022
Capital redemption reserve 12,302 11,206 11,693
Other reserves 24,929 24,978 28,096
Profit and loss account 30,263 23,769 33,224
Total equity shareholders’ funds 383,909 378,885 385,874
Equity minority interests (1,513) (337) (900)
Capital employed 382,396 378,548 384,974
15
Consolidated Cash Flow Statement
for the six months ended 30 June 2004 30 June 30 June 31 Dec
2004 2003 2003
£000 £000 £000
Net cash inflow from operating activities 17,788 26,685 52,432
Returns on investments and servicing of finance
Interest received 780 909 1,678
Interest paid (15,871) (13,979) (29,235)
Issue costs on new bank loans (936) (773) (1,216)
Interest rate caps purchased (1,063) (149) (225)
Net cash outflow from returns on investments
and servicing of finance (17,090) (13,992) (28,998)
Taxation (228) (1,169) (1,391)
Capital expenditure and financial investment
Purchase and enhancement of properties (22,884) (11,834) (22,604)
Sale of investment properties 1,202 4,010 23,562
Purchase of other fixed assets (128) (2,213) (4,208)
Net cash outflow for capital expenditure and financial investment (21,810) (10,037) (3,250)
Acquisitions and disposals
Net investment in associate/joint venture (306) (333) (6,664)
Purchase of subsidiary undertaking - (2,243) (1,814)
Cash acquired on purchase of subsidiary undertaking - 572 572
Net cash (outflow)/inflow before use of liquid resources and financing (21,646) (517) 10,887
Management of liquid resources
Cash released from short term deposits 1,142 3,864 2,004
Financing
Issue of ordinary share capital 392 474 474
New loans 43,377 20,766 25,485
Repayment of loans (8,859) (13,304) (29,230)
Purchase of own shares (9,331) (11,286) (17,212)
Net cash inflow/(outflow) from financing 25,579 (3,350) (20,483)
Increase/(decrease) in cash 5,075 (3) (7,592)
16
Statement of Group Total Recognised Gains & Losses
for the six months ended 30 June 2004
30 June 30 June 31 Dec
2004 2003 2003
£000 £000 £000
Profit for the period 7,826 6,824 18,773
Unrealised surplus/(deficit) on revaluation of properties 10,366 399 (3,035)
Release of revaluation deficit on property disposal - - 20
Currency translation differences on foreign currency net investments (11,218) 10,713 15,091
Other recognised (losses)/gains relating to the period (852) 11,112 12,076
Total recognised gains and losses relating to the period 6,974 17,936 30,849
17
Independent Review report to CLS Holdings Plc
Introduction
We have been instructed by the company to review the financial information which comprises the
consolidated profit and loss account, consolidated balance sheet, consolidated cash flow statement and
the statement of group total recognised gains and losses. We have read the other information contained
in the interim report and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is the responsibility of, and has
been approved by the directors. The directors are responsible for preparing the interim report in
accordance with the Listing Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent with those applied in
preparing the preceding annual accounts except where any changes, and the reasons for them, are
disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the
Auditing Practices Board for use in the United Kingdom. A review consists principally of making
enquiries of group management and applying analytical procedures to the financial information and
underlying financial data, and based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as
tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than
an audit performed in accordance with Auditing Standards and therefore provides a lower level of
assurance than an audit. Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the company for the purpose of
the Listing Rules of the Financial Services Authority and for no other purpose. We do not, in producing
this report, accept or assume responsibility for any other purpose or to any other person to whom this
report is shown or into whose hands it may come save where expressly agreed by our prior consent in
writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that should be made to the
financial information as presented for the six months ended 30 June 2004.
PricewaterhouseCoopers LLP
Chartered Accountants
London
10 September 2004
18
Basis of preparation and accounting policies
The information contained in this interim statement does not constitute accounts as defined by section 240 of the Companies Act 1985. The
un-audited results for the half-year to 30 June 2004 have been prepared in accordance with UK generally accepted accounting principles.
The accounting policies applied are those set out in the Group’s 2003 Annual Report and Accounts. The information relating to the year
ended 31 December 2003 is an extract from the latest published accounts, which have been delivered to the Registrar of Companies. The
audit report on the published accounts was unqualified and did not contain a statement under section 237 (2) or section 237 (3) Companies
Act 1985.
Reconciliation of Statutory to disclosed Adjusted statistics
Statutory figure Deferred tax
adjustment Adjusted figure
Net Assets £382.4 m £6.2 m £388.6 m
NAV per share 447.4 p 7.3 p 454.7 p
Earnings per share 9.0 p 0.6 p 9.6 p
Diluted earnings per share 8.8 p 0.6 p 9.4 p
Gearing 132.0 % (2.1) % 129.9 %
19
CLS Holdings Plc
Directors, Officers and Advisors
Directors
Sten Mortstedt (Executive Chairman)
Thomas Thomson BA (Vice Chairman and Chief Executive)
Dan Bäverstam (Chief Financial Officer)
Steven Board FCCA (Chief Operating Officer )
Per Sjöberg (Group Development Director) (appointed 6 February 2004)
James Dean FRICS * ∆ (Non-executive Director)
Keith Harris PhD * ∆ ♦(Non-executive Director)
Thomas Lundqvist ∆ (Non-executive Director)
Bengt Mortstedt Juris Cand (Non-Executive Director)
Anna Seeley BSc MRICS (Non-executive Director)
* = member of Remuneration Committee
∆= member of Audit Committee
♦= senior independent director
Company Secretary
Steven Board FCCA (Chief Operating Officer)
Registered Office
One Citadel Place
Tinworth Street
London SE11 5EF
Registered Number
2714781
Registered Auditors
PricewaterhouseCoopers LLP
Chartered Accountants
1 Embankment Place
London WC2N 6RH
Registrars and Transfer Office
Computershare Services Plc
P O Box 435
Owen House
8 Bankhead Crossway North
Edinburgh EH11 4BR
Clearing Bank
Royal Bank of Scotland Plc
24 Grosvenor Place
London SW1X 7HP
Financial Advisors
Williams de Broë Plc
6 Broadgate
London EC2M 2RP
Joint Stockbrokers
Williams de Broë Plc
6 Broadgate
London EC2M 2RP
KBC Peel Hunt
11 Old Broad Street
London EC2N 1PH
CLS Holdings Plc on line:
www.clsholdings.com
e-mail:
enquiries@clsholdings.com
20
