Embargoed: 10 March 2006, 07:00hrs
CLS Holdings Plc
PRELIMINARY FINANCIAL RESULTS FOR THE YEAR
31 DECEMBER 2005
Financial Highlights
- Added value to shareholders 20.1 per cent based on increase in adjusted* NAV
per share and distributions in the year (19.7 per cent based on statutory NAV)
- Adjusted Net Asset Value (NAV) per share 606.9 pence, up 16.2 per cent
(Statutory NAV per share 441.9 pence, up 14.4 per cent)
- Profit before tax �84.7 million, up 40.9 per cent, including �67.2 million of
fair value gains on property
- Intended distribution by way of a tender offer buy-back of 1 in 42 shares at
600 pence being 14.3 pence per share making a total distribution to
shareholders of 22.8 pence per share for the year, up 18.1 per cent
- Property portfolio valued at �1.1 billion, up 7.2 per cent
- Net rental income �69.3 million, up 2.5 per cent
- Year end cash �118.2 million up 105.9 per cent (December 2004: �57.4 million)
2005 Results at a glance
PROFITS AND LOSSES SHOWN IN THE INCOME STATEMENT �m �m
2005 2004
Profit on letting of investment properties 23.1 24.0
Profit on sale of investment properties 1.9 0.5
Deficit arising from transfer in part interest of JV+ (1.1) -
Core property profit 23.9 24.5
Equity investment division losses (3.1) (1.6)
Non-recurring legal costs in respect of JV+ (3.3) -
Underlying profit* 17.5 22.9
Fair value gains on investment properties 67.2 37.2
Profit before taxation 84.7 60.1
Current tax (1.3) (0.6)
Deferred tax (21.9) (16.1)
Loss on discontinued operations (sale of cable companies)++ (6.2) (4.0)
Profit for the year 55.3 39.4
EQUITY MOVEMENTS SHOWN IN THE BALANCE SHEET
Foreign exchange translation loss (7.7) 0.5
Fair value loss on listed investments (10.4) 12.0
Tender offer buy-backs and market purchases (19.0) (15.8)
Acquisition of minority interest 1.3 -
Other 2.6 (2.9)
Balance sheet reserve movements in the year (33.2) (6.2)
Change in net assets during the year 21.9 33.2
Net assets at 1 January 2005 (restated under IFRS) 331.9 298.7
Net assets at 31 December 2005 353.8 331.9
+ Two non-recurring items reduced underlying profit in 2005, these were a
transfer of interest in our joint venture at New London Bridge House causing a
deficit of �1.1 million and non-recurring legal fees to defend our shareholding
at our other joint venture, London Bridge Tower. The underlying profit from
ongoing operations was therefore �21.9 million.
++ In early January 2006 further costs relating to the disposal of WightCable
North were incurred, amounting to �2.1 million. We have been advised by our
auditors that the prescriptive nature of the IFRS Accounting Standards prevent
us from providing for these costs in 2005 and they have therefore been expensed
in 2006.
Key statistics and other financial information
31 Dec 31 Dec
2005 2004
INCOME STATEMENT
Adjusted earnings per share on continuing 19.7 p 25.9 p Down %
operations * ++ 23.9
Earnings per share 67.5 p 47.0 p Up 43.6 %
Net rental income �69.3 m �67.6 m Up 2.5 %
Operating profit (excluding fair value gains �54.9 m �58.6 m Down %
on property) 6.3
Net interest payable �36.3 m �34.1 m Up 6.5 %
Underlying profit (excluding fair value gains �17.5 m �22.9 m Down %
on property) 23.6
Fair value gains on investment property �67.2 m �37.2 m Up 80.6 %
Profit before taxation �84.7 m �60.1 m Up 40.9 %
Profit for year �55.3 m �39.4 m Up 40.4 %
BALANCE SHEET
Adjusted NAV per share* 606.9 p 522.3 p Up 16.2 %
Statutory NAV per share 441.9 p 386.2 p Up 14.4 %
Distribution per share from tender offer 22.8 p 19.3 p Up 18.1 %
buy-backs
Property portfolio �1,096.4m �1,022.5m Up 7.2 %
Net asset value �353.8 m �323.8 m Up 9.3 %
Cash �118.2 m �57.4 m Up %
105.9
Adjusted gearing* 125.2 % 133.8 % Down %
8.6
Statutory gearing 171.9 % 181.0 % Down %
9.1
Adjusted solidity* 38.7 % 39.0 % Down %
0.3
Statutory Solidity (net assets as a ratio of 27.9 % 28.5 % Down %
gross assets) 0.6
Shares in issue (000's) - excluding treasury 80,058 83,853 Down %
shares 4.5
IAS 32 fair value adjustment after tax 34.6 p 27.8 p Up 24.5 %
* IAS12 requires that a deferred tax provision be made in respect of the
potential gain that would arise if properties were to be sold at valuation and
for the potential clawback of UK capital allowances to the extent that these
amounts are not covered by available tax losses. The calculation of this
deferred tax liability has been carried out on the basis that the revaluation
gains on the properties will be realised through receipt of net rents for the
properties owned. As such the amount provided represents the maximum potential
tax liability. Your Board considers it unlikely that this theoretical liability
will ever crystallise because it takes no account of the way in which the Group
would realise these gains. In particular the deferred tax provision takes no
account of the way in which properties are expected to be sold, of the
indexation allowance available when calculating a taxable capital gain in the
UK or of elections available to ensure that deductions claimed previously for
capital allowances are not reversed. The Board has complied with pronouncements
from the APB and the UK Listing Authority in showing NAV and Earnings per share
including the IAS 12 provision with equal prominence as the adjusted figures.
The effect of IAS 12 has been excluded from those statistics that are indicated
by an asterisk. At 31 December 2005 the IAS 12 deferred tax charge included in
the profit and loss account was �21.9 million and the cumulative reduction to
net assets was �132.1 million (31 December 2004: charge to tax of �16.0 million
and reduction in net assets of �114.1 million respectively). The accounting
policies are as set out in the Group's IFRS Transition Report for the year
ended 31 December 2004.
++ In line with UK property industry practice adjusted earnings per share does
not include gains on revaluations and deferred taxation.
BUSINESS HIGHLIGHTS
During 2005
Successful completion of our major refurbishment of Fr�saren 12 at Solna and
the occupation by ICA Maxi supermarket in May 2005 and ICA headquarter offices
in August 2005, in all 24,000 sq m (259,400 sq ft).
Substantial investment programme initiated in Germany with the purchase of two
office properties in Hamburg. Frohb�sestrasse 12 was purchased for �2.5 million
(Euro3.6 million) with a 15 year lease, generating a return on equity of 22.8 per
cent. The second property, Jarrestrasse 8-10, was purchased for �8.6 million (Euro
12.5 million) generating a return on capital employed of 23.2 per cent.
Three new lettings at Solna covering 6,056 sq m (65,078 sq ft).
An additional property, Yrket 3, bought at Solna Business Park, Stockholm for �
5.1 million (SEK 70.0 million) giving a return on equity of 18.4 per cent after
financing.
Two office properties purchased in France, at 23 rue Raspail, Ivry-sur-Seine,
Paris for �7.9 million (Euro11.6 million) giving a return on equity of 40.7 per
cent and at 3 All�e du 1er Mai, Croissy Beaubourg for �3.4 million (Euro5.1
million) giving a return on equity of 29.1 per cent.
Four smaller French office properties and vacant space sold for total proceeds
of �6.4 million (Euro9.4 million).
Extensive refurbishment at Great West House, Brentford substantially finished.
Sale of Carlow House and New London House, Drury Lane for a total of �32.2
million, generating a profit on disposal of �1.5 million. The properties were
originally purchased in 1995 for �11.5 million and 1994 for �10.5 million,
respectively.
Extension of leases to the Home Office at Spring Gardens. The entire estate
now let for a term of 20 years.
Re-financing of properties across the portfolio raised additional funding of �
97.8 million.
WightCable business assets sold and balancing tax allowances realised.
2006
Sale of L�vg�rdet for �39.9 million (SEK547 million) purchased in 2002 for �
29.4 million (SEK440 million).
Exchanged on the purchase of Adlershof Tor, a 19,715 sq m (212,212 sq ft)
retail and office building in Berlin and a new 19,466 sq m (209,532 sq ft) head
office building in Munich.
Sold Le 41 a 6,026 sq m (64,864 sq ft) property in Paris for �15.3 million (Euro
22.3 million). It had been vacated by IBM in January 2005 and was originally
purchased in 1998 for �7.4 million (Euro11.7 million).
WightCable North business assets sold.
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report that the Company has grown from strength to strength
during 2005.
We discuss our financial results in detail in the Financial Review, however I
summarise below the key elements of our performance in the year.
Adjusted net asset value (NAV) per share has increased from 522.3 pence by
16.2 per cent to 606.9 pence, this having been achieved despite an adverse
foreign exchange translation movement of 13.5 pence. The calculation of
adjusted NAV is based on the net assets of the Group excluding the provision
for deferred tax, amounting to �132.1 million, divided by the shares in issue
(excluding treasury shares), being 80,057,687.
This is the tenth year in succession that our NAV per share has increased,
showing an average growth rate of 16.6 per cent compound per annum.
Statutory NAV per share, which includes the full provision for deferred tax of
�132.1 million as required by International Financial Reporting Standards
(IFRS), increased from 386.2 pence by 14.4 per cent to 441.9 pence.
Profit before taxation, which under IFRS now includes the increase in the fair
value of our property assets, increased from �60.1 million by 40.9 per cent to
�84.7 million. The fair value increase in the property assets in the year was
�67.2 million, an increase of 80.6 per cent on the uplift in the previous year.
BUSINESS REVIEW 2005
The business has continued to perform consistently well across each of our
divisions although market conditions have varied across operating regions.
UK
Investment yields have sharpened during 2005 with prime yields falling to below
5 per cent in the London market, less than the cost of borrowing in the UK.
The weight of money in the market is likely to continue to exert downward
pressure on investment yields. In late 2005 we took advantage of the strong
market and sold Carlow House and New London House for �32.2 million at a profit
of �1.5 million over and above the half year valuation. We continue to look
for good quality assets with opportunities for growth although we will not
sacrifice our underlying investment principles.
The main priority in the UK is to actively manage our existing properties to
ensure maximum value is achieved. The letting market has continued to prove
challenging, however despite space having become available at Vista Office
Centre and Chancel House we have contained our UK vacancy rate at 5.3 per cent.
In addition, a further 4,587 sq m (49,374 sq ft) is under refurbishment at
Great West House, representing 2.9 per cent of space in the UK portfolio.
The significant feature in 2005 has been the agreement to extend all the leases
held at Spring Gardens by the Home Office to a term of 20 years. This
government tenant now occupies the entire estate following our relocation to
Victoria in order to accommodate their expansion requirements. The lease
extensions are conditional upon our completion of two further infills
comprising 2,503 sq m (26,945 sq ft) the construction of which is due to
complete in March 2007. When completed the annual rent generated will be �6.3
million per annum.
UK Joint Ventures
We are working closely together with our joint venture partners to secure
pre-lettings of office space at both London Bridge Tower (The Shard of Glass)
and at New London Bridge House, for which a striking Renzo Piano design has
been submitted to the planning authorities. We are hoping to make significant
letting progress in respect of both of these projects in the coming year.
Sweden
During 2005 we completed the refurbishment works at Solna Business Park to
24,000 sq m (259,400 sq ft) of space at Fr�saren 12, to enable ICA, the largest
food retailer in Scandinavia, to take occupation of their head office and
supermarket, in accordance with a demanding budget and programme.
Additionally, we completed both the internal refurbishment works to Smeden and
to its award winning 250 metre long uplit fa�ade, enclosed within a glass
envelope. The major challenge for us at Solna is to let the recently vacated
areas at Sliparen 2 representing 10,672 sq m (114,874 sq ft), 8.1 per cent of
space at Solna, and to let the rest of the vacant space within the development,
representing 20,324 sq m (218,772 sq ft).
In early February 2006 we took advantage of the strong investment market in
Sweden and sold our portfolio of 1,280 apartments and 42,608 sq m (458,644 sq
ft) of commercial and retail space to a major local landlord specialising in
local residential estates, for a price of �39.9 million (SEK 547 million), in
line with our year end valuation. These properties were purchased in January
2002 for �29.4 million (SEK440 million).
Continental Europe
French property comprises the majority of the portfolio in Continental Europe
and this division has made a substantial contribution to our underlying profit
before tax, amounting to �14.5 million (Euro21.2 million). In addition, the
increase in fair value of this portfolio during the year was �33.2 million (Euro
48.5 million).
The French letting market was relatively healthy during 2005 with take-up of
space in Paris of 2.2 million sq m (23.4 million sq ft), over 12 per cent up on
2004, keeping pace with the supply of new space coming onto the market. The
overall market vacancy rate in the Paris area was 5.8 per cent, slightly down
on the previous year.
Our vacancy rate at the year end was 6.4 per cent by area of the French
portfolio, which was largely due to the vacant 6,026 sq m (64,864 sq ft) Le 41
building. This building was sold in January 2006 and the residual vacancy rate
of the entire French portfolio is now just 3.0 per cent by area.
Equity investments
During the first half of the year we sold one of our unlisted investments,
Sit-up TV producing a profit of �1.6 million on the transaction.
Following our decision to sell our cable businesses, we sold the assets of
WightCable Limited at the end of December 2005 and the sale of the assets of
WightCable North Limited was completed in mid January 2006. The cable company
results are shown as discontinued operations and amounted to a loss of �6.2
million. As a result of the sale of these assets, the group has realised the
residual capital allowances which amounted to �22.0 million.
Our equity investment portfolio was valued at �13.7 million at 31 December
2005, representing 1.1 per cent of the Group's gross assets. We will closely
monitor those investments in our portfolio that have potential to perform well
but conversely, we will not fund enterprises that continue to under-perform.
OUTLINE STRATEGY
The continuing strategy of the Group will be to invest in modern, well-let
properties that generate good returns on capital employed in markets that we
know and understand.
The strategic principles by which we operate are outlined below :
* to invest in good quality, modern buildings that are generally located in
strategically well placed secondary office locations just outside the
central business district of major cities.
* To operate in European markets that we know and understand. This has been
the UK, Sweden and France and we will include Germany within our core
investment regions in 2006.
* To establish offices in each country in which we operate, employing local
well qualified highly motivated professional staff.
* The application of strict investment criteria to new property purchases,
taking into account the yield, strength of tenant covenants, lease lengths,
reliability and the projected return on equity and return on cash over five
and ten years.
* The gearing of our investments with initial loan to values generally at or
above 75 per cent, borrowing from well respected banking institutions in
the currency of the asset in order to limit foreign exchange exposure.
* Investment with a view to adding long-term value to our property
portfolio. We do this by providing good service and developing close
relationships with our suppliers and tenants and where appropriate carry
out major refurbishment works to properties, using our own in-house
development teams. In this way we aim to establish long-term tenants.
* The ability to act with speed to new opportunities, having access to strong
cash reserves. We actively seek out new opportunities where we see good
returns coupled with acceptable levels of risk.
* The careful assessment of risk and where appropriate use of hedging
instruments to protect ourselves from potential adverse consequences.
THE FUTURE
Germany
In the summer of 2005 we took the decision to invest in Germany, a market where
we can see good returns being achieved on selective purchases. The groundwork
of careful research and the development of business relationships with local
professional advisers enabled us to successfully commence the establishment of
a German portfolio by completing the purchase of two small properties at the
end of the year.
Since then we have contracted to purchase two further properties to the value
of �45.1 million (Euro65.6 million) generating a return on equity of 20 per cent.
Upon completion of these contracted purchases we will hold five properties in
Germany to the value of �57.7 million (Euro84.2 million).
It is our intention to build up a high quality portfolio in Germany in excess
of Euro300 million in selected major cities.
UK
In The UK we will work hard in 2006 to complete the refurbishment and letting
of Great West House and to continue to reduce other vacant space within the
portfolio. We are also evaluating the potential development of a number of
other property assets we hold in order to add value to our investment
portfolio.
As mentioned above, together with our joint venture partners, we are preparing
to develop The Shard and New London Bridge House. These are significant
projects in their own right and we recognise it is absolutely critical to
ensure that we assemble the right blend of expertise and experience within the
development team, together with the appropriate combination of financing and
secure anchor pre-lets to quality tenants before commencing construction. It
is our intention to limit the amount of equity contribution we are exposed to
on these projects.
Sweden
Our major challenge is to capitalise on the brand image and concept of Solna
Business Park by letting all remaining space, optimise its value and to secure
the future of the areas currently occupied by the university at V�nerparken. In
this respect we are working closely with the local authority at V�nersborg.
France
It is our intention to expand our portfolio along the lines of our existing
model, seeking opportunities both within Paris and other selected major cities.
Organisation
We have now laid down a strong organisation headed by Per Sj�berg who took up
the post of Chief Executive Officer on 1 January 2006. We have experienced
teams on the ground in each of our core operating regions and we are fully
confident that they will achieve the clear goals we have identified.
Environmental and social issues
We not only think that it is socially responsible to take environmental issues
seriously, we also think that in an age of rising energy costs it also makes
commercial good sense. We are therefore purposely seeking out innovative green
solutions to the design of new and refurbished buildings we are contemplating
and have already been awarded the environmental "P mark" standard for
developing "green" energy efficient properties in the refurbishment of our
Solna complex.
It has also been pleasing to see the complete transformation of the Solna
Business Park area of Stockholm from a run-down drab industrial area to a
vibrant modern environment with in excess of 10,000 visitors a day to its
offices, supermarket, hotel, gym and other leisure facilities. It is our
intention to bring a similar transformation to the London Bridge quarter.
PERFORMANCE FOR INVESTORS
Over the last five years adjusted net assets per share has grown from 325.5
pence per share to 606.9 pence per share, an increase of 86.5 per cent. The
total return to shareholders, which takes account of NAV growth and
distributions showed an average annual compound growth of 20.5 per cent.
The total return to CLS investors in the year has been 22.7 per cent (Source:
Thomson Data Stream).
We now have substantial cash reserves and have demonstrated consistently strong
performance over the years. There is still a 10.1 per cent discount between
NAV per share and share price, we therefore propose to recommend a tender
offer buy-back of 1 in 42 shares at 600 pence per share. This, together with
the interim tender offer will result in a total distribution for the year of
22.8 pence per share, an increase of 18.1 per cent over the previous year.
My fellow directors and I would particularly like to thank our staff for their
dedication and hard work during the year, we would also like to thank our
advisers for their professionalism and creativity and our shareholders for the
encouragement and support that they have given to the Company.
We have concluded a very successful year and look forward to an exciting
future.
Sten Mortstedt
Executive Chairman
10 March 2006
FINANCIAL REVIEW
Introduction There has been strong capital growth in our assets across all
three of our main European markets with the prospect of further uplifts in
values on the back of preparatory work laid down during 2005.
Adjusted NAV of 606.9 pence per share (December 2004 : 522.3 pence), grew by
16.2 per cent during 2005 (Statutory NAV of 441.9 pence per share grew by 14.4
per cent over the same period). In the last five years the adjusted net asset
value per share has grown by 13.2 per cent compound per annum, or a total of
86.5 per cent (Statutory NAV has shown a similar growth throughout that
period). The organic growth in adjusted net asset value per share over the
period (taking into account the effect of tender offer buy-backs but excluding
growth attributable to the purchase of shares on the market for cancellation)
has been 68.3 per cent (Statutory NAV has shown similar growth throughout that
period). If all share options were to be exercised, the dilutive effect would
be to reduce adjusted NAV per share by 2.7 pence (Statutory NAV by 1.4 pence).
At the year end the post-tax IAS 32 disclosure, showing the effect of restating
fixed interest loans to fair value, amounted to a reduction of 34.6 pence per
share (December 2004 : 27.8 pence).
Added value to shareholders was 20.1 per cent (December 2004: 20.8 per cent),
as measured by the increase in adjusted NAV per share and distributions by
tender offer buy-backs. Based on Statutory NAV the return was 19.7 per cent
(December 2004: 18.6 per cent).
During the year the Company distributed �16.8 million (20.3 pence per share) to
shareholders by way of tender offer buy-backs at an average price per share of
495 pence (December 2004 : 18.1 pence per share distributed).
Net assets grew by �30.0 million to �353.8 million in the year, which included
a �7.7 million reduction relating to negative foreign exchange translation
movements in respect of the Group's Swedish and Continental European net
assets. The Kronor and Euro both weakened against Sterling during the year.
Foreign exchange movements are substantially hedged as each property is funded
by loans in local currency. Net asset growth is calculated after taking into
account the cost of tender offer buy-back distributions made during the year,
which totalled �16.8 million as mentioned above.
Adjusted gearing at the year end decreased to 125.2 per cent (December 2004:
133.8 per cent) (statutory gearing was 171.9 per cent - December 2004 : 181.0
per cent). Tender offer buy-backs and market purchases during the year had the
impact of increasing gearing by 3.9 per cent and the negative effect of foreign
exchange translation of overseas net assets during 2005 increased gearing by a
further 2.6 per cent.
The Group held �118.2 million cash as at 31 December 2005 (December 2004: �57.4
million), the movement in the year being:
2005 2004
�M �M
Cash inflow from property activities 51.8 51.7
Increase in equity investments held in current assets (3.5) (6.5)
Cash inflow from operations 48.3 45.2
Net interest and other finance costs (33.4) (31.6)
Taxation (0.3) (0.5)
Properties purchased and enhanced (67.3) (69.3)
New loans 148.6 112.9
Properties sold 45.1 8.5
Loans repaid (57.8) (45.8)
Tender offer payment to shareholders (16.8) (15.8)
Market purchase of shares for cancellation (2.0) -
Other (3.6) (3.5)
Net cash inflow 60.8 0.1
Existing equity investments held amounted to �13.7 million (December 2004 : �
10.5 million). The majority by value are listed investments, which are now
carried at market value, and represent only 1.1 per cent of the gross assets of
the Group.
We believe that our unlisted investments have the potential for growth in value
in due course; we continue to be closely involved in their progress and add
commercial support where appropriate.
The underlying elements of the growth in net assets are set out in the table
below. It is not expected that deferred taxation provided would become payable
in full if the properties were sold. It is currently anticipated that the
overseas property assets would be sold within corporate entities.
Continental Equity
Group UK Sweden Europe Investments
�000 �000 �000 �000 �000
Opening net assets
As reported under UK GAAP 426.4 184.6 110.1 118.0 13.7
Adoption of IFRS 31 Dec 04
IAS 12 deferred tax (107.4) (42.7) (28.9) (35.8)
Other IFRS 4.8 2.3 2.5
as re-stated 31 December 2004 323.8 144.2 81.2 84.7 13.7
Adoption of IAS32 and 39 1 Jan 2005
Adoption of IAS 32 and 39 10.0 (2.0) 12.0
Deferred tax on IAS 32 and 39 (1.9) 1.0 (2.9)
as re-stated 1 January 2005 331.9 143.2 81.2 84.7 22.8
Movement in 2005
Income from investment in property 73.4 34.4 17.6 21.4
Realised gains on investments 1.1 1.1
Deficit on part disposal JV (1.1) (1.1)
Share of loss of Associates (1.2) (1.2)
Operating expenses (18.4) (11.2) (3.3) (2.5) (1.4)
Net interest payable (36.3) (19.8) (10.6) (4.3) (1.6)
Underlying profit before tax 17.5 2.3 3.7 14.6 (3.1)
Fair value gains on investment property 67.2 24.2 9.8 33.2
Taxation - current (1.3) (0.1) (1.2)
Taxation - deferred (21.9) (4.4) (4.3) (13.2)
Discontinued operations (6.2) (6.2)
Increase in equity due to direct investment 55.3 22.0 9.2 33.4 (9.3)
Other Equity movements
Shares issues 0.1 0.1
Shares purchased and associated costs (19.0) (19.0)
Foreign exchange and other movements (7.7) (5.5) (2.2)
Change in fair value of listed investments net of tax (7.3) (7.3)
Change in fair value of derivative instruments (0.8) (0.8)
Purchase of minority interest 1.3 1.3
Transfer of equity 14.5 (9.2) (15.6) 10.3
Net assets at 31 December 2005 353.8 160.0 75.7 100.3 17.8
REVIEW OF THE INCOME STATEMENT
Financial Results by Location The results of the Group have been analysed by
location and main business activity as set out below:
Equity
2005 Continental investments
Total UK Sweden Europe 2004
�m �m �m �m �m �m
Net rental 69.3 31.8 17.2 20.3 - 67.6
income
Other 3.3 1.1 0.4 0.7 1.1 4.2
operating
gains
Operating (18.4) (11.2) (3.3) (2.5) (1.4) (13.6)
expenses
Operating
profit
before gains 54.2 21.7 14.3 18.5 (0.3) 58.2
on
investment
properties
Fair value
gains on
investment 67.2 24.2 9.8 33.2 - 37.2
properties
Deficit on (1.1) (1.1)
disposal
part share
JV
Gain from
sale of
investment 1.9 1.5 - 0.4 - 0.5
properties
Net finance (36.3) (19.9) (10.5) (4.3) (1.6) (34.1)
expense
Associates' (1.2) - - - (1.2) (1.7)
operating
loss
Profit on
continuing
activities 84.7 26.4 13.6 47.8 (3.1) 60.1
before tax
Tax - (1.3) (0.1) - (1.2) - (0.6)
ordinary
Tax - (21.9) (4.5) (4.3) (13.1) - (16.1)
deferred
Loss on (6.2) - - - (6.2) (4.0)
discontinued
operations
Retained 55.3 21.8 9.3 33.5 (9.3) 39.4
profit
Net rental income of �69.3 million has increased by 2.5 per cent (December 2004
: �67.6 million) and reflected additional net income of �0.8 million in Solna,
Sweden from the ICA space completed in May 2005 and increased rentals in France
of �1.5 million due to indexation and lease restructuring. Swedish net rental
income was reduced by increased net service charge expense of �0.7 million as
the majority of the rents are fully inclusive. UK net rental income was stable
with an increase of �0.1 million. Foreign exchange had a negligible effect on
rental income.
Other operating gains amounted to �3.3 million (December 2004: �4.2 million)
and included �1.6 million profit on the disposal of Sit-up TV, an investment
within our equity portfolio, and dilapidations and lease surrender income of �
0.9 million. Income of �0.4 million was generated in Sweden from Solna Sports
Park and the marina at Vanerparken, lease extensions on our residential units
at Cliffords Inn generated �0.2 million and the remainder was generated from
insurance commissions and management fees on development projects net of
provisions against unlisted investments.
Operating expenses
Operating expenses as set out in the summary table above comprised
administrative expenditure of �14.9 million (December 2004: �10.0 million) and
net property expenses of �3.5 million (December 2004: �3.6 million)
Administrative expenditure of �14.9 million increased by �4.9 million
(December 2004 : �10.0 million). Of this total, �13.6 million related to the
core property business, an increase of �4.5 million over the comparative figure
for last year. This was mainly due to exceptional legal and professional fees
expensed amounting to �3.3 million, incurred to successfully preserve our 33.3
per cent shareholding in respect of a joint venture company holding London
Bridge Tower. Reasons for the remainder of the increase over the previous year
included costs of relocation and employment related expenditure particularly in
relation to developing new markets. Overheads for the Investment Division were
�1.4 million.
Net property expenses of �3.5 million (December 2004 : �3.6 million) included
depreciation of �0.3 million, letting fees of �0.3 million, mainly in relation
to vacant space within the French portfolio and void costs of �0.7 million
(mainly at Great West House, Brentford, undergoing refurbishment). Advertising
and marketing costs totalled �0.4 million, bad debts amounted to �0.9 million,
mostly in relation to One Leicester Square, and repairs and maintenance costs
were �0.2 million for minor works in Paris and the UK. The remainder comprised
operating costs of the gym at Solna of �0.4 million and non-recoverable VAT.
Net finance expense amounted to �36.3 million (December 2004 : �34.1 million)
and showed an increase of �2.2 million over net expenditure in 2004, reflecting
re-financings within all three of the Group's markets, mitigated by lower
interest rates on floating rate debt in the UK and Sweden.
The comparative figures for 2004 do not include a fair value adjustment for
caps and other financial instruments as IAS 39 and 32 were only applied from 1
January 2005. The overall interest charge for 2004 would have been
approximately �0.9 million lower had it been calculated on a similar basis.
The Group's policy is to expense all interest payable to the profit and loss
account, including interest incurred in the funding of refurbishment and
development projects, which amounted to �1.7 million in 2005 for Great West
House, Brentford and Fr�saren 12 in Solna.
Analysis of net finance expense 2005 2004 Difference
�m �m �m
Interest receivable 1.4 1.7 (0.3)
Foreign exchange - 0.1 (0.1)
Interest receivable and similar income 1.4 1.8 (0.4)
Interest payable and similar charges (37.7) (35.9) (1.8)
Net finance expense (36.3) (34.1) (2.2)
Interest payable and similar charges of �37.7 million (December 2004: �35.9
million) included fair value movements on interest rate caps amounting to �0.1
million (December 2004: �1.0 million, before the application of IAS 32 and 39)
and amortisation of issue costs of loans totalled �1.4 million (December 2004:
�1.1 million).
The average cost of borrowing for the Group at 31 December 2005, which includes
an estimate of the fair value adjustment in respect of interest rate caps, is
set out below:
Continental
December 2005 UK Sweden Europe Total
Average interest rate on fixed rate debt 7.2% 5.6% 4.6% 6.1%
Average interest rate on variable rate debt 6.1% 3.2% 3.5% 4.2%
Overall weighted average interest rate 6.9% 4.5% 4.2% 5.4%
December 2004
Average interest rate on fixed rate debt 7.3% 5.8% 4.6% 6.4%
Average interest rate on variable rate debt 6.6% 3.9% 3.3% 4.6%
Overall weighted average interest rate 7.1% 4.8% 4.0% 5.7%
Taxation In 2005 the Group's current taxation charge has benefited from the
utilisation of losses, significant capital allowances and amortisation
deductions. Outside the UK 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. In the UK the
disposal of the cable businesses has resulted in significant balancing
allowances which will have increased losses available to offset future profits.
Loss from discontinued operations The Group completed the disposal of the
business and the assets of WightCable in December 2005 and of WightCable North
in January 2006. The operating results of these two businesses have been
classified under IFRS 5 as discontinued operations and the comparative figures
for 2004 have been similarly re-stated. The results for 2005 include the
write-down during the year of the assets of WightCable North of �1.8 million,
and the purchase of the remaining minority interest of �1.3 million. In early
January 2006 further costs relating to the disposal of WightCable North were
incurred, amounting to �2.1 million. We have been advised by our auditors that
the prescriptive nature of the IFRS Accounting Standards prevent us from
providing for these costs in 2005 and they have therefore been expensed in
2006.
REVIEW OF THE BALANCE SHEET
Investment Properties� The investment properties of the Group have increased to
�1,096.4 million (December 2004: �1,022.5 million). The analysis of the net
increase of �73.9 million is shown below:
Continental Europe
Total UK Sweden France Germany
�m �m �m �m �m
Opening assets 1,022.5 479.6 273.1 268.0 1.8
Purchases 31.0 3.0 5.1 11.3 11.6
Refurbishment 43.4 10.7 31.0 1.7 -
Disposals (45.6) (38.3) (1.2) (6.1) -
Revaluation 67.2 24.2 9.8 33.7 (0.5)
Foreign exchange (27.0) - (19.7) (7.2) (0.1)
Other 4.9 2.1 2.8 - -
Closing assets 1,096.4 481.3 300.9 301.4 12.8
Purchases
Two new properties were purchased in France at Rue Raspail and Croissy
Beaubourg at a total cost of �11.3 million (Euro16.7 million). An additional
property, Yrket 3, was purchased at Solna Business Park at a cost of �5.1
million (SEK 70.0 million) and we completed the purchase of two new properties
in Hamburg, Germany at Frohb�sestrasse 12 for �2.5 million and at Jarrestrasse
8-10 for �9.1 million including costs (Euro16.1 million). Three small residential
units were purchased as part of our site at Vauxhall Cross, London for �1.8
million and two further residential flats were purchased at 'The View',
Victoria, London for �1.2 million.
Refurbishment
Expenditure on refurbishments of �43.4 million included �30.3 million expended
at Solna, mainly on the construction of retail and office space for ICA, and �
6.5 million at Great West House, Brentford, undergoing major refurbishment and
a new facade.
Disposals
Several disposals were made during the year; Lord Byron, La Ferme, Avenue
Fontainebleau and Abb� Hazard were sold in France during the year for a total
consideration of �6.4 million, yielding a total profit on disposal of �0.4
million, and in the UK Carlow House was sold for �18.2 million, generating a
profit on sale of �0.4 million, and New London House, Drury Lane sold for �14.0
million, generating a profit on disposal of �1.1 million.
Foreign exchange
Foreign exchange translation losses on Swedish and French property holdings
amounted to �27.0 million in the year. After taking into account the effect of
foreign exchange translation on loans to finance these assets, the net effect
was a loss of �10.8 million.
Based on the valuations at 31 December 2005 and annualised contracted rent
receivable at that date of �76.4 million (December 2004: �74.6 million), the
portfolio shows a yield of 6.3 per cent (December 2004 : 6.9 per cent).
An analysis of the location of investment property assets and related loans is
set out below:
Total % UK* % Sweden** % Continental % Equity %
Europe** Investments
�m �m �m �m �m
Investment 1,096.4 100.0 481.3 43.9 300.9 27.4 314.2 28.7 0.0 0.0
properties
Loans (719.9) 100.0 (317.6) 44.2 (186.8) 25.9 (205.8) 28.6 (9.7) 1.3
Equity in 376.5 100.0 163.7 43.5 114.1 30.3 108.4 28.8 (9.7) (2.6)
Property
Assets
Other 109.4 100.0 49.5 45.2 (7.3) (6.7) 40.1 36.7 27.1 24.8
Net 485.9 100.0 213.2 43.9 106.8 22.0 148.5 30.6 17.4 3.5
Adjusted
Equity
Equity in 34.3% 34.0% 37.9% 34.5% -
Property
as a
Percentage
of
Investment
�m �m �m �m �m
Opening 437.2 192.9 110.1 120.5 13.7
Equity
Increase 48.7 20.3 (3.3) 28.0 3.7
Closing 485.9 213.2 106.8 148.5 17.4
Equity
** The following exchange rates were used to translate assets and liabilities
at the year end : SEK/GBP 13.702 : Euro/GBP 1.453
* Net assets were reduced by payments for tender offer distributions
totalling �16.8 million, and market purchases totalling �2.0 million which are
included within the results of the UK.
Debt Structure Borrowings are raised by the Group to finance holdings of
investment properties. These are secured, in the main, on the individual
properties to which they relate. All borrowings are taken up in the local
currencies from specialist property lending institutions.
Financial instruments are held by the Group to manage interest and foreign
exchange rate risk. Hedging instruments such as interest rate caps are
acquired from prime banks. The Group has thereby hedged all of its interest
rate exposure and a significant proportion of its foreign exchange rate
exposure.
Net Total UK Sweden Continental Equity
Interest Europe Investments
Bearing �m % �m % �m % % %
Debt �m �m
Fixed (389.5) 54.1 (221.6) 69.8 (88.4) 47.3 (79.4) 38.6 (0.1) 1.0
Rate
Loans
Floating (330.4) 45.9 (96.0) 30.2 (98.4) 52.7 (126.4) 61.4 (9.6) 99.0
Rate
Loans
(719.9) 100.0 (317.6) 100.0 (186.8) 100.0 (205.8) 100.0 (9.7) 100.0
Bank and 118.2 55.1 10.3 43.7 9.1
cash
Net (601.7) 100.0 (262.5) 43.7 (176.5) 29.3 (162.1) 26.9 (0.6) 0.1
Interest
Bearing
Debt
2004 (581.2) 100.0 (289.6) 49.8 (141.2) 24.3 (148.5) 25.6 (1.9) 0.3
Non interest bearing debt, represented by short-term creditors, amounted to �
45.4 million (December 2004: �44.1 million)
Interest rate caps Total UK Sweden Continental
Europe
% % %
%
2005
Percentage of net floating rate loans
capped 100.0 100.0 100.0 100.0
Average base interest rate at which loans
are capped 5.2 5.8 4.9 5.0
Average tenure 2.8 2.4 2.7 3.1
years years years years
2004
Percentage of net floating rate loans
capped 100.0 100.0 100.0 100.0
Average base interest rate at which loans
are capped 5.3 6.6 4.9 4.8
Average tenure 3.1 2.7 3.4 3.4
years years years years
During 2005 a number of re-financings in the Group portfolio took place, the
majority of which were on a floating rate basis, hedged by five year interest
rate caps. Since the year-end we have extended the tenure of our commercially
effective caps to an average of 3.8 years for Sterling and 5.1 years for Euro.
New Printing House Square was financed in 1992 through a securitisation of its
rental income by way of a fully amortising bond. This bond has a current
outstanding balance of �38.0 million (December 2004: �38.6 million) at an
interest rate of 10.8 per cent with a maturity date of 2025; and a zero coupon
bond, with a current outstanding balance of �5.5 million (December 2004: �5.0
million), with matching interest rate and maturity date. This debt instrument
has a significant adverse effect on the average interest rate and the IAS 32
adjustment.
The net borrowings of the Group at 31 December 2005 of �601.7 million showed an
increase of �20.5 million over 2004, reflecting our increasing investment
programme. We have refinanced our assets in the UK (�57.8 million), Sweden (�
48.3 million) and within the French portfolio (�39.8 million), and new loans
for acquisitions in Germany of �9.7 million. Foreign exchange translation gains
on Swedish and French loans reduced the liability by �16.2 million during the
year, and repayments totalled �57.8 million.
Under the requirements of IAS 32, which addresses disclosure in relation to
derivatives and other financial instruments, if our loans were held at fair
value, the Group's fixed rate debt at the year end would be in excess of book
value by �39.5 million (December 2004 : �33.3 million) which net of tax at 30
per cent equates to �27.8 million (December 2004 : �23.3 million).
The contracted future cash flows from the properties securing the loans are
currently well in excess of all interest and ongoing loan repayment
obligations. Only �25.3 million (3.5 per cent) of the Group's total bank debt
of �719.9 million is repayable within the next 12 months, with �365.3 million
(50.7 per cent) maturing after five years.
Share Capital The share capital of the Company totalled �21.4 million at 31
December 2005, represented by 85,527,177 ordinary shares of 25 pence each,
quoted on the main market of the London Stock Exchange. Of the shares in issue,
5,469,490 are held as Treasury shares following the tender offer buy-backs and
market purchases made during the year, and therefore are not included for the
purposes of the proposed tender offer buy-back or for calculating earnings and
NAV per share.
A capital distribution payment by way of tender offer buy-back was made both in
May and November of 2005 resulting in the purchase of 3.4 million shares and
providing a distribution of �16.8 million to shareholders, together with costs
of �0.1 million.
Market purchases during 2005 totalled 441,000 shares at an average price of 457
pence per share.
A total of 54.7 million shares have been purchased at a total cost of �128.4
million since the programme of buy-backs started in 1998. The average cost of
shares purchased for cancellation over this period was 235 pence per share.
The weighted average number of shares in issue during the year was 82,316,545
(Decemebr 2004 : 86,113,994).
The average mid-market price of the shares traded in the market during the year
ended 31 December 2005 was 452 pence with a high of 505 pence in December 2005
and a low of 394 pence in January 2005.
An analysis of share movements during the year is set out below:
No of No of
shares shares
Million Million
2005 2004
Opening shares for NAV purposes 83.9 87.6
Tender offer buy-back (3.4) (4.1)
Buy-backs in the market for cancellation (0.4) -
Shares issued for the exercise of - 0.4
options
Closing shares for NAV purposes 80.1 83.9
Shares held in Treasury by the Company 5.4 1.6
Closing shares in issue 85.5 85.5
In total 21.9 million shares were traded in the market during 2005.
An analysis of the ownership structure is set out below:
Number of Percentage of
shares shares
Institutions 32,618,524 40.8%
Private investors 1,476,084 1.8%
The Mortstedt family directors 41,017,368 51.2%
Other 4,945,711 6.2%
80,057,687 100.0%
Shares held in Treasury by the 5,469,490
Company
Total 85,527,177
Should the proposed tender offer buy-back be fully taken up, the number of
shares in issue would be reduced by 1,906,135 to78,151,552 (excluding shares
held in treasury of 7,375,625).
At 31 December 2005 there were 595,000 options in existence with an average
exercise price of 246.1 pence.
Distribution As the current share price remains at a considerable discount to
net asset value, your Board is intending to propose a further tender offer
buy-back of shares in lieu of paying a cash dividend, on the basis of 1 in 42
shares at a price of 600 pence per share. This will enhance net asset value
per share and is equivalent in cash terms to a final dividend per share of 14.3
pence, yielding a total distribution in cash terms of 22.8 pence per share for
the year (2004: 19.3 pence).
Corporate Structure The aim has been to continue to hold individual properties
within separate subsidiary companies, each with one loan on a non-recourse
basis.
PROPERTY REVIEW
Introduction Our continuing Group strategy is to focus upon low risk high
return properties in our core locations of London, Sweden, France and now
Germany. We believe that our emphasis on actively managing the portfolio
maximises long term capital returns. The Group now owns 113 properties with a
total lettable area of 612,838 sq m (6,596,536 sq ft), of which 45 properties
are in the UK, 24 in Sweden, 40 in France, 3 in Germany and 1 in Luxembourg. We
have 610 commercial tenants and 1,292 residential tenants.
An analysis of contracted rent, book value and yields is set out below:
Contracted Net Book Yield Yield
Rent rent Value on net when
rent fully let
�000 % �000 % �000 % % %
UK
London City Fringes 212 0.3% 212 0.3% 2,850 0.3% 7.4%
London Mid town 6,967 9.1% 6,967 10.0% 106,750 9.7% 6.5%
London West End 3,318 4.3% 3,238 4.7% 59,226 5.4% 5.5%
London West 4,977 6.5% 3,930 5.7% 74,656 6.8% 5.3%
London South Bank 10,660 13.9% 10,619 15.2% 155,892 14.3% 6.8%
London South Bank -JVs 2,046 2.7% 2,046 2.9% 34,361 3.1% 6.0%
London South West 1,439 1.9% 1,288 1.9% 20,200 1.8% 6.4%
London North West 1,678 2.2% 1,214 1.7% 25,500 2.3% 4.8%
Outside London 245 0.3% 245 0.4% 1,825 0.2% 13.4%
Total UK 31,542 41.2% 29,759 42.8% 481,260 43.9% 6.2% 6.5%*
Sweden
Sweden Gothenburg 5,888 7.7% 2,612 3.8% 39,777 3.6% 6.6%
Sweden Stockholm 12,294 16.1% 11,120 16.0% 215,524 19.6% 5.2%
Sweden Vanersborg 4,474 5.9% 3,808 5.4% 45,615 4.2% 8.3%
Total Sweden 22,656 29.7% 17,540 25.2% 300,916 27.4% 5.8% 6.5%++
Continental Europe
France Paris 16,642 21.7% 16,642 24.0% 246,786 22.6% 6.7%
France Lyon 2,740 3.6% 2,740 3.9% 34,123 3.1% 8.0%
France Lille 594 0.8% 594 0.9% 6,772 0.6% 8.8%
France Antibes 431 0.6% 431 0.6% 4,618 0.4% 9.3%
Total France 20,407 26.7% 20,407 29.4% 292,299 26.7% 7.0% 7.7%
Luxembourg 808 1.1% 808 1.2% 9,085 0.8% 8.9%
Total Luxembourg 808 1.1% 808 1.2% 9,085 0.8% 8.9% 8.9%
Germany Hamburg 813 1.0% 813 1.2% 11,012 1.0% 7.4%
Germany D�sseldorf 213 0.3% 174 0.2% 1,789 0.2% 9.7%
Total Germany 1,026 1.3% 987 1.4% 12,801 1.2% 7.7% 7.7%
Total Continental Europe 22,241 29.1% 22,202 32.0% 314,185 28.7% 7.1% 7.7%
Group Total 76,439 100.0% 69,501 100.0% 1,096,361 100.0% 6.3% 6.8%
Conversion rates : SEK/GBP 13.702 Euro/GBP 1.453
- Contracted rent is defined as gross annualised rent supported by a signed
contract.
- Net rent is defined as contracted rent less net service charge costs.
- Yields on net rents have been calculated by dividing the net rent by the book
value.
* Yields on receivable rents and potential rents have been calculated
on the assumption that book values at 31 December 2005 will increase by
refurbishment expenditure of approximately �12.0 million in respect of
projects in the UK.
++ Yields on receivable rents and potential rents have been calculated on
the assumption that book values at 31 December 2005 will increase by
refurbishment expenditure of approximately �10.3 million in respect of
projects in Solna, Sweden.
Rent analysed by length of lease and location
The table below shows rental income by category and the future potential income
available from new lettings and refurbishments.
Contracted Contracted Unlet Space Total Total
Aggregate but not Space under
Rental income at Refurb
producing ERV or with
planning
consent
Sq.m Sq. ft �000 �000 �000 �000 �000 %
UK >10 yrs 71,997 774,970 15,398 1,158 16,556 48.8%
UK 5-10 yrs 25,998 279,840 5,358 5,358 15.8%
UK < 5 yrs 44,356 477,444 9,628 9,628 28.4%
Development 6,248 67,253 1,108 1,108 3.3%
Stock
Vacant 8,394 90,352 1,243 1,243 3.7%
Total UK 156,993 1,689,859 30,384 1,158 1,243 1,108 33,893 100.0%
Sweden > 10 23,794 256,117 3,181 3,181 12.3%
yrs
Sweden 5-10 76,454 822,944 7,330 7,330 28.3%
yrs
Sweden < 5 159,304 1,714,735 12,145 12,145 46.8%
yrs
Refurbished 13,337 143,558 1,670 1,670 6.4%
space
Vacant 21,147 227,625 1,618 1,618 6.2%
Total 294,036 3,164,979 22,656 - 1,618 1,670 25,944 100.0%
Sweden
France 5-10 58,221 626,686 8,085 8,085 36.1%
yrs
France < 5 78,341 843,256 12,322 12,322 55.0%
yrs
Refurbished 1,417 15,252 166 166 0.7%
space
Vacant 9,390 101,073 1,835 1,835 8.2%
Total 147,369 1,586,267 20,407 - 1,835 166 22,408 100.0%
France
Luxembourg 3,698 39,805 808 808 100.0%
< 5 yrs
Total 3,698 39,805 808 - - - 808 100.0%
Luxembourg
Germany > 1,993 21,452 171 171 16.7%
10 yrs
Germany 932 10,032 115 115 11.2%
5-10 yrs
Germany < 5 7,817 84,142 740 740 72.1%
yrs
Total 10,742 115,626 1,026 - - - 1,026 100.0%
Germany
Group > 10 97,784 1,052,539 18,750 1,158 19,908 23.7%
yrs
Group 5-10 161,605 1,739,502 20,888 20,888 24.8%
yrs
Group < 5 293,516 3,159,382 35,643 35,643 42.4%
yrs
Refurbished 14,754 158,810 1,836 1,836 2.2%
space
Development 6,248 67,253 1,108 1,108 1.3%
Stock
Vacant 38,931 419,050 4,696 - 4,696 5.6%
Group Total 612,838 6,596,536 75,281 1,158 4,696 2,944 84,079 100.0%
We estimate that open market rents are approximately 5.2 per cent lower than
current contracted rents receivable, which represents a potential decrease of �
4.0 million. This excludes the additional rents we will receive as a result of
our refurbishment programme. An analysis of the net decrease is set out below:
Contracted Estimated Rental Reversionary
Rent Value Element
� Million � Million %
UK 31.5 30.3 (3.8)
Sweden 22.7 20.0 (11.9)
Continental 22.2 22.1 (0.5)
Europe
Total 76.4 72.4 (5.2)
The total potential gross rental income (comprising contracted rentals, and
estimated rental value of unlet space and refurbishment) of the portfolio is �
84.1 million p.a.
UKPortfolio During the year, the value of the UK property portfolio increased
by 5.0 per cent or �24.2million due to revaluation uplifts, and net of
disposals was valued at �481.3 million at 31 December 2005 inclusive of our
share of joint ventures.
The sales achieved were of Carlow House, Carlow Street, NW1 and New London
House, Drury Lane, WC2. Carlow House was sold for �18.2 million against a
purchase price in 1995 of �11.5 million. The building provides 4,454 sq m
(47,941 sq ft) of offices together with the ground rents for 13 residential
apartments. The sale price represented a net yield of 7.2 per cent.
New London House in Drury Lane provides 2,167 sq m (23,328 sq ft) of offices
together with 914 sq m (9,836 sq ft) of retail and leisure uses. The property
was sold for �14.0 million, representing a net yield of 6.4 per cent. CLS
acquired the property in 1994 for �10.5 million.
Both properties were considered to offer limited prospects for future growth
and the sales generated a profit of �1.5 million against valuation. Net cash
proceeds amounted to �10. 9 million following repayment of the loans and fees.
2005 continued to be a challenging year to find value through new acquisitions
and our purchases were limited to 3 residential properties on Wandsworth Road,
SW8 for �1.8 million.
The principal development activity during the year has been at Great West House
in West London and at Spring Gardens, Vauxhall. At Great West House we are
investing just over �11 million on a major refurbishment of the external
elevations, entrance halls and landscaping. We remain on schedule to launch the
building in the spring of 2006.
The refurbishment works at Chancel House, which include new air cooling,
overhauled lifts a new reception and the vacant offices on the 5th floor, have
been completed on schedule. The building has 1,392 sq m (14,986 sq ft) of
vacant offices to let for which we are quoting a rent of �151 per sq m (�14.00
per sq ft).
Finally, the conversion of the top two floors of Ingram House, John Adam
Street, WC2 into 5 apartments was completed during the summer of 2005 and
having taken the decision to retain these apartments, all have now been let.
A strengthening tenant market throughout 2005 has enabled us to achieve a
number of important new lettings at Vista near Heathrow, CI Tower in New
Malden, Quayside Lodge in Fulham and at our Spring Gardens Estate in Vauxhall.
Most noteworthy is the deal signed with our existing tenant, the Home Office at
Spring Gardens.
At Spring Gardens, significant progress was made towards completion of 855 sq m
(9,203 sq ft) of new office accommodation being built between Unit 3 and Unit
4. Completion is due in the first half of 2006 and these new offices have been
pre-let to the Home Office on a new 20 year lease without break at �344.50 per
sq m (�32.00 per sq ft).
The Spring Gardens Estate currently provides 15,923 sq m (171,392 sq ft) of
office space, all of which is let to the Home Office.
In June and August 2005, two new planning consents were secured to build an
additional 2,503 sq m (26,945 sq ft) of office accommodation on the site.
Construction starts in January 2006 and upon completion in December, these new
offices will be let to the Home Office on leases which expire in 2026 at an
average rent of �334 per sq m (�31.06 per sq ft).
In addition, upon completion of these new offices, the Home Office will extend
a number of existing leases such that the whole Estate will be let until 2026.
The total income will initially rise from �5,451,438 per annum to approximately
�6,288,355 per annum.
The amount of vacant space at the end of 2005 stood at 8,394 sq m (90,352 sq
ft) or 5 per cent of the total for the UK, excluding Great West House which is
under construction pending release in the spring of 2006.
During 2005 we have been particularly active with our joint ventures at London
Bridge Tower ('The Shard') and New London Bridge House; two adjacent
redevelopment opportunities next door to London Bridge Station.
The planning application for a new Renzo Piano designed building on the site of
the current New London Bridge House was formally lodged with Southwark Council
in January 2006 and provides for a new high quality office and retail building
providing approximately 39,950 sq m (430,000 sq ft).
At London Bridge Tower, following the pre-letting of the hotel element to
Shangri La, good progress is being made in securing a pre-letting of a
substantial part of the offices and these efforts will continue throughout
2006.
The outlook for 2006 is positive. We hope to see continuing evidence of rental
growth across our UK portfolio and an overall reduction in our vacancy rate. In
this regard we are focusing our efforts towards a successful marketing campaign
at Great West House and subsequent lettings of the vacant offices.
Our UK portfolio offers good potential for adding value by securing new
planning consents. We are starting to evaluate the potential of our holdings at
Hoskyns House, next to Vauxhall mainline and underground station and will
continue to work with our joint venture partners towards a positive outcome to
the planning application at New London Bridge House. We may consider individual
disposals where premium prices can be obtained and we will continue to seek out
new opportunities where we can achieve enhanced returns or asset growth.
Swedish Portfolio The Swedish economy has been backed by GDP growth of 2.5 per
cent and falling rates of unemployment. More importantly, current growth
forecasts predict that the Swedish economy will out-perform most other Western
European economies in the coming years.
Yields have compressed by approximately 50 bps during 2005 to just under 5 per
cent for central Stockholm properties with long-term secure income streams.
During the last two to three years, Stockholm in particular has suffered from
high vacancy rates of between 15 to 20 per cent and falling rents, although
these have now generally stabilised. Despite improving occupational demand it
is expected to take some time before this makes a significant impact on current
rental levels. Most new leases being signed reflect the relocation of
occupiers within the market and demand is strongest for modern, flexible well
equipped open plan offices.
Solna Business Park
During 2005 the main focus of our activity concentrated on the substantial
completion of works to Solna Business Park. These focused primarily on
completing works to Fr�saren 12 to enable the Scandinavian food retailer, ICA,
to open their supermarket of 9,400 sq m (101,182 sq ft) sq m in May 2005 and to
take occupation of their office headquarters of 14,700 sq m (158,230 sq ft) in
August 2005. The works were completed within budget and we adhered to the
tight build programme which enabled them to successfully take occupation in
accordance with their time schedules.
In addition major works to the fa�ade of Smeden were completed, including
encasing the face of the 200 metre building in a glass envelope and the
installation of an innovative lighting system.
In April 2005 we made a strategic purchased of a further 6,273 sq m (67,524 sq
ft) property at Solna Business Park, Yrket 3, at a cost of �5.1 million (SEK 70
million). It is fully let.
We have made significant progress in branding Solna Business Park as a
desirable office location and as a result have signed or agreed to lease 27,354
sq m of previously vacant space during 2005.
We have work to do in order to further reduce vacant space as during the year
the IT division of the Swedish Post Office vacated 11,792 sq m (126,931 sq ft)
of office space at Sliparen 2 in order to consolidate within their other
properties.
The overall vacant space by area in Sweden at 31 December 2005 was 21,147 sq m
(227,625 sq ft) or 7.2 per cent and space under refurbishment amounted to a
further 13,337 sq m (143,558 sq ft) or 4.5 per cent.
L�vg�rdet
The estate, comprising 1,280 apartments and 42,608 sq m (458,644 sq ft) of
commercial and retail space was sold to Stena Fastigheter AB, a well respected
local landlord, for �39.9 million (SEK 547 million) on 1 February 2006. The
properties were purchased in January 2002 for �29.4 million (SEK 440 million)
and were sold at our year end value.
V�nerparken
The development provides important public services accommodation to the town of
V�nersborg, including the provision of a hospital, university, offices public
swimming pool and a marina.
Following the extension of the university lease to 2008 and further letting
success in the year, the current vacancy rate is 2.2 per cent which is the
lowest since it was purchased in 1998. We have commenced discussions with the
City with regard to how we can facilitate future requirements.
Continental European Portfolio
The French real estate market saw significant activity in 2005; a total of Euro
15.7 billion was invested, a 30 per cent increase over 2004, and there has been
diversification of the investment market in terms of product and location. In
the Paris area, 2,165,300 sq m (23,259,653 sq ft ) of office space was taken
up, an improvement of 12 per cent compared with 2004, and average headline
rents remained stable during the year.
Yields are now at historically low levels, driven by the presence of many
foreign investors and the weight of money. This trend is likely to continue in
2006.
During the year, news leases and lease renewals in our French portfolio
accounted for a total of 18,435 sq m (198,029 sq ft), representing 12.5 per
cent of the portfolio. These transactions, together with indexation of rents,
generated additional income of Euro1.3 million during the year, equating to an
uplift of 5.0 per cent.
Major letting successes in the year included extension of the lease to our
tenant BNP-Paribas Insurance over 8,077 sq m (86,763 sq ft) in our 9,849 sq m
(105,798 sq ft) property in Rueil-Malmaison and completion of a 6/9 year new
lease. In the Sigma property an additional letting of 1,193 sq m (12,815 sq ft)
was made to Data Base Factory, together with completion of a 3/6/9 year lease.
This represented 18 per cent of the building by area.
The vacancy rate of our portfolio remained low at 6.2 per cent, very close to
the national average of 6.0 per cent. This decreased to 3.0 per cent at the end
of January 2006 following the sale of the vacant 6,026 sq m (64,864 sq ft) Le
41 property.
The portfolio was enhanced in 2005 by the addition of two newly acquired
properties located in the Paris suburbs at a total cost of Euro16.7 million (�
11.3 million) ; Rue Raspail in Ivry (Euro11.6 million, �7.9 million) providing
5,570 sq m (59,833 sq ft) of lettable area
and whose main tenant is Jet Tours, and Croissy Beaubourg (Euro5.1 million, �3.4
million) providing 3,199 sq m (34,364 sq ft) let to a single tenant,
Polymerland (part of the G.E Group).
Several buildings have undergone refurbishment and improvement during 2005, the
most notable being the renovation of the Marcel Pourtout property (2,219 sq m,
23,837 sq ft) which led to the re-letting of all the vacant areas (1,447 sq m,
15,544 sq ft) to a secure tenant Bureau Veritas, on a 6/9 lease. This property
is now fully let.
Other buildings undergoing light refurbishment included Le Clemenceau, which
received a new reception area and two new lifts, and Front de Parc in Lyon, in
which we replaced all of the air cooling units.
A number of smaller properties in Paris and Lyon have been sold for a total of
Euro9.4 million (�6.4 million), the largest being the Lord Byron building, sold
for Euro4.4 million (�3.0 million).
Finally, we commenced the conversion of our 1,613 sq m (17,327 sq ft) office
property Le Foch, in La Garenne Colombes into 16 residential flats. The
existing office tenants occupying this building were all reallocated to vacant
space in two of our other properties in the same area.
The general economic improvement registered in France in the third quarter of
2005 is settling in and the economic indicators suggest that the growth rate
should increase from 1.6 per cent recorded in 2005 to 2.0 per cent in 2006.
Consolidated Income Statement
Year ended Year ended
31 December 31 December
2005 2004
�000 �000
Continuing operations:
Rental and similar revenue 77,678 74,475
Service charge and similar revenue 7,361 6,900
Total rental revenue 85,039 81,375
Service charge expense and similar charges (15,777) (13,772)
Net rental income 69,262 67,603
Other operating income 3,360 4,151
Administrative expenses (14,910) (9,984)
Net property expenses (3,532) (3,631)
Operating profit before gain / (losses) on investment properties 54,180 58,139
Net gains from fair value adjustment on investment properties 67,173 37,236
Loss on disposal of part share of joint venture (1,106) -
Profit from sale of investment properties 1,855 464
Operating profit 122,102 95,839
Finance income 1,425 1,801
Finance costs (37,654) (35,866)
Share of loss of associates - post tax (1,216) (1,701)
Profit before tax 84,657 60,073
Taxation - current (1,304) (596)
Taxation - deferred (21,856) (16,042)
Tax charge on profit (23,160) (16,638)
Profit for the year from continuing operations 61,497 43,435
Discontinued operations:
Loss for the period from discontinued operations - post tax (6,192) (4,002)
Profit for the year 55,305 39,433
Attributable to:
Equity holders of the parent 55,537 40,511
Minority interest (232) (1,078)
55,305 39,433
Earnings per share for profit attributable to the equity
holders of the Company during the year
(expressed in pence per share)
- basic 67.5 47.0
- diluted 67.0 46.7
Earnings per share for profit from continuing operations
attributable to the equity holders of the Company during the
year
(expressed in pence per share)
- basic 75.0 51.6
- diluted 74.5 51.3
Consolidated balance sheet
Year ended Year ended
31 December 31 December
2005 2004
�000 �000
ASSETS
Non-current assets
Investment properties 1,096,361 1,022,539
Property, plant and equipment 8,119 10,710
Intangible assets 3,698 3,357
Investments in associates 3,526 3,010
Available-for-sale financial assets 13,918 -
Investments - 171
Derivative financial instruments 353 -
Deferred income tax 14,025 13,813
Trade and other receivables 1,265 3,163
1,141,265 1,056,763
Current assets
Trade and other receivables 8,395 11,696
Investments - 10,492
Derivative financial instruments 457 -
Cash and cash equivalents 118,162 57,371
127,014 79,559
Total assets 1,268,279 1,136,322
LIABILITIES
Non-current liabilities
Trade and other payables - 1,279
Deferred income tax 146,109 127,951
Borrowings, including finance leases 694,591 620,467
Derivative financial instruments 982 -
Provisions - 301
841,682 749,998
Current liabilities
Trade and other payables 45,394 44,128
Current income tax 1,799 902
Derivative financial instruments 285 -
Borrowings, including finance leases 25,339 17,488
72,817 62,518
Total liabilities 914,499 812,516
Net assets 353,780 323,806
EQUITY
Capital and reserves attributable to the Company's equity holders
Share capital 21,382 21,374
Other reserves 116,042 122,070
Retained earnings 217,252 182,340
354,676 325,784
Minority interest (896) (1,978)
Total equity 353,780 323,806
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 2004 21,911 120,610 157,624 (900) 299,245
Arising in the year:-
Currency translation differences on - 485 (1) - 484
foreign currency net investments
Share issue / purchase of own - - (118) - (118)
shares expense
Purchase of own shares - - (15,676) - (15,676)
Cancellation of shares (609) 609 - - -
Employee share option scheme 72 366 - - 438
Profit for the year - - 40,511 (1,078) 39,433
Total increase / (decrease) in (537) 1,460 24,716 (1,078) 24,561
equity for the year
Balance at 31 December 2004 21,374 122,070 182,340 (1,978) 323,806
Adoption of IAS 32 and IAS 39 - 9,774 (1,652) - 8,122
Balance at 1 January 2005 as 21,374 131,844 180,688 (1,978) 331,928
restated for IAS 32 and IAS 39
Arising in the year:-
Fair value gains/(losses)
- available for sale - (7,481) - - (7,481)
- cash flow hedges - (799) - - (799)
Currency translation differences on - (7,663) - - (7,663)
foreign currency net investments
Share issue / purchase of own - - (115) - (115)
shares expense
Purchase of own shares - - (18,858) - (18,858)
Employee share option scheme 8 141 - - 149
Reduction in minority interest - - - 1,314 1,314
Profit for the year - - 55,537 (232) 55,305
Total increase / (decrease) in 8 (15,802) 36,564 1,082 21,852
equity for the year
Balance at 31 December 2005 21,382 116,042 217,252 (896) 353,780
Consolidated statement of cash flows
Year ended Year ended
31 December 31 December
2005 2004
�000 �000
Cash flows from operating activities
Cash generated from operations 51,790 52,082
Interest paid (34,857) (33,325)
Income tax paid (285) (539)
Net cash inflow from operating activities 16,648 18,218
Cash flows from investing activities
Purchase of investment property (22,386) (38,249)
Capital expenditure on investment property (44,934) (31,003)
Proceeds from sale of investment property 45,056 8,486
Purchases of property, plant and equipment (1,853) (1,545)
Proceeds from sale of property, plant and equipment 2,826 2,029
Purchase of available-for-sale financial assets (3,532) (6,529)
Purchase of interests in joint venture/associate (798) (1,486)
Purchase of subsidiary undertaking (1,529) -
Interest received 1,472 1,715
Net cash outflow from investing activities (25,678) (66,582)
Cash flows from financing activities
Issue of shares 144 428
Purchase of own shares (18,974) (15,795)
New loans 148,581 112,938
Issue costs of new loans (2,234) (2,018)
Interest rate caps purchased 81 (1,234)
Repayment of loans (57,777) (45,814)
Net cash inflow from financing activities 69,821 48,505
Net increase in cash and cash equivalents 60,791 141
Cash and cash equivalents at beginning of year 57,371 57,230
Cash and cash equivalents at end of year 118,162 57,371
Directors, Officers and Advisers
Directors
Sten Mortstedt (Executive Chairman)
Per Sj�berg (Chief Executive Officer)
Dan B�verstam (Chief Financial Officer)
Steven Board FCCA (Chief Operating Officer)
Thomas Thomson BA (Non-executive Vice Chairman)
James Dean FRICS * + (Non-executive Director)
Keith Harris PhD * + **(Non-executive Director)
Thomas Lundqvist + (Non-executive Director)
Bengt Mortstedt Juris Cand (Non-Executive Director)
* = member of Remuneration Committee
+= member of Audit Committee
**= senior independent director
Company Secretary
Steven Board FCCA
Registered Office
26th Floor, Portland House
Bressenden Place
London
SW1E 5BG
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 Advisers
NCB Corporate Finance
20 Hooper Street
London
E1 8BU
Joint Stockbrokers
NCB Corporate Finance
20 Hooper Street
London
E1 8BU
KBC Peel Hunt
111 Old Broad Street
London EC2N 1PH
CLS Holdings plc on line:
www.clsholdings.com
e-mail:
enquiries@clsholdings.com
For further information:
Sten Mortstedt, Executive Chairman
Per Sj�berg, Chief Executive Officer
Steven Board FCCA, Chief Operating Officer
+44 (0)20 7582 7766
Adam Reynolds/Ben Simons
Hansard Communications
+44 (0)20 7245 1100
END
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