CLS Holdings plc ("CLS", the "Company", or the "Group")
Interim Report 2007
For the six month period ended 30 June 2007
FINANCIAL HIGHLIGHTS
* Adjusted NAV per share* of 868.6 pence, up 5.4 per cent (Statutory NAV per
share of 695.4 pence, up 12.7 per cent) from December 2006.
* Operating profit (excluding gains on investment properties) �22.8 million,
down 10.9 per cent.
* Profit before tax (including gains on investment properties) �31.9 million,
down 43.8 per cent.
* Intended distribution for the interim period to 30 June 2007 of �9.3
million by way of tender offer buy-back on the basis of 2 for 91 at 600
pence per share, representing a distribution of 13.2 pence per share.
* Property portfolio (including share of JVs) valued at �1.2 billion, up 5.2
per cent from 31 December 2006.
* Net rental income �32.4 million, down 2.4 per cent, largely due to the
successful sale of the Solna portfolio.
* Annualised added value to shareholders 15.2 per cent based on increase in
adjusted NAV per share and distributions in the year (31.2 per cent added
value based on statutory NAV).
* Cash and cash equivalents �100.8 million.
Results at a glance
The following results and ratios show various key data with respect to the
results to June 2007:
30-Jun-07 30-Jun-06 Up /
�m �m (Down)
INCOME STATEMENT
Net Rental Income 32.4 33.2 (2.4%)
Other operating income and associate 2.8 1.7 64.7%
company results
Gains on sale of investment properties 0.1 0.1 0.0%
Overhead and Property Expenses (12.5) (9.4) 33.0%
Operating profit (excluding gains/losses 22.8 25.6 (10.8%)
on investment properties)
Net Finance cost (19.0) (17.9) 6.1%
Change in fair value of interest rate swap 4.6 - -
Underlying profit (excluding gains on 8.4 7.7 9.1%
investment properties)
Fair value gains on investment properties 23.5 52.0 (54.9%)
Non-recurring finance costs - (2.9) (100.0%)
Profit before tax 31.9 56.8 (43.8%)
Tax - current (1.3) (0.6) 116.7%
Tax - deferred 27.6 (18.7) -
Discontinued operations - (2.5) (100.0%)
Profit for the period 58.2 35.0 66.3%
Adjusted earnings per share* (on 9.8 p 9.0 p 8.9%
continuing operations)
Earnings per share * 80.6 p 43.9 p 83.6%
Operating Interest Cover * 1.3 times 1.5 times
BALANCE SHEET
30-Jun-07 31-Dec-06 Up /
�m �m (Down)
Property portfolio 1,202.4 1,143.5 5.2%
Borrowings (715.9) (683.8) 4.7%
Cash 100.8 157.6 (36.0%)
Other (96.3) (169.2) (22.0%)
Net asset value 491.0 448.1 9.6%
Share Capital 19.6 20.0 (2.0%)
Reserves 471.4 428.1 10.1%
Shareholders' funds 491.0 448.1 9.6%
Adjusted NAV per share * 868.6 p 824.4 p 5.4%
Statutory NAV per share * 695.4 p 617.3 p 12.7%
Distribution per share from tender offer 13.2 p 69.9 p (81.1%)
buy-backs
Adjusted gearing * 101.2% 88.9% 12.3%
Statutory gearing * 126.4% 118.7% 7.7%
Adjusted solidity * 43.8% 44.3% (0.5%)
Statutory solidity * 35.0% 33.1% 1.9%
Shares in issue (000's) - excluding 70,602 72,605 (2.8%)
treasury shares
IAS 32 fair value adjustment after tax * (17.7) p (21.6) p (18.1%)
Adjusted Net Assets * �613.3 m �598.6 m 2.4%
Statutory Net Assets �491.0 m �448.1 m 9.6%
* See glossary of terms
BUSINESS HIGHLIGHTS
Six months to 30 June 2007
PROPERTY ACQUISITIONS
* Acquisition of Hans Bockler Strasse in Bochum comprising 25,115 sq m
(270,460 sq ft) of office space and retail space, together with 643 car
parking spaces. The purchase price including costs was �12.3 million and at
the time of acquisition 39 per cent of the building was let to the City of
Bochum and 42 per cent of space was vacant. The initial yield was 6.0 per
cent.
* Acquisition of office property, 6 rue Van Gogh, Paris for �3.5 million at
an initial yield of 7.6 per cent.
* Acquisition of office property known as Fangdieckstrasse 75-75B Lurup,
Hamburg for �11.0 million. The initial yield was 7.3 per cent.
CORPORATE PROPERTY INVESTMENTS
* Increase in stake in Bulgarian Land Development plc from 17.0 per cent to
28.7 per cent acquired for �7.2 million.
* Acquisition of 27.7 per cent of the share capital of Catena AB at a cost of
�26.6 million. Catena is a listed Swedish commercial real estate company
owning 30 properties throughout Sweden, Denmark and Norway, whose main
tenant is Bilia, the leading Nordic car sales and service company. Since 30
June CLS has acquired further shares and now holds 29.1 per cent of the
share capital of Catena AB.
Chairman's Statement
Introduction
The Group has consolidated its strong financial position during the first half
of the year and, through active management, the portfolio has yielded further
growth which is reflected in an increase in our adjusted net assets per share,
showing an increase of 5.4 per cent to 868.6 pence per share (statutory NAV per
share of 695.4 pence, up 12.7 per cent).
Since reporting the year end results, I am pleased to be able to tell you that
the Group has made solid progress in its core business:
* We have made three direct property acquisitions at a cost of �26.8 million,
one in France and two in Germany.
* We have acquired a 29.1 per cent stake in the Swedish listed real estate
company, Catena AB and increased our investment in the AIM listed Bulgarian
Land Development plc to 28.7 per cent of the equity and now hold two seats
on its Board.
* We have reduced vacant space particularly in the UK portfolio through a new
letting to British Sky Broadcasting at Great West House in August 2007.
* We have completed the final infill at Spring Gardens, Vauxhall which has
contributed to a further increase in value to the property of �6.8 million
and, in early September, enabled a cash release of �36.8 million through
refinancing.
* On 8 September we sold the majority of our portfolio of unlisted UK equity
investments which has released further cash of �7.0 million.
Our long-term core business objective of controlled growth is coupled with an
adherence to strict investment criteria. We have therefore refrained from
chasing yield compression through the purchase of increasingly expensive office
buildings in our traditional European markets. This has prompted us to
investigate new opportunities to find potential added value in new markets and
products and we will continue to look for new opportunities that fit our
investment criteria.
The market
A change in market sentiment emerged during the latter part of the first half
of 2007, particularly in the UK, as interest rates increased and some
institutions reallocated the weighting of their portfolios away from real
estate. This less optimistic outlook may continue for some time due to the
recent concerns in the global finance market triggered by the falls in US
residential prices and defaults in US sub-prime mortgage lending. However the
very conditions that have caused this period of volatility and uncertainty in
the lending and investment environment are at the same time likely to provide
us with new investment opportunities.
Notwithstanding the concerns of the financial market, the underlying
fundamentals driving demand for office space have remained strong and look set
to continue.
Asset security is paramount
CLS is well placed to withstand this more testing environment for the following
reasons:
* We have secure and substantially long-term revenue streams amounting to �69
million p.a, of which one third is let to government bodies.
* The general underlying financial strength of our commercial tenant base is
healthy.
* We continue to maintain a relatively low vacancy rate which at 30 June 2007
was 6.5 per cent.
* At 30 June 2007 cash at bank was in excess of �100 million. Since then we
have secured a further �36.8 million through the refinancing of Spring
Gardens, Vauxhall.
* Substantially all of our properties, including joint ventures, are held
individually, each within a separate corporate structure, financed by a
non-recourse loan.
* Loans maturing within the next 12 months amount to only �29.9 million, 4.2
per cent of the loan portfolio.
* All of our floating rate net debt is capped, at an average rate of 4.9 per
cent.
* The Company's management has long experience of operating within various
property cycles.
Returns
The annualised added value to shareholders was 15.2 per cent (30 June 2006:
27.7 per cent) based on the aggregation of the May 2007 distribution to
shareholders and the increase in the adjusted net assets of the Group.
In line with other listed property companies, our shares have fallen
approximately 31.3 per cent from their 2007 high and our shares are currently
trading at a discount to adjusted NAV per share of 38.5 per cent, based on a
share price of 535 pence. The increased discount is due to institutional
re-rating of property stocks and a fall in global stock markets over recent
months. This is something over which we have little control; our concern is to
build long-term added value within a secure European portfolio.
Assuming our tender offer buy-back distribution proposal is accepted this
November, we will have distributed �22.6 million to shareholders. Adjusting for
the special element of last year's distribution, this will show an increased
distribution of 20.7 per cent compared to an average annual increase in
distributions over the previous 5 years of 11.1 per cent.
Environmental initiatives
We are fully committed to the provision of environmentally safe and energy
efficient buildings. The Shard, for instance, is designed to incorporate a host
of environmental and energy saving features including a cooling radiator, an
externally ventilated cladding system and combined heat and power boilers that
comply with latest sustainability proposals. Our award winning development at
Solna, Stockholm, which was completed just prior to being sold last year,
incorporated geothermal heating and cooling systems for one of the principal
buildings, cutting its heating and cooling costs by 30 per cent. We were also
accredited the Swedish P-Mark environmental building specification for the
working environment, in particular fresh air circulation and quality, sound
proofing and illumination.
We are hoping to utilise a low energy screen at One Leicester Square to promote
public awareness of environmental issues and have applied to Westminster
Council for the appropriate permission.
The London Bridge Quarter Project
We have continued to work with our partners to progress the London Bridge
Quarter project which encompasses The Shard and New London Bridge House.
Operational progress has proceeded according to programme and we are ready to
commence demolition works at The Shard. Negotiations in respect of the funding
for the project are at an advanced stage but have, unfortunately, been affected
by the recent adverse credit markets. It is hoped that the funding can be
finalised in the near future in conjunction with a restructuring of the
shareholding structure. We will not commence any major development works until
the loan finance has been secured.
As at 30 June 2007, the adjusted net asset value of �613.3 million included �
59.0 million in respect of The Shard and New London Bridge House, equating to
83.6 pence or 9.6 per cent of overall adjusted NAV per share of 868.6 pence.
The charge to Finance expense for the six months included �2.3 million
representing our one third share of interest expense charged to the project. We
have to date invested cash of �10.5 million into the project from our own
resources and have not entered into any guarantees relating to London Bridge
Quarter.
The future
We have a secure income stream generated by a diverse well located portfolio.
We will continue to improve the quality of our portfolio through creative
management, working in close co-operation with our tenants. It is our aim to
continue to reduce the vacant space within the portfolio, particularly at the
newly refurbished Great West House in the UK and at Bochum in Germany.
A number of properties, particularly in the UK, lend themselves to
redevelopment and we are progressing plans in accordance with a scheduled
development portfolio programme which is expected to add value over the coming
years.
We will continue to selectively acquire assets in our main European markets and
to look for new investment opportunities both in terms of product and location.
The current uncertainty in the market is likely to yield profitable
opportunities and we are well placed to take swift advantage of them as and
when they arise.
The Board
In May 2007 Malcolm Cooper joined the Board as a non-executive director.
Malcolm is Group Tax and Treasury director of National Grid plc.
I would like to give my warm thanks to Keith Harris who retired from the Board
of CLS in May after 13 years of service. Keith has been a great support since
CLS was floated in 1994 and I am very grateful to him for all that he has done
during that time.
I am also pleased to announce that the Board was further strengthened by the
appointment of Anders B��s as a non-executive director on 13 September 2007.
Anders is well known and highly regarded within the Scandinavian business
community and also has extensive commercial experience within the UK. He is
the Chairman of Cision AB and IFS AB, both of whom have large UK operations.
Financial
Income Statement
Profit before taxation for the six months amounted to �31.9 million, including
fair value gains on investment properties of �23.5 million. It can be seen from
the summarised geographical income statement set out below that there was a
reduction in profit before taxation of �24.9 million, this being because it is
compared to the exceptionally high result of �56.8 million for the previous
period. This was largely influenced by a reduced gain from increases in the
fair value of properties compared to the previous period, which were �28.5
million lower at June 2007 compared with June 2006, compensated for in part by
a fair value gain on an interest rate swap of �4.6 million, the net of which
showed a period on period reduction of �23.9 million.
Fair value adjustments in respect of property within the income statement have
brought a degree of volatility to our reported results together with net
interest charges, derivatives and deferred taxation. In addition, the method of
calculation for the estimate of deferred tax has been revised to include the
effect of indexation allowance available if a property in the UK was to be
sold, which has resulted in a credit to the income statement in the period of �
35.7 million. The impact of these adjustments and other significant movements
compared to the previous period is explained in the notes set out below:
June UK France* Germany Sweden Equity June
2007 Invest. 2006
�m �m �m �m �m �m �m
Net rental income 32.4 15.0 10.9 4.5 2.0 - 33.2
Other income 3.0 0.3 0.1 - 0.2 2.4 2.1
Net rental and other income 35.4 15.3 11.0 4.5 2.2 2.4 35.3
Fair value gains on 23.5 2.0 12.8 7.3 1.4 - 52.0
investment property
Gain from sale of investment - - - - - - 0.1
properties
Gain from sale of 0.1 - - - 0.1 - -
subsidiaries
Operating expenses (12.5) (5.7) (1.5) (1.1) (0.6) (3.6) (9.4)
Operating profit 46.5 11.6 22.3 10.7 3.1 (1.2) 78.0
Share of associates' losses (0.2) - - - - (0.2) (0.3)
Net interest payable and (14.4) (6.7) (3.4) (3.0) (0.9) (0.4) (17.9)
related charges
Non-recurring interest charge - - - - - - (3.0)
Profit/(loss) on ordinary 31.9 4.9 18.9 7.7 2.2 (1.8) 56.8
activities before tax
Taxation - current (1.3) - (0.9) - (0.2) (0.2) (0.6)
Taxation - deferred 27.6 32.1 (6.0) (2.9) (0.6) - (18.7)
Discontinued operations - - - - - - (2.5)
Retained profit/(loss) 58.2 42.0 12.0 4.8 1.4 (2.0) 35.0
* Includes the results of Luxembourg
Balance sheet
Total UK France Germany Sweden Equity
Invest.
June 2007 �m % �m % �m % �m % �m % �m %
Investment 1,202.4 100 652.4 54.2 334.2 27.8 165.8 13.8 50.0 4.2 - -
Properties
Loans* (694.7) 100 (364.9) 52.5 (196.8) 28.3 (94.9) 13.7 (28.8) 4.2 (9.3) 13
Equity in 507.7 100 287.5 56.6 137.4 27.1 70.9 14.0 21.2 4.2 (9.3) (1.9)
Property
Assets
Other 105.6 100 20.1 19.0 16.2 15.3 (8.9) (8.4) 21.9 20.7 56.3 53.3
Net 613.3 100 307.6 50.2 153.6 25.0 62.0 10.1 43.1 7.0 47.0 7.7
Adjusted
Equity
Equity in 42.2% 44.1% 41.1% 42.8% 42.4% -
Property
as a
percentage
of
Investment
*A loan amounting to �21.2m in respect of the purchase of shares in Catena AB
was excluded from property loans and included within Other, where the
investment to which the loan relates is classified.
Net rental income
Net rental income of �32.4 million decreased by �0.8 million compared to the
six months ended 30 June 2006. The reduction reflected a loss of �6.2 million
in rent due to the sale of two of our three Swedish properties during 2006. Our
Solna property was sold in August 2006 with L�vg�rdet having been sold in
January 2006.
During 2006 we steadily built a portfolio of German office properties which
contributed net rental income of �4.5 million in the period to 30 June 2007, an
increase of �3.4 million.
Rental income from the UK portfolio increased by �0.7 million, mainly resulting
from further lettings at One Leicester Square and Chancel House.
The French portfolio generated additional income of �0.5 million, principally
as a result of indexation.
Other income
Other income of �3.0 million (30 June 2006: �2.1 million) included a �3.2
million contribution from Lunarworks, the Swedish youth community web site
operator (30 June 2006: �1.1 million) whose results were fully consolidated
from May 2006. This was offset by provisions of �0.8 million in respect of
unlisted investments, principally Tenison, a software company, which has since
been sold. Also included in other income was insurance commission of �0.2
million and lease surrender, dilapidations and retail income of �0.2 million,
and other charges of �0.3 million.
Operating expenses, as set out in the summary table above, comprise
administrative expenditure and net property expenses.
Administrative expenditure
Administrative expenditure amounted to �11.2 million (30 June 2006: �7.8
million), an increase in reported expenditure of �3.4 million. Of this
increase, �1.6 million was due to the inclusion of the operating costs for
Lunarworks for a full 6 months in 2007 whereas it was fully consolidated for
two months of the previous period. In addition, there was a write off of
capitalised fees relating to the London Bridge Quarter joint venture of �1.3
million and an increase of �0.5 million in respect of professional fees
incurred principally relating to our interest in the investment.
Net property expenses
Net property expenses amounted to �1.3 million in the six months (30 June 2006:
�1.6 million). The main elements of expenditure were UK void rates costs of �
0.2 million, marketing, letting and legal fees of �0.3 million, depreciation of
equipment of �0.1 million, irrecoverable property management costs of �0.3
million and other recoverable costs of �0.2 million.
Gains from sale of investment property
The small gain of �0.1 million (30 June 2006: �0.1 million) related to the
partial release of provisions in respect of the sales of our properties in
Solna, Stockholm, and Le Foch and Paul Doumer in Paris, in 2006.
Finance Income
Interest income of �1.7 million (30 June 2006: �1.3 million) reflected the
higher average cash balance held (approximately �129 million), which was
largely due to the receipt of net cash proceeds from the sale of Solna. The
average cash balance held for the same period in 2006 was approximately �103
million. The weakening of the Swedish Krona against sterling was the principal
cause of an adverse foreign exchange movement of �0.9 million in relation to
monetary assets held in Swedish Kronor. The euro rate had not changed
significantly since the year end.
Finance Expense
Interest payable of �16.1 million (30 June 2006: �19.2 million) comprised the
following:
2007 2006
�m �m
Loans and bank interest 19.3 18.5
Joint venture loan interest 2.3 0.7
Amortisation of the issue cost of 0.8 0.5
loans
Change in fair value of interest (1.0) (0.5)
rate caps
Profit on disposal of Spring (0.7) -
Gardens swap
Change in fair value of swaps (4.6) -
16.1 19.2
The increase in joint venture interest reflected the interim refinancing of the
London Bridge Quarter project in September 2006 to fund the occupation of and
development preparation at Southwark Towers and New London Bridge House.
The gain in the fair value of interest rate caps relating to floating rate debt
amounted to �1.0 million and resulted from the increase in interest rates
during the period.
In April the company entered into a 20 year interest rate swap at 4.64 per cent
covering a notional loan value of �106 million. Due to the increase in interest
rates over the period to June 2007, the fair value of the swap, which had no
intrinsic value at inception, had increased to �4.6 million at 30 June 2007.
The counterparty may cancel the swap after five years. Variations in fair value
will continue to be charged to the income statement during the life of the
swap. The fair value will vary according to its remaining life and changes in
interest rates relative to the swap rate. On expiry or cancellation the value
will revert to zero.
At the period end, gross floating rate loans totalled �358.9 million, 50.1 per
cent of the total loan book. The impact of the interest rate swap effectively
changed the fixed/floating ratio to 60:40 on 10 July 2007 when it became
effective. All floating rate debt was hedged by interest rate caps at an
average cap rate of 5.6 per cent for Sterling, 4.5 per cent for Swedish Kronor
and 4.7 per cent for Euro (excluding bank margin). The average life of interest
rate caps was 3.4 years.
The average cost of borrowing, inclusive of the cost of fixed rate borrowings,
interest rate caps and amortisation of arrangement fees, was 7.6 per cent on
the UK debt, 5.4 per cent for Sweden, 4.6 per cent for France and 5.0 per cent
for Germany. Adjusted gearing increased from 88.9 per cent to 101.2 per cent.
Taxation
The Group's current taxation charge continues to benefit from the utilisation
of losses and from significant capital allowances and amortisation deductions.
The method of calculation for the estimate of deferred tax has been revised to
include the effect of indexation allowance available if a property in the UK
was to be sold. The change in estimate has resulted in a credit to the income
statement in the period of �35.7 million. In total there is an IAS 12 deferred
tax credit of �27.6 million for this period (30 June 2006: charge �18.7
million). In practice, as a result of its corporate structure, the Group is
unlikely to suffer the potential liability in full even if all of its
properties were to be sold.
For overseas properties, we plan to make corporate disposals, as opposed to
property disposals, which would result in smaller tax liabilities than those
calculated under IAS12. On a disposal, the Group intends to make the election
available to ensure that there is no claw-back of capital allowances previously
claimed in respect of UK properties. At 30 June 2007 the deferred tax
liability, taking into account the election in respect of capital allowances,
would be �15.1 million (30 June 2006: �15.9 million) less than the provision
calculated under IAS 12.
A reduction in the main rate of UK corporation tax from 30% to 28% which will
be effective from 1 April 2008 was included in the Finance Act 2007 that was
enacted in July. This 2% fall in UK tax rates has resulted in a reduction in
deferred tax assets and liabilities at 30 June 2007. The Income Statement
credit of �27.6 million for the UK for the period to 30 June 2007 incorporates
�5.4 million due to the effect of the change of tax rate on the opening
balance.
Buy-backs and dividends
The current share price is at a discount of 37.4 per cent to adjusted net asset
value per share and we consider it appropriate to continue to distribute by way
of tender offer buy-back. We therefore propose a tender offer buy-back of
shares on the basis of 600 pence per share for 2 in 91 shares held. This will
enhance net asset value per share and is equivalent in cash terms to an interim
net dividend of 13.2 pence per share.
Share capital
No. of shares No. of shares
Million Million
2007 (six months) 2006 (full year)
Opening shares for NAV purposes 72.6 80.1
Tender offer buy-back (1.8) (7.4)
Buy-backs in the market for (0.2) (0.3)
cancellation
Shares issued for exercise of options - 0.2
Closing shares for NAV purposes 70.6 72.6
Shares held in Treasury by the 7.7 7.5
Company
Closing shares in issue 78.3 80.1
Options to purchase 405,000 shares were held by directors at 30 June 2007.
At 31 December 2006 there were 80,081,836 ordinary shares in issue, of which
7,477,168 were held within the Company as Treasury shares. The number of shares
at that date, used as a base for the purpose of calculating NAV or Earnings per
share and participating in the subsequent tender offer buy-backs, was
72,604,668 as Treasury shares are excluded from such calculations.
Since the year end, the Company has completed the 2006 year end tender offer
buy-back of 1,770,565 shares which were cancelled (a distribution of �13.3
million) and re-purchased 262,367 shares in the market at a cost of �1.7
million. All of the shares purchased in the market were transferred to
Treasury. Further to the exercise of share options, 30,000 shares were issued
from Treasury.
The number of shares in issue at 30 June 2007 (excluding 7,709,535 shares held
as Treasury shares) was 70,601,736. Total shares in issue at 30 June 2007,
including Treasury shares, were 78,311,271. Since 30 June a further 60,000
shares were purchased in the market at a cost of �0.3m.
If the current tender offer proposal to buy back 1,550,367 shares is accepted,
ordinary shares in issue for the purposes of NAV and Earnings per share will
have been reduced by a further 2.3 per cent to 68,991,369 shares, an overall
reduction during 2007 of 3,613,299 shares (including market purchases of
322,367 shares), equivalent to 5.0 per cent of opening shares.
Investment Property
The value of our portfolio is now �1,202.4 million and has increased by a net �
58.9 million (5.2 per cent) since 31 December 2006. The analysis of the net
increase is shown below:
Group UK France Germany Sweden
�m �m �m �m �m
Opening assets 1,143.5 640.4 318.3 135.1 49.7
Purchases 26.8 - 3.5 23.3 -
Redevelopment 10.5 10.0 0.1 0.4 -
Revaluation 23.5 2.0 12.8 7.3 1.4
Foreign exchange (1.9) - (0.5) (0.3) (1.1)
Closing assets 1,202.4 652.4 334.2 165.8 50.0
Three new properties were purchased in the period at a total cost of �26.8
million. A 25,115 sq m office property in Bochum was purchased at a cost of �
12.3 million in the first quarter 2007, followed by a second quarter purchase
of a 12,698 sq m office building in Hamburg, known as Fangdieckstrasse at a
cost of �11.0 million.
The majority of redevelopment costs were incurred in the UK in respect of
Spring Gardens and the London Bridge Quarter, for which one third of
expenditure in the joint venture was consolidated into the results of the
Group.
Cash
Cash at bank amounted to �100.8 million at 30 June 2007 compared to �157.6
million at 31 December 2006, a reduction of �56.8 million, the reasons for
which were as follows:
2007 2006
Cash in �m �m
From operations 6.3 23.5
Receipts of property and investment - 14.0
sales
New loans raised - direct property 33.9 91.6
New loans raised - indirect property 21.2 -
61.4 129.1
Cash out
Net interest payments 18.3 17.6
Scheduled loan repayments 23.3 42.4
Purchase of own shares 15.0 13.7
Payments for property and investment 13.9 55.8
purchases
Refurbishment costs 9.8 16.9
Indirect property investments and 37.9 6.7
other
(118.2) (153.1)
Movement in cash (56.8) (24.0)
Debt Structure
Net debt amounted to �615.1 million (31 December 2006: �526.2 million)
comprising:
�m
Fixed rate debt 357.0
Floating rate debt 358.9
715.9
Cash 100.8
Net debt 615.1
The gross interest-bearing debt of the Group at 30 June 2007 was �715.9 million
(31 December 2006: �683.8 million). The debt maturity is set out below:
�m
Under 1 year 29.9
Over 1 year less than 5 years 356.2
Over 5 years 335.0
Arrangement fees (5.2)
Total 715.9
New loan finance raised amounted to �55.1 million and included re-financing in
the UK of �25.9 million and financing of an acquisition in France of �8.0
million, which raised an additional �33.9 million. New funds raised also
included �21.2 million relating to the purchase of shares in Catena AB.
Scheduled loan repayments amounted to �23.3 million.
The fair value of the Group's fixed rate debt was in excess of book value by an
amount of �17.3 million (31 December 2006: �22.4 million). If we were to hold
loans at fair value, the notional after tax adjustment to NAV, at a corporation
tax rate of 28 per cent (31 December 2006: 30 per cent) would be �12.5 million
or 17.7 pence per share (31 December 2006: �15.7 million or 21.6 pence per
share).
Gearing adjusted for IAS 12 deferred tax, at 30 June 2007 was 101.2 per cent
(31 December 2006: 88.9 per cent), statutory gearing was 126.4 per cent (31
December 2006: 118.7 per cent).
Non interest-bearing debt at 30 June 2007, represented by short-term creditors,
amounted to �72.1 million (31 December 2006: �66.1 million).
Effect of foreign exchange translation on overseas net assets
The net assets of the Group were reduced by �1.5 million due to the effect of
translating the net assets of the Group's continental European operations,
which are denominated in foreign currency, into sterling. The Swedish Krona
weakened against sterling by 2.4 per cent during the six months to 30 June 2007
which was the main reason for the adverse movement. The euro exchange rate did
not vary significantly to that of the year end.
Property
The valuation of the Group's portfolio at 30 June 2007, was undertaken by
Allsop & Co. in respect of the UK and Swedish properties and by DTZ Debenham
Tie Leung in respect of the German and French properties. The portfolio value
amounted to �1,202.4 million (31 December 2006: �1,143.5 million).
The portfolio comprises 102 properties of which 44 are located in the UK, 40 in
France, 16 in Germany, 1 in Sweden and 1 in Luxembourg, with a total lettable
area of 490,161 sq.m (5,276,051 sq. ft.).
UK
The value of our UK portfolio, including joint ventures, increased by �12.0
million or 1.9 per cent at the half year, from �640.4 million to �652.4
million. The uplifts have been principally driven by capital spend and rental
growth rather than any further yield compression.
The increases in base rates since January did not materially affect appetite
for well let commercial real estate, particularly in the core West End and City
markets. In the first half of 2007 the volume of money seeking real estate
assets remained high and this, together with strong leasing markets sustained
prime office yields at around 3.5 per cent in the West End and 4.25 per cent in
the City. Towards the end of the period to 30 June however there were
indications that investors and the funding institutions were becoming more
cautious and this has more recently created a less buoyant market and with
greater levels of uncertainty.
Strengthening tenant demand in the core areas is also beginning to move out to
the non-core areas where enquiry levels are beginning to rise. A strong
occupational market remains therefore an important driver for the market as a
whole into the second half of 2007.
At Spring Gardens, Vauxhall we completed the construction of the two final
infill buildings in April. Together these add 2,448 sq m (26,384 sq ft),
increasing the office space on the estate from 15,909 sq m (171,244 sq ft) to
18,357 sq m (197,592 sq ft).
At June the first annual RPIX indexation uplift also took effect (in respect of
Units 3 to 5) which when added to the new rent due from the two new infills
takes the overall rent from the estate to �6,469,784 per annum (�352 per sq m /
�32.74 per sq ft).
The other ongoing improvements to the Spring Gardens Estate are the new
restaurant and gymnasium and a new Security Lodge. The restaurant and gym are
due to complete in September this year and completion of the new Security Lodge
is scheduled for 2008.
In March we secured an important new letting at Great West House. British Sky
Broadcasting took the entire 13th floor in GW1 measuring 473 sq m (5,087 sq ft)
and make a welcome return to the building following the completion of the
extensive refurbishment works.
Our letting activity has continued positively during the first half of 2007
with a further 6 floors measuring 2,941 sq m (31,662 sq ft) having been signed
since 30 June 2007. In total this represents 54 per cent of the vacant space in
the building and reduces the remaining vacant space to 3,478 sq m (37,434 sq
ft) or 24.3 per cent of the total.
At Coventry House in Haymarket SW1, the electronic sign on the roof of the
property overlooking Piccadilly Circus has been renewed and re-let to a new
sponsor. The replacement high definition sign was launched in February and is
expected to increase our estimated revenue by 42 per cent to approximately �
0.7m per annum.
During the first half of the year we have also been investigating the options
for our Hoskyns House site in Vauxhall where the current occupational leases
expire in 2009. The property currently comprises a series of low rise office
and warehouse buildings. Located close to Vauxhall Mainline and Underground
Stations, the site has the scope to be redeveloped to provide a higher density
of new building and a mix of uses including commercial, residential, retail and
leisure. All such redevelopment options, together with the ongoing discussions
with our existing occupiers will continue into the second half of 2007.
We have continued to work with our joint venture partners to carry forward the
London Bridge Quarter Project, comprising the London Bridge Tower (The Shard)
and the adjoining 25 London Bridge Street. Once complete these two Renzo Piano
designed buildings will provide 176,514 sq m / 1,900,000 sq ft gross of high
quality office, hotel, residential, retail and leisure uses immediately
adjacent to London Bridge Mainline and Underground Station.
At London Bridge Tower (The Shard), PwC will be vacating the existing office
building on the site this month thus allowing the enabling and demolition works
to begin in the final half of the year.
At 25 London Bridge Street, a revised planning application was submitted in
April and was subsequently passed for approval by Southwark Council at
Committee in early July. This new application achieves the same gross floor
area but within an entirely new roof profile, incorporating two new roof
terraces and improved external facades.
The funding options for both projects are under review with a view to achieving
completion before 2012.
During the first half the vacancy rate across the UK portfolio has reduced from
8.2 per cent to 6.5 per cent assisted by a number of new lettings and lease
renewals having been achieved at Cambridge House, Hammersmith (586 sq m / 5,087
sq ft to The Prostate Cancer Charity); CI Tower, New Malden (497 sq m / 5,350
sq ft to Lactalis (UK) Limited); Quayside Fulham (258 sq m/ 2,780 sq ft to
Action to Knowledge and JM King) and Vista, Heathrow (355 sq m / 3,823 sq ft to
Crane Software UK Limited and Seppic UK).
We look forward to continuing to build on the successful lettings achieved in
the first half of the year and reducing the vacancy rate still further. Of
equal importance is to continue to work with our existing tenants,
accommodating their space needs with flexible leases that continue to add value
to the portfolio. This is particularly important in secondary locations where
yields are more volatile and sensitive to the prospects for rental growth.
The portfolio continues to offer some exciting refurbishment and redevelopment
opportunities for the years ahead.
France
In its 10th year of operation, our French division, Citadel, now holds a
portfolio of 40 properties valued at �334.2 million, an increase of �15.9
million (5.0 per cent) over the value at 31 December of �318.3 million.
The first half of the year continued to see strong demand from investors in
commercial property with prime Paris yields as low as 4 per cent. The
increasingly competitive investing environment has caused us to investigate
regional markets and the possibility of investment in a number of development
schemes. However one building was purchased in April 2007 in an eastern suburb
of Paris, Van Gogh is a 2,573 sq m multi-let office property which was
purchased at a cost of �3.5 million and showed an initial yield of 7.6 per
cent.
Rental indexation showed further strong growth in the first half of the year
with annualised increases of 6.9 per cent in the first quarter and 7.6 per cent
in the second quarter for those leases falling due for indexation adjustments
in those quarters. The annualised rent for the Citadel portfolio at 30 June
2007 was �22.5 million compared to �20.8 million at 31 December 2006.
Our vacancy rate is at an historically low level of 1.8 per cent, partly as a
result of our proactive interaction in accommodating the changing occupational
demands of our tenants and our continuing programme of improvement to our
properties and the facilities that they offer. During the six months we have
upgraded air conditioning and reception facilities in a number of our
properties, entered into 11 new leases over 1,909 sq m and negotiated a
significant lease surrender with our main tenant at Le Forum, Lyon in
combination with a new letting over 4,200 sq m and major renovation programme
within the property.
Germany
The German portfolio continued to expand in the first half of 2007 and the
value stood at �165.8 million at 30 June 2007 (31 December 2006: �135.1
million).
We made two acquisitions in the period, the first of which being Rathaus
Center, Hans-B�ckler-Stra�e 19, Bochum which was purchased at a cost of �12.3
million at an initial yield of 6.0 per cent. The anchor tenant in the 25,115 sq
m building is the City of Bochum who currently lease 39 per cent of the
building. The property is 42 per cent vacant and plans are at an advanced stage
to redevelop and let the vacant areas.
Our second acquisition was Fangdieckstra�e 75, Hamburg, comprising 11,587 sq m
of multi-let offices. The property was acquired at a cost of �11.0 million at
an initial yield of 7.3 per cent.
Similar investment dynamics are at play in Germany as in France which has
prompted us to cast our net wider to investigate niche opportunities.
We have now established strong professional teams located in our offices based
in Luxembourg and Hamburg.
Sweden
Subsequent to the sale of Solna Business Park and L�vg�rdet the Group has
retained its initial investment in Sweden at V�nerparken which is valued at �50
million (31 December 2006: �49.7 million). The university will vacate 11,780 sq
m in August 2008. However we are working closely with the city of V�nersborg to
utilise the space for alternative purposes.
Rent, book value and yields are analysed by location as set out below:
Annual Net Book Yield Yield
Contracted Rent Rent Value on net when
at 30 June 2007 rent fully
let
�m % �m % �m % % %
UK
London 0.2 0.3% 0.2 0.3% 3.1 0.3% 6.5%
City
Fringes
London Mid 7.0 10.1% 7.0 10.5% 112.7 9.4% 6.2%
town
London 3.3 4.8% 3.3 4.9% 71.3 5.9% 4.6%
West End
London 4.6 6.6% 3.5 5.2% 86.8 7.2% 4.0%
West
London 10.6 15.3% 10.5 15.7% 187.7 15.6% 5.6%
South Bank
London 2.2 3.2% 2.2 3.3% 134.2 11.2% 1.6%
South Bank
- JVs
London 1.5 2.2% 1.5 2.2% 23.5 2.0% 6.4%
South West
London 2.1 3.0% 2.1 3.1% 31.2 2.6% 6.7%
North West
Outside 0.2 0.3% 0.2 0.4% 1.9 0.2% 10.5%
London
Total UK 31.7 45.8% 30.5 45.5% 652.4 54.4% 5.5% 6.3%*
Sweden
Sweden 4.7 6.8% 3.9 5.8% 50.0 4.2% 7.8%
V�nersborg
Total 4.7 6.8% 3.9 5.8% 50.0 4.2% 7.8% 7.9%
Sweden
France 17.7 25.6% 17.7 26.5% 271.0 22.5% 6.5%
Paris
France 2.9 4.2% 2.9 4.3% 39.4 3.3% 7.4%
Lyon
France 0.6 0.9% 0.6 0.9% 7.9 0.7% 7.6%
Lille
France 0.5 0.7% 0.5 0.8% 6.3 0.5% 7.9%
Antibes
Total 21.7 31.4% 21.7 32.5% 324.6 27.0% 6.7% 6.8%
France
Luxembourg 0.8 1.2% 0.8 1.2% 9.6 0.8% 8.3%
Total 0.8 1.2% 0.8 1.2% 9.6 0.8% 8.3% 8.6%
Luxembourg
Germany 2.3 3.3% 2.2 3.3% 40.2 3.3% 5.5%
Berlin
Germany 2.3 3.3% 2.2 3.3% 35.8 3.0% 6.1%
Hamburg
Germany 4.3 6.2% 4.1 6.1% 68.0 5.7% 6.0%
M�nchen
Germany 0.7 1.0% 0.7 1.0% 11.8 1.0% 5.9%
Bochum
Germany 0.5 0.7% 0.5 0.7% 8.1 0.7% 6.2%
Stuttgart
Germany 0.2 0.3% 0.2 0.3% 1.9 0.2% 10.5%
D�sseldorf
Total 10.3 14.8% 9.9 14.7% 165.8 13.9% 6.0% 6.7%
Germany
Group 69.2 100.0% 66.8 100.0% 1,202.4 100.0% 6.0% 6.6%
Total at
30 June
2007
Conversion rates : SEK/GBP 13.7101 Euro/GBP 1.4872
(*) Yields based on receivable rent and potential rents have been calculated on
the assumption that book values at 30 June 2007 will increase by anticipated
refurbishment expenditure of approximately �3.1 million in respect of projects
in the UK.
Rent analysed by length of lease and location is set out below:
Contracted Contracted Unlet Total Total
Aggregate but not
Rental income Space
producing
At ERV
Sq. m Sq. ft
(000) (000) �m �m �m �m %
UK >10 yrs 64.1 690.0 14.5 0.9 15.4 44.9%
UK 5-10 yrs 25.5 274.9 5.0 5.0 14.7%
UK < 5 yrs 54.8 589.8 11.3 11.3 33.1%
Development 2.0 21.7 0.1 0.1 0.3%
property
Vacant 12.4 132.9 2.4 2.4 7.0%
Total UK 158.8 1,709.3 30.8 0.9 2.5 34.2 100.0%
Sweden 5-10 yrs 29.4 316.2 3.5 3.5 74.1%
Sweden < 5 yrs 15.0 161.4 1.2 1.2 25.1%
Vacant 0.8 9.0 0.1 0.1 0.8%
Total Sweden 45.2 486.6 4.7 0.1 4.8 100.0%
France > 10 yrs 2.8 30.1 0.5 0.5 2.1%
France 5-10 yrs 67.1 722.3 10.8 10.8 49.0%
France < 5 yrs 72.0 774.8 10.4 10.4 47.1%
Vacant 2.2 24.1 0.4 0.4 1.8%
Total France 144.1 1,551.3 21.7 0.4 22.1 100.0%
Luxembourg < 5 3.7 39.8 0.8 0.8 100.0%
yrs
Total 3.7 39.8 0.8 0.8 100.0%
Luxembourg
Germany > 10 10.8 116.2 1.0 1.0 9.2%
yrs
Germany 5-10 56.4 607.1 4.5 4.5 39.8%
yrs
Germany < 5 yrs 54.4 585.5 4.8 4.8 42.1%
Vacant 16.7 180.2 1.0 1.0 8.9%
Total Germany 138.3 1,489.0 10.3 1.0 11.3 100.0%
Group > 10 yrs 77.7 836.3 16.0 0.9 16.9 23.0%
Group 5-10 yrs 178.4 1,920.5 23.8 23.8 32.6%
Group < 5 yrs 199.9 2,151.3 28.5 28.5 39.0%
Development 2.0 21.7 0.1 0.1 0.1%
property
Vacant 32.1 346.2 3.9 3.9 5.3%
Group Total 30 490.1 5,276.0 68.3 0.9 4.0 73.2 100.0%
June 2007
Equity investments
At 30 June 2007 the Group owned a portfolio of listed and unlisted equity
investments valued at �42.8 million (31 December 2006: �16.2 million).
The principal reason for the increase in the investment since the year end was
the acquisition of 27.7 per cent of the share capital in Catena AB which forms
�26.6 million of the above investment portfolio value. Catena is a Nordic real
estate group, quoted on the Stockholm stock exchange. It owns 30 properties
valued at �169.9 million located throughout Sweden, Denmark and Norway. The
Group's main tenant is Bilia, the leading Nordic car sales and service company.
In February 2007 we increased our stake in Bulgarian Land Development Ltd from
17.0 per cent to 28.7 per cent at a cost of �7.2 million and in addition to the
Board seat we already occupied, we also took chairmanship of the Board. BLD
commenced its first development project in February of this year, constructing
202 villas and apartments on the Black Sea coast. To date, the company has
secured forward sales of 50 per cent of the development. Due to the size of the
holding and the influence we exercise, we have treated the company as an
associate and the investment of �11.2 million is therefore not included in the
equity investments balance.
Lunarworks AB, the youth web community became a subsidiary of the Group in
April 2006, contributed �0.6 million to profit before taxation for the six
months to 30 June 2007 and is strongly cash generative.
On 7 September 2007, we completed the sale of the bulk of our UK portfolio of
unlisted equity investments to Azini Capital Partners LLP thereby releasing
cash of �7.0 million.
Conclusion
The strong investment market we have seen in previous years has continued
during the first half of this year and we have enhanced our portfolio through
selective acquisition and active management.
The future investment environment is not so clear. However we are able to look
forward with confidence which is based on a strong portfolio that is performing
well and is actively managed by a highly skilled and motivated team. We also
hold cash assets in excess of �100 million giving us both security and the
ability to take swift advantage of future opportunities.
S. A. Mortstedt
Executive Chairman
17 September 2007
Un-audited Consolidated Income Statement
for the six months ended 30 June 2007 30 June 30 June 31 Dec
2007 2006 2006
�000 �000 �000
Continuing operations :
Rental and similar revenue 33,771 35,908 69,804
Service charge and similar revenue 4,495 3,552 6,779
Total rental revenue 38,266 39,460 76,583
Service charge expense and similar charges (5,869) (6,312) (11,080)
Net rental income 32,397 33,148 65,503
Net income from non-property activities - - 4,465
Other operating income 3,041 2,045 2,718
Administrative expenses (11,170) (7,787) (17,539)
Net property expenses (1,344) (1,581) (3,495)
Operating profit before net gains on investment 22,924 25,825 51,652
properties
Net gain from fair value adjustment on 23,477 51,956 162,060
investment property
Profit on disposal of associate/part share - - 3,721
joint venture
Profit/(loss) from sale of subsidiaries 127 - (1,797)
Profit/(loss) from sale of investment property 38 124 (952)
Operating profit 46,566 77,905 214.684
Finance income 1,655 1,333 8,335
Finance expense (16,087) (19,213) (39,948)
Non-recurring finance expense - (2,917) (5,251)
Total finance expense (16,087) (22,130) (45,199)
Share of loss of associates (217) (350) (1,206)
Profit before income tax 31,917 56,758 176,614
Taxation - current (1,344) (589) (1,225)
Taxation - deferred 27,651 (18,723) (19,058)
Tax credit/(charge) on profit 26,307 (19,312) (20,283)
Profit for the period from continuing 58,224 37,446 156,331
operations
Discontinued operations :
Loss for the period from discontinued - (2,465) (2,538)
operations - post tax
Profit for the period 58,224 34,981 153,793
Attributable to :
Equity holders of the Company 58,224 34,981 153,793
Basic Earnings per Share 80.6p 43.9p 196.7p
Diluted Earnings per Share 80.1p 43.7p 195.6p
Unaudited Consolidated Balance Sheetas at 30 June 2007
30 June 30 June 31 Dec
2007 2006 2006
ASSETS �000 �000 �000
Non-current assets
Investment property 1,202,387 917,975 1,143,451
Property, plant and equipment 2,259 9,301 1,995
Intangible assets 17,051 18,512 18,846
Investment in associates 11,505 541 -
Available-for-sale financial assets 42,811 16,967 16,193
Derivative financial instruments 5,335 677 1,072
Deferred income tax 3,765 8,898 4,536
Trade and other receivables 338 948 787
1,285,451 973,819 1,186,880
Current assets
Trade and other receivables 16,416 8,339 9,204
Derivative financial instruments 1,962 1,429 943
Cash and cash equivalents 100,807 87,524 157,571
119,185 97,292 167,718
Assets held for sale
Investment property - 238,884 -
Other non-current assets - 378 -
Current assets - 9,045 -
- 248,307 -
Total assets 1,404,636 1,319,418 1,354,598
LIABILITIES
Non- current liabilities
Trade and other payables - 90 -
Deferred income tax liabilities 126,063 160,939 154,922
Borrowings, including finance leases 687,514 582,660 657,485
Derivative financial instruments (413) 182 -
813,164 743,871 812,407
Current liabilities
Trade and other payables 70,395 31,031 66,892
Current income tax liabilities 1,704 1,993 818
Derivative financial instruments - 3 -
Borrowings, including finance leases 28,401 24,892 26,342
Liabilities held for sale
Borrowings, including finance leases - 126,532 -
Trade and other payables - 16,774 -
- 143,306 -
Total liabilities 913,664 945,096 906,459
NET ASSETS 490,972 374,322 448,139
EQUITY
Capital and reserves attributable to the
Company's equity holders
Share capital 19,577 21,382 20,021
Other reserves 112,245 115,292 112,174
Retained earnings 360,046 238,544 316,840
491,868 375,218 449,035
Equity minority interests (896) (896) (896)
TOTAL EQUITY 490,972 374,322 448,139
Un-audited 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 2007 20,020 112,173 316,842 (896) 448,139
Arising in the period:-
Fair value gains/(losses)
- available-for-sale - 1,374 - - 1,374
- cash flow hedges - (343) - - (343)
Currency translation differences - (1,465) - (1,465)
on foreign currency net -
investments
Expenses of share issue / (443) 506 (85) - (22)
purchase of own shares
Purchase of own shares - - (14,935) - (14,935)
Net gains / (losses) recognised (443) 72 (15,020) - (15,391)
directly in equity
Profit for the period - - 58,224 - 58,224
Total increase in equity for the (443) 72 43,204 - 42,833
period
At 30 June 2007 19,577 112,245 360,046 (896) 490,972
Un-audited Consolidated Cash Flow Statement
for the six months ended 30 June 2007
30 June 30 June 31 Dec
2007 2006 2006
�000 �000 �000
Cash flows from operating activities
Cash generated from operations 6,325 23,517 61,572
Interest paid (20,858) (18,628) (41,641)
Income tax paid (458) (395) (2,206)
Net cash (outflow)/inflow from operating
activities
(14,991) 4,494 17,725
Cash flows from investing activities
Purchase of investment property (13,906) (43,193) (123,533)
Capital expenditure on investment property (8,899) (15,597) (49,128)
Proceeds from sale of investment property - 3,433 3,608
Purchases of property, plant and equipment (812) (1,319) (1,029)
Proceeds from sale of property, plant and 190 451 433
equipment
Purchase of available-for-sale financial assets (29,892) (5,742) (6,746)
Purchase/sale of interests in joint venture/ (7,918) (972) 2,141
associate
Purchase of subsidiary undertaking net of cash - (11,705) (12,082)
acquired
Sale of subsidiary undertakings - 10,122 121,218
Interest received 2,590 1,398 5,084
Net cash outflow from investing activities (58,647) (63,124) (60,034)
Cash flows from financing activities
Issue of shares 65 - 293
Purchase of own shares (15,020) (13,690) (54,209)
New loans 55,064 92,519 218,503
Issue costs of new loans (157) (876) (858)
Interest rate caps sold/purchased 243 (936) (923)
Repayment of loans (23,321) (42,366) (81,088)
Net cash inflow from financing activities 16,874 34,651 81,718
Net (decrease)/increase in cash and cash (56,764) (23,979) 39,409
equivalents
Cash and cash equivalents at beginning of 157,571 118,162 118,162
period
Cash and cash equivalents at end of period 100,807 94,183 157,571
Basis of Preparation
The income statement and balance sheet have been prepared in accordance with
the recognition and measurement criteria of the applicable International
Accounting Standards ('IAS') and International Financial Reporting Standards
('IFRS') issued by the International Accounting Standards Board ('IASB') and
endorsed by the European Union ('EU'). These standards are collectively
referred to as 'IFRS'.
They have been prepared in a manner consistent with the accounting policies,
presentation and principles for recognising assets, liabilities, income and
expense applied in the latest Group published annual accounts as at 31 December
2006 other than the change made in relation to deferred tax accounting as
described in the Taxation section above.
The information in this interim statement is unaudited and does not constitute
statutory accounts within the meaning of Section 240 of the Companies Act 1985.
The statutory accounts as at 31 December 2006 have been reported on by the
Company's auditors and delivered to the Registrar of Companies. The report of
the auditors was unqualified and did not contain a statement under Section 237
(2) or (3) of the Companies Act 1985. The interim report sets out the results
for the six months to 30 June 2007 and unless otherwise stated, comparisons are
to the six months ended 30 June 2006.
GLOSSARY OF TERMS
Net rent
Net rent is defined as contracted rent less net service charge costs
Yield
Yields on net rents have been calculated by dividing the net rent by the book
value
Contracted rent
Contracted rent is defined as gross annualised rent supported by a signed
contract
Estimated rental value (ERV)
The ERV of lettable space as determined biannually by the Company's valuers.
This may be different from the rent currently being paid.
Underlying profit
Underlying profit is the profit before tax excluding net gains/losses from fair
value adjustment on investment properties, profit/losses disposal of joint
ventures, subsidiaries, investment properties, and exceptional items.
Adjusted net assets = Net assets excluding deferred tax liabilities and
deferred tax assets
Statutory net asset value = Net assets
(NAV) per share
Number of ordinary shares in free issue
Adjusted NAV per share = Net assets + deferred tax liabilities - deferred
tax assets
Number of ordinary shares in free issue
Statutory Gearing = Total gross borrowings - cash
Net assets
Adjusted Gearing = Total gross borrowings - cash
Net assets + deferred tax liabilities - deferred
tax assets
Earnings per share (EPS) = Profit after tax attributable to ordinary
shareholders
Weighted average number of ordinary shares in
free issue
Adjusted EPS = Profit after tax attributable to ordinary
shareholders excluding deferred tax and fair
value gains on investment properties
Weighted average number of ordinary shares in
free issue
Statutory Solidity = Total equity
Total assets
Adjusted Solidity = Total equity+ deferred tax liabilities - deferred
tax assets
Total assets - deferred tax assets
Annualised added value to = Pro-rated Movement in adjusted NAV +
shareholders Distributions
Opening adjusted NAV
Underlying profit = Profit before tax before fair value gains on
investment properties and non-recurring finance
costs
IAS 32 fair value = Group fixed rate loans after tax
adjustment after tax
Number of ordinary shares in free issue
Operating interest cover = Profit before tax - net gains from fair value
adjustment on investment properties
Net interest payable - change in fair value of
interest rate swap and joint venture interest
INDEPENDENT REVIEW REPORT TO CLS HOLDINGS PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2007 which comprise the income statement, the
balance sheet, the statement of changes in equity and the cash flow statement.
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.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our review work, for this report, or for the conclusions
we have formed.
Directors' responsibilities
The 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 are 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 the 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 International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
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 2007.
(Signature)
Deloitte & Touche LLP
Chartered Accountants
London
17 September 2007
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)
Anders B��s ^ (Non-executive Director)
Malcolm Cooper ^ (Non-executive Director)
James Dean FRICS * # ^ (Non-executive Director)
Thomas Lundqvist * ^ (Non-executive Director)
Bengt M�rtstedt 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
Deloitte & Touche LLP
Chartered Accountants
180 The Strand
London WC2R 1BL
Registrars and Transfer Office
Computershare Investor Services Plc
P O Box 82
The Pavillions
Bridgewater Road
Bristol BS99 7NH
Shareholder helpline: 0870 889 3286
Clearing Bank
Royal Bank of Scotland Plc
24 Grosvenor Place
London SW1X 7HP
Financial Advisers
NCB Corporate Finance
51 Moorgate
London EC2R 6BH
Joint Stockbrokers
NCB Corporate Finance
51 Moorgate
London EC2R 6BH
KBC Peel Hunt
111 Old Broad Street
London EC2N 1PH
CLS Holdings plc on line:
www.clsholdings.com
e-mail: enquiries@clsholdings.com
END
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