Embargoed Release: 07:00hrs Thursday 27 March 2008
CLS Holdings plc
(`CLS', the `Company', or the `Group')
Preliminary Financial Results for the year ended 31 December 2007
FINANCIAL HIGHLIGHTS
* Adjusted Net Asset Value per share* 764.2 pence, down 7.3 per cent from
824.4 pence at 31 December 2006 (Statutory NAV per share 595.1 pence, down
3.6 per cent) at 31 December 2006.
* Adjusted net assets compared to market capitalisation* �517.6 million
compared to market capitalisation of �224.4 million as at 26 March 2007, a
discount of 56.7 per cent. (Statutory NAV including deferred tax provision,
�403.1 million).
* Property portfolio (including Joint ventures) valued at �1.175 billion, up
2.8 per cent from �1.143 billion at December 2006 (including purchases of �
29 million, refurbishments of �23.1 million, revaluation loss of �67.3
million and foreign exchange gain of �47.0 million).
* Net rental income �66.3 million, up 1.2 per cent from �65.5 million for
year to 31 December 2006.
* Year end cash �122 million (December 2006: �157.6 million).
* Loss before tax �72.6 million (December 2006: profit �176.6 million).
* Loss after tax attributable to equity shareholders �32.5 million (December
2006: profit �153.8 million).
* 2008: Sale of interest in London Bridge Quarter for �30 million on 9
January 2008.
RESULTS AT A GLANCE
INCOME STATEMENT (non-statutory format) 31 Dec 31 Dec Up /
07
06
�m �m (Down)
Net Rental Income 66.3 65.5 1.2%
Other operating income and associate company 7.1 6.0 18.3%
results
(Losses) /gains on sale of investment (2.0) 1.0 (300.0%)
properties/subsidiaries/associates
Overhead and Property Expenses (30.9) (21.0) 47.1%
Operating profit (excluding gains/losses on 40.5 51.5 (21.4%)
investment properties)
Net Finance cost (41.2) (37.0) 11.4%
Underlying (loss)/profit (excluding gains/ (0.7) 14.5 (104.8%)
losses on investment properties)
Fair value (losses)/gains investment properties (68.1) 162.1 (142.0%)
Other fair value losses on financial (1.5) - -
instruments
Loss provisions on share sales (transferred (2.3) - -
from other reserves)
(Loss)/profit before tax (72.6) 176.6 (141.1%)
Tax - current (2.6) (1.2) 116.7%
Tax - deferred 42.3 (19.1) (321.5%)
Discontinued operations - (2.5) (100.0%)
(Loss)/profit for the year (32.9) 153.8 (121.4%)
Minority interest 0.4 - -
(Loss)/profit for the year attributable to (32.5) 153.8 (121.1%)
equity holders
Adjusted earnings per share* 13.8 p 23.8 p
Earnings per share (45.8) 196.7 p
p
Interest Cover (times) 1.3 1.8
BALANCE SHEET 31 Dec 31 Dec Up /
07
06
�m �m (Down)
Property portfolio 1,175.3 1,143.5 2.8%
Borrowings (798.7) (683.8) 16.8%
Cash 122.0 157.6 (22.6%)
Other (95.5) (169.2) (43.6%)
Net asset value 403.1 448.1 (10.0%)
Share Capital 18.7 20.0 (6.5%)
Reserves 384.4 428.1 (10.2%)
Shareholders' funds 403.1 448.1 (10.0%)
Adjusted NAV per share * 764.2 p 824.4 p (7.3%)
Statutory NAV per share * 595.1 p 617.3 p (3.6%)
Distribution per share from tender offer 31.5 p 69.9 p (55.0%)
buy-backs
Adjusted gearing * 131.7 % 88.9% 42.8%
Statutory gearing * 169.1 % 118.7% 50.4%
Adjusted solidity * 37.5 % 44.3% (6.8%)
Statutory solidity * 29.1 % 33.1% (4.0%)
Shares in issue (000's) - excluding treasury 67,740 72,605 (6.7%)
shares
Adjusted Net Assets * 517.6m 598.6 m (13.5%)
Statutory Net Assets* 403.1m 448.1 m (10.0%)
* see glossary of terms at end of document
CHAIRMANS STATEMENT
SUMMARY OF MAIN POINTS
* During 2007 market anticipation of falling property values caused CLS
shares to fall from a high of 775p in January 2007 to 307p at 31 December
2007 giving a discount to adjusted NAV of 60.4 per cent.
* Falls in property values, particularly in the UK, triggered by the lending
crisis in August, caused a write down of the CLS property portfolio value
of �68.1 million.
* The outcome has resulted in a reduction in the adjusted NAV from �598.6
million at 31 December 2006 to �517.6 million at 31 December 2007.
* The Board is considering a possible restructuring, potentially involving
the establishment of a new holding company in another European location and
a re-listing.
* Buy-backs of 4.9 million of own shares during 2007, (6.7 per cent of
opening shares in issue) for conversion to treasury shares or for
cancellation.
* The majority of the unlisted equity investment portfolio was sold during
the year for proceeds of �7 million.
* Increased stake in the AIM listed Bulgarian Land Development plc at a cost
of �7.2 million and acquisition of 29.1 per cent of the share capital in
Catena AB, a Swedish property company, at a cost of �27.9 million.
* Annualised contracted rental income stream of �71.4 million, up from �65.7
million in 2006 due to good demand and lower vacancy.
* Sale of our interest in London Bridge Quarter for �30 million on 9 January
2008.
INTRODUCTION
Since the turn of the millennium we have benefited from a strong investment
market, historically low interest rates, easily accessible loan capital and
strong demand for property assets. The second half of 2007 was a very different
story and the trigger, was the crisis in the US sub-prime lending market. The
initial impact was a paralysis in the lending environment, the effective
closure of the securitisation market and a marked increase in the cost of
borrowing.
As a result there has been a significant fall in commercial real estate values,
a number of large investment transactions foundered and we have entered a
period where many investors are watching and waiting for values to stabilise.
The effect of this on CLS has been twofold. Firstly, the property values in our
core (non-joint venture) portfolio have fallen by �29.7 million or 2.9 per cent
since 31 December 2006. Secondly, in early January 2008, further to
difficulties in obtaining development finance, we completed the sale of our
interest in the London Bridge Quarter (`LBQ') project which crystallised the
fall in value of our interest in its net assets by �38.4 million. Both of these
devaluations were fully reflected in the results for the year ended 31 December
2007.
The reduction in property values at the year end caused cash calls or deposits
to be made in respect of some UK loans although these did not exceed �10
million.
The outcome has resulted in a reduction in our adjusted net asset value per
share from 824.4 pence at 31 December 2006 to 764.2 pence per share at 31
December 2007, a fall of 60.2 pence or 7.3 per cent.
BUSINESS REVIEW 2007
In common with most other UK quoted commercial property investors, our shares
fell significantly since the beginning of the year, from 740 pence per share to
331.25 pence currently, a reduction of 55 per cent. However, unlike many of our
contemporaries, we not only hold assets in the UK but we are a pan-European
investor, with substantial assets in France, Germany and Sweden whose markets
have not as yet, been as badly affected as the UK.
The Group's position is set out below:
* Income stream of �71.4 million per annum
* Average lease lengths of 7.7 years
* 34 per cent of rent generated from lettings to government
* Overall vacancy rate of 4.3 per cent.
* Cash balances of �122 million.
* Loans are borrowed from over 20 high quality banking institutions.
* The bulk of CLS' assets consist of small and medium sized office
properties. The lending market in that area is more active than that for
larger properties, although it has been noted that some banks are not
taking business with new customers with whom they have no track record.
* The Group has borrowings of �798.7 million of which 63 per cent are fixed
and 37 per cent are floating rates. Our fixed rate borrowings (including
margin) cost on average 6.18 per cent p.a. and variable rate borrowing
costs 5.84 per cent p.a. All of our net variable rate borrowings are capped
at an average rate of 4.8 per cent, excluding margin.
* Loans are secured on the properties to which they relate, are non-recourse
and there is minimal cross collateralisation within the portfolio.
UK - Last year, the UK market fell into two distinct periods. The first six
months saw high levels of demand for investment opportunities which slowed
considerably following the collapse in the US sub-prime market in the second
half of the year. Yields moved out due to the lack of demand as a result of
inability to secure investment finance. The Investment Property Databank
(`IPD') reported a fall of 8.7 per cent in the final quarter of the year, the
largest quarterly fall since records began and a reduction of 4.4 per cent for
the year as a whole. The volatility has continued into the New Year although
borrowing restrictions have eased somewhat, particularly for transactions under
�30 million.
The lending crisis had a significant impact on the proposed development at LBQ.
The joint venture companies were very close to securing full development
funding when the crisis broke. This effectively closed opportunities to fund
development of the project. We therefore entered negotiations to sell our one
third interest in the project to a substantial investing consortium. Despite
the volatile market we completed the corporate sale on 9 January 2008 at the
agreed value for our share of �30 million.
Contrary to the state of the investment market, occupational demand has
remained strong during the entire year and in fact the vacant space in the UK
portfolio reduced from 7.6 per cent at 31 December 2006 to 5.8 per cent at 31
December 2007.
In addition, our intensive asset management of the portfolio has resulted in
the extension of a number of leases to December 2016, including three Capgemini
leases at Hoskyns House, Vauxhall.
Three UK properties, Spring Gardens, Vauxhall; New Printing House Square; Grays
Inn Road and Brent House, Wembley are in the main, let to government tenants
with total value of �217.2 million almost 36.3 per cent of the UK portfolio.
The leases at Spring Gardens expire in 2026 and approximately half are index
linked; the leases at New Printing House Square expire in 2025. The yield on
these properties is currently approximately 6 per cent, with a loan to value
ratio of 71 per cent.
FRANCE - The French division remains very profitable, comprising 40 properties
valued at just less than �355.3 million which are mainly located in Paris. The
value of the French portfolio remained stable during 2007, with a small uplift
of �1.1 million and is valued on an average yield of 6.6 per cent with a loan
to value ratio of 60 per cent.
The vacant space has remained low, at 4 per cent and rents are subject to
indexation based on the cost of building index. The index has increased by 6.7
per cent during the year.
GERMANY - As in France, our German portfolio benefits from indexation of rents,
although in general this works on a cumulative basis until a threshold is
broken at which point the uplift in rent is recognised. During the year the
index increased by 3.3 per cent.
The current vacant space in Germany, reduced from 8.9 per cent at June 2007 to
2.4 per cent, following the letting of our property in Bochum. The 25,115 sq m
building had been purchased in March 2007 in which over 42 per cent of the
space had been vacant for a number of years. Our pro-active management approach
has resulted in all of this space being let on a 30 year index linked lease to
the local government. Before the income can be recognised, refurbishment works
are required, which are budgeted at an all in cost of �14 million.
SWEDEN - Following the sale of the Solna Business Park last year at a yield to
the purchaser of just under 6 per cent, the Swedish property assets are now
only represented by V�nerparken, 45,206 sq m of offices, health care and
educational facilities. Negotiations are at an advanced stage with the local
authority, to take up the majority of the 11,700 sq m being vacated by the
university in September 2008. The portfolio is valued at �49.6 million, on a
yield of 8.6 per cent.
During the year the Swedish division also acquired 29.1 per cent of Catena AB
(`Catena') at a cost of �27.9 million. Due to the size of our holding and
representation on the Board, we have treated the company as an associate.
Catena is a Nordic real estate group, quoted on the Stockholm stock exchange.
It owns 30 properties valued at �193.8 million located throughout Sweden,
Denmark and Norway. Catena's main tenant is Bilia, a leading Scandinavian car
sales and service company.
EQUITY INVESTMENTS - During the year we sold a large proportion of the UK
equity investment portfolio for proceeds of �7 million, including our
investments in Keronite and Amino Holdings plc. The net loss to the Group of
the sale of shares in 2007, over and above provisions previously made was �0.3
million. Additionally, mark-to-market provisions of �2.4 million, made in
previous years against other reserves, have been recycled through the face of
the income statement now that our interest in these assets has been sold.
During the year the Group increased its stake in Bulgarian Land Development plc
(`BLD') from 17 per cent to 28.7 per cent, at a cost of �7.2 million. BLD owns
a number of sites, both on the Black Sea Coast and in Sofia, intended for
residential development, the first of which is a coastal resort complex of 202
villas and apartments near Varna due to be completed in mid 2008. To date 127
units (60 per cent) have been secured as forward sales. Due to the size of the
holding and the significant influence exerted through Board representation, the
company has been treated as an associate company investment with a carrying
value of �11.6 million.
Distributions
During 2007 we distributed �22.6 million to shareholders by way of tender offer
buy-backs of 3.3 million shares, equating to 31.5 pence per share.
Purchase of own shares
1.6 million of own shares were bought back from the market for either
cancellation or holding as treasury shares at an average cost of 451 pence
compared to a closing adjusted NAV per share of 764.2 pence.
THE FUTURE
During 2008 we intend to focus all of our energy and creativity on our core
property operations. During the first half of 2008 it is our intention to sell
some selected properties in the UK, France and Germany with a view to
generating cash for potential purchasing opportunities in the future. Other
primary objectives of the divisions are set out below:
* In the UK we are working hard to add value through the development of sites
we currently own and will concentrate on achieving their full design
potential in the coming year
* The French division will focus on maintaining its strong revenue and profit
flows from lettings and to minimise vacancies.
* Our German division will focus its attention on the efficient development
of Bochum, to programme and to budget and will continue to work closely
with our tenants and property managers to optimise lettings.
Proposed restructuring
The Board is considering a number of options to restructure the Group in order
to release distributable reserves for future distributions, align the structure
to the Group's pan-European operational focus and to enable the Group to
compete more effectively with other UK property investors enjoying REIT status.
As a part of this process, consideration is being given to the possibility of
migrating to another established European location, in which case it is likely
that the Company would re-list, either in London or another mainstream European
stock market.
It may take several months before a firm proposal has been established, at
which point a proposition will be formally put to shareholders.
It is not proposed to make a distribution until the restructuring of the Group
has been undertaken and the appropriate distributable reserves have been
realised.
CONCLUSION - 2007 has been a tough year, however, despite this we have
accomplished a number of difficult objectives. We do not anticipate life will
become much easier during 2008, and it is possible property values and
consequently our NAV will further reduce during the course of this year. We are
however well placed to achieve our clearly defined goals for the year and to
take advantage of opportunities as they arise.
This has also not been an easy year for our staff and I would like to thank
them for their dedication, hard work, loyalty and enthusiasm during this
period.
Property investment is a long-term, co-operative activity and I would therefore
also like to thank our shareholders, our bankers and our tenants, for their
continued involvement and support.
This is my last report as Chairman of CLS Holdings plc as Anders B��s has
agreed to take over this position with effect from our next AGM in May 2008. I
will continue as Vice Chairman. Tom Thomson will step down from this post but
will remain on the Board as a non-executive director.
Sten Mortstedt
Executive Chairman
27 March 2008
FINANCIAL REVIEW
INTRODUCTION
Due to a significant downturn in the commercial property market in the second
half of 2007, the Group has sustained a loss before taxation of �72.6 million
for the year (31 December 2006: profit of �176.6 million). Adjusted net assets
reduced from �598.6 million at 31 December 2006 to �517.6 million, a reduction
of �81 million or 13.5 per cent (net assets from �448.1 million to �403.1
million).
LOSS BEFORE TAX - The loss before tax of �72.6 million was principally caused
by a reduction in the valuation of the Group's property assets. The valuation
of our wholly owned property assets reduced by �29.7 million and, the value of
our one third share of Southwark Towers (The Shard site) and New London Bridge
House comprising LBQ fell by �38.4 million during the year. The sale of our
interest in LBQ exchanged and completed on 9 January 2008.
TAX - The charge for current tax was �2.6 million, mainly incurred in respect
of the French and Swedish divisions. The credit to deferred tax of �42.3
million reflected a reduction in property values and a revision of the method
of calculation in June 2007. The revision included an indexation allowance
within the UK computation which resulted in a credit of �31.4 million.
NET ASSETS - Adjusted NAV of 764.2 pence per share (December 2006: 824.4
pence), reduced by 60.2 pence per share or 7.3 per cent during 2007 (Statutory
NAV of 595.1 pence per share reduced by 22.2 pence per share or 3.6 per cent
over the same period).
GEARING AND INTEREST COVER - Adjusted gearing at the year end was 131.7 per
cent (December 2006: 88.9 per cent) (statutory gearing was 169.1 per cent -
December 2006: 118.7 per cent).
Had the sale of LBQ on 9 January 2008 taken place just prior to the year end,
the effect would have been to decrease adjusted gearing to 113.1 per cent and
statutory gearing to 145.2 per cent at the date.
Recurring net interest payments and financial charges (excluding LBQ) were
covered by operating profit (excluding fair value adjustments) by 1.3 times
(2006: 1.8 times).
DISTRIBUTIONS - During the year the Company distributed �22.6 million to
shareholders by way of tender offer buy-backs (31.5 pence per share). This
compares to distributions of �52.5 million for the year to 31 December 2006
(66.9 pence per share) including a special distribution subsequent to the sale
of Solna Business Park. The number of shares purchased through the two tender
offer buy-backs amounted to 3.3 million shares representing 4.6 per cent of
shares in issue on 1 January 2007.
CASH - The Group held �122 million cash as at 31 December 2007 (December 2006:
�157.6 million).
REVIEW OF THE INCOME STATEMENT
FINANCIAL RESULTS BY LOCATION - The results of the Group analysed by location
and main business activity are set out below:
Total LBQ UK France Germany Sweden Lunar- Equity 2006
Inv
works
�m �m �m �m �m �m �m �m �m
Net rental 66.3 2.0 28.6 22.2 9.5 4.0 - - 65.5
income
Other income 7.1 - 1.0 0.1 - 0.6 5.7 (0.3) 6.0
(incl
associates)
73.4 2.0 29.6 22.3 9.5 4.6 5.7 (0.3) 71.5
Operating (30.9) (8.8) (5.1) (3.7) (3.2) (2.0) (6.5) (1.6) (21.0)
expenses
Net finance (41.2) (5.5) (23.2) (3.4) (8.6) 1.2 0.1 (1.8) (37.0)
expense
Loss on sale - - - - - - - - (1.0)
of investment
properties
(Loss)/ gain (2.0) - - - - (2.0) - - 1.9
on sale of
subsidiaries/
associates
Underlying (0.7) (12.3) 1.3 15.2 (2.3) 1.8 (0.7) (3.7) 14.4
(loss)/profit
Fair value (68.1) (38.4) (24.6) 1.1 (3.9) (2.3) - - 162.1
(losses)/gains
on investment
properties
Other fair (1.5) - (2.0) 0.4 0.1 - - - 0.1
value (losses)
/gains
Loss (2.3) - - - - - - (2.3) 0.0
provisions on
share sales
(transferred
from other
reserves)
(Loss)/profit (72.6) (50.7) (25.3) 16.7 (6.1) (0.5) (0.7) (6.0) 176.6
before tax
Tax - current (2.6) 0.2 (0.1) (1.5) (0.1) (0.9) (0.2) - (1.2)
Tax - deferred 42.3 6.2 41.3 (6.5) 1.1 0.2 - - (19.1)
Loss on - - - - - - - - (2.5)
discontinued
operations
(Loss) /profit (32.9) (44.3) 15.9 8.7 (5.1) (1.2) (0.9) (6.0) 153.8
before
minority
interest
Minority 0.4 - - - - - 0.1 0.3 -
interest
(Loss)/profit (32.5) (44.3) 15.9 8.7 (5.1) (1.2) (0.8) (5.7) 153.8
for the year
attributable
to equity
holders
NET RENTAL INCOME - of �66.3 million increased by 1.2 per cent (December 2006 :
�65.5 million) primarily due to increased rentals of �1 million in the UK
principally at Spring Gardens, Great West House and One Leicester Square.
French rentals increased by �1.9 million reflecting increased indexation,
higher occupation and property acquisitions. German acquisitions in 2006
resulted in additional rent of �4.9 million in 2007. These increases were
offset by reduced rental in Sweden of �7 million principally due to the sale of
Solna Business Park, Stockholm in August 2006.
OTHER INCOME - amounted to �7.1 million (December 2006: �6 million) and
included a �5.7 million contribution to profit from Lunarworks, a contribution
of �0.6 million from our associate, Catena and a loss of �0.1 million from our
associate BLD. A net loss of �0.3 million arose on the disposal of shares in
respect of the disposal of the majority of our UK share portfolio and Swedish
financial institutions. Property management fees amounted to �0.6 million.
OPERATING EXPENSES - Operating expenses set out in the financial results table
above, comprised administrative expenditure of �27.7 million (December 2006 : �
17.5 million) and net property expenses of �3.2 million (December 2006 : �3.5
million)
ADMINISTRATIVE EXPENDITURE - amounted to �27.7 million (December 2006: �17.5
million):
2007 2006 Difference
�m �m �m
Core property group 12.5 11.8 0.7
LBQ 8.7 1.4 7.3
Lunarworks 6.5 4.3 2.2
Total 27.7 17.5 10.2
LBQ overhead costs incurred during the year were �8.7 million as a result of
the increased activity in developing and preparing the project for sale. Main
items of expenditure were legal fees and related costs amounting to �5.4
million and management costs of �1.7 million. Goodwill of �1.3 million relating
to the project was written off during the year.
Lunarworks expenditure of �6.5 million was included for a full year in 2007
compared to eight months in the previous year.
NET PROPERTY EXPENSES - of �3.2 million (December 2006: �3.5 million) included
advertising and marketing costs of �0.1 million, legal, letting and other fees
of �0.7 million and void costs of �0.4 million (mainly at Great West House,
Brentford, and Vista Centre, Hounslow). Repair and maintenance costs were �0.4
million, depreciation amounted to � 0.2 million and bad debts were �0.4
million.
NET FINANCE EXPENSES - amounted to �41.2 million (December 2006: �31.6 million
- excluding exceptional interest of �5.4 million)
Finance costs of �47.8 million increased by �7.9 million compared to the
previous year of �39.9 million.
During the latter part of 2007, short-term money markets rates on which our
floating borrowing rates are based increased significantly:
* Average GBP 3 months Libor for 2006 was 4.9% and 6.2% in 2007
* Average EUR 3 Months Euribor for 2006 was 3.1% and 4.25% for 2007
* Average SEK 3 Months STIBOR was 2.6% in 2006 and 4.1% in 2007
Based on the gross floating rate debt outstanding at the beginning of the year
of �277.3 million the assessed impact of the above interest rate increases is �
3.3 million.
Other significant factors influencing the increase in finance costs were:
UK
* The refinancing of Spring Gardens accounted for an increase of �0.8 million
in interest expense.
* Refinancings in late 2006 and 2007 contributed to increased interest of �
0.3 million in relation to Cambridge House and Ingram House, �0.3 million
at Chancel House and �0.1 million for Dukes Road.
* Write off of arrangement fees �0.4 million.
LBQ
* Our share of interest relating to the development loan at LBQ amounted to �
5.6 million, showing an increase over the previous year of �2.6 million due
to increased development financing and �0.4 million in write off of
arrangement fees.
Germany
* Increased loans due to financing the expanded portfolio for a full year in
2007, was the main contributing factor to the additional interest payable
of �3.1 million.
Sweden
* Interest payable reduced by �3.4 million, principally due to the sale of
Solna Business Park in August 2006.
Interest receivable: of �6.6 million was earned from average cash reserves held
by the Group during the year of �140 million.
Exceptional interest expense: there was no exceptional interest in the year, in
2006 there were break costs in respect of financings at Solna Business Park of
�2.7 million and LBQ of �2.7 million.
Analysis of net finance expense 2007 2006 Difference
�m �m �m
Interest receivable 5.9 5.1 0.8
Foreign exchange 0.7 3.2 (2.5)
Interest receivable and similar income 6.6 8.3 (1.7)
Interest payable and similar charges (47.8) (39.9) (7.9)
Exceptional interest expense - (5.4) 5.4
Net finance expense (41.2) (37.0) (4.2)
The average cost of borrowing for the Group at 31 December 2007, is set out
below:
UK France Germany Sweden Total
December 2007
Average interest rate on 6.8% 4.6% 5.1% 5.4% 6.2%
fixed rate debt
Average interest rate on 7.2% 5.4% 5.5% 5.7% 5.8%
variable rate debt
Overall weighted average 7.0% 5.2% 5.2% 5.6% 6.1%
interest rate
December 2006
Average interest rate on 7.3% 4.6% 5.0% 5.5% 6.4%
fixed rate debt
Average interest rate on 6.4% 4.3% 4.5% 3.9% 5.1%
variable rate debt
Overall weighted average 7.0% 4.4% 4.8% 5.4% 5.9%
interest rate
Financial hedging instruments: The adverse impact of fair value movements in
interest rate hedging instruments was �1.5 million.
LOSS ON SALE OF SUBSIDIARIES AND ASSOCIATES
The expenditure of � 2 million related to the discharge of obligations in
respect of the sale of Solna in 2006.
TAXATION
Current tax - In 2007 the Group's current taxation charge has benefited from
the utilisation of losses and 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 amortisation
deductions decrease in existing subsidiaries. In the UK, losses being carried
forward are expected to be available to offset income profits for 2008.
Deferred tax - The results of the Group include full provision for deferred
taxation relating to potential gains on the sale of property at current
valuation, as required by IAS 12. The amount provided represents the maximum
potential tax liability on gains from property disposals.
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 �31.4 million.
For the year ended 31 December 2007 the IAS 12 deferred tax credit included in
the profit and loss account was �42.3 million and the provision for deferred
tax reduced net assets by �114.6 million (31 December 2006: charge to tax of �
19.1 million and reduction in net assets of �150.4 million respectively).
We consider it is unlikely that this full liability will 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 or of elections available to ensure that
deductions claimed previously for capital allowances are not reversed.
REVIEW OF THE BALANCE SHEET
INVESTMENT PROPERTIES - The Group's property portfolio amounted to �1,175.3
million, showing a net increase of �31.8 million over its value at 31 December
2006 of �1,143.5 million. The movement in the portfolio is set out 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 29.0 - 3.6 25.4 -
Refurbishment 23.1 20.8 1.8 0.4 0.1
Disposals - - - - -
Revaluation (67.3) (62.7) 1.1 (3.4) (2.3)
Foreign exchange 47.0 - 30.5 14.3 2.2
Closing assets 1,175.3 598.5 355.3 171.8 49.7
PURCHASES - Four property investments were made during the year, three in
Germany and one in France.
The three German properties purchased were Bochum, a predominantly office
property of 25,171 sq m near Dusseldorf, the cost of which was �12.8 million;
Fangdiekstrasse, an office property of 12,968 sq m in Hamburg the cost of which
was �11.2 million; and Suederhastedt, a property let as a nursing home, was
purchased for a cost of �1.4 million.
The French property purchase was a 2,572 sq m office property situated in
Neuilly Plaisance, Paris, the cost of which was �3.6 million.
REFURBISHMENT - In the UK, expenditure on refurbishments amounted to �20.8
million, of which �11.9 million related to CLS' share of development
expenditure at LBQ. Additionally �5 million was expended on refurbishment works
at Spring Gardens, �2.6 million to complete the works at Great West House and �
1.2 million relating to refurbishment at Cambridge House.
In France, refurbishment works were expended amounting to �1.8 million in
respect of various properties. Other expenditure amounted to �0.4 million,
principally in Germany.
There were no disposals during the year.
FOREIGN EXCHANGE - The gross foreign exchange translation gain on properties
was �47 million, of which �30.5 million related to France, �14.3 million was in
respect of Germany and �2.2 million arose in Sweden. Taking into account the
effect of foreign exchange translation on loans to finance these assets, the
net effect was a gain of �16.9 million.
Based on the valuations at 31 December 2007 and annualised contracted rent
receivable at that date of �71.4 million, the portfolio shows a yield of 6.5
per cent. This excludes LBQ which was sold on 9 January 2008.
An analysis of the location of investment property assets and related loans is
set out below:
Total UK % France % Germany % Sweden % Equity %
Invest'ts
�m �m �m �m �m �m
Investment 1,175.3 598.5 51.0% 355.3 30.2% 171.8 14.6% 49.7 4.2%
Properties
Property (765.7) (406.0) 53.0% (211.4) 27.6% (118.3) 15.5% (30.0) 3.9%
loans*
Equity in 409.6 192.5 47.0% 143.9 35.1% 53.5 13.1% 19.7 4.8%
Property
Assets
Other 108.0 35.0 32.4% 10.2 9.5% 2.9 2.7% 21.0 19.4% 38.9 36.0%
Net 517.6 227.5 44.0% 154.1 29.8% 56.4 10.8% 40.7 7.9% 38.9 7.5%
Adjusted
Equity
Equity in 34.9% 32.2% 40.5% 31.1% 39.6%
Property
as a
percentage
of
Investment
�m �m �m �m �m �m
Opening 598.6 367.1 130.2 40.7 25.7 34.9
Adjusted
Equity
Increase/ (81.0) (139.6) 23.9 15.7 15.0 4.0
(decrease)
Closing 517.6 227.5 154.1 56.4 40.7 38.9
Adjusted
Equity
*Non-property loans relating to the financing of our investment in Catena AB
and other non-property assets were included within "other" and amounted to �
33.1 million.
# The following exchange rates were used to translate assets and liabilities at
the year end; Euro/GBP 1.3571 SEK/GBP 12.7896
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 and swaps
have been taken out with prime banks. The Group has hedged all of its interest
rate exposure and a significant proportion of its foreign exchange rate
exposure.
Net Interest Bearing Debt
Total UK* France Germany Sweden Equity
investments
�m % �m % �m % �m % �m % �m %
2007
Fixed (501.2) 62.8 (328.6) 80.9 (73.2) 34.6 (78.7) 66.5 (20.7) 39.2 - -
Rate
Loans
Floating (297.5) 37.2 (77.4) 19.1 (138.1) 65.4 (39.6) 33.5 (32.1) 60.8 (10.3) 100.0
Rate
Loans
(798.7) 100.0 (406.0) 100.0 (211.3) 100.0 (118.3) 100.0 (52.8) 100.0 (10.3) 100.0
Bank and 122.0 67.6 16.4 4.5 22.9 10.6
cash
Net (676.7) 100.0 (338.4) 50.0 (194.9) 28.8 (113.8) 16.8 (29.9) 4.4 0.3 -
Interest
Bearing
Debt
2006 (526.2) 100.0 (247.7) 47.1 (180.7) 34.3 (92.0) 17.5 (7.9) 1.5 2.1 (0.4)
Non interest bearing debt, represented by short-term creditors, amounted to �
59.7 million (December 2006: �66.9 million). Borrowings, gross of arrangement
fees, amounted to �803.7 million (December 2006: �689.7 million.
Interest rate caps
Total UK France Germany Sweden
% % % % %
2007
Percentage of net floating rate 100.0 100.0 100.0 100.0 100.0
loans capped
Average base interest rate at 4.8 5.5 4.8 4.6 4.5
which loans are capped
Average tenure 3.3 2.0 years 3.3 3.4 0.8
years years years years
2006
Percentage of net floating rate 100.0 100.0 100.0 100.0 100.0
loans capped
Average base interest rate at 4.9 5.6 4.6 4.6 4.5
which loans are capped
Average tenure 3.8 3.0 years 4.1 4.4 1.8
years years years years
At the end of 2007, 62.8 per cent of gross debt was fixed (December 2006: 59.9
per cent). This increase in fixed rate funding is mainly due to the
re-financing of UK properties, the majority of it being agreed at or swapped
into fixed rate.
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 �36.7 million (December 2006: �37.4 million) at an
interest rate of 10.7 per cent with a maturity date of 2025; and a zero coupon
bond, with a current outstanding balance of �6.9 million (December 2006: �6.2
million), with matching interest rate and maturity date. This debt instrument
has a significant adverse effect on the average interest rate.
The net borrowings of the Group at 31 December 2007 were �676.8 million
(December 2006: �526.2 million), the increase being influenced by refurbishment
and acquisition expenditure of �69.0 million, distributions of �22.6 million
market purchase of own shares of �7.3 million and investment in BLD and Catena
of �35.2 million. There was also an adverse translation effect in respect of
loans held in Euros and SEK of �31.2 million.
The contracted future cash flows from the properties securing the loans
continue to cover all interest and ongoing loan repayment obligations. Of the
Group's total bank debt of �798.7 million, �103.0 million (12.9 per cent) is
repayable within the next 12 months (including �66.2 million in respect of LBQ
which was sold on 9 January 2008), with �340.8 million (42.7 per cent) maturing
after more than five years.
The Group continues to monitor covenant compliance with its lenders and is
satisfied that there is sufficient headroom within its cash resources to
rectify any potential covenant breaches that could occur even when tested under
assumptions of significant declines in property values and rental streams.
EQUITY INVESTMENTS - Existing equity investments held amounted to �8.4 million
(December 2006: �16.2 million). The majority by value are listed investments,
which are carried at market value, and represent 0.06 per cent of the gross
assets of the Group.
INVESTMENT IN ASSOCIATE COMPANIES - The Group holds investments in two
associate companies the value of which is carried in our books at �42.3
million.
The Group holds 28.65 per cent of BLD, carried at �11.6 million after our share
of its losses in the year which amounted to �0.1 million. During the first half
of the year, the Group invested �27.9 million to purchase 29 per cent in Catena
which made a positive contribution to the Group results of �2.8 million
including positive foreign exchange movement of �2.1 million.
SHARE CAPITAL - The share capital of the Company amounted to �18.7 million at
31 December 2007, represented by 74,849,736 ordinary shares of 25 pence each,
of which 7,109,279 shares were held as Treasury shares following the tender
offer buy-backs and market purchases made during the year. At 31 December 2007
there were therefore 67,740,457 shares quoted on the main market of the London
Stock Exchange.
The Treasury shares are not included for the purposes of any proposed tender
offer buy-backs 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 2007 resulting in the purchase and cancellation of
3,318,960 shares. The two tender offer buy-backs distributed �22.6 million to
shareholders.
Market purchases during 2007 totalled 1,575,251 shares at an average price of
451 pence per share.
The weighted average number of shares in issue during the year was 71,091,071
(December 2006: 78,192,301).
An analysis of share movements during the year is set out below:
No of No of shares
shares
Million
Million
2006
2007
Opening shares for NAV purposes 72.6 80.1
Tender offer buy-back (3.3) (7.4)
Buy-backs in the market (1.6) (0.3)
Shares issued for the exercise of options - 0.2
Closing shares for NAV purposes 67.7 72.6
Shares held in Treasury by the Company 7.1 7.5
Closing shares in issue 74.8 80.1
An analysis of the ownership structure is set out below:
Number of Percentage
shares of shares
Institutions 27.5 40.6%
Private investors 1.1 1.6%
The Mortstedt family directors 35.5 52.5%
Other 3.6 5.3%
67.7 100.0%
Shares held in Treasury by the Company 7.1
74.8
Total
At 31 December 2007 there were 405,000 options in existence with an average
exercise price of 261.6 pence.
PROPERTY REVIEW
INTRODUCTION
We continue to focus on building a portfolio of low risk, high return
properties and to actively manage our buildings to maximise long-term capital
returns. Our core areas of operation are the UK, France, Germany and Sweden.
At 31 December 2007, the Group owned 104 properties with a total lettable area
of 480,684 sq m (5,174,042 sq ft) (excluding LBQ which was sold on 9 January
2008) of which 42 properties were in the UK, 40 in France, 17 in Germany, 4 in
Sweden and 1 in Luxembourg. We had 529 commercial tenants and 17 residential
tenants.
An analysis of contracted rent, book value and yields is set out below:
Contracted Net Book Yield Yield
Rent rent Value on when
net
rent fully
let
�m % �m % �m % % %
UK
London South Bank 10.7 15.0 10.7 15.5 186.7 17.5 5.7
London Mid town 7.0 9.8 7.0 10.1 100.9 9.5 6.9
London West 5.3 7.4 4.5 6.5 79.8 7.5 5.6
London West End 3.7 5.2 3.6 5.2 66.0 6.2 5.5
London South Bank 0.2 0.3 0.2 0.3 2.9 0.3 - *
- JVs
London North West 2.1 2.9 1.9 2.8 27.0 2.5 6.9
London South West 1.6 2.2 1.6 2.3 21.0 2.0 7.6
Outside London 0.2 0.3 0.2 0.3 1.5 0.1 16.3
London City 0.2 0.3 0.2 0.3 2.9 0.3 7.4
Fringes
Total UK 31.0 43.4 29.9 43.3 488.7 45.9 6.1 6.6
France Paris 18.9 26.5 18.8 27.3 283.4 26.6 6.6
France Lyon 3.0 4.2 3.0 4.3 45.2 4.3 6.6
France Lille 0.6 0.8 0.6 0.9 8.9 0.8 6.3
France Antibes 0.5 0.7 0.5 0.8 7.2 0.7 7.2
Total France 23.0 32.2 22.9 33.3 344.7 32.4 6.6 7.0
Luxembourg 0.9 1.3 0.9 1.3 10.6 1.0 8.5
Total Luxembourg 0.9 1.3 0.9 1.3 10.6 1.0 8.5 8.5
Germany Munich 4.7 6.6 4.7 6.8 67.7 6.4 6.9
Germany Hamburg 2.6 3.7 2.6 3.8 38.9 3.6 6.7
Germany Berlin 2.5 3.5 2.2 3.2 40.2 3.8 5.6
Germany Bochum 0.8 1.1 0.6 0.9 14.1 1.3 4.2
Germany Stuttgart 0.6 0.8 0.6 0.9 8.5 0.8 6.9
Germany 0.2 0.3 0.2 0.3 2.1 0.2 12.0
D�sseldorf
Total Germany 11.4 16.0 10.9 15.9 171.5 16.1 6.4 6.7 *
Sweden Vanersborg 5.1 7.1 4.3 6.2 49.6 4.6 8.6
Total Sweden 5.1 7.1 4.3 6.2 49.6 4.6 8.6 8.7
Group Total 71.4 100.0 68.9 100.0 1,065.1 100.0 6.5 6.8
Group Total as 71.4 68.9 1,065.1
above
Share of LBQ JV 1.1 1.1 110.2
Group Total inc 72.5 70.0 1,175.3
share of JVs
Conversion rates: Euro/GBP 1.3571 SEK/GBP 12.7896. * Yields on receivable rents
and potential rents have been calculated on the assumption that book values at
31 December 2007 will increase by refurbishment expenditure of approximately �
12.8 million in respect of the Bochum property in Germany.
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.
Space under
Contracted Contracted Unlet Refurbishment Total Total
Aggregate but not Space or with
Rental income at planning
ERV
producing consent
Sq. m Sq.ft �m �m �m �m �m %
(000) (000)
UK >10 yrs 63.3 681.8 14.9 14.9 45.1%
UK 5-10 yrs 38.1 409.7 8.1 8.1 24.7%
UK < 5 yrs 35.1 377.2 8.0 8.0 24.1%
Development 2.0 21.9 0.1 0.1 0.3%
Stock
Vacant 9.9 106.7 1.9 1.9 5.8%
Total UK 148.4 1,597.3 31.0 - 2.0 - 33.0 100.0%
France > 10 2.8 30.1 0.5 0.5 2.1%
yrs
France 5-10 71.8 773.0 12.4 12.4 51.8%
yrs
France < 5 63.7 685.9 10.1 10.1 42.1%
yrs
Vacant 6.2 66.8 1.0 1.0 4.0%
Total 144.5 1,555.8 23.0 - 1.0 - 24.0 100.0%
France
Luxembourg 3.7 39.8 0.9 0.9 100.0%
< 5 yrs
Total 3.7 39.8 0.9 - - - 0.9 100.0%
Luxembourg
Germany > 22.4 241.2 1.9 1.9 14.5%
10 yrs
Germany 39.2 421.6 3.7 3.7 28.9%
5-10 yrs
Germany < 5 59.3 638.5 5.8 5.8 45.5%
yrs
Development 14.6 156.7 1.1 1.1 8.7%
Stock
Vacant 3.4 36.5 0.3 0.3 2.4%
Total 138.9 1,494.5 11.4 - 0.3 1.1 12.8 100.0%
Germany
Sweden > 10 - - - - 0.0%
yrs
Sweden 5-10 29.4 316.2 3.8 3.8 74.4%
yrs
Sweden < 5 15.0 161.4 1.3 1.3 24.8%
yrs
Vacant 0.8 9.0 0.1 0.1 0.8%
Total 45.2 486.6 5.1 - 0.1 - 5.2 100.0%
Sweden
Group > 10 88.5 953.1 17.3 17.3 22.7%
yrs
Group 5-10 178.5 1,920.5 28.0 28.0 37.0%
yrs
Group < 5 176.8 1,902.8 26.1 26.1 34.4%
yrs
Development 16.6 178.6 0.1 1.1 1.2 1.6%
Stock
Vacant 20.3 219.0 3.3 3.3 4.3%
Group Total 480.7 5,174.0 71.4 - 3.4 1.1 75.9 100.0%
Group Total 480.7 5,174.0 71.4 - 3.4 1.1 75.9
as above
Share of 10.4 112.2 1.1 - 0.9 - 2.0
LBQ JV
Group Total 491.1 5,286.2 72.5 - 4.3 1.1 77.9
incl share
of JVs
We estimate that open market rents are approximately 0.5 per cent lower than
current contracted rents receivable, which represents a potential reduction of
�0.2 million. An analysis of the net increase is set out below:
Contracted Estimated Reversionary
Rent Rental Value Element
� Million � Million � Million
UK 31.0 31.7 0.7
France and Luxembourg 24.0 24.0 -
Germany 11.4 12.0 0.6
Sweden 5.0 3.5 (1.5)
Total 71.4 71.2 (0.2)
The total potential gross rental income (comprising contracted rentals, and
estimated rental value of un-let space) of the portfolio is �75.9 million p.a.
UK PORTFOLIO
Over the course of the year, the value of the UK portfolio fell by 6.5 per cent
(�41.9 million) from �640.4 million to �598.5 million (including the London
Bridge Quarter project (LBQ) joint venture). The value of the core portfolio
fell by 3 per cent (�15.3 million) and the value of the joint ventures by 19.4
per cent (�26.6 million).
Since 30 June 2007 the value of the UK portfolio fell by 8.3 per cent (�53.9
million) from �652.4 million. Of this, the core portfolio fell by 6.3 per cent
(�32.7 million) and LBQ fell by 16.1 per cent (�21.1 million) related to the
core portfolio and 3.73 per cent (�24.33 million) to the joint ventures.
The year started strongly with stable yields and increasing office rents. The
high level of investment activity during the first half of the year slowed
considerably in the summer as the markets assessed the impact of the US
sub-prime crisis and the resultant `credit crunch'. Finance for property
investment became increasingly hard to find and the few investment transactions
taking place confirmed a correction in investment yields across all sectors was
underway.
2007 was still a busy year across the UK portfolio with a number of significant
new lettings, lease re-gearings and improvement works adding value.
At Spring Gardens, Vauxhall, we completed the construction of the two remaining
infill blocks adding 2,448 sq m (26,384 sq ft) of new offices increasing the
entire estate to 18,475 sq m (198,865 sq ft). A final reversionary lease for
Unit 2 completed in December and Spring Gardens is now fully let to the
Government until February 2026 at a rent of �6.5 million per annum. 45 per cent
of the income is subject to annual RPIX rent reviews, whilst the remaining 55
per cent is subject to open market reviews until June 2015 when it also reverts
to annual RPIX linked increases.
Following the completion of the refurbishment of Great West House in Brentford,
British Sky Broadcasting has taken leases on 3,382 sq m (36,400 sq ft) over 7
floors and a further 4,200 sq ft has been let to Global Refund Limited. The
Business Centre operated by our subsidiary Instant Office has successfully
traded from 10,400 sq ft on the lower floors and at the end of the year had
achieved close to 80 per cent occupancy.
The other major occupier of Great West House, Allianz Insurance plc agreed to
move its break option from September 2008 to September 2011 in respect of 2,973
sq m (32,004 sq ft) in GW2. The vacancy rate at Great West House is now down
from 47 per cent at the beginning of the year to 27 per cent or 3,952 sq m
(42,540 sq ft).
Plans to submit a planning application for our 2.5 acre Hoskyns House site
adjacent to Vauxhall underground and mainline station were re-assessed in the
summer when the principal tenant, Capgemini sought to renew their leases beyond
the March 2009 expiry.
Capgemini currently occupy 10,427 sq m (112,235 sq ft) of offices and warehouse
accommodation in three buildings at �1,736,000 p.a. We have signed new
reversionary leases on all three buildings from March 2009, expiring in
December 2016 at a rent of �1,886,000 p.a., representing an increase of �
150,000 p.a. The new leases include the ability for us to break in December
2014, giving us the option to implement a comprehensive re-development at that
time.
Another important transaction progressed during 2007 was the sale of our
interests in the London Bridge Quarter project to Zijaj Limited. The outline
terms of the sale were agreed in October 2007 and involved the sale of our
interests in both Southwark Towers (The Shard) and New London Bridge House. The
sale exchanged and completed in early January 2008 at a price of �30m cash. We
are very proud of our involvement in this landmark London development and we
look forward to its completion ahead of the Olympics in 2012.
The sale of Vista Centre, Heathrow to Vista Property Investments Limited was
completed on 2 February 2008. Vista Centre provides 9,508 sq m (102,345 sq ft)
of multi-let offices together with a restaurant, gymnasium and swimming pool.
CLS acquired the property in 1995 for �10.8 million and in 1999 received �8
million from the tenant for a surrender of their lease. The building was
subsequently refurbished and the leisure facilities added.
The sale was completed on 1st February 2008 at a price of �12.8 million,
representing a 5.3 per cent discount to the June 2007 valuation. Tenants
included the Metropolitan Police and Airline Business. Approximately 36 per
cent of the building was vacant.
At Chancel House we achieved a noteworthy increase in the December 2006 rent
review with Trillium who have a lease over 4,366 sq m (46,996 sq ft) or 63 per
cent of the entire building . The review was index based and resulted in an
increase of 15.8 per cent from �430,740 to �498,796 pa. The next review is in
December 2011 and the lease expires in March 2018.
New lettings were secured at Cambridge House in Hammersmith totalling 1,211 sq
m (13,035 sq ft). The Prostate Cancer Charity acquired 586 sq m (6,308 sq ft);
Open Society Foundation 325 sq m (3,498 sq ft) and Control Risks Screening
Limited 300 sq m (3,230 sq ft). Further lettings were completed during the year
at Quayside in Fulham, CI Tower, New Malden and Ingram House, John Adam Street,
Covent Garden.
At the end of 2007 our vacancy rate stood at 5.8 per cent, down from 7.6 per
cent in December 2006.
Our priority for 2008 is to make sure we consolidate and strengthen our rental
income and reduce the vacancy rate. In this regard it is worth mentioning that
in excess of 46 per cent of our UK rental income is derived from Government or
tenants guaranteed by the Government. We will continue to consider selective
sales across the portfolio and look forward to sourcing new opportunities later
in the year.
FRENCH PORTFOLIO
During 2007, the French economy grew by 1.9 per cent however it is predicted
that growth in 2008 is unlikely to exceed 1.8 per cent.
2007 was a record year for investment, with �18.5 billion invested in
commercial real estate, 17 per cent over and above the �15.8 billion invested
in 2006.
The total volume of take-up in the Paris region for 2007 reached 2,713,100 sq
m. The immediate supply of office space continued to fall gently to stand at
2.4 million sq m, or 3 per cent lower than the previous year. The average
vacancy rate in the Paris region at the end of the year was 4.8 per cent.
In April, we acquired an office building known as Van Gogh, offering a floor
area of 2,573 sq m located in the Eastern suburbs of Paris, in Neuilly
Plaisance, the cost of which was �3.7 million.
During 2007, new leases were completed in respect of 5,407 sq m of space
representing approximately 3.7 per cent of the portfolio and revenue of �0.9
million. Additionally we negotiated lease extensions and renewals over 13,276
sq m producing a revenue of �2.1 million, including a new firm six year lease
with JET TOURS over 4,417 sq m in Ivry Sur Seine, a new firm four year lease
with SPICERS over 2,665 sq m in Villepinte, a 3/6/9 year lease with DATABASE
over 1,193 sq m in La Garenne Colombes and a 3/6/69 year lease with STREAM over
1,502sq m in V�lizy.
We have also completed the full renovation of 6,340 sq m in our Forum building
in Lyon. The work has included the installation of a brand new heating-cooling
air system. Total cost was �1.1 million. This renovation was in accordance with
the new 3/6/9 year lease completed for 4,248sq m with our main tenant April
Insurance.
At the end of 2007 the vacancy rate was 4. per cent.
GERMAN PORTFOLIO
The German economy grew by 2.5 per cent in 2007 and GDP is expected to decrease
by 2. per cent in 2008, the unemployment rate decreased to 8.1 per cent in 2007
and is expected to decrease further to 7.5 per cent by the end of 2008.
The commercial investment market activity continued to grow, by 9 per cent in
2007 with Euro75 billion changing hands. Activity in the first half of the year
continued to be boosted once again by high leveraged foreign investors. Take up
in the letting market increased by 15 per cent in 2007 over 2006 and average
rents edged up.
The credit crisis in the second half of 2007 slowed down German investment
activities.
We acquired three new properties at a cost of Euro36.6 million in 2007; all of
them were purchased in the first half of the year. We succeeded in the letting
of 23.800 sq m in a 30-year-lease with the City of Bochum and have started the
refurbishment of the former service and shopping centre Rathaus Center Bochum
located in the city centre of Bochum. By taking into account the new Bochum
lease and further leases of around 4,000 sq m the vacancy rate has dropped down
to 2.4 per cent. Furthermore we have actively reviewed the cost structure in
our properties and have exchanged certain property managers to enhance the
service level and to reduce costs.
SWEDISH PORTFOLIO
The strong demand in the investment market continued throughout the year. The
total investment amounted to �10.6 billion (SEK 135 billion) against �13.7
billion (SEK 175 billion) for 2006. At the end of the year the market showed a
yield increase of approximately 50 points. The current financial turmoil, which
began with the sub prime loans in the US, seems to have continued and is now
starting to have an impact on the property market in Sweden.
The Swedish economy has performed well during 2007 but slowed down during Q3
and Q4 due to lower exports. The growth in GDP was 2.7 per cent in 2007
compared to the forecasted 3.2 per cent and the expected growth for 2008 is 2.1
per cent. The unemployment rate has fallen to 5.5 per cent and is expected to
continue to fall marginally.
The letting market rents have been very stable with an increase of
approximately 10 -15 per cent.
Our property portfolio V�nerparken in V�nersborg near Gothenburg consists of
approximately 45,206 sq m and has a vacancy rate of 0.8 per cent. Around 90 per
cent of the area is let to Swedish Government related tenants who has taken
office space at V�nerparken and also offering services such as healthcare,
education, a leisure water park and restaurant facilities.
The university, occupying 11,783 sq m, has decided to centralise their four
current campus locations to a new site and will vacate their premises at
V�nerparken by the end of July 2008.
We are in the final stages of signing a new lease agreement for most of the
vacated area with the local authority. We continue to monitor the market to
assess investment opportunities where we can see future potential value.
UNAUDITED CONSOLIDATED INCOME STATEMENT
31 December 2007
Unaudited Audited
Year ended 31 Year ended 31
December 2007 December 2006
�000 �000
Continuing operations:
Revenue 87,992 86,097
Rental and similar revenue 70,042 69,804
Service charge and similar 12,260 11,828
revenue
Service charge expense and (16,007) (16,129)
similar charges
Net rental income 66,295 65,503
Net income from non-property 5,690 4,465
activities
Other operating (expense)/ (1,568) 2,718
income
Administrative expenses (27,724) (17,539)
Net property expenses (3,161) (3,495)
Operating profit before gains 39,532 51,652
/ (losses) on investment
properties
Net (losses)/gains from fair (68,077) 162,060
value adjustment on
investment properties
Profit on disposal of - 3,721
associate/part share of joint
venture
Loss on disposal of (1,974) (1,797)
subsidiaries
Loss from sale of investment - (952)
properties
Operating (loss) /profit (30,519) 214,684
Finance income 6,557 8,335
Finance costs (49,218) (39,948)
Exceptional finance costs - (5,251)
Total finance costs (49,218) (45,199)
Share of profit/ (loss) of 537 (1,206)
associates after tax
(Loss)/profit before tax (72,643) 176,614
Taxation - current (2,610) (1,225)
Taxation - deferred 42,342 (19,058)
Tax credit/ (charge) 39,732 (20,283)
(Loss) /profit for the period (32,911) 156,331
from continuing operations
Discontinued operations:
Loss for the period from - (2,538)
discontinued operations after
tax
(Loss) /profit for the period (32,911) 153,793
Attributable to:
Equity holders of the parent (32,549) 153,793
Minority interests (362) -
(32,911) 153,793
Earnings per share for (loss)
/profit attributable to the
equity holders of the Company
during the year (expressed in
pence per share)
- basic (45.8) 196.7
- diluted (45.8) 195.6
Earnings per share for (loss)
/profit from continuing
operations attributable to
the equity holders of the
Company during the year
(expressed in pence per
share)
- basic (45.8) 199.9
- diluted (45.8) 198.8
UNAUDITED CONSOLIDATED BALANCE SHEET
31 December 2007
Unaudited Audited
As at 31 December 2007 As at 31 December 2006
�000 �000
Non-current assets
Investment properties 1,175,291 1,143,451
Property, plant and 1,832 1,995
equipment
Intangible assets 19,538 18,846
Investments in 42,305 -
associates
Other investments 8,424 16,193
Derivative financial 1,268 1,072
instruments
Deferred income tax 2,880 4,536
Trade and other 49 787
receivables
1,251,587 1,186,880
Current assets
Trade and other 9,070 9,204
receivables
Derivative financial 1,208 943
instruments
Cash and cash 122,030 157,571
equivalents
132,308 167,718
Total assets 1,383,895 1,354,598
Non-current liabilities
Deferred income tax 117,439 154,922
Borrowings, including 695,675 657,485
finance leases
813,114 812,407
Current liabilities
Trade and other 59,667 66,892
payables
Current income tax 2,690 818
Derivative financial 2,307 -
instruments
Borrowings, including 103,025 26,342
finance leases
167,689 94,052
Total liabilities 980,803 906,459
Net assets 403,092 448,139
EQUITY
Capital and reserves
attributable to the
Company's equity
holders
Share capital 18,712 20,021
Other reserves 131,022 112,174
Retained earnings 254,432 316,840
404,166 449,035
Minority interest (1,074) (896)
Total equity 403,092 448,139
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
31 December 2007
Attributable to the equity
holders of the Company
Share Other Retained Minority Total
Capital Reserves Earnings Interest
�000 �000 �000 �000 �000
Balance at 1 January 21,382 116,042 217,252 (896) 353,780
2006
Arising in the year:-
Fair value losses:
- available for sale - (4,871) - - (4,871)
financial assets
- cash flow hedges - 1808 - - 1808
Currency translation - (2,459) - - (2,459)
differences on foreign
currency net
investments
Purchase of own shares - - (307) - (307)
expense
Purchase of own shares (1,361) 1,361 (53,902) - (53,902)
Employee share option - 293 4 - 297
scheme
Net income / (expense) (1,361) (3,868) (54,205) - (59,434)
recognised directly in
equity
Profit/ (loss) for the - - 153,793 - 153,793
year
Total increase / (1,361) (3,868) 99,588 - 94,359
(decrease) in equity
for the year
Balance at 31 December 20,021 112,174 316,840 (896) 448,139
2006 - audited
Arising in the year:-
Fair value (losses) /
gains:
- available for sale - 1,716 - - 1,716
financial assets
- cash flow hedges - (1,207) - - (1,207)
Currency translation - 16,918 - - 16,918
differences on foreign
currency net
investments
Purchase of own shares - - (190) - (190)
expense
Purchase of own shares (1,120) 1,120 (29,669) - (29,669)
Employee share option - 112 - - 112
scheme
Treasury shares (189) 189 - - -
cancellation
Change in minority - - - 184 184
interest
Net income/(expense) (1,309) 18,848 (29,859) 184 (12,136)
recognised directly in
equity
Profit/ (loss) for the - - (32,549) (362) (32,911)
year
Total increase/ (1,309) 18,848 (62, 408) (178) (45,047)
(decrease) in equity
for the year
Balance at 31 December 18,712 131,022 254,432 (1,074) 403,092
2007 - unaudited
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
31 December 2007
Unaudited Audited
(re-stated)*
Year ended 31
December 2007 Year ended 31
December 2006
�000 �000
Cash flows from operating
activities
Cash generated from operations 54,141 44,089
Interest paid (43,553) (41,641)
Income tax paid (739) (2,206)
Net cash inflow from operating 9,849 242
activities
Cash flows from investing
activities
Purchase of investment property (36,706) (123,533)
Capital expenditure on investment (19,974) (49,128)
property
Proceeds from sale of investment - 3,608
property
Purchases of property, plant and (821) (1,029)
equipment
Proceeds from sale of property, 31 433
plant and equipment
Purchase of equity investments (9,738) (6,746)
Disposal of equity investments 10,825 -
(Purchase) /disposal of interests (35,150) 2,141
in associate/joint venture
Purchase of subsidiary - (12,082)
undertaking net of cash acquired
Disposal of subsidiary (12,305) 137,571
undertakings net of cash sold
Interest received 5,820 5,084
Net cash outflow from investing (98,018) (43,681)
activities
Cash flows from financing
activities
Issue of shares 112 293
Purchase of own shares (29,861) (54,209)
New loans 120,675 218,503
Issue costs of new bank loans (1,416) (858)
Purchase of financial instruments (410) (923)
Repayment of loans (38,894) (81,088)
Net cash inflow from financing 50,206 81,718
activities
Net (decrease) /increase in cash (37,963) 38,279
and cash equivalents
Foreign exchange gain 2,422 1,130
Cash and cash equivalents at the 157,571 118,162
beginning of the year
Cash and cash equivalents at the 122,030 157,571
end of the year
* In the 2006 consolidated statement of cashflows, proceeds from the disposal
of a subsidiary have been reclassified out of cashflows from operating
activities into cashflows from investing activities.
Gains/losses on foreign exchange have also been reclassified in 2006 from cash
flows from operating activities to the main body of the cashflow statement.
Basis of preparation
The financial information contained in this announcement does not constitute
the Group's statutory accounts for the years ended 31 December 2006 or 2007.
The financial information for the year ended 31 December 2006 is derived from
the statutory accounts for that year which have been delivered to the Registrar
of Companies. The auditors reported on those accounts and their report was
unqualified and did not contain a statement under s.237 (2) or (3) of the
Companies Act 1985
The audit of the statutory accounts for the year ended 31 December 2007 is not
yet complete. These accounts will be finalised on the basis of the financial
information presented by the directors in this preliminary announcement and
will be delivered to the Registrar of Companies following the Company's annual
general meeting.
While the financial information included in this preliminary announcement has
been computed in accordance with International Financial Reporting Standards
(IFRSs), this announcement does not itself contain sufficient information to
comply with IFRSs. The Group expects to publish full financial statements that
comply with IFRSs by April 2008. The financial information included in this
preliminary announcement, has been prepared with consistent accounting policies
to those set out in the Group's 2006 published financial statements, with the
exception of new and revised standards and interpretations adopted during 2007.
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 adjustments on investment properties, profit/loss on 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 = Net assets/ Number of ordinary shares in free issue
value (NAV) per share
Adjusted NAV per share = Net assets + deferred tax liabilities - deferred
tax assets/
Number of ordinary shares in free issue
Statutory Gearing = Total gross borrowings - cash/ Net assets
Adjusted Gearing = Total gross borrowings - cash/
Net assets + deferred tax liabilities - deferred
tax assets
Earnings per share = Profit after tax attributable to ordinary
(EPS) shareholders/
Weighted average number of ordinary shares in free
issue
Adjusted EPS = Profit after tax attributable to ordinary
shareholders excluding deferred tax and fair value
gains on investment properties/
Weighted average number of ordinary shares in free
issue
Statutory Solidity = Total equity/ Total assets
Adjusted Solidity = Total equity+ deferred tax liabilities - deferred
tax assets/
Total assets - deferred tax assets
Annualised added value = Pro-rated Movement in adjusted NAV + Distributions/
to shareholders
Opening adjusted NAV
Underlying profit = Profit before tax before fair value gains on
investment properties and non-recurring finance
costs
Recurring interest = *Profit before tax - *net gains from fair value
cover* adjustment on investment properties/
*Net interest payable - change in fair value of
interest rate swap
* excluding results of
London Bridge Quarter
as shown below:
Dec Dec
2007 2006
�m �m
Net interest excluding fair value 41.2 31.6
adjustment
Net interest relating to LBQ (5.5) (5.6)
Ongoing interest 35.7 26.0
Operating profit 40.0 48.9
Adjust for impact of LBQ:
- add back operating profit 6.8 (1.8)
- less recurring expense (1.7) -
5.1 (1.8)
Ongoing operating profit 45.1 47.1
Recurring interest cover 1.3 1.8
Other operating income and associate company results of �7.1 million (2006: �
6.0 million) comprises:
2007 2006
�m �m
Net income from non property 5.7 4.5
activities
Other operating income 0.8* 2.7
Share of profit/(loss) on associate 0.6 (1.2)
7.1 6.0
2007 2006
�m �m
Other operating (expense)/income (1.6) 2.7
Recycled losses on available for 2.4 -
sale investments
Other operating income 0.8* 2.7
DIRECTORS, OFFICES AND ADVISERS
Directors Clearing Bank
Sten A Mortstedt (Executive Chairman) Royal Bank of Scotland Plc
Per H Sj�berg (Chief Executive Officer) 24 Grosvenor Place
Steven F Board FCCA (Chief Operating London SW1X 7HP
Officer)
Thomas J Thomson BA (Non-executive Vice
Chairman)
Anders B��s (Non-executive director) Financial Advisers & Stockbrokers
Malcolm Cooper * (Non-executive NCB Corporate Finance
director)
James F Dean FRICS ** * (Non-executive 51 Moorgate
Director)
H O Thomas Lundqvist * * (Non-executive London
Director)
Bengt F Mortstedt Juris Cand EC2R 6BH
(Non-Executive Director)
* = member of Remuneration Committee
*= member of Audit Committee
*= senior independent director CLS Holdings plc on line:
www.clsholdings.com
Company Secretary e-mail:
Steven F Board FCCA enquiries@clsholdings.com
Registered Office
26th Floor, Portland House
Bressenden Place
London
SW1E 5BG
Registered Number
2714781
Registered Auditors
Deloitte & Touche LLP
Chartered Accountants
Hill House, 1 Little New Street
London EC4A 3TR
Registrars and Transfer Office
Computershare Investor Services Plc
P O Box 82
The Pavilions
Bridgwater Road
Bristol BS99 7NH
Shareholder helpline : 0870 889 3286
END
END
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