TIDMCLI
11 March 2010
CLS Holdings plc
("CLS", the "Company" or the "Group")
Audited Financial Results for the year ended 31 December 2009
Financial highlights:
- Adjusted net assets per share: up 18.6% to 767.5 pence (2008: 647.2 pence)
- Adjusted earnings per share: up to 48.2 pence (2008: loss per share of 65.6
pence)
- Proposed tender offer buy-back: 1 in 42 shares at 525 pence, equivalent to
12.5 pence per share, and increasing pro forma adjusted net assets per share
to 771.7 pence
- Profit before tax: up to GBP18.5 million (2008: loss GBP142.1 million)
- Profit after tax: up to GBP17.4 million (2008: loss of GBP78.0 million)
- Core Profit: up to GBP23.7 million (2008: GBP2.8 million)
- Portfolio value: GBP813.0 million (2008: GBP798.8 million) - underlying
valuation movement up 7.5% in UK, down 5.6% in Europe, down 0.6% overall
- Aggregate cash, corporate bonds and other investments: GBP144.2 million
- Recurring interest cover: up at 2.1 times (2008: 1.1 times)
- Weighted average cost of debt: down to 4.0% (2008: 5.8%)
- Corporate bond portfolio: return on capital employed of 54.2%
- Distributions through tender offer buy-back: 77.8 pence per share (GBP48.0
million)
- Total Shareholder Return: for the year ended 31 December 2009 52.7%
- Occupancy rate: consistently high at 95.5% (2008: 95.7%)
- Proportion of rent roll let to Government tenants: 40% for the Group and 54%
in the UK
Commenting on the results, Sten Mortstedt, Executive Chairman, said:
"The property portfolio has performed well in difficult market conditions,
reflecting the defensive benefits of well-let properties, and net assets per
share are 18.6% higher than a year ago, a good result in the light of the
adverse 36 pence impact of sterling strengthening during the period".
"The fundamentals of our business remain sound. We have the resources
available to take advantage of opportunities as they arise and I am delighted
to report that we face the challenges ahead from a position of strength and
confidence."
For further information, please contact:
Sten Mortstedt, Executive Chairman, CLS Holdings plc +44 (0)20 7582 7766
Henry Klotz, Chief Executive Officer, CLS Holdings plc +44 (0)20 7582 7766
John Whiteley, Chief Financial Officer, CLS Holdings plc +44 (0)20 7582 7766
Jonathan Gray, Kinmont Advisory Limited +44 (0)20 7087 9100
Adam Reynolds, Hansard Communications +44 (0)20 7245 1100
The annual financial report can be found on www.clsholdings.com
CHAIRMAN'S STATEMENT 2009
Investment Philosophy
CLS has an investment philosophy and a strategy to seek out and
exploit imperfections in the market.
By this I mean that today's prices and values will always be
different in the future and CLS, therefore, tries to predict price movements
and then position itself to benefit from them.
In order to achieve higher returns and minimise the associated
higher risks, diversification is key; CLS's main investment is in properties,
but we have also invested in a portfolio of corporate bonds. Both asset
classes cover a number of countries and currencies, and have exposure to
different sectors. This diversification ensures that if some of the
investments are unsuccessful the total return should still remain very good.
Imperfections Exploited
- In 2006, we anticipated significant falls in property values
across Europe and embarked on a strategy to dispose of a number of properties.
By the end of 2008 we had raised through sales almost GBP750 million, repaid
associated debts, returned GBP72 million to investors and retained GBP150 million
for subsequent investment. Consequently, whilst the UK listed property sector
was repairing its collective balance sheet with right issues of over GBP6
billion, CLS was returning cash to shareholders.
- During the most critical period of the financial crisis we became
uncomfortable with the outlook for the banking industry. In order to gain
absolute protection for a large part of our liquid assets, we reduced our
exposure to bank deposits and invested in government bonds.
- At the end of 2008, when we were convinced that the banking
system would survive, we placed large cash deposits of 12 months' duration at
interest rates of 6.15% (sterling) and 4.9% (euro), expecting rates to fall.
Within four to five months interest rates were virtually zero.
- Also in the autumn of 2008 we began to invest for the long term
in a portfolio of liquid corporate bonds as we believed the prevailing market
prices to be too low. In 2009 the bond portfolio provided a total return of
GBP18.0 million, adding 37 pence per share to net asset value, and at 31
December 2009 the portfolio of GBP70.0 million was yielding over 8.1%. The
increase in value of the bonds has not been included in profit before tax due
to the long-term characteristics of this new investment.
- We broke several interest rate swaps in July 2009 as we were of
the opinion that the yield curve was too steep and, therefore, the swaps were
undervalued, which proved to be correct. In addition, we sought to increase
the extent to which our interest rate risk was mitigated by caps rather than
swaps, thereby allowing us to take advantage of the prevailing low interest
rate environment whilst restricting our exposure to interest rate rises. At 31
December 2009, our weighted average cost of borrowing was 4.0% and 50% of our
debt was at floating rates.
We believe CLS has served investors well; in the ten years since
2000, our total shareholder return has been 297%. Over the same period, using
tender buy-backs and market purchases of shares, we have returned in aggregate
GBP266 million to shareholders; in January 2000 CLS's market capitalisation was
GBP159 million. We believe that for the past ten years, CLS has been one of the
three best performing property companies listed on the London Stock Exchange.
The Portfolio
In 2009, the property portfolio which we retained has performed
well in difficult market conditions, a reflection of the strength of our rent
roll and our team's active management. 40% of the Group's rental income is
derived from governmental or quasi-governmental tenants, our weighted average
lease length is 8.5 years, and our vacancy rate remains low at 4.5% by rental
value. Further, our traditional focus on debt collection has consistently seen
collection rates exceed 90% within a few days of the due date during the year.
The portfolio's valuation at 31 December 2009 reflected the
defensive benefits of well-let properties. In the UK, our portfolio began to
rise in value in the first half of the year, and over the twelve months showed
a gain of 7.5%. In recent years the French market has been less volatile than
the UK, rising neither as quickly nor as far, and falling more slowly. In 2009
our French portfolio declined in value by 6.2% in local currency and the
German portfolio by 5.7%.
Financials
Net assets per share at 31 December 2009, adjusted to exclude
deferred tax, were 767.5 pence, 18.6% higher than a year earlier, and 4.8%
above the pro forma equivalent of 732.0 pence, after the effect of the large
tender offer in January 2009. This is a good result in the light of the
adverse 36.0 pence impact of sterling strengthening during the period.
Property Investment
In the prevailing economic climate, we have been rigorous in
assessing investment opportunities in 2009, restricting our acquisitions to
the GBP29.2 million 7 Rue Eugène et Armand Peugeot, Rueil-Malmaison, to the west
of Paris, a transaction which was completed at the end of December. Our only
disposal in the year was 2 Deanery Street, London W1 for GBP2.2 million.
The UK market is now characterised by a far greater demand for
property investment than supply and banking conditions remain relatively
unfavourable. We see greater value and better conditions in both France and
Germany and we will seek to take advantage of opportunities in these markets
in the short to medium term.
Cash Management
During a year of uncertain property and financial markets,
effective cash management has been key. With poor returns available from bank
deposits, the Board sought to manage the Group's cash resources by exploiting
opportunities which arose in the corporate bond market as explained above. The
corporate bond portfolio is a part of the Company's long-term investment
strategy.
A further initiative successfully executed in 2009 was the
avoidance of potential breaches of covenants of bank loans with an aggregate
value of GBP176.4 million, by repaying or placing on deposit new cash of GBP14.3
million. The fact that this was achieved at a time of significant banking
turmoil is testament to the good relationships we enjoy with our principal
lenders.
With the reduction in the appetite of banks to lend, it is
encouraging that very little of our borrowing matures over the next two years.
Efficiency
We successfully implemented a cost-cutting programme before the
financial crisis began. In May 2008 we moved to cheaper premises in one of our
own buildings and slimmed down the organisation, successfully reducing our
administration costs from GBP16.1 million in 2008 to GBP12.2 million in 2009.
We believe that environmentally safe and energy-efficient buildings
are both commercially beneficial and socially desirable. For this reason we
incorporate environmentally effective features in our developments and convert
or modify as many properties as possible. This provides an advantage in
letting the buildings, creating benefits to tenants, who enjoy higher quality
buildings, lower running costs and a healthier environment, and it provides
cost savings for the Group and added investment value. At Solna Business Park
in Sweden we developed buildings with geothermal heating and cooling systems,
which cut running costs significantly, and met high specifications for air
quality, sound proofing and illumination. Both of our recent developments in
Germany, at Landshut and Bochum, were designed to comply with the ENEV
requirements on energy saving, and at Landshut ground water is used in the
cooling system for the office space. We intend to extend this programme of
energy efficiency across the portfolio.
Distributions
Following the substantial returns of cash to shareholders in late
2008 and early 2009, and with the share price at a discount of over 40% to
adjusted net assets per share, we believe this is an appropriate time to
restore our distribution policy. Accordingly, we propose to recommend a tender
offer buy-back of 1 in 42 shares at 525 pence per share, and a general meeting
to consider this will be convened for early April.
Appointments
In November we welcomed John Whiteley to the Board as Chief
Financial Officer, and Thomas Lundqvist succeeded Tom Thomson as Vice
Chairman. In addition, David Fuller was appointed Company Secretary. I would
like to thank my Board colleagues and our staff for their fortitude during
demanding times, and our shareholders, lenders, customers and suppliers for
their continued support.
The Future
We operate in difficult markets, with banks seeking to reduce their
exposure to the real estate sector. Good property deals, such as our recent
French acquisition, are scarce. The fundamentals of our business remain sound.
We have resources available to take advantage of opportunities as they arise
and I am delighted to report that we face the challenges ahead from a position
of strength and confidence.
Sten Mortstedt
Executive Chairman
11 March 2010
BUSINESS REVIEW 2009
The Group's business is divided into two operating divisions:
investment properties and other investments. The investment property division
is sub-divided for management purposes between the United Kingdom, France,
Germany and Sweden. Other investments comprise investments in corporate bonds,
in property groups Catena AB and Bulgarian Land Development plc, and in
website media company Wyatt Media Group AB and other small corporate
investments. At 31 December 2009, the investment property portfolio was valued
at GBP813.0 million, and the other investments had a book value of GBP114.8
million.
Investment Property
Overview At 31 December 2009, the investment property portfolio was
valued at GBP813.0 million, a fall in the year of 4.3%, of which 3.7% was due to
the strength of sterling against assets held in euros and Swedish kronor. In
local currency, the UK portfolio rose in value by 7.5%, France fell by 6.2%,
Germany by 5.7% and Sweden by 2.0%. The property investment markets did not
provide many opportunities to invest at value in the year, but towards the end
of December we acquired Frères Peugeot in Paris for GBP29.2 million. Disposals
in the year were restricted to 2 Deanery Street, London for GBP2.2 million. At
31 December 2009, the weighted average lease length across the Group was 8.5
years.
United Kingdom
At 31 December 2009, the UK accounted for 42.7% of
the investment portfolio at a value of GBP346.8 million, 7.5% higher than twelve
months earlier on a like-for-like basis. By contrast, Investment Property
Databank recorded a fall in office values across the UK of 5.9% in the year.
Our valuation gain reflected a fall in yields for long-term, secure income
caused by an excess of demand from investors over the available supply. The UK
portfolio has a strong tenant profile with over 50% by rental value let to
government tenants, and longevity of income with a weighted average lease term
of over 10 years.
During the year, 2 Deanery Street, a Grade II listed building
extending to 197 sq m of office accommodation, was sold with vacant possession
for GBP2.2 million, generating a profit of GBP0.3 million over its 2008 valuation
and representing the final disposal of properties considered to offer limited
future prospects for growth. At 31 December 2009, the UK portfolio comprised
26 properties with an aggregate lettable area of 116,700 sq m.
We saw few opportunities for acquisitions offering good long-term
value, with pricing generally reflecting excessive demand from overseas buyers
and institutions. Nevertheless, we remain vigilant for opportunistic
acquisitions. As a long-term holder of properties we have continued to carry
out renovation and improvement works to a number of buildings in the UK
portfolio, comprising GBP1.3 million in aggregate in the year, and including
works at Chancel House and the installation of a new substation and
refurbishment works at Cambridge House. At Westminster Tower, the electrical
supply to each of the floors was replaced whilst the building remained fully
occupied. At Great West House, a further floor was refurbished for the letting
to Medical Professional Personnel.
Within the context of an economy in recession, the UK vacancy rate
remained low at 4.5% by rental income compared to 4.4% in December 2008.
Despite the difficult market conditions, lettings were achieved at
Great West House to Medical Professional Personnel and National Aviation
Company of India, for 473 sq m and 299 sq m respectively, and an existing
tenant at Great West House, Global Refund, acquired further space. At
Quayside, 147 sq m was let to Knowledge to Action and at Ingram House 178 sq m
was contracted with Ash Associates Communications. Further lettings were
achieved at Spring Gardens Court, 16 Tinworth Street, 2/10 Tinworth Street and
107 Wandsworth Road.
Significant rental increases were achieved on the rent reviews at
CI Tower: the annual rent from Hays Specialist Recruitment rose by 15%, and
rent from Lafarge Cement UK increased by the same degree. Further rent reviews
were settled at Spring Gardens, Westminster Tower and Cambridge House.
Through our close relationships with tenants we have again achieved
excellent levels of debt recovery with no tenant company failures to report
across the UK portfolio during the year. On average we received 94% of rent
and service charge within 14 days of the due dates.
In the medium term, we plan to capitalise on the improvement of the
Vauxhall area, following the recent substantial residential development of St
George's Wharf, the relocation of the New Covent Garden Market, and the
announcement of the new location of the United States embassy which is to open
in 2016. We are pursuing development options on two sites in Vauxhall which
are important projects in an improving area offering strong potential for
adding value to substantial sites.
France
At the end of 2009, the French portfolio was valued at
GBP222.8 million, or 27.4% of the total CLS portfolio, and had fallen by 6.2% in
the year in local currency on a like-for-like basis. This compares favourably
to a 2009 average fall of 16% in the French market.
Throughout 2009 we were prepared to wait for the right deal. Having
appraised many opportunities in the year, on 29 December we acquired 7 rue
Eugène et Armand Peugeot in Rueil-Malmaison for GBP29.2 million. This was a
7,350 sq m multi-let office building to the west of Paris yielding 8.3% and
providing a return on equity of 16.1%. There were no disposals from the French
portfolio in the year, which at the year end comprised 25 properties of 85,800
sq m with 180 tenants. Most tenancies were of the traditional French 3:6:9
year duration, and the weighted average lease length at 31 December 2009 was
5.9 years.
The French portfolio suffered no major tenancy changes in the year,
but 7,200 sq m of space was relet and 8,700 sq m renewed, resulting in a year
end vacancy rate of 4.2% by rental value. Among the deals closed in the year
were two lettings to existing tenants in Lyon: 3,909 sq m let to Deloitte in
Park Avenue; and 1,050 sq m to Deloitte's parent, Inuem, at Front de Parc. In
Paris, at Le Quatuor, Montrouge, Pôle Emploi took 999 sq m, and in 96 Rue
Nationale, Lille, Medef signed a lease renewal and extension on 936 sq m.
Renewals and lease extensions were also completed in Paris with Micro
Application on 1,315 sq m in 20/22 Rue des Petits Hôtels, with Citadines on
1,264 sq m in 120 Rue Jean Jaurès, with Camfil on 1,228 sq m in Le Debussy,
and with Cesap on 606 sq m in new nine year leases.
GBP2.3 million was incurred in 2009 maintaining the fabric of the
portfolio, in particular in Paris at Le Debussy, la Garenne-Colombes with the
renovation of common parts and the replacement of the heating and cooling
system at the building. Other renovation work took place in Lyon at Rhône
Alpes, and in Paris at Le Quatuor, Montrouge, 95/97 Bis Rue de Bellevue,
Boulogne, and 120 Rue Jean-Jaures, Levallois Perret, and in Luxembourg.
The total French investment market turnover in 2009 was EUR8 billion,
down from EUR12.5 billion in 2008 and EUR27 billion in 2007, and the letting
market was 25% down on 2008 at 1.8 million sq m. We expect the French property
market to recover slowly in 2010 in line with the French economy, but with
well-located assets performing the better.
Germany
The German portfolio, 23.6% of the total portfolio, was
valued at GBP192.1 million at 31 December 2009, a fall of 5.7% in local currency
on a like-for-like basis, caused by a marginal increase in yield of typically
0.125 to 0.25%. There were no purchases or sales in the year.
During 2009 capital expenditure in Germany comprised GBP17.7 million
in total. The second and third phases of the Landshut development, of 7,032 sq
m in aggregate, were completed on time and on budget. The entire scheme was
pre-let to E.ON Bayern AG for 15 years with no breaks, and added EUR957,000 per
annum to the rent roll. In addition, the 23,800 sq m redevelopment of the
Rathaus Center in Bochum was completed and handed over to the City in December
2009 under a 30 year pre-letting to the local municipality at EUR2,285,000 per
annum.
At 31 December 2009, the German portfolio comprised 16 properties
with 140,400 sq m of lettable space. During the year tenants vacated 9,611 sq
m, and lettings were achieved on 5,021 sq m, resulting in an increase in our
void rate to 5.8% by rental value, well below the national rate. Notable
amongst the lettings, at Frohbösestrasse 12 in Hamburg, laboratory equipment
manufacturer Scope Life Sciences leased 1,595 sq m, and also in Hamburg three
tenants took 1,100 sq m in aggregate at Jarrestrasse 8/10. At 31 December 2009
the portfolio housed 80 tenants on a weighted average lease term of 9.3 years.
Germany's GDP fell by 5.1% in 2009, the largest decrease in 50
years; an increase of 1.5% is expected in 2010. It is within this context that
activity in the German commercial investment property market fell to EUR10.3
billion in 2009, down from EUR19.6 billion in 2008 and EUR75.0 billion in 2007.
The market was dominated by open-ended funds looking for safe core
investments, in which there was a small fall in yields which is expected to
continue in 2010. We were prepared not to enter the investment market in 2009
except for the right opportunity, and we will continue to be circumspect in
2010.
The office letting market was depressed in 2009, with an overall
fall in activity of 28% against the previous year, which in some cities such
as Munich and Düsseldorf reached around 40%. Letting activity is unlikely to
increase in 2010, but there remains very limited development activity to bring
further supply to the market. The national average vacancy rate increased from
8.9% in 2008 to 9.9% in 2009, and is expected to increase in 2010. Our void
rate of only 5.8% is a creditable result in the prevailing economic climate.
Sweden
Our Swedish portfolio comprises adjacent buildings located
in Vänersborg, near Gothenburg, which we treat collectively as one asset of
45,500 sq m called Vänerparken. At 31 December 2009 it was valued at GBP51.3
million, reflecting a fall of 2.0% on a like-for-like basis, and representing
6.3% of the Group portfolio.
Since mid-2008, the local university has vacated approximately
12,500 sq m and has been replaced as a tenant by the local municipality. The
City of Vänersborg has leased the entire space for 20 years, with 10 years
term certain. Should the local authority exercise its break in 2019 it would
be subject to a break cost of one year's rent. We now have a secure income
stream of 97% of our total Swedish income from governmental tenants until
mid-2015, and subject to annual indexation.
With the new letting to the City of Vänersborg, the vacancy rate at
Vänerparken has fallen to 1.9% by rental value.
Investment market activity in Sweden was not immune from global
sentiment, and fell in 2009 by 75% against the year before.
Other Investments
Other investments at 31 December 2009 comprised investments in
corporate bonds, in property groups Catena AB and Bulgarian Land Development
Plc, and in website media company Wyatt Media Group AB and other small
corporate investments, and represented a book value of GBP114.8 million in
aggregate.
The corporate bond portfolio was acquired as part of the Group's
long-term investment strategy in parallel with the ownership of long-term
investment properties and had a value of GBP70.0 million at the year end against
an historical cost of GBP58.4 million. The valuation uplift, together with
interest income from the portfolio and gains on disposals, produced a total
return on capital employed in the year of 54.2%.
Catena AB is a Swedish listed property investment company with a
Scandinavian property portfolio valued at approximately one-quarter the size
of that of CLS. During the year, the Group increased its interest in the
issued share capital of Catena marginally to 29.8%, taking the aggregate cost
to GBP28.6 million.
Bulgarian Land Development Plc is an AIM-listed developer of
predominantly residential buildings in Bulgaria. CLS owns 47.7% of the
company, acquired at a cost of GBP13.4 million.
Results for the Year
Changes in presentation
In the year ended 31 December 2009, a number of International Financial Reporting
Standards have been applied for the first time, as explained in Note 2 to the
financial statements, although none has materially affected the results for the year.
In applying IFRS8 -Operating Segments this year for the first time we are also
required under the newly issued IAS 1 (revised) Presentation of financial statements,
to provide three balance sheets instead of the usual two and several pages of
accompanying notes, even though in applying IFRS8 the balance sheets are
unaffected. Also under IAS 1 (revised) this year a Statement of Comprehensive
Income is presented for the first time, comprising the traditional Income
Statement and other reserve movements.
Headlines
Profit after tax attributable to the owners of the
Company of GBP17.5 million (2008: loss of GBP78.1 million) generated basic
earnings per share of 36.4 pence (2008: loss per share of 120.6 pence). After
excluding the effect of deferred tax and the movement on the revaluation of
investment properties, adjusted earnings per share were 48.2 pence (2008: loss
per share of 65.6 pence). Gross property assets at 31 December 2009 rose to
GBP813.0 million (2008: GBP798.8 million), net assets per share were 643.3 pence
(2008: 548.4 pence) and adjusted net assets per share, which exclude deferred
tax, were 18.6% higher than the previous year at 767.5 pence (2008: 647.2
pence).
Approximately 40% of the Group's business is conducted in the
reporting currency of sterling, and 8% is in Swedish kronor, the exchange rate
for which remained largely unchanged against sterling between 2008 and 2009.
However, half of the Group's business is conducted in euros, the average rate
of which strengthened by around 10% against sterling in 2009 compared to the
previous year, adding to the profits reported in the Statement of
Comprehensive Income. Towards the end of 2008 the euro strengthened
significantly, reaching almost parity at the year end, but by 31 December 2009
sterling had strengthened by 7.8%, reducing the relative value of euro-based
net assets. So, perversely, when compared to the previous year the Statement
of Comprehensive Income benefited from the euro's strength in 2009, but the
Balance Sheet at 31 December 2009 suffered from its weakness.
Exchange rates to the GBP
EUR SEK
At 31 December 2007 1.3571 12.7896
2008 average rate 1.2575 12.0861
At 31 December 2008 1.0461 11.4474
2009 average rate 1.1233 11.9290
At 31 December 2009 1.1275 11.5689
Statement of Comprehensive Income Rental: income for 2009 was GBP60.6
million, 3.9% lower than in 2008. Rents in the UK were GBP25.0 million, 41% of
the total Group, and GBP1.2 million lower than 2008, virtually entirely due to
disposals made in 2008. At GBP4.9 million, rents in Sweden were in line with
last year. In Germany and France, a full year of loss of rent from disposals
made in 2008 reduced rental income by GBP6.4 million in 2009, whilst rents from
completed developments and termination payments on expiries added GBP2.1
million. Underlying rental income from the remaining portfolios in Germany and
France rose by 1.0% in local currency but translated to a 13.1% rise due to
the strength of the euro.
Following the rationalisation of the property portfolio, we
embarked upon a process to address the cost base of the Group, slimming down
the organisation and reducing administration costs from GBP19.0 million in 2007
(excluding GBP8.7 million relating to the investment in London Bridge Quarter
which was sold at the end of that year), to GBP16.1 million in 2008, and GBP12.2
million in 2009.
The net deficit on revaluation of investment properties at 31
December 2009 was GBP6.7 million (2008: deficit of GBP103.3 million). The uplift
in the UK of GBP24.1 million reflected a 7.5% underlying gain. In Germany and
France, the underlying deficit in local currency of around 6% was doubled by
the relative strength of sterling at the year end, causing a deficit of GBP13.5
million and GBP15.9 million, respectively. The deficit on revaluation of
investment properties is excluded in arriving at adjusted earnings per share.
The impairment of intangible fixed assets and goodwill of GBP22.0
million significantly reduced adjusted earnings per share in 2008. There was
no such impairment in 2009.
Net finance costs in 2009 were GBP25.5 million (2008: GBP43.0 million).
Within this number, interest payable of GBP28.5 million (2008: GBP42.6 million)
was lower than the previous year due to the reduction in loans which
accompanied the disposals in 2008, and also due to the decision to reduce
exposure to fixed rate interest rate swaps in favour of interest rate cap
contracts, which enabled the Group to benefit from the prevailing low interest
rate environment. The fall in interest income to GBP6.4 million (2008: GBP8.7
million) was largely due to cash balances being reduced by the GBP48.0 million
distributed through the tender offer buy-back in January 2009. Foreign
exchange variances created a loss of GBP9.7 million (2008: gain of GBP11.9
million), and the effect of marking derivatives to market at the year end
produced a net gain of GBP6.3 million (2008: loss of GBP21.0 million).
Within the Other Investments division, in addition to the return of
54.2% from corporate bonds, Wyatt Media Group contributed GBP0.1 million (2008:
loss of GBP2.8 million) to operating profit on turnover of GBP3.6 million (2008:
GBP3.6 million), and the Group's share of Catena AB's profit after tax was GBP3.0
million. Bulgarian Land Development plc contributed a loss after tax of GBP3.3
million, which was partially offset by negative goodwill of GBP2.8 million
occasioned when the Group bought a further 11.9% of the shares in BLD at a
price below that company's net asset value.
Once again this year the current tax charge was significantly below
the weighted average rate of the countries in which we do business. Our French
operation was the only part of the Group which paid tax. Elsewhere in the
Group, through judicious planning, tax losses absorbed taxable profits made in
the year. Future profits will erode such tax losses and, thereby, the Group's
ability to mitigate future tax liabilities. The tax charge also contains a
deferred tax credit of GBP1.0 million (2008: tax credit of GBP67.7 million), which
typically largely contains an adjustment required under IFRS for the potential
tax occasioned by valuation movements on investment properties. In practice
this tax is unlikely to be paid, so deferred tax is excluded from the
calculations of adjusted earnings per share and adjusted net asset value.
Adjusted net asset value: Adjusted net assets fell by 7.7% to GBP368.6
million (2008: GBP399.6 million), but adjusted net assets per share rose because
the number of shares in issue was reduced by 2 in 9, or 22%, through the
tender offer buy-back.
At 31 December 2009, adjusted net assets per share, which exclude
deferred tax, were 767.5 pence (2008: 647.2 pence), a rise of 18.6%. On 7
January 2009, a tender offer of 2 in 9 shares in issue took place at 350 pence
per share, which had the effect of increasing adjusted net assets per share to
732.0 pence. Profit after tax added a further 34.3 pence, and fair value
movements contributed 28.2 pence. Against this, exchange rate variances
reduced adjusted net assets per share by 27.0 pence.
Cash flow, net debt and gearing: At 31 December 2009, the Group's
cash balances of GBP70.3 million were GBP125.0 million lower than twelve months
previously, mainly due to the distribution of GBP48.0 million by way of the
tender offer buy-back in January, property acquisitions and other capital
expenditure of GBP52.0 million, and the net investment in corporate bonds of
GBP45.9 million.
During the year gross debt reduced from GBP601.7 million to GBP592.8
million. GBP19.2 million was raised to finance the acquisition of Frères Peugeot
in Paris, GBP21.1 million to finance developments in Germany, and GBP29.4 million
for sundry working capital requirements. GBP57.4 million was repaid during the
normal course of business, and the effect of translating euro-denominated
loans into sterling at an exchange rate 7.8% different from twelve months
earlier reduced the sterling value of overseas loans by GBP21.1 million.
Adjusted net gearing, which excludes the effect of deferred tax,
was 101.7% at 31 December 2008, but rose to a pro forma 129.2% with the tender
offer buy-back on 7 January. At 31 December 2009 it was 141.7%, and the
weighted average loan-to-value on borrowings against properties was 66.9%.
Adjusted solidity was 36.4% (2008: 37.6%).
During the year a number of fixed interest rate swap contracts were
cancelled in favour of interest rate caps to take advantage of the prevailing
low interest rate environment. This had the effect of reducing the weighted
average cost of debt to 4.0% (2008: 5.8%), and increasing the proportion of
floating rate loans to 50% of total borrowings (2008: 42.5%). In 2009
recurring interest cover rose to a comfortable 2.1 times (2008: 1.1 times).
Financing strategy: The Group's strategy is to hold its investments
predominantly in single-purpose vehicles financed primarily by non-recourse
bank debt in the currency used to purchase the asset. In this way credit and
liquidity risk can most easily be managed, around 75% of the Group's exposure
to foreign currency is naturally hedged, and the most efficient use can be
made of the Group's assets. Bank debt ordinarily attracts covenants on
loan-to-value and on interest and debt service cover. Following the
significant fall in property values at 31 December 2008, actual and potential
covenant breaches on loans with a value of GBP176.4 million were resolved
through the part-repayment of loans or the placing of cash on deposit using
less than GBP15 million in aggregate. None of the Group's debt was in breach of
covenants at 31 December 2009; potential breaches could be rectified on the
part-repayment of GBP1.9 million of principal.
To the extent that Group borrowings are not at fixed rates, the
Group's exposure to interest rate risk is mitigated by the use of financial
derivatives, particularly interest rate swaps and caps.
Share capital: At 1 January 2009, there were 66,745,471 shares in
issue, of which 5,000,000 were held as Treasury shares. On 7 January, under
the tender offer buy-back, 13,721,215 shares were cancelled in exchange for
GBP48.0 million distributed to shareholders. There were no other changes to
share capital in the year, and at 31 December 2009 48,024,256 shares were
listed on the London Stock Exchange, and 5,000,000 shares remained in
Treasury.
The Directors intend to put to a general meeting of the Company in
April 2010 a proposal to issue a tender offer to buy back 1 in 42 shares at
525 pence per share. If approved by shareholders this could lead to the
purchase and cancellation of 1,143,434 shares, a distribution to shareholders
of GBP6.0 million, and 46,880,822 shares remaining, excluding Treasury shares.
Total Returns to Shareholders
In addition to the distribution associated with the tender offer
buy-back in January 2009, shareholders benefited from a rise in the share
price in the year from 305 pence on 31 December 2008 to 498.75 pence on 31
December 2009. Accordingly, the total shareholder return in 2009 was 52.7%.
PRINCIPAL RISKS AND UNCERTAINTIES
There are a number of potential risks and uncertainties which could
have a material impact on the Group's performance and could cause the results
to differ materially from expected or historical results. The management and
mitigation of these risks are the responsibility of the Board.
Risk Mitigation
Property investment risks
Senior management has
Underperformance of investment detailed knowledge of core
portfolio impacting on markets and experience
gained through many market
financial performance due to: cycles. This experience is
supplemented by external
- Cyclical downturn in property advisors and financial
market models used in capital
allocation decision-making.
- Inappropriate buy/sell/hold
decisions
- Changes in supply of space and/or The Group's property
tenant demand affecting rents portfolio is diversified
and vacancies across four countries. The
weighted-average unexpired
lease term is 8.5 years and
the Group's largest tenant
concentration is with the
Government sector (40.1 per
cent).
- Poor asset management Property teams proactively
manage tenants to ensure
changing needs are met, and
review the current status
of all properties weekly.
Written reports are
submitted bi-weekly to
senior management on, inter
alia, vacancies, lease
expiry profiles and
progress on rent reviews.
Other investment risks
In assessing potential
Underperformance of corporate bond investments, the Group
portfolio Treasury department
undertakes research on the
bond and its issuer, seeks
third-party advice, and
receives legal advice on
the terms of the bond,
where appropriate. The
Group Treasury department
receives updates on bond
price movements and third
party market analysis on a
daily basis and reports on
corporate bonds to the
Board on a bi-weekly basis.
Funding risks
The Group has a dedicated
Unavailability of financing at Treasury department and
acceptable prices relationships are
maintained with
approximately 20 banks,
thus reducing credit and
liquidity risk. The
exposure on re-financing
debt is mitigated by the
lack of concentration in
maturities.
Adverse interest rate movements The Group's exposure to
changes in prevailing
market rates is largely
hedged on existing debt
through interest rate swaps
and caps, or by borrowing
at fixed rates.
Breach of borrowing covenants Financial covenants are
monitored by the Group
Treasury department and
regularly reported to the
Board.
Foreign currency exposure Property investments are
partially funded in
matching currency. The
difference between the
value of the property and
the amount of the financing
is generally unhedged and
monitored on an ongoing
basis.
Taxation risks
The Group monitors
The risk that there will be legislative proposals and
increases in tax rates or changes consults external advisors
to the basis of taxation. to understand and mitigate
the effects of any such
change.
Going concern
See note 1 to the group
The risk that given the economic financial statements.
uncertainties the Group will not
have adequate working capital to
remain a going concern for the next
12 months
PROPERTY PORTFOLIO
At 31 December 2009, the Group owned 68 properties containing 389
tenants in a total lettable area of 388,381 sq m. Contracted rent across the
Group was GBP64.0 million; net rent, which is contracted rent less net service
charge costs, was running at GBP61.9 million from properties with a book value
of GBP813.0 million, representing a net initial yield of 7.6%. Should the vacant
space at 31 December 2009 have been let at its estimated rental value (ERV) of
GBP3.1 million per annum, the yield would have been 7.9%.
The ERV of the entire portfolio was GBP61.3 million, of which GBP58.2
million related to the let portfolio which, therefore, was 9.1% over-rented.
However, around half of the over-rented element was in the UK, where the
weighted average lease length was over 10 years and GBP1.9 million of the
over-rented element in the UK was let to the Government for 16 years
unexpired. 67% of the Group's rent roll extended beyond five years and 27% had
over 10 years unexpired. The weighted average lease length across the Group
was 8.5 years. 40% of the rent roll was let to government tenants, and a
further 26% to major corporations.
Contracted Net Yield True
rent Net rent Book value initial when equivalent
GBPm GBPm GBPm yield fully let yield
UK 24.8 24.0 346.8 6.7% 7.3% 6.5%
France 18.8 18.6 222.8 8.0% 8.7% 7.7%
Germany 14.6 14.4 192.1 7.2% 7.8% 7.2%
Sweden 5.8 4.9 51.3 10.5% 9.5% 8.0%
64.0 61.9 813.0 7.6% 7.9%
Total ERV of
Vacant contracted total Weighted
Vacant @ ERV plus vacant portfolio Over-rented average
% GBPm GBPm GBPm GBPm lease length
UK 4.5% 1.3 26.1 23.3 2.8 10.4 years
France 4.2% 0.8 19.6 18.0 1.6 5.9 years
Germany 5.8% 0.9 15.5 15.1 0.4 9.3 years
Sweden 1.9% 0.1 5.9 4.9 1.0 6.4 years
4.5% 3.1 67.1 61.3 5.8 8.5 years
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RELATION TO THE ANNUAL REPORT
The Responsibility Statement has been prepared in connection with
the Company's full Annual Report for the year ended 31 December 2009. Certain
parts of the Annual Report are not included within this announcement.
We confirm to the best of our knowledge that:
- the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view of the
assets, liabilities, financial position and profit of the Company and the
undertakings included in the consolidation as a whole; and
- the Business Review includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties they face.
This statement of responsibilities was approved by the Board on 10
March 2010.
By order of the Board
David Fuller BA FCIS
Company Secretary
11 March 2010
GROUP STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2009
2009 2008
Notes GBPm GBPm
Continuing operations
Group revenue 4 76.3 81.6
Costs 4 (30.3) (37.4)
46.0 44.2
Net movements on revaluation of
investment properties 10 (6.7) (103.3)
Profit on sale of investment
properties 0.3 7.0
Profit on sale of corporate bonds 1.9 -
Impairment of intangible fixed
assets and goodwill 12 - (22.0)
Loss on disposal of subsidiaries 30 - (16.2)
Operating profit/(loss) 41.5 (90.3)
Net finance costs 7 (25.5) (43.0)
Other non-recurring costs 5 - (1.3)
Share of profit/(loss) of
associates
after tax 14 2.5 (7.5)
Profit/(loss) before tax 18.5 (142.1)
Taxation 8 (1.1) 64.1
Profit/(loss) for the year 5 17.4 (78.0)
Other comprehensive income
Foreign exchange differences (9.5) 36.2
Fair value gains/(losses) on
corporate
bonds and other investments 15 13.5 (3.4)
Deferred tax on fair value gains on
corporate bonds 20 (3.2) -
Share of other comprehensive
income of associates 14 0.4 4.3
Total comprehensive income/
(loss) for the year 18.6 (40.9)
Profit/(loss) attributable to:
Owners of the Company 17.5 (78.1)
Minority interests (0.1) 0.1
Profit/(loss) for the year 17.4 (78.0)
Total comprehensive income
/(loss) attributable to:
Owners of the Company 18.7 (41.0)
Minority interests (0.1) 0.1
Total comprehensive income
/(loss) for the year 18.6 (40.9)
Earnings/(loss) per share from
continuing operations attributable
to the owners of the Company
during the year (expressed in
pence per share)
Basic 9 36.4 (120.6)
Diluted 9 36.4 (120.6)
Notes 1 to 32 are an integral part of these group financial statements.
GROUP BALANCE SHEET
At 31 December 2009
2009 2008 2007
Notes GBPm GBPm GBPm
Non-current assets
Investment
properties 10 813.0 798.8 1,175.3
Property, plant
and equipment 11 2.5 2.8 1.8
Intangible assets 12 1.1 1.1 19.5
Investments in
associates 14 40.9 39.3 42.3
Other investments 15 73.9 14.3 8.4
Derivative
financial
instruments 16 0.1 0.4 1.3
Deferred tax 20 12.7 12.4 2.9
944.2 869.1 1,251.5
Current assets
Trade and other
receivables 17 10.4 10.6 9.1
Derivative
financial
instruments 16 - - 1.3
Cash and cash
equivalents 18 70.3 195.3 122.0
80.7 205.9 132.4
Total assets 1,024.9 1,075.0 1,383.9
Non-current
liabilities
Deferred tax 20 (72.3) (73.4) (117.4)
Borrowings,
including finance
leases 21 (479.3) (529.1) (695.7)
(551.6) (602.5) (813.1)
Current
liabilities
Trade and other
payables 19 (30.1) (32.8) (59.7)
Current tax (5.0) (5.9) (2.7)
Derivative
financial
instruments 16 (15.7) (22.6) (2.3)
Borrowings,
including finance
leases 21 (113.5) (72.6) (103.0)
(164.3) (133.9) (167.7)
Total liabilities (715.9) (736.4 ) (980.8)
Net assets 309.0 338.6 403.1
EQUITY
Capital and
reserves
attributable to
the owners of
the Company
Share capital 23 13.3 16.7 18.7
Share premium
account 25 70.5 70.5 69.8
Other reserves 26 105.0 100.4 61.3
Retained earnings 121.5 152.2 254.4
310.3 339.8 404.2
Minority interest (1.3) (1.2) (1.1)
Total equity 309.0 338.6 403.1
Notes 1 to 32 are an integral part of these group financial statements.
GROUP STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2009
Attributable
to the
owners of
the
Company
Share Share Other Retained Minority
capital premium reserves earnings Total Interest Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2009 16.7 70.5 100.4 152.2 339.8 (1.2) 338.6
Arising in 2009:
Total
comprehensive
income/(loss)
for the year - - 1.2 17.5 18.7 (0.1) 18.6
Purchase of
own shares 23 (3.4) - 3.4 (48.0) (48.0) - (48.0)
Expenses
thereof - - - (0.2) (0.2) - (0.2)
Total changes arising in 2009 (3.4) - 4.6 (30.7) (29.5) (0.1) (29.6)
At 31 December 2009 13.3 70.5 105.0 121.5 310.3 (1.3) 309.0
Attributable
to the
owners of
the
Company
Share Share Other Retained Minority
capital premium reserves earnings Total Interest Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2008 18.7 69.8 61.3 254.4 404.2 (1.1) 403.1
Arising in
2008:
Total
comprehensive
income/(loss)
for the year - - 37.1 (78.1) (41.0) 0.1 (40.9)
Purchase of
own
shares 23 (1.5) - 1.5 (23.9) (23.9) - (23.9)
Expenses
thereof - - - (0.2) (0.2) - (0.2)
Employee share
option scheme 25 - 0.7 - - 0.7 - 0.7
Cancellation of
treasury shares (0.5) - 0.5 - - - -
Change in
minority
interest - - - - - (0.2) (0.2)
Total changes
arising in 2008 (2.0) 0.7 39.1 (102.2) (64.4) (0.1) (64.5)
At 31
December
2008 16.7 70.5 100.4 152.2 339.8 (1.2) 338.6
Notes 1 to 32 are an integral part of these group financial statements.
GROUP STATEMENT OF CASH FLOWS
for the year ended 31 December 2009
2009 2008
Notes GBPm GBPm
Cash flows from operating activities
Cash generated from operations 27 45.7 49.9
Interest received 4.8 8.7
Interest paid (30.1) (41.4)
Income tax paid (3.0) (0.4)
Net cash inflow from operating
activities 17.4 16.8
Cash flows from investing activities
Purchase of investment property (29.2) -
Capital expenditure on investment
property (22.8) (18.9)
Proceeds from sale of investment
property 2.2 127.5
Purchase of corporate bonds (70.8) (10.6)
Purchase of subsidiary undertakings - (2.7)
Proceeds from sale of corporate bonds 24.9 -
Proceeds from sale of equity
investments 0.7 0.3
Purchase of interests in associate (1.8) (0.9)
Dividend received from associate
undertaking 1.5 1.5
(Costs)/proceeds on foreign currency
transactions (4.2) 2.3
Amounts expended in relation to
corporate disposals in prior periods (1.0) (3.0)
Purchases of property, plant and
equipment (0.1) (0.2)
Proceeds on disposal of joint venture
net of cash sold 30 - 28.1
Proceeds on disposal of subsidiary
undertakings net of cash sold 30 - 49.2
Proceeds from sale of property,
plant and equipment - 0.4
Net cash (outflow)/inflow from
investing activities (100.6) 173.0
Cash flows from financing activities
Purchase of own shares (48.2) (24.1)
New loans 69.7 21.3
Issue costs of new loans (0.3) (2.3)
Repayment of loans (57.4) (122.9)
Purchase of financial instruments (0.1) -
Issue of shares - 0.7
Non-recurring restructuring costs - (1.3)
Net cash outflow from financing
activities (36.3) (128.6)
Net (decrease)/increase in cash
and cash equivalents (119.5) 61.2
Foreign exchange (loss)/gain (5.5) 12.1
Cash and cash equivalents at the
beginning of the year 195.3 122.0
Cash and cash equivalents at the
end of the year 18 70.3 195.3
Notes 1 to 32 are an integral part of these group financial statements.
NOTES TO THE GROUP FINANCIAL STATEMENTS
31 December 2009
1 General Information
CLS Holdings plc and its subsidiaries is an investment property group which is
principally involved in the investment, management and development of
commercial properties, and in other investments. The Group's principal
operations are carried out in the United Kingdom, France, Germany and Sweden.
The Company is registered in the UK, registration number 2714781, of
registered address: 86 Bondway, London, SW8 1SF. The Company is listed on the
London Stock Exchange.
The financial information contained in this announcement has been prepared on
the basis of the accounting policies set out in the statutory accounts for the
year ended 31 December 2009. Whilst the financial information included in this
announcement has been computed in accordance with International Financial
Reporting Standards (IFRS), as adopted by the European Union, this
announcement does not itself contain sufficient information to comply with
IFRS. The financial information does not constitute the Company's statutory
accounts for the years ended 31 December 2009 or 2008, but is derived from
those accounts. Those accounts give a true and fair view of the assets,
liabilities, financial position and profit and loss of the Company and the
undertakings included in the consolidation taken as a whole. Statutory
accounts for 2008 have been delivered to the Registrar of Companies and those
for 2009 will be delivered following the Company's annual general meeting. The
auditors' reports on both the 2008 and 2009 accounts were unqualified; did not
draw attention to any matters by way of emphasis; and did not contain
statements under s498(2) or (3) Companies Act 2006 or preceding legislation.
Going concern
The current economic conditions have created a number of uncertainties as set
out above. The Group's business activities, together with the factors likely
to affect its future development and performance are set out in the Business
Review. The financial position of the Group, its liquidity position and
borrowing facilities are described in the Business Review and in notes 21 and
22 of the financial statements.
The Directors regularly stress-test the business model to ensure that the
Group has adequate working capital and have reviewed the current and projected
financial positions of the Group, taking into account the repayment profile of
the Group's loan portfolio, and making reasonable assumptions about future
trading performance. The Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in operational
existence for the foreseeable future and, therefore, they continue to adopt
the going concern basis in preparing the annual report and accounts.
2 Significant accounting policies
The principal accounting policies applied in the preparation of these group
financial statements are set out below. These policies have been consistently
applied to all the years presented, unless otherwise stated.
2.1 Basis of preparation
The financial statements have been prepared on a going concern basis as
explained above and have been prepared in accordance with International
Financial Reporting Standards ("IFRSs") as adopted by the European Union,
International Financial Reporting Interpretations Committee ("IFRIC")
interpretations, and the provisions of the Companies Act 2006 applicable to
companies reporting under IFRS.
New standards and interpretations
In the current year, the Group has adopted standards and guidance for the
first time, the following three of which have had a material effect on the
results for the year, or their presentation:
- Amendments to IAS 1 - Presentation of Financial Statements
- Amendments to IFRS 7 - Improving Disclosures about Financial Instruments
- IFRS 8 - Operating Segments
In accordance with IFRS 8, the reporting of the Group's operating divisions
has been restated to reflect the way in which senior management monitors the
Group. Under IAS 1, a change of comparatives, such as that occasioned by IFRS
8, requires a second comparative balance sheet to be disclosed. In addition, a
Group Statement of Comprehensive Income has been produced for the first time.
IFRS 7 introduced additional disclosures on financial instruments.
Also in the current year, the Group has adopted the following standards and
guidance for the first time, none of which has had a material effect on the
results for the year:
- Amendments to IAS 20 - Accounting for Government Grants and Disclosure of
Government Assistance
- Amendments to IAS 32 and IAS 1 - Puttable Financial Instruments and
Obligations Arising on Liquidation
- Amendments to IAS 38 - Intangible assets
- Amendments to IAS 39 and IFRS 7 - Reclassification of Financial Assets
- Amendments to IAS 39 and IFRS 7 - Reclassification of Financial Assets -
Effective Date and Transition
- Amendments to IAS 40 - Investment Property
- Amendments to IFRS 1 and IAS 27 - Cost of an Investment in a Subsidiary,
Jointly Controlled Entity or Associate
- Amendments to IFRS 2 - Vesting Conditions and Cancellations
- Amendments to IFRIC 9 and IAS 39 - Embedded Derivatives
- IFRIC 12 - Service Concession Arrangements
- IFRIC 13 - Customer Loyalty Programmes
- IFRIC 15 - Agreements for the Construction of Real Estate
- IFRIC 16 - Hedges of a Net Investment in a Foreign Operation
At the date of authorisation of these financial statements, the following
Standards and Interpretations, which have not been applied in these financial
statements, were in issue but not yet effective. In some cases these standards
and guidance have not been endorsed by the European Union:
- IAS 24 (revised) - Related Party Disclosures; effective for accounting
periods starting on or after 1 January 2011
- Amendments to IAS 27 - Consolidated and Separate Financial Statements;
effective for accounting periods starting on or after 1 July 2009
- Amendment to IAS 32 (October 2009) - Classification of Rights Issues;
effective for accounting periods starting on or after 1 February 2010
- Amendments to IAS 39 - Eligible Hedged Items; effective for accounting
periods starting on or after 1 July 2009
- FRS 1 (revised) - First-time Adoption of International Financial Reporting
Standards; effective for accounting periods starting on or after 1 July 2009
- Amendments to IFRS 1 - Additional Exemptions for First-time Adopters;
effective for accounting periods starting on or after 1 January 2010
- Amendment to IFRS 1 - Limited Exemption from Comparative IFRS 7 Disclosures
for First-time Adopters; effective for accounting periods starting on or after
1 July 2010
- Amendments to IFRS 2 - Group Cash-settled Share-based Payment Transactions;
effective for accounting periods starting on or after 1 January 2010
- IFRS 9 - Financial Instruments; effective for accounting periods starting on
or after 1 January 2013
- IFRS 3 (revised) - Business Combinations; effective for accounting periods
starting on or after 1 July 2009
- Amendments to IFRIC 14 - Prepayments of a Minimum Funding Requirement;
effective for accounting periods starting on or after 1 January 2011
- IFRIC 17 - Distributions of Non-cash Assets to Owners; effective for
accounting periods starting on or after 1 July 2009
- IFRIC 18 - Transfers of Assets from Customers; effective for transfers on or
after 1 July 2009
- IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments;
effective for accounting periods starting on or after 1 July 2010
These pronouncements, when applied, will either result in changes to
presentation and disclosure, or are not expected to have a material impact on
the financial statements.
2.2 Business Combinations
(i) Subsidiary undertakings
Subsidiary undertakings are those entities controlled by the Group. Control is
assumed when the Group has the power to govern the financial and operating
policies of an entity or business to benefit from its activities. Subsidiaries
are fully consolidated from the date on which control is transferred to the
Group until the date control ceases. All intra-group transactions, balances,
income and expenses are eliminated on consolidation.
(ii) Joint ventures
Joint ventures are those entities over whose activities the Group has joint
control, established by contractual agreement. The group financial statements
include the Group's proportionate share of income, expenses, assets,
liabilities and cash flows of joint ventures.
(iii) Associates
Associates are those entities over which the Group has significant influence
but which are not subsidiary undertakings or joint ventures. The results and
assets and liabilities of associates are incorporated in these financial
statements using the equity method of accounting. Investments in associates
are carried in the Balance Sheet at cost as adjusted by post-acquisition
changes in the Group's share of the net assets of the associate, less any
impairment in the value of individual investments. When the Group's share of
losses in an associate equals or exceeds its interest in the associate the
Group does not recognise further losses, unless it has incurred obligations or
made payments on behalf of the associate. Unrealised gains on transactions
between the Group and its associates are eliminated to the extent of the
Group's interest in the associates. Unrealised losses are also eliminated
unless the transaction provides evidence of an impairment of the asset
transferred.
(iv) Goodwill
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the Group's interest in the fair value of identifiable assets
and liabilities of a subsidiary, joint venture or associate at the date of
acquisition. It is initially recognised as an asset at cost and is
subsequently measured at cost less any accumulated impairment losses. Goodwill
which is recognised as an asset is reviewed for impairment at least annually.
2.3 Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated into sterling using the
exchange rate prevailing at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet date are
translated into sterling at the exchange rate ruling at that date, and
differences arising on translation are recognised in profit before tax, unless
they relate to qualifying cash flow hedges or qualifying net investment
hedges.
Changes in the fair value of monetary securities classified as
available-for-sale and denominated in foreign currencies are recognised in
profit before tax where the translation difference results from changes in the
amortised cost of the security, and are recognised in equity where it results
from other changes in the carrying amount of the security.
(ii) Consolidation of foreign entities
The results and financial position of all the Group entities that have a
functional currency different from sterling are translated into sterling as
follows:
(a) assets and liabilities are translated at the closing rate at the date of
the balance sheet;
(b) income and expenses for each income statement are translated at the
average exchange rates (unless this average is not a reasonable approximation
of the cumulative effect of the rates prevailing on the transaction dates, in
which case income and expenses are translated at the dates of the
transactions); and
(c) all resulting exchange differences are recognised directly in equity in
the cumulative translation reserve.
On consolidation, exchange differences arising from the translation of the net
investment in foreign entities, and of borrowings and other currency
instruments designated as hedges of such investments, are taken to the
cumulative translation reserve. When a foreign operation is sold, such
exchange differences are recognised as part of the gain or loss on sale in
profit before tax.
2.4 Investment properties
Investment properties are those properties held for long-term rental yields or
for capital appreciation or both. Land held under an operating lease is
classified and accounted for as an investment property when the definition of
investment property is met and the operating lease is accounted for as if it
were a finance lease. Investment properties are measured initially at cost,
including related transaction costs.
After initial recognition at cost, investment properties are carried at fair
value, based on market value as determined by professional external valuers at
the balance sheet date. Investment properties being redeveloped for continuing
use as investment properties, or for which the market has become less active,
continue to be classified as investment properties and measured at fair value.
Changes in fair values are recognised in profit before tax. If an investment
property becomes owner-occupied, it is reclassified as property, plant and
equipment, and its fair value at the date of reclassification becomes its cost
for accounting purposes. Subsequently the owner-occupied property is
depreciated over its useful economic life and revalued at the balance sheet
date.
2.5 Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated
depreciation and any recognised impairment loss.
Land is not depreciated. Depreciation on property, plant and equipment is
calculated using the straight-line method to allocate cost less estimated
residual values over the estimated useful lives, as follows:
Plant and equipment 4 - 5 years
Freehold property 6 years
The gain or loss arising on the disposal or retirement of an asset is
determined as the difference between the sale proceeds and the carrying amount
of the asset and is recognised in profit before tax. Freehold property is
depreciated until December 2014 after which it is anticipated that it will be
redeveloped.
2.6 Intangible assets
Intangible assets acquired separately are capitalised at cost, and in respect
of business combinations are capitalised at fair value at the date of
acquisition. Intangible assets are amortised over their estimated useful lives
on a straight line basis as follows:
Trade names 11 years
Customer relationships 10 - 11 years
Technology 4 years
Capitalised development and other costs not amortised
2.7 Financial instruments
(i) Derivative financial instruments
The Group uses derivative financial instruments, including swaps and interest
rate caps, to help manage its interest rate and foreign exchange rate risk.
Derivative financial instruments are recorded, and subsequently revalued, at
fair value. Revaluation gains and losses are recognised in profit before tax,
except for derivatives which qualify as effective cash flow hedges, the gains
and losses relating to which are recognised directly in equity.
(ii) Available-for-sale investments
Available-for-sale investments are initially measured at cost, and are
subsequently revalued to fair value. Revaluation gains and losses are
recognised directly in equity, except for impairment losses and foreign
exchange gains and losses on monetary assets. On disposal, the cumulative gain
or loss previously recognised in equity is recycled through profit before tax.
(iii) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits and other
short-term highly liquid investments which are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value.
(iv) Trade and other receivables and payables
Trade and other receivables are recognised initially at fair value. An
impairment provision is created where there is objective evidence that the
Group will not be able to collect the receivable in full. Trade and other
payables are stated at cost, which equates to fair value.
(v) Borrowings
Borrowings are recognised initially at fair value less attributable
transaction costs. Subsequently, borrowings are stated at amortised cost with
any difference between the amount initially recognised and the redemption
value being recognised in profit before tax over the period of the borrowings,
using the effective interest rate method.
2.8 Revenue
(i) Rental income
Rental revenue from operating leases is recognised on a straight-line basis
over the lease term. When the Group provides incentives to its customers, the
cost of incentives are recognised over the lease term, on a straight-line
basis, as a reduction of rental revenue.
(ii) Service charge income
Service and management charge revenue is recognised on a gross basis in the
accounting period in which the services are rendered. Where the Group is
acting as an agent, the commission rather than gross revenue is recorded as
revenue.
(iii) Other property-related income
Revenue from the sale of goods and services is booked when the revenue can be
calculated reliably, and the risks and benefits have been transferred to the
buyer. Revenues are booked net of deductions for VAT and discounts.
2.9 Profit on sale of investment properties
Profits on sale of investment properties are recognised when the risks and
rewards of ownership have been transferred to the buyer, typically on
unconditional exchange of contracts or when legal title passes.
2.10 Income tax
Current tax is based on taxable profit for the year and is calculated using
tax rates that have been enacted or substantively enacted by the balance sheet
date.
Deferred tax is provided using the balance sheet liability method on temporary
differences between the carrying value of assets and liabilities for financial
reporting purposes and the values used for tax purposes. Temporary differences
are not provided for when they arise from initial recognition of goodwill or
from the initial recognition of assets and liabilities in a transaction that
does not affect accounting or taxable profit.
The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities,
and is calculated using rates that are expected to apply in the period when
the liability is settled or the asset is realised, in the tax jurisdiction in
which the temporary differences arise. Deferred tax is charged or credited in
arriving at profit after tax, except when it relates to items recognised
directly in equity, in which case the deferred tax is also recognised in
equity.
Deferred tax assets are recognised only to the extent that it is probable that
future taxable profits will be available against which the assets can be used.
The deferred tax assets and liabilities are only offset if they relate to
income taxes levied by the same taxation authority, there is a legally
enforceable right of set-off and the Group intends to settle its current tax
assets and liabilities on a net basis.
2.11 Leases
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and benefits of ownership to the lessee.
All other leases are classified as operating leases. Certain operating leases
for land that is classified and accounted for as investment property pursuant
to IAS 40 - Investment Properties are accounted for as if they were finance
leases.
(i) A Group company is the lessee
(a) Rentals payable under operating leases are charged to the Statement of
Comprehensive Income on a straight-line basis over the term of the lease.
Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight-line basis over the term of the lease.
(b) Assets held under finance leases are recognised as assets at the lease
commencement date at the lower of the fair value of the leased asset and the
present value of the minimum lease payments. The corresponding liability to
the lessor is included in the Balance Sheet as a finance lease obligation.
Each lease payment is allocated between finance charges and reduction of the
lease obligation so as to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are charged directly against income.
(ii) A Group company is the lessor
(a) Rental income from operating leases is recognised on a straight-line basis
over the term of the lease. Initial direct costs incurred in negotiating and
arranging an operating lease are added to the carrying amount of the leased
asset and recognised on a straight-line basis over the lease term.
(b) Amounts due from lessees under finance leases are recorded as receivables
at the amount of the Group's net investment in the leases. Finance lease
income is allocated to accounting periods so as to reflect a constant periodic
return on the Group's net investment outstanding in respect of the leases.
2.12 Employee benefits
Pension obligations
The Group operates various defined contribution plans. The Group pays
contributions to publicly or privately administered pension insurance plans on
a mandatory, contractual or voluntary basis. The Group has no further payment
obligations once the contributions have been paid. A contribution is
recognised as an employee benefit expense when it is due. A prepaid
contribution is recognised as an asset to the extent that a cash refund or a
reduction in future payments is available.
3 Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, which are described in
note 2, the Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions
are based on historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Changes to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
The following are the critical estimates and judgements that the Directors
have made in the process of applying the Group's accounting policies and that
have the most significant effect on the amounts recognised in the financial
statements.
(i) Fair value of investment properties
The best evidence of fair value is current prices in an active market for
similar lease and other contracts. In the absence of such information, the
Group determines the amount within a range of reasonable fair value estimates.
In making its judgement, the Group considers information from a variety of
sources including:
(a) current prices in an active market for properties of a different nature,
condition or location (or subject to different lease or other contracts),
adjusted to reflect those differences;
(b) recent prices of similar properties in less active markets, with
adjustments to reflect any changes in economic conditions since the date of
the transactions that occurred at those prices; and
(c) discounted cash flow projections based on reliable estimates of future
cash flows, derived from the terms of any existing lease and other contracts,
and (where possible) from external evidence such as current market rents for
similar properties in the same location and condition, and using discount
rates that reflect current market assessments of the uncertainty in the amount
and timing of the cash flows.
(ii) Income Taxes
The Group is subject to income taxes in different jurisdictions and estimation
is required to determine the worldwide provision for income taxes. There are
some transactions and calculations for which the ultimate tax determination is
uncertain. Where the final tax outcome of these matters is different from the
amounts that were initially recorded, such differences will impact the income
tax and deferred tax provisions in the period in which determination is made.
(iii) Impairment of goodwill and other intangible assets
When assessing possible impairment of goodwill and other intangible assets the
Group is required to make an assessment of recoverable amounts. Recoverable
amount is calculated as the higher of fair value less costs to sell and value
in use. In making these assessments, assumptions are required to be made based
upon information available at the time.
(iv) Deferred tax
The method of calculation of deferred tax in relation to UK properties assumes
that indexation allowance will be available as it is assumed that the Group
will recover the carrying amount of its investment properties through use
followed by an eventual sale.
4 Segment information
The Group has two operating divisions - Investment Property and Other
Investments. Other Investments comprise corporate bonds, shares in Catena AB,
Bulgarian Land Development Plc and Wyatt Media Group AB, and other small
corporate investments. The Group manages the Investment Property division on a
geographical basis due to its size and geographical diversity. Consequently,
the Group's principal operating segments are:
Investment Property - United Kingdom
France
Germany
Sweden
Other Investments
There are no transactions between the operating segments.
The Group's results for the year ended 31 December 2009 by operating segment
were as follows:
Investment
property
United Other
Kingdom France Germany Sweden Investments Total
GBPm GBPm GBPm GBPm GBPm GBPm
Rental income 25.0 15.9 14.8 4.9 - 60.6
Service charge
income 4.7 4.2 1.7 0.3 - 10.9
Other property-
related income 0.4 0.3 0.3 - - 1.0
Income from
non-property
activities - - - - 3.8 3.8
Group revenue 30.1 20.4 16.8 5.2 3.8 76.3
Service charges
and similar
expenses (6.3) (4.5) (2.8) (1.2) - (14.8)
Administration
expenses (2.6) (1.5) (1.1) (0.5) (3.7) (9.4)
Other expenses (1.0) (0.7) (1.2) (0.2) (0.2) (3.3)
Costs (9.9) (6.7) (5.1) (1.9) (3.9) (27.5)
Group revenue
less costs 20.2 13.7 11.7 3.3 (0.1) 48.8
Net movements
on revaluation
of investment
properties 24.1 (15.9) (13.5) (1.4) - (6.7)
Profit on sale
of
investment
properties 0.3 - - - - 0.3
Profit on sale
of
corporate bonds - - - - 1.9 1.9
Segment
operating
profit/(loss) 44.6 (2.2) (1.8) 1.9 1.8 44.3
Net finance
costs (6.1) (7.0) (7.4) (1.6) (3.4) (25.5)
Share of profit
of
associates
after
tax - - - - 2.5 2.5
Segment
profit/(loss)
before tax 38.5 (9.2) (9.2) 0.3 0.9 21.3
Taxation (4.0) 1.6 0.2 0.6 0.5 (1.1)
Segment
profit/(loss)
after tax 34.5 (7.6) (9.0) 0.9 1.4 20.2
Central
administration
costs (2.8)
Profit for the
year 17.4
On the adoption of IFRS 8 - Operating Segments in 2009, certain items in 2008
and 2007 have been reclassified. Previously, other investments were shown
within their respective geographical segment, central administration costs and
non-recurring costs were included within the UK segment and the deferred tax
charge was not allocated by segment. In 2008, results from associates (loss of
GBP7.5 million) were shown within the Sweden segment and are now shown within
the Other Investments segment. Available-for-sale investments of GBP11.0 million
were shown in the assets of the UK segment and investments in associates of
GBP39.3 million were shown in the Sweden segment; both are now shown within
other investments.
The Group's results for the year ended 31 December 2008 by operating segment,
restated as explained above and in note 2, were as follows:
Investment
property
United Other
Kingdom France Germany Sweden Investments Total
GBPm GBPm GBPm GBPm GBPm GBPm
Rental income 26.2 19.6 12.3 5.0 - 63.1
Service charge
income 5.4 3.4 2.2 0.3 - 11.3
Other property-
related income 0.9 1.1 - 1.3 - 3.3
Income from
non-property
activities - - - - 3.9 3.9
Group revenue 32.5 24.1 14.5 6.6 3.9 81.6
Service charges
and similar
expenses (5.7) (3.7) (2.3) (1.4) - (13.1)
Administration
expenses (1.6) (2.0) (1.8) (1.3) (6.5) (13.2)
Other expenses (1.6) (0.8) (1.2) - (4.6) (8.2)
Costs (8.9) (6.5) (5.3) (2.7) (11.1) (34.5)
Group revenue
less costs 23.6 17.6 9.2 3.9 (7.2) 47.1
Net movements
on revaluation
of investment
properties (59.4) (17.8) (19.9) (6.2) - (103.3)
Profit/(loss)
on
sale of
investment
properties 6.6 (0.2) 0.6 - - 7.0
Impairment of
intangible
fixed
assets and
goodwill - - - - (22.0) (22.0)
Loss on
disposal of
subsidiaries - (15.9) - (0.3) - (16.2)
Segment
operating loss (29.2) (16.3) (10.1) (2.6) (29.2) (87.4)
Net finance
costs (25.7) (9.0) (8.8) (1.4) 1.9 (43.0)
Share of loss
of
associates
after
tax - - - - (7.5) (7.5)
Segment loss
before tax (54.9) (25.3) (18.9) (4.0) (34.8) (137.9)
Taxation 25.5 34.4 1.6 2.1 0.5 64.1
Segment
(loss)/profit
after tax (29.4) 9.1 (17.3) (1.9) (34.3) (73.8)
Central
administration
costs (2.9)
Non-recurring
costs (1.3)
Loss for the
year (78.0)
Other segment information:
Capital
Assets Liabilities expenditure
2008 2007 2008 2007 2008 2007
2009 restated restated 2009 restated restated 2009 restated restated
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Investment
Property
United Kingdom 370.2 428.9 625.5 282.0 311.5 482.3 1.3 2.7 20.8
France 246.1 307.5 376.5 187.6 193.5 295.2 31.4 1.2 5.5
Germany 200.0 210.1 177.5 158.8 152.4 123.0 17.8 11.1 26.2
Sweden 58.6 70.1 71.5 30.7 52.8 44.6 2.2 2.4 0.5
Other investments 150.0 58.4 132.9 56.8 26.2 35.7 - - -
1,024.9 1,075.0 1,383.9 715.9 736.4 980.8 52.7 17.4 53.0
Included within the assets of other investments are investments in associates
of GBP40.9 million (2008: GBP39.3 million; 2007: GBP42.3 million).
5 Profit/(loss) for the year
Profit/(loss) for the year has been arrived at after charging:
2009 2008
GBPm GBPm
Auditors' remuneration
Fees payable to the Company's auditors for
the audit of the parent Company and group
accounts 0.2 0.1
Fees payable to the Company's auditors for
other services to the Group
The audit of the Company's subsidiaries
pursuant to legislation 0.1 0.1
Corporate finance services* - 0.2
Depreciation and amortisation 0.5 1.4
Loss on disposal of property, plant and
equipment - 0.2
Permanent diminution in value of
available-
for-sale equity investments - 3.0
Employee benefits expense (note 6) 6.7 7.9
Professional fees and other non-recurring
costs of investigating a potential
restructuring
of the Group* - 1.3
* In 2008 fees payable to the Company's auditors for corporate finance
services of GBP0.2 million are also included within non-recurring costs of GBP1.3
million.
6 Employee benefits expense
2009 2008
GBPm GBPm
Wages and salaries 5.3 5.5
Social security costs 0.8 1.2
Pension costs - defined contribution
plans 0.2 0.4
Other employee-related expenses 0.4 0.8
6.7 7.9
The Directors are considered to be key management of the Group.
No amounts were charged to the Statement of Comprehensive Income in relation
to share-based payments (2008: GBPnil).
The monthly average number of employees of the Group in continuing operations,
including Executive Directors, was as follows:
2009 2008
Other Other
Property operations Total Property operations Total
number number number number number number
Male 20 20 40 22 39 61
Female 29 8 37 30 15 45
49 28 77 52 54 106
7 Net Finance costs
2009 2008
GBPm GBPm
Interest expense
Bank loans 22.7 33.3
Debenture loans 4.7 4.7
Other interest 0.3 0.9
Amortisation of issue costs of loans 0.8 3.7
Foreign exchange variances 9.7 (11.9)
Movement in fair value of derivative
financial instruments
Interest rate swaps: transactions not
qualifying as hedges (6.7) 19.9
Interest rate caps, collars and floors:
transactions not qualifying as hedges 0.4 1.1
Interest income (6.4) (8.7)
25.5 43.0
8 Taxation
2009 2008
GBPm GBPm
Current tax 2.1 3.6
Deferred tax (note 20) (1.0) (67.7)
1.1 (64.1)
A deferred tax charge of GBP3.2 million (2008: GBPnil) was recognised directly in
equity (note 20).
The charge for the year differs from the theoretical amount which would arise
using the weighted average tax rate applicable to profits of Group companies
as follows:
2009 2008
GBPm GBPm
Profit/(loss) before tax 18.5 (142.1)
Tax calculated at domestic tax rates
applicable to profits in the respective
countries 4.9 (40.8)
Expenses not deductible for tax purposes 0.5 10.3
Tax effect of unrecognised losses in
associates and joint ventures (0.7) 2.0
Previously unrecognised tax losses
and other deferred tax adjustments (3.6) (3.0)
Different taxation treatment of disposals (0.1) (32.2)
Deferred tax assets not recognised 2.9 0.4
Adjustment in respect of prior periods (2.8) (0.8)
Tax expense/(credit) for the year 1.1 (64.1)
The weighted average applicable tax rate of 26.3 per cent (2008: 28.7 per
cent) was derived by applying to their relevant profits and losses the rates
in the jurisdictions in which the Group operated.
9 Earnings per share
Management has chosen to disclose adjusted earnings per share from continuing
operations in order to provide an indication of the Group's underlying
business performance. Adjusted earnings per share excludes the effect of
revaluations of investment properties and deferred tax.
2009 2008
GBPm GBPm
Profit/(loss) for the year attributable
to the owners of the Company 17.5 (78.1)
Deferred tax (1.0) (67.7)
Net movement on revaluation of
investment properties 6.7 103.3
Adjusted profit/(loss) for the year
attributable to the owners of the
Company 23.2 (42.5)
2009 2008
number number
Weighted average number of
ordinary shares 48,249,810 64,783,048
2009 2008
pence pence
Basic and diluted earnings/(loss) per
share from continuing operations 36.4 (120.6)
Adjusted earnings/(loss) per share
from continuing operations 48.2 (65.6)
In 2009 there were no instruments in issue which could have changed the
weighted average number of shares. In 2008 there were share options in issue
for part of the year, the effect of which had they been issued from the start
of the year would have been accretive to earnings per share. Had these been
issued from the start of 2008, the weighted average number of shares that year
would have increased by 110,877 shares.
10 Investment properties
2009 2008 2007
GBPm GBPm GBPm
At 1 January 798.8 1,175.3 1,143.4
Acquisitions 29.2 - 29.0
Capital expenditure 23.4 17.2 23.2
Transfer to property, plant
and equipment (note 11) - (2.3) -
Disposals - property sales (1.9) (120.5) -
Disposals - corporate sales
(note 30) - (285.3) -
Net movements on
revaluation of investment
properties (6.7) (103.3) (68.1)
Rent-free period debtor
adjustments 1.5 (1.0) 0.8
Exchange rate variances (31.3) 118.7 47.0
At 31 December 813.0 798.8 1,175.3
The investment properties (and the owner-occupied property detailed in note
11) were revalued at 31 December 2009 to their fair value. Valuations were
based on current prices in an active market for all properties. The property
valuations were carried out by external, professionally qualified valuers as
follows:
UK 2009: Lambert Smith Hampton
UK 2007 and 2008: Allsop & Co.
France: DTZ Debenham Tie Leung
Germany: DTZ Debenham Tie Leung
Sweden: CB Richard Ellis
Investment properties included leasehold buildings of which the carrying
amount was GBP18.1 million (2008: GBP20.8 million; 2007: GBP113.3 million).
Where the Group leases out its investment property under operating leases the
duration is typically 3 years or more. No contingent rents have been
recognised in the current or comparative years.
Substantially all investment properties (and the owner-occupied property
detailed in note 11) are secured against debt.
In the latter half of 2008 the economic climate and lower transactional
volumes in the real estate markets in which the Group was active meant that
the valuers had to refer to greater use of professional judgement in arriving
at the year end valuations at 31 December 2008. The Directors are satisfied
that market conditions, while still remaining challenging, had returned to a
more normal level of transactional activity by 31 December 2009. The Directors
are satisfied that the external valuations supplied are appropriate to adopt
for the 2009 financial statements without adjustment.
11 Property, plant and equipment
2009 2008 2007
GBPm GBPm GBPm
Cost or valuation
At 1 January 6.6 6.7 6.5
Transfer from investment
property (note 10) - 2.3 -
Additions 0.1 0.2 0.8
Disposals - (2.6) (0.6)
Revaluation
increase/(decrease) 0.1 (0.3) -
Exchange rate variances - 0.3 -
At 31 December 6.8 6.6 6.7
Accumulated depreciation
and impairment
At 1 January (3.8) (4.9) (4.5)
Depreciation charge (0.5) (0.9) (1.0)
Disposals - 2.2 0.6
Exchange rate variances - (0.2) -
At 31 December (4.3) (3.8) (4.9)
Net book value
At 31 December 2.5 2.8 1.8
Owner-occupied property was revalued at 31 December 2009 based on the external
valuation performed by Lambert Smith Hampton (in prior years Allsop & Co.) as
detailed in note 10.
12 Intangible assets
Other
Goodwill intangibles Total
GBPm GBPm GBPm
Cost
At 1 January 2009 and at
31 December 2009 18.6 7.2 25.8
Amortisation
At 1 January 2009 and at
31 December 2009 (17.5) (7.2) (24.7)
Net book value
At 31 December 2009 1.1 - 1.1
Other
Goodwill intangibles Total
GBPm GBPm GBPm
Cost
At 1 January 2008 15.2 6.5 21.7
Additions 3.6 0.2 3.8
Disposals (1.6) - (1.6)
Exchange rate variations 1.4 0.5 1.9
At 31 December 2008 18.6 7.2 25.8
Amortisation
At 1 January 2008 - (2.2) (2.2)
Amortisation - (0.5) (0.5)
Impairment (17.5) (4.5) (22.0)
At 31 December 2008 (17.5) (7.2) (24.7)
Net book value
At 31 December 2008 1.1 - 1.1
Other
Goodwill intangibles Total
GBPm GBPm GBPm
Cost
At 1 January 2007 12.9 6.3 19.2
Additions 1.8 - 1.8
Exchange rate variations 0.5 0.2 0.7
At 31 December 2007 15.2 6.5 21.7
Amortisation
At 1 January 2007 - (0.4) (0.4)
Amortisation - (1.8) (1.8)
At 31 December 2007 - (2.2) (2.2)
Net book value
At 31 December 2007 15.2 4.3 19.5
Goodwill
Goodwill comprised GBP0.8 million (2008: GBP0.8 million; 2007: GBP2.4 million) on
the acquisition of a French property portfolio in 2004 and GBP0.3 million (2008:
GBP0.3 million; 2007: GBP0.3 million) on a German property acquisition in 2005.
All other goodwill and intangible assets related to Wyatt Media Group AB and
were fully written down in 2008.
In October 2007, the Group purchased a call option for the remaining 60%
shareholding in Bilddagboken AB for GBP1.2 million. The option was exercised on
22 January 2008 for GBP2.2 million. When exercised, goodwill of GBP3.3 million was
recognised.
In February and April 2008, the Group acquired a further 25.1% of the share
capital of Internetami AB (Tyda) taking the Group's total shareholding to
82.3%. On acquisition, goodwill of GBP0.2 million was recognised.
In October 2008, the Group acquired the remaining 47% of the share capital of
Xtraworks AB. On acquisition, goodwill of GBP0.1 million was recognised.
Other intangibles
Other intangibles (relating to trade names, technology, customer
relationships, capitalised development and other costs) relate to Wyatt Media
Group AB and were fully written down during 2008 as described above.
2009 Impairment review
Goodwill was reviewed for impairment at 31 December 2009 using the key
assumptions set out below. No impairment was required.
Key assumptions:
Unamortised goodwill at 31 December 2009 related to contingent deferred tax
arising on acquisitions of corporate entities for which an equal deferred tax
liability was recognised in the Balance Sheet.
2008 impairment review
The impairment losses recognised in the Statement of Comprehensive Income in
2008 in respect of goodwill and intangible assets related exclusively to Wyatt
Media Group AB. During the year ended 31 December 2008, the goodwill and
intangible assets in respect of the Group's online media operations were
impaired by GBP17.5 million and GBP4.5 million, respectively. This was due to
market competition, primarily in the social networking environment, and
increased obsolescence of existing coding and software causing a significant
pre-tax risk adjustment. At 31 December 2008 the net book value of goodwill
and intangible assets relating to Wyatt Media Group AB was GBPnil.
Key assumptions:
The key assumptions used in reviewing for impairment at 31 December 2008 the
goodwill and intangibles of Wyatt Media Group AB were as follows:
- Budgeted earnings before interest, tax, depreciation and amortisation
(EBITDA) - budgeted EBITDA was based on an "income per user" measure derived
from existing income streams and new product launches. Projected user volumes
using web services were derived from past experience of the business.
- Long-term growth rates - growth rates of between 2-3 per cent were used
which approximated to the nominal GDP rates in the countries in which the
business operated.
- Pre-tax adjusted discount rate - the discount rate was derived from a
risk-free rate adjusted to reflect specific risk premiums in relation to the
systemic risk of 33 per cent and a risk adjustment (`beta') applied to reflect
the risk of the operating entity.
13 Joint ventures
At 31 December 2009 the Group had a one-third interest (2008: one-third; 2007:
one-third ) in the issued ordinary share capital of Fielden House Investments
Limited, a company incorporated in England and Wales.
The principal activity of Fielden House Investments Limited is investment in,
and management and development of, commercial property.
The following amounts represent the Group's share of the assets and
liabilities, and income and expenditure of Fielden House Investments Limited
which are included in the Balance Sheet and Statement of Comprehensive Income
of the Group:
2009 2008 2007
GBPm GBPm GBPm
Assets
Non-current assets 1.8 2.3 2.9
Current assets 0.2 - 0.1
2.0 2.3 3.0
Liabilities
Non-current liabilities (2.5) (2.5) (2.5)
Current liabilities (0.2) - (0.1)
(2.7) (2.5) (2.6)
Net (liabilities)/assets (0.7) (0.2) 0.4
Income 0.2 0.2 0.2
Expenses (0.2) (0.8) (0.2)
Loss after income tax - (0.6) -
In 2007 the Group had interests in two other joint ventures, Teighmore Limited
and New London Bridge House Limited, of which the Group also owned one-third
of the issued ordinary share capital.
New London
Teighmore Bridge House Total
2007 GBPm GBPm GBPm
Assets
Non-current assets 80.4 29.8 110.2
Current assets 2.2 0.3 2.5
82.6 30.1 112.7
Liabilities
Current liabilities (69.1) (13.6) (82.7)
Net assets 13.5 16.5 30.0
Income 0.7 1.1 1.8
Expenses (6.0) (1.4) (7.4)
Loss after income tax (5.3) (0.3) (5.6)
The Group's interests in New London Bridge House Limited and Teighmore Limited
were disposed of during 2008 as described in note 30. There were no contingent
liabilities on sale.
14 Investments in associates
Net assets Goodwill Total
GBPm GBPm GBPm
At 1 January 2009 34.6 4.7 39.3
Additions 1.7 0.1 1.8
Share of profit of
associates after tax| 2.5 - 2.5
Other equity movements* 0.4 - 0.4
Dividends received (1.5) - (1.5)
Exchange rate differences (1.6) - (1.6)
At 31 December 2009 36.1 4.8 40.9
Net assets Goodwill Total
GBPm GBPm GBPm
At 1 January 2008 31.9 10.4 42.3
Additions 0.8 0.1 0.9
Reclassification 1.3 (1.3) -
Share of loss of associates
after tax| (2.2) (5.3) (7.5)
Other equity movements* 4.3 - 4.3
Dividends received (1.5) - (1.5)
Exchange rate differences - 0.8 0.8
At 31 December 2008 34.6 4.7 39.3
Net assets Goodwill Total
GBPm GBPm GBPm
At 1 January 2007 - - -
Transfer from other
investments 4.2 - 4.2
Additions 24.8 10.4 35.2
Share of profit of
associates
after tax| 0.5 - 0.5
Other equity movements* 0.3 - 0.3
Exchange rate differences 2.1 - 2.1
At 31 December 2007 31.9 10.4 42.3
| Consists of share of associates' loss of GBP0.3 million (2008: loss of GBP4.3
million; 2007: profit of GBP0.5 million) and the realisation of GBP2.8 million
(2008: GBP2.1 million; 2007: GBPnil) of negative goodwill on acquisition. The
write down of goodwill of GBP5.3 million in 2008 is explained in note 14.
* Primarily foreign exchange movements of the associate undertakings.
GBP1.3 million was reclassified to net assets from goodwill in 2008 to reflect a
revision to the original acquisition calculation in 2007, which had been based
on preliminary results and was updated in 2008 to reflect published data.
During 2008 Bulgarian Land Development Plc restated its 2007 accounts. The
share of loss in 2008 disclosed above includes GBP0.5 million relating to 2007,
and other equity movements in 2008 include a further GBP0.5 million also
relating to 2007.
The Group's interests in its principal associates were as follows:
Interest held
Profit / in ordinary
Country of Assets Liabilities Revenues (loss) share capital
At 31 December incorporation
2009 GBPm GBPm GBPm GBPm %
Catena AB Sweden 66.4 (43.8) 5.1 3.0 29.8
Bulgarian Land
Development Plc Isle of Man 27.4 (13.9) 2.1 (3.3) 47.7
Flavour of the
Month AB Sweden - - - - 40.0
93.8 (57.7) 7.2 (0.3)
Interest held
Profit / in ordinary
Country of Assets Liabilities Revenues (loss) share capital
At 31 December incorporation
2008 GBPm GBPm GBPm GBPm %
Catena AB Sweden 61.4 (40.9) 4.6 (3.2) 29.1
Bulgarian Land
Development Plc Isle of Man 23.8 (9.7) 2.3 (1.1) 35.8
Flavour of the
Month AB Sweden - - - - 40.0
85.2 (50.6) 6.9 (4.3)
Interest held
Profit / in ordinary
Country of Assets Liabilities Revenues (loss) share capital
At 31 December incorporation
2007 GBPm GBPm GBPm GBPm %
Catena AB Sweden 57.8 (34.9) 0.7 0.6 29.1
Bulgarian Land
Development Plc Isle of Man 17.2 (8.2) - (0.1) 28.7
75.0 (43.1) 0.7 0.5
Catena AB
In May 2007 the Group acquired a 27.6 per cent stake in Catena AB, a listed
Swedish property company, increasing this to 29.1 per cent on 3 July 2007, for
an aggregate sum of GBP28.0 million. A further 0.7 per cent was acquired during
2009 at a cost of GBP0.6 million. Henry Klotz, Chief Executive Officer of the
Company, was appointed Chairman of Catena in 2007.
The quoted market value of the Group's investment in the shares of Catena AB
at year end was GBP26.1 million (2008: GBP17.6 million; 2007: GBP28.0 million).
Bulgarian Land Development Plc
During 2006, the Group acquired 4,250,000 shares (10.6 per cent) of Bulgarian
Land Development Plc (BLD), a company listed on the Alternative Investment
Market of the London Stock Exchange, at a cost of GBP4.2 million. BLD develops
residential and commercial properties in Bulgaria.
In 2007 a further 7,211,787 shares were acquired by the Group at a cost of
GBP7.2 million taking the total shareholding to 28.7 per cent.
In 2008 a further 2,859,500 shares were acquired by the Group at a cost of
GBP0.8 million to take the total shareholding to 35.8 per cent. This created
negative goodwill of GBP2.1 million which was included in the Group's profit
before tax in 2008.
In 2009 the Group increased its holding by 4,763,491 shares at a cost of GBP1.2
million, taking the total shareholding to 47.7 per cent. This created negative
goodwill of GBP2.8 million which was included in the Group's profit before tax
in 2009.
The market value of the Group's investment in the shares of BLD at the year
end was GBP3.8 million (2008: GBP4.6 million; 2007: GBP9.1 million).
Flavour of the Month AB
In 2008 the Group acquired a 40 per cent interest in a blog resourcing website
provider, Flavour of the Month AB, for GBP0.1 million.
Impairment
2009
In assessing the carrying value of Catena AB, the Group considered that the
balance sheet of Catena AB at 31 December 2009 was stated at fair value except
for certain deferred tax liabilities. It was management's assessment that the
realisation of Catena's property assets would occur through corporate
disposals and therefore latent deferred tax liabilities were unlikely to
crystallise. As the Group's share of the net assets of Catena AB, excluding
deferred tax liabilities, exceeded the carrying value of the Group's interest
there was no further impairment of the Group's interest in Catena AB at 31
December 2009.
BLD is carried in the Balance Sheet at a value equal to the Group's share of
its net assets. BLD's net assets were reviewed and found not to be impaired at
31 December 2009. Accordingly there was no further provision against the
carrying value of the Group's interest in BLD at 31 December 2009.
2008
Given the economic instability in late 2008 and the likelihood of a slowdown
in global growth, the Group considered that this represented a potential
indication of impairment in relation to its associate investments.
Consequently, the Group tested the recoverability of its associate investments
by comparing the carrying amount of the associate investment at the balance
sheet date to its recoverable amount. This resulted in a write down of GBP5.3
million of goodwill.
In assessing the carrying value of Catena AB, the Group considered that the
balance sheet of Catena AB at 31 December 2008 was stated at fair value except
for certain deferred tax liabilities. It was management's assessment that the
realisation of Catena's property assets would occur through corporate
disposals and therefore latent deferred tax liabilities were unlikely to
crystallise. Taking this into account the write down in relation to Catena was
GBP3.9 million in 2008, representing the excess of carrying value over fair
value.
In assessing the carrying value of BLD there was significant uncertainty over
the timing and level of future cash flows which crystallised a write down of
goodwill of GBP1.4 million in 2008. A review of BLD's underlying assets was
undertaken and found not to be impaired at 31 December 2008. On this basis the
Directors considered the Group's share of net assets approximated to
recoverable value.
15 Other investments
2009 2008 2007
GBPm GBPm GBPm
Available-for-sale
financial
investments carried at
fair
value
Listed corporate bonds UK 17.1 1.2 -
Eurozone 40.0 8.3 -
Other 12.9 1.2 -
Listed equity securities UK 0.6 0.3 1.7
Sweden 2.5 2.3 5.0
Other 0.1 0.1 -
Unlisted investments UK - 0.1 -
Sweden 0.6 0.6 -
Government securities UK 0.1 0.2 0.1
73.9 14.3 6.8
Investments designated
as
at fair value through
the
profit or loss
Listed equity securities UK - - 0.8
Other - - 0.3
Unlisted investments Sweden - - 0.5
- - 1.6
73.9 14.3 8.4
When investments are managed and their performance is evaluated on a fair
value basis they are designated upon initial recognition as "at fair value
through the profit or loss". All other equity investments are designated as
"available-for-sale".
The movement of other investments is analysed below:
2009 2008 2007
GBPm GBPm GBPm
At 1 January 14.3 8.4 16.2
Additions 70.7 10.6 7.2
Disposals (23.4) (0.3) (13.5)
Fair value movements
recognised in reserves on
available-for-sale assets 13.5 (3.4) 1.7
Fair value movements
recognised in profit before
tax on available-for-sale
assets - (3.0) (0.3)
Transfers to investments in
associates - - (4.2)
Exchange rate variations (1.2) 2.0 1.3
At 31 December 73.9 14.3 8.4
The table below gives an analysis of the valuation methods used to measure the
fair value of the other investments, grouped into Levels 1 to 3 based on the
degree to which the fair value is observable.
2009 2008 2007
GBPm GBPm GBPm
Level 1 - quoted unadjusted
market prices 3.3 2.9 7.9
Level 2 - valuation from
observable market data| 70.0 10.7 -
Level 3 - other valuation
methods* 0.6 0.7 0.5
73.9 14.3 8.4
| Includes GBP5.1 million (2008: GBP4.9 million; 2007: GBPnil) of corporate bonds
priced directly from market makers in those bonds.
* Unlisted equity shares valued using multiples from comparable listed
organisations.
16 Derivative financial instruments
2009 2009 2008 2008 2007 2007
Assets Liabilities Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm GBPm GBPm
Non-current
Interest
rate swaps - - - - 0.1 -
Interest
rate caps
and floors 0.1 - 0.4 - 1.2 -
0.1 - 0.4 - 1.3 -
Current
Interest
rate swaps - (15.7) - (22.4) - (2.3)
Forward
foreign
exchange
contracts - - - (0.2) - -
Call option
on
subsidiary
undertaking - - - - 1.3 -
- (15.7) - (22.6) 1.3 (2.3)
0.1 (15.7) 0.4 (22.6) 2.6 (2.3)
The valuation methods used to measure the fair value of all derivative
financial instruments were grouped into Level 2, being derived from inputs
which were either observable as prices or derived from prices.
There were no derivative financial instruments accounted for as hedging
instruments.
Interest rate swaps
The aggregate notional principal of the outstanding interest rate swap
contracts at 31 December 2009 was GBP136.7 million (2008: GBP296.8 million; 2007:
GBP195.7 million). The average period to maturity of the interest rate swaps was
3.9 years (2008: 2.1 years; 2007: 3.8 years).
The main interest rate swap matures payable during 2026. During the period to
maturity there is a single date in 2012 on which the swap can be cancelled by
the counterparty and settled at fair value. The fair value of this swap at 31
December 2009 was a liability of GBP9.9 million (2008: GBP15.0 million; 2007: GBP0.8
million).
Forward foreign exchange contracts
The Group uses forward foreign exchange contracts from time to time to add
certainty to, and to minimise the impact of foreign exchange movements on,
committed cash flows. At 31 December 2009 the Group had GBP5.4 million of
outstanding net foreign exchange contracts (2008: GBP23.4 million; 2007: GBP35.0
million).
17 Trade and other receivables
2009 2008 2007
GBPm GBPm GBPm
Current
Trade receivables 2.8 3.7 2.9
Prepayments 0.8 0.7 1.3
Accrued income 2.2 0.3 0.4
Other debtors 4.6 5.9 4.5
10.4 10.6 9.1
There is no concentration of credit risk with respect to trade receivables as
the Group has a large number of tenants spread across the countries in which
it operates.
There were no material trade and other receivables classified as past due but
not impaired. No trade and other receivables are interest-bearing.
18 Cash and cash equivalents
2009 2008 2007
GBPm GBPm GBPm
Cash at bank and in hand 47.0 64.9 42.7
Short-term bank deposits 23.3 130.4 79.3
70.3 195.3 122.0
At 31 December 2009, Group cash at bank and in hand included GBP13.8 million
(2008: GBP11.0 million; 2007: GBP21.4 million) of cash deposits which were
restricted by a third-party charge.
Cash and short-term deposits are invested at floating rates of interest based
on relevant national LIBID and base rates or equivalents in the UK, France,
Germany and Sweden.
The cash and cash equivalents currency profile is as follows:
Cash at bank Short-term
and in hand deposits Total
At 31 December 2009 GBPm GBPm GBPm
Sterling 18.5 22.0 40.5
Euro 24.5 1.3 25.8
Swedish Krona 4.0 - 4.0
47.0 23.3 70.3
Cash at bank Short-term
and in hand deposits Total
At 31 December 2008 GBPm GBPm GBPm
Sterling 12.4 75.0 87.4
Euro 50.3 49.7 100.0
Swedish Krona 2.2 5.7 7.9
64.9 130.4 195.3
Cash at bank Short-term
and in hand deposits Total
At 31 December 2007 GBPm GBPm GBPm
Sterling 20.6 64.7 85.3
Euro 18.5 4.5 23.0
Swedish Krona 3.6 10.1 13.7
42.7 79.3 122.0
19 Trade and other payables
2009 2008 2007
GBPm GBPm GBPm
Current
Trade payables 1.9 2.5 5.8
Social security and other
taxes 1.8 1.1 2.1
Other payables 5.4 4.7 6.1
Accruals 12.1 16.6 36.9
Deferred income 8.9 7.9 8.8
30.1 32.8 59.7
20 Deferred tax
2009 2008 2007
GBPm GBPm GBPm
Deferred tax assets:
- after more than 12 months (12.7) (12.4) (2.9)
Deferred tax liabilities:
- after more than 12 months 72.3 73.4 117.4
59.6 61.0 114.5
The movement in deferred tax is as follows:
2009 2008 2007
GBPm GBPm GBPm
At 1 January 61.0 114.5 150.3
Credited to the tax charge
in
the Statement of
Comprehensive Income (1.0) (33.1) (42.3)
Released on disposal of
subsidiaries (note 30) - (34.6) -
Charged to equity 3.2 - 0.3
Exchange rate variances (3.6) 14.2 6.2
At 31 December 59.6 61.0 114.5
The movement in deferred tax assets and liabilities during the year, without
taking into consideration the offsetting of balances within the same tax
jurisdiction, was as follows:
Tax losses Other Total
Deferred tax assets GBPm GBPm GBPm
At 1 January 2009 (5.4) (7.0) (12.4)
(Credited)/charged to the
tax charge in the Statement
of Comprehensive Income (1.7) 1.4 (0.3)
At 31 December 2009 (7.1) (5.6) (12.7)
Tax losses Other Total
GBPm GBPm GBPm
At 1 January 2008 (1.8) (1.1) (2.9)
Credited to the tax charge in
the Statement of
Comprehensive Income (3.6) (5.9) (9.5)
At 31 December 2008 (5.4) (7.0) (12.4)
Tax losses Other Total
GBPm GBPm GBPm
At 1 January 2007 (3.6) (1.0) (4.6)
Charged/(credited) to the tax
charge in the Statement of
Comprehensive Income 1.8 (0.4) 1.4
Charged to equity - 0.3 0.3
At 31 December 2007 (1.8) (1.1) (2.9)
Fair value
Adjustments
to
UK capital investment
allowances properties Other Total
Deferred tax
liabilities GBPm GBPm GBPm GBPm
At 1 January 2009 12.2 60.5 0.7 73.4
Credited to the
tax charge in the
Statement of
Comprehensive
Income (0.1) (0.4) (0.2) (0.7)
Charged to equity - - 3.2 3.2
Exchange rate
variances - (3.6) - (3.6)
At 31 December
2009 12.1 56.5 3.7 72.3
Fair value
adjustments
to
UK capital investment
allowances properties Other Total
GBPm GBPm GBPm GBPm
At 1 January 2008 15.8 101.5 0.1 117.4
(Credited)/charged
to the tax charge
in
the Statement of
Comprehensive
Income (3.6) (20.1) 0.1 (23.6)
Released on
disposal of
subsidiaries
(note 30) - (34.6) - (34.6)
Exchange rate
variances - 13.7 0.5 14.2
At 31 December
2008 12.2 60.5 0.7 73.4
Fair value
adjustments
to
UK capital investment
allowances properties Other Total
GBPm GBPm GBPm GBPm
At 1 January
2007 15.9 138.8 0.2 154.9
Credited to the
tax charge in
the
Statement of
Comprehensive
Income (0.1) (43.5) (0.1) (43.7)
Exchange rate
variances - 6.2 - 6.2
At 31 December
2007 15.8 101.5 0.1 117.4
Deferred tax assets are recognised in respect of tax losses carried forward to
the extent that the realisation of the related tax benefit through future
taxable profits is probable. At 31 December 2009 the Group did not recognise
deferred tax assets of GBP7.8 million (2008: GBP6.0 million; 2007: GBP7.4 million)
in respect of losses amounting to GBP40.6 million (2008: GBP29.4 million; 2007:
GBP21.2 million) which can be carried forward against future taxable income or
gains. The majority of deferred tax assets recognised within the "other"
category relate to deferred tax on swaps with a negative book value. Losses
recognised as deferred tax assets can be carried forward without restriction.
21 Borrowings, including finance leases
Total
Current Non-current borrowings
At 31 December 2009 GBPm GBPm GBPm
Bank loans 112.5 434.1 546.6
Debenture loans 1.0 34.1 35.1
Zero coupon note - 8.8 8.8
Other loans - 2.3 2.3
113.5 479.3 592.8
Total
Current Non-current borrowings
At 31 December 2008 GBPm GBPm GBPm
Bank loans 71.7 483.8 555.5
Debenture loans 0.9 35.1 36.0
Zero coupon note - 7.9 7.9
Other loans - 2.3 2.3
72.6 529.1 601.7
Total
Current Non-current borrowings
At 31 December 2007 GBPm GBPm GBPm
Bank loans 102.0 648.8 750.8
Debenture loans 0.8 36.0 36.8
Zero coupon note - 7.1 7.1
Other loans - 2.5 2.5
Finance lease liabilities 0.2 1.3 1.5
103.0 695.7 798.7
Arrangement fees of GBP2.9 million (2008: GBP3.6 million; 2007: GBP5.0 million) have
been offset in arriving at the balances in the above tables.
Bank loans
Interest on bank loans is charged at fixed rates ranging between 3.9 per cent
and 11.2 per cent, including margin (2008: 3.9 per cent and 11.2 per cent;
2007: 4.5 per cent and 11.2 per cent) and at floating rates of typically
LIBOR, EURIBOR or STIBOR, plus a margin. Fixed rate margins range between 0.8
per cent and 1.8 per cent (2008: 0.8 per cent and 1.8 per cent; 2007: 0.7 per
cent and 2.5 per cent) and floating rate margins range between 0.8 per cent
and 3.0 per cent (2008: 0.8 per cent and 2.0 per cent; 2007: 0.8 per cent and
2.5 per cent). All bank loans are secured by legal charges over the respective
properties, and in most cases a floating charge over the remainder of the
assets held in the company which owns the property. In addition, the share
capital of some of the subsidiaries within the Group has been charged.
Debenture loans
The debenture loans represent amortising bonds which are repayable in equal
quarterly instalments of GBP1.2 million (2008: GBP1.2 million; 2007: GBP1.2 million)
with final repayment due in January 2025. Each instalment is apportioned
between principal and interest on a reducing balance basis. Interest is
charged at a fixed rate of 10.8 per cent, including margin. The debentures are
secured by a legal charge over a property and securitisation of its rental
income.
Zero coupon note
The zero coupon note accrues interest at 11.2 per cent, including margin. It
is unsecured and is redeemable as a balloon repayment of principal and
interest of GBP43.7 million in aggregate in February 2025.
Other loans
Interest on other loans is at a fixed rate of 6.5 per cent and a variable rate
ranging between 2.0 per cent and 4.0 per cent (2008: 2.0 per cent and 4.0 per
cent; 2007: 2.0 per cent and 4.0 per cent), comprising LIBOR plus a margin.
The loans are secured by legal charges over the share capital of the borrowing
subsidiaries.
Loan covenants
There were no covenant breaches at 31 December 2009. Loans totalling GBP26.8
million at 31 December 2008 had covenant breaches which were rectified in
2009.
The maturity profile of the carrying amount of the Group's borrowings,
including finance leases, at 31 December was as follows:
Debenture Zero coupon
Bank loans loans note Other loans Total
At 31 December 2009 GBPm GBPm GBPm GBPm GBPm
Within one year or on demand 113.1 1.0 - - 114.1
More than one but not more than
two years 27.3 1.1 - 2.3 30.7
More than two but not more than
five years 200.7 4.0 - - 204.7
More than five years 208.4 29.0 8.8 - 246.2
549.5 35.1 8.8 2.3 595.7
Unamortised issue costs (2.9) - - - (2.9)
Borrowings, including finance
leases 546.6 35.1 8.8 2.3 592.8
Less amount due for settlement
within 12 months (112.5) (1.0) - - (113.5)
Amounts due for settlement after
12 months 434.1 34.1 8.8 2.3 479.3
Debenture Zero coupon
Bank loans loans note Other loans Total
At 31 December 2008 GBPm GBPm GBPm GBPm GBPm
Within one year or on demand 72.4 0.9 - - 73.3
More than one but not more than
two years 60.2 1.0 - - 61.2
More than two but not more than
five years 194.7 3.6 - 2.3 200.6
More than five years 231.8 30.5 7.9 - 270.2
559.1 36.0 7.9 2.3 605.3
Unamortised issue costs (3.6) - - - (3.6)
Borrowings, including finance leases 555.5 36.0 7.9 2.3 601.7
Less amount due for settlement
within 12 months (71.7) (0.9) - - (72.6)
Amounts due for settlement after
12 months 483.8 35.1 7.9 2.3 529.1
Debenture Zero coupon
Bank loans loans note Other loans Total
At 31 December 2007 GBPm GBPm GBPm GBPm GBPm
Within one year or on demand 103.0 0.8 - 0.2 104.0
More than one but not more than
two years 53.2 0.9 - 1.2 55.3
More than two but not more than
five years 295.9 3.2 - 2.5 301.6
More than five years 303.7 31.9 7.1 0.1 342.8
755.8 36.8 7.1 4.0 803.7
Unamortised issue costs (5.0) - - - (5.0)
Borrowings, including finance leases 750.8 36.8 7.1 4.0 798.7
Less amount due for settlement
within 12 months (102.0) (0.8) - (0.2) (103.0)
Amounts due for settlement after
12 months 648.8 36.0 7.1 3.8 695.7
The interest rate risk profile of the Group's fixed rate borrowings was as
follows:
At 31 At 31 At 31
December December December
2009 2008 2007
Weighted Weighted Weighted Weighted Weighted Weighted
average average average average average average
fixed rate period for fixed rate period for fixed rate period for
of financial which rate is of financial which rate is of financial which rate is
liabilities fixed liabilities fixed liabilities fixed
% Years % Years % Years
Sterling 6.5 6.6 6.8 5.7 6.7 6.4
Euro 4.3 3.1 5.1 3.4 4.9 0.8
Swedish Krona - - - - 5.4 3.3
The interest rate risk profile of the Group's floating rate borrowings was as
follows:
At 31 At 31 At 31
December December December
2009 2008 2007
Average Average Average
capped capped capped
% of net % of net % of net
interest Average interest Average interest Average
floating floating floating
rate rate tenure rate rate tenure rate rate tenure
loans capped % Years loans capped % Years loans capped % Years
Sterling 100 3.9 0.7 100 3.8 1.7 100 5.5 2.0
Euro 100 4.7 1.6 100 4.7 2.3 100 4.7 3.3
Swedish
Krona - n/a n/a - n/a n/a 100 4.5 0.8
The carrying amounts of the Group's borrowings are denominated in the
following currencies:
Floating
Fixed rate rate
financial financial
liabilities liabilities Total
At 31 December 2009 GBPm GBPm GBPm
Sterling 154.2 115.4 269.6
Euro 123.8 165.1 288.9
Swedish Krona - 34.3 34.3
278.0 314.8 592.8
Fixed rate Floating rate
financial financial
liabilities liabilities Total
At 31 December 2008 GBPm GBPm GBPm
Sterling 230.5 37.0 267.5
Euro 115.8 161.8 277.6
Swedish Krona - 56.6 56.6
346.3 255.4 601.7
Fixed rate Floating rate
financial financial
liabilities liabilities Total
At 31 December 2007 GBPm GBPm GBPm
Sterling 328.5 79.9 408.4
Euro 152.0 177.7 329.7
Swedish Krona 20.7 39.9 60.6
501.2 297.5 798.7
The carrying amounts and fair values of the Group's borrowings, including
finance leases are as follows:
Carrying Fair
amounts values
2009 2008 2007 2009 2008 2007
GBPm GBPm GBPm GBPm GBPm GBPm
Current
borrowings,
including
finance
leases 113.5 72.6 103.0 113.5 72.6 103.0
Non-current
borrowings,
including
finance
leases 479.3 529.1 695.7 503.4 563.2 716.5
592.8 601.7 798.7 616.9 635.8 819.5
Arrangement fees of GBP2.9 million (2008: GBP3.6 million; 2007: GBP5.0 million) have
been offset in arriving at the balances in the above table.
The fair value of non-current borrowings represents the amount at which a
financial instrument could be exchanged in an arm's length transaction between
informed and willing parties, discounted at the prevailing market rate, and
excludes accrued interest.
The Group has the following undrawn committed facilities available at
31 December:
2009 2008 2007
GBPm GBPm GBPm
Floating rate:
- expiring within one year 0.6 - -
- expiring after one year 0.9 23.5 -
1.5 23.5 -
22 Financial instruments
22.1 Categories of financial instruments
Financial assets of the Group comprise:
- Interest rate swaps and caps
- Foreign currency swaps and forward contracts
- Available-for-sale investments
- Investments in associates
- Trade and other receivables
- Cash and cash equivalents
Financial liabilities of the Group comprise:
- Interest rate swaps and caps
- Foreign currency swaps and forward contracts
- Bank loans
- Debenture loans
- Other loans
- Finance lease liabilities
- Trade and other payables
- Provisions
- Current tax liabilities
The fair values of financial assets and liabilities are determined as follows:
(a) Interest rate swaps and caps are measured at the present value of future
cash flows based on applicable yield curves derived from quoted interest
rates.
(b) Foreign currency swaps and forward contracts are measured using quoted
forward exchange rates and yield curves derived from quoted interest rates
matching maturities of the contracts.
(c) The fair value of non-derivative financial assets and liabilities with
standard terms and conditions and traded on active liquid markets are
determined with reference to quoted market prices. Financial assets in this
category include available-for-sale instruments such as listed corporate bonds
and equity investments.
(d) In more illiquid conditions, non-derivative financial assets are valued
using multiple quotes obtained from market makers. Where the spread of prices
is tightly clustered the consensus price is deemed to be fair value. Where
prices become more dispersed or there is a lack of available quoted data,
further procedures are undertaken such as evidence from the last non-forced
trade.
(e) The fair value of other non-derivative financial assets and financial
liabilities are determined in accordance with generally accepted pricing
models based on discounted cash flow analysis, using prices from observable
current market transactions and dealer quotes for similar instruments.
Except for investments in associates, bank loans, debenture loans, other loans
and finance lease liabilities, the carrying amounts of financial assets and
liabilities recorded at amortised cost approximate to their fair value.
22.2 Capital risk management
The Group manages its capital to ensure that entities within the Group will be
able to continue as going concerns while maximising the return to stakeholders
through the optimisation of debt and equity balances. The capital structure of
the Group consists of debt, cash and cash equivalents and equity attributable
to the owners of the parent, comprising issued capital, reserves and retained
earnings. Management perform "stress tests" of the Group's business model to
ensure that the Group's objectives can be met. The objectives have been met in
the year.
The Directors review the capital structure on a quarterly basis to ensure that
key strategic goals are being achieved. As part of this review they consider
the cost of capital and the risks associated with each class of capital.
The gearing ratio at the year end was as follows:
2009 2008 2007
GBPm GBPm GBPm
Debt 595.7 605.3 803.7
Cash and cash
equivalents (70.3) (195.3) (122.0)
Net debt 525.4 410.0 681.7
Equity 309.5 338.6 403.1
Net debt to equity
ratio 170% 121% 169%
Debt is defined as long and short-term borrowings excluding unamortised issue
costs as detailed in note 21. Equity includes all capital and reserves of the
Group attributable to the owners of the Company.
Externally imposed capital requirement
The Group is not subject to externally imposed capital requirements except to
the extent that debt covenants may require group companies to maintain ratios
such as debt to equity (or similar) below certain levels.
22.3 Risk management objectives
The Group's activities expose it to a variety of financial risks, which can be
grouped as:
- market risk;
- credit risk; and
- liquidity risk.
The Group's overall risk management approach seeks to minimise potential
adverse effects on the Group's financial performance whilst maintaining
flexibility.
Risk management is carried out by the Group Treasury department in close
co-operation with the Group's operating units and with guidance from the Board
of Directors. The Board regularly assesses and reviews the financial risks and
exposures of the Group.
(a) Market risk
The Group's activities expose it primarily to the financial risks of changes
in interest rates and foreign currency exchange rates, and to a lesser extent
other price risk. The Group enters into a variety of derivative financial
instruments to manage its exposure to interest rate and foreign currency risk
and also uses natural hedging strategies such as matching the duration,
interest payments and currency of assets and liabilities.
(i) Interest rate risk
The Group's most significant interest rate risk arises from its long-term
variable rate borrowings. Interest rate risk is regularly monitored by the
Group Treasury department and by the Board on both a country and a Group
basis. The Board's policy is to minimise variable interest rate exposure
whilst maintaining the flexibility to borrow at the best rates and with
consideration to potential penalties on termination of fixed rate loans. To
manage its exposure the Group uses interest rate swaps, interest rate caps and
natural hedging from cash held on deposit.
In assessing risk, a range of scenarios is taken into consideration such as
refinancing, renewal of existing positions and alternative financing and
hedging. Under these scenarios, the Group calculates the impact on the
Statement of Comprehensive Income for a defined movement in the underlying
interest rate. The impact of a reasonably likely movement in interest rates is
set out below:
2009 2008
Statement of Statement of
Comprehensive Comprehensive
Income Income
Scenario GBPm GBPm
Cash +100 basis points
(2008: +50 basis
points) 0.9 1.4
Variable borrowings
(including caps) +100
basis points
(2008: +50 basis
points) (2.7) (0.5)
Cash -100 basis points
(2008: -50 basis points) (0.9) (1.4)
Variable borrowings
(including caps) -50
basis points
(2008: -50 basis points) 1.3 1.2
(ii) Foreign exchange risk
The Group does not have any regular transactional foreign exchange exposure.
However, it has operations in Europe which transact business denominated in
euros and, to a lesser extent, in Swedish kronor. Consequently, there is
currency exposure caused by translating the local trading performance and net
assets into sterling for each financial period and balance sheet,
respectively.
The Group's principal foreign currency exposures are in respect of the euro
and the Swedish krona. If the value of sterling were to increase in strength
by 1% against the value of the euro, the Group's net assets would decrease by
GBP1.4 million and the Group's profit by GBP0.1 million. If the value of sterling
were to decrease in strength by 1% against the value of the euro, the Group's
net assets would increase by GBP1.4 million and the Group's profit by GBP0.1
million. If the value of sterling were to increase in strength by 1% against
the value of the Swedish krona the Group's net assets would decrease by GBP0.4
million and the Group's profit by GBP0.1 million. If the value of sterling were
to decrease in strength by 1% against the value of the Swedish krona the
Group's net assets would increase by GBP0.3 million and the Group's profit by
GBP0.1 million.
The policy of the Group is to match the currency of investments with the
related borrowing, which largely eliminates foreign exchange risk on property
investments. A portion of the remaining operations, equating to the net assets
of the foreign property operations, is not hedged. Where foreign exchange risk
arises from future commercial transactions, the Group will hedge the future
committed commercial transaction using foreign exchange swaps or forward
foreign exchange contracts.
(iii) Other price risk
The Group is exposed to corporate bond price risk and, to a lesser extent, to
equity securities price risk, because of investments held by the Group and
classified in the Balance Sheet as available-for-sale.
In order to manage the risk in relation to the holdings of corporate bonds and
equity securities the Group holds a diversified portfolio. Diversification of
the portfolio is managed in accordance with the limits set up by the Group.
The table below shows the effect on profit before tax and on equity which
would result from an increase or decrease of 10% in the market value of
corporate bonds and equity securities, which is an amount management believes
to be reasonable in the current market:
2009 2009 2008 2008
Scenario: Profit Directly Profit Directly
Shift of before tax in equity before tax in equity
10% in
valuations GBPm GBPm GBPm GBPm
10% fall
in value 0.1 (7.4) - (1.4)
10%
increase
in value (0.1) 7.4 - 1.4
(b) Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Group. Credit risk
arises from the ability of tenants to meet outstanding receivables and future
lease commitments, and from financial institutions with which the Group places
cash and cash equivalents, and enters into derivative financial instruments.
The maximum exposure to credit risk is partly represented by the carrying
amounts of the financial assets which are carried in the Balance Sheet,
including derivatives with positive fair values.
For credit exposure other than to tenants, the Directors believe that
counterparty risk is minimised to the fullest extent possible as the Group has
policies which limit the amount of credit exposure to any individual financial
institution.
The Group has policies in place to ensure that rental contracts are made with
tenants with an appropriate credit history. Credit risk to tenants is assessed
by a process of internal and external credit scoring, and is reduced by
obtaining bank guarantees from the tenant or its parent, and receipted rental
deposits. The overall credit risk in relation to tenants is monitored on an
ongoing basis. Moreover, a significant proportion of the Group portfolio is
let to Government tenants which can be considered financially secure.
At 31 December 2009 the Group held GBP73.9 million (2008: GBP14.3 million; 2007:
GBP8.4 million) of available-for-sale and other financial assets. Management of
the Group considers the credit risk associated with individual transactions
and monitors the risk on a continuing basis. Information is gathered from
external credit rating agencies (Standard & Poor's) and other market sources
to allow management to react to any perceived change in the underlying credit
risk of the instruments in which the Group invests. This allows the Group to
minimise its credit exposure to such items and at the same time to maximise
returns for shareholders.
The table below shows the external Standard & Poor's credit banding on the
available-for-sale and other investments held by the Group:
S&P Credit rating at 2009 2008 2007
balance sheet date
GBPm GBPm GBPm
Investment grade 42.0 7.2 0.1
Non-investment grade 23.8 - -
Not rated 8.1 7.1 8.3
Total 73.9 14.3 8.4
(c) Liquidity risk
Liquidity risk management requires maintaining sufficient cash, other liquid
assets and the availability of funding to meet short, medium and long-term
requirements. The Group maintains adequate levels of liquid assets to fund
operations and to allow the Group to react quickly to potential opportunities.
Management monitors rolling forecasts of the Group's liquidity on the basis of
expected cash flow so that future requirements can be managed effectively.
The majority of the Group's debt is arranged on an asset-specific,
non-recourse basis. This allows the Group a higher degree of flexibility in
dealing with potential covenant defaults than if the debt was arranged under a
Group-wide borrowing facility.
Loan covenant compliance is closely monitored by the Group Treasury
department. Potential covenant breaches can ordinarily be avoided by placing
additional security or a cash deposit with the lender, or by partial repayment
before an event of default takes place. Potential loan-to-value covenant
breaches at 31 December 2009 could be remedied by partial repayments of the
loans of GBP1.9 million in aggregate.
The table below analyses the Group's contractual undiscounted cash flows
payable under financial liabilities and derivative assets and liabilities at
the balance sheet date, into relevant maturity groupings based on the period
remaining to the contractual maturity date. Amounts due within one year are
equivalent to the carrying values in the balance sheet as the impact of
discounting is not significant.
Less than 1 to 2 to Over
1 year 2 years 5 years 5 years
At 31 December
2009 GBPm GBPm GBPm GBPm
Non-derivative
financial
liabilities:
Borrowings,
including
finance leases 114.1 30.7 204.7 246.2
Interest
payments on
borrowings(i) 23.5 24.2 56.2 72.6
Trade and
other payables 30.1 - - -
Forward
foreign
exchange
contracts:
Cash flow
hedges
- Outflow 5.4 - - -
- Inflow (5.4) - - -
Less than 1 1 to 2 to Over
year 2 years 5 years 5 years
At 31 December
2008 GBPm GBPm GBPm GBPm
Non-derivative
financial
liabilities:
Borrowings,
including
finance leases 73.3 61.2 200.6 270.2
Interest
payments on
borrowings(i) 20.1 14.8 36.7 60.8
Trade and
other payables 32.8 - - -
Forward
foreign
exchange
contracts:
Cash flow
hedges
- Outflow (130.1) - - -
- Inflow 129.9 - - -
At 31 December Less than 1 1 to 2 to Over
2007 year 2 years 5 years 5 years
GBPm GBPm GBPm GBPm
Non-derivative
financial
liabilities:
Borrowings,
including
finance leases 104.0 55.3 301.6 342.8
Interest
payments on
borrowings(i) 42.2 40.2 92.7 117.2
Trade and
other payables 59.7 - - -
Forward
foreign
exchange
contracts:
Cash flow
hedges
- Outflow (35.0) - - -
- Inflow 35.1 - - -
(i) Interest payments on borrowings are calculated without taking into account
future events. Floating rate interest is estimated using a future interest
rate curve as at 31 December.
23 Share capital
Number
Ordinary Total Ordinary
shares in Treasury ordinary shares in Treasury Total ordinary
circulation shares shares circulation shares shares
thousands thousands thousands GBPm GBPm GBPm
At 1 January 2009 61,745,471 5,000,000 66,745,471 15.4 1.3 16.7
Cancelled following
tender offer (13,721,215) - (13,721,215) (3.4) - (3.4)
At 31 December 2009 48,024,256 5,000,000 53,024,256 12.0 1.3 13.3
Number
Ordinary Total Ordinary
shares in Treasury ordinary shares in Treasury Total ordinary
circulation shares shares circulation shares shares
thousands thousands thousands GBPm GBPm GBPm
At 1 January 2008 67,740,457 7,109,279 74,849,736 16.9 1.8 18.7
Employee share
option
scheme:
- shares issued 325,000 (325,000) - 0.1 (0.1) -
Cancellation of
Treasury Shares -(2,114,209) (2,114,209) - (0.5) (0.5)
Purchase of own
shares:
- pursuant to market
purchase (329,930) 329,930 - (0.1) 0.1 -
Cancelled following
market purchases (3,414,412) - (3,414,412) (0.9) - (0.9)
Cancelled following
tender offer (2,575,644) - (2,575,644) (0.6) - (0.6)
At 31 December 2008 61,745,471 5,000,000 66,745,471 15.4 1.3 16.7
Number
Ordinary Total Ordinary
shares in Treasury ordinary shares in Treasury Total ordinary
circulation shares shares circulation shares shares
thousands thousands thousands GBPm GBPm GBPm
At 1 January 2007 72,604,668 7,477,168 80,081,836 18.1 1.9 20.0
Cancellation of
Treasury Shares - (750,000) (750,000) - (0.2) (0.2)
Purchase of own
shares:
- pursuant to market
purchase (382,111) 382,111 - (0.1) 0.1 -
Cancelled following
market purchases (1,163,140) - (1,163,140) (0.3) - (0.3)
Cancelled following
tender offer (3,318,960) - (3,318,960) (0.8) - (0.8)
At 31 December 2007 67,740,457 7,109,279 74,849,736 16.9 1.8 18.7
24 Tender offer buy-backs
A tender offer by way of a Circular dated 1 December 2008 for the purchase of
2 in 9 shares at 350 pence per share was completed in January 2009. It
returned GBP48,024,253 to shareholders, equivalent to 77.8 pence per share.
A further tender offer will be put to shareholders in April 2010 for the
purchase of 1 in 42 shares at a price of 525 pence per share which, if
approved, will return GBP6.0 million to shareholders, equivalent to 12.5 pence
per share.
25 Share premium account
2009 2008 2007
GBPm GBPm GBPm
At 1 January 70.5 69.8 69.7
Employee share option scheme
- shares issued - 0.7 0.1
At 31 December 70.5 70.5 69.8
26 Other reserves
Capital Cumulative
redemption translation Fair value Other
reserve reserve reserve reserves Total
GBPm GBPm GBPm GBPm GBPm
At 1 January 2009 17.0 59.8 (4.5) 28.1 100.4
Purchase of own
shares:
- cancellation
pursuant to
tender offer 3.4 - - - 3.4
Exchange rate
variances - (9.5) - - (9.5)
Share of exchange
rate variances of
associates - 0.4 - - 0.4
Available-for-sale
financial assets:
- net fair value
gains in the year - - 13.5 - 13.5
- deferred tax
thereon - - (3.2) - (3.2)
At 31 December
2009 20.4 50.7 5.8 28.1 105.0
Capital Cumulative
redemption translation Fair value Other
reserve reserve reserve reserves Total
GBPm GBPm GBPm GBPm GBPm
At 1 January 2008 15.0 19.3 (1.1) 28.1 61.3
Purchase of own
shares:
- cancellation
pursuant to
tender offer 0.6 - - - 0.6
- cancellation
pursuant to
market purchase 0.9 - - - 0.9
- cancellation of
treasury shares 0.5 - - - 0.5
Exchange rate
variances - 36.2 - - 36.2
Share of exchange
rate variances of
associates - 4.3 - - 4.3
Available-for-sale
financial assets:
- net fair value
losses in the year - - (3.4) - (3.4)
At 31 December
2008 17.0 59.8 (4.5) 28.1 100.4
Capital Cumulative Cash flow Fair
redemption translation hedge value Other
reserve reserve reserve reserve reserves Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2007 13.7 2.4 1.2 (2.8) 28.1 42.6
Purchase of own
shares:
- cancellation
pursuant to
tender offer 0.8 - - - - 0.8
- cancellation
pursuant to
market
purchase 0.3 - - - - 0.3
- cancellation
of treasury
shares 0.2 - - - - 0.2
Exchange rate
variances - 16.9 - - - 16.9
Available-for-sale
financial assets:
- net fair
value gains
in the year - - - 1.7 - 1.7
Cash flow hedges:
- fair value
losses in the
year - - (0.1) - - (0.1)
- transfers - - (0.8) - - (0.8)
- deferred
tax - - (0.3) - - (0.3)
At 31 December
2007 15.0 19.3 - (1.1) 28.1 61.3
The amount classified as other reserves was created prior to listing in 1995
on a Group reconstruction and is considered to be non-distributable.
27 Cash generated from operations
2009 2008
GBPm GBPm
Operating profit/(loss) 41.5 (90.3)
Adjustments for:
Net movements on revaluation of investment
properties 6.7 103.3
Depreciation and amortisation 0.5 1.4
Profit on disposal of investment properties (0.3) (7.0)
Loss on disposal of subsidiaries - 16.2
(Profit)/loss on equity investments (2.1) 3.0
Impairment of goodwill - 22.0
Changes in working capital:
Increase in debtors (0.7) (11.3)
Increase in creditors 0.1 12.6
Cash generated from operations 45.7 49.9
28 Contingencies
At 31 December 2009 CLS Holdings plc had guaranteed certain liabilities of
group companies. These were primarily in relation to Group borrowings and
covered interest and amortisation payments. No cross guarantees had been given
by the Group in relation to the principal amounts of these borrowings. Certain
warranties given in the course of corporate sales during 2008 either had been
provided for or were too remote to be considered contingent.
29 Commitments
The Group leases office space under non-cancellable operating lease
agreements. The future aggregate minimum lease payments under these
non-cancellable operating leases are as follows:
2009 2008 2007
Operating lease commitments -
where the Group is the lessee GBPm GBPm GBPm
Within one year 0.1 - 0.6
More than one but not more than
five years 0.1 0.3 1.1
More than five years 0.3 0.3 -
0.5 0.6 1.7
At the balance sheet date the Group had contracted with tenants for the
following minimum lease payments:
2009 2008 2007
Operating lease commitments -
where the Group is lessor GBPm GBPm GBPm
Within one year 57.9 55.3 63.0
More than one but not more
than five years 196.1 174.1 196.0
More than five years 182.1 203.2 226.8
436.1 432.6 485.8
Operating leases where the Group is the lessor are typically negotiated on a
tenant-by-tenant basis and include break clauses and indexation provisions.
Other commitments
At 31 December 2009 the Group had no other commitments (2008: GBP30 million of
contracted capital expenditure in relation to developments in Germany; 2007:
GBPnil). There were no authorised financial commitments which were yet to be
contracted with third parties (2008: none; 2007: none).
30 Business acquisitions and disposals
Business disposals - prior years
French property portfolio disposals
On 15 May 2008, the Group disposed of its interests in 29 subsidiaries, 9 in
the Netherlands and 20 in France, owning 14 properties in France. Collectively
these were referred to as the LFPI Portfolio. On 30 July 2008, the Group
completed on the disposal of two subsidiary undertakings owning two properties
in France, known as the Belin sale. Results of the entities disposed of were
previously reported in the French operating segment.
LFPI Portfolio Belin
May-08 Dec-07 Jul-08 Dec-07
GBPm GBPm GBPm GBPm
Net assets
disposed of:
Investment
properties 105.4 97.7 69.7 66.6
Property,
plant &
equipment - - - 26.1
Trade and
other
receivables 18.3 15.6 25.4 -
Cash and
cash
equivalents 2.6 0.5 4.4 -
Deferred tax (17.4) - (17.2) -
Trade and
other
payables (4.2) (3.1) (2.1) (1.0)
Borrowings,
including
finance
leases (64.0) (59.7) (45.3) (42.2)
40.7 51.0 34.9 49.5
Gain on
disposal 11.2 7.5
Costs of
disposal 6.2 0.3
Total
consideration 58.1 42.7
Satisfied by:
Cash 38.4 17.8
Subordination
of
intercompany
debt 17.3 24.9
Deferred
consideration 2.4 -
58.1 42.7
The gain on
disposal is
disclosed in
the
Statement of
Comprehensive
Income as
follows:
Loss on
disposal of
subsidiaries (6.2) (9.7)
Release of
deferred tax 17.4 17.2
11.2 7.5
Net cash inflow
arising on
disposal:
Cash
consideration 38.4 17.8
Cash and cash
equivalents
disposed of (2.6) (4.4)
35.8 13.4
Included in costs for the LFPI Portfolio disposal are rent guarantee
provisions of GBP1.5 million, the write-off of GBP1.7 million of goodwill on the
original acquisition of the LFPI Portfolio, GBP1.8 million for a contribution to
the capital of the disposed subsidiaries and GBP1.3 million of professional and
advisory costs incurred. Deferred consideration of GBP2.7 million (classified
within other debtors) remains on escrow to cover the rent guarantee provisions
as mentioned above and other contingencies (the likelihood of crystallisation
of these other contingencies is considered remote and therefore they have not
been provided for).
The costs in relation to the Belin sale related to professional fees.
London Bridge Quarter
On 9 January 2008 the Group disposed of its one-third interest in the London
Bridge Quarter joint venture (Teighmore Limited and New London Bridge House
Limited). The joint venture was previously reported within the UK operating
segment.
London Bridge
Quarter
Jan-08 Dec-07
GBPm GBPm
Net assets disposed of:
Investment properties 110.2 110.2
Trade and other receivables 0.6 0.6
Cash and cash equivalents 1.9 1.9
Trade and other payables (16.5) (16.5)
Borrowings, including finance leases (66.2) (66.2)
30.0 30.0
Gain on disposal -
Costs of disposal (see below) -
Total consideration 30.0
Satisfied by:
Cash 30.0
Net cash inflow arising on disposal:
Cash consideration 30.0
Cash and cash equivalents disposed of (1.9)
28.1
All of the costs in relation to the disposal of LBQ, comprising GBP4.9 million
in aggregate, were incurred and expensed in 2007. At 31 December 2007 the
investment in LBQ was written down to its recoverable amount, so there was no
gain or loss on disposal recognised in 2008.
At 31 December 2007 the joint venture borrowing facility was in breach of its
loan to value covenant. All obligations potentially arising from the breach
were discharged on sale.
Solna and Lövgärdet
On 31 January 2006, the Group disposed of its interests in Lövgärdet Business
AB, Lövgärdet Residential AB and Lövgärdet Capital Partners AB, the holding
companies of properties at Lövgärdet, Gothenburg, Sweden. In addition, on 21
August 2006, the Group disposed of its interest in Solna Business Holdings AB
and Sliparen Ett AB, the holding companies of the properties at Solna Business
Park, Stockholm, Sweden. The combined loss on these disposals in 2006 was GBP1.8
million and in 2007 was GBP2.0 million which was recognised in profit before tax
in the relevant years. During the year ended 31 December 2009 there were no
further costs incurred relating to commitments made on the disposal of Solna
Business Park (2008: GBP0.3 million). In 2009, cash payments of GBP0.9 million
(2008: GBP3.0 million) were made in relation to deferred consideration agreed on
sale.
Summary of business disposals
2009 2008
GBPm GBPm
Loss on disposal of subsidiaries
LFPI Portfolio - 6.2
Belin - 9.7
Solna and Lövgärdet (sold in 2006) - 0.3
- 16.2
31 Related party transactions
A Group company, Förvaltnings AB Klio, rents office space from a company owned
by Sten Mortstedt, Executive Chairman of CLS Holdings plc. The total payable
in the year was GBP34,000 (2008: GBP33,000; 2007: GBP29,000). A company owned by
Sten Mortstedt purchased accountancy services from Förvaltnings AB Klio during
the year amounting to GBP8,000 (2008: GBP8,000; 2007: GBP7,000). In relation to
these transactions GBP3,000 was payable at the balance sheet date (2008:
GBP53,000; 2007: GBP37,000).
32 Principal subsidiaries
The group financial statements include the financial statements of CLS
Holdings plc and all of its subsidiaries, the principal ones of which are
listed below.
The Directors consider that to give full particulars of all subsidiary
undertakings would lead to a statement of excessive length. The following
information relates to those wholly-owned subsidiary companies whose results
or financial position, in the opinion of the Directors, principally affected
those of the Group.
Adlershofer Sàrl* Grossglockner Sàrl* New Printing House
Square Limited
Coventry House Limited Ingrove Limited Spring Gardens Limited
Frères Peugeot SCI| Kapellen Sàrl* Vänerparken Property
Investment KB**
Great West House Limited Naropere Sàrl* Vauxhall Cross Limited
* Incorporated in Luxembourg
| Incorporated in France
** Incorporated in Sweden
The principal activity of each of these subsidiaries is property investment,
apart from Coventry House Limited whose principal activity is to act as an
investment company. All of the above subsidiary undertakings are incorporated
in the United Kingdom unless stated above. To comply with the Companies Act
2006, a full list of subsidiaries will be filed with the Company's next annual
return.
GLOSSARY OF TERMS
ADJUSTED NET ASSETS
Net assets excluding deferred tax assets and deferred tax liabilities
ADJUSTED TOTAL ASSETS
Total assets excluding deferred tax assets
CONTRACTED RENT
Annual contracted rental income
CORE PROFIT
Profit before tax and before net movements on revaluation of investment
properties, profit on sale of investment properties subsidiaries and corporate
bonds, impairment of intangible assets and goodwill, non-recurring costs and
foreign exchange variances.
EARNINGS PER SHARE
Profit after tax divided by the weighted average number of ordinary shares in
issue in the period
ADJUSTED EARNINGS PER SHARE
Profit after tax, but excluding deferred tax and net gains or losses from fair
value adjustments on investment properties, divided by the weighted average
number of ordinary shares in issue in the period
ESTIMATED RENTAL VALUE (ERV)
The market rental value of lettable space as estimated by the Group's valuers
LOAN TO VALUE (LTV)
Borrowings expressed as a percentage of the market value of the property
portfolio
NET ASSETS PER SHARE or NET ASSET VALUE (NAV)
Equity shareholders' funds divided by the number of ordinary shares in
circulation at the balance sheet date
ADJUSTED NET ASSETS PER SHARE or ADJUSTED NET ASSET VALUE
Adjusted net assets divided by the number of ordinary shares in circulation at
the balance sheet date
NET DEBT
Total borrowings less cash and short-term deposits
NET GEARING
Net debt expressed as a percentage of net assets
ADJUSTED NET GEARING
Net debt expressed as a percentage of adjusted net assets
NET INITIAL YIELD
Annual net rents on investment properties expressed as a percentage of the
investment property valuation
NET RENT
Contracted rent less net service charge costs occupancy rate
Contracted rent expressed as a percentage of the aggregate of contracted rent
and the ERV of vacant space
OVER-RENTED
The amount by which ERV falls short of the aggregate of passing rent and the
ERV of vacant space
PASSING RENT
Contracted rent after any rent-free periods have expired
RECURRING INTEREST COVER
The aggregate of group revenue less costs plus share of results of associates,
divided by net finance costs
RENT ROLL
Contracted rent
RETURN ON SHAREHOLDERS' EQUITY
The movement in the adjusted net assets in the period plus distributions as a
percentage of the adjusted net assets at the beginning of the period
SOLIDITY
Equity shareholders' funds expressed as a percentage of total assets
ADJUSTED SOLIDITY
Adjusted net assets expressed as a percentage of adjusted total assets
TOTAL SHAREHOLDER RETURN
For a given number of shares, the aggregate of the proceeds from tender offer
buy-backs and the change in market value of the shares during the year
adjusted for cancellations occasioned by such buy-backs, as a percentage of
the market value of the shares at the beginning of the year
END
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