TIDMCLI
RNS Number : 6422Y
CLS Holdings PLC
05 March 2012
Release date: 5 March
2012
Embargoed
until: 07:00
CLS HOLDINGS PLC
("CLS", THE "COMPANY" OR THE "GROUP")
ANNOUNCES ITS FULL YEAR FINANCIAL REPORT
FOR THE 12 MONTHS TO 31 DECEMBER 2011
Robust underlying performance in challenging market
conditions
CLS is a property investment company with a diverse portfolio of
GBP0.9 billion modern, well-let properties in London, France,
Germany and Sweden. CLS's properties have been selected for their
potential to add value and to generate high returns on capital
investment through active asset management.
FINANCIAL HIGHLIGHTS
Robust underlying performance demonstrating resilience of the
Group:-
-- EPRA earnings per share up 53% to 64.9 pence (2010: 42.5 pence)
-- EPRA net assets per share up 3% to 983.1 pence (31 December
2010: 952.9 pence) adversely affected by 53.5 pence through prudent
decision to take one-off cost of closing long-term interest rate
swap
-- Net assets up 3% to GBP367.5 million (31 December 2010: GBP357.2 million)
-- Net assets per share up 7% to 817.5 pence (31 December 2010: 766.7 pence)
-- Portfolio valued at GBP902.1 million (31 December 2010:
GBP876.9 million), up 2.1% in local currencies
-- Rental income up to GBP66.2 million (2010 GBP62.1 million), up 2.6% like-for-like
-- Profit after tax GBP38.8 million (2010: GBP60.1 million)
-- Interest rate swap termination provides flexibility and
likely to produce cost saving of over GBP10.7 million over three
years and break even after seven years
-- Associated reduction in weighted average cost of debt to
4.1%, one of the lowest in the sector
-- GBP140.4 million of liquid resources available for new investments
-- Proposed distribution up 10.1% to GBP7.9 million (2010:
GBP7.2 million) by way of tender offer buy-back: 1 in 42 at 735
pence, equivalent to 17.5 pence per share
-- Highest property company total shareholder return performance over 4 years
OPERATIONAL HIGHLIGHTS
Significant progress across letting, financing and
development:-
-- Vacancy rate reduced to lowest level in ten years at 3.9% (31 December 2011: 4.3%)
-- Net initial yield of 7.0%, 290 basis points above cost of
debt, one of the highest differentials in the sector
-- Successfully refinanced GBP113.2 million of existing debt and
raised a further GBP29.5 million of unsecured debt through SEK 300
million bond in Sweden
-- Construction completed on pre-let development in Germany, and
well under way on a second, and continuing to make targeted
acquisitions
-- Planning applications submitted for Spring Gardens and
Vauxhall Square following consultation
Sten Mortstedt, Executive Chairman of CLS, commented:
"We have made significant progress in our core business with a
robust performance in letting, financing and development. The Group
is solidly placed, with a strong balance sheet, a very healthy cash
flow, and a high level of liquid resources for investment when we
see the right opportunities. We continue to attract new tenants,
maintain low vacancy and progress added value development plans,
and, therefore, I am optimistic that we can continue to deliver for
shareholders."
-ENDS-
For further information please contact:
CLS Holdings plc +44 (0)20 7582 7766
www.clsholdings.com
Sten Mortstedt, Executive
Chairman
Henry Klotz, Executive
Vice Chairman
Richard Tice, Chief Executive
Officer
Kinmont Limited +44 (0)20 7087 9100
Jonathan Gray
Smithfield Consultants
Limited +44 (0)20 7360 4900
Alex Simmons
Liberum Capital Limited +44 (0)20 3100 2222
Chris Bowman
Tom Fyson
N+1 Brewin +44 (0)131 529 0356
Nick Tulloch
CLS will be presenting to analysts at 8.30am on Monday, 5 March
2012, at Smithfield Consultants, 10 Aldersgate Street, London, EC1A
4HJ.
Conference Call dial in numbers as follows:
Conference call access numbers:
Participant Telephone +44 (0)20 7136 6283 (UK Toll)
Number:
Confirmation Code: 9804832
Chairman's Statement
OVERVIEW
This was a year of numerous achievements for the Group, both at
the core property operating level and with the range and depth of
our financing arrangements. We have also achieved the highest total
shareholder return amongst our peer group since the downturn began
in 2008, producing 64.9% over four years, and 11.1% in 2011.
The effect of these achievements would have been even greater
had they not been impacted to a degree by the difficulties at the
broader macroeconomic level, in particular with the Eurozone during
the second half of the year. Profit after tax was GBP38.8 million
(2010: GBP60.1 million), earnings per share on an EPRA basis were
64.9 pence (2010: 42.5 pence) and EPRA net asset value rose to
983.1 pence (2010: 952.9 pence).
At the start of 2011, few were predicting that long-term
interest rates would plummet, banks would face another round of
stress tests, the United States and France would lose their AAA
rating, or a potential break-up of the Eurozone which would require
companies to start contingency planning. Politicians in Europe have
failed to take decisive action that would restore confidence to
markets and provide a platform for growth.
However, I am pleased to report that we have been responding
with considered tenacity: the vacancy rate has been reduced to our
lowest level for over 10 years; we have made property acquisitions
in London; we have started building the two pre-let schemes in
Germany; and we have submitted plans for two developments in
central London for the medium-term.
The benefits of our strategy of diversification remain clear: we
operate across four countries, we have a solid customer base of
some 400 tenants and we are financed by 20 banks. Over the long
term, this spread of risk has been an important aspect of the
Group's outperformance. I would stress that our direct exposure to
the Eurozone is in its two strongest economies, Germany and
France.
INVESTMENT PROPERTY PORTFOLIO
During the year the investment property portfolio grew in local
currency terms, on a like-for-like basis, by 2.1%. The value of the
London properties grew by 2.7%, France by 1.9%, Germany by 1.0% and
Sweden by 1.5%. Acquisitions totalled GBP7.2 million, being
primarily two office buildings in Hounslow, London. The total
portfolio valuation at the year end rose to GBP902.1 million,
notwithstanding a negative currency impact of GBP13.7 million.
Our core investment proposition remains solid: to generate
attractive cash returns, using the difference between our net
initial yield of 7.0% and our reduced cost of debt of 4.1%. This
spread of 290 basis points is, we believe, one of the largest of
the listed property sector. The fact that 65% of our rents are
indexed is also very valuable at a time of higher inflation and
this, together with our asset management initiatives, has been an
important part of the overall valuation movement.
We continue to maintain very low vacancy levels, reduced yet
further to just 3.9% from 4.3% last year. This was due to the
strong emphasis on our in-house asset and property management
across all our regions, enabling us to attract and retain tenants
as our customers by understanding their needs and ensuring the
properties are well maintained, and refurbished when required.
Tenant demand is stable and enquiries are based on genuine need,
often at short notice and based on companies growing. With no
speculative office development activity in our markets, we are
continuing to see signs that rents have stabilised with some upward
pressure emerging. Tenants want well-managed space, and this is a
key differentiator for us.
Our core rental income is secure, with 40% paid by Government
tenants, 29% paid by major corporations and a weighted average
lease length of 7.7 years, or 6.6 years to first break.
In considering new investments we remain very selective on
property type and pricing because it is likely that there will
continue to be good opportunities for some time ahead as lenders
deal with their distressed loan books.
Our two pre-let developments in Germany totalling 7,042 sq m
have progressed well: Grafelfing was completed successfully in
February 2012, and the E.ON building at Landshut will be ready in
late summer. The planning applications for our two significant
mixed-use schemes in Vauxhall - Spring Mews (20,800 sq m) and
Vauxhall Square (154,000 sq m) - were submitted in December and we
will be working closely with the local authority during 2012 on
both of these applications.
Catena, the Swedish listed property company in which the Group
owns 29.9%, submitted a planning application for a 150,000 sq m
mixed use scheme at the Stora Frosunda site in Solna, a decision on
which is expected in the first half of 2012.
Since the year end the Group has made an opportunistic
investment in Sweden in Cood Investments AB, a residential property
company specialising in holiday cottages and cabins on vacation
sites, paying GBP4.1 million for a 16.6% stake. In 2011, Cood made
a profit after tax in excess of GBP5.0 million.
RESULTS
Profit after tax of GBP38.8 million (2010: GBP60.1 million), was
reduced by adverse changes in the value of long term interest rate
swaps and a lower increase in the value of investment properties
than in 2010. EPRA earnings per share, which exclude such
revaluation movements to provide a measure of the underlying
operating performance, rose to 64.9 pence per share (2010: 42.5
pence).
Net assets rose to GBP367.5 million, up by GBP10.3 million in
the year after distributions to shareholders of GBP11.8 million,
and EPRA net assets per share rose to 983.1 pence (2010: 952.9
pence). Basic net assets per share increased by 6.6% to 817.5 pence
(2010: 766.7 pence).
Recurring interest cover for the year was a comfortable 2.6
times. The Group's net debt as a proportion of adjusted net assets
was a consistent 128% (2010: 122%), and the overall property loan
to value was 62.5% (2010: 63.5%).
FINANCING
The Group's business model has long been to ring-fence debt on
individual properties, and this continues to serve us well. We have
an active relationship with 20 banks, and are delighted to have
added two new lenders this year, Saar LB and Santander. We value
the strong relationships that we enjoy with our banks and the
mutual benefits they provide.
We have increased and strengthened the Group's financing
arrangements during 2011. In total we have refinanced GBP113.2
million of existing debt and raised a further GBP33.0 million. In
May we issued the Group's first corporate bond, a SEK 300 million
issue in Sweden, which has been listed on the NASDAQ OMX in
Stockholm. This five year, unrated, unsecured bond has a coupon of
375 basis points above STIBOR and is testament to the Group's
innovative approach to financing.
This success in raising new finance is encouraging in a climate
where a number of banks are closing for new business. We typically
approach ten to fifteen banks when seeking new finance, and are
keen to explore a wide range of financing options.
The year saw an unusually steep reduction in long-term interest
rates - the sterling 15-year swap rate fell by over 150 basis
points, its largest annual downward move for over 12 years - and
this impacted some of our hedging arrangements. The Group had
long-term swaps, covering 22.9% of our debt at the start of the
year, and we expected to retain these as a long-term hedge at an
average interest rate of 5.74%. However, the exceptional fall in
rates increased the liabilities on these swaps by GBP14.2 million
during the year, and to provide more flexibility in the Group's
financing we chose to close out a swap with a nominal amount of
GBP83.5 million at a cost of GBP24.2 million. At the end of 2011 we
had swaps in place with a nominal amount of GBP50 million, for
which there was a liability in the balance sheet of GBP9.1
million.
The positive effect of cancelling the swap, which was due to run
until 2026, has been the fall in our weighted average cost of debt
to 4.1% (2010: 4.3%) and we expect an interest cost saving in the
next three years of over GBP10.7 million in aggregate and breaking
even after seven years.
Since the year end, we have gained credit committee approval to
refinance two loans, totalling GBP89.1 million, including our
largest asset, Spring Gardens in London. These two new loans will
increase the weighted average loan length from 4.4 years to 5.1
years.
Our balance sheet is strong, with cash and liquid resources of
GBP140 million available for investment. We continue to use
corporate bonds to generate higher returns than cash. At the year
end, the Group held a portfolio of 39 different bonds with a value
of GBP85.1 million which produced an annual coupon of 10.2%. Since
first investing in them towards the end of 2008, the corporate
bonds have generated a return of GBP19.8 million, or 32.8% on
average cost. Since the year end, the bonds have risen in value by
GBP8.2 million.
ENERGY EFFICIENCY AND SUSTAINABILITY
During the year, the Group increased its focus on energy
efficiency and sustainability, and recruited a full time
Sustainability Manager. We now have good base data to measure our
success in reducing energy consumption and emissions, and in
lowering costs for our customers and the Group. The new GBP2.3
million geothermal energy facility at Vanerparken in Sweden is
complete and operating, and early results are in line with the
projected savings of over 80% in consumption and emissions.
CORPORATE GOVERNANCE
As Executive Chairman it is my responsibility to ensure that the
Board operates efficiently and effectively, and upholds high
standards of corporate governance appropriate for a company of our
size. I believe that the decisions taken by the Board and the
resulting performance of the Company against its peers is
indicative of the fact that we are doing things right.
The steps we have taken this year to change the Board and the
composition of its Committees, Board processes and executive
remuneration align the Company more closely to the provisions of
the UK Corporate Governance Code and introduce greater levels of
accountability and transparency to the operation and effectiveness
of the Board. This underpins our commitment to good governance for
the benefit of all shareholders.
DISTRIBUTIONS TO SHAREHOLDERS
In April 2011, we distributed GBP7.2 million by way of our
traditional tender offer buy-back of shares, and a further GBP4.4
million in September. The Board proposes to distribute GBP7.9
million in April using the tender offer buy-back method, at a rate
of 1 in 42 shares at 735 pence per share. A circular setting out
the details will be sent to shareholders with the Report and
Accounts.
OUTLOOK
For economies to grow, businesses and investors need to have
confidence to invest and a reasonable supply of credit. Politicians
must deliver the basic platform for this to occur, which, in the
current climate, means a credible solution to the Eurozone crisis.
Until this happens, there will continue to be significant
uncertainty and risk in the system.
However, the Group is solidly placed, with a strong balance
sheet, a very healthy cash flow, and a high level of liquid
resources for investment when we see the right opportunities. We
continue to attract new tenants, maintain low vacancy and progress
added value development plans, and, therefore, I am optimistic that
we can continue to deliver for shareholders.
Sten Mortstedt
Executive Chairman
5 March 2012
Business Review
The main activity of the Group is investment in commercial real
estate across four European regions: London, France, Germany and
Sweden. There is a particular focus on providing well-managed,
cost-effective offices and property for cost-conscious companies in
key European cities.
The Group's total property interests at 31 December 2011 were
GBP919.9 million, comprising the wholly-owned investment property
portfolio valued at GBP902.1 million, and a 29.9% investment in
Swedish listed property company Catena AB, which had a market value
of GBP17.8 million. The Group's Other Investments comprised the
corporate bond portfolio, valued at GBP85.1 million at the year
end, and smaller equity holdings of GBP13.3 million.
Investment Property
Overview
At 31 December 2011, the directly held investment portfolio
totalled GBP902.1 million, a like-for-like increase of 2.1% in
local currencies or 0.5% when translated into sterling. In local
currencies, the French portfolio rose by 1.9%, Germany by 1.0%,
London by 2.7% and Sweden by 1.5%. The capital value of GBP2,202
per sq m is close to replacement cost, meaning that the land
element in these key European cities is minimal; this highlights
how competitive the Group can be in attracting tenants with cost
effective rents.
The contracted rent at the year end was GBP66.3 million,
representing a net initial yield of 7.0% on value and an average
rent of just GBP170 per sq m. The income stream is strongly secured
as 40% is from government tenants, 29% from major corporations and
65% of rents are subject to indexation. The weighted average lease
length is 7.7 years, or 6.6 years to the first break. Only 16% of
the current rent roll expires in the next three years.
The overall vacancy rate has been further reduced to 3.9%,
reflecting the benefits of active, in-house asset and property
management together with maintaining strong relationships with our
tenants, working to understand their needs.
In all markets there is less availability of debt than 12 months
ago, leading to fewer buyers for the high yielding property that
the Group prefers. This situation is expected to continue for a
considerable period; we can thus be highly selective about our
purchases. Further, the depth of our banking contacts and
relationships means that we continue to find debt obtainable.
Across the portfolio the Group is increasing its focus on the
sustainability of its properties and ways to make them more energy
efficient. There is a wide range of quick and medium-term wins that
can and will be made. The employment of a full time Sustainability
Manager has helped the Group to promote this and the Corporate
Social and Environmental Responsibility Report on page 42 expands
on these activities.
London
Value GBP398 million
--------------------------------- ---------------
Group's property interests 43%
--------------------------------- ---------------
No of properties 30
--------------------------------- ---------------
Lettable space 133,900 sq m
--------------------------------- ---------------
Net initial yield 6.6%
--------------------------------- ---------------
Vacancy rate 4.0%
--------------------------------- ---------------
Like-for-like uplift 2.7%
--------------------------------- ---------------
Government and major corporates 80%
--------------------------------- ---------------
Average unexpired lease length 9.3 years
--------------------------------- ---------------
To first break 8.6 years
--------------------------------- ---------------
It has been particularly encouraging to be able to reduce the
vacancy rate with more lettings given the economic climate. We are
seeing fewer but better quality enquiries and a clear trend for
tenants to target the better managed buildings, where stable
landlords are able to maintain and refurbish to a good standard,
and be flexible on lease terms to meet customer needs. This is a
key differentiator compared to buildings owned by landlords who are
under financial pressure. During the year 6,497 sq m became vacant,
we let 8,690 sq m and renewed leases on 2,894 sq m with existing
tenants, with particular activity at Great West House, Brentford
and Cambridge House, W6, and we completed the refurbishment
programme of common parts at Westminster Tower, SE1.
In September, we acquired two office buildings in Hounslow for
GBP5.5 million. The total initial rent of GBP582,091, gave a yield
after costs of 10.1%, rising to GBP627,562 after fixed rental
uplifts. The one vacant floor of 574 sq m has let since the year
end, increasing the yield to over 11%. The buildings total 4,693 sq
m over four floors, and tenants include Aer Lingus, Alitalia,
Telefonica O2, Vandemoortele, First Rate Exchange Services and
Quest Diagnostics. The purchase price equated to a capital value of
GBP1,172 per sq m, which is well below replacement cost.
The commitment of the Greater London Authority, and the London
boroughs of Lambeth and Wandsworth to the Vauxhall Nine Elms
regeneration zone is absolute and the Group is very well placed as
one of the credible parties which can help deliver. In December,
and after public consultation, we submitted a planning application
for a 20,800 sq m mixed use scheme called Spring Mews, behind
Albert Embankment in Vauxhall. This comprises: student
accommodation of 402 student rooms and amenity space; a 120 bed
mid-market hotel; a new 561 sq m community centre and cafe; 469 sq
m of office space; a 245 sq m convenience retail unit; and the
creation of a new pedestrian mews linking the development to Spring
Gardens. Subject to receiving planning consent, the Group would aim
to start on site in the second half of 2012, with completion in
2014. The development, the total cost of which is expected to be in
excess of GBP50 million, would significantly improve the area,
bringing immediate benefits to the Group's property at Spring
Gardens, which is directly opposite.
Also in December, after almost a year of stakeholder
consultations, the Group submitted a planning application for a
154,000 sq m (1,657,650 sq ft) mixed-use development scheme called
Vauxhall Square, on the site owned by the Group close to Vauxhall's
transport interchange. The proposed scheme comprises: two
residential towers of 50 stories containing 510 homes and 15,231 sq
m of office space; 3,500 sq m of retail, restaurant and cafe space;
416 student units; a 438 bed hotel; a 4 screen cinema; 94
affordable housing units; a new homeless hostel; a major new public
square (of similar size to Paternoster Square in the City of
London); and public realm improvements. Our strong belief is that
the redevelopment of the Vauxhall/Nine Elms regeneration area will
start at the Vauxhall end and Vauxhall Square is strategically
located between the Vauxhall transport links and the proposed new
US Embassy. Importantly, it is not dependent on the proposed
Northern Line extension. Subject to receiving planning consent, we
would aim to start on site in 2014, with phases being completed
from 2017. The development cost of the proposed scheme is in excess
of GBP400 million. Prudently, no hope value has yet been ascribed
to either this development site or Spring Mews and, consequently,
their values fell on a like-for-like basis during the year, due to
planning costs.
The Group has been very active in promoting a Business
Improvement District (BID) for Vauxhall. BIDs are an established
way for local businesses to be actively involved in improving an
area. In early 2012 local Vauxhall businesses voted in favour of a
BID, which will be called Vauxhall One, and which will start in
April 2012, initially for a 5 year period. Richard Tice, Chief
Executive Officer of the Company, has been the chairman of the
campaign to launch a BID, which we believe can be beneficial for
our holdings in Vauxhall.
France
Value GBP248 million
--------------------------------- ---------------
Group's property interests 27%
--------------------------------- ---------------
No of properties 26
--------------------------------- ---------------
Lettable space 96,400 sq m
--------------------------------- ---------------
Net initial yield 7.5%
--------------------------------- ---------------
Vacancy rate 2.7%
--------------------------------- ---------------
Like-for-like uplift 1.9%
--------------------------------- ---------------
Government and major corporates 59%
--------------------------------- ---------------
Average unexpired lease length 5.7 years
--------------------------------- ---------------
To first break 2.8 years
--------------------------------- ---------------
The reduction of the vacancy rate from 3.6% a year ago was
particularly pleasing given the flexible nature of the traditional
French 3:6:9 year lease expiry structure. The year saw 8,043 sq m
of new lettings or renewals with tenants vacating from 6,524 sq m.
The economic activity on the ground appears healthier than the
macro reports in the press. Letting demand continues to be most
encouraging across the portfolio, with signs of rental growth,
especially in Lyon where we were delighted to secure the British
Council into our Forum building in 374 sq m. Renovation work this
year has been limited, at GBP1.7 million, mainly at this Forum
building.
The early indications we mentioned a year ago that there would
be very little new construction of offices in our locations is
holding true, with no sign that this will change in the foreseeable
future. This is a most positive situation for the Group given that
vacancy rates in Paris and Lyon are below 7%; take up in both
locations rose by over 14% in 2011 compared to the previous year.
There are no new schemes forecast to be delivered in Lyon in 2012
and the immediate supply of available space is just over one
year.
Investment activity, particularly in the first half, was up by
over 25% in the Ile de France, making it hard to acquire additional
property. Agents forecast lower investment levels in 2012 as banks
restrict their lending, and investors wait to see developments in
the Eurozone, but there are almost no signs of distress in this
region. Domestic investors made up approximately 63% of the
investment market and prime Paris yields are still somewhat below
5%.
Germany
Value GBP197 million
--------------------------------- ---------------
Group's property interests 22%
--------------------------------- ---------------
No of properties 18*
--------------------------------- ---------------
Lettable space 138,000 sq m
--------------------------------- ---------------
Net initial yield 7.0%
--------------------------------- ---------------
Vacancy rate 6.0%
--------------------------------- ---------------
Like-for-like uplift 1.0%
--------------------------------- ---------------
Government and major corporates 48%
--------------------------------- ---------------
Average unexpired lease length 8.7 years
--------------------------------- ---------------
To first break 8.7 years
--------------------------------- ---------------
* plus one under construction
The average capital value of GBP1,428 per sq m is comparable
with replacement cost and the year end vacancy rate is higher than
last year's 5.5% due to the bankruptcy of one tenant in the first
half of 2011.
Although the German economy is forecast to grow more slowly in
2012, it is robust and we continue to see signs of confidence in
the future plans of our tenants and potential occupiers. In the
economy as a whole, leasing take up grew by 16 % in 2011 to the
second highest level in 10 years, most markedly in Munich. Likewise
investment volumes increased by some 20%.
The main activity during the year has been the construction
start for the two pre-let developments near Munich which will add
7,042 sq m when completed. The 1,642 sq m extension for Dr Honle AG
in Grafelfing was completed at the end of February 2012, and the
new 5,400 sq m Landshut building pre-let to E.ON Service Plus GmbH
completes in summer 2012. The total additional rent from these two
pre-let developments will be EUR856,000 per annum.
There is growing pressure in Germany on overseas owners of
commercial property, funded by overseas banks, who need to dispose
of their assets. This is likely to deliver opportunities for CLS in
2012, and there continues to be reasonable availability of bank
debt from domestic banks.
Sweden
Value GBP77 million
--------------------------------- --------------
Directly owned
--------------------------------- --------------
Value GBP59 million
--------------------------------- --------------
Group's property interests 6%
--------------------------------- --------------
No of properties 1
--------------------------------- --------------
Lettable space 45,400 sq m
--------------------------------- --------------
Net initial yield 7.1%
--------------------------------- --------------
Vacancy rate 1.8%
--------------------------------- --------------
Like-for-like uplift 1.5%
--------------------------------- --------------
Government and major corporates 95%
--------------------------------- --------------
Average unexpired lease length 4.4 years
--------------------------------- --------------
To first break 4.4 years
--------------------------------- --------------
Indirectly owned
--------------------------------- --------------
Value GBP18 million
--------------------------------- --------------
Group's property interest 2%
--------------------------------- --------------
Interest in Catena AB 29.9%
--------------------------------- --------------
The Group's Swedish property interests consist of two parts.
First the 45,400 sq m office complex in Vanersborg near Gothenburg,
called Vanerparken. The GBP2.3 million investment in energy saving
plant for the property was completed in the second half and early
data shows the expected savings of over 80% in consumption and CO2
emissions are already being achieved. We are using the same Swedish
engineers to advise the Group on opportunities to achieve savings
in London which can benefit both the Group and tenants alike.
Second, the Group owns 29.9% of the Stockholm-listed real estate
company, Catena AB, which now is focused on its one remaining but
significant property in Stockholm. Negotiations are progressing
with the local authorities on the 150,000 sq m mixed-use scheme
which has been submitted for planning consent for almost 1,000
apartments and 50,000 sq m of commercial space. It is interesting
to note that the overall cost of submitting an application for a
similar sized mixed-use scheme in Stockholm is only 20% of the
comparable cost in London. At the year end, based on Catena's share
price the market value of the Group's investment was GBP17.8
million, being a surplus of GBP4.3 million over the book value,
which equates to an additional 10 pence per share to CLS's net
asset value. Following a rise in Catena's share price since the
year end, the surplus over book value at 1 March 2012 was GBP9.4
million, or 21 pence per share of additional net asset value for
the Company.
The Swedish economy has been one of the better performers in
2011 with GDP growth of 4.0%, which is forecast to slow in 2012.
Property markets are stable and tenant demand is firm, both of
which bode well for the Catena site in Stockholm.
Results for the Year
Headlines
Profit after tax of GBP38.8 million (2010: GBP60.1 million)
generated EPRA earnings per share of 64.9 pence (2010: 42.5 pence),
and basic and diluted earnings per share of 82.0 pence and 81.9
pence, respectively (2010: 127.1 pence each). Gross property assets
at 31 December 2011 were GBP902.1 million (2010: GBP876.9 million),
EPRA net assets per share were 3.2% higher at 983.1 pence (2010:
952.9 pence), and basic net assets per share rose by 6.6% to 817.5
pence (2010: 766.7 pence).
Approximately 40% of the Group's business is conducted in the
reporting currency of sterling, around 50% is in euros, and the
balance is in Swedish kronor. Overall, compared to last year
profits benefited marginally from foreign exchange rate movements
as on average the euro was 1.2% stronger and the krona 6.8%
stronger against sterling than in 2010. However, the euro weakened
markedly towards the end of the year, restricting gains in the
value of net assets made earlier in the year.
Exchange rates to the GBP
EUR SEK
--------------------- ------- --------
At 31 December 2009 1.1275 11.5689
2010 average rate 1.1663 11.1221
At 31 December 2010 1.1664 10.4828
2011 average rate 1.1525 10.4091
At 31 December 2011 1.1987 10.7088
--------------------- ------- --------
Statement of Comprehensive Income
Profit after tax comprised the underlying operating performance
of the Group, known as EPRA earnings, and assorted other elements,
such as fair value movements, profits on sales and other
non-recurring items. EPRA earnings were GBP9.6 million higher than
last year at GBP29.7 million (2010: GBP20.1 million). The net
uplift on revaluation of the investment property portfolio was
GBP18.0 million (2010: GBP30.1 million), but the fair value of
derivative financial instruments, included within finance costs,
fell by GBP18.5 million (2010: GBP3.1 million). Other non-recurring
profits in the year were GBP9.6 million (2010: GBP13.0 million).
Consequently, although EPRA earnings rose significantly over those
of 2010, in aggregate profit after tax was lower than last year at
GBP38.8 million (2010: GBP60.1 million).
Rental income of GBP66.2 million was GBP4.1 million, or 6.6%,
higher than last year. GBP2.5 million of this increase was from
acquisitions, primarily made in 2010, and GBP0.6 million came from
indexation increases, particularly in Germany and France. The
comparative weakness of sterling accounted for a further GBP0.8
million of uplift, and the effect of expiries was largely matched
by new lettings.
We monitor the administration expenses incurred in running the
property portfolio by reference to the income derived from it,
which we call the administration cost ratio, and this is a key
performance indicator of the Group. In 2011, administration
expenses fell to GBP12.1 million (2010: GBP13.0 million), but
property-related administration costs increased to GBP9.7 million
(2010: GBP9.1 million), in part through extending our development
team. The administration cost ratio of 15.4% (2010: 15.2%) was
close to the KPI target of 15.0% and, notwithstanding the relative
complexity of our pan-European operation, was well below that of
many real estate companies in our peer group.
The net surplus on revaluation of investment properties in the
year was GBP18.0 million (2010: GBP30.1 million). GBP10.2 million
of this uplift came from the London portfolio, GBP4.9 million was
from France, GBP2.0 million from Germany, and our sole direct
property investment in Sweden rose in value by GBP0.9 million.
Overall, the underlying revaluation surplus was 2.1% (or 0.5% after
foreign exchange effects), comprising 1.7% (4.6% after foreign
exchange) in the first half of the year, and 0.4% (minus 3.9% after
foreign exchange) in the second half.
Finance income of GBP12.2 million comprised predominantly
interest income of GBP9.2 million (2010: GBP6.1 million) from our
corporate bond portfolio. This portfolio fell in value towards the
end of 2011 during the euro crisis, and ended the year down by
GBP15.6 million, but since first investing in corporate bonds
towards the end of 2008, the portfolio has produced an annual
compound return on equity of 9.1%. At 31 December 2011 the
portfolio generated a yield on market value of 10.2%. To date, the
valuation of the portfolio at 31 December 2011 has proved to be a
low point, with steady growth in value of GBP8.2 million in the
first two months of 2012.
The rise in Group borrowings (see below) led to an increase in
interest expense on bank loans, debenture loans and other loans to
GBP29.2 million (2010: GBP24.0 million), and the fall in the
long-term swap rate in particular created an adverse movement in
the fair value of interest rate swaps and caps of GBP18.5 million
(2010: GBP3.1 million). Consequently, finance costs for the year to
31 December 2011 were GBP47.7 million (2010: GBP31.1 million).
In late 2010, Catena AB, in which the Group owns a 29.9%
interest, sold the majority of its business and in April 2011
distributed the proceeds, of which our share was a cash dividend of
GBP19.9 million. The main drivers of the profit of associates after
tax of GBP3.0 million (2010: GBP7.7 million) were a profit of
GBP3.7 million (2010: GBP9.4 million) from the reduced business of
Catena, and a loss of GBP0.5 million (2010: GBP1.6 million) from
our 48.3% holding in Bulgarian Land Development Plc.
Our French operation was the only part of the Group which paid
tax. Elsewhere in the Group, tax losses, including those generated
by closing out an interest rate swap, absorbed taxable profits made
in the year, creating a current tax credit of GBP1.2 million. Tax
for the year also contained a deferred tax charge of GBP0.1 million
(2010: GBP6.4 million), which largely represents an adjustment
required under IFRS for the potential tax occasioned by valuation
movements on investment properties, offset by tax losses.
Distributions to Shareholders
In April 2011, GBP7.2 million was distributed to shareholders by
means of a tender offer buy-back of 1 in 47 shares at 725 pence per
share. In September, a further GBP4.4 million was distributed by
means of a tender offer buy-back of 1 in 72 shares at 700 pence per
share, and a proposed tender offer buy-back of 1 in 42 shares at
735 pence per share to return GBP7.9 million will be put to
shareholders in April 2012. This represents a 10% uplift over the
equivalent distribution last year.
EPRA net asset value
At 31 December 2011, EPRA net assets per share (a diluted
measure which highlights the fair value of the business on a
long-term basis) were 983.1 pence (2010: 952.9 pence), a rise of
3.2%, or 30.2 pence per share. Elements of the business which
increased EPRA NAV in the year included profit after tax (83.3
pence per share), the property portfolio revaluation uplift (39.8
pence), and the two tender offer buy-backs (8.6 pence). However,
due to uncertainty over the euro, the fair value of our corporate
bonds fell by the equivalent of 34.5 pence per share, the resulting
strength in sterling reduced EPRA NAV by 13.5 pence, and the early
redemption of an interest rate swap reduced it by a further 53.5
pence per share.
Cash flow, net debt and gearing
At 31 December 2011, the Group's liquid resources of GBP140.4
million - comprising cash of GBP55.3 million and corporate bonds of
GBP85.1 million - were GBP14.0 million higher than GBP126.4 million
twelve months earlier. In May a one-off dividend from our associate
Catena AB added GBP19.9 million. The underlying operations of the
business generated cash of GBP25.1 million during the year, of
which GBP11.8 million was distributed to shareholders. New loans of
GBP171.4 million, after costs, replaced those repaid of GBP132.2
million, being a net cash inflow of GBP39.2 million, which financed
in part capital expenditure and acquisitions of GBP20.4 million.
The early repayment of an interest rate swap cost GBP24.2 million,
and the bond portfolio fell in value by GBP15.6 million.
Early in 2011, the Board decided that the Group should raise
debt in anticipation of a reduction in the general availability of
bank finance later in the year, and this proved to be a well-judged
decision. In May, we issued the first CLS corporate bond, for SEK
300 million (GBP29.5 million), in Sweden. This unsecured, five-year
bond, which attracts interest at 375 basis points above STIBOR, has
since been listed on the NASDAQ OMX in Stockholm. It was noteworthy
that the Group looked to issue the bond in London, but investors in
Sweden proved more accommodating to the issue, even though CLS's
shares were not listed there. In June, 19 loans in the French
portfolio were refinanced by separate facilities from two banks,
including one bank which was new to the Group. The new loans of
GBP116.1 million in aggregate replaced others of GBP85.7 million,
increasing the loan to value ratio on the properties which they
financed to 68% from under 50%. In London, a new loan of GBP3.3
million was taken out on the acquisitions in Hounslow, and two were
refinanced for GBP6.0 million, whilst in Germany, GBP1.7 million
was drawn on a new development loan. A short-term SEK 300 million
facility taken out during the year was subsequently repaid. Other
repayments of bank loans of GBP19.1 million were made by way of
amortisation in the ordinary course of business. Following all of
these transactions, and retranslating the resulting loans into
sterling, at 31 December 2011 gross debt of GBP625.1 million was
GBP32.8 million higher than the GBP592.3 million of twelve months
earlier.
The weighted average unexpired term of the Group's debt at 31
December 2011 was 4.4 years. GBP151.2 million of loans fell due in
2012, including GBP14.3 million of amortisation of loan balances in
the normal course of business.
Since 1 January 2012, GBP30 million has been refinanced, and
GBP89.1 million has been approved by credit committee and all other
appropriate bank internal processes, and is subject to completion
of legal documentation. On refinancing of these loans, the weighted
average unexpired term of the Group's debt will be 5.1 years.
Adjusted net gearing, which is based on EPRA net assets, was
128% at 31 December 2011 and the weighted average loan-to-value on
borrowings against properties was a comfortable 62.5%. Adjusted
solidity was 40.5% (2010: 41.7%).
The weighted average cost of debt at 31 December 2011 was 4.1%,
one of the lowest in the property sector, and down from 4.3% twelve
months earlier. The fall was primarily caused by cancelling a
long-term swap (see below). With bank financing now more expensive
than when existing loans were taken out, all other things being
equal refinancing them as they fall due will gradually increase the
average cost of debt of the Group.
In 2011, our low cost of debt led to recurring interest cover of
a comfortable 2.6 times (2010: 3.2 times). The fall was caused by a
lower share of profit of associates after tax of GBP3.0 million
(2010: GBP7.7 million), and a higher recurring net interest cost
due to higher borrowings.
Financing strategy
The Group's strategy is to hold its investment properties
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 70% of the Group's exposure to foreign currency is naturally
hedged, and the most efficient use can be made of the Group's
assets. Around 10% of the Group's debt is not property specific and
is taken out by the parent Company to provide additional financial
flexibility. This comprises the Swedish bond issued in 2011, and
short-term overdraft facilities. Bank debt ordinarily attracts
covenants on loan-to-value and on interest and debt service cover.
None of the Group's debt was in breach of covenants at 31 December
2011. The Group had 64 loans across the portfolio from 20 banks.
None of the loans at 31 December 2011 had been securitised by any
lender, and the Group had no exposure to the CMBS market.
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.
The Board believes that interest rates are likely to remain low
longer than the forward interest curve would imply, and therefore,
its policy is to allow the majority of debt to remain subject to
floating rates. To mitigate the risk of interest rates increasing
more sharply than the Board expects, the Group enters into interest
rate caps. At 31 December 2011, 21% of the Group's borrowings were
at fixed rates or subject to interest rate swaps, 54% were subject
to caps and 25% of debt costs were unhedged.
The Group's financial derivatives - predominantly interest rate
swaps and interest rate caps - are marked to market at each balance
sheet date; at 1 January 2011 the net liability of such derivatives
was GBP15.7 million. The fall in medium and long-term interest
rates in 2011 increased the net liability of these derivatives by
GBP18.5 million. To provide more flexibility in the Group's
financing we chose to close out our major long-term interest rate
swap in December crystallising a GBP24.2 million accumulated loss.
This left the Group with six interest rate swaps with an aggregate
notional amount of only GBP50 million and a derivative liability of
GBP9.1 million at 31 December 2011, at which date they had a
weighted average unexpired term of 4.1 years. Other derivatives at
31 December 2011 were mainly interest rate caps and had a net
positive value of GBP1.8 million.
Share capital
At 1 January 2011, there were 51,381,244 shares in issue, of
which 4,793,000 were held as treasury shares. On 28 April, under
the tender offer buy-back, 991,239 shares were cancelled in
exchange for GBP7.2 million distributed to shareholders, and on 22
September, under the tender offer buy-back, 633,291 shares were
cancelled in exchange for GBP4.4 million distributed to
shareholders. In November and December, an aggregate of 10,103
shares were purchased in the market and placed in Treasury.
Consequently, at 31 December 2011, 44,953,611 shares were listed on
the London Stock Exchange, and 4,803,103 shares were held in
Treasury.
The Directors intend to put to shareholders in April 2012 a
proposal to issue a tender offer to buy-back 1 in 42 shares at 735
pence per share. If approved by shareholders this could lead to the
purchase and cancellation of 1,070,324 shares, and a distribution
to shareholders of GBP7.9 million.
Total Returns to Shareholders
In addition to the distributions and share cancelations
associated with the tender offer buy-backs, shareholders benefited
from a rise in the share price in the year from 535 pence on 31
December 2010 to 590 pence at 31 December 2011. Accordingly, the
total shareholder return in 2011 was 11.1%. In the four years to 31
December 2011, our total shareholder return of 64.9% - a compound
annual return of 13.3% - represented the best performance in the
listed real estate sector.
Since the Company listed on the London Stock Exchange, it has
outperformed the FTSE Real Estate and FTSE All Share indices.
Key Performance Indicators
Total Shareholder Return
Aim
- to provide a TSR of over 12% p.a. over the medium term
Achievement
- 2008-2011: 64.9%, or 13.3% p.a. compound
Effective management of balance sheet
Aim
- to sell assets with limited growth potential and invest in
high yielding alternatives
Achievement
- 2006 to 2011: GBP746 million of property sales
- 2011: Pre-let developments in Landshut and Grafelfing, Germany
will provide returns on equity of 19.4% and 18.3% p.a.,
respectively
Administration cost ratio
Aim
- to maintain administration costs below 15% of net rental
income
Achievement
- 2011: 15.4%
- 2010: 15.2%
- 2009: 14.9%
Occupancy rate
Aim
- to maintain an occupancy level of over 95%
Achievement
- 2011: 96.1%
- 2010: 95.7%
- 2009: 95.5%
Top 10 tenants
The 10 tenants which contribute most rental income to the Group
account for 40.5% of the rent roll, and comprise:
London
-- The Home Office Government
-- Secretary of State for Work and Pensions Government
-- Cap Gemini Major Corporation
-- BAE Systems Major Corporation
France
Grand Duchy of Luxembourg Government
Veolia Major Corporation
Germany
City of Bochum Government
E.ON Major Corporation
Sweden
Vastra Gotaland County Council Government
Vanersborg Kommun Government
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 Areas of Impact Mitigation
-------------------------------- -------------------------------- --------------------------------------
Property investment risks
Underperformance of investment Cash flow Senior management has
portfolio due to: Profitability detailed knowledge of
-- Cyclical downturn in Net asset value core markets and experience
property market Banking covenants gained through many market
-- Inappropriate buy/sell/hold cycles. This experience
decisions is supplemented by external
advisors and financial
models used in capital
allocation decision-making.
-------------------------------- -------------------------------- --------------------------------------
Changes in supply of space Rental income The Group's property portfolio
and/or tenant demand Cash flow is diversified across
Vacancy rate four countries. The weighted-average
Void running costs unexpired lease term is
Bad debts 7.7 years and the Group's
Net asset value largest tenant concentration
is with the Government
sector (40%).
-------------------------------- -------------------------------- --------------------------------------
Poor asset management Rental income Property teams proactively
Cash flow manage tenants to ensure
Vacancy rate changing needs are met,
Void running costs and review the current
Property values status of all properties
Net asset value 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
Corporate bond investments: Net asset value In assessing potential
-- Underperformance of Liquid resources investments, the Treasury
portfolio department undertakes
-- Insolvency of bond research on the bond and
issuer its issuer, seeks third-party
advice, and receives legal
advice on the terms of
the bond, where appropriate.
The Treasury department
and Executive Directors
receive updates on bond
price movements and third
party market analysis
on a daily basis, and
reports on corporate bonds
to the full Board on a
bi-weekly basis. The Executive
Directors formally review
the corporate bond strategy
monthly.
-------------------------------- -------------------------------- --------------------------------------
Development risks
Failure to secure planning Abortive costs Planning permission is
permission Reputation sought only after engaging
in depth with all stakeholders.
-------------------------------- -------------------------------- --------------------------------------
Contractor solvency and Reduced development returns Only leading contractors
availability Cost overruns are engaged. Prior to
Loss of rental revenue appointment, contractors
are the subject of a due
diligence check and assessed
for financial viability.
-------------------------------- -------------------------------- --------------------------------------
Downturn in investment Net asset value Developments are undertaken
or occupational markets only after an appropriate
level of pre-lets have
been obtained.
-------------------------------- -------------------------------- --------------------------------------
Funding risks
Unavailability of financing Cost of borrowing The Group has a dedicated
at acceptable prices Ability to invest or develop Treasury department and
relationships are maintained
with some 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 Cost of borrowing The Group's exposure to
movements Cost of hedging 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 Cost of borrowing Financial covenants are
monitored by the Treasury
department and regularly
reported to the Board.
-------------------------------- -------------------------------- --------------------------------------
Foreign currency exposure Net asset value Property investments are
Profitability 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.
-------------------------------- -------------------------------- --------------------------------------
Financial counterparty Loss of deposits The Group has a dedicated
credit risk Cost of rearranging facilities Treasury department and
Incremental cost of borrowing 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.
-------------------------------- -------------------------------- --------------------------------------
Taxation risk
Increases in tax rates Cash flow The Group monitors legislative
or changes to the basis Profitability proposals and consults
of taxation Net asset value external advisors to understand
and mitigate the effects
of any such change.
-------------------------------- -------------------------------- --------------------------------------
Political and economic
risk Net asset value Euro-denominated liquid
Break-up of the Euro Profitability resources are kept to
a minimum. Euro property
assets are largely financed
with euro borrowings.
-------------------------------- -------------------------------- --------------------------------------
Economic downturn Cash flow The Group's property portfolio
Profitability is diversified across
Net asset value four countries. The weighted-average
Banking covenants unexpired lease term is
7.7 years and the Group's
largest tenant concentration
is with the Government
sector (40%). 65% of rental
income is subject to indexation.
-------------------------------- -------------------------------- --------------------------------------
Going concern
The Group will not have Pervasive The Directors regularly
adequate working capital stress-test the business
to remain a going concern model to ensure the Group
for the next 12 months. has adequate working capital.
-------------------------------- -------------------------------- --------------------------------------
Property Portfolio
Rental data
Gross
rental Net rental
income income Contracted Vacancy
for the for Lettable rent at ERV at Contracted rate at
year the year space year end year end rent subject year end
GBPm GBPm sq m GBPm GBPm GBPm %
----------------- --------- ----------- --------- ----------- ---------- -------------- ----------
London 26.4 24.7 133,918 27.5 26.4 4.3 4.0%
France 18.8 18.5 96,398 18.7 18.3 18.7 2.7%
Germany 14.2 13.4 137,994 13.9 14.5 13.9 6.0%
Sweden 6.2 4.9 45,384 6.2 5.6 6.3 1.8%
----------------- --------- ----------- --------- ----------- ---------- --------------
Total Portfolio 65.6 61.5 413,694 66.3 64.8 43.2 3.9%
----------------- --------- ----------- --------- ----------- ---------- --------------
Note: a further GBP3.8 million of London contracted rent will be
subject to annual indexation from 2015.
Valuation data
Valuation movement
in the year
-----------------------
EPRA topped
up net
Market Net initial initial
value Foreign yield yield True equivalent
of property Underlying exchange (1) (2) Reversion Over-rented yield
GBPm GBPm GBPm % % % % %
----------- ------------ ----------- ---------- ------------ ------------ ---------- ------------ ----------------
London 398.0 10.2 - 6.6% 6.2% 3.1% 11.0% 6.9%
France 248.3 4.9 (7.0) 7.5% 7.1% 1.8% 6.7% 7.0%
Germany 197.1 2.0 (5.4) 7.0% 6.6% 0.8% 3.1% 6.0%
Sweden 58.7 0.9 (1.3) 7.9% 7.5% 1.3% 13.4% 9.5%
----------- ------------ ----------- ----------
Total
Portfolio 902.1 18.0 (13.7) 7.0% 6.6% 2.1% 8.3%
----------- ------------ ----------- ----------
(1) Based on contracted rent and before adding purchasers' costs
to investment property values; if based on passing rent, net
initial yield would be 6.8%
(2) Based on contracted rent and after adding purchasers' costs
to investment property values; if based on passing rent, EPRA net
initial yield would be 6.5%
Lease Data
Average lease Passing rent of leases expiring
length in: ERV of leases expiring in:
--------------------- -------------------------------------- ---------------------------------
Year After Year After
Year Year 3 to year Year Year 3 to year
To break To expiry 1 2 5 5 1 2 5 5
years years GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------- ---------- -------- -------- -------- -------- ------- ------- ------- ------
London 8.6 9.3 0.9 1.9 5.1 19.6 0.9 2.1 5.1 17.1
France 2.8 5.7 0.3 0.8 5.3 12.2 0.3 0.9 4.9 11.7
Germany 8.7 8.7 1.2 1.0 5.4 6.4 1.1 0.9 5.2 6.3
Sweden 4.4 4.4 0.1 0.1 4.5 1.6 0.1 0.1 3.7 1.6
-------- -------- -------- -------- ------- ------- ------- ------
Total
Portfolio 6.6 7.7 2.5 3.8 20.3 39.8 2.4 4.0 18.9 36.7
-------- -------- -------- -------- ------- ------- ------- ------
Statement of Directors' responsibilities
The responsibility statement below has been prepared in
connection with the company's full annual report for the year ended
31 December 2011. Certain parts thereof 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, which is incorporated into the
Directors' Report, 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
5 March 2012.
By order of the Board
David Fuller BA FCIS
Company Secretary
5 March 2012
Group Statement of comprehensive income
for the year ended 31 December 2011
2011 2010
Notes GBPm GBPm
----------------------------------------------------- ------ ------- -------
Continuing operations
Group revenue 2 80.1 79.1
Costs 2 (30.6) (30.3)
----------------------------------------------------- ------ ------- -------
49.5 48.8
Net movements on revaluation of investment
properties 8 18.0 30.1
Net gain on sale of corporate bonds and other
investments 0.5 9.3
Profit on sale of subsidiaries and associates 25 2.2 -
----------------------------------------------------- ------ ------- -------
Operating profit 70.2 88.2
Finance income 3 12.2 6.1
Finance costs 4 (47.7) (31.1)
Share of profit of associates after tax 12 3.0 7.7
----------------------------------------------------- ------ ------- -------
Profit before tax 37.7 70.9
Taxation 5 1.1 (10.8)
----------------------------------------------------- ------ ------- -------
Profit for the year 38.8 60.1
Other comprehensive income
Foreign exchange differences (5.0) 1.1
Fair value (losses)/gains on corporate bonds
and other investments 13 (16.0) 3.1
Fair value gains taken to gain on sale of corporate
bonds and other investments 13 (0.8) (8.5)
Deferred tax on net fair value gains on corporate
bonds and other investments 17 4.6 1.8
Share of other comprehensive income of associates 12 - (0.4)
Revaluation of owner-occupied property 9 0.3 -
----------------------------------------------------- ------ ------- -------
Total comprehensive income for the year 21.9 57.2
----------------------------------------------------- ------ ------- -------
Profit attributable to:
Owners of the Company 37.5 60.1
Non-controlling interests 1.3 -
----------------------------------------------------- ------ ------- -------
Profit for the year 38.8 60.1
----------------------------------------------------- ------ ------- -------
Total comprehensive income attributable to:
Owners of the Company 20.6 57.2
Non-controlling interests 1.3 -
----------------------------------------------------- ------ ------- -------
Total comprehensive income for the year 21.9 57.2
----------------------------------------------------- ------ ------- -------
Earnings per share from continuing operations
attributable to the owners of the Company during
the year (expressed in pence per share)
Basic 6 82.0 127.1
Diluted 6 81.9 127.1
----------------------------------------------------- ------ ------- -------
Group Balance Sheet
At 31 December 2011
2011 2010
Notes GBPm GBPm
-------------------------------------------------- ------- -------- --------
Non-current assets
Investment properties 8 902.1 876.9
Property, plant and equipment 9 2.7 2.6
Goodwill and other intangible assets 11 1.1 1.1
Investments in associates 12 24.1 40.6
Other investments 13 87.8 81.6
Derivative financial instruments 19 1.5 4.6
Deferred tax 17 17.7 11.2
-------------------------------------------------- ------- -------- --------
1,037.0 1,018.6
-------------------------------------------------- ------- -------- --------
Current assets
Trade and other receivables 14 11.6 11.5
Derivative financial instruments 19 0.4 -
Cash and cash equivalents 15 55.3 48.3
-------------------------------------------------- ------- -------- --------
67.3 59.8
-------------------------------------------------- ------- -------- --------
Total assets 1,104.3 1,078.4
-------------------------------------------------- ------- -------- --------
Current liabilities
Trade and other payables 16 (30.4) (31.8)
Current tax (1.2) (5.3)
Borrowings 18 (151.2) (85.0)
Derivative financial instruments 19 (0.1) (1.0)
-------------------------------------------------- ------- -------- --------
(182.9) (123.1)
-------------------------------------------------- ------- -------- --------
Non-current liabilities
Deferred tax 17 (75.0) (74.5)
Borrowings 18 (469.8) (504.3)
Derivative financial instruments 19 (9.1) (19.3)
-------------------------------------------------- ------- -------- --------
(553.9) (598.1)
-------------------------------------------------- ------- -------- --------
Total liabilities (736.8) (721.2)
-------------------------------------------------- ------- -------- --------
Net assets 367.5 357.2
-------------------------------------------------- ------- -------- --------
Equity
Share capital 20 12.5 12.9
Share premium 22 71.5 71.5
Other reserves 23 86.0 102.5
Retained earnings 197.5 171.6
-------------------------------------------------- ------- -------- --------
Equity attributable to the owners of the Company 367.5 358.5
Non-controlling interests - (1.3)
-------------------------------------------------- ------- -------- --------
Total equity 367.5 357.2
-------------------------------------------------- ------- -------- --------
The financial statements of CLS Holdings plc (registered number:
2714781) were approved by the Board of Directors and authorised for
issue on 5 March 2012 and were signed on its behalf by:
Mr S A Mortstedt Mr E H Klotz
Director Director
Group Statement of Changes in Equity
for the year ended 31 December 2011
Attributable to the owners of the Company
-----------------------------------------------------
Non-
Share Share Other Retained controlling
capital premium reserves earnings Total interests Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------ --------- --------- ---------- ---------- ------- ------------- -------
At 1 January
2011 12.9 71.5 102.5 171.6 358.5 (1.3) 357.2
--------------------- ------ --------- --------- ---------- ---------- ------- ------------- -------
Arising
in 2011:
Total comprehensive
income
for the
year - - (16.9) 37.5 20.6 1.3 21.9
Purchase
of own shares 20 (0.4) - 0.4 (11.7) (11.7) - (11.7)
Expenses
thereof - - - (0.1) (0.1) - (0.1)
Employee
share option
schemes - - - 0.2 0.2 - 0.2
--------------------- ------ --------- --------- ---------- ---------- ------- ------------- -------
Total changes
arising
in 2011 (0.4) - (16.5) 25.9 9.0 1.3 10.3
--------------------- ------ --------- --------- ---------- ---------- ------- ------------- -------
At 31 December
2011 12.5 71.5 86.0 197.5 367.5 - 367.5
--------------------- ------ --------- --------- ---------- ---------- ------- ------------- -------
Attributable to the owners of the Company
-----------------------------------------------------
Non-
Share Share Other Retained controlling
capital premium reserves earnings Total interests Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------ --------- --------- ---------- ---------- ------- ------------- -------
At 1 January
2010 13.3 70.5 105.0 121.5 310.3 (1.3) 309.0
--------------------- ------ --------- --------- ---------- ---------- ------- ------------- -------
Arising
in 2010:
Total comprehensive
income
for the
year - - (2.9) 60.1 57.2 - 57.2
Issue of
treasury
shares - 1.0 - - 1.0 - 1.0
Purchase
of own shares 20 (0.4) - 0.4 (10.0) (10.0) - (10.0)
Expenses
thereof - - - (0.1) (0.1) - (0.1)
Employee
share option
schemes - - - 0.1 0.1 - 0.1
--------------------- ------ --------- --------- ---------- ---------- ------- ------------- -------
Total changes
arising
in 2010 (0.4) 1.0 (2.5) 50.1 48.2 - 48.2
--------------------- ------ --------- --------- ---------- ---------- ------- ------------- -------
At 31 December
2010 12.9 71.5 102.5 171.6 358.5 (1.3) 357.2
--------------------- ------ --------- --------- ---------- ---------- ------- ------------- -------
Group Statement of Cash Flows
for the year ended 31 December 2011
2011 2010
Notes GBPm GBPm
------------------------------------------------------ ------ -------- --------
Cash flows from operating activities
Cash generated from operations 24 54.1 51.2
Interest paid (26.1) (21.7)
Income tax paid (2.9) (3.4)
------------------------------------------------------ ------ -------- --------
Net cash inflow from operating activities 25.1 26.1
------------------------------------------------------ ------ -------- --------
Cash flows from investing activities
Purchase of investment property (7.2) (36.4)
Capital expenditure on investment property (13.2) (6.5)
Proceeds from sale of investment property - 0.1
Interest received 6.9 5.2
Purchase of corporate bonds (54.5) (51.7)
Proceeds from sale of corporate bonds 31.8 47.7
Purchase of equity investments (7.6) (1.0)
Proceeds from sale of equity investments 7.2 0.8
Purchase of interests in associate (0.2) (1.9)
Distributions received from associate undertakings 19.9 11.9
Costs on foreign currency transactions (1.4) (1.2)
Costs of corporate disposals (1.8) (0.7)
Purchases of property, plant and equipment (0.2) (0.3)
------------------------------------------------------ ------ -------- --------
Net cash outflow from investing activities (20.3) (34.0)
------------------------------------------------------ ------ -------- --------
Cash flows from financing activities
Issue of ordinary shares from treasury shares - 1.0
Purchase of own shares (11.8) (10.1)
New loans 174.2 102.7
Issue costs of new loans (2.8) (1.1)
Repayment of loans (132.2) (100.6)
Purchase or cancellation of derivative financial
instruments (25.9) (3.9)
------------------------------------------------------ ------ -------- --------
Net cash inflow/(outflow) from financing activities 1.5 (12.0)
------------------------------------------------------ ------ -------- --------
Cash flow element of net increase/(decrease)
in cash and cash equivalents 6.3 (19.9)
Foreign exchange gain/(loss) 0.7 (2.1)
------------------------------------------------------ ------ -------- --------
Net increase/(decrease) in cash and cash equivalents 7.0 (22.0)
Cash and cash equivalents at the beginning of
the year 48.3 70.3
------------------------------------------------------ ------ -------- --------
Cash and cash equivalents at the end of the
year 15 55.3 48.3
------------------------------------------------------ ------ -------- --------
Interest received has been included in cash flows from investing
activities as the majority of it arises from investing in corporate
bonds. Previously, interest received was disclosed in cash flows
from operating activities.
Notes to the group financial statements
31 December 2011
1 General Information
CLS Holdings plc (the "Company") and its subsidiaries (together
"CLS Holdings" or the "Group") 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 London, France,
Germany and Sweden.
The Company is registered in the UK, registration number
2714781, with its registered address at 86 Bondway, London, SW8
1SF. The Company is listed on the London Stock Exchange.
The annual financial report (produced in accordance with the
Disclosure and Transparency Rules) can be found on the Company's
website www.clsholdings.com. The 2011 Annual Report and Accounts
will be posted to shareholders on 16 March 2012 and will also be
available on the Company's website.
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 2011. 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 2011
or 2010, 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 2010
have been delivered to the Registrar of Companies and those for
2011 will be delivered following the Company's Annual General
Meeting. The auditors have reported on those accounts and the
auditors' reports on both the 2010 and 2011 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 macro-economic conditions have created a number of
uncertainties. 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.
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 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 London
-
France
Germany
Sweden
Other Investments
There are no transactions between the operating segments.
The Group's results for the year ended 31 December 2011 by
operating segment were as follows:
Investment Property
-----------------------------------
Other
London France Germany Sweden Investments Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------- ------- -------- ------- ------------- -------
Rental income 26.5 19.1 14.4 6.2 - 66.2
Service charge income 4.2 5.2 2.5 0.3 - 12.2
Other property-related
income 0.8 0.1 - - - 0.9
Income from non-property
activities - - - - 0.8 0.8
-------------------------------- ------- ------- -------- ------- ------------- -------
Group revenue 31.5 24.4 16.9 6.5 0.8 80.1
-------------------------------- ------- ------- -------- ------- ------------- -------
Service charges and similar
expenses (5.9) (5.5) (3.3) (1.6) - (16.3)
Administration expenses (1.9) (1.5) (1.1) (0.4) (1.7) (6.6)
Other expenses (1.0) (0.5) (0.6) (0.1) - (2.2)
-------------------------------- ------- ------- -------- ------- ------------- -------
Costs (8.8) (7.5) (5.0) (2.1) (1.7) (25.1)
-------------------------------- ------- ------- -------- ------- ------------- -------
Group revenue less costs 22.7 16.9 11.9 4.4 (0.9) 55.0
Net movements on revaluation
of investment properties 10.2 4.9 2.0 0.9 - 18.0
Net gain on sale of corporate
bonds and other investments - - - - 0.5 0.5
Profit on sale of subsidiaries
and associates - - - 1.8 0.4 2.2
-------------------------------- ------- ------- -------- ------- ------------- -------
Segment operating profit 32.9 21.8 13.9 7.1 - 75.7
Finance income 0.3 0.1 - - 11.8 12.2
Finance costs (30.3) (7.9) (7.1) (1.6) (0.8) (47.7)
Share of profit of associates
after tax - - - - 3.0 3.0
-------------------------------- ------- ------- -------- ------- ------------- -------
Segment profit before
tax 2.9 14.0 6.8 5.5 14.0 43.2
Taxation 7.7 (4.4) (0.4) (2.2) 0.4 1.1
-------------------------------- ------- ------- -------- ------- ------------- -------
Segment profit after
tax 10.6 9.6 6.4 3.3 14.4 44.3
-------------------------------- ------- ------- -------- ------- -------------
Central administration
expenses (5.5)
-------------------------------- ------- ------- -------- ------- ------------- -------
Profit for the year 38.8
-------------------------------- ------- ------- -------- ------- ------------- -------
The Group's results for the year ended 31 December 2010 by
operating segment were as follows:
Investment Property
-----------------------------------
Other
London France Germany Sweden Investments Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ------- ------- -------- ------- ------------- -------
Rental income 24.5 17.8 14.3 5.5 - 62.1
Service charge income 4.2 4.9 2.7 0.3 - 12.1
Other property-related
income 0.5 0.1 - - - 0.6
Income from non-property
activities - - - - 4.3 4.3
------------------------------- ------- ------- -------- ------- ------------- -------
Group revenue 29.2 22.8 17.0 5.8 4.3 79.1
------------------------------- ------- ------- -------- ------- ------------- -------
Service charges and similar
expenses (5.5) (5.2) (3.0) (1.4) - (15.1)
Administration expenses (2.9) (1.5) (1.0) (0.3) (3.9) (9.6)
Other expenses (0.5) (0.2) (1.3) - (0.2) (2.2)
------------------------------- ------- ------- -------- ------- ------------- -------
Costs (8.9) (6.9) (5.3) (1.7) (4.1) (26.9)
------------------------------- ------- ------- -------- ------- ------------- -------
Group revenue less costs 20.3 15.9 11.7 4.1 0.2 52.2
Net movements on revaluation
of investment properties 4.8 17.8 8.2 (0.7) - 30.1
Net gain on sale of corporate
bonds and other investments - - - - 9.3 9.3
(Loss)/profit on sale
of subsidiaries - (1.6) - 1.6 - -
------------------------------- ------- ------- -------- ------- ------------- -------
Segment operating profit 25.1 32.1 19.9 5.0 9.5 91.6
Finance income - 0.1 - - 6.0 6.1
Finance costs (16.2) (3.0) (6.9) (0.4) (4.6) (31.1)
Share of profit of associates
after tax - - - - 7.7 7.7
------------------------------- ------- ------- -------- ------- ------------- -------
Segment profit before
tax 8.9 29.2 13.0 4.6 18.6 74.3
Taxation 0.1 (9.6) (0.5) (0.4) (0.4) (10.8)
------------------------------- ------- ------- -------- ------- ------------- -------
Segment profit after tax 9.0 19.6 12.5 4.2 18.2 63.5
------------------------------- ------- ------- -------- ------- -------------
Central administration
expenses (3.4)
------------------------------- ------- ------- -------- ------- ------------- -------
Profit for the year 60.1
------------------------------- ------- ------- -------- ------- ------------- -------
Other segment information:
Assets Liabilities Capital expenditure
--------------------- ------------------ -------------- ----------------------
2011 2010 2011 2010 2011 2010
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- -------- -------- ------ ------ ---------- ----------
Investment Property
London 435.5 391.2 304.9 295.4 12.6 23.7
France 252.9 256.7 212.9 190.6 1.8 15.5
Germany 201.1 203.2 147.2 154.5 4.0 2.7
Sweden 65.2 61.6 42.0 45.0 2.5 0.6
Other investments 149.6 165.7 29.8 35.7 - -
--------------------- -------- -------- ------ ------ ---------- ----------
1,104.3 1,078.4 736.8 721.2 20.9 42.5
--------------------- -------- -------- ------ ------ ---------- ----------
Included within the assets of other investments are investments
in associates of GBP24.1 million (2010: GBP40.6 million).
3 FINANCE INCOME
2011 2010
GBPm GBPm
---------------------------- ------ ------
Interest income 9.2 6.1
Other finance income 2.3 -
Foreign exchange variances 0.7 -
---------------------------- ------ ------
12.2 6.1
---------------------------- ------ ------
4 FINANCE COSTS
2011 2010
GBPm GBPm
------------------------------------------------------------ ------ ------
Interest expense
Bank loans 21.2 18.3
Debenture loans 4.7 4.7
Other loans 1.2 -
Amortisation of loan issue costs 2.1 1.0
Movement in fair value of derivative financial instruments
Interest rate swaps: transactions not qualifying as
hedges 14.2 3.7
Interest rate caps: transactions not qualifying as
hedges 4.3 (0.6)
Foreign exchange variances - 4.0
------------------------------------------------------------ ------ ------
47.7 31.1
------------------------------------------------------------ ------ ------
5 taxation
2011 2010
GBPm GBPm
------------------------------- ------ ------
Current tax (credit)/charge (1.2) 4.4
Deferred tax charge (note 17) 0.1 6.4
------------------------------- ------ ------
(1.1) 10.8
------------------------------- ------ ------
A deferred tax credit of GBP4.6 million (2010: credit of GBP1.8
million) was recognised directly in equity (note 17).
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:
2011 2010
GBPm GBPm
--------------------------------------------------------- ------ ------
Profit before tax 37.7 70.9
--------------------------------------------------------- ------ ------
Tax calculated at domestic tax rates applicable to
profits in the respective countries 10.1 20.1
Expenses not deductible for tax purposes (0.1) 1.5
Tax effect of unrecognised profits in associates and
joint ventures (0.8) (2.3)
Adjustment in respect of indexation allowance on London
properties (4.6) (2.1)
Other deferred tax adjustments (1.6) 0.4
Deferred tax assets not recognised (0.8) (1.9)
Adjustment in respect of prior periods (3.3) (4.9)
--------------------------------------------------------- ------ ------
Tax (credit)/charge for the year (1.1) 10.8
--------------------------------------------------------- ------ ------
The weighted average applicable tax rate of 26.7% (2010: 28.4%)
was derived by applying to their relevant profits and losses the
rates in the jurisdictions in which the Group operated.
6 EARNINGS PER SHARE
Management has chosen to disclose the European Public Real
Estate Association (EPRA) measure of earnings per share (Best
Practices Recommendations October 2010, as clarified by Additional
Guidance July 2011), which has been provided to give relevant
information to investors on the long-term performance of the
Group's underlying business. The EPRA measure excludes items which
are non-recurring in nature such as profits (net of related tax) on
sale of investment properties and of other non-current investments,
and items which have no impact to earnings over their life, such as
the change in fair value of derivative financial instruments and
the net movement on revaluation of investment properties, and the
related deferred taxation on these items. Comparatives have been
restated in accordance with EPRA Best Practices Recommendations
Additional Guidance July 2011.
2010
2011 GBPm
Earnings GBPm (restated)
----------------------------------------------------------- ------- ------------
Profit for the period attributable to the owners of
the Company 37.5 60.1
Revaluation gains on investment properties (18.0) (30.1)
Profit on sale of subsidiaries and associates (2.2) -
Negative goodwill on share acquisitions - (0.1)
Change in fair value of derivative financial instruments 18.5 3.1
Net gain on sale of corporate bonds and other investments (0.5) (9.3)
Deferred tax relating to the above adjustments 0.5 4.1
Adjustments in respect of associates (3.8) (7.7)
Non-recurring finance income (2.3) -
----------------------------------------------------------- ------- ------------
EPRA Earnings 29.7 20.1
----------------------------------------------------------- ------- ------------
2011 2010
Weighted average number of ordinary shares Number Number
----------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares in circulation 45,738,600 47,280,274
Dilutive share options 67,542 13,339
----------------------------------------------------------- ----------- -----------
Diluted weighted average number of ordinary shares 45,806,142 47,293,613
----------------------------------------------------------- ----------- -----------
2010
2011 Pence
Earnings per Share Pence (restated)
-------------------- ------- ------------
Basic 82.0 127.1
Diluted 81.9 127.1
-------------------- ------- ------------
EPRA 64.9 42.5
-------------------- ------- ------------
300,000 share options were granted on 11 March 2010 at an
exercise price of 470 pence.
7 NET ASSETS PER SHARE
Management has chosen to disclose the two European Public Real
Estate Association (EPRA) measures of net assets per share (Best
Practices Recommendations October 2010, as clarified by Additional
Guidance July 2011): EPRA net assets per share and EPRA triple net
assets per share. The EPRA net assets per share measure highlights
the fair value of equity on a long-term basis, and so excludes
items which have no impact on the Group in the long term, such as
fair value movements of derivative financial instruments and
movements on fair value of investment properties, and associated
deferred tax. The EPRA triple net assets per share measure
discloses net assets per share on a true fair value basis: all
balance sheet items are included at their fair value in arriving at
this measure, including deferred tax, fixed rate loan liabilities
and any other balance sheet items not reported at fair value.
Comparatives have been restated in accordance with EPRA Best
Practices Recommendations Additional Guidance July 2011.
2010
2011 GBPm
Net Assets GBPm (restated)
------------------------------------------------------- ------- ------------
Basic net assets 367.5 357.2
Dilutive impact of share options 1.4 1.4
------------------------------------------------------- ------- ------------
Diluted net assets 368.9 358.6
Adjustment to increase fixed rate debt to fair value,
net of tax (23.7) (19.4)
Goodwill as a result of deferred tax (1.1) (1.1)
------------------------------------------------------- ------- ------------
EPRA triple net assets 344.1 338.1
Deferred tax on property and other non-current assets 67.9 68.4
Fair value of derivative financial instruments 7.3 15.7
Adjustment to decrease fixed rate debt to book value,
net of tax 23.7 19.4
Adjustments in respect of associates 1.9 5.2
------------------------------------------------------- ------- ------------
EPRA net assets 444.9 446.8
------------------------------------------------------- ------- ------------
2011 2010
Number of ordinary shares Number Number
------------------------------------------ ----------- -----------
Number of ordinary shares in circulation 44,953,611 46,588,244
Dilutive share options 300,000 300,000
------------------------------------------ ----------- -----------
Diluted number of ordinary shares 45,253,611 46,888,244
------------------------------------------ ----------- -----------
2010
2011 Pence
Net Assets Per Share Pence (restated)
---------------------- ------- ------------
Basic 817.5 766.7
Diluted 815.2 764.8
EPRA 983.1 952.9
EPRA triple net 760.4 721.1
---------------------- ------- ------------
8 Investment properties
London France Germany Sweden Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------- ------- -------- ------- -------
At 1 January 2011 375.0 248.7 196.5 56.7 876.9
Acquisitions 6.4 - 0.8 - 7.2
Capital expenditure 6.1 1.7 3.2 2.5 13.5
Net movement on revaluation of
investment properties 10.2 4.9 2.0 0.9 18.0
Rent-free period debtor adjustments 0.3 - - (0.1) 0.2
Exchange rate variances - (7.0) (5.4) (1.3) (13.7)
------------------------------------- ------- ------- -------- ------- -------
At 31 December 2011 398.0 248.3 197.1 58.7 902.1
------------------------------------- ------- ------- -------- ------- -------
London France Germany Sweden Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------- ------- -------- ------- -------
At 1 January 2010 346.8 222.8 192.1 51.3 813.0
Acquisitions 23.4 13.0 - - 36.4
Capital expenditure 0.1 2.5 2.6 0.6 5.8
Disposals (0.1) - - - (0.1)
Net movement on revaluation of
investment properties 4.8 17.8 8.2 (0.7) 30.1
Rent-free period debtor adjustments - - - 0.1 0.1
Exchange rate variances - (7.4) (6.4) 5.4 (8.4)
------------------------------------- ------- ------- -------- ------- -------
At 31 December 2010 375.0 248.7 196.5 56.7 876.9
------------------------------------- ------- ------- -------- ------- -------
The investment properties (and the owner-occupied property
detailed in note 9) were revalued at 31 December 2011 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:
London: Lambert Smith Hampton
France: Jones Lang LaSalle
Germany: Colliers International
Sweden: CB Richard Ellis
Investment properties included leasehold properties with a
carrying amount of GBP19.1 million (2010: GBP19.6 million).
Where the Group leases out its investment property under
operating leases the duration is typically three years or more. No
contingent rents have been recognised in either the current or the
comparative year.
Substantially all investment properties (and the owner-occupied
property detailed in note 9) are secured against debt.
In 2010 the Group purchased a property in London for GBP1.8
million. Under the terms of the purchase agreement, should the site
be developed additional consideration may become due to the vendor.
The maximum liability in respect of this is estimated to be GBP0.5
million. At the balance sheet date the fair value of the liability
was GBPnil (2010: GBPnil).
9 Property, plant and equipment
2011 2010
GBPm GBPm
----------------------------------------- ------ ------
Cost or valuation
At 1 January 5.4 6.8
Additions 0.2 0.3
Disposals (1.9) (1.8)
Revaluation 0.3 0.1
----------------------------------------- ------ ------
At 31 December 4.0 5.4
----------------------------------------- ------ ------
Accumulated depreciation and impairment
At 1 January (2.8) (4.3)
Depreciation charge (0.2) (0.3)
Disposals 1.7 1.8
----------------------------------------- ------ ------
At 31 December (1.3) (2.8)
----------------------------------------- ------ ------
Net book value
At 31 December 2.7 2.6
----------------------------------------- ------ ------
An owner-occupied property was revalued at 31 December 2011
based on the external valuation performed by Lambert Smith Hampton
as detailed in note 9.
10 Joint ventures
At 31 December 2011 the Group had a one-third interest (2010:
one-third) in the issued ordinary share capital of Fielden House
Investments Limited, a company incorporated in England and Wales,
which had a coterminous year end to that of the Group.
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 of the income and expenditure of Fielden House
Investments Limited which are included in the balance sheet and
statement of comprehensive income of the Group:
2011 2010
GBPm GBPm
------------------------- ------ ------
Assets
Non-current assets 2.3 1.9
Current assets 0.1 0.1
------------------------- ------ ------
2.4 2.0
------------------------- ------ ------
Liabilities
Current liabilities (0.1) (2.1)
Non-current liabilities (2.3) (0.4)
------------------------- ------ ------
(2.4) (2.5)
------------------------- ------ ------
Net liabilities - (0.5)
------------------------- ------ ------
Income 0.2 0.2
Expenses (0.2) (0.2)
------------------------- ------ ------
Profit after tax - -
------------------------- ------ ------
11 goodwill and other Intangible assets
Other
Goodwill intangibles Total
GBPm GBPm GBPm
--------------------- --------- ------------- -------
Cost
At 1 January 2011 18.6 7.2 25.8
Disposals (17.5) (7.2) (24.7)
--------------------- --------- ------------- -------
At 31 December 2011 1.1 - 1.1
--------------------- --------- ------------- -------
Amortisation
At 1 January 2011 (17.5) (7.2) (24.7)
Disposals 17.5 7.2 24.7
--------------------- --------- ------------- -------
At 31 December 2011 - - -
--------------------- --------- ------------- -------
Net book value
At 31 December 2011 1.1 - 1.1
--------------------- --------- ------------- -------
Other
Goodwill intangibles Total
GBPm GBPm GBPm
---------------------------------------- --------- ------------- -------
Cost
At 1 January 2010 and 31 December 2010 18.6 7.2 25.8
Amortisation
At 1 January 2010 and 31 December 2010 (17.5) (7.2) (24.7)
---------------------------------------- --------- ------------- -------
Net book value
At 31 December 2010 1.1 - 1.1
---------------------------------------- --------- ------------- -------
Goodwill comprised GBP0.8 million (2010: GBP0.8 million) on the
acquisition of a French property portfolio in 2004 and GBP0.3
million (2010: GBP0.3 million) on a German property acquisition in
2005. All other goodwill and other intangibles (relating to trade
names, technology, customer relationships, capitalised development
and other costs), which had been fully written down, related to the
Wyatt Media Group, which was sold in 2011, as described in note
25.
Impairment review 2011 and 2010
Goodwill was reviewed for impairment at 31 December 2011 and at
31 December 2010 using the key assumptions set out below. No
adjustment for impairment was required.
Key assumptions:
Unamortised goodwill at 31 December 2011 and at 31 December 2010
related to contingent deferred tax arising on acquisitions of
corporate entities for which an equal deferred tax liability was
recognised in the balance sheet. Management have reviewed the
sensitivity to a fall in property values of each cash generating
unit. A fall of 10% would result in a potential impairment of
goodwill of up to GBP0.1 million (2010: GBP0.2 million).
12 Investments in associates
Net assets Goodwill Total
GBPm GBPm GBPm
----------------------------------------- ----------- --------- -------
At 1 January 2011 33.8 6.8 40.6
Additions 0.7 1.4 2.1
Disposals - (1.5) (1.5)
Share of profit of associates after tax 3.0 - 3.0
Dividends received (19.9) - (19.9)
Exchange rate differences (0.2) - (0.2)
----------------------------------------- ----------- --------- -------
At 31 December 2011 17.4 6.7 24.1
----------------------------------------- ----------- --------- -------
Net assets Goodwill Total
GBPm GBPm GBPm
---------------------------------------------------- ----------- --------- -------
At 1 January 2010 36.1 4.8 40.9
Additions 0.4 1.5 1.9
Share of profit of associates after tax 7.7 - 7.7
Share of other comprehensive income of associates* (0.4) - (0.4)
Distributions received (11.9) - (11.9)
Exchange rate differences 1.9 0.5 2.4
---------------------------------------------------- ----------- --------- -------
At 31 December 2010 33.8 6.8 40.6
---------------------------------------------------- ----------- --------- -------
* Primarily foreign exchange movements.
The Group's interests in its principal associates were as
follows:
Bulgarian
Land
Catena Development Other
AB Plc associates Total
At 31 December 2011 GBPm GBPm GBPm GBPm
----------------------------------------- ------- ------------- ------------ -------
Interest held in ordinary share capital 29.9% 48.3% various
Revenues 0.8 0.6 0.6 2.0
----------------------------------------- ------- ------------- ------------ -------
Share of profit/(loss) of associates
after tax 3.7 (0.5) (0.2) 3.0
----------------------------------------- ------- ------------- ------------ -------
Assets 19.9 9.3 0.8 30.0
Liabilities (11.5) (0.6) (0.5) (12.6)
----------------------------------------- ------- ------------- ------------ -------
Net assets 8.4 8.7 0.3 17.4
Goodwill 5.1 - 1.6 6.7
----------------------------------------- ------- ------------- ------------ -------
Investments in associates 13.5 8.7 1.9 24.1
----------------------------------------- ------- ------------- ------------ -------
Market value of interest 17.8 n/a n/a
----------------------------------------- ------- ------------- ------------ -------
Bulgarian
Land
Catena Development Other
AB Plc associates Total
At 31 December 2010 GBPm GBPm GBPm GBPm
----------------------------------------- ------- ------------- ------------ -------
Interest held in ordinary share capital 29.9% 48.3% various
Revenues 4.5 0.8 0.2 5.5
----------------------------------------- ------- ------------- ------------ -------
Profit/(loss) after tax 9.4 (1.7) (0.1) 7.6
Realisation of negative goodwill
on acquisition - 0.1 - 0.1
----------------------------------------- ------- ------------- ------------ -------
Share of profit/(loss) of associates
after tax 9.4 (1.6) (0.1) 7.7
----------------------------------------- ------- ------------- ------------ -------
Assets 62.1 17.5 0.2 79.8
Liabilities (37.8) (8.1) (0.1) (46.0)
----------------------------------------- ------- ------------- ------------ -------
Net assets 24.3 9.4 0.1 33.8
Goodwill 5.3 - 1.5 6.8
----------------------------------------- ------- ------------- ------------ -------
Investments in associates 29.6 9.4 1.6 40.6
----------------------------------------- ------- ------------- ------------ -------
Market value of interest 50.6 n/a n/a
----------------------------------------- ------- ------------- ------------ -------
Catena AB
At 31 December 2011 the Group had a 29.9% (2010: 29.9%) interest
in Catena AB, a listed Swedish property company. Henry Klotz,
Executive Vice Chairman of the Company, is the Non-Executive
Chairman of Catena AB.
During 2011 Catena returned GBP19.9 million (2010: GBP9.9
million) to the Group in cash following significant realisations of
its property assets.
Bulgarian Land Development Plc
At 31 December 2011 the Group had a 48.3% (2010: 48.3%) interest
in Bulgarian Land Development Plc ("BLD"), an unlisted developer of
residential and commercial real estate in Bulgaria. Henry Klotz,
Executive Vice Chairman of the Company, is the Non-Executive
Chairman of BLD.
In December 2010, the Group received a return of capital of
GBP2.0 million from BLD by means of a tender offer buy-back.
Other associates
As described in note 25, on 31 May 2011 the Group sold the
remaining operating subsidiaries and certain associates of the
Wyatt Media Group. The entities were acquired by Nyheter 24 (a
Swedish on-line news and media business) in exchange for a 20%
interest in the enlarged Nyheter 24 group. The fair value of the
Group's interest in Nyheter 24 was determined on acquisition to be
GBP1.9 million. Henry Klotz, Executive Vice Chairman of the
Company, was appointed to the board of Nyheter 24.
The Group retains an associate interest in one former associate
of the Wyatt Media Group.
Impairment
2011
In assessing the carrying value of Catena AB, management
considered that the net asset value of Catena's balance sheet was
not representative of true fair value as it did not include the
latent development profit on Catena's remaining single development
site, Haga Norra. Furthermore, the market value of the Group's
interest in Catena exceeded its carrying value by GBP4.3 million at
31 December 2011.
BLD was carried in the balance sheet at a value equal to the
Group's share of its net assets. BLD's audited net assets, which
were prepared under IFRS, were reviewed and found not to be
impaired at 31 December 2011. Accordingly there was no requirement
to provide for further impairment in the carrying value of the
Group's interest in BLD at 31 December 2011.
The fair value of Nyheter 24 was determined on acquisition to be
GBP1.9 million and was based upon detailed forward forecasts. As
the progress to date has not been materially dissimilar from these
forecasts, the carrying value of Nyheter 24 has not been adjusted
since acquisition.
2010
In assessing the carrying value of Catena AB, management
considered that the balance sheet of Catena AB at 31 December 2010
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 2010. Furthermore, the market
value of the Group's shares in Catena AB exceeded their carrying
value by GBP21.0 million.
BLD's audited net assets at 31 December 2010, which were
prepared under IFRS, were reviewed and found not to be impaired.
Accordingly there was no requirement to provide further impairment
in the carrying value of the Group's interest in BLD at 31 December
2010.
13 Other investments
Destination of 2011 2010
Investment type Investment GBPm GBPm
------------------------ -------------------------- ---------------- ------ ------
Available-for-sale
financial investments
carried at fair
value Listed corporate bonds UK 56.0 37.5
Eurozone 12.2 24.1
Other 16.9 16.5
------ ------
85.1 78.1
Listed equity securities UK 0.5 0.5
Sweden 1.6 2.4
Other 0.1 0.1
Unlisted investments Sweden 0.4 0.4
Government securities UK 0.1 0.1
-------------------------- ----------------------------------------- ------ ------
87.8 81.6
-------------------------------------------------------------------- ------ ------
The movement of other investments, analysed based on the methods
used to measure their fair value, was as follows:
Level Level Level
1 2 3
Quoted Observable Other
market market valuation
prices data methods* Total
GBPm GBPm GBPm GBPm
------------------------------------------ -------- ------------ ----------- -------
At 1 January 2011 3.1 78.1 0.4 81.6
Additions 7.6 54.5 - 62.1
Disposals (7.7) (31.1) - (38.8)
Fair value movements recognised in
reserves on available-for-sale assets (0.4) (15.6) - (16.0)
Fair value movements recognised in
profit before tax on available-for-sale
assets (0.1) (0.7) - (0.8)
Exchange rate variations (0.2) (0.1) - (0.3)
------------------------------------------ -------- ------------ ----------- -------
At 31 December 2011 2.3 85.1 0.4 87.8
------------------------------------------ -------- ------------ ----------- -------
Level Level Level
1 2 3
Quoted Observable Other
market market valuation
prices data methods* Total
GBPm GBPm GBPm GBPm
------------------------------------------ -------- ------------ ----------- -------
At 1 January 2010 3.3 70.0 0.6 73.9
Additions 1.0 51.7 - 52.7
Disposals (2.2) (36.7) (0.2) (39.1)
Fair value movements recognised in
reserves on available-for-sale assets (0.3) 3.4 - 3.1
Fair value movements recognised in
profit before tax on available-for-sale
assets 1.0 (9.5) - (8.5)
Exchange rate variations 0.3 (0.8) - (0.5)
------------------------------------------ -------- ------------ ----------- -------
At 31 December 2010 3.1 78.1 0.4 81.6
------------------------------------------ -------- ------------ ----------- -------
Includes GBPnil (2010: GBP12.8 million) of corporate bonds
priced directly from market makers in those bonds.
* Unlisted equity shares valued using multiples from comparable
listed organisations.
Corporate Bond Portfolio
At 31 December 2011
Building
Sector Banking Insurance Societies Financials Other Total
-------------- ------------ ------------------ ----------- ----------- ----------------- ---------
Value GBP15.5m GBP31.6m GBP11.1m GBP11.0m GBP15.9m GBP85.1m
Coupon yield 11.4% 9.1% 9.8% 9.2% 12.0% 10.2%
-------------- ------------ ------------------ ----------- ----------- ----------------- ---------
Issuers KBC AXA Yorkshire Investec TUI
RBS Aviva Nationwide Euroclear SAS
Co-op Generali Man Group Swissport
Aberdeen
Lloyds Irish Life AM Corral Finans
Dresdner Swiss Life Thomas Cook
SNS Bank Old Mutual Cable & Wireless
Rothschild Storebrand HeidelbergCement
Renewable Energy
Commerzbank RL Finance Corp
Legal & General
Scottish Widows
Friends Provident
-------------- ------------ ------------------ ----------- ----------- ----------------- ---------
14 Trade and other receivables
2011 2010
GBPm GBPm
------------------- ------ ------
Current
Trade receivables 3.6 3.5
Prepayments 0.5 0.7
Accrued income 5.2 3.5
Other debtors 2.3 3.8
------------------- ------ ------
11.6 11.5
------------------- ------ ------
There was no concentration of credit risk with respect to trade
receivables as the Group had a large number of tenants spread
across the countries in which it operated.
There were no material trade and other receivables classified as
past due but not impaired (2010: none). No trade and other
receivables were interest-bearing.
Included within other debtors is GBP0.5 million (2010: GBPnil)
due after more than one year.
15 Cash and cash equivalents
2011 2010
GBPm GBPm
-------------------------- ------ ------
Cash at bank and in hand 25.7 23.9
Short-term bank deposits 29.6 24.4
-------------------------- ------ ------
55.3 48.3
-------------------------- ------ ------
At 31 December 2011, Group cash at bank and in hand included
GBP5.8 million (2010: GBP6.4 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 was as
follows:
Cash at
bank and Short-term
in hand deposits Total
At 31 December 2011 GBPm GBPm GBPm
--------------------- ---------- ----------- ------
Sterling 10.1 5.2 15.3
Euro 13.6 0.4 14.0
Swedish Krona 2.0 24.0 26.0
--------------------- ---------- ----------- ------
25.7 29.6 55.3
--------------------- ---------- ----------- ------
Cash at
bank
and in Short-term
hand deposits Total
At 31 December 2010 GBPm GBPm GBPm
--------------------- -------- ----------- ------
Sterling 13.6 7.5 21.1
Euro 9.2 0.2 9.4
Swedish Krona 1.1 16.7 17.8
--------------------- -------- ----------- ------
23.9 24.4 48.3
--------------------- -------- ----------- ------
16 Trade and other payables
2011 2010
GBPm GBPm
--------------------------------- ------ ------
Current
Trade payables 1.7 1.6
Social security and other taxes 1.9 2.1
Other payables 6.0 6.4
Accruals 11.4 12.8
Deferred income 9.4 8.9
--------------------------------- ------ ------
30.4 31.8
--------------------------------- ------ ------
17 Deferred tax
2011 2010
GBPm GBPm
----------------------------- ------- -------
Deferred tax assets:
- after more than 12 months (17.7) (11.2)
Deferred tax liabilities:
- after more than 12 months 75.0 74.5
----------------------------- ------- -------
57.3 63.3
----------------------------- ------- -------
The movement in deferred tax was as follows:
2011 2010
GBPm GBPm
----------------------------------------- ------ ------
At 1 January 63.3 59.6
Charged in arriving at profit after tax 0.1 6.4
Credited to other comprehensive income (4.6) (1.8)
Exchange rate variances (1.5) (0.9)
----------------------------------------- ------ ------
At 31 December 57.3 63.3
----------------------------------------- ------ ------
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 2011 (5.1) (6.1) (11.2)
(Credited)/charged in arriving at profit after
tax (5.5) 2.0 (3.5)
Credited to other comprehensive income - (3.1) (3.1)
Exchange rate variances - 0.1 0.1
------------------------------------------------ ----------- ------ -------
At 31 December 2011 (10.6) (7.1) (17.7)
------------------------------------------------ ----------- ------ -------
Tax losses Other Total
Deferred tax assets GBPm GBPm GBPm
------------------------------------------------ ----------- ------ -------
At 1 January 2010 (7.1) (5.6) (12.7)
Charged/(credited) in arriving at profit after
tax 2.0 (0.5) 1.5
------------------------------------------------ ----------- ------ -------
At 31 December 2010 (5.1) (6.1) (11.2)
------------------------------------------------ ----------- ------ -------
Fair value
adjustments
to
UK capital investment
allowances properties Other Total
Deferred tax liabilities GBPm GBPm GBPm GBPm
------------------------------------------ ------------ ------------- ------ ------
At 1 January 2011 10.2 62.3 2.0 74.5
(Credited)/charged in arriving at profit
after tax (0.5) 3.8 0.3 3.6
Credited to other comprehensive income - - (1.5) (1.5)
Exchange rate variances - (1.6) - (1.6)
------------------------------------------ ------------ ------------- ------ ------
At 31 December 2011 9.7 64.5 0.8 75.0
------------------------------------------ ------------ ------------- ------ ------
Fair value
adjustments
to
UK capital investment
allowances properties Other Total
Deferred tax liabilities GBPm GBPm GBPm GBPm
------------------------------------------ ------------ ------------- ------ ------
At 1 January 2010 12.1 56.5 3.7 72.3
(Credited)/charged in arriving at profit
after tax (1.9) 6.7 0.1 4.9
Credited to other comprehensive income - - (1.8) (1.8)
Exchange rate variances - (0.9) - (0.9)
------------------------------------------ ------------ ------------- ------ ------
At 31 December 2010 10.2 62.3 2.0 74.5
------------------------------------------ ------------ ------------- ------ ------
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 2011 the Group did not recognise deferred tax assets of
GBP7.2 million (2010: GBP4.7 million) in respect of losses
amounting to GBP27.9 million (2010: GBP20.2 million) which can be
carried forward against future taxable income or gains. The
majority of deferred tax assets recognised within the "other"
category relate either to deferred tax on swaps with a negative
book value or to corporate bonds carried at below cost. Losses
recognised as deferred tax assets can be carried forward without
restriction.
On 1 April 2012 the UK corporation tax rate reduces from 26% to
25%. As this has been substantively enacted at the balance sheet
date the UK deferred tax assets and liabilities have been
calculated at a rate of 25%. The impact on net assets for 2011 as a
result of this change was an increase of GBP0.2 million. It is
expected that UK tax rates will reduce to 24% by 1 April 2014. A
further 1% fall in the rate of UK tax would increase net assets by
GBP0.1 million, and increase profit after tax by GBP0.1
million.
18 Borrowings
Total
Current Non-current borrowings
At 31 December 2011 GBPm GBPm GBPm
--------------------- -------- ------------ ------------
Bank loans 150.0 399.6 549.6
Debenture loans 1.2 31.8 33.0
Zero coupon note - 10.9 10.9
Other loans - 27.5 27.5
--------------------- -------- ------------ ------------
151.2 469.8 621.0
--------------------- -------- ------------ ------------
Total
Current Non-current borrowings
At 31 December 2010 GBPm GBPm GBPm
--------------------- -------- ------------ ------------
Bank loans 81.6 461.5 543.1
Debenture loans 1.1 33.0 34.1
Zero coupon note - 9.8 9.8
Other loans 2.3 - 2.3
--------------------- -------- ------------ ------------
85.0 504.3 589.3
--------------------- -------- ------------ ------------
Arrangement fees of GBP4.1 million (2010: GBP3.0 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
3.1% and 11.2%, including margin (2010: 4.9% and 11.2%) and at
floating rates of typically LIBOR, EURIBOR or STIBOR, plus a
margin. Fixed rate margins range between 0.8% and 1.8% (2010: 0.8%
and 1.8%) and floating rate margins range between 0.8% and 3.8%
(2010: 1.0% and 3.0%). 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 (2010:
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 an annual fixed rate
of 10.8%, 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 an annual rate of
11.2%, 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
Other loans totalling GBP2.3 million were discharged during 2011
on the liquidation of the subsidiaries which issued the debt.
Previously the loans attracted variable rate interest ranging from
2.0% to 4.0% per annum, comprising LIBOR plus a margin.
On 15 April 2011, the Group issued SEK 300 million unsecured
bonds. The bonds attract a floating rate coupon of 3.75% over three
months' STIBOR and are due for repayment in 2016. After two years,
the Group has an option to redeem all outstanding bonds subject to
an early repayment premium. The bonds were listed on the NASDAQ OMX
Stockholm on 5 July 2011.
Loan covenants
There were no covenant breaches at 31 December 2011 or at 31
December 2010.
The maturity profile of the carrying amount of the Group's
borrowings was as follows:
Debenture Zero coupon Other
Bank loans loans note loans Total
At 31 December 2011 GBPm GBPm GBPm GBPm GBPm
---------------------------------- ----------- ---------- ------------ ------- --------
Within one year or on demand 151.0 1.2 - - 152.2
More than one but not more than
two years 71.9 1.3 - - 73.2
More than two but not more than
five years 199.4 5.0 - 28.0 232.4
More than five years 130.9 25.5 10.9 - 167.3
---------------------------------- ----------- ---------- ------------ ------- --------
553.2 33.0 10.9 28.0 625.1
Unamortised issue costs (3.6) - - (0.5) (4.1)
---------------------------------- ----------- ---------- ------------ ------- --------
Borrowings 549.6 33.0 10.9 27.5 621.0
Less amount due for settlement
within 12 months (150.0) (1.2) - - (151.2)
---------------------------------- ----------- ---------- ------------ ------- --------
Amounts due for settlement after
12 months 399.6 31.8 10.9 27.5 469.8
---------------------------------- ----------- ---------- ------------ ------- --------
Debenture Zero coupon Other
Bank loans loans note loans Total
At 31 December 2010 GBPm GBPm GBPm GBPm GBPm
---------------------------------- ----------- ---------- ------------ ------- -------
Within one year or on demand 82.4 1.1 - 2.3 85.8
More than one but not more than
two years 126.2 1.2 - - 127.4
More than two but not more than
five years 204.4 4.5 - - 208.9
More than five years 133.1 27.3 9.8 - 170.2
---------------------------------- ----------- ---------- ------------ ------- -------
546.1 34.1 9.8 2.3 592.3
Unamortised issue costs (3.0) - - - (3.0)
---------------------------------- ----------- ---------- ------------ ------- -------
Borrowings 543.1 34.1 9.8 2.3 589.3
Less amount due for settlement
within 12 months (81.6) (1.1) - (2.3) (85.0)
---------------------------------- ----------- ---------- ------------ ------- -------
Amounts due for settlement after
12 months 461.5 33.0 9.8 - 504.3
---------------------------------- ----------- ---------- ------------ ------- -------
The interest rate risk profile of the Group's fixed rate
borrowings was as follows:
At 31 December At 31 December
2011 2010
---------- -------------------------- --------------------------
Weighted Weighted Weighted Weighted
average average average average
fixed period fixed period
rate of for which rate of for which
financial rate is financial rate is
liabilities fixed liabilities fixed
% Years % Years
---------- ------------- ----------- ------------- -----------
Sterling 9.6 11.1 6.5 5.6
Euro 5.1 2.3 4.3 2.2
---------- ------------- ----------- ------------- -----------
The interest rate risk profile of the Group's floating rate
borrowings was as follows:
At 31 December 2011 At 31 December 2010
---------------------------------- ----------------------------------
Average Average
% of net capped % of net capped
floating interest Average floating interest Average
rate loans rate tenure rate loans rate tenure
capped % Years capped % Years
--------------- ------------ ---------- -------- ------------ ---------- --------
Sterling 66 3.7 2.2 56 2.7 5.0
Euro 75 3.2 3.8 86 4.7 1.0
Swedish Krona 53 2.6 1.9 100 2.6 2.9
Other - n/a n/a - n/a n/a
--------------- ------------ ---------- -------- ------------ ---------- --------
The carrying amounts of the Group's borrowings are denominated
in the following currencies:
Fixed Floating
rate rate
financial financial
liabilities liabilities Total
At 31 December 2011 GBPm GBPm GBPm
--------------------- ------------- ------------- ------
Sterling 60.2 183.5 243.7
Euro 73.2 239.6 312.8
Swedish Krona - 58.7 58.7
Other - 5.8 5.8
--------------------- ------------- ------------- ------
133.4 487.6 621.0
--------------------- ------------- ------------- ------
Fixed Floating
rate rate
financial financial
liabilities liabilities Total
At 31 December 2010 GBPm GBPm GBPm
--------------------- ------------- ------------- ------
Sterling 155.2 91.6 246.8
Euro 117.6 185.8 303.4
Swedish Krona - 33.3 33.3
Other - 5.8 5.8
--------------------- ------------- ------------- ------
272.8 316.5 589.3
--------------------- ------------- ------------- ------
The carrying amounts and fair values of the Group's borrowings
are as follows:
Carrying amounts Fair values
------------------- --------------
2011 2010 2011 2010
GBPm GBPm GBPm GBPm
------------------------ --------- -------- ------ ------
Current borrowings 151.2 85.0 151.2 85.0
Non-current borrowings 469.8 504.3 501.1 530.2
------------------------ --------- -------- ------ ------
621.0 589.3 652.3 615.2
------------------------ --------- -------- ------ ------
Arrangement fees of GBP4.1 million (2010: GBP3.0 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:
2011 2010
GBPm GBPm
--------------------------- ------ ------
Floating rate:
- expiring within one year 0.6 -
- expiring after one year - -
--------------------------- ------ ------
0.6 -
--------------------------- ------ ------
19 Derivative financial instruments
2011 2011 2010 2010
Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm
------------------------------------ -------- ------------- -------- -------------
Non-current
Interest rate swaps - (9.1) - (19.3)
Interest rate caps 1.5 - 4.6 -
------------------------------------ -------- ------------- -------- -------------
1.5 (9.1) 4.6 (19.3)
------------------------------------ -------- ------------- -------- -------------
Current
Currency options 0.4 - - -
Forward foreign exchange contracts - (0.1) - (1.0)
------------------------------------ -------- ------------- -------- -------------
0.4 (0.1) - (1.0)
------------------------------------ -------- ------------- -------- -------------
1.9 (9.2) 4.6 (20.3)
------------------------------------ -------- ------------- -------- -------------
The valuation methods used to measure the fair value of all
derivative financial instruments were derived from inputs which
were either observable as prices or derived from prices (Level
2).
There were no derivative financial instruments accounted for as
hedging instruments.
Interest rate swaps
The aggregate notional principal of interest rate swap contracts
at 31 December 2011 was GBP50.0 million (2010: GBP133.5 million).
The average period to maturity of these interest rate swaps was 4.1
years (2010: 2.8 years).
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 2011
the Group had GBP19.9 million of outstanding net foreign exchange
contracts (2010: GBP27.0 million).
Currency options
The Group uses currency options from time to time to hedge the
foreign exchange risk relating to the translation of the Group's
net investment in overseas subsidiaries. At 31 December 2011 the
Group had purchased options to sell EUR90.0 million in exchange for
sterling at an average exchange rate of GBP1:EUR1.2876 (2010:
none).
20 Share capital
Number
---------------------------------------
Ordinary
Ordinary shares Total
shares Total in Treasury ordinary
in Treasury ordinary circulation shares shares
circulation shares shares GBPm GBPm GBPm
------------------------------- ------------- ---------- ------------ ------------- --------- ----------
At 1 January 2011 46,588,244 4,793,000 51,381,244 11.7 1.2 12.9
Cancelled following tender
offers (1,624,530) - (1,624,530) (0.4) - (0.4)
Purchase of own shares:
- pursuant to market purchase (10,103) 10,103 - - - -
------------------------------- ------------- ---------- ------------ ------------- --------- ----------
At 31 December 2011 44,953,611 4,803,103 49,756,714 11.3 1.2 12.5
------------------------------- ------------- ---------- ------------ ------------- --------- ----------
Number
----------------------------- ---------------------------------------
Ordinary
Ordinary shares Total
shares Total in Treasury ordinary
in Treasury ordinary circulation shares shares
circulation shares shares GBPm GBPm GBPm
----------------------------- ------------- ---------- ------------ ------------- --------- ----------
At 1 January 2010 48,024,256 5,000,000 53,024,256 12.0 1.3 13.3
Cancelled following tender
offer (1,643,012) - (1,643,012) (0.4) - (0.4)
Ordinary shares issued from
treasury shares 207,000 (207,000) - 0.1 (0.1) -
----------------------------- ------------- ---------- ------------ ------------- --------- ----------
At 31 December 2010 46,588,244 4,793,000 51,381,244 11.7 1.2 12.9
----------------------------- ------------- ---------- ------------ ------------- --------- ----------
Ordinary shares have a nominal value of 25 pence each.
21 Tender offer buy-backs
A tender offer by way of a Circular dated 18 March 2011 for the
purchase of 1 in 47 shares at 725 pence per share was completed in
April. It returned GBP7.2 million to shareholders, equivalent to
15.4 pence per share.
A tender offer by way of a Circular dated 22 August 2011 for the
purchase of 1 in 72 shares at 700 pence per share was completed in
September. It returned GBP4.4 million to shareholders, equivalent
to 9.7 pence per share.
A further tender offer will be put to shareholders in April 2012
for the purchase of 1 in 42 shares at a price of 735 pence per
share which, if approved, will return GBP7.9 million to
shareholders, equivalent to 17.5 pence per share.
22 share premium
2011 2010
GBPm GBPm
--------------------------------------------- ------ ------
At 1 January 71.5 70.5
Ordinary shares issued from treasury shares - 1.0
--------------------------------------------- ------ ------
At 31 December 71.5 71.5
--------------------------------------------- ------ ------
23 Other reserves
Capital Cumulative
redemption translation Fair value Other
reserve reserve reserve reserves Total
GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------------ ------------- ----------- ---------- -------
At 1 January 2011 20.8 51.4 2.2 28.1 102.5
Purchase of own shares:
- cancellation pursuant to tender
offer 0.4 - - - 0.4
Exchange rate variances - (5.0) - - (5.0)
Available-for-sale financial
assets:
- net fair value losses in the
year - - (16.8) - (16.8)
- deferred tax thereon - - 4.6 - 4.6
Revaluation of owner-occupied
property - - 0.3 - 0.3
----------------------------------- ------------ ------------- ----------- ---------- -------
At 31 December 2011 21.2 46.4 (9.7) 28.1 86.0
----------------------------------- ------------ ------------- ----------- ---------- -------
Capital Cumulative
redemption translation Fair value Other
reserve reserve reserve reserves Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------------ ------------- ----------- ---------- ------
At 1 January 2010 20.4 50.7 5.8 28.1 105.0
Purchase of own shares:
- cancellation pursuant to tender
offer 0.4 - - - 0.4
Exchange rate variances - 1.1 - - 1.1
Share of other comprehensive income
of associates - (0.4) - - (0.4)
Available-for-sale financial assets:
- net fair value gains in the
year - - (5.4) - (5.4)
- deferred tax thereon - - 1.8 - 1.8
-------------------------------------- ------------ ------------- ----------- ---------- ------
At 31 December 2010 20.8 51.4 2.2 28.1 102.5
-------------------------------------- ------------ ------------- ----------- ---------- ------
The cumulative translation reserve comprises the aggregate
effect of translating net assets of overseas subsidiaries into
sterling since acquisition.
The fair value reserve comprises the aggregate movement in the
value of corporate bonds, other available-for-sale assets and
owner-occupied property since acquisition, net of deferred tax.
The amount classified as other reserves was created prior to
listing in 1995 on a Group reconstruction and is considered to be
non-distributable.
24 Cash generated from operations
2011 2010
GBPm GBPm
----------------------------------------------------------- ------- -------
Operating profit 70.2 88.2
Adjustments for:
Net movements on revaluation of investment properties (18.0) (30.1)
Depreciation and amortisation 0.2 0.3
Profit on sale of subsidiaries and associates (2.2) -
Net gain on sale of corporate bonds and other investments (0.5) (9.3)
Share-based payment expense 0.2 0.1
Non-cash rental income (0.2) -
Revaluation of currency options 0.1 -
Changes in working capital:
Decrease in debtors 2.8 0.5
Increase in creditors 1.5 1.5
----------------------------------------------------------- ------- -------
Cash generated from operations 54.1 51.2
----------------------------------------------------------- ------- -------
25 Business disposals
Wyatt Media Group
On 31 May 2011, the Group disposed of its interests in Wyatt
Media Group, comprising five subsidiaries and two associates. All
of the corporate entities sold were previously reported in the
"Other Investments" division. The entities were disposed of in a
share-for-share exchange with Nyheter 24 (a Swedish on-line news
and media business) and the Group received a 20% interest in
Nyheter 24 following the transaction. In addition the Group
received a GBP0.5 million convertible loan note.
Wyatt Media Group
------------------------------------------------- --------------------
May-11 Dec-10
GBPm GBPm
------------------------------------------------- --------- ---------
Net assets disposed of:
Investments in associates 1.5 1.4
Property, plant and equipment 0.1 0.1
Trade and other receivables 0.4 0.9
Cash and cash equivalents 0.1 0.2
Trade and other payables (0.5) (0.9)
------------------------------------------------- --------- ---------
1.6 1.7
Gain on disposal of subsidiaries and associates 0.5
Costs of disposal 0.3
------------------------------------------------- ---------
Total consideration 2.4
------------------------------------------------- ---------
Satisfied by:
Convertible loan notes received 0.5
Shares in Nyheter 24 (note 12) 1.9
------------------------------------------------- ---------
2.4
------------------------------------------------- ---------
Net cash inflow arising on disposal:
Cash consideration -
Cash and cash equivalents disposed of (0.1)
------------------------------------------------- ---------
(0.1)
------------------------------------------------- ---------
2011 2010
Profit on disposal of subsidiaries and associates GBPm GBPm
---------------------------------------------------- ------ ------
Disposal of the Wyatt Media Group 0.5 -
Release of provisions and guarantees in relation to
corporate disposals made in prior years 1.7 -
---------------------------------------------------- ------ ------
2.2 -
---------------------------------------------------- ------ ------
26 RELATED PARTY TRANSACTIONS
During the year two Group companies, Forvaltnings AB Klio and
Vanerparken Investment AB, rented office space from a company owned
by Sten Mortstedt, Executive Chairman of CLS Holdings plc. The
total payable in the year by Forvaltnings AB Klio was GBP19,000
(2010: GBP36,000) and by Vanerparken Investment AB was GBP19,000
(2010: GBPnil). A company owned by Sten Mortstedt purchased
accountancy services from both Forvaltnings AB Klio and Vanerparken
Investment AB during the year, amounting to GBP5,000 (2010:
GBP9,000) in respect of Forvaltnings AB Klio and GBP5,000 (2010:
GBPnil) in respect of Vanerparken Investment AB.
In relation to these transactions GBPnil (2010: GBP36,000) was
payable by Forvaltnings AB Klio and GBPnil (2010: GBPnil) was
payable by Vanerparken Investment AB at the balance sheet date.
A Group company, CLSH Management Limited, provided accounting
services to Bulgarian Land Development Plc, an associate of the
Group, for which a charge of GBP48,000 was made in the year (2010:
GBP16,000), of which GBP15,000 (2010: GBP16,000) remained
outstanding at the balance sheet date.
27 EVENT AFTER THE BALANCE SHEET DATE
On 12 January 2012, the Group acquired a 16.64% interest in Cood
Investments AB ("Cood"), an unlisted residential property company
specialising in holiday cottages and cabins on vacation sites in
Sweden. Cood acquires and operates the sites, whilst selling the
cabins as vacation homes. The purchase price was GBP4.1 million,
and the Group also provided to Cood up to GBP8.0 million of lending
facilities at market rates. This was a related party transaction
as: first, the trust in which Sten Mortstedt is beneficially
interested simultaneously acquired at the same price per share an
8.39% in, and provided lending facilities on the same terms to,
Cood; and, second, Christer Sandberg, who is a director of certain
CLS Group companies, owns 7.5% of the enlarged equity of Cood.
glossary of terms
Administration Cost Ratio
Recurring administration expenses of the Investment Property
operating segment expressed as a percentage of net rental
income
ADJUSTED NET ASSETS or adjusted shareholders' funds
Net assets excluding the fair value of financial derivatives,
deferred tax on revaluations, and goodwill arising as a result of
deferred tax
ADJUSTED NET GEARING
Net debt expressed as a percentage of adjusted net assets
ADJUSTED SOLIDITY
Adjusted net assets expressed as a percentage of adjusted total
assets
ADJUSTED TOTAL ASSETS
Total assets excluding deferred tax assets
CONTRACTED RENT
Annual contracted rental income after any rent-free periods have
expired
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, change in fair value of
derivatives and foreign exchange variances
DILUTED EARNINGS PER SHARE
Profit after tax divided by the diluted weighted average number
of ordinary shares
DILUTED NET ASSETS
Equity shareholders' funds increased by the potential proceeds
from issuing those shares issuable under employee share schemes
DILUTED NET ASSETS PER SHARE OR DILUTED NET ASSET VALUE
Diluted net assets divided by the diluted number of ordinary
shares
DILUTED NUMBER OF ORDINARY SHARES
Number of ordinary shares in circulation at the balance sheet
date adjusted to include the effect of potential dilutive shares
issuable under employee share schemes
DILUTED WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES
Weighted average number of ordinary shares in issue during the
period adjusted to include the effect of potential weighted average
dilutive shares issuable under employee share schemes
EARNINGS PER SHARE
Profit after tax divided by the weighted average number of
ordinary shares in issue in the period
EPRA
European Public Real Estate Association
EPRA EARNINGS PER SHARE
Profit after tax, but excluding net gains or losses from fair
value adjustments on investment properties, profits or losses on
disposal of investment properties and other non-current investment
interests, impairment of goodwill and intangible assets, movements
in fair value of derivative financial instruments and their related
current and deferred tax
EPRA NET ASSETS
Diluted net assets excluding the fair value of financial
derivatives, deferred tax on revaluations, and goodwill arising as
a result of deferred tax
EPRA NET ASSETS PER SHARE
EPRA net assets divided by the diluted number of ordinary
shares
EPRA net initial yield
Annual passing rent less net service charge costs on investment
properties expressed as a percentage of the investment property
valuation after adding purchasers' costs
EPRA topped up net initial yield
Annual net rents on investment properties expressed as a
percentage of the investment property valuation after adding
purchasers' costs
EPRA TRIPLE NET ASSETS
EPRA net assets adjusted to reflect the fair value of debt and
derivatives and to include the fair value of deferred tax on
property revaluations
EPRA TRIPLE NET ASSETS PER SHARE
EPRA triple net assets divided by the diluted number of ordinary
shares
ESTIMATED RENTAL VALUE (ERV)
The market rental value of lettable space as estimated by the
Group's valuers
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
NET DEBT
Total borrowings less cash and short-term deposits
NET GEARING
Net debt expressed as a percentage of 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 before any rent-free periods have expired
Property LOAN TO VALUE
Property borrowings expressed as a percentage of the market
value of the property portfolio
RECURRING INTEREST COVER
The aggregate of group revenue less costs plus share of results
of associates, divided by the aggregate of interest expense and
amortisation of issue costs of debt, less interest income
RENT ROLL
Contracted rent
SOLIDITY
Equity shareholders' funds expressed as a percentage of total
assets
TOTAL SHAREHOLDER RETURN
For a given number of shares, the aggregate of the proceeds from
tender offer buy-backs and change in the 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
True equivalent yield
The capitalisation rate applied to future cash flows to
calculate the gross property value, as determined by the Group's
external valuers
This information is provided by RNS
The company news service from the London Stock Exchange
END
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