TIDMCLI
RNS Number : 7303R
CLS Holdings PLC
10 March 2021
CLS HOLDINGS PLC
("CLS", the "Company" or the "Group")
ANNOUNCES ITS ANNUAL RESULTS
FOR THE YEARED 31 DECEMBER 2020
Resilient performance - well placed for the future
CLS is a leading FTSE250 office space specialist and a
supportive, progressive and sustainably focused commercial
landlord, with a c.GBP2.2 billion portfolio in the UK, Germany and
France, offering geographical diversification with local presence
and knowledge. For the year ended 31 December 2020, the Group has
delivered the following results:
31 December Change (%)
2020 2019
---------------------------------------- ------ ----- ----------
EPRA Net Tangible Assets ("NTA") per
share (pence) 345.2 326.3 5.8
EPRA Net Asset Value ("NAV") per share
(pence) 350.1 329.2 6.3
Basic NAV per share (pence) 311.9 295.1 5.7
Contracted rents (GBP'million) 107.9 109.3 (1.3)
Profit before tax (GBP'million) 96.5 159.0 (39.3)
EPRA Earnings per share ("EPS") (pence) 12.2 12.0 1.7
Basic EPS from continuing operations
(pence) 19.0 33.3 (42.9)
Dividend per share (pence) 7.55 7.40 2.0
---------------------------------------- ------ ----- ----------
Note: A reconciliation of statutory to alternative performance
measures is set out in Note 5 to the financial statements
Fredrik Widlund, Chief Executive Officer of CLS, commented:
"The strengths of our diversified business model and close
relationships with our tenants proved invaluable during a
challenging year and led to the delivery of positive financial
results with EPRA EPS and EPRA NTA both increasing. Our active
management approach resulted in our country teams in the UK,
Germany and France delivering on leasing transactions,
refurbishments and strong rent collection despite the backdrop of
the pandemic.
"Our portfolio is strategically well placed for the future,
concentrated on great locations and offering high quality, flexible
space and leases. CLS' balance sheet remains strong and once the
six most recent acquisitions complete, which were exchanged at the
end of 2020 and the start of 2021, contracted annualised rent will
increase to GBP115 million."
FINANCIAL HIGHLIGHTS
-- EPRA NTA up 5.8% and EPRA NAV up 6.3% primarily due to
increased EPRA earnings, and portfolio valuation gains and profit
on disposal of GBP36.8 million (2019: GBP52.5 million)
-- Profit before tax down 39.3% to GBP96.5 million (2019:
GBP159.0 million) and basic EPS down 42.9% due to lower portfolio
valuation gains and profit on disposal of our shareholding in
Catena (2019: GBP38.7 million), sold in September 2019
-- EPRA EPS was up 1.7%, which was achieved through strong rent
collection, operational cost savings and favourable foreign
exchange movements
-- A proposed final dividend of 5.20 pence per share to be paid
on 29 April 2021, resulting in a total 2020 dividend of 7.55 pence
per share, an increase of 2.0% (2019: 7.40 pence per share) and
total accounting return for the year of 8.1% (2019: 9.3%)
OPERATIONAL HIGHLIGHTS
-- Rent collection remained strong in 2020 with 99% collected
(2019: 98%) and 98% of first quarter 2021 contracted rent due now
collected
-- Net rental income flat at GBP109.8 million (2019: GBP110.6
million) with rental increases from net acquisitions offset by
Covid-19 related weakness across our hotel and student
accommodation
-- Portfolio valuation up 1.4% in local currency, largely driven
by Germany up 8.6% through positive letting activity and other
asset management with France up 0.3% and the UK down 2.6%
-- Acquired eleven properties for GBP202.7 million (4.7% net
initial yield). Three of the acquisitions will complete in the
first quarter of 2021 for GBP89.9 million. Three further
acquisitions in Germany which exchanged at the start of 2021 for
GBP79.2 million will complete by the end of May 2021
-- Disposed of eight properties for GBP69.7 million (4.0% net
initial yield), two of which will complete in the first half of
2021 for GBP5.9 million. In February 2021, exchanged on the sale of
a UK property at GBP6.1 million, which is over 20% above the 31
December 2020 valuation
-- Completed 116 lease deals securing GBP13.6 million of annual
rent at 8.2% above 31 December 2019 estimated rental values
-- Vacancy rate has increased to 5.3% (2019: 4.0%) due to the
current economic uncertainty which has impacted the pace of new
lettings
Financing
-- Weighted average cost of debt at 31 December 2020 down 14
basis points to 2.28% (2019: 2.42%)
-- Balance sheet loan-to-value as at 31 December 2020 at 33.7%
(2019: 31.4%) reflecting net acquisitions during the year. Gross
debt of GBP970.8 million (2019: GBP891.7 million) with cash of
GBP235.7 million (2019: GBP259.4 million) and GBP50 million (2019:
GBP50 million) of undrawn facilities
-- First 'green' loan secured over 12 UK properties for GBP154.0
million at 2.62% fixed interest rate, split equally between 10-year
and 12-year tranches. This transaction also significantly
contributed to the increase in weighted average debt maturity to
4.6 years (2019: 3.5 years)
-- In 2020 financed, refinanced or extended GBP261.5 million of
debt at an average of 2.08%, including GBP231.3 million fixed at
2.16%, and repaid GBP59.0 million of debt
-- The loan portfolio as at 31 December 2020 had 84% at fixed rates (31 December 2019: 77%)
ENVIRONMENTAL, SOCIAL AND Governance
-- On 15 December 2020, CLS was very sad to report that Mr Sten
Mortstedt, founder and Executive Director passed away. He will be
deeply missed by all at CLS
-- In March and April 2020, Bill Holland and Denise Jagger
became the chairs of the Audit and Remuneration Committees
respectively
-- Throughout 2020 the welfare of all stakeholders has been
prioritised. It was pleasing that this prioritisation and our
supportive culture were reflected in the very positive staff
survey
-- GRESB score increased to 72 (2019: 70) and all managed
buildings have been independently certified by BREEAM to assess
their sustainability rating and highlight areas for improvement
-- Net Zero Carbon pathway target to be announced later in 2021
once detailed analysis concluded
Dividend Timetable
Further to this announcement, in which the Board recommended a
final dividend of 5.20 pence per ordinary share, the Company
confirmed its dividend timetable as follows:
Announcement 10 March
date 2021
Ex-Dividend 25 March
date 2021
---------
Record date 26 March
2021
---------
Payment date 29 April
2021
---------
- ends -
Results presentation
A presentation for analysts and investors will be held by
webcast and conference call on Wednesday 10 March 2021 at 10:30am
followed by Q&A. Questions can be submitted either online via
the webcast or to the operator on the conference call.
Webcast: The live webcast will be available here:
https://secure.emincote.com/client/cls/cls002
Conference call: In order to dial in to the presentation via
phone, please register at the following link and you will be
provided with dial-in details and a unique access code:
https://secure.emincote.com/client/cls/cls002/vip_connect
For further information, please contact:
CLS Holdings plc
(LEI: 213800A357TKB2TD9U78)
www.clsholdings.com
Fredrik Widlund, Chief Executive Officer
Andrew Kirkman, Chief Financial Officer
+44 (0)20 7582 7766
Liberum Capital Limited
Richard Crawley
Jamie Richards
+44 (0)20 3100 2222
Panmure Gordon
Hugh Rich
+44 (0)20 7886 2733
Elm Square Advisers Limited
Jonathan Gray
+44 (0)20 7823 3695
Smithfield Consultants (Financial PR)
Alex Simmons
Rob Yates
+44 (0)20 3047 2546
Forward-looking statements
This document may contain certain 'forward-looking statements'.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances.
Actual outcomes and results may differ materially from those
expressed or implied by such forward-looking statements. Any
forward-looking statements made by or on behalf of CLS speak only
as of the date they are made and no representation or warranty is
given in relation to them, including as to their completeness or
accuracy or the basis on which they were prepared. Except as
required by its legal or statutory obligations, the Company does
not undertake to update forward-looking statements to reflect any
changes in its expectations with regard thereto or any changes in
events, conditions or circumstances on which any such statement is
based. Information contained in this document relating to the
Company or its share price, or the yield on its shares, should not
be relied upon as an indicator of future performance.
Chairman's letter
Dear shareholder,
The Covid-19 pandemic has had a profound effect globally in 2020
and CLS has responded quickly and dynamically to safeguard our
staff and other stakeholders. All of our buildings have implemented
safety measures to ensure that they are Covid-19 compliant so as to
support our tenants, many who conduct essential work. A fuller
description of the measures we have taken is included in the annual
report.
In December, the sad news reached us that Sten Mortstedt, the
founder of CLS, had died.
Sten founded CLS in the mid-1980s, listed the Company on the
London Stock Exchange in 1994 and was instrumental in building CLS
to the size and stature it now commands. I had the honour of
working with Sten for many years and I am, along with the whole
Company, deeply saddened by his loss. A tribute to Sten is included
on the inside back cover of this annual report.
Performance and our property portfolio
In this challenging market, the benefits of our diversified
approach and clear strategy again shone through in our positive
financial and operational performance. EPRA NTA per share increased
by 5.8% to 345.2 pence per share (2019: 326.3 pence) and total
accounting return, including the dividends paid in the year, was
8.1% (2019: 9.4%). The value of our property portfolio rose by:
GBP68.5 million from acquisitions net of disposals; GBP54.9 million
as a result of the weakening of sterling by 5.4%; GBP17.9 million
capital expenditure; and GBP29.8 million from net valuation
increases of 1.4% in local currencies with Germany again the star
performer delivering an uplift of 8.6%. Our property portfolio,
which is now worth c.GBP2.2 billion, is split 52% in the UK, 34% in
Germany and 14% in France.
Environmental, Social and Governance
In 2020, we completed the drafting of our new sustainability
strategy which will come into effect in 2021. The strategy is built
around investing in properties, working in partnerships with
stakeholders and being a responsible business to deliver positive
environmental impacts and socio-economic outcomes. In 2021, we will
complete our technical portfolio assessment in order to launch our
Net Zero Carbon pathway in our sustainability report later this
year with a realistically achievable delivery date. More detail is
set out in the annual report.
This year was clearly more challenging for employees in terms of
personal interaction but we put significant emphasis on ensuring
employee well-being, albeit necessarily much was done on a remote
basis. Our concentration on our employees was reflected in the
favourable staff survey results, which are discussed further in the
annual report. There were several changes in the membership of the
Board through retirements and appointments in 2019. In 2020 we
implemented the changes in committee composition and chairs
previously announced to continue to refresh and improve the balance
and skills of the Board and committees.
A critical focus of the Group is to ensure that all stakeholders
are considered in our decision-making and the annual report gives
examples of how we discharged our S172 obligations when making
significant decisions across our business model.
Looking to the future
The biggest unknown, and biggest debate, in our segment of the
property market is around the future of the office. The section in
the following pages provides an update to the thoughts we set in
our half-year results. We remain convinced that offices have a
vibrant future alongside working from home and that the benefits of
offices in terms of collaboration, culture and employee well-being,
amongst others, will be rediscovered and reinforced when we return
en masse.
As highlighted, CLS' diversified approach in terms of countries,
tenants and financing continues to serve the business well and is
being maintained. Our strategy remains clear and we believe our
focus on high-quality, non-prime offices in major cities in the
three largest European economies continues to be the right
approach. We have seen very little impact from the recent Brexit
trade deal and the UK exit from the EU but are keeping a close
watch on any developments.
Dividends
The interim dividend in September 2020 was held flat with the
prior year whilst the economic impacts of Covid-19 were assessed.
As a result of the strong full-year financial results and CLS'
favourable strategic positioning, the Board has decided to propose
an increase in the final dividend of 3% resulting in a 2% increase
in the full-year dividend.
Thank you
CLS places particular emphasis on, and takes great pride in, our
positive culture and excellent staff which we have highlighted on
many occasions. However, it is often only through adversity that
the real benefits of these are demonstrated. In 2020, the
performance and dedication of our colleagues was outstanding and
remains so as the pandemic continues. On behalf of the Board, I
offer our heartfelt thanks for all of your efforts.
Lennart Sten
Non-Executive Chairman
10 March 2021
Chief Executive's review
This was an unusual and challenging year for all of us but two
things particularly stood out for CLS in addition to ensuring that
employees were safe and our buildings compliant with Covid-19
safety measures. Firstly, our focus on our tenants, and the
strength of these relationships, was demonstrated in our strong
rent collection. Secondly, the benefits of our diversified business
model were again reflected in our results as the responses to the
pandemic and consequential initial economic recovery differed by
country.
Throughout we have ensured the welfare of our staff, who have
been exemplary in their commitment to CLS while ensuring that all
our buildings have remained open. The robustness of our operational
set-up allowed us to achieve a total accounting return of 8.1%,
resulting in the Board proposing an increase in the final dividend
of 3.0%.
Long-term investor
The refocusing of CLS in the last two years left the CLS
portfolio well placed for the future. The transactions executed in
2020 were therefore largely strategic, albeit also somewhat
opportunistic, as well as some minor tidying-up.
In 2020, we completed eight acquisitions (six properties and two
floors) for GBP112.8 million (two of which had exchanged in 2019
for GBP32.8 million) and completed on the disposal of six
properties for GBP63.8 million (four of which had exchanged in 2019
for GBP10.3 million). This resulted in net additions of GBP68.5
million.
In the UK, we completed the acquisitions of properties in Harrow
and Staines by the end of February which had exchanged in 2019 for
GBP32.8 million. The remaining acquisitions were three properties
acquired from Aviva Investors for GBP59.7 million at a net initial
yield of 5.9%. A full case study is set out in the annual
report.
In Germany, we completed on the acquisition of one building in
Nuremberg for GBP16.3 million which is let to Deutsche Telekom for
seven years on a yield of 5.8% providing excellent cash conversion
over its financing cost. In December 2020 and January 2021, we
exchanged on a further five buildings in Berlin, Dusseldorf, Essen
and Hamburg, for GBP152.3 million. All are expected to complete in
the first half of 2021 and are expected to result in a net cash
outflow of around GBP70 million after financing.
The two largest disposals, which were in Germany at
Albert-Einstein-Ring in Hamburg and Bismarkallee in Freiburg for
GBP53.6 million (29.8% above the December 2019 valuations), are the
subject of Strategy in action case studies in the annual report but
were essentially opportunistic with buyers offering significant
premiums to the book values. Two further small disposals for GBP5.9
million, 10.3% above the December 2019 valuation, were exchanged in
December and will complete in the first half of 2021. In February
2021, we exchanged on the disposal of Falcon House in Hounslow,
London for GBP6.1 million. The disposal is at a 21.8% premium to
the year end valuation and is forecast to complete in the first
half of 2021.
It was especially important to maintain our acquisition
discipline this year which resulted in our selective approach. Our
key criteria are multi-let buildings with good transport links,
which provide opportunities for active asset management.
Geographically, the major cities in Germany and Greater London in
the UK remain our primary focus for acquisitions. In France, we
take a more cautious approach given lettings and rental growth
prospects but see value for the right properties and location, and
we continue to acquire further floors in fractional ownership
buildings spending GBP3.9 million in 2020.
In 2020 we made good progress on all the limited number of
developments and major refurbishments which we are pursuing. These
fall into three categories. Firstly, in the UK, we are pressing
ahead with a development and a major refurbishment after both
schemes received full planning permission in 2020; Vauxhall Walk, a
new 28,500 sq. ft (2,648 sqm) 10-floor, office development next to
our Spring Mews property; and a major refurbishment of 55,600 sq.
ft (5,165 sqm) across five floors at 9 Prescot Street, Aldgate.
Both are expected to achieve BREEAM Excellent ratings.
Secondly, we received planning permission in May for Lichthof, a
new office building of at least 141,000 sq. ft (13,099 sqm) over
six floors which replaces an existing office building in
Fasanenhof, Stuttgart and we are now seeking a substantial pre-let
before committing to the scheme.
Finally, we received resolution to grant planning permission for
a six-floor (43,000 sq. ft (3,995 sqm)) office development in
Maidenhead and are pushing this forward to full planning permission
at which point we will assess options and timing for this
building.
As described later on, we also have opportunities to add
significant value by expanding the office capacity at two
properties in Germany, as well as an ongoing refurbishment
programme across the portfolio to drive further rental growth.
Asset and property management
In last year's annual report, I wrote that "The value that our
in-house teams create, and the closeness and interaction with our
tenants, are some of the most important foundations for our
long-term success. We have seen investors come and go in our
markets, often motivated by short term trends or the type of
properties that are in vogue at present. We do not believe in that
approach. Our clear focus on offices, our tenants and the
environment in our buildings builds long-term relationships that
encourage retention and keep vacancy low." I deliberately repeat
this as 2020 clearly demonstrated the value of our tenant
relationships through the 99% of rent (2019: 98%) which was
collected.
At 31 December 2020, the value of the portfolio increased by
1.4% in local currencies as a result of revaluation uplifts. Our
German business, which was the stand-out performer again, saw an
increase of 8.6% driven by rental growth with like-for-like ERVs
growing 3.1% and hardening of capital rates. Although, these bare
facts do not capture the efforts of the team in securing notable
leases and lease extensions, as well as advancing roof-top
extension schemes in Bochum and Adershofer-Tor. In the UK,
like-for-like values decreased by 2.3% driven by increased vacancy
offsetting ERV growth of 1.6%. However, when acquisition costs of
c.6.8% on the GBP92.5 million UK acquisitions completed in the year
are taken into account, overall UK values fell by 2.6%. Values in
France increased by 0.3% due to ERV growth of 0.2% and hardening
capital rates. In aggregate, the fair value uplifts of the
portfolio added 6.8 pence per share to EPRA NTA (GBP27.9
million).
The overall Group vacancy rate in 2020 increased to 5.3% (2019:
4.0%) which is above our target of 5%. Letting activity was very
much tied to each country's economic activity and the level of
opening up of the economy with letting activity being therefore
ranked as Germany, France and then the UK. We are maintaining this
5% target as it gives an appropriate balance between capturing
income and cash flow, as well as giving sufficient opportunity to
capture rental growth through new lettings, but recognise that in
the current environment, this may not been achieved in the
short-term.
In Germany, the net initial yield fell to 4.3% (31 December
2019: 5.0%) and the vacancy rate fell to 4.0% (31 December 2019:
4.3%) as a result of favourable letting activity and the sale of
Albert-Einstein-Ring in Hamburg which had greater vacancy. In the
UK, the net initial yield fell to 5.2% (31 December 2019: 5.4%) and
the vacancy rate increased to 6.2% (31 December 2019: 4.1%) as a
result of a number of lease expiries which have yet to be re-let.
In France, the net initial yield fell to 4.7% (31 December 2019:
5.2%) while vacancies rose to 5.1% (31 December 2019: 3.1%) due to
expiries.
Financial results
Profit after tax from continuing operations was GBP77.4 million
(2019: GBP135.2 million) equivalent to earnings per share of 19.0p
(2019: 33.3p). Earnings in 2019 included an uplift of GBP40.4
million (2020: nil) on the shareholding in Catena and the corporate
bond portfolio which were both sold towards the end of 2019.
Revaluation gains and profits on sale of investment properties in
2020 of GBP43.1 million were lower than last year (2019: GBP66.0
million).
EPRA earnings were resilient in 2020, up at 12.2p (2019: 12.0p),
reflecting our very high rent collection rates. Whilst we prudently
increased our bad debt charge for some expected credit losses, we
were also able to offset this increase through cost reductions.
EPRA NTA, our preferred of the new EPRA net asset measures,
increased by 5.8% (2019: 7.1%) reflecting revaluation gains and
EPRA earnings as well a GBP29.7 million gain from the 5.4%
weakening of Sterling against the Euro (2019: GBP31.4 million
reduction).
At the year end, we had liquid resources of GBP235.7 million
(2019: GBP259.4 million) in addition to GBP50.0 million of undrawn
credit facilities.
In 2020, we generated GBP44.3 million net cash from operating
activities (2019: GBP48.9 million) compared with EPRA earnings of
GBP49.5 million (2019: GBP48.9 million) showing the strong cash
generation of our business model. Of this cash, GBP30.1 million
(2019: GBP28.7 million) was paid as a dividend to shareholders. We
balance the use of the cash generated between dividends and
reinvestment in the business to drive the total accounting return
to shareholders, which was 8.1% in 2020 (2019: 9.4%).
Vision and values
The results of the staff survey we carried out in 2020 were very
positive and highlighted CLS' supportive culture. It was especially
pleasing to see how widespread the adoption and embedding of our
vision and values has been throughout the business and how our
employees understand how they each contribute to the success of the
Company.
Last year was tough both on individuals and companies and I
recognise that our employees made significant sacrifices across the
business. Understandably we had to take cost cutting actions but
these were largely focused in areas such as external consultants
and operational discipline. Consequently, we did not make any
redundancies, or use any furlough schemes or other Government
support. The reciprocal loyalty shown by our employees to CLS was
amazing and I want to publicly thank again our employees for their
collective efforts.
Sustainability
Whilst the restrictions which resulted from Covid-19 made trying
to achieve some of our portfolio initiatives much harder to
accomplish, our commitment to sustainability has not wavered and,
in fact, has been redoubled. The increase in our GRESB score to 72
(2019: 70) is testament to this.
We are following a science-based approach to assessing the
sustainability characteristics of our portfolio and quantifying
where improvements can be made. Consequently, in 2020 we carried
out BREEAM In-Use assessments for the vast majority of our managed
properties, completing the remainder at the start of 2021, with 80%
achieving Good or higher. In 2021, we will carry out energy audits
for all properties to give further quantified data to produce our
evidence-based Net Carbon pathway.
This data collection will allow us to launch our new Group
sustainability strategy and Net Zero Carbon pathway in our
sustainability report later this year. In 2021 we intend to seek to
execute more green financings following the completion of our first
'green' loan with Aviva in 2020 (more detail in a case study in the
annual report). 2020 also saw the roll-out of more solar PV
technology on our properties, including the start of the roll-out
in Germany, and we will seek to achieve our stretch target of
increasing our installed renewable energy capacity by 100% by the
end of 2021.
Outlook
I noted at the half-year that there was much debate about the
future of the office and we comment further in the following pages.
However, we believe that the debate has moved on such that the need
for offices, balanced against working from home, is now accepted.
Evidence from economies around the world which have opened up again
has highlighted the return to more normal patterns of office use.
Whilst there will continue to be much speculation until more
normality returns and the debate between de-densification and the
settled pattern of work from home can be resolved, it is only by
returning to the office that some of the forgotten benefits can be
demonstrated. The office market is not going to go the way of
retail property, as whilst shopping can be delivered to houses (and
returned), there is no substitute for the office-generated
atmosphere for collaboration, innovation, mentoring and socialising
to name but a few.
I also believe it is imperative to have a clear and well-defined
strategy for any organisation, for sure adapting when necessary,
but not lose focus when faced with adverse conditions or shocking
events like the pandemic or the last financial crisis.
Our long-term approach, and our long-term track record, have
demonstrated the soundness of our strategy and business model. We
will continue to focus on the three largest economies of the UK,
Germany and France, and on our other diversification benefits
including our tenant base and funding structure. Whilst 2020 was
undoubtedly a tough year, I am confident that CLS is well placed to
have many good years to come and will continue to deliver for all
our stakeholders.
Fredrik Widlund
Chief Executive Officer
10 March 2021
What's next after the biggest remote working experiment in
history?
We wrote about the future of the office in our half year report
and much of what we described remains relevant and is repeated
below. However, we believe the debate has moved forward with an
acceptance that a hybrid office/working from home (WFH) model will
be the new normal. The balance between the two will only be
determined once we have returned en masse with arguments for both
less and more office space. What is clear though is that offices
will need to evolve by incorporating the trends of recent years so
as to continue to offer a desired product to tenants - something
that CLS has always focused on and will continue to do.
Hybrid model
The pandemic, and the associated mass experience of working from
home, has accelerated many of the recent office trends. There will
be changes to the office environment, new preferred locations, and
some winners and some losers; as is the case in any structural
disruption whether it is driven by technological, political,
environmental or other global changes. Whilst it is too early to
draw definitive conclusions, we believe that offices will retain
their significant role in society and the real estate market.
We recognise the benefits of home working, such as avoiding a
long commute or balancing the responsibilities of home life. It is
also clear that there are certain types of role that can be done
successfully, and potentially cheaper, remotely. However, the
impact of the current situation has shown us that WFH has, for
many, reinforced the benefits of the office whereas others have
potentially forgotten important aspects. Face-to-face interaction
cannot be underestimated for driving collaboration, creativity and
business innovation as well as providing motivation and support
networks. Many aspects of employee development, networking and
training are easier in an office environment as well as hiring and
managing employee well-being. These factors come together to
provide a clear division between work and home-life, which provides
routine, structure, purpose and fulfilment.
There are clear benefits of a centrally managed office
infrastructure, such as cyber security. Even greater benefits are
derived from embedding and embodying an organisation's culture and
a sense of belonging. Companies who have well-defined goals and
values often deliver superior performance, and offices play a
fundamental role in linking this to our human nature to be social
and part of a successful team. It is important to remember that the
office also provides many of us with a crucial part of our social
life. This combination will continue to be hugely important to
attract, motivate and retain the best talent and this is especially
true for younger employees.
For many companies as well as individuals, we expect the new
norm will be a hybrid of working part of the time from home and
part of the time in the office to give the best of both worlds.
There may be companies who embrace working from home as a cost
cutting measure or others who decide they no longer need disaster
recovery sites. However, we also expect lower workplace densities
and less hot-desking which may increase requirements. We also
expect differences between countries with Germany less keen on WFH
whereas the UK is more keen.
Hybrid model space requirements
At this point in time it is almost impossible to estimate
reliably what the balance will be in the hybrid model between days
in the office and WFH. In essence, the argument boils down to
whether less space will be needed because less of the workforce
will be in the office at any point in time because of WFH. On the
other hand, there are equally compelling arguments that the
densification trend of the last half century will reverse and more
space will be demanded by employees.
Until we return to more normal times, it will be hard to answer
this debate. For attitudes are continually changing over the course
of the pandemic, particularly as WFH novelty is replaced by
fatigue. As we set out later on, the use of space will undoubtedly
change but the problem of how to have all staff in at times to
ensure proper inter-team interaction, if office space has been
reduced, has yet to be resolved.
One thing to make crystal clear is that the office and retail
markets are not comparable. Many investors missed the impact of
ecommerce on shopping habits and thus the significantly reduced
demand for retail space. However, the same decline is not going to
happen to office space for two primary reasons:
1) As highlighted above there are some experiential aspects of
offices that simply cannot be replicated online in terms of
collaboration, mentoring and innovation. Even more importantly
culture cannot be built, nurtured and grown online - there is no
comparative to the ecommerce ability to return goods. Continual
lockdowns have eroded many companies' cultures and the majority of
employees are desperate to return to office life; and
2) Office rent as a percentage of salary costs have reduced from
the near 50% of salary costs in the 1970s to c.10% today. This
compares to retail where occupancy costs of rent and rates remain
over half of employment costs.
How CLS offices stack up
CLS offices tend to be relatively low rise, reducing the need
for tightly-packed lifts, with more car parking and electric
charging points, on-site secure bike storage and shower facilities,
and good rail and road transport links, which we believe will be
even more favoured in future. In larger cities or regions, we also
expect to see a growth in demand for satellite or hub offices and
believe CLS is well placed by offering affordable, high quality
office space outside the prime city centre locations. We have set
out below some facts to illustrate the ongoing attractions of our
portfolio.
70% of all buildings have access to private outdoor space or
roof terraces
119 average car parking spaces per property
76% of our properties have cycle spaces
86% of all our properties have access to windows that can be
opened for natural ventilation
80% of buildings have between two to seven floors
CLS' responses to future trends
Flexibility
This is possibly the most important evolution we have seen over
the last decade and it continues. Competing as the three most
important factors about property are flexibility, flexibility and
flexibility.
This comes in two principal forms, namely flexibility in leasing
and flexibility in the physical space. CLS has always embraced, and
in some ways preferred, flexible lease terms for our tenants. This
is because we like to focus on retention and that means working
with our tenants by incorporating break options, regearing leases,
moving tenants to other buildings in our portfolio and
accommodating expansion and contraction of businesses. Our low
vacancy track record speaks for itself.
The physical flexibility is now also being focused on. Employees
have a much bigger voice and strong views on what they will and
won't tolerate. Traditional office densities are under pressure and
more collaboration space is likely to emerge over the short term to
embrace agile working. Open space allows you to move away from
banks of desks and create breakout areas, different types of
meeting rooms and social spaces encouraging staff to collaborate,
thereby: strengthening the company culture; improving staff
retention; and boosting productivity. Whilst most of these changes
are likely to occur behind the tenant's office door, as a landlord
we can contribute towards the process starting at the building's
front door.
Building enhancements
Bringing nature inside is always something CLS likes to include
in our reception areas. It can be as simple as improving the
planting to large scale green walls. Equally providing well
landscaped outdoor space is important to allow tenants to step away
from their office so they can pause, reflect and collaborate.
Our current designs for the Prescot Street GBP20 million
refurbishment and the Vauxhall Walk GBP12 million office
development, are looking to break away from the traditional
reception desks and instead combine it with a coffee bar and casual
seating, encouraging tenants to utilise the space as part of their
front room.
The health benefits of good air quality are better understood in
the work environment and technology makes it easy and cost
effective to monitor. With our new developments, CO(2) monitoring
will link automatically to the mechanical ventilation of the office
floors thereby increasing air changes when more people are in.
Equally there are sustainable benefits, in that if there is low
occupancy then the ventilation will adjust down. Furthermore, new
developments and major refurbishments will incorporate openable
windows.
A healthy workforce is a happy workforce and in all our three
geographies we continue to identify opportunities to make our
buildings better places to work. We are installing shower
facilities, bike storage, lockers and changing rooms and where
possible private gardens.
Concluding remarks
The office will continue to evolve. However, the pandemic has
sped up this evolution, not just in terms of employee amenities
such as breakout/leisure areas or quiet spaces. They will also need
to be cleaner, healthier and well managed. Ultimately these changes
have reinforced the importance of our core value - our tenants, our
focus.
Chief Financial Officer's review
Resilient business model and robust balance sheet continue to
deliver results
In 2020, we significantly extended the average maturity of our
debts whilst achieving record low interest costs and maintaining
substantial liquid resources. Our diversity of tenant base and
country markets (alongside financing relationships) helped CLS
deliver another year of strong results.
Summary
EPRA net tangible assets per share, the most relevant to CLS'
business model of the new EPRA net asset measures, rose by 5.8% to
345.2 pence (2019: 326.3 pence) and basic net assets per share by
5.7% to 311.9 pence (2019: 295.1 pence). For reference, the old
EPRA net asset value per share rose by 6.3% to 350.1 pence (2019:
329.2 pence). Profit after tax from continuing operations and
attributable to the owners of the Company of GBP77.4 million (2019:
GBP135.2 million) generated basic earnings per share of 19.0 pence
(2019: 33.3 pence) and EPRA earnings per share of 12.2 pence (2019:
12.0 pence).
CLS uses a number of alternative performance measures ("APMs")
alongside statutory figures. We believe that these assist in
providing stakeholders with additional useful information on the
underlying trends, performance and position of the Group. Note 5 to
the financial statements gives a full description and
reconciliation of our APMs.
Following our inclusion in the EPRA indices from September 2020,
we will report from 2021 onwards on the full suite of EPRA measures
including EPRA vacancy, cost ratio and capital expenditure.
Exchange rates
Approximately 54% of the Group's sales are conducted in the
reporting currency of sterling and 46% in euros. Compared to last
year, relative movements of sterling against the euro had a notable
impact on the Group's results for the year both in terms of the
translation of our balance sheet and the monetary assets recognised
in the income statement. At 31 December 2020 sterling was 5.4%
weaker against the euro than twelve months previously and
sterling's average rate weakened against the euro by 1.4%.
Exchange rates to the GBP EUR
-------------------------- ------
At 31 December 2018 1.1122
2019 average rate 1.1406
At 31 December 2019 1.1825
2020 average rate 1.1251
At 31 December 2020 1.1185
-------------------------- ------
Income statement
Rental income in 2020 of GBP106.5 million, was GBP1.2 million
lower than in 2019. Acquisitions added GBP11.1 million but this was
more than offset by income lost from disposals (GBP9.3 million),
net lease expiries as vacancy increased (GBP1.3 million) and lower
student income (GBP0.8 million).
Given the difficult trading backdrop in 2020, even greater
attention was placed upon staying close to our tenants and
monitoring rent collection. Rent collection statistics in 2020 and
the first quarter of 2021, as set out below, remained strong
throughout.
2020
H1 2020 H2 2020 Year Q1 2021
-------- ------- ------- ----- -------
UK 99.5% 98.4% 98.9% 97.9%
Germany 99.8% 99.5% 99.7% 98.5%
France 98.7% 99.5% 99.1% 99.4%
---------- ------- ------- ----- -------
Total 99.5% 98.9% 99.2% 98.3%
---------- ------- ------- ----- -------
Despite the high level of rent collection, we have taken an
appropriate increase in our 2020 bad debt charge of GBP1.8 million
(2019: GBP0.3 million), which has been offset by an equal level of
cost savings. Index-linked rent represents 48.5% of the total
contracted rent of the portfolio which is a slight increase from
46.2% in 2019.
Other property income, which fell to GBP5.9 million (2019:
GBP6.8 million), included a reduction of GBP2.8 million in hotel
revenue from Spring Mews to GBP1.9 million (2019: GBP4.7 million)
as a result of Covid-19 restrictions. However, this was offset by
higher dilapidations and other income of GBP4.0 million 2019:
GBP2.1 million). In aggregate net rental income fell by 0.6% to
GBP109.8 million (2019: GBP110.6 million).
We monitor the costs of running the business closely and the
administration cost ratio (administration costs as a percentage of
net rental income) is a Group key performance indicator. In 2020,
given a necessary sharper focus on cost control to counter Covid-19
related income impacts, the administration cost ratio fell to 16.7%
(2019: 17.7%).
The net surplus on revaluation of properties of GBP31.5 million
(2019: GBP57.4 million) reflected differing contributions by
country: in local currencies, Germany again had the strongest year
with a 8.6% rise in values, France rose by 0.2% and the UK fell by
2.6%.
The profit on sale of properties before tax of GBP11.6 million
(2019: GBP8.6 million) represented a 22.9% excess of net proceeds
over book values of the eight properties sold in the year. The
profit on sale in 2020 is a continuation of our track record of
buying and selling well. Over the last five years, CLS has bought
GBP640.9 million of property at an average net initial yield of
6.1% and sold GBP579.3 million of property at an average net
initial yield of 4.6% realising a profit before tax of GBP75.3
million.
Following the sales of our shareholding in Catena and our
corporate bond portfolio in 2019, core finance income fell to
GBP1.1 million (2019: GBP5.0 million). Interest received fell to
GBP1.0 million (2019: GBP2.8 million) and dividends to GBP0.1
million (2019: GBP2.2 million). In addition, finance income
included realised foreign exchange gains of GBP2.1 million (2019:
GBP3.6 million loss included in finance costs).
Finance costs of GBP26.0 million (2019: GBP29.4 million)
included unrealised losses on derivative financial instruments of
GBP1.6 million (2019: GBP0.5 million) and foreign exchange
movements of GBPnil within expenses (2019: GBP3.6 million).
Excluding the derivative financial instruments and foreign exchange
movements, finance costs fell to GBP24.4 million (2019: GBP25.3
million) as we left a number of properties unencumbered at the
start of the year so as to complete a portfolio financing and the
Group was able to reduce its cost of borrowing further.
The effective tax rate of 19.8% (2019: 15.0%) was above the
weighted average rate of the countries in which we operate,
primarily due to a deferred tax charge of GBP5.0m relating to the
reversal of the proposed reduction to 17% in the UK corporation tax
rate.
Overall, EPRA earnings were higher than last year at GBP49.5
million (2019: GBP48.9 million) and generated EPRA earnings per
share of 12.2 pence (2019: 12.0 pence). The increase was primarily
due to operational cost savings and favourable foreign exchange
movements more than offsetting an appropriate increase in the bad
debt provision and a reduction in finance income.
EPRA net tangible assets and gearing
At 31 December 2020, EPRA net tangible assets per share were
345.2 pence (2019: 326.3 pence), a rise of 5.8%, or 18.9 pence per
share. The main reasons for the increase were EPRA earnings per
share of 12.2 pence, property valuation movements and profit on
disposal of 9.0 pence per share and foreign exchange movements net
of other items of 5.1 pence per share less dividends of 7.4 pence
per share.
Balance sheet loan-to-value (net debt to property assets) at 31
December 2020 increased to 33.7% (2019: 31.4%) as a result of net
acquisitions. The loan-to-value of secured loans by reference to
the value of properties secured against them was 48.8% (2019:
48.0%). The value of properties not secured against debt fell to
GBP138.8 million (2019: GBP143.6 million).
Following the end of the Roehampton University nominations
agreement and the reversion of all the rental risk for all the
rooms back to CLS, the services that we provide are no longer
ancillary. Therefore, as at 31 December 2020, the student
accommodation was reclassified from investment property to PPE.
Consequently, the revenue for 2021 onwards will be shown in other
income. Revenue for 2020 was GBP4.5 million (2019: GBP5.3
million).
Cash flow and net debt
As at 31 December 2020, the Group's cash balance had fallen to
GBP235.7 million (2019: GBP259.4 million). Net cash flow from
operating activities generated GBP44.3 million, a reduction of
GBP4.6 million from 2019, mostly due to the acceleration of UK tax
instalments in 2020. GBP30.1 million was distributed as dividends
with the remainder reinvested in the business to grow net tangible
assets. Acquisitions of GBP124.6 million and capital expenditure of
GBP19.2 million were partly funded by proceeds after tax from
property disposals of GBP53.2 million and the net drawdown of loans
of GBP51.7 million. The net result of property and financing
transactions being the investment of GBP38.9 million in our
property portfolio.
Gross debt increased by GBP79.0 million to GBP970.7 million
(2019: GBP891.7 million) due to the net drawdown of loans of
GBP51.7 million, amortisation of loan issue costs of GBP2.1 million
and the increase of GBP25.2 million due to the weakening of
Sterling against the Euro. In the year, GBP182.5 million (GBP180.0
million net of fees) of new or replacement loans were taken out,
loans of GBP100.8 million were repaid and GBP27.5m of contractual
periodic or partial repayments were made. In addition, GBP79.0
million of loans were extended by up to seven years. Year end net
debt rose to GBP735.0 million (2019: GBP632.3 million). In
addition, CLS had undrawn bank facilities of GBP50.0 million, of
which GBP30.0 million was committed. At 31 December 2020, the
maturity of our debt was considerably lengthened to now include ten
and twelve year loans such that the weighted average unexpired term
of the Group's debt rose substantially to 4.6 years (2019: 3.5
years) due to specific targeted financings as set out below.
The weighted average cost of debt at 31 December 2020 was 2.28%,
14 basis points ('bps') lower than 12 months earlier and a new
all-time low for CLS. The movement was as a result of four factors:
rates as the UK base rate reduced (8 bps reduction); financing
activity from refinancing UK debt at a lower all-in rate (5 bps
reduction); currency due to a reduction proportion of more
expensive UK financing due to weaker sterling (5 bps reduction);
partly offset by mix with more expensive UK debt drawn and cheaper
euro debt repaid during the year (4 bps increase). In 2020,
interest cover remained at a healthy level of 3.3 times (2019: 3.4
times).
Financing strategy and covenants
The Group's financing strategy remains to utilise non-recourse
bank debt in the currency used to purchase the asset. In this way
credit and liquidity risk can be managed easily, around 44% of the
Group's exposure to foreign currency is naturally hedged and an
efficient use can be made of the Group's assets.
Most of the Group's investment properties are held in
special-purpose vehicles ('SPVs') and the majority are financed on
the basis of one property, one company and one loan. This is
particularly advantageous in Germany and France where secured, SPV
financing rates are very low. In addition, the Group has a number
of portfolio loans or secured notes which have tended to arise
where a portfolio is acquired, such as the Metropolis properties in
2017, and each is financed by a single loan. The advantage of these
portfolio loans is that they can be structured to afford the Group
greater flexibility such that properties, with the appropriate
attributes, can be substituted into and out of such portfolios.
We set out last year that the Group was going to explore the use
of more portfolio lending, particularly in the UK given relative
country financing costs. In accordance with that strategic
objective, at the end of September, we executed our first green
loan with Aviva Investors. The GBP154.0 million loan secured on a
portfolio of 12 properties was also CLS' largest and longest loan,
at an average of 11 years. I'm pleased to report that we are on
track to deliver the three sustainability objectives to achieve the
margin reduction for the first year of the loan. This financing was
the principal reason for the significant increase in the Group's
weighted average debt maturity increasing to 4.6 years (2019: 3.5
years).
To the extent that Group borrowings are not at fixed rates, the
Group's exposure to interest rate risk is mitigated by financial
derivatives, mainly interest rate swaps. In the recent medium-term
low interest rate environment, the Group continued to choose to
take advantage of the conditions, fixing most of the medium-term
debt taken out during the year.
In 2020, the Group financed, refinanced or extended six loans to
a value of GBP261.5 million for a weighted average duration of 9.3
years and at a weighted average all-in rate of 2.08%, and of these
GBP231.3 million were fixed at a weighted average all-in rate of
2.16%. Consequently, at 31 December 2020, 84% of the Group's
borrowings were at fixed rates or subject to interest rate swaps,
2% were subject to caps and 14% of debt costs were unhedged; the
fixed rate debt had a weighted average maturity of 4.8 years, and
the floating rate 3.3 years.
The Group's financial derivatives, predominantly interest rate
swaps, are marked to market at each balance sheet date. At 31
December 2020 they represented a net liability of GBP5.6 million
(2019: GBP4.1 million).
At 31 December 2020, the Group had 45 loans (35 SPVs, eight
portfolios and two facilities) from 26 lenders. The loans vary in
terms of the number of covenants with the three main covenants
being ratios relating to loan-to-value, interest cover and debt
service cover. However, some loans only have one or two of these
covenants, some have other covenants and some have none. The loans
also vary in terms of the level of these covenants and the headroom
to these covenants.
On average across the 45 loans, CLS has between 26% and 52%
headroom for these three main covenants. In the event of an actual
or forecast covenant breach, all of the loans have equity cure
mechanisms to repair the breach which allow CLS to either repay
part of the loan, substitute property or deposit cash for the
period the loan is in breach, after which the cash can be
released.
Distributions and total return to shareholders
In April 2020, the final proposed dividend for 2019 of 5.05
pence per share (GBP20.5 million) was paid as planned. In
September, despite the ongoing economic uncertainty, CLS maintained
its interim dividend for 2020 at the same level as 2019 and an
interim dividend of 2.35 pence per share (GBP9.6 million) was paid.
The proposed final dividend for 2020 is 5.20 pence per share
(GBP21.2 million). This represents a full year distribution of 7.55
pence per share (GBP30.8 million) which was covered 1.6 times by
EPRA earnings per share.
The 2020 dividend is an increase of 2.0% over the prior year and
the total return to shareholders, being the increase in EPRA NTA
plus the dividends paid in the year, was 8.1% (2019: 9.4%).
Andrew Kirkman
Chief Financial Officer
10 March 2021
Business review
United Kingdom
Value of property portfolio GBP1,125.7m
Percentage of Group's property interests 52%
Number of properties 47
Number of tenants 256
Vacancy rate 6.2%
Lettable space 2.2m sq. ft
Government and major corporates 62.8%
Weighted average lease length to end 4.7 years
Market overview
The UK economy was significantly impacted by Covid-19 and the
resulting lockdowns and restrictions from March onwards such that
there was a record drop in GDP of 10%. This consequently had a
significant impact on the investment market with volumes falling to
c.GBP43 billion (2019: c.GBP55 billion) and letting activity in the
London and South East office market falling by 48% to 14.3 million
sq. ft. Letting activity was reduced with the corresponding impact
on vacancy but we saw selective value in the investment market and
hence were net acquirers. Going into 2021 we remain cautious until
there is greater clarity on the economic recovery, but with
increasing optimism. Ultimately, we remain convinced of the
attractiveness of London and the South East given supportive
long-term fundamentals.
Acquisitions
In 2020, against the backdrop of an uncertain market, we
maintained our strict investment discipline but we still identified
several acquisition opportunities which met with our acquisition
criteria. We completed on the acquisition of five properties for
GBP92.5 million at a net initial yield of 6.0% (two of which,
Kingston and Staines, for GBP32.8 million had exchanged in 2019)
and exchanged on a further property at Radius House in Watford for
GBP16.9 million which completed in January 2021. The three
properties which exchanged and completed in the year for GBP59.7
million were a portfolio from Aviva with properties in Chelmsford,
Richmond and Leatherhead, and the acquisition is the subject of a
Strategy in action case study in the annual report. On the whole,
the acquisitions presented active asset management opportunities in
terms of lease re-gears, vacancy reduction and/or refurbishment to
capture higher rents together with an underpinning of government
income.
Disposals
As set out in a case study in the annual report, 2020 was a year
of minor tidying up of the portfolio. We completed the sale of
three properties for GBP9.4 million and exchanged on a further two
for GBP5.9 million with one completing in early 2021 and the other
due to complete by the end of H1 2021. As a result of considerable
vacancy and residential conversion potential, the net initial yield
was 2.2%. There is only one small regional UK property remaining,
being Aqueous II in Birmingham.
In 2021, we may sell a select few, mainly smaller, properties in
the UK. These properties are those that are too small to have a
meaningful impact and/or for which there is greater value as an
alternative use, principally residential conversion. To that end,
in February 2021 we exchanged on the sale of Falcon House in
Hounslow for GBP6.1 million, a 21.8% premium over the 2020 year end
value.
Asset management
The vacancy rate in the UK increased to 6.2% at 31 December 2020
(2019: 4.1%) which was largely driven by lease expiries and the
reduced ability to re-let due to lockdowns and other restrictions
resulting from Covid-19 and completed refurbishments, now available
to let. In 2020, we let or renewed leases on 163,710 sq. ft (15,209
sqm) and lost 275,898 sq. ft (25,632 sqm) of space from expiries or
new vacancies. Excluding those arising from contractual indexation
uplifts, 54 rent reviews, lease extensions and new leases during
the year added GBP3.8 million of rent at an average of 1.4% above
31 December 2019 ERVs. The portfolio was 8.3% reversionary at the
year end.
As a result of Covid-19, the occupation and thus the revenue at
our hotel and student accommodation were considerably lower,
falling by GBP2.8 million and GBP0.8 million respectively compared
with 2019.
Developments and refurbishments
In December, as highlighted in the Strategy in action case study
in the annual report, detailed planning consent was granted for a
new 28,500 sq. ft (2,648 sqm) 10-floor, office development at
Vauxhall Walk next to our Spring Mews property. Demolition has now
commenced and construction is due to start in early Summer. Once
completed, we expect to achieve EPC A and BREEAM Excellent ratings.
In November, we received resolution to grant planning permission
for a six-floor (43,000 sq. ft (3,995 sqm)) office development in
Maidenhead and we are still assessing options for this
building.
In November, listed building consent and planning permission was
granted for a major refurbishment of 9 Prescot Street, Aldgate. The
refurbishment of 55,600 sq. ft (5,165 sqm) across five floors is
expected to achieve BREEAM Excellent and improve the EPC rating
from D to B. A number of refurbishments to capture rental increases
are ongoing with the most significant being in New Malden at Apex
Tower, which so far has been awarded a BREEAM In-Design rating of
Very Good, and CI Tower, which has been awarded a BREEAM
Refurbishment rating of Very Good.
Valuation
The UK portfolio was valued at GBP1,125.7 million at the year
end, reflecting net additions of GBP88.5 million, capital
expenditure of GBP7.4 million and a valuation decline of GBP30.0
million equivalent to a 2.6% year-on-year valuation decrease. The
like-for-like valuation decrease was 2.3% with the greater
portfolio valuation fall reflecting acquisition costs, which have
yet to be recovered in the valuation. The yield decreased to 5.3%
(2019: 5.4%) and like-for-like contracted rents fell by 0.9% whilst
like-for-like ERVs grew by 1.6%.
Business review
Germany
Value of property portfolio GBP747.7m
Percentage of Group's property interests 34%
Number of properties 29
Number of tenants 311
Vacancy rate 4.0%
Lettable space 3.0m sq. ft
Government and major corporates 32.4%
Weighted average lease length to end 5.2 years
Market overview
The German economy and the real estate market, like other
countries, experienced significant falls in 2020 but there are
signs that the market and activity is recovering relatively
quickly. German GDP shrunk by 5% in 2020 but is forecast to
increase by 4% in 2021 and be back to pre-Covid-19 levels by early
2022. Whilst consumer spending was reduced significantly, German
manufacturing industry, especially since late summer 2020, has
again reached pre-Covid 19 production levels, mainly driven by
exports to China.
Real estate investment volumes fell to c.EUR60 billion in 2020
from its high of over EUR70 billion. This was similar to activity
in 2018, significantly above the 10-year average and Q4 2020 was a
record quarter. Letting activity in the A cities of 2.7 million sqm
was c.30% below the previous year (2019: 3.5 million sqm). However,
construction activity has decreased and more than half of the
supply is pre-let. Consequently, vacancy remains near record lows
(on average well below 5%) and was reflected in continuing rental
increases.
Market sentiment for 2021 remains positive with investors
viewing Germany as a resilient "safe-haven" given its diversified
economy and low interest rates. Moreover, compared to other
countries, and while the move to increasing leasing flexibility is
global, there is lower appetite for working from home which should
further support office demand.
Acquisitions
In 2020, we only completed on the acquisition of one property.
However, as set out in the CEO statement, we exchanged on a further
five properties in three separate transactions in December 2020 and
January 2021. We will set out more details at the half-year when
these acquisitions have been completed and financed.
The acquisition for EUR18.2 million, which completed in June
2020, is a well-located, modern, four-storey office property in
Nuremberg wholly let to Deutsche Telekom (T-Mobile). The property
at Georg-Elser-Strasse 7, comprising 5,913 sqm (63,647 sq. ft) of
space, has a WAULT of seven years to breaks with EUR1.1 million net
rent per annum, reflecting a net initial yield of 5.8%. The
associated financing was from Sparkasse Nuremberg, a new lender to
the Group. The seven-year, 70% LTV financing is at an all-in fixed
rate of 0.96% including costs.
Disposals
In June, we agreed the sale of Albert-Einstein-Ring in Hamburg
for EUR36.45 million to the City of Hamburg. The deal reflected the
strong intention of the City to acquire an asset that will be an
important part of the large and long-term urban regeneration
project in the western fringes. In October, we agreed the sale of
Bismarckallee in Freiburg, a 42-year-old landmark property in the
CBD of Freiburg, for a price of EUR22.5 million to a local
developer. Combined the disposals achieved a price 29.8% above
their last valuations at a net initial yield of 4.5% and a profit
on sale of EUR12.9 million. More detailed case studies of both
disposals are set out in the annual report.
Asset management
The vacancy rate in Germany decreased to 4.0% (2019: 4.3%) due
to solid levels of letting activity and the sale of
Albert-Einstein-Ring which had some vacancy. We let or renewed
leases on 375,339 sq. ft (34,870 sqm) and lost 485,130 sq. ft
(45,213 sqm) of space from expiries or new vacancies. Excluding
those arising from contractual indexation uplifts, 34 rent reviews,
lease extensions and new leases added EUR8.4 million of rent at an
average of 15.9% above 31 December 2019 ERVs. On a like-for-like
basis, ERVs rose by 3.1% in the year and at the end of 2020 the
portfolio was 8.7% net reversionary. Despite several years of
rising ERVs, we still believe that there is the potential for
further rental growth given low vacancies, limited new supply and
replacement costs notably ahead of existing rents.
Developments and refurbishments
Our existing portfolio offers several development and
refurbishment opportunities to add value. The most significant
development, for which we received planning in May 2020, is the
Lichthof building in Stuttgart, comprising at least 141,000 sq. ft
(13,099 sqm) of lettable space which is over 50% larger than the
current building. We are currently marketing the building to secure
a significant pre-let before proceeding.
Other opportunities include the Technical Town Hall in Bochum
where the existing tenant City of Bochum has signed a lease
contract, including an extension, for the construction of
additional office space of c.2,000 sqm. We are also progressing a
roof-top extension of c.3,500 sqm at Adlershofer Tor in Berlin with
a planning application submission expected in the third quarter of
2021.
Valuation
The German portfolio was valued at GBP747.7 million at the year
end, reflecting net disposals of GBP23.1 million, capital
expenditure of GBP6.3 million, foreign exchange gains of GBP38.5
million and a valuation increase of GBP59.0 million equivalent to a
8.6% year on year rise. The like-for-like valuation increase was
8.9%. The main valuation drivers have been a continued increase in
ERVs plus the ongoing yield compression in all markets in which CLS
is invested. The net initial yield fell to 4.3% (2019: 5.0%) whilst
like-for-like ERVs increased by 3.1% and like-for-like contracted
rents increased by 1.5% as we have actively sought to capture
rental growth.
Business review
France
Value of property portfolio GBP309.6m
Percentage of Group's property interests 14%
Number of properties 21
Number of tenants 176
Vacancy rate 5.1%
Lettable space 0.9m sq. ft
Government and major corporates 45.1%
Weighted average lease length to end 4.9 years
Market overview
The French economy and GDP fell by 8% in 2020 and is forecast to
expand by 6% in 2021. As a result of the second national lockdown
in November, the forecast for economic growth is a gradual
improvement as the vaccine is rolled out across the population.
Temporary emergency measures and the medium-term recovery plan
announced by the French government provide strong fiscal support,
balancing measures on the supply and demand sides. Investment
volumes in 2020 was relatively stable at EUR23 billion, which is
in-line with long-term averages, but below the record level in 2019
of EUR36 billion. However, letting activity was substantially down
at 1.3 million sqm (2019: 2.7 million sqm).
Acquisitions
Fractional ownership of buildings is especially common in Lyon
and our strategy is to wholly own all our buildings at the right
price. In September 2020, to increase our ownership in Rhône-Alpes
in Lyon, we completed the acquisition of an extra floor of 1,722
sq. ft (160 sqm) for EUR0.6 million at a net initial yield of 4.9%.
In the same vein, in December 2020, we acquired two additional
floors in Park Avenue in Lyon-Villeurbanne. The purchase for EUR3.3
million was of 10,301 sq. ft (957 sqm) of offices which are
single-let with a net initial yield of 4.7%. This acquisition
allows us to own 100% of the building.
Disposals
The disposal of Foch in Paris for EUR0.9 million, which
exchanged in December 2019, completed in February 2020.
Asset management
The vacancy rate in France increased to 5.1% (2019: 3.1%) from
the impact of Covid-19 and the resulting reduced letting activity.
In 2020, we let or renewed leases on 121,146 sq. ft (11,255 sqm)
and lost 180,034 sq. ft (17,315 sqm) of space from expiries or new
vacancies. Excluding those arising from contractual indexation
uplifts, 28 rent reviews, lease extensions and new leases added
GBP2.3 million of rent at 31 December 2020 ERVs. On a like-for-like
basis, ERVs was up 0.2%.
Developments and refurbishments
A series of important refurbishments took place in 2020 and will
be continued in 2021 to upgrade our buildings. The refurbishment of
Park Avenue is now ongoing after we secured full ownership. More
details are provided in case studies in the annual report.
As set out in the later section, sustainability is a priority
for the Group and France. In 2020, 14 assets achieved successfully
BIU certification and the co-owned assets in Lyon will shortly be
assessed. In 2021, we are also targeting to install smart meters
across all the French property portfolio ensuring compliance with
the new French regulation "Décret Tertiaire" and energy audits will
also be undertaken to identify energy efficiency and carbon
reduction opportunities.
Valuation
The French portfolio was valued at GBP309.6 million at the year
end, split between net acquisitions of GBP2.9 million, capital
expenditure of GBP4.2 million, foreign exchange gains of GBP16.4
million and a valuation uplift of GBP0.8 million. The valuation
uplift represents a 0.3% year-on-year valuation increase in local
currency (like-for-like 0.6%). A significant uplift (12.4% in local
currency or GBP1.9 million) was achieved for our sole central
Parisian building "Petits-Hôtels" due to the completion of a new
nine-year lease above previous rent. The valuation increase drove a
reduction in the net initial yield to 4.7% (2019: 5.2%).
Key data
Rental data(1) Rental Net rental Lettable Contracted ERV at Contracted Vacancy
income income space rent at year rent subject rate at
for for the sqm year end end to year end
the year GBPm GBPm indexation
year GBPm GBPm
GBPm
United Kingdom 58.2 60.4 201,336 57.2 64.0 14.0 6.2%
-------------------- -------- ----------- ---------- ------------ -------- -------------- -----------
Germany 33.3 32.7 277,851 34.7 39.2 22.3 4.0%
-------------------- -------- ----------- ---------- ------------ -------- -------------- -----------
France 15.0 14.8 81,455 16.0 16.7 16.0 5.1%
-------------------- -------- ----------- ---------- ------------ -------- -------------- -----------
Total portfolio 106.5 107.9 560,642 107.9 119.9 52.3 5.3%
-------------------- -------- ----------- ---------- ------------ -------- -------------- -----------
Valuation Market Valuation EPRA EPRA Reversion Over-rented Equivalent
data(1) value movement net 'topped- yield
of in the year initial up'
property yield net
GBPm Initial
yield
Underlying Foreign
GBPm exchange
GBPm
United
Kingdom 1,003.8 (25.7) - 5.0% 5.2% 8.3% 3.1% 5.7%
------------ ---------- ------------ ---------- --------- ---------- ---------- ------------ -----------
Germany 743.4 58.4 38.2 4.1% 4.3% 12.3% 5.0% 4.4%
------------ ---------- ------------ ---------- --------- ---------- ---------- ------------ -----------
France 307.5 0.7 16.2 4.0% 4.7% 4.7% 3.6% 4.6%
------------ ---------- ------------ ---------- --------- ---------- ---------- ------------ -----------
Total
portfolio 2,054.7 33.4 54.4 4.5% 4.8% 9.1% 3.5% 5.1%
------------ ---------- ------------ ---------- --------- ---------- ---------- ------------ -----------
Lease data(1) Average Contracted rent of leases ERV of leases expiring
lease length expiring in: in:
----------------- ----------------- ----------------------------------- -----------------------------------
To To Year Year Years After Year Year Years After
break expiry 1 2 3 to 5 years 1 2 3 to 5 years
years years GBPm GBPm 5 GBPm GBPm GBPm 5 GBPm
GBPm GBPm
----------------- ------- -------- ------- ------- ------ --------- ------- ------- ------ ---------
United Kingdom 3.5 4.7 5.3 4.0 23.5 24.4 6.0 4.3 25.4 24.5
Germany 5.0 5.2 8.5 5.1 10.2 10.9 10.0 5.8 10.6 11.3
France 2.5 4.9 0.6 0.6 7.3 7.5 0.6 0.6 7.4 7.3
----------------- ------- -------- ------- ------- ------ --------- ------- ------- ------ ---------
Total portfolio 3.8 4.9 14.4 9.7 41.0 42.8 16.6 10.7 43.4 43.1
----------------- ------- -------- ------- ------- ------ --------- ------- ------- ------ ---------
(1) The above tables comprise data of the investment properties
and properties held for sale. They exclude owner occupied, land,
student accommodation and hotel.
Key performance indicators
Measuring the tangible performance of our strategy
Total shareholder return - Relative
Definition
The annual growth in capital in purchasing a share in CLS,
assuming dividends are reinvested in the shares when paid, compared
to the TSR of the other 26 companies in the FTSE 350 Real Estate
Super Sector Index.
Why this is important to CLS
This KPI measures the increase in the wealth of a CLS
shareholder over the year, against the increase in the wealth of
the shareholders of a peer group of companies.
Our target for 2020
Our target total shareholder return (relative) was between the
median and upper quartile.
Progress
The TSR was -22.8% (2019: 47.1%), making CLS the 18th (2019:
10th) ranked share of the FTSE 350 Real Estate Super Sector Index
of 26 companies which was below our target for 2020.
Total accounting return
Definition
As described in more detail in note 5, EPRA NTA has replaced
EPRA NAV as the Group's primary measure of net assets. Total
accounting return is the aggregate of the change in EPRA NTA plus
the dividends paid, as a percentage of the opening EPRA NTA.
Why this is important to CLS
This KPI measures the increase in EPRA NTA per share of the
Company before the payment of dividends, and so represents the
value added to the Company in the year.
Our target for 2020
Our target total accounting return was between 6% and 9%.
Progress
In 2020, the total accounting return was 8.1% (2019: 9.4%).
Vacancy rate
Definition
The ERV of vacant lettable space, divided by the aggregate of
the contracted rent of let space and the ERV of vacant lettable
space.
Why this is important to CLS
This KPI measures the potential rental income of unlet space
and, therefore, the cash flow which the Company would seek to
capture.
Our target for 2020
We target a vacancy rate of between 3% and 5%; if the rate
exceeds 5%, other than through recent acquisitions, we may be
setting our rental aspirations too high above the current market;
if it is below 3% we may be letting space too cheaply.
Progress
At 31 December 2020, the vacancy rate was 5.3% (2019: 4.0%).
Other performance indicators
For 2020, we reassessed the Group's key performance indicators
and aligned them with the measures which are linked to Directors'
remuneration. In addition to these key performance indicators, the
Group also has other performance indicators by which it measures
its progress, and these include:
Customer retention
Through our active asset management we seek to retain more than
50% of our tenants by value following lease expiries. Our retention
rate for 2020 was 71.8% (2019: 57.2%).
Administration cost ratio
This measures the administration cost of running the core
property business by reference to the net rental income that it
generates, and provides a direct comparative to most of our peer
group. We aim to maintain this ratio between 15% and 17%. For 2020,
the administration cost ratio was 16.7% (2019: 17.7%).
Cost of debt
We seek to maintain a cost of debt at least 200 bps below the
Group's net initial yield. At 31 December 2020, the cost of debt
2.28% was 254 bps below the net initial yield (4.82%).
Sustainability
We seek to minimise our impact on the environment by targeting a
reduction in carbon emissions of 25% in the managed portfolio by
2025 (baseline 31 December 2018). In 2020, the year-on-year
reduction was 6.4% (2019: 3.1%).
Health and safety
We work hard to ensure that the health and safety of our
employees, customers, advisors, contractors and the general public
is not compromised and pride ourselves on remaining below the UK
National Accident Frequency rate. This rate is calculated by
dividing the number of accidents reported in the year by the number
of people occupying our buildings. For 2020, our accident frequency
rate was 95 (2019: 105) per 100,000 employees compared to the UK
National Accident Frequency rate of 930 (2019: 930) per 100,000
employees.
Our principal risks
Risk management framework
The risks, being both principal and emerging, which the Group
faces are reviewed and monitored in Senior Operations Board
meetings throughout the year and presented to the Board and Audit
Committee at least every six months for further discussion and
oversight. The Senior Operations Board comprises the CEO and CFO, a
representative from each regional business as well as core Group
functions such as HR and IT.
In addition, major business-wide decisions such as property
acquisitions, disposals and significant strategy changes are
discussed at the Executive Committee Meetings and reviewed by the
Board before implementation, subject to authorisation limits. The
Executive Committee meets weekly and comprises the CEO, CFO and
Head of Group Property.
An update on risks and the control environment is presented at
each Audit Committee meeting including the results of any internal
control review procedures undertaken in the period. Senior managers
also attend Audit Committee meetings to discuss specific risk areas
and are accompanied by external advisors where relevant.
Risk management processes, which include health and safety,
human resources and sustainability risk management, are employed
within the business and updates are reported to the Board at each
meeting.
As discussed further below, Covid-19 did not change our risk
processes but increased the frequency of our considerations.
Our risk management structure is set out below:
Board
-- Overall responsibility for risk management and internal
controls
-- Monitors the long-term viability of the business
-- Sets strategic objectives and considers risk as part of this
process
-- Determines the level of risk appetite
-- Sets Executive Committee delegated authority limits
Audit Committee
-- Key oversight and assurance function on risk management,
internal controls and viability
-- Reports to the Board on the effectiveness of risk management
processes
Executive Committee
-- Day to day operational oversight of risk management
-- Consideration of business wide decisions and their impact on
risk appetite
Senior Operations Board
-- Oversight function of business activities and risk
considerations
-- Identifies strategic objectives and assesses risk
Management of risks throughout the business
Each business area operates various processes to ensure that key
risks are identified, evaluated, managed and reviewed
appropriately. For example:
-- a monthly asset management portfolio review for each region
is prepared and circulated to the Board which outlines key business
risks, developments and opportunities; and
-- the development team convenes risk and opportunity workshops
with the design team at the feasibility stage of development
projects. Regular reviews are then part of the design development
to ensure the continuous identification and management of risks
throughout the development process.
The potential risks associated with loss of life or injury to
members of the public, customers, contractors or employees arising
from operational activities are continually monitored. Competency
checks are undertaken for the consultants and contractors we engage
and regular safety tours of our assets are undertaken by the
property management team.
In addition, the wellbeing of our employees is a key focus for
the Group and various activities are supported by the Board
including the delivery of annual mental health workshops and
company-funded employee contributions to promote healthy lifestyle
initiatives such as gym memberships. In this way some of the people
risks are somewhat mitigated.
Risk appetite
The Board recognises its overall responsibility for undertaking
a robust risk assessment and for establishing the extent to which
it is willing to accept some level of risk to deliver its strategic
priorities.
Our risk appetite is reviewed at least annually and assessed
with reference to changes both that have occurred, or trends that
are beginning in the external environment, and changes in the
Principal risks and their mitigation. These will guide the actions
we take in executing our strategy. Whilst our appetite for risk
will vary over time, in general we maintain a balanced approach to
risk. The Group allocates its risk appetite into five
categories:
Very Low: Avoid risk and uncertainty
Low: Keep risk as low as reasonably practical with very limited,
if any, reward
Medium: Consider options and accept a mix of low and medium risk
options with moderate rewards
High: Accept a mix of medium and high risk options with better
rewards
Very High: Choose high risk options with potential for high
returns
The Board has assessed its risk appetite and current status for
each of the Group's principal risks as follows:
Board risk Principal risk
appetite assessment
--------------------- ---------- --------------
Property Medium High
--------------------- ---------- --------------
Sustainability Medium Medium
--------------------- ---------- --------------
Business Interruption Low Medium
--------------------- ---------- --------------
Financing Medium Medium
--------------------- ---------- --------------
Political &
Economic Medium High
--------------------- ---------- --------------
People Medium Medium
--------------------- ---------- --------------
The Board's risk appetite in relation to the Group's principal
risks is broadly aligned. As shown in the table above, there is
divergence of risk appetite and risk status in relation to the
property, business interruption, and political and economic
principal risks. The Board accepts there are factors in relation to
these principal risks that are outside the Group's control and are
likely to change over time. Mitigating actions have been put in
place to ensure these risks are adequately managed and monitored to
reduce the potential impact on the Group. The Board also recognises
that not all risk can be fully mitigated and that they need to be
balanced alongside commercial considerations.
Risk environment
The general risk environment in which the Group operates has
increased over the course of the year. This is largely due to the
Covid-19 outbreak as well as the continued level of uncertainty
that was associated with the Brexit process.
Covid-19 presented a new and major risk to the business. It is
impossible to predict the long-term impacts on the Global and UK
economies and subsequently the consequential impact on our key
markets and our business. The impact of the pandemic was most
strongly felt at our Spring Mews hotel and student accommodation
but we take comfort from the robust rent collection rates (99% for
2020) from the remainder of our portfolio.
Throughout the year, the Board monitored the continually
changing situation and considered its effect on the business and
will continue to do so going forward. Some of the potential
long-term effects that may result from the pandemic are discussed
in our consideration of "The future of the office and the office of
the future" in the previous section.
We acted swiftly in dealing with the exceptional challenges
caused by Covid-19 with our focus on ensuring the safety of our
people and tenants and that our assets were securely maintained.
Further discussion of our reaction to the pandemic is included in
the annual report.
In considering our principal risks (set out in the following
pages), any potential impact as a result of Covid-19 has been taken
into account.
Brexit continued to be an area of specific focus in 2020 and,
whilst the new year has brought some level of clarity to the
situation, until the full ramifications of our exit arrangement
with the EU become clear and other trade and international
arrangements have been agreed, the risk will be elevated due to the
continued uncertainty in relation to the economic, political and
regulatory outlooks.
Principal risks
Our principal risks are discussed in the following pages along
with our risk mitigation actions and plans. Whilst we do not
consider there has been any material change to the nature of the
Group's principal risks over the last 12 months, not surprisingly,
several risks have increased as a result of the challenging
external environment and significant ongoing uncertainty.
Property risk
Market fundamentals and/or internal behaviours lead to adverse
changes to capital values of the property portfolio or ability to
sustain and improve income generation from these assets.
Risk assessment: High
Change in risk profile in year: Increase
Key risk indicators
-- Cyclical downturn in property market which may be indicated
by an increase in yields
-- Changes in supply of space and/or demand
-- Poor property/ facilities management
-- Inadequate due diligence and/or poor commercial assessment of
acquisitions
-- Failure of tenants
-- Insufficient health and safety risk protection
Key/other performance indicator (KPI/OPI) link
Total shareholder return (Relative)
Total accounting return
Vacancy rate
Administration cost ratio
Business Model Link
"right properties"
"right financing"
"active management"
Risk mitigation in action
As part of our diversified approach, acquisitions continue to be
made in the UK, Germany and France in line with the strategic
objective to grow both rental income and capital returns through
filling vacancies and refurbishment. We have rigorous and
established governance and approval processes and we have continued
to be resolute with our pricing discipline in assessing
opportunities.
Eight disposals were agreed across the business in 2020 of
assets which were low yielding with limited asset management
potential or where the risk/reward ratio was unfavourably
balanced.
More detail is provided in the Country business reviews.
We have a high quality and diversified tenant base and monitor
any concentration to individual tenants or sectors. A focused
review of the strength of the tenant covenant is carried out when
assessing each new lease opportunity.
We closely monitor all health and safety related issues and our
in-house teams ensure compliance with all regulations with external
oversight. Reports outlining progress, issues and potential risks
are presented at each Board meeting.
Risk mitigation priorities for 2021
We will continue to target properties with asset management
opportunities in good non-prime locations as well as focusing on
disposing of properties with limited potential and reinvest the
proceeds in locations and properties with the opportunity to add
value through active asset management.
We will increase the monitoring of the covenant strength and
health of our tenants and provide support where appropriate
Commentary
Whilst it is too early to predict the full impact of Covid-19
and its effect on how office occupiers will want to utilise their
space, it may accelerate the trend for flexible working and
decision-making may be delayed. This risk has increased in the year
as a result of the uncertainty over values caused by the impact of
Covid-19 on underlying variables as well as the impact on the
economic health of our tenants and delays in our development
plans.
The CLS in-house management model allows us to build close links
with our customers in order to understand their needs and to
provide timely insights into potential occupier/property issues and
facilitate resolution. These ties have allowed us to react quickly
and provide the improvements in safety measures to protect our
tenants during this difficult year.
Sustainability risk
As a result of a failure to plan properly for, and act upon, the
potential environmental and social impact of our activities,
changing societal attitudes, and/or breach of any legislation, this
could lead to damage to our reputation and customer relationships,
loss of income and/or property value, and erosion of shareholder
confidence in the Group.
Risk assessment: Medium
Change in risk profile in year: Increase
Key risk indicators
Transition risks:
These include regulatory changes, economic shifts, obsolescence
and the changing availability and price of resources.
Physical risks:
These are climate-related events that affect our supply chain as
well as the buildings' physical form and operation; they include
extreme weather events, pollution and changing weather
patterns.
KPI/OPI link
Total shareholder return (Relative)
Total accounting return
Vacancy rate
Administration cost ratio
Business Model Link
"right properties"
"active management"
Risk mitigation in action
All physical and transition risks are captured by the
sustainability risk register maintained by our in-house
sustainability team which is reviewed twice a year or when a
material change in the risk landscape occurs. Additionally, each of
our buildings is reviewed annually.
At the September Board meeting we approved a new sustainability
strategy which will be published in our next annual sustainability
report.
We completed BREEAM In-Use assessments on all managed assets
with 80% achieving at least a "Good" rating.
We employed an external consultant to provide independent
assurance for our Scope 1 and 2 greenhouse gas 2020
disclosures.
We continue to carry out ongoing risk reviews of environmental
legislation for any upcoming changes.
We have commissioned a portfolio-wide programme of energy audits
to support the production of the roll-out of our Net Zero Carbon
pathway in 2021.
We will launch a Resource Management Plan for all managed assets
to ensure they are as energy efficient as possible, aiming for net
zero carbon.
We procured new contracts for 100% renewable electricity for
both our French and German portfolios (to complement the existing
contract in the UK), in addition to a new carbon neutral gas
contract for our German properties.
Risk mitigation priorities for 2021
Our focus in 2021 will be developing our Net Zero Carbon pathway
which will be aligned to a science-based carbon reduction target
and we are undertaking a full Scope 3 carbon emissions
baseline.
We continue to maintain our focus on energy reduction at our
existing assets while also identifying potential climate related
physical risks on new acquisitions. A new Sustainability
acquisitions checklist will be rolled out in 2021 to improve our
due diligence on acquisitions further.
Sustainability assessments will continue to be a key focus of
asset management decision making across the business in each
region.
We will be implementing a Sustainability Design Guide to address
energy efficiency/health and wellbeing issues for development and
refurbishments.
We will continue to expand the coverage of our automatic data
collection across our energy and water supplies to enable the
roll-out of portfolio-wide performance reports.
Commentary
Whilst we have identified an increase in this risk this year,
the overall assessment remains at Medium. This increase is in
response to the trend of global increases in emissions and the
increasing world-wide focus on this area, as well as the resulting
focus on carbon reduction.
Increased monitoring of all carbon-related activities, both
directly and indirectly, was a priority for 2020 given an increase
in government policies around reporting the carbon impact on supply
chain and direct use.
Business interruption risk
Data loss or disruption to corporate or building management
systems or catastrophic external attack or disaster may limit the
ability of the business to operate resulting in negative
reputational, financial and regulatory implications for long term
shareholder value.
Risk assessment: Medium
Change in risk profile in year: No change
Key risk indicators
-- Cyber threat
-- Large scale terrorist attack
-- Environmental disaster, power shortage or pandemic
KPI/OPI link
Total shareholder return (Relative)
Total accounting return
Vacancy rate
Administration cost ratio
Business Model Link
"right properties"
"right financing"
"active management"
Risk mitigation in action
The Group's business continuity plan was reviewed and updated
during the year.
An annual review of each property's specific emergency plan is
carried out which considers a range of different physical, utility
and catastrophic risks.
As remote working became the norm for a large part of the year
we ensured that there was the necessary system infrastructure to
cope with the increase in the volume of remote access as well as
the ability to carry out key operational procedures such as payment
authorisations.
Independent reviews of our cyber defences are performed
periodically and following the 2020 review the Group is now "Cyber
Essentials Plus" certified. Multi-factor authentication for user
access was implemented.
Risk mitigation priorities for 2021
Ensure compliance with the NIST cyber security framework and
update employee cyber training.
Simulate a major business interruption to test the Group's
updated business continuity plan.
The Group's insurance coverage is regularly reviewed and revised
where relevant.
Commentary
Whilst the risk of a pandemic has materialised during the year,
due to our mitigation of this risk through robust IT infrastructure
and the positive Group results and continuing strong rent
collection rates for the year, the ongoing risk to long-term
shareholder value is deemed to remain unchanged.
Whilst companies continue to be subject to an increasing number
of attempted cyber attacks and the pandemic has resulted in an
increase in Covid-19 related phishing and fraud attempts, we have
continued to develop and invest in our mitigation controls to
reduce these risks. We recently ranked fourth best company out of
over 500 companies covered by our cyber security provider and also
fourth of the 20 FTSE250 companies covered.
Financing risk
The risk of not being able to source funding in cost effective
forms will negatively impact the ability of the Group to meet its
business plans or satisfy its financial obligations.
Risk assessment: Medium
Change in risk profile in year: Increase
Key risk indicators
-- Inability to refinance debt at maturity due to lack of
funding sources, market liquidity, etc.
-- Unavailability of financing at acceptable debt terms
-- Risk of rising interest rates on floating rate debt
-- Risk of breach of loan covenants
-- Foreign currency risk
-- Financial counterparty risk
-- Risk of not having sufficient liquid resources to meet
payment obligations when they fall due
KPI/OPI link
Total shareholder return (Relative)
Total accounting return
Business Model Link
"right financing"
"hold or sell"
Risk mitigation in action
The Group continues to maintain a wide number of banking
relationships to diversify funding sources.
During the year the Group executed its longest, largest and
first 'green' loan. The GBP154.0 million loan was secured on a
portfolio of 12 properties at an average of 11 years. Including
this loan, we financed, refinanced or extended six loans to a value
of GBP261.5 million for a weighted average duration of 9.3 years
and a weighted all-in rate of 2.08% and of these GBP231.3 million
were fixed at a weighted average all-in rate of 2.16%.
The Group's weighted average cost of debt at 31 December 2020
fell to 2.28% (2019: 2.42%). At the same time, as a result of
deliberately targeting longer term loans, the Group's average debt
maturity increased to 4.6 years (2019: 3.1 years).
The Group's debt portfolio is split 53% in sterling and 47% in
euros providing a 'natural' hedge against foreign currency
risk.
On average across the Group's 45 loans, we have between 26% and
52% headroom across the three main covenants. In the event of an
actual or forecast covenant breach, all of the loans have equity
cure mechanisms to repair the breach which allow us to either repay
part of the loan or deposit cash for the period the loan is in
breach, after which the cash can be released.
More detail is provided in the Chief Financial Officer's
review.
Risk mitigation priorities in 2021
The Group has facilities with 26 lenders and will continue to
maintain its existing relationships and develop new ones, whilst
also exploring the feasibility of other funding sources in 2021 to
further diversify funding sources and achieve longer debt
maturities. The Group will continue to focus on its core financing
risk mitigation strategies including:
-- Obtaining bids from multiple counterparties to compete for
new lending;
-- Fixing a high proportion of new debt, in particular in France
and Germany due to the negative interest rate environment;
-- Ensuring that new debt facilities have appropriate covenants
and provisions to allow borrower cure of covenant breaches;
-- Matching foreign currency liabilities with foreign currency
assets by borrowing in the local markets to create natural hedging
relationships;
-- Monitor lender exposure and ensure that no one lender
represents more than 20% of total Group debt; and
-- Manage cash balances with the aim of maintaining a minimum of
GBP100m of liquid resources on average to mitigate refinancing and
liquidity risk.
Further 'green' loans will also be targeted.
Commentary
Markets have been adversely affected globally by the pandemic.
As a result, Governments and central banks have cut interest rates
and increased economic stimuli.
In our core markets, the appetite and support of lenders varies
and for real estate, covenant strength and quality of property
remain key.
Maintaining our strong lending relationships across multiple,
diversified finance providers remains a key strength of the Group
in more volatile markets.
Political and economic risk
Significant events or changes in the Global and/or European
political and/or economic landscape may increase the reluctance of
investors and customers to make timely decisions and thereby impact
the ability of the Group to plan and deliver its strategic
priorities in accordance with its core business model.
Risk assessment: High
Change in risk profile in year: No change
Key risk indicators
-- Transition of the UK exit from the EU
-- Global geopolitical and trade environments
KPI/OPI link
Total shareholder return (Relative)
Total accounting return
Vacancy rate
Administration cost ratio
Business Model Link
"right properties"
"right finance"
"active management"
Risk mitigation in action
As part of the Group's budgeting and forecasting processes, a
range of scenarios were modelled to determine how various changes
to property values, rental income and interest cost may impact the
business model and funding.
This review also provided a key input into the conclusions
formed in the viability statement.
CLS has a diversified approach in terma of countries, tenants
and financing which provides some in-built risk mitigation.
Risk mitigation priorities for 2021
We will continue to maintain geographical, customer and
financing diversification of the business model.
As there becomes more transparency following the UK's exit from
the EU and additional trade arrangements are agreed, we will
continue to monitor the situation as it unfolds and any
implications on our business model and strategy.
Where appropriate, we will continue to engage in relevant
industry forums to discuss and contribute to policy and regulatory
changes that may have a direct or indirect impact on the property
sector and our business.
Commentary
GDP forecasts for 2021 have continued to reduce and whilst the
long-term economic impacts of Covid-19 are difficult to predict,
the economies of our core markets face challenging short-term
outlooks with an increased risk of a global recession. Strong
levels of government spending and measures announced by central
banks will help mitigate some of the impact of Covid-19.
People risk
The failure to attract, develop and retain the right people with
the required skills, and in an environment where employees can
thrive, will inhibit the ability of the Group to deliver its
business plans in order to create long term sustainable value.
Risk assessment: Medium
Change in risk profile in year: No change
Key risk indicators
-- Failure to recruit senior management and key executives with
the right skills
-- Staff turnover levels
-- Lack of succession planning
-- Poor employee engagement levels
KPI/OPI link
Total shareholder return (Relative)
Total accounting return
Vacancy rate
Administration cost ratio
Business Model Link
"active management"
Risk mitigation in action
A staff survey was carried out in 2020 which was focused on
employee engagement and enablement and was benchmarked against the
Real Estate industry. Employee engagement was at 70% and enablement
at 78%, up from the previous 2016 survey results of 68% and 52%
respectively. 90% of employees would recommend CLS as a good place
to work and 83% stated that their job provided opportunities to do
interesting and challenging work.
Following discussions at our Workforce Advisory Panel, a review
of the Group's benefits was undertaken and enhancements to the
German team's benefits were made. The Panel has also assisted in
highlighting the need for additional resourcing in certain areas of
the business which, following investigation, resulted in the
employment of relevant additional staff.
An annual review of employee salary and benefits is carried out
to ensure they are at appropriate levels. Our annual appraisal
process focuses on future development opportunities and we continue
to maintain high levels of training and development.
We ensure that we have a modern workplace and work practices
including effective IT systems including all relevant IT resources
to enable work from home.
Risk mitigation priorities for 2021
We will continue:
-- our workforce engagement through the Workforce Advisory
Panel, Group training activities and events;
-- to ensure remuneration and benefits are at market levels;
-- the annual review of succession planning at all levels to be
presented to the Board;
-- to progress our health and wellbeing programme; and
-- to ensure we have appropriate systems in place to allow
employees to perform at their best, in line with our vision and
values.
Commentary
We employ a diverse team of people with a range of skills and
experience and we ensure that CLS is a great place to work so that
our employees remain motivated and engaged to deliver the Group's
strategy.
Covid-19 presented a health and safety crisis to our people and
made day-to-day operations more difficult and complex. The safety
of our people is paramount and we were swift in restructuring our
offices and encouraging our office-based staff to work from home as
well as actively monitoring our staff wellbeing throughout this
prolonged period of lockdown.
Emerging risks
We define emerging risks to be those that may either materialise
or impact over a longer timeframe. They may be a new risk, a
changing risk or a combination of risks for which the broad
impacts, likelihoods and costs are not yet well understood, and
which could have a material effect on CLS' business strategy.
Emerging risks may also be superseded by other risks or cease to
be relevant as the internal and external environment in which we
operate evolves. The Senior Operations Board, which has
representatives from each area of the business, is tasked with
identifying emerging risks for the business and discussing what
impact these risks may have on the business and what steps we
should be taking to mitigate these risks. The Board reviews these
assessments on an annual basis. In 2020, both the Board and the
senior operations team were surveyed about their views on emerging
risks. A non-exhaustive list and the time when they may have a
material effect on the business are set out below:
Time Horizon
------------------------------------- ----------------------------------
Medium Long
Short 2-5 > 5
Risk Potential Impact Mitigation < 2yrs yrs yrs
------------------ ------------------------------------- ---------------------------------- ------- ------ ----
Regulation/ Increased capital cost Continue with ongoing X X
compliance of maintaining property assessment of all properties
portfolio against emerging regulatory
changes and benchmarking
of fit-out and refurbishment
projects against third
-- party schemes.
------------------ ------------------------------------- ---------------------------------- ------- ------ ----
Increasing Increased cost base of Ongoing consideration X X X
energy costs operating properties of, and investment in,
will reduce attractiveness energy efficient plant
of tenancies to existing and building-mounted
and potential customers renewable energy systems.
------------------ ------------------------------------- ---------------------------------- ------- ------ ----
Changes in The challenge to adapt Each region updates the X X
technology office facilities to Senior Operations Board
changing work practices/environment on trends, including
expectations of customers technology, through the
business. The in-house
management model also
gives valuable insights
into tenants' ongoing
needs and potential trend
changes that can be incorporated
into future fit-out of
properties.
------------------ ------------------------------------- ---------------------------------- ------- ------ ----
Changes in Changes in social attitudes In-house asset management X X X
office occupation to agile working practices model provides the means
trends may reduce demand for for the property team
space compared to historic to: proactively manage
trends customers; and gain real-time
insight and transparency
on changes in needs and
trends.
------------------ ------------------------------------- ---------------------------------- ------- ------ ----
Workforce Failure to adapt to evolving The establishment of X X X
expectations of an intergenerational the Workforce Advisory
working population may Panel and the staff survey
reduce attractiveness process provide forums
as an employer in the for employees to communicate
market views on the working
environment. The Group
also interacts with recruitment
agents to keep abreast
of trends in the employment
marketplace.
------------------ ------------------------------------- ---------------------------------- ------- ------ ----
Climate change Increased risk of weather Our sustainability strategy X X
related damage to property continues to evolve and
portfolio and reputational has been developed in
impact of not evolving alignment with Global
sustainability goals Real Estate Sustainability
in line with global benchmarks Benchmarks (GRESB), consideration
and/or public expectations of the UN Sustainable
Development Goals (SDGs)
and climate risk modelling.
------------------ ------------------------------------- ---------------------------------- ------- ------ ----
Viability statement
In accordance with Provision 31 of the Code, the Board has
assessed the prospects of the Group over a longer period than the
twelve months that has in practice been the focus of the going
concern statement.
Covid-19, and the associated responses, are having a profound
impact on the global economy and it is currently the single biggest
negative influence on the Group leading to both current and
forecast impacts as well as far greater levels of uncertainty. CLS
is weathering these impacts well with high rent collection, low bad
debts and a continuing ability to meet its financing and
refinancing needs.
Usually the Board reviews a going concern assessment every
six-months alongside the approval of the financial statements.
Currently, however, we are producing the analysis quarterly given
this heightened level of uncertainty.
For the year end going concern and viability assessments, a new
four-year forecast was reviewed and approved by the Board at its
November 2020 meeting. The forecast and the assessments apply the
same methodology that was used for the 2019 year-end viability
statement.
The latest forecast reflects current negative expectations
arising as a result of Covid-19, in terms of lower property
valuations, reduced rent and increased bad debts whilst also
incorporating mitigating cash preservation measures in terms of
cost savings, and reduced and delayed capital expenditure and
acquisitions.
This forecast is used as the base case for our going concern and
viability assessment which has focused on the cash, liquid
resources and working capital position of the Group. The Directors
are confident that loans expiring within at least the next 12
months will be refinanced as expected given existing banking
relationships and ongoing discussions.
Two downside scenarios, being mid and severe cases, have also
been prepared. The key potential property risks have been
incorporated in the modelling by assuming: lower rents; increased
service charges and property expenses; falling property values; and
reduced loan to value covenants on refinancing reflecting expected
greater risk aversion by banks. More general economic factors such
as higher interest and tax rates, and foreign exchange changes
through a strengthened sterling have also been assumed.
The downside scenarios modelled are based off the negative
market and economic impacts experienced during the 2007-2009 global
financial crisis with the mid case being somewhat less extreme and
the severe case being somewhat more extreme (for example property
falls of 35% over four years and 40% over two years respectively).
It is worth noting that these scenarios are potentially overly
harsh as: it is unlikely all the changes would occur at the same
time; the assumptions have been applied equally to all regions and
thus there is no benefit given for the geographic and tenant
diversity benefits of the Group; and the base case already reflects
current expectations of the impact of Covid-19.
The modelling has focused on the cash position of the Group and
potential covenant breaches. On average across its 45 loans, CLS
has between 26% and 52% headroom for the three main covenant ratios
of loan to value, interest cover and debt service cover. In
addition, our loan agreements have equity cure mechanisms and in
the downside scenarios it is assumed that sufficient, available
cash is used to avoid covenant breaches. It has also been assumed
that acquisitions, capital expenditure and dividends are either
reduced or cancelled. Finally, property sales at the reduced
modelled values are assumed.
In the downside scenarios, a minimum cash balance of GBP100
million has been maintained and no use has been made of the current
GBP50 million of undrawn facilities. In the severe case, only 9% of
the property portfolio, at the assumed lower valuations, would need
to be sold to maintain this GBP100m cash buffer. In a downside
scenario, the GBP50 million of facilities could be withdrawn but if
they were not withdrawn and were used, less than 1% of properties
would need to be sold.
The longer term operational and financial implications of
Covid-19 are hard to forecast accurately. However, based on flexing
the key financial assumptions impacting core drivers of CLS' cash
flows, it appears that the potential negative outcomes can be
mitigated without risking the going concern and longer-term
viability of the Group.
As a result, the Directors can confirm that they have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment.
Directors' responsibility statement
Directors' responsibilities
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
are required to prepare the Group financial statements in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies to the European Union, and have elected
to prepare the parent company financial statements in accordance
with FRS101 of United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law).
Under company law the Directors must not approve the accounts
unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and of the profit or loss of the
Group for that period.
In preparing the parent company financial statements, the
Directors are required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgements and accounting estimates that are reasonable
and prudent;
-- state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
In preparing the Group financial statements, International
Accounting Standard 1 requires that Directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- make an assessment of the Group's ability to continue as a
going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
-- 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 or loss
of the Company and the undertakings included in the consolidation
taken as a whole;
-- the strategic 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 that they face; and
-- the annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy.
This statement of responsibilities was approved by the Board on
9 March 2021.
Approved and authorised on behalf of the Board
David Fuller BA FCIS
Company Secretary
10 March 2021
Financial statements
Group income statement
for the year ended 31 December 2020
Notes 2020 2019
GBPm GBPm
-------------------------------------------------------- ------ ------- -------
Continuing operations
Revenue 4 139.4 138.3
-------------------------------------------------------- ------ ------- -------
Net rental income 4 109.8 110.6
Administration expenses (18.5) (19.9)
Other expenses (15.1) (13.7)
-------------------------------------------------------- ------ ------- -------
Revenue less costs 76.2 77.0
Net movements on revaluation of investment property 11 31.5 57.4
Profit on sale of investment property 11.6 8.6
Gain on sale of other financial investments - 40.4
-------------------------------------------------------- ------ ------- -------
Operating profit 119.3 183.4
Finance income 8 3.2 5.0
Finance costs 9 (26.0) (29.4)
-------------------------------------------------------- ------ ------- -------
Profit before tax 96.5 159.0
Taxation 10 (19.1) (23.8)
-------------------------------------------------------- ------ ------- -------
Profit from continuing operations 77.4 135.2
Discontinued operations
Loss from discontinued operations 21 - (0.5)
-------------------------------------------------------- ------ ------- -------
Profit for the year 6 77.4 134.7
-------------------------------------------------------- ------ ------- -------
Attributable to:
Owners of the Company 77.4 135.5
Non-controlling interests - (0.8)
-------------------------------------------------------- ------ ------- -------
77.4 134.7
-------------------------------------------------------- ------ ------- -------
Earnings per share
Basic and diluted earnings per share from continuing
operations 19.0p 33.3p
Basic and diluted earnings per share from discontinued
operations - (0.2)p
-------------------------------------------------------- ------ ------- -------
Basic and diluted earnings per share 5 19.0p 33.1p
-------------------------------------------------------- ------ ------- -------
Group statement of comprehensive income
for the year ended 31 December 2020
Notes 2020 2019
GBPm GBPm
---------------------------------------------------------- ------ ------ -------
Profit for the year 77.4 134.7
---------------------------------------------------------- ------ ------ -------
Other comprehensive income
Items that will not be reclassified to profit or
loss
Foreign exchange differences 24.2 (28.8)
---------------------------------------------------------- ------ ------ -------
Items that may be reclassified to profit or loss
Fair value loss taken to gain on sale of other financial
investments, net of impairments - 2.5
Revaluation of property, plant and equipment 11/12 (3.6) (0.1)
Deferred tax on fair value movements 16 0.5 (0.3)
Discontinued operations - (0.9)
---------------------------------------------------------- ------ ------ -------
Total items that may be reclassified to profit or
loss (3.1) 1.2
---------------------------------------------------------- ------ ------ -------
Total other comprehensive income 21.1 (27.6)
---------------------------------------------------------- ------ ------ -------
Total comprehensive income for the year 98.5 107.1
---------------------------------------------------------- ------ ------ -------
Total comprehensive income attributable to:
Owners of the Company 98.5 107.9
Non-controlling interests - (0.8)
---------------------------------------------------------- ------ ------ -------
98.5 107.1
---------------------------------------------------------- ------ ------ -------
Group balance sheet
at 31 December 2020
Notes 2020 2019
GBPm GBPm
---------------------------------- ------ ---------- ----------
Non-current assets
Investment properties 11 2,032.8 1,961.0
Property, plant and equipment 11/12 130.5 43.1
Goodwill and intangible assets 2.2 1.4
Deferred tax 16 7.7 4.7
Other receivables 13 8.2 -
---------------------------------- ------ ---------- ----------
2,181.4 2,010.2
---------------------------------- ------ ---------- ----------
Current assets
Trade and other receivables 13 22.0 25.3
Properties held for sale 11 21.9 10.4
Derivative financial instruments 18 - 0.3
Cash and cash equivalents 14 235.7 259.4
---------------------------------- ------ ---------- ----------
279.6 295.4
---------------------------------- ------ ---------- ----------
Total assets 2,461.0 2,305.6
---------------------------------- ------ ---------- ----------
Current liabilities
Trade and other payables 15 (54.3) (54.7)
Current tax (0.3) (11.9)
Borrowings 17 (103.6) (132.3)
---------------------------------- ------ ---------- ----------
(158.2) (198.9)
---------------------------------- ------ ---------- ----------
Non-current liabilities
Deferred tax 16 (159.5) (140.8)
Borrowings 17 (867.1) (759.4)
Derivative financial instruments 18 (5.6) (4.1)
---------------------------------- ------ ---------- ----------
(1,032.2) (904.3)
---------------------------------- ------ ---------- ----------
Total liabilities (1,190.4) (1,103.2)
---------------------------------- ------ ---------- ----------
Net assets 1,270.6 1,202.4
---------------------------------- ------ ---------- ----------
Equity
Share capital 22 11.0 11.0
Share premium 83.1 83.1
Other reserves 24 117.3 96.4
Retained earnings 1,059.2 1,011.9
---------------------------------- ------ ---------- ----------
Total equity 1,270.6 1,202.4
---------------------------------- ------ ---------- ----------
The financial statements of CLS Holdings plc (registered number:
02714781) were approved by the Board of Directors and authorised
for issue on 10 March 2021 and were signed on its behalf by:
Mr F Widlund Mr A Kirkman
Chief Executive Officer Chief Financial Officer
Group statement of changes in equity
for the year ended 31 December 2020
Share Share Other Retained Total Non- Total
capital premium reserves earnings GBPm controlling equity
GBPm GBPm GBPm GBPm interest GBPm
GBPm
---------------------------- ---------- ---------- ----------- ----------- -------- ------------- ---------
Note Note
22 24
Arising in 2020:
Total comprehensive income
for the year - - 21.1 77.4 98.5 - 98.5
Share-based payment credit - - (0.2) - (0.2) - (0.2)
Dividends to shareholders - - - (30.1) (30.1) - (30.1)
---------------------------- ---------- ---------- ----------- ----------- -------- ------------- ---------
Total changes arising
in 2020 - - 20.9 47.3 68.2 - 68.2
At 1 January 2020 11.0 83.1 96.4 1,011.9 1,202.4 - 1,202.4
---------------------------- ---------- ---------- ----------- ----------- -------- ------------- ---------
At 31 December 2020 11.0 83.1 117.3 1,059.2 1,270.6 - 1,270.6
---------------------------- ---------- ---------- ----------- ----------- -------- ------------- ---------
Share Share Other Retained Total Non- Total
capital premium reserves earnings GBPm controlling equity
GBPm GBPm GBPm GBPm interest GBPm
GBPm
---------------------------- ---------- ---------- ----------- ----------- -------- ------------- ---------
Note Note
22 24
Arising in 2019:
Total comprehensive income
for the year - - (27.6) 135.5 107.9 (0.8) 107.1
Share-based payment charge - - 1.0 - 1.0 - 1.0
Dividends to shareholders - - - (28.7) (28.7) - (28.7)
---------------------------- ---------- ---------- ----------- ----------- -------- ------------- ---------
Total changes arising
in 2019 - - (26.6) 106.8 80.2 (0.8) 79.4
At 1 January 2019 11.0 83.1 123.0 905.1 1,122.2 0.8 1,123.0
---------------------------- ---------- ---------- ----------- ----------- -------- ------------- ---------
At 31 December 2019 11.0 83.1 96.4 1,011.9 1,202.4 - 1,202.4
---------------------------- ---------- ---------- ----------- ----------- -------- ------------- ---------
Group statement of cash flows
for the year ended 31 December 2020
Notes 2020 2019
GBPm GBPm
------------------------------------------------------ ------ -------- --------
Cash flows from operating activities
Cash generated from operations 25 76.9 75.3
Interest received 1.0 2.8
Interest paid (22.1) (22.8)
Income tax paid on operating activities (11.5) (6.4)
------------------------------------------------------ ------ -------- --------
Net cash inflow from operating activities 44.3 48.9
------------------------------------------------------ ------ -------- --------
Cash flows from investing activities
Purchase of investment properties (124.6) (237.2)
Capital expenditure on investment properties (18.9) (16.7)
Proceeds from sale of properties 62.2 171.6
Income tax paid on sale of properties (9.0) (6.6)
Purchases of property, plant and equipment (0.3) (0.5)
Proceeds from sale of corporate bonds - 34.5
Proceeds from sale of equity investments - 113.1
Dividends received from equity investments - 2.2
Net cash flow from sale of subsidiaries 21 (1.4) 4.5
Purchase of intangibles (0.8) -
Distributions received from associate and investment 0.1 -
undertakings
Net cash flow on foreign currency transactions 0.3 (1.2)
------------------------------------------------------ ------ -------- --------
Net cash (outflow)/inflow from investing activities (92.4) 63.7
------------------------------------------------------ ------ -------- --------
Cash flows from financing activities
Dividends paid 23 (30.1) (28.7)
New loans 182.5 292.4
Issue costs of new loans (2.5) (3.6)
Repayment of loans (128.3) (209.5)
------------------------------------------------------ ------ -------- --------
Net cash inflow from financing activities 21.6 50.6
------------------------------------------------------ ------ -------- --------
Cash flow element of net (decrease)/increase in cash
and cash equivalents (26.5) 163.2
Foreign exchange gain/(loss) 2.8 (4.1)
------------------------------------------------------ ------ -------- --------
Net (decrease)/increase in cash and cash equivalents (23.7) 159.1
Cash and cash equivalents at the beginning of the
year 259.4 100.3
------------------------------------------------------ ------ -------- --------
Cash and cash equivalents at the end of the year 14 235.7 259.4
------------------------------------------------------ ------ -------- --------
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. The Group's principal
operations are carried out in the United Kingdom, Germany and
France.
The Company is registered and incorporated in the UK,
registration number 02714781, with its registered address at 16
Tinworth Street, London SE11 5AL. The Company is listed on the
London Stock Exchange.
2. Annual financial report
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 2020 Annual Report and Accounts
will be posted to shareholders on 22 March 2021 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 2020. This
financial information has been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and International Financial
Reporting Standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies to the European Union. Whilst the financial
information included in this announcement has been computed in
accordance International Financial Reporting Standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies to the
European Union, this announcement does not itself contain
sufficient information to comply with IFRS. Those accounts give a
balanced, true and fair view of the assets, liabilities, financial
position and profit and loss of the Group and the undertakings
included in the consolidation taken as a whole.
The financial information set out in this announcement does not
constitute the Group's financial statements for the year ended 31
December 2020 or 31 December 2019 as defined by Section 434 of the
Companies Act 2006. Statutory accounts for 2019 have been delivered
to the Registrar of Companies and those for 2020 will be delivered
following the Company's Annual General Meeting.
The Auditors, Deloitte LLP, have reported on those accounts and
their reports on both the 2020 and 2019 accounts was unqualified,
did not contain an emphasis of matter paragraph and did not contain
any statement under Section 498 (2) or (3) of the Companies Act
2006.
3. Going concern
The current macro-economic conditions have created a number of
uncertainties as set out on the previous pages. The Group's
business activities, and the factors likely to affect its future
development and performance, are set out in the previous pages. The
financial position of the Group, its liquidity position and
borrowing facilities are described in the previous pages and in
notes 17 to 20. 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 and covenants 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
further details of this analysis are set out in the viability
statement on this page. Therefore, the Directors continue to adopt
the going concern basis in preparing the annual report and
accounts.
4. Segment information
The Group has two operating divisions - investment properties
and other investments. Other investments comprise the hotel at
Spring Mews and other small corporate investments. The Group
manages the investment properties division on a geographical basis
due to its size and geographical diversity. Consequently, the
Group's principal operating segments are:
Investment properties: United Kingdom
Germany
France
Other investments
Investment properties
------------------------------------- ------------------------- -------- ---------- ------
Other Central
United invest- admin-
Kingdom Germany France ments istration Total
Year ended 31 December 2020 GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- -------- ------- ------ -------- ---------- ------
Rental income 58.2 33.3 15.0 - - 106.5
Other property-related income 3.8 - 0.2 1.9 - 5.9
Service charge income 11.2 10.3 5.5 - - 27.0
------------------------------------- -------- ------- ------ -------- ---------- ------
Revenue 73.2 43.6 20.7 1.9 - 139.4
Service charges and similar expenses (12.8) (10.9) (5.9) - - (29.6)
------------------------------------- -------- ------- ------ -------- ---------- ------
Net rental income 60.4 32.7 14.8 1.9 - 109.8
Administration expenses (7.5) (2.9) (1.8) (0.2) (6.1) (18.5)
Other expenses (8.9) (2.8) (1.4) (2.0) - (15.1)
------------------------------------- -------- ------- ------ -------- ---------- ------
Revenue less costs 44.0 27.0 11.6 (0.3) (6.1) 76.2
Net movements on revaluation of
investment property (29.1) 60.1 0.5 - - 31.5
(Loss)/profit on sale of investment
property (0.1) 11.7 - - - 11.6
------------------------------------- -------- ------- ------ -------- ---------- ------
Segment operating profit/(loss) 14.8 98.8 12.1 (0.3) (6.1) 119.3
Finance income - - - 3.2 - 3.2
Finance costs (17.3) (5.1) (2.7) (0.9) - (26.0)
------------------------------------- -------- ------- ------ -------- ---------- ------
Segment (loss)/profit before tax (2.5) 93.7 9.4 2.0 (6.1) 96.5
------------------------------------- -------- ------- ------ -------- ---------- ------
Investment properties
------------------------------------- ------------------------- -------- ---------- ------
Other Central
United invest- admin-
Kingdom Germany France ments istration Total
Year ended 31 December 2019 GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- -------- ------- ------ -------- ---------- ------
Rental income 59.2 32.4 16.1 - - 107.7
Other property-related income 1.1 0.6 0.2 4.9 - 6.8
Service charge income 9.2 9.1 5.5 - - 23.8
------------------------------------- -------- ------- ------ -------- ---------- ------
Revenue 69.5 42.1 21.8 4.9 - 138.3
Service charges and similar expenses (10.8) (11.3) (5.6) - - (27.7)
------------------------------------- -------- ------- ------ -------- ---------- ------
Net rental income 58.7 30.8 16.2 4.9 - 110.6
Administration expenses (7.5) (2.8) (2.0) (0.3) (7.3) (19.9)
Other expenses (6.2) (3.6) (0.9) (3.0) - (13.7)
------------------------------------- -------- ------- ------ -------- ---------- ------
Revenue less costs 45.0 24.4 13.3 1.6 (7.3) 77.0
Net movements on revaluation of
investment property (3.4) 50.7 10.1 - - 57.4
(Loss)/profit on sale of investment
property (4.4) 6.9 6.1 - - 8.6
Gain on sale of other financial
investments - - - 40.4 - 40.4
------------------------------------- -------- ------- ------ -------- ---------- ------
Segment operating profit/(loss) 37.2 82.0 29.5 42.0 (7.3) 183.4
Finance income - - - 5.0 - 5.0
Finance costs (17.8) (4.9) (2.8) (3.9) - (29.4)
------------------------------------- -------- ------- ------ -------- ---------- ------
Segment profit/(loss) before tax 19.4 77.1 26.7 43.1 (7.3) 159.0
------------------------------------- -------- ------- ------ -------- ---------- ------
Other segment information
Assets Liabilities Capital expenditure
---------------------- ---------------- ---------------- ---------------------
2020 2019 2020 2019 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------- ------- ------- ------- ---------- ---------
Investment properties
United Kingdom 1,044.8 1,064.7 605.2 532.4 7.3 5.9
Germany 767.2 679.1 373.3 357.1 6.3 9.1
France 314.9 290.7 207.2 205.2 4.2 1.6
Other investments(1) 334.1 271.1 4.7 8.5 0.1 0.1
---------------------- ------- ------- ------- ------- ---------- ---------
2,461.0 2,305.6 1,190.4 1,103.2 17.9 16.7
---------------------- ------- ------- ------- ------- ---------- ---------
(1) Following the transfer of student accommodation from
investment properties to PPE discussed in note 11 the 'other
investments' segment also includes student accommodation at 31
December 2020.
5. Alternative performance measures
Alternative performance measures ('APMs') should be considered
in addition to, and are not intended to be a substitute for, or
superior to, IFRS measurements.
Introduction
The Group has applied the October 2015 European Securities and
Markets Authority ('ESMA') guidelines on APMs and the November 2017
Financial Reporting Council ('FRC') corporate thematic review of
APMs in these results, whilst noting ESMA's December 2019 report on
the use of APMs. An APM is a financial measure of historical or
future financial performance, position or cash flows of the Group
which is not a measure defined or specified in IFRS.
Overview of our use of APMs
The Directors believe that APMs assist in providing additional
useful information on the underlying trends, performance and
position of the Group. APMs assist our stakeholder users of the
accounts, particularly equity and debt investors, through the
comparability of information. APMs are used by the Directors and
management, both internally and externally, for performance
analysis, strategic planning, reporting and incentive-setting
purposes.
APMs are not defined by IFRS and therefore may not be directly
comparable with other companies' APMs, including peers in the real
estate industry. There are two sets of APMs which we utilise, and
which are reconciled where possible to statutory measures on the
following pages.
1. EPRA APMs and similar CLS APMs
CLS monitors the Group's financial performance using APMs which
are European Public Real Estate Association ('EPRA') measures as
these are a set of standard disclosures for the property industry
and thus aid comparability for our stakeholder users. In previous
years, the two key APMs for CLS, which are in accordance with the
November 2016 EPRA guidelines, were:
-- EPRA earnings, which gives relevant information to investors
on the long-term performance of the Group's underlying property
investment business and an indication of the extent to which
current dividend payments are supported by earnings; and
-- EPRA net asset value (NAV), which excludes certain items not
expected to crystallise in a long-term investment property business
model, such as CLS'.
The latest edition of the EPRA guidelines were issued in October
2019 and replaced EPRA NAV and EPRA NNNAV with three other balance
sheet reporting measures, which are defined in the glossary:
-- EPRA net tangible assets (NTA);
-- EPRA net realisable value (NRV); and
-- EPRA net development value (NDV).
CLS considers EPRA NTA to be the most relevant of these new
measures as we believe that this will continue to reflect the
long-term nature of our property investments most accurately.
However, all the new measures have been disclosed along with the
previous measures for comparative purposes. EPRA Earnings remains
the same.
Whilst CLS primarily uses the measures referred to above, we
have also disclosed all other EPRA metrics as well as disclosing
the measures that CLS used to prefer for certain of these
categories. The notes below highlight where the measures that we
monitor differ and our previous rationale for using them. From 2021
onwards, following CLS' re-entry into the EPRA indices, we will be
just using EPRA measures.
-- EPRA net initial yield;
-- EPRA 'topped-up' net initial yield;
-- CLS and EPRA vacancy;
-- EPRA capital expenditure; and
-- CLS administration cost ratio and EPRA cost ratio.
2. Other APMs
CLS uses a number of other APMs, many of which are commonly used
by industry peers:
-- Total accounting return;
-- Net borrowings and gearing;
-- Loan-to-value;
-- Dividend cover; and
-- Interest cover.
Apart from the changes highlighted above, there have been no
changes to the Group's APMs in the year with the same APMs utilised
by the business being defined, calculated and used on a consistent
basis. Set out below is a reconciliation of the APMs used in these
results to the statutory measures.
1. EPRA APMs and similar CLS APMs
2020 2019
For use in earnings per share calculations Number Number
---------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares in circulation 407,395,760 407,395,760
---------------------------------------------------------- ----------- -----------
For use in net asset per share calculations
---------------------------------------------------------- ----------- -----------
Number of ordinary shares in circulation at 31 December 407,395,760 407,395,760
---------------------------------------------------------- ----------- -----------
i) Earnings - EPRA earnings
2020 2019
Notes GBPm GBPm
------------------------------------------------------- ----- ------ ------
Profit for the year 77.4 135.5
Profit from discontinued operations 21 - (0.3)
Net uplift on revaluation of investment property 11 (31.5) (57.4)
Profit from sale of investment property (11.6) (8.6)
Current tax on disposals 2.7 13.4
Gain on sale of other financial investments - (40.4)
Tax thereon - 0.1
Movement in fair value of derivative financial
instruments 9 1.6 0.5
Movement in fair value of foreign exchange derivatives - 0.4
Deferred taxation thereon 16 10.9 5.7
------------------------------------------------------- ----- ------ ------
EPRA earnings 49.5 48.9
------------------------------------------------------- ----- ------ ------
Basic and diluted earnings per share from continuing
operations (pence) 19.0p 33.3p
------------------------------------------------------- ----- ------ ------
EPRA earnings per share (pence) 12.2p 12.0p
------------------------------------------------------- ----- ------ ------
ii) Net asset value measures
IFRS EPRA EPRA EPRA EPRA EPRA
NAV NNNAV NAV NTA NRV NDV
2020 GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------- ------- ------- ------- ------- -------
Net assets 1,270.6 1,270.6 1,270.6 1,270.6 1,270.6 1,270.6
Goodwill as a result of deferred
tax on acquisitions - (1.1) (1.1) (1.1) (1.1) (1.1)
Other intangibles - - - (1.1) - -
Fair value of fixed interest debt - (13.2) - - - (13.2)
- tax thereon - 2.5 - - - 2.5
Deferred tax on revaluation surplus - - 151.3 151.3 151.3 -
Capital allowances - - - (12.0) (12.0) -
Adjustment for short-term disposals - - - (6.9) - -
Fair value of financial instruments - - 5.6 5.6 5.6 -
Purchasers' costs - - - - 140.9 -
------------------------------------ ------- ------- ------- ------- ------- -------
1,270.6 1,258.8 1,426.4 1,406.4 1,555.3 1,258.8
------------------------------------ ------- ------- ------- ------- ------- -------
Per share 311.9p 309.0p 350.1p 345.2p 381.8p 309.0p
------------------------------------ ------- ------- ------- ------- ------- -------
IFRS EPRA EPRA EPRA EPRA EPRA
NAV NNNAV NAV NTA NRV NDV
2019 GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------- ------- ------- ------- ------- -------
Net assets 1,202.4 1,202.4 1,202.4 1,202.4 1,202.4 1,202.4
Goodwill as a result of deferred
tax on acquisitions - (1.1) (1.1) (1.1) (1.1) (1.1)
Other intangibles - - - (0.3) - -
Fair value of fixed interest debt - (9.9) - - - (9.9)
- tax thereon - 1.9 - - - 1.9
Deferred tax on revaluation surplus - - 136.1 136.1 136.1 -
Capital allowances - - - (11.7) (11.7) -
Adjustment for short-term disposals - - - 0.1 - -
Fair value of financial instruments - - 3.8 3.8 3.8 -
Purchasers' costs - - - - 130.2 -
------------------------------------ ------- ------- ------- ------- ------- -------
1,202.4 1,193.3 1,341.2 1,329.3 1,459.7 1,193.3
------------------------------------ ------- ------- ------- ------- ------- -------
Per share 295.1p 292.9p 329.2p 326.3p 358.3p 292.9p
------------------------------------ ------- ------- ------- ------- ------- -------
iii) Yield
EPRA net initial yield (NIY)
EPRA NIY is calculated as the annualised rental income based on
the cash rents passing at the balance sheet date less
non-recoverable property operating expenses, divided by the gross
market value of the property (excluding those that are under
development, held as PPE or occupied by CLS).
2020 2019
----------------------------- ---------------------------------- ----------------------------------
United United
Kingdom Germany France Total Kingdom Germany France Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- -------- ------- ------ ------- -------- ------- ------ -------
Rent passing 54.4 33.2 13.7 101.3 56.7 32.8 14.1 103.6
Adjusted for development
stock (1.1) - - (1.1) (1.4) - - (1.4)
Forecast non-recoverable
service charge (2.5) (0.8) (0.5) (3.8) (2.2) - - (2.2)
----------------------------- -------- ------- ------ ------- -------- ------- ------ -------
Annualised net rents
(A) 50.8 32.4 13.2 96.4 53.1 32.8 14.1 100.0
----------------------------- -------- ------- ------ ------- -------- ------- ------ -------
Property portfolio 1,003.8 743.3 307.6 2,054.7 1,024.3 663.6 283.5 1,971.4
Adjusted for development
stock (49.5) (7.5) - (57.0) (52.4) (8.2) - (60.6)
Purchasers' costs at
6.8% 64.6 50.0 20.9 135.5 66.1 44.5 19.3 129.9
----------------------------- -------- ------- ------ ------- -------- ------- ------ -------
Property portfolio valuation
including purchasers'
costs (B) 1,018.9 785.8 328.5 2,133.2 1,038.0 699.9 302.8 2,040.7
----------------------------- -------- ------- ------ ------- -------- ------- ------ -------
EPRA NIY (A/B) 5.0% 4.1% 4.0% 4.5% 5.1% 4.8% 4.7% 4.9%
----------------------------- -------- ------- ------ ------- -------- ------- ------ -------
EPRA 'topped-up' NIY
EPRA "topped-up" NIY is calculated by making an adjustment to
EPRA NIY in respect of the expiration of rent-free periods (or
other unexpired lease incentives such as discounted rent periods
and step rents).
2020 2019
----------------------------- ---------------------------------- ----------------------------------
United United
Kingdom Germany France Total Kingdom Germany France Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- -------- ------- ------ ------- -------- ------- ------ -------
Contracted rent 57.2 34.7 16.0 107.9 59.2 34.3 15.8 109.3
Adjusted for development
stock (1.2) - - (1.2) (1.5) - - (1.5)
Forecast non-recoverable
service charge (2.5) (0.8) (0.5) (3.8) (2.2) - - (2.2)
----------------------------- -------- ------- ------ ------- -------- ------- ------ -------
'Topped-up' annualised
net rents (A) 53.5 33.9 15.5 102.9 55.5 34.3 15.8 105.6
----------------------------- -------- ------- ------ ------- -------- ------- ------ -------
Property portfolio 1,003.8 743.3 307.6 2,054.7 1,024.3 663.6 283.5 1,971.4
Adjusted for development
stock (49.5) (7.5) - (57.0) (52.4) (8.2) - (60.6)
Purchasers' costs (6.8%) 64.6 50.0 20.9 135.5 66.1 44.5 19.3 129.9
----------------------------- -------- ------- ------ ------- -------- ------- ------ -------
Property portfolio valuation
including purchasers'
costs (B) 1,018.9 785.8 328.5 2,133.2 1,038.0 699.9 302.8 2,040.7
----------------------------- -------- ------- ------ ------- -------- ------- ------ -------
EPRA 'topped-up' NIY
(A/B) 5.2% 4.3% 4.7% 4.8% 5.4% 5.0% 5.2% 5.2%
----------------------------- -------- ------- ------ ------- -------- ------- ------ -------
iv) Vacancy
The EPRA vacancy rate calculates vacancy as a proportion of the
ERV of the total portfolio and, from 2021, will be the primary
measure used by the Group. Previously, CLS opted to use its own
rate based on ERV of vacant space plus contracted rent, which
provided a more prudent KPI, as a large proportion of our portfolio
used to be under rented. Both measures are set out below:
CLS vacancy
2020 2019
GBPm GBPm
--------------------------------------------- ----- -----
ERV of vacant space (A) 6.1 4.6
Contracted rent 107.9 109.3
---------------------------------------------- ----- -----
ERV of vacant space plus contracted rent (B) 114.0 113.9
---------------------------------------------- ----- -----
CLS vacancy rate (A/B) 5.3% 4.0%
---------------------------------------------- ----- -----
EPRA vacancy
2020 2019
GBPm GBPm
--------------------------- ----- -----
ERV of vacant space (A) 6.1 4.6
ERV of lettable space 113.8 120.1
---------------------------- ----- -----
ERV of total portfolio (B) 119.9 124.7
---------------------------- ----- -----
EPRA vacancy rate (A/B) 5.1% 3.7%
---------------------------- ----- -----
v) Capital expenditure
EPRA capital expenditure
This measure shows the total amounts spent on the Group's
investment properties on an accrual and cash basis with a split
between expenditure used for the creation of incremental space and
enhancing space ('no incremental space').
2020 2019
Notes GBPm GBPm
--------------------------------------------------- ----- ----- -----
Acquisitions 11 119.1 232.9
Amounts spent on the completed investment property
portfolio 11
Creation of incremental space 1.9 2.6
Creation of no incremental space 15.9 14.0
--------------------------------------------------- ----- ----- -----
EPRA capital expenditure 136.9 249.5
Conversion from accrual to cash basis 6.6 4.3
--------------------------------------------------- ----- ----- -----
EPRA capital expenditure on a cash basis 143.5 253.8
--------------------------------------------------- ----- ----- -----
vi) Cost ratios
CLS administration cost ratio
CLS' administration cost ratio represents the cost of running
the property portfolio relative to its net income. CLS uses this
measure to monitor the efficiency of the business as it focuses on
the administrative cost of active asset management across three
countries.
2020 2019
Notes GBPm GBPm
----------------------------------------------- ----- ----- -----
Administration expenses 4 18.5 19.9
Less: Investment segment and First Camp 4 (0.2) (0.3)
----------------------------------------------- ----- ----- -----
Underlying administration expenses (A) 18.3 19.6
----------------------------------------------- ----- ----- -----
Net rental income from investment property (B) 4 109.8 110.6
----------------------------------------------- ----- ----- -----
Administration cost ratio (A/B) 16.7% 17.7%
----------------------------------------------- ----- ----- -----
EPRA cost ratio
2020 2019
Notes GBPm GBPm
------------------------------------------------------- ----- ----- -----
Administration expenses 4 18.5 19.9
Other expenses 4 15.1 13.7
Less: Investment segment and First Camp 4 (2.2) (3.3)
------------------------------------------------------- ----- ----- -----
31.4 30.3
Net service charge costs 17 2.6 3.9
Service charge costs recovered through rents but not
separately invoiced 17 (0.3) (0.7)
Dilapidations receipts 17 (2.6) (0.9)
------------------------------------------------------- ----- ----- -----
EPRA costs (including direct vacancy costs) (A) 17 31.1 32.6
Direct vacancy costs 14 (2.9) (2.6)
------------------------------------------------------- ----- ----- -----
EPRA costs (excluding direct vacancy costs) (B) 28.2 30.0
------------------------------------------------------- ----- ----- -----
Gross rental income 4 106.5 107.7
Service charge components of rental income 17 (0.3) (0.7)
------------------------------------------------------- ----- ----- -----
Adjusted gross rental income (C) 106.2 107.0
------------------------------------------------------- ----- ----- -----
EPRA cost ratio (including direct vacancy costs) (A/C) 29.3% 30.5%
------------------------------------------------------- ----- ----- -----
EPRA cost ratio (excluding direct vacancy costs) (B/C) 26.6% 28.0%
------------------------------------------------------- ----- ----- -----
2. Other APMs
i) Total accounting return
2020 2019
Notes GBPm GBPm
------------------------------------ ----- --------- ---------
EPRA NTA at 31 December 5 1,406.4 1,329.3
Distribution - prior year final 23 20.5 19.1
Distribution - current year interim 23 9.6 9.6
Less: EPRA NTA at 1 January (A) 5 (1,329.3) (1,241.0)
------------------------------------ ----- --------- ---------
Return before dividends (B) 107.2 117.0
------------------------------------ ----- --------- ---------
Total accounting return (NTA) (B/A) 8.1% 9.4%
------------------------------------ ----- --------- ---------
2020 2019
Notes GBPm GBPm
------------------------------------ ----- --------- ---------
EPRA NAV at 31 December 5 1,426.4 1,341.2
Distribution - prior year final 23 20.5 19.1
Distribution - current year interim 23 9.6 9.6
Less: EPRA NAV at 1 January (A) 5 (1,341.2) (1,262.0)
------------------------------------ ----- --------- ---------
Return before dividends (B) 115.3 107.9
------------------------------------ ----- --------- ---------
Total accounting return (NAV) (B/A) 8.6% 8.6%
------------------------------------ ----- --------- ---------
ii) Net borrowings and gearing
2020 2019
Notes GBPm GBPm
---------------------------------- ----- ------- -------
Borrowings short-term 17 103.6 132.3
Borrowings long-term 17 867.1 759.4
Add back: unamortised issue costs 17 6.3 5.5
---------------------------------- ----- ------- -------
Gross debt 17 977.0 897.2
Cash 14 (235.7) (259.4)
---------------------------------- ----- ------- -------
Net borrowings (A) 741.3 637.8
---------------------------------- ----- ------- -------
Net assets (B) 1,270.6 1,202.4
---------------------------------- ----- ------- -------
Net gearing (A/B) 58.3% 53.0%
---------------------------------- ----- ------- -------
iii) Balance sheet loan-to-value
2020 2019
Notes GBPm GBPm
-------------------------------------------- ----- ------- -------
Borrowings short-term 17 103.6 132.3
Borrowings long-term 17 867.1 759.4
Less: cash 14 (235.7) (259.4)
-------------------------------------------- ----- ------- -------
Net debt (A) 735.0 632.3
-------------------------------------------- ----- ------- -------
Investment properties 11 2,032.8 1,961.0
Properties in plant, property and equipment 11/12 128.3 40.7
Properties held for sale 11 21.9 10.4
-------------------------------------------- ----- ------- -------
Total property portfolio (B) 2,183.0 2,012.1
-------------------------------------------- ----- ------- -------
Balance sheet loan-to-value (A/B) 33.7% 31.4%
-------------------------------------------- ----- ------- -------
iv) Dividend cover
2020 2019
Notes GBPm GBPm
--------------------- ----- ----- -----
Interim dividend 23 9.6 9.6
Final dividend 23 21.2 20.5
--------------------- ----- ----- -----
Total dividend (A) 30.8 30.1
--------------------- ----- ----- -----
EPRA EPS (B) 5 49.5 48.9
--------------------- ----- ----- -----
Dividend cover (B/A) 1.61 1.62
--------------------- ----- ----- -----
v) Interest cover
2020 2019
Notes GBPm GBPm
------------------------------------------------------- ----- ------ ------
Net rental income 4 109.8 110.6
Administration expenses 4 (18.5) (19.9)
Other expenses 4 (15.1) (13.7)
------------------------------------------------------- ----- ------ ------
Group revenue less costs (A) 76.2 77.0
------------------------------------------------------- ----- ------ ------
Finance income (excluding foreign exchange, dividend
income) 8 1.0 2.8
Finance costs (excluding foreign exchange, derivatives
and exceptionals) 9 (24.4) (25.3)
------------------------------------------------------- ----- ------ ------
Net interest (B) (23.4) (22.5)
------------------------------------------------------- ----- ------ ------
Interest cover (-A/B) 3.26 3.42
------------------------------------------------------- ----- ------ ------
6. Profit for the year
Profit for the year has been arrived at after charging:
2020 2019
Notes GBPm GBPm
------------------------------------------------------------ ----- ----- -----
Auditor's remuneration: Fees payable to the Company's
Auditor for:
Audit of the Parent Company and Group accounts 0.4 0.4
Audit of the Company's subsidiaries pursuant to legislation 0.1 0.1
Depreciation of property, plant and equipment 12 0.7 0.9
Employee benefits expense 7 13.5 14.1
Foreign exchange (gain)/loss 8/9 (2.1) 3.6
Provision against trade receivables 13 1.8 0.3
------------------------------------------------------------ ----- ----- -----
Other services provided to the Group by the Company's Auditor
consisted of the 2020 interim review of GBP40k (2019: GBP37k).
7. Employee benefits expense
2020 2019
GBPm GBPm
------------------------------------------- ----- -----
Wages and salaries 9.1 9.3
Social security costs 1.1 1.2
Pension costs - defined contribution plans 0.4 0.4
Performance incentive plan 1.1 1.1
Other employee-related expenses 1.8 2.1
------------------------------------------- ----- -----
13.5 14.1
------------------------------------------- ----- -----
The Directors are considered to be the only key management of
the Group.
The monthly average number of employees of the Group in
continuing operations, including Executive Directors, was as
follows:
2020 2019
------- --------------------------------------- ---------------------------------------
Other Other
Property Hotel operations Total Property Hotel operations Total
Number Number Number Number Number Number Number Number
------- -------- ------- ----------- ------- -------- ------- ----------- -------
Male 47 7 - 54 46 8 1 55
Female 53 9 - 62 49 9 - 58
------- -------- ------- ----------- ------- -------- ------- ----------- -------
100 16 - 116 95 17 1 113
------- -------- ------- ----------- ------- -------- ------- ----------- -------
8. Finance income
2020 2019
GBPm GBPm
---------------------------------------------------------- ----- -----
Interest income
Financial instruments carried at amortised cost 1.0 0.7
Financial instruments carried at fair value through other
comprehensive income - 2.1
Foreign exchange gain 2.1 -
Other finance income 0.1 2.2
---------------------------------------------------------- ----- -----
3.2 5.0
---------------------------------------------------------- ----- -----
9. Finance costs
2020 2019
GBPm GBPm
----------------------------------------------------------- ----- -----
Interest expense
Secured bank loans 20.0 20.6
Secured notes 2.3 2.4
Amortisation of loan issue costs 2.1 2.3
----------------------------------------------------------- ----- -----
Total interest costs 24.4 25.3
Movement in fair value of derivative financial instruments 1.6 0.5
Foreign exchange loss - 3.6
----------------------------------------------------------- ----- -----
26.0 29.4
----------------------------------------------------------- ----- -----
10. Taxation
2020 2019
GBPm GBPm
-------------------------------------------------- ----- -----
Corporation tax
Current year charge 8.1 20.5
Adjustments in respect of prior years 0.3 (2.4)
-------------------------------------------------- ----- -----
8.4 18.1
-------------------------------------------------- ----- -----
Deferred tax (see note 16)
Origination and reversal of temporary differences 5.7 5.7
Effect of change in UK tax rate 5.0 -
-------------------------------------------------- ----- -----
10.7 5.7
-------------------------------------------------- ----- -----
Tax charge for the year 19.1 23.8
-------------------------------------------------- ----- -----
A deferred tax credit of GBP0.5 million (2019: charge GBP0.3
million) was recognised directly in equity (note 16). 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:
2020 2019
GBPm GBPm
----------------------------------------------------------- ----- -----
Profit before tax 96.5 159.0
----------------------------------------------------------- ----- -----
Expected tax charge at the weighted average applicable tax
rate 16.3 31.4
Expenses not deductible for tax purposes 1.1 2.4
Change in tax basis of UK properties, including indexation
uplift 0.7 0.3
Change in UK tax rate 5.0 -
Non-taxable income (1.6) (0.5)
Deferred tax on losses (recognised)/not recognised (2.8) 0.4
Non-taxable gain on sale of investments - (7.8)
Adjustments in respect of prior years 0.3 (2.4)
Other 0.1 -
----------------------------------------------------------- ----- -----
Tax charge for the year 19.1 23.8
----------------------------------------------------------- ----- -----
The weighted average applicable tax rate of 16.9% (2019: 19.8%)
was derived by applying to their relevant profits and losses the
rates in the jurisdictions in which the Group operated. The
standard UK rate of corporation tax applied to profits is 19.0%
(2019: 19.0%).
11. Property portfolio
Total Property Assets Total
United investment held in held for property
Kingdom Germany France properties PPE(1) sale portfolio
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- --------- ------- ------ ----------- -------- --------- ----------
At 1 January 2020 1,014.7 663.6 282.7 1,961.0 40.7 10.4 2,012.1
Acquisitions 98.1 17.3 3.7 119.1 - - 119.1
Capital expenditure 7.3 6.3 4.2 17.8 0.1 - 17.9
Disposals - (40.4) - (40.4) - (10.2) (50.6)
Net revaluation movement (29.1) 60.1 0.5 31.5 (3.6) - 27.9
Lease incentive debtor adjustments 3.4 (1.7) 0.2 1.9 - - 1.9
Exchange rate variances - 38.2 16.2 54.4 0.5 - 54.9
Depreciation - - - - (0.2) - (0.2)
Transfer to plant, property
and equipment (90.8) - - (90.8) 90.8 - -
Transfer to properties held
for sale (5.7) (10.2) (5.8) (21.7) - 21.7 -
----------------------------------- --------- ------- ------ ----------- -------- --------- ----------
At 31 December 2020 997.9 733.2 301.7 2,032.8 128.3 21.9 2,183.0
----------------------------------- --------- ------- ------ ----------- -------- --------- ----------
United
Kingdom Germany France Total
GBPm GBPm GBPm GBPm
--------- ------- ------ -----------
Investment property 997.9 733.2 301.7 2,032.8
Property held in PPE(1) 121.9 4.3 2.1 128.3
Assets held for sale 5.9 10.2 5.8 21.9
----------------------------------- --------- ------- ------ -----------
Property portfolio at 31 December
2020 1,125.7 747.7 309.6 2,183.0
----------------------------------- --------- ------- ------ -----------
Total Property Assets Total
United investment held in held property
Kingdom Germany France properties PPE(1) for sale portfolio
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- -------- ------- ------ ----------- -------- --------- ----------
At 1 January 2019 954.1 625.9 308.1 1,888.1 30.9 4.3 1,923.3
Acquisitions 161.3 58.3 13.3 232.9 - - 232.9
Capital expenditure 5.9 9.1 1.6 16.6 0.1 - 16.7
Disposals (86.1) (42.3) (30.4) (158.8) - (4.3) (163.1)
Reclassification to owner-occupied
property (7.5) (1.0) (1.8) (10.3) 10.3 - -
Net revaluation movement (3.4) 50.7 10.1 57.4 (0.1) - 57.3
Lease incentive debtor adjustments - 2.9 0.8 3.7 - - 3.7
Exchange rate variances - (40.0) (18.2) (58.2) (0.3) - (58.5)
Depreciation - - - - (0.2) - (0.2)
Transfer to properties held
for sale (9.6) - (0.8) (10.4) - 10.4 -
----------------------------------- -------- ------- ------ ----------- -------- --------- ----------
At 31 December 2019 1,014.7 663.6 282.7 1,961.0 40.7 10.4 2,012.1
----------------------------------- -------- ------- ------ ----------- -------- --------- ----------
(1) PPE: Property, plant and equipment (see note 12)
Investment properties included leasehold properties with a
carrying amount of GBP32.8 million (2019: GBP29.8 million).
The property portfolio which comprises investment properties,
properties held for sale and the student accommodation, hotel and
landholding detailed in note 12 was revalued at 31 December 2020 to
its fair value. Valuations were based on current prices in an
active market for all properties. The property valuations were
carried out by external independent valuers as follows:
2020 2019
GBPm GBPm
------------------------- ------- -------
Cushman and Wakefield 1,435.3 2,009.7
Jones Lang LaSalle 744.6 -
L Fällström AB 3.1 2.4
------------------------- ------- -------
2,183.0 2,012.1
------------------------- ------- -------
The total fees, including the fees for this assignment, earned
by each of the valuers from the Group is less than 5% of their
total revenues in each jurisdiction.
Valuation process
The Group's property portfolio was valued by external valuers on
the basis of fair value using information provided to them by the
Group such as current rents, terms and conditions of lease
agreements, service charges and capital expenditure. This
information is derived from the Group's property management systems
and is subject to the Group's overall control environment. The
valuation reports are based on assumptions and valuation models
used by the external valuers. The assumptions are typically market
related, such as yields and discount rates, and are based on
professional judgement and market evidence of transactions for
similar properties on arm's length terms. The valuations are
prepared in accordance with RICS standards.
Each region's Head of Property, who report to the Head of Group
Property, verifies all major inputs to the external valuation
reports, assesses the individual property valuation changes from
the prior year valuation report and holds discussions with the
external valuers. When the process is complete, the valuation
report is recommended to the Audit Committee and the Board, which
considers it as part of its overall responsibilities.
Valuation techniques
The fair value of the property portfolio has been determined
using an income capitalisation approach (excluding ongoing
developments), whereby contracted and market rental values are
capitalised with a market capitalisation rate. The resulting
valuations are cross-checked against the equivalent yields and the
fair market values per square foot derived from comparable recent
market transactions on arm's length terms. Other factors taken into
account in the valuations include the tenure of the property,
tenancy details and ground and structural conditions.
Ongoing developments are valued under the 'residual method' of
valuation, which is the same of the method of valuation described
above, with a deduction for all costs necessary to complete the
development, including a notional finance cost, together with a
further allowance for remaining risk. As the development approaches
completion, the valuer may consider the income capitalisation
approach to be more appropriate.
These techniques are consistent with the principles in IFRS 13
Fair Value Measurement and use significant unobservable inputs such
that the fair value measurement of each property within the
portfolio has been classified as Level 3 in the fair value
hierarchy.
There were no transfers between any of the Levels in the fair
value hierarchy during either 2020 or 2019.
Gains and losses recorded in profit or loss for recurring fair
value measurements categorised within Level 3 of the fair value
hierarchy amount to a gain of GBP31.5 million (2019: GBP57.4
million) and are presented in the income statement in the line item
'Net movements on revaluation of investment properties'. The
revaluation deficit for the property, plant and equipment of GBP3.6
million (2019: GBP0.1 million) was included within the revaluation
reserve.
All gains and losses recorded in profit or loss in 2020 and 2019
for recurring fair value measurements categorised within Level 3 of
the fair value hierarchy are attributable to changes in unrealised
gains or losses relating to investment property held at 31 December
2020 and 31 December 2019, respectively.
Quantitative information about fair value measurement using
unobservable inputs (Level 3)
ERV Equivalent yield
-------- -------------------------------------------- ---------------------------------
Average Range Average Range
------------------ ------------------------ ---------- ---------------------
2020 2019 2020 2019 2020 2019 2020 2019
GBP per GBP per per sq. per sq.
sq. ft sq. ft ft ft % % % %
-------- -------- -------- ----------- ----------- ---- ---- --------- ----------
UK 35.51 29.53 10.00-66.43 10.00-66.43 5.70 5.58 2.42-8.80 2.36-10.75
Germany 13.52 14.30 9.44-25.09 7.16-22.81 4.42 4.93 3.00-5.50 4.00-5.88
France 19.13 22.34 9.97-33.22 12.59-43.57 4.60 5.43 3.58-6.26 4.50-6.75
-------- -------- -------- ----------- ----------- ---- ---- --------- ----------
Sensitivity of measurement to variations in the significant
unobservable inputs
All other factors remaining constant, an increase in ERV would
increase valuations, whilst an increase in the equivalent yield
would result in a fall in value, and vice versa. There are
inter-relationships between these inputs as they are partially
determined by market conditions. An increase in the reversionary
yield may accompany an increase in ERV and would mitigate its
impact on the fair value measurement.
A decrease in the equivalent yield by 25 basis points would
result in an increase in the fair value of the Group's investment
property by GBP115.2 million (2019: GBP114.4 million) whilst a 25
basis point increase would reduce the fair value by GBP103.7
million (2019: GBP96.5 million). A decrease in the ERV by 5% would
result in a decrease in the fair value of the Group's investment
property by GBP75.8 million (2019: GBP71.4 million) whilst an
increase in the ERV by 5% would result in an increase in the fair
value of the Group's investment property by GBP75.6 million (2019:
GBP79.9 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 and no interest has been
capitalised within capital expenditure in either the current or
comparative year.
12. Property, plant and equipment
Owner-
Student Land and occupied Fixtures
accommodation Hotel buildings property and fittings Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- -------------- ----- ---------- --------- ------------- -----
Cost or valuation
At 1 January 2019 - 28.2 3.5 - 5.7 37.4
Additions - 0.1 - - 0.4 0.5
Disposals - - - - (0.1) (0.1)
Reclassification from investment
property - - - 10.3 - 10.3
Revaluation - 0.7 (0.8) - - (0.1)
Exchange rate variances - - (0.3) - - (0.3)
--------------------------------- -------------- ----- ---------- --------- ------------- -----
At 31 December 2019 - 29.0 2.4 10.3 6.0 47.7
Additions - 0.1 - - 0.3 0.4
Reclassification from investment
property1 90.8 - - - - 90.8
Revaluation - (4.1) 0.4 0.1 - (3.6)
Exchange rate variances - - 0.3 0.2 - 0.5
--------------------------------- -------------- ----- ---------- --------- ------------- -----
At 31 December 2020 90.8 25.0 3.1 10.6 6.3 135.7
--------------------------------- -------------- ----- ---------- --------- ------------- -----
Comprising:
At cost - - - - 6.3 6.3
At valuation 90.8 25.0 3.1 10.6 - 129.5
--------------------------------- -------------- ----- ---------- --------- ------------- -----
90.8 25.0 3.1 10.6 6.3 135.8
--------------------------------- -------------- ----- ---------- --------- ------------- -----
Accumulated depreciation and
impairment
At 1 January 2019 - (0.8) - - (2.9) (3.7)
Depreciation charge - (0.2) - - (0.7) (0.9)
--------------------------------- -------------- ----- ---------- --------- ------------- -----
At 31 December 2019 - (1.0) - - (3.6) (4.6)
Depreciation charge - (0.2) - - (0.5) (0.7)
--------------------------------- -------------- ----- ---------- --------- ------------- -----
At 31 December 2020 - (1.2) - - (4.1) (5.3)
--------------------------------- -------------- ----- ---------- --------- ------------- -----
Net book value
--------------------------------- -------------- ----- ---------- --------- ------------- -----
At 31 December 2020 90.8 23.8 3.1 10.6 2.2 130.5
--------------------------------- -------------- ----- ---------- --------- ------------- -----
At 31 December 2019 - 28.0 2.4 10.3 2.4 43.1
--------------------------------- -------------- ----- ---------- --------- ------------- -----
(1) As a result of the ending of an agreement with a third party
the Group will be managing the student accommodation internally and
the services it provides will no longer be ancillary. Therefore,
the Group has decided that, in accordance with IAS16 Plant,
Property and Equipment, this property should be reclassified from
investment property to plant, property and equipment.
13. Trade and other receivables
2020 2019
Notes GBPm GBPm
------------------ ----- ----- -----
Current
Trade receivables 7.3 5.6
Other receivables 4.3 15.5
Prepayments 8.5 2.5
Accrued income 1.9 1.7
------------------ ----- ----- -----
22.0 25.3
Non-Current
Other receivables 21 8.2 -
------------------ ----- ----- -----
30.2 25.3
------------------ ----- ----- -----
Trade receivables are shown after deducting a provision for bad
and doubtful debts of GBP2.8 million (2019: GBP1.1 million). The
provision for bad and doubtful debts is calculated as an expected
credit loss on trade and other receivables in accordance with IFRS
9 (see note 2). The charge to the income statement in relation to
write-offs and provisions made against doubtful debts was GBP1.8
million (2019: GBP0.3 million) (see note 6).
The expected credit loss is recognised on initial recognition of
a receivable and is reassessed at each reporting period. In order
to calculate the expected credit loss, the Group uses historic
default rates and applies a forward-looking outlook. In the current
reporting period, the forward-looking outlook has considered the
actual and potential impacts of Covid-19. The historic default
rates used are specific to how many days past due a receivable is.
Specific provisions are also made in excess of the expected credit
loss where information is available to suggest that a higher
provision than the expected credit loss is required. In the current
reporting period, an additional review of tenant debtors was
undertaken to assess recoverability in light of the Covid-19
pandemic.
The Directors consider that the carrying amount of trade and
other receivables is approximate to their fair value. There is no
concentration of credit risk with respect to trade receivables as
the Group has a large number of customers who are paying their rent
in advance. Further details about the Group's credit risk
management practices are disclosed in note 19.
14. Cash and cash equivalents
2020 2019
GBPm GBPm
------------------------- ----- -----
Cash at bank and in hand 235.7 259.4
------------------------- ----- -----
At 31 December 2020, cash at bank and in hand included GBP14.5
million (2019: GBP12.9 million) which was restricted by a
third-party charge.
15. Trade and other payables
2020 2019
GBPm GBPm
-------------------------------- ----- -----
Trade payables 1.7 2.5
Social security and other taxes 5.8 2.3
Other payables 12.1 13.9
Deferred income 18.2 17.6
Accruals 16.5 18.4
-------------------------------- ----- -----
54.3 54.7
-------------------------------- ----- -----
16. Deferred tax
Liabilities Assets
-------------------- ----------------------------------------- ----------------------------------------- ---------
Fair value Fair value Total
UK capital adjustments UK capital adjustments deferred
allowances to properties Other Total allowances to properties Other Total tax
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ----------- -------------- ----- ----- ----------- -------------- ----- ----- ---------
At 1 January 2019 11.0 126.6 1.7 139.3 (0.1) (2.5) (0.9) (3.5) 135.8
Charged/(credited)
to income statement 0.2 7.3 (0.2) 7.3 (0.1) (1.2) (0.3) (1.6) 5.7
to OCI1 - (0.1) - (0.1) - - 0.4 0.4 0.3
Exchange rate
variances - (5.6) (0.1) (5.7) - - - - (5.7)
-------------------- ----------- -------------- ----- ----- ----------- -------------- ----- ----- ---------
At 31 December
2019 11.2 128.2 1.4 140.8 (0.2) (3.7) (0.8) (4.7) 136.1
Charged/(credited)
to income statement 1.1 12.2 0.4 13.7 (0.1) (2.3) (0.6) (3.0) 10.7
to OCI1 - (0.5) - (0.5) - - - - (0.5)
Exchange rate
variances - 5.4 0.1 5.5 - - - - 5.5
-------------------- ----------- -------------- ----- ----- ----------- -------------- ----- ----- ---------
At 31 December
2020 12.3 145.3 1.9 159.5 (0.3) (6.0) (1.4) (7.7) 151.8
-------------------- ----------- -------------- ----- ----- ----------- -------------- ----- ----- ---------
(1) Other Comprehensive Income.
Deferred tax has been calculated at a weighted average across
the Group of 17.5% (2019: 16.5%), and has been based on the rates
applicable under legislation substantively enacted at the balance
sheet date.
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 2020 the Group did not recognise deferred tax assets of
GBP5.7 million (2019: GBP1.4 million) in respect of losses
amounting to GBP35.3 million (2019: GBP8.3 million) which can be
carried forward against future taxable income or gains.
In the March 2021 Budget it was announced that the headline UK
corporation tax rate would increase from 19% to 25% from April
2023. A 1% increase in the UK rate equates to approximately GBP2.5m
of additional deferred tax based on 31 December 2020
17. Borrowings
At 31 December 2020 At 31 December 2019
------------------- ------------------------------ ------------------------------
Non- Total Non- Total
Current current borrowings Current current borrowings
GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------- -------- ----------- ------- -------- -----------
Secured bank loans 99.5 820.7 920.2 128.2 708.9 837.1
Secured notes 4.1 46.4 50.5 4.1 50.5 54.6
------------------- ------- -------- ----------- ------- -------- -----------
103.6 867.1 970.7 132.3 759.4 891.7
------------------- ------- -------- ----------- ------- -------- -----------
Issue costs of GBP6.3 million (2019: GBP5.5 million) have been
offset in arriving at the balances in the above tables.
Secured bank loans
Interest on bank loans is charged at fixed rates ranging between
0.8% and 5.5% including margin (2019: 0.8% and 5.5%) and at
floating rates of typically LIBOR or EURIBOR plus a margin.
Floating rate margins range between 1.1% and 2.4% (2019: 1.0% and
2.5%). The bank loans are secured by legal charges over GBP1,904.3
million (2019: GBP1,726.5 million) of the Group's 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.
Secured notes
On 3 December 2013, the Group issued GBP80.0 million secured,
partially-amortising notes. The notes attract a fixed-rate coupon
of 4.17% on the unamortised principal amount, the balance of which
is repayable in December 2022 and are secured by legal charges over
GBP139.9 million (2019: GBP142.0 million) of the Group's
properties. The fair value was determined by the higher of the
carrying principal amount and the discounted future cash flows
(adjusted by excluding the margin component of the fixed interest
rate(1) ) at a discount rate derived from the market interest rate
yield curve at the date of the valuation.
(1) The fixed interest rate is made up of a market interest rate
(typically a swap rate) plus a margin.
The maturity profile of the carrying amount of the Group's
borrowings was as follows:
Secured Secured
bank loans notes Total
At 31 December 2020 GBPm GBPm GBPm
------------------------------ ----------- ------- -------
Maturing in:
Within one year or on demand 101.2 4.2 105.4
One to two years 116.1 46.5 162.6
Two to five years 432.0 - 432.0
More than five years 277.0 - 277.0
------------------------------ ----------- ------- -------
926.3 50.7 977.0
Unamortised issue costs (6.1) (0.2) (6.3)
------------------------------ ----------- ------- -------
Borrowings 920.2 50.5 970.7
Due within one year (99.5) (4.1) (103.6)
------------------------------ ----------- ------- -------
Due after one year 820.7 46.4 867.1
------------------------------ ----------- ------- -------
Secured Secured
bank loans notes Total
At 31 December 2019 GBPm GBPm GBPm
------------------------------ ----------- ------- -------
Maturing in:
Within one year or on demand 129.8 4.2 134.0
One to two years 88.5 4.2 92.7
Two to five years 492.8 46.5 539.3
More than five years 131.2 - 131.2
------------------------------ ----------- ------- -------
842.3 54.9 897.2
Unamortised issue costs (5.2) (0.3) (5.5)
------------------------------ ----------- ------- -------
Borrowings 837.1 54.6 891.7
Due within one year (128.2) (4.1) (132.3)
------------------------------ ----------- ------- -------
Due after one year 708.9 50.5 759.4
------------------------------ ----------- ------- -------
The interest rate risk profile of the Group's fixed rate
borrowings was as follows:
At 31 December At 31 December
2020 2019
--------- ------------------- -------------------
Weighted Weighted
average Weighted average Weighted
interest average interest average
rate life rate life
% Years % Years
--------- --------- -------- --------- --------
Sterling 3.0 7.4 3.6 2.7
Euro 1.4 2.9 1.6 4.2
--------- --------- -------- --------- --------
The interest rate risk profile of the Group's capped floating
rate borrowings was as follows:
At 31 December 2020 At 31 December 2019
--------- ------------------------------ ------------------------------
% of net Average % of net Average
floating capped Weighted floating capped Weighted
rate interest average rate interest average
loans rate life loans rate life
capped % Years capped % Years
--------- --------- --------- -------- --------- --------- --------
Sterling - - - - - -
Euro 62 0.77 4.6 25 0.75 1.8
--------- --------- --------- -------- --------- --------- --------
The carrying amounts of the Group's borrowings are denominated
in the following currencies:
At 31 December 2020 At 31 December 2019
------------------------------------ ----------------------- -----------------------
Sterling Euro Total Sterling Euro Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ --------- ----- ----- --------- ----- -----
Fixed rate financial liabilities 255.2 399.8 655.0 168.7 382.1 550.8
Floating rate financial liabilities
- hedged 143.0 18.7 161.7 123.8 18.1 141.9
------------------------------------ --------- ----- ----- --------- ----- -----
398.2 418.5 816.7 292.5 400.2 692.7
------------------------------------ --------- ----- ----- --------- ----- -----
Floating rate financial liabilities
- capped - 25.6 25.6 - 11.4 11.4
Floating rate financial liabilities
- unhedged 119.1 15.6 134.7 154.5 38.6 193.1
------------------------------------ --------- ----- ----- --------- ----- -----
119.1 41.2 160.3 154.5 50.0 204.5
------------------------------------ --------- ----- ----- --------- ----- -----
517.3 459.7 977.0 447.0 450.2 897.2
Unamortised issue costs (4.0) (2.3) (6.3) (3.0) (2.5) (5.5)
------------------------------------ --------- ----- ----- --------- ----- -----
Borrowings 513.3 457.4 970.7 444.0 447.7 891.7
------------------------------------ --------- ----- ----- --------- ----- -----
Of the Group's total borrowings, 84% (2019: 77%) are considered
fixed rate borrowings.
The carrying amounts and fair values of the Group's borrowings
are as follows:
Carrying amounts Fair values
----------------------- ------------------ -------------
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
----------------------- -------- -------- ------ -----
Current borrowings 103.6 132.3 103.6 132.3
Non-current borrowings 867.1 759.4 880.3 769.3
----------------------- -------- -------- ------ -----
970.7 891.7 983.9 901.6
----------------------- -------- -------- ------ -----
The valuation methods used to measure the fair values of the
Group's fixed rate borrowings were derived from inputs which were
either observable as prices or derived from prices (Level 2).
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 had the following undrawn committed facilities
available at 31 December:
2020 2019
GBPm GBPm
--------------------------- ----- -----
Floating rate:
- expiring within one year 30.0 30.0
- expiring after one year - -
--------------------------- ----- -----
30.0 30.0
--------------------------- ----- -----
Contractual undiscounted cash outflows
The tables below show the contractual undiscounted cash outflows
arising from the Group's gross debt.
Less than 1 to 2 2 to 3 3 to 4 4 to 5 Over
1 year Years Years Years Years 5 years Total
At 31 December 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- --------- ------ ------ ------ ------ -------- -------
Secured bank loans 101.2 116.1 73.8 258.6 99.6 277.0 926.3
Secured notes 4.2 46.5 - - - - 50.7
----------------------------------- --------- ------ ------ ------ ------ -------- -------
Total on maturity 105.4 162.6 73.8 258.6 99.6 277.0 977.0
Interest payments on borrowings(1) 19.9 17.3 14.1 11.8 7.1 24.7 94.9
Effect of interest rate swaps 2.4 2.1 1.0 0.5 - - 6.0
----------------------------------- --------- ------ ------ ------ ------ -------- -------
Gross loan commitments 127.7 182.0 88.9 270.9 106.7 301.7 1,077.9
----------------------------------- --------- ------ ------ ------ ------ -------- -------
Less than 1 to 2 2 to 3 3 to 4 4 to 5 Over
1 year years years years years 5 years Total
At 31 December 2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- --------- ------ ------ ------ ------ -------- -----
Secured bank loans 129.8 88.5 168.9 67.3 256.6 131.2 842.3
Secured notes 4.2 4.2 46.5 - - - 54.9
----------------------------------- --------- ------ ------ ------ ------ -------- -----
Total on maturity 134.0 92.7 215.4 67.3 256.6 131.2 897.2
Interest payments on borrowings(1) 16.8 12.4 10.4 8.4 6.2 8.5 62.7
Effect of interest rate swaps 1.7 2.4 2.1 1.0 0.5 - 7.7
----------------------------------- --------- ------ ------ ------ ------ -------- -----
Gross loan commitments 152.5 107.5 227.9 76.7 263.3 139.7 967.6
----------------------------------- --------- ------ ------ ------ ------ -------- -----
(1) Interest payments on borrowings are calculated without
taking into account future events. Floating rate interest is
estimated using a future interest rate curve as at 31 December.
18. Derivative financial instruments
2020 2020 2019 2019
Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm
----------------------------------- ------- ------------ ------- ------------
Non-current
Interest rate caps and swaps - (5.6) - (4.1)
Current
Forward foreign exchange contracts - - 0.3 -
----------------------------------- ------- ------------ ------- ------------
- (5.6) 0.3 (4.1)
----------------------------------- ------- ------------ ------- ------------
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 2020 was GBP161.9 million (2019: GBP163.4 million).
The average period to maturity of these interest rate swaps was 2.2
years (2019: 3.2 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 2020
the Group had no outstanding net foreign exchange contracts (2019:
GBP26.4 million).
Derivative financial instruments cash flows
The following table provides an analysis of the anticipated
contractual cash flows for the derivative financial instruments
using undiscounted cash flows. These amounts represent the gross
cash flows of the derivative financial instruments and are settled
as either a net payment or receipt.
2020 2020 2019 2019
Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm
----------------- ------- ------------ ------- ------------
Maturing in:
Less than 1 year - (2.4) 0.3 (1.7)
1 to 2 years - (2.1) - (2.4)
2 to 3 years - (1.0) - (2.1)
3 to 4 years - (0.5) - (1.0)
4 to 5 years - - - (0.5)
Over 5 years - - - -
----------------- ------- ------------ ------- ------------
- (6.0) 0.3 (7.7)
----------------- ------- ------------ ------- ------------
19. Financial instruments
Categories of financial instruments
Financial assets of the Group comprise: interest rate caps;
foreign currency forward contracts; financial assets at fair value
through other comprehensive income or fair value through profit and
loss; investments in associates; trade and other receivables; and
cash and cash equivalents.
Financial liabilities of the Group comprise: interest rate
swaps; forward foreign currency contracts; bank loans; unsecured
bonds; secured notes; trade and other payables; and current tax
liabilities.
The fair values of financial assets and liabilities are
determined as follows:
(a) Interest rate swaps and caps are measured at the present
value of future cash flows based on applicable yield curves derived
from quoted interest rates;
(b) Foreign currency options and forward contracts are measured
using quoted forward exchange rates and yield curves derived from
quoted interest rates matching maturities of the contracts;
(c) The fair values of non-derivative financial assets and
liabilities with standard terms and conditions and traded on active
liquid markets are determined with reference to quoted market
prices. Financial assets in this category include financial assets
at fair value through other comprehensive income or fair value
through profit and loss such as listed corporate bonds and equity
investments;
(d) In more illiquid conditions, non-derivative financial assets
are valued using multiple quotes obtained from market makers and
from pricing specialists. Where the spread of prices is tightly
clustered the consensus price is deemed to be fair value. Where
prices become more dispersed or there is a lack of available quoted
data, further procedures are undertaken such as evidence from the
last non-forced trade; and
(e) The fair values of other non-derivative financial assets and
financial liabilities are determined in accordance with generally
accepted pricing models based on discounted cash flow analysis,
using prices from observable current market transactions and dealer
quotes for similar instruments.
Except for investments in associates and fixed rate loans, the
carrying amounts of financial assets and liabilities recorded at
amortised cost approximate to their fair value.
Capital risk management
The Group manages its capital to ensure that entities within the
Group will be able to continue as going concerns while maximising
the return to stakeholders through the optimisation of debt and
equity balances. The capital structure of the Group consists of
debt, cash and cash equivalents, other investments and equity
attributable to the owners of the parent, comprising issued
capital, reserves and retained earnings. Management perform "stress
tests" of the Group's business model to ensure that the Group's
objectives can be met and these objectives were met during 2020 and
2019.
The Directors review the capital structure on a quarterly basis
to ensure that key strategic goals are being achieved. As part of
this review they consider the cost of capital and the risks
associated with each class of capital.
The gearing ratio at the year end was as follows:
2020 2019
Notes GBPm GBPm
------------------------------- ----- ------- -------
Debt 17 977.0 897.2
Liquid resources 14 (235.7) (259.4)
------------------------------- ----- ------- -------
Net debt (A) 741.3 637.8
------------------------------- ----- ------- -------
Equity (B) 1,270.6 1,202.4
------------------------------- ----- ------- -------
Net debt to equity ratio (A/B) 58% 53%
------------------------------- ----- ------- -------
Debt is defined as long-term and short-term borrowings before
unamortised issue costs as detailed in note 17. Liquid resources
are cash and short-term deposits. Equity includes all capital and
reserves of the Group attributable to the owners of the
Company.
Externally imposed capital requirement
The Group was subject to externally imposed capital requirements
to the extent that debt covenants may require Group companies to
maintain ratios such as debt to equity (or similar) below certain
levels.
Risk management objectives
The Group's activities expose it to a variety of financial
risks, which can be grouped as:
-- market risk;
-- credit risk; and
-- liquidity risk.
The Group's overall risk management approach seeks to minimise
potential adverse effects on the Group's financial performance
whilst maintaining flexibility.
Risk management is carried out by the Group's treasury
department in close co-operation with the Group's operating units
and with guidance from the Board of Directors. The Board regularly
assesses and reviews the financial risks and exposures of the
Group.
(a) Market risk
The Group's activities expose it primarily to the financial
risks of changes in interest rates and foreign currency exchange
rates, and to a lesser extent other price risk. The Group enters
into a variety of derivative financial instruments to manage its
exposure to interest rate and foreign currency risk and also uses
natural hedging strategies such as matching the duration, interest
payments and currency of assets and liabilities. There has been no
change to the Group's exposure to market risks or the manner in
which these risks are managed and measured.
(I) Interest rate risk
The Group's most significant interest rate risk arises from its
long-term variable rate borrowings. Interest rate risk is regularly
monitored by the treasury department and by the Board on both a
country and a Group basis. The Board's policy is to mitigate
variable interest rate exposure whilst maintaining the flexibility
to borrow at the best rates and with consideration to potential
penalties on termination of fixed rate loans. To manage its
exposure the Group uses interest rate swaps, interest rate caps and
natural hedging from cash held on deposit.
In assessing risk, a range of scenarios is taken into
consideration such as refinancing, renewal of existing positions
and alternative financing and hedging. Under these scenarios, the
Group calculates the impact on the income statement for a defined
movement in the underlying interest rate. The impact of a
reasonably likely movement in interest rates, based on historic
trends, is set out below:
2020 2019
Income Income
statement statement
Scenario GBPm GBPm
------------------------------------------------------ ---------- ----------
Cash +50 basis points 1.2 1.3
Variable borrowings (including caps) +50 basis points (1.0) (1.9)
Cash -50 basis points (1.2) (1.3)
Variable borrowings (including caps) -50 basis points 0.6 1.4
------------------------------------------------------ ---------- ----------
(II) Foreign exchange risk
The Group does not have any regular transactional foreign
exchange exposure. However, it has operations in Europe which
transact business denominated in Euros and, to a minimal extent, in
Swedish krona. Consequently, there is currency exposure caused by
translating into sterling the local trading performance and net
assets for each financial period and balance sheet,
respectively.
The policy of the Group is to match the currency of investments
with the related borrowing, which reduces foreign exchange risk on
property investments. A portion of the remaining operations,
equating to the net assets of the foreign property operations, is
not hedged except in exceptional circumstances. Where foreign
exchange risk arises from future commercial transactions, the Group
will hedge the future committed commercial transaction using
foreign exchange swaps or forward foreign exchange contracts.
The Group's principal currency exposure is in respect of the
Euro. If the value of sterling were to increase or decrease in
strength the Group's net assets and profit for the year would be
affected. The impact of a reasonably likely movement in exchange
rates, is set out below:
2020 2019
2020 Profit 2019 Profit
Net before Net before
assets tax assets tax
Scenario GBPm GBPm GBPm GBPm
---------------------------------------------- ------- ------- ------- -------
1% increase in value of sterling against the
Euro (6.1) (1.1) (5.0) (0.8)
1% fall in value of sterling against the Euro 6.2 1.2 5.1 0.8
---------------------------------------------- ------- ------- ------- -------
(b) Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. Credit risk arises from the ability of customers to meet
outstanding receivables and future lease commitments, and from
financial institutions with which the Group places cash and cash
equivalents, and enters into derivative financial instruments. The
maximum exposure to credit risk is partly represented by the
carrying amounts of the financial assets which are carried in the
balance sheet, including derivatives with positive fair values.
For credit exposure other than to occupiers, the Directors
believe that counterparty risk is minimised to the fullest extent
possible as the Group has policies which limit the amount of credit
exposure to any individual financial institution.
The Group has policies in place to ensure that rental contracts
are made with customers with an appropriate credit history. Credit
risk to customers is assessed by a process of internal and external
credit review, and is reduced by obtaining bank guarantees from the
customer or its parent, and rental deposits. The overall credit
risk in relation to customers is monitored on an ongoing basis.
Moreover, a significant proportion of the Group portfolio is let to
Government occupiers which can be considered financially
secure.
At 31 December 2020 the Group held no financial assets at fair
value through other comprehensive income or fair value through
profit and loss (2019: GBP0.3 million). Management considers the
credit risk associated with individual transactions and monitors
the risk on a continuing basis. Information is gathered from
external credit rating agencies and other market sources to allow
management to react to any perceived change in the underlying
credit risk of the instruments in which the Group invests. This
allows the Group to minimise its credit exposure to such items and
at the same time to maximise returns for shareholders.
(c) Liquidity risk
Liquidity risk management requires maintaining sufficient cash,
other liquid assets and the availability of funding to meet short,
medium and long-term requirements. The Group maintains adequate
levels of liquid assets to fund operations and to allow the Group
to react quickly to potential risks and opportunities. Management
monitors rolling forecasts of the Group's liquidity on the basis of
expected cash flows so that future requirements can be managed
effectively.
The majority of the Group's debt is arranged on an
asset-specific, non-recourse basis. This allows the Group a higher
degree of flexibility in dealing with potential covenant defaults
than if the debt was arranged under a Group-wide borrowing
facility.
Loan covenant compliance is closely monitored by the treasury
department. Potential covenant breaches can ordinarily be avoided
by placing additional security or a cash deposit with the lender,
or by partial repayment to cure an event of default.
20. Financial assets and liabilities
Fair value
through
profit Total
and Amortised carrying
loss cost value
GBPm GBPm GBPm
--------------------------------- ---------- --------- ---------
Financial assets
Cash and cash equivalents - 235.7 235.7
Other assets - non-current(1) - 8.2 8.2
Other assets - current(1) - 13.5 13.5
--------------------------------- ---------- --------- ---------
- 257.4 257.4
--------------------------------- ---------- --------- ---------
Financial liabilities
Secured bank loans - (920.2) (920.2)
Secured notes - (50.5) (50.5)
Derivative financial liabilities (5.6) - (5.6)
Other liabilities - current(2) - (30.3) (30.3)
--------------------------------- ---------- --------- ---------
(5.6) (1,001.0) (1,006.6)
--------------------------------- ---------- --------- ---------
At 31 December 2020 (5.6) (743.6) (749.2)
--------------------------------- ---------- --------- ---------
Fair value
through
profit Total
and Amortised carrying
loss cost value
GBPm GBPm GBPm
---------------------------------- ---------- --------- ---------
Financial assets
Derivative financial instruments 0.3 - 0.3
Cash and cash equivalents - 259.4 259.4
Other assets - current(1) - 22.8 22.8
---------------------------------- ---------- --------- ---------
0.3 282.2 282.5
Financial liabilities
Secured bank loans - (837.1) (837.1)
Secured notes - (54.6) (54.6)
Derivative financial liabilities (4.1) - (4.1)
Other liabilities - current(2) - (34.8) (34.8)
---------------------------------- ---------- --------- ---------
(4.1) (926.5) (930.6)
---------------------------------- ---------- --------- ---------
At 31 December 2019 (3.8) (644.3) (648.1)
---------------------------------- ---------- --------- ---------
(1) Other assets included all amounts shown as trade and other
receivables in note 13 except prepayments of GBP8.5 million (2019:
GBP2.5 million). All current amounts are non-interest bearing and
receivable within one year.
(2) Other liabilities included all amounts shown as trade and
other payables in note 15 except deferred income and sales and
social security taxes of GBP24.0 million (2019: GBP19.9 million).
All amounts are non-interest bearing and are due within one
year.
Reconciliation of net financial assets and liabilities to
borrowings and derivative financial instruments
2020 2019
GBPm GBPm
------------------------------------------------ ------ ------
Net financial assets and liabilities 749.2 648.1
Other assets - non-current 8.2 -
Other assets - current 13.5 22.8
Other liabilities - current (30.3) (34.8)
Cash and cash equivalents 235.7 259.4
------------------------------------------------ ------ ------
Borrowings and derivative financial instruments 976.3 895.5
------------------------------------------------ ------ ------
21. Discontinued operations
On 12 November 2018, the Board resolved to dispose of First Camp
Sverige Holdings AB. As at 31 December 2018, the First Camp
sub-group was therefore classified as a disposal group held for
sale in accordance with IFRS 5, Non Current Assets Held for Sale
and Discontinued Operations, and presented separately on the Group
balance sheet as discontinued operations. Completion occurred on 7
March 2019. Details of this transaction are as follows:
GBPm
------------------------------------------------------------ ------
Headline consideration 28.7
Adjustments from completion balance sheet (17.0)
------------------------------------------------------------- ------
Net consideration at completion 11.7
Settled by:
Cash 4.5
Vendor loan(1) 7.2
------------------------------------------------------------- ------
11.7
------------------------------------------------------------ ------
Repayment after finalisation of completion balance sheet(2) (1.4)
------------------------------------------------------------- ------
Final net consideration 10.3
------------------------------------------------------------- ------
(1) The loan is due for repayment at the latest by June 2023 and
attracts interest of 6.0% p.a., 2.0% of which is rolled up into the
principal of the loan. The loan can be repaid by the borrower at
any time without penalty. At 31 December 2019, the loan balance of
GBP7.3 million was included within the other receivables balance of
GBP15.5 million (see note 13). As a result of the current economic
uncertainty resulting from the Covid-19 pandemic the Group has
reassessed the likely repayment date of this loan and at 31
December 2020, the loan balance of GBP8.2 million is included as a
non-current asset.
(2) See cash flow statement
The results of discontinued operations, which have been included
in the Group income statement, were as follows:
2020 2019
GBPm GBPm
--------------------------------------------- ----- -----
Revenue - 0.6
Expenses - (2.4)
--------------------------------------------- ----- -----
Loss before tax - (1.8)
Measurement to fair value less costs to sell - 1.3
--------------------------------------------- ----- -----
Loss from discontinued operations - (0.5)
--------------------------------------------- ----- -----
Attributable to:
Owners of the Company - 0.3
Non-controlling interests - (0.8)
--------------------------------------------- ----- -----
- (0.5)
--------------------------------------------- ----- -----
22. Share capital
Number of shares authorised,
issued and fully paid
------------------------------- ------------------------------------- ------------ -------- ---------
Ordinary
Ordinary shares Total
shares Total in Treasury ordinary
in Treasury ordinary circulation shares shares
circulation shares shares GBPm GBPm GBPm
------------------------------- ------------ ---------- ----------- ------------ -------- ---------
At 1 January 2019, 31 December
2019
and 31 December 2020 407,395,760 31,382,020 438,777,780 10.2 0.8 11.0
------------------------------- ------------ ---------- ----------- ------------ -------- ---------
The Board is authorised, by shareholder resolution, to allot
shares or grant such subscription rights (as are contemplated by
sections 551(1) (a) and (b) respectively of the Companies Act 2006)
up to a maximum aggregate nominal value of GBP3,394,964
representing one-third of the issued share capital of the Company
excluding treasury shares.
23. Dividend
Dividend
Payment per share 2020 2019
date p GBPm GBPm
------------------------------------ -------------- ---------- ----- -----
Current year
2020 final dividend(1) 29 April 2021 5.20 - -
25 September
2020 interim dividend 2020 2.35 9.6 -
------------------------------------ --------------- ---------- ----- -----
Distribution of current year profit 7.55 9.6 -
----------------------------------------------------- ---------- ----- -----
Prior year
2019 final dividend 29 April 2020 5.05 20.5 -
27 September
2019 interim dividend 2019 2.35 - 9.6
------------------------------------ --------------- ---------- ----- -----
Distribution of prior year profit 7.40 20.5 9.6
----------------------------------------------------- ---------- ----- -----
2018 final dividend 29 April 2019 4.70 - 19.1
------------------------------------ --------------- ---------- ----- -----
Dividends as reported in the Group
statement of changes in equity 30.1 28.7
----------------------------------------------------- ---------- ----- -----
(1) Subject to shareholder approval at the AGM on 22 April 2021.
24. Other reserves
Share-
Capital Cumulative based
redemption translation Fair value payment Other
reserve reserve reserve reserve reserves Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ----------- ------------ ---------- -------- --------- -----
At 1 January 2020 22.7 39.8 3.6 2.2 28.1 96.4
Exchange rate variances - 24.2 - - - 24.2
Property, plant and equipment
- net fair value deficits in the
year - - (3.6) - - (3.6)
- deferred tax thereon - - 0.5 - - 0.5
Share-based payment credit - - - (0.2) - (0.2)
--------------------------------- ----------- ------------ ---------- -------- --------- -----
At 31 December 2020 22.7 64.0 0.5 2.0 28.1 117.3
--------------------------------- ----------- ------------ ---------- -------- --------- -----
Share-
Capital Cumulative based
redemption translation Fair value payment Other
reserve reserve reserve reserve reserves Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ----------- ------------ ---------- -------- --------- ------
At 1 January 2019 22.7 68.6 2.4 1.2 28.1 123.0
Exchange rate variances - (28.8) - - - (28.8)
Property, plant and equipment
- net fair value deficits in the
year - - (0.1) - - (0.1)
- deferred tax thereon - - 0.1 - - 0.1
Other financial investments:
- realised fair value gains - - 2.5 - - 2.5
- deferred tax thereon - - (0.4) - - (0.4)
Discontinued operations - - (0.9) - - (0.9)
Share-based payment charge - - - 1.0 - 1.0
--------------------------------- ----------- ------------ ---------- -------- --------- ------
At 31 December 2019 22.7 39.8 3.6 2.2 28.1 96.4
--------------------------------- ----------- ------------ ---------- -------- --------- ------
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 financial assets classified as fair value through
comprehensive income and owner-occupied property since acquisition,
net of deferred tax.
The amount classified as other reserves was created prior to
listing in 1994 on a Group reconstruction and is considered to be
non--distributable.
25. Notes to the cash flow
2020 2019
Cash generated from operations GBPm GBPm
------------------------------------------------------ ------ ------
Operating profit 119.3 183.4
Adjustments for:
Net movements on revaluation of investment properties (31.5) (57.4)
Depreciation and amortisation 0.7 1.0
Profit on sale of investment property (11.6) (8.6)
Gain on sale of other financial investments - (40.4)
Lease incentive debtor adjustments (1.9) (3.7)
Share-based payment (credit)/charge (0.2) 1.0
Changes in working capital:
Increase in receivables (0.8) (3.4)
Increase in payables 2.9 3.4
------------------------------------------------------ ------ ------
Cash generated from operations 76.9 75.3
------------------------------------------------------ ------ ------
Amortisation 31
Changes in liabilities 1 January Financing of loan Fair value Foreign December
arising from financing 2020 cash flows issue costs adjustments exchange 2020
activities Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----- --------- ----------- ------------ ------------ --------- ---------
Borrowings 17 891.7 51.7 2.1 - 25.2 970.7
Interest rate swaps 18 4.1 - - 1.6 (0.1) 5.6
Forward foreign exchange
contracts 18 (0.3) 0.3 - - - -
------------------------- ----- --------- ----------- ------------ ------------ --------- ---------
895.5 52.0 2.1 1.6 25.1 976.3
------------------------- ----- --------- ----------- ------------ ------------ --------- ---------
Amortisation 31
Changes in liabilities 1 January Financing of loan Fair value Foreign December
arising from financing 2019 cash flows issue costs adjustments exchange 2019
activities Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----- --------- ----------- ------------ ------------ --------- ---------
Borrowings 17 836.9 80.3 2.3 - (27.8) 891.7
Interest rate swaps 18 4.6 (1.0) - 0.5 - 4.1
Forward foreign exchange
contracts 18 0.5 (1.2) - - 0.4 (0.3)
------------------------- ----- --------- ----------- ------------ ------------ --------- ---------
842.0 78.1 2.3 0.5 (27.4) 895.5
------------------------- ----- --------- ----------- ------------ ------------ --------- ---------
26. Contingencies
At 31 December 2020 and 31 December 2019 CLS Holdings plc had
guaranteed certain liabilities of Group companies. These were
primarily in relation to Group borrowings and covered interest and
amortisation payments. No cross-guarantees had been given by the
Group in relation to the principal amounts of these borrowings.
27. Commitments
At the balance sheet date the Group had contracted with
customers under non-cancellable operating leases for the following
minimum lease payments:
2020 2019
Operating lease commitments - where the Group is lessor GBPm GBPm
-------------------------------------------------------- ----- -----
Within one year 100.5 100.2
More than one but not more than five years 279.5 274.8
More than five years 90.7 115.0
-------------------------------------------------------- ----- -----
470.7 490.0
-------------------------------------------------------- ----- -----
Operating leases where the Group is the lessor are typically
negotiated on a customer-by-customer basis and include break
clauses and indexation provisions.
Other commitments
At 31 December 2020 the Group had contracted capital expenditure
of GBP16.5 million (2019: GBP5.3 million). At the balance sheet
date, the Group had exchanged contracts to acquire investment
properties for GBP89.9 million (2019: GBP32.8 million). There were
no authorised financial commitments which were yet to be contracted
with third parties (2019: nil).
28. Post balance sheet events
In January 2021, the Group exchanged on the acquisition of three
properties for GBP79.2 million, before costs. In February 2021, the
Group completed the acquisition of one property for GBP16.9
million, before costs and exchanged on the disposal of one property
for GBP6.1 million, before costs.
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