Final Results
CLS Holdings PLC
28 February 2003
Embargoed: 0700hrs, 28 February 2003
CLS HOLDINGS PLC
('CLS' or the 'Company')
PRELIMINARY FINANCIAL RESULTS FOR THE YEAR TO 31 DECEMBER 2002
FINANCIAL HIGHLIGHTS
• Adjusted NAV per share* 408.7 pence up 12.0 per cent (Statutory NAV per
share 394.9 pence up 11.7 per cent)
• Profit before tax £17.1 million up 51.3 per cent
• Total return to shareholders 15.5 per cent (based on adjusted NAV per
share and distributions) up from 15.4 per cent (based on Statutory NAV: 15.4
per cent up from 14.5 per cent)
• Intended distribution of 8.9 pence per share making a total distribution
to shareholders of 14.4 pence per share for the year up 19.0 per cent
• Portfolio valued at £848.9 million up 16.6 per cent
• Net rental income (including associate and JV) £60.3 million up 18.0 per
cent
• Year end available cash £65.7million up 19.0 per cent
Key statistics
31 Dec 2002 31 Dec 2001
Restated
Adjusted NAV per share* 408.7 p 365.0 p Up 12.0 %
Statutory NAV per share 394.9 p 353.4 p Up 11.7 %
Adjusted earnings per share* 17.3 p 9.8 p Up 76.5 %
Earnings per share 15.7 p 6.7 p Up 134.3 %
Shares in issue (000's) 94,129 99,266 Down 5.2 %
Distribution per share from tender offer buy-backs 14.4p 12.1 p Up 19.0 %
Other financial information
31 Dec 2002 31 Dec 2001
Restated
Property portfolio £848.9 m £728.3 m Up 16.6 %
Net asset value £371.7 m £350.8m Up 6.0 %
Cash £65.7 m £55.2m Up 19.0 %
Net rental income (including associate and JV) £60.3 m £51.1m Up 18.0 %
Operating profit (including associate and JV) £46.1 m £37.7m Up 22.3 %
Net interest payable £28.9 m £27.0m Up 7.0 %
Core profit before tax £20.9 m £13.7 m Up 52.6 %
Profit before taxation £17.1 m £11.3m Up 51.3 %
Profit after taxation £15.3 m £7.1m Up 115.5 %
Adjusted gearing* 119.6% 101.9% Up 17.4 %
Gearing 123.8% 104.3% Up 18.7 %
Solidity (net assets as a ratio of gross assets) 39.6% 43.3% Down 8.5 %
FRS13 fair value adjustment after tax 23.6 p 16.4p Up 43.9 %
* The Group has adopted the requirements of FRS19, that requires a tax provision
to be made in respect of capital allowances to the extent that they are not
covered by available tax losses brought forward. In practice we consider it
unlikely that the benefit of these capital allowances will not continue to be
available whether or not the properties are sold in the future. The Board has
complied with recent pronouncements from the APB, ASB and Listing Authority in
showing NAV and Earnings per share including the FRS19 provision with equal
prominence as adjusted figures. The effect of FRS 19 has been excluded from
those statistics that are indicated by an asterisk , a reconciliation of which
is set out on the final page of this document.
At 31 December 2002 the FRS 19 deferred tax charge included in the profit and
loss account was £1.5 million and the cumulative reduction to net assets was
£13.0 million (31 December 2001: £3.3 million and £11.5 million respectively).
The remaining accounting policies are as set out in the Group's 2001 Annual
Report and Accounts.
BUSINESS HIGHLIGHTS
• Major letting of refurbished property at Solna in Sweden, 84 per cent now
let.
• Acquisition of 11 properties in Paris for £33.9 million.
• Acquisition of 1,281 apartments (79,614 sq m) and 33,494 sq m of commercial
space at Lovgardet near Gothenburg together with a further property at Solna
(4,862 sq m), for £34.6 million.
• Spring Gardens office complex:
- Lease restructuring and extension; 100% now let to The Home Office
• Increase of rents during the year of 7.0 per cent on a like for like basis as
a result of rent reviews and indexation
• Re-financings raise £48.1 million.
CHAIRMAN'S STATEMENT
Our excellent results fully endorse the strategic decision we made several years
ago to invest in the Swedish and French property markets.
During the year we have continued to manage and expand the business in a risk
averse manner, concentrating our activities in our core markets of London,
Sweden and France, and principally in the office sector of each of these
markets, a sector in which we have specialised since the Company was founded.
As a result of our knowledge of the market, our cautious investment approach and
efficient management of both the portfolio and the business as a whole, I
believe that the Company has excellent defensive qualities, whilst still
providing a solid platform for increased profitability and further growth in net
asset value.
We have made selective purchases of well-let properties in both Sweden and
France. We remain strongly committed to the pro-active management of our
existing property portfolio, refurbishing and upgrading properties and
restructuring leases where appropriate, in order to increase rental income and
to enhance long term asset growth. We have also achieved an increase in our
like for like rental income (ignoring acquisitions and disposals) of 7.0
percent, not only due to the indexation of rents in France and Sweden and to
rent reviews concluded in London, but also as a result of the re-letting of
space becoming vacant during the year, particularly in France, at higher rents.
As a result, our gross rental income increased by 22.9 per cent to £65.9
million, and the annualised gross rental income of the Group's portfolio as at
the year end was £70.8 million. I am delighted to report that this figure
exceeds the estimate of £68 million predicted in my statement last year.
The growth in rental income when coupled with our reduced cost of borrowing as a
result of lower interest rates has produced record profit before tax of
£17.1million, an increase of 51.3 per cent. Furthermore, the overall tax charge
on this year's profit is just £2.1 million, of which £1.5 million is deferred
tax, giving an effective tax rate of 12.5 per cent reflecting the benefit of
capital allowances.
Over the year we have continued to refinance our property portfolio where
increases in value achieved mainly through active management have permitted
increased gearing. The cash thus raised, together with the additional cash
generated by our core operating activities during the year has led to an
increase of 19.0 per cent in our cash resources to £65.7 million at the year
end.
In London we have seen a weakening in tenant demand in some areas over the year.
However, given sustained low interest rates and the lack of an attractive
investment alternative on the stock market, we believe that the value of well
let office properties will perform robustly during 2003. In London, 40 per cent
of rental income from our portfolio is now derived from Government sources.
This percentage has increased during the year as a result of the construction of
additional offices and the restructuring of the leases at Spring Gardens office
complex resulting in all the rents there being Government sourced. Our average
lease length in London is 10.6 years unexpired and none of our buildings is
located in the City of London with its large over supply of offices. These
strengths in tenant structure and lease profiles should minimise the risk to
tenant default and the consequent re-letting of the resulting vacant space in
what is likely to be an increasingly difficult occupational market as the year
progresses.
On the other hand, the value of offices in London with shorter leases or those
requiring upgrading is likely to deteriorate and this could provide
opportunities for selective purchases during the year. Our own cash resources
and excellent relationships with a number of banks means that we will be ideally
placed to take advantage of these opportunities as and when they arise.
Although general market rents in Sweden have declined over the year the new
lettings we have achieved at Solna have been considerably in excess of those
needed to secure a profitable return on our refurbishment projects. The letting
of 14,350 sq m at Solna to Co-op has ensured the success of the extension and
refurbishment of Solna Business Park. The portfolio remains extremely well let
with 50 per cent of our rental income in Sweden secured on Government sources.
Meanwhile we intend to make further purchases of offices in France where a
relatively high yield, continuing tenant demand, availability of well built
modern properties and low interest rates make acquisitions attractive.
We remain committed to the delivery to our tenants of high quality well managed
offices with excellent communication facilities and we will continue to
modernise and upgrade our portfolio in order to meet tenant demand.
Share prices in the property sector as a whole, including CLS, suffer a
substantial discount to NAV. As a result the Company's share price is
significantly below net asset value per share and the Board continues to believe
in the benefit of distributing cash as capital dividends by way of a tender
offer buy-back. The Company returns to shareholders the same amount of cash by
this method as it would on a distribution by way of a cash dividend and it
enhances the net asset value of the remaining shares in issue. The Board
therefore intends to recommend a tender offer buy-back of 1 in 27 shares at a
price of 240 pence per share, giving a total distribution of 14.4 pence per
share representing an increase of 19.0 per cent on the previous year.
We believe that the business is in a position to produce substantial profit
growth during 2003 whilst the overall charge to taxation will remain low.
I would like to take this opportunity of welcoming the appointments to the Board
of Anna Seeley who joined the Board in September 2002 as Group Property
Director, and of Steven Board who is Chief Operating Officer and joined the
Board in February 2003. We are also pleased to announce the appointment of KBC
Peel Hunt as our joint stockbrokers alongside HSBC.
I would also like to put on record my thanks to my fellow directors, our staff,
advisors, banks and shareholders for their support during the year.
Sten Mortstedt
Executive Chairman
FINANCIAL REVIEW
Introduction - The strong defensive position of the Group, evidenced by a
significant proportion of its portfolio being let to government tenants on
longer leases, has enabled CLS to continue to deliver solid underlying growth.
For the eighth successive year since flotation net asset value per share has
increased. Adjusted NAV of 408.7 pence per share (December 2001: 365.0 pence),
grew by 12.0 per cent during 2002 (Statutory NAV of 394.9 pence per share grew
by 11.7 per cent over the same period). Since 1995 the adjusted net asset value
per share has grown by 17.6 per cent compound per annum, or a total of 212.2 per
cent (Statutory NAV has shown the same growth had FRS 19 applied throughout that
period). The organic growth in adjusted net asset value per share over the
period (taking into account the effect of tender offer buy-backs but excluding
growth attributable to the purchase of shares on the market for cancellation)
has been 180.7 per cent (Statutory NAV has shown the same growth had FRS 19
applied throughout that period). If all share options were exercised, the
dilutive effect would be to reduce adjusted NAV per share by 3.1 pence
(Statutory NAV by 2.9 pence).
At the year end, the post-tax FRS 13 adjustment that amends fixed interest loans
to fair value, amounted to 23.6 pence per share (December 2001: 16.4 pence).
The return in the year to shareholders based on the increase in adjusted NAV per
share and distributions by way of tender offer buy back was 15.5 per cent
(December 2001: 15.4 per cent). Based on Statutory NAV the return is 15.4 per
cent (December 2001: 14.5 per cent).
During the year the Company distributed £12.7 million (12.9 pence per share) to
shareholders by way of tender offer buy-backs. The Company also purchased 0.6
million shares on the market for cancellation (0.6 per cent of the shares in
issue as at 1 January 2002) at a cost of £1.2 million, an average price per
share of 200 pence. Since 1998 a total of £44.1 million has been returned to
shareholders through tender offer buy-backs, and, in addition, 19.5 million
shares have been purchased on the market for cancellation at a cost of £32.8
million, in all a total of £76.9 million.
Net assets grew by £20.9 million to £371.7 million in the year, including
positive foreign exchange translation movements of £11.5 million (relating to
the Group's Swedish and French net assets). This arises because although each
property is funded by loans in local currency, the equity in the property is
exposed to movements in foreign exchange rates when translated into sterling.
Net asset growth is calculated after taking into account the cost of tender
offer buy-back distributions and market repurchases made during the year, which
totalled £14.0 million.
Adjusted gearing at the year end increased to 119.6 per cent (2001: 101.9 per
cent) (gearing was 123.8 per cent - 2001: 101.9 per cent). Tender offer
buy-backs during the year and the purchase of shares in the market had the
impact of increasing gearing by 3.5 per cent and the positive effect of foreign
exchange translation of overseas net assets during 2002 reduced gearing by 3.2
per cent.
The Group held £65.7 million cash as at 31 December 2002 (December 2001: £55.2
million), the increase being largely attributable to the refinancing of two
properties in the UK and of a portfolio of properties in France (£24.7 million
and £7.4 million respectively).
In June 2002, one of the principal equity investments of the Group, WightCable,
a broadband telecommunications operator with fixed assets costing in excess of
£15.0 million, was restructured through additional funding from CLS of £1.3
million (based on a fair value of £1.5 million). Our increased shareholding and
participation has made it appropriate to incorporate its results as a subsidiary
from 1 July 2002. The carrying value of the original investment was written down
by £2.8 million. It is anticipated that this investment will begin to generate
positive cash contributions during 2003.
Other existing equity investments amounting to £4.6 million (after provisions
this year of £0.3 million) continue to be carried at the lower of cost and net
realisable value and represent only 0.4 per cent of the gross assets of the
Group.
The underlying elements of the growth in equity shareholders' funds are set out
below:
£m
Equity shareholders' funds at 31 December 2001 (restated) 350.8
Direct investment
Income from investments in property and other 57.4
Losses and write downs in equity investments (3.1)
Administrative expenses (8.3)
Net interest payable (28.9)
Profit before taxation 17.1
Taxation - current (0.7)
- deferred (1.5)
Equity minority interest 0.4
Retained profit 15.3
Indirect investment
Revaluations 7.9
Exchange and other movements 12.0
Increase in equity due to direct and indirect investment 35.2
Other equity movements
Capital distributions by tender offer buy-backs including costs (12.9)
Other share buy backs (1.2)
Share Issues 0.1
Equity shareholders' funds at 31 December 2002 372.0
Core profit generated by the Group rose by 52.6 per cent. This has been
calculated to show the profit arising solely from property rental as set out
below :
2002 2001
£m £m
Profit before tax 17.1 11.3
Deduct:
Equity investment losses (3.1) (6.3)
WightCable loss (0.7) -
(Loss)/profit on sale of properties (0.2) 0.5
Lease surrenders and variations 0.5 0.8
Profit on trading stock - 0.4
Negotiated settlement in France (0.1) 2.6
Fees re aborted purchase (0.2) (0.4)
(3.8) (2.4)
Core profit 20.9 13.7
Increase on previous year 52.6% 27.9%
REVIEW OF THE PROFIT AND LOSS ACCOUNT
Financial Results by Location - The results of the Group have been analysed by
location and main business activity as set out below:
2002 Equity 2001
Total UK* Sweden France investments
£m £m £m £m £m £m
Net rental income 60.3 34.3 11.5 14.5 - 51.1
Less JV income (0.9) (0.9) - - - (0.9)
Other income 1.3 1.3 0.2 (0.2) - 4.3
Net rental and property related income
(excluding JV) 60.7 34.7 11.7 14.3 - 54.5
Operating expenses (12.3) (8.4) (1.8) (1.7) (0.4) (11.3)
Losses and write-downs on equity investments (3.1) - - - (3.1) (6.3)
Associate / JV operating profit 0.8 0.8 - - - 0.9
Operating profit 46.1 27.1 9.9 12.6 (3.5) 37.8
(Loss)/gains from sale of investment properties (0.1) (0.1) - - - 0.5
Net interest payable and related charges (28.9) (15.1) (8.7) (4.4) (0.7) (27.0)
Profit on ordinary activities before tax 17.1 11.9 1.2 8.2 (4.2) 11.3
Profit on ordinary activities before tax for the
year ended 31 December 2001 11.3 11.7 0.3 8.2 (8.9)
* Results relating to Germany were immaterial in the context of the overall
results of the Group and have therefore been included within the UK.
Net rental income - has increased by 18.0 per cent to £60.3 million and
reflects the inclusion of the Lovgardet portfolio and one further property at
Solna, Sweden that were purchased in January 2002, and a further eleven
properties acquired in France during the year. These acquisitions contributed
£3.1 million and £1.3 million to net rental income respectively.
Other income - of £1.3 million (2001: £4.3 million) mainly comprised lease
surrenders of £0.5 million (principally at Great West House, Brentford) gym
membership fees generated from the Solna development of £0.2 million and gross
profit for WightCable of £0.4 million for the six months since its acquisition.
Administrative expenditure - of £8.3 million (2001 : £8.0 million) included
£1.1 million of overhead relating to WightCable. Excluding the overhead from
this acquisition, the year on year comparison shows a reduction of £0.8 million
reflecting lower levels of professional and abortive fees (by £0.5 million) and
personnel costs (by £0.2 million).
Net property expenses - of £4.0 million (2001: £3.3 million) included an
amount of £1.1 million of depreciation of which £0.8 million related to
amortisation of a short leasehold interest. The remaining un-amortised value is
now £0.4 million. A provision for bad and doubtful debts was made amounting to
£0.8 million (December 2001: £0.5 million) which related mainly to three
tenants. In addition a substantial marketing campaign at Solna has been
undertaken costing £0.4 million. Over 84 per cent of the newly refurbished
vacant space has been let.
Other operating losses - mainly represent the write down of equity of £0.4
million and loans of £2.4 million from our investment in what is now WightCable,
as part of its restructuring in the first half of the year. The residual
investment amounts to £1.3 million, and due to our increased participation, the
results of WightCable have been consolidated since 1 July 2002. The impact on
the Group's profit before tax was a loss of £0.7 million, although the effect on
retained profit was reduced by minority interests of £0.4 million and tax
allowances of £0.3 million. It is anticipated that this company will begin to
generate positive cash flows in the latter part of 2003. Provisions of £0.3
million were made against three other unlisted investments.
2002 2001
£m £m
Losses relating to listed investments - (4.3)
Write downs of unlisted investments (3.1) (2.0)
(3.1) (6.3)
Net interest and financial charges - amounted to £28.9 million and showed an
increase of £1.9 million over net expenditure in 2001. Increased interest
payable of £1.6 million reflected further re-financing in the UK of £27.4
million and in Sweden of £13.2 million during 2002. In addition new loans of
£51.0 million were raised in respect of our acquisitions at Lovgardet in
Sweden and eleven properties in France.
The Company's policy is to expense all interest payable to the profit and loss
account, including interest incurred in the funding of refurbishment and
development projects
A breakdown of the net charge is set out below:
2002 2001 Difference
£m £m £m
Interest receivable 1.6 2.7 (1.1)
Foreign exchange 0.3 (0.5) 0.8
Interest receivable and similar income 1.9 2.2 (0.3)
Interest payable and similar charges (30.8) (29.2) (1.6)
Net interest and financial charges (28.9) (27.0) (1.9)
Interest payable and related charges of £30.8 million (2001 : £29.2 million)
included joint venture interest of £0.9 million (2001: £0.9 million) relating to
the Group's interest in Teighmore Limited, owner of Southwark Towers.
Interest costs included £1.8 million incurred in respect of development loans
relating to the refurbishment of Frasaren 11 at Solna Business Centre, for which
only £1.1 million of rental income was received during 2002.
The average cost of borrowing for the Group at December 2002 is set out below :
December 2002 UK Sweden France Total
Average interest rate on fixed rate debt 9.9 % 6.2 % 4.9 % 7.9 %
Average interest rate on variable rate debt 5.4 %* 5.6 % 4.4 % 5.2 %
Overall weighted average interest rate 6.6 % 5.9 % 4.6 % 6.0 %
December 2001
Average interest rate on fixed rate debt 10.2% 6.1% 4.9% 7.7%
Average interest rate on variable rate debt 5.9% 5.0% 4.4% 5.5%
Overall weighted average interest rate 7.0% 5.6% 4.6% 6.3%
* On the assumption that interest rates remain at today's rates, the average
interest rate will fall during 2003 by approximately 0.2 per cent or £0.9
million p.a.
Interest payable and related charges also include the depreciation of interest
rate caps amounting to £0.8 million (2001: £0.6 million) and amortisation of
issue costs of loans of £1.0 million (2001: £0.8 million).
Taxation - The Group's current taxation charge has benefited from substantial
corporation tax losses brought forward in some subsidiaries, significant capital
allowances on many of the Group's UK properties, and amortisation deductions in
Sweden and France. These factors will have less effect in the future as
corporation tax losses are used against expected profits and as allowances and
amortisation deductions decrease in existing subsidiaries. We do however
anticipate utilising capital allowances on assets held by recently acquired
subsidiary companies.
REVIEW OF THE BALANCE SHEET
Investment Properties - The property assets of the Group (including plant and
machinery) have increased by 16.8 per cent to £852.4 million (2001: £729.8
million). The net increase of £122.6million included the addition of eleven new
properties (18,061 sq m : 194,413 sq ft) located in Paris at a cost of £33.9
million, one additional property at Solna (4,862 sq m : 52,247 sq ft) and 1,281
apartments (79,614 sq m : 855,532 sq ft) and 33,494 sq m (359,926 sq ft) of
commercial space at Lovgardet near Gothenburg for £34.6 million.
In addition, expenditure on refurbishments, principally at Solna, amounted to
£21.3 million and the effect of foreign exchange on overseas assets was a gain
of £25.7 million.
The revaluation gain of the Group's investment properties was as follows:
Revaluation of property in 2002 2002 2001
£m £m
UK (5.7) 7.8
Sweden 4.3 11.7
France 9.3 10.8
Total Revaluation 7.9 30.3
Based on the valuation at 31 December 2002 and annualised contracted rent
receivable at that date of £70.8 million (2001: £57.5 million), the portfolio
shows a yield of 7.9 per cent (2001 : 7.9 per cent).
An analysis of the location of investment property assets and related loans is
set out below:
Total
Balance
Sheet UK • Sweden France
December 2002 £m % £m % £m % £m %
Investment Properties 848.9 100.0 424.1 50.0 214.4 25.2 210.4 24.8
Loan (526.2) 100.0 (280.5) 53.3 (110.1) 20.9 (135.6) 25.8
Equity in Property 322.7 100.0 143.6 44.5 104.3 32.3 74.8 23.2
Assets
Other 49.0 100.0 35.3 72.0 (2.8) (5.7) 16.5 33.7
Net Equity 371.7 100.0 178.9 48.1 101.5 27.3 91.3 24.6
Equity in property
assets as a percentage
of investment 38.0% 33.9% 48.6% 35.6%
£m £m £m £m
Opening Equity
(as previously 362.3 216.1 79.1 67.1
reported)
Increase during 2002 9.4 (37.2) * 22.4 24.2
Closing Equity 2002 371.7 178.9 101.5 91.3
• Results relating to Germany were immaterial in the context of the
overall results of the Group and have therefore been included within the UK. The
following exchange rates' were used to translate assets and liabilities at the
year end : SEK/GBP 14.033 : Eur/GBP 1.5309.
* Net assets were reduced by payments for share purchases, tender offer
distributions and deferred tax provisions totalling £27.1 million which are
included within the results of the UK.
Debt Structure - Borrowings are raised by the Group to finance holdings of
investment properties. These are secured, in the main, on the individual
properties to which they relate. All borrowings are taken up in the local
currencies from specialist property lending institutions.
Financial instruments are held by the Group to manage interest and foreign
exchange rate risk. Hedging instruments such as interest rate caps are acquired
from prime banks. The Group has thereby hedged all of its interest rate
exposure and a significant proportion of its foreign exchange rate exposure.
The activities of the Group are mainly financed through share capital, reserves
and long term loans, which are secured against the properties to which they
relate.
Total UK Sweden France
Net Interest Bearing Debt £m % £m % £m % £m %
Fixed Rate Loans (171.3) 32.5 (75.9) 27.1 (57.6) 52.3 (37.8) 27.9
Floating Rate Loans (354.9) 67.5 (204.6) 72.9 (52.5) 47.7 (97.8) 72.1
(526.2) 100.0 (280.5) 100.0 (110.1) 100.0 (135.6) 100.0
Bank and investments 65.7 45.0 3.5 17.2
Net Interest Bearing Debt (460.5) 100.0 (235.5) 51.1 (106.6) 23.2 (118.4) 25.7
2001 (364.8) 100.0 (211.5) 58.0 (64.3) 17.6 (89.0) 24.4
Non interest bearing debt, represented by short-term creditors, amounted to
£30.0 million (December 2001: £29.8 million)
Total UK Sweden France
Floating rate loan caps % % % %
2002
Percentage of net floating rate loans capped 100 100 100 100
Average base interest rate at which loans are 6.3 6.3 6.2 6.4
capped
Average tenure 3.2 years 3.5 years 2.4 years 3.1 years
2001
Percentage of net floating rate loans capped 99 100 100 93
Average base interest rate at which loans are 6.6 6.6 6.3 6.8
capped
Average tenure 3.5 years 3.6 years 3.1 years 3.3 years
In relation to its London based portfolio the Group has continued to pursue a
financial strategy to raise floating rate long term loans hedged against adverse
interest rate movements by the acquisition of interest rate caps. Caps are
normally purchased on a five-year basis. At 31 December 2002 the average period
to maturity of caps was 3.2 years.
New Printing House Square was financed in 1992 through a securitisation of its
rental income by way of a fully amortising bond, which has a current outstanding
balance of £39.5 million at an interest rate of 10.8 per cent with a maturity
date of 2025; and a zero coupon bond, with a current outstanding balance of £4.2
million, with matching interest rate and maturity date. Following the rent
review which was settled in 2002 increasing rent by £0.7 million to £5.4 million
per annum, further borrowing was raised of £7.4 million.
Swedish property acquisitions have been financed through a combination of
equity, long term fixed rate loans at an average interest rate of 6.2 per cent
and floating rate loans for which the average interest rate in 2002 was 5.6 per
cent. In addition, the Group entered into forward foreign exchange contracts in
order to hedge its exposure to foreign currency transactions in relation to the
refurbishment of Solna Business Park.
French property acquisitions have been funded by a mixture of equity and
external bank finance. The bank funding has been raised long term (mainly
fifteen years), 72.1 per cent of which is on a floating rate basis, hedged for
the first five years against adverse interest rate movements by the acquisition
of interest caps and 27.9 per cent of the loan book is fixed until 2004 at an
average interest rate of 4.9 per cent.
If interest rates were to rise to our cap ceilings the Group's full year
additional cost of borrowing would amount to approximately £6.9 million.
The net borrowings of the Group at 31 December 2002 of £460.5 million showed an
increase of £95.7 million over 2001, reflecting the Group's programme of
acquisitions and refurbishments.
The Group has adopted the requirements of FRS13, which addresses among other
things, disclosure in relation to derivatives and other financial instruments.
If our loans were held at fair value then the Group's fixed rate debt at the
year end would be in excess of book value by £31.7 million (2001: £23.2 million)
which net of tax at 30 per cent equates to £22.2 million (2001: £16.2 million).
A substantial amount of this is attributable to the long-term securitisation of
New Printing House Square.
The contracted future cash flows from the properties securing the loans are
currently well in excess of all interest and ongoing loan repayment obligations.
Only £15.7 million (3.0 per cent) of the Group's total bank debt of £526.2
million is repayable within the next 12 months, with £320.6 million (60.9 per
cent) maturing after five years.
Share Capital - The share capital of the Company totalled £23.5 million at 31
December 2002, represented by 94,129,431 ordinary shares of 25 pence each which
are quoted on the main market of the London Stock Exchange.
A capital distribution payment by way of tender offer buy-back was made both in
May and November of 2002 resulting in the purchase of 4.6 million shares and
providing a distribution of £12.7 million to shareholders, together with costs
of £0.2 million. As the shares continued to trade at a discount to NAV, the
Group bought back a total of 0.6 million shares in the market for cancellation
at an average cost per share of 200 pence, representing 0.6 per cent of opening
shares. This has involved a total cash expenditure of £1.2 million.
A total of 39.9 million shares have been purchased at a total cost of £76.9
million since the programme of buy backs started in 1998. The average cost of
shares purchased for cancellation over this period was 193 pence per share.
The weighted average number of shares in issue during the year was 97,427,913
(2001: 106,054,397)
The average mid-market price of the shares traded in the market during the year
ended 31 December 2002 was 218.5 pence with a high of 260.0 pence in May 2002
and a low of 191.0 pence in October 2002.
Should the proposed tender offer buy back be fully taken up, the number of
shares in issue would be reduced by 3,486,275 to 90,643,156.
An analysis of share movements during the year is set out below:
No of shares No of shares
Million Million
2002 2001
Opening shares 99.3 108.1
Tender offer buy back (4.6) (3.7)
Buybacks in the market for cancellation (0.6) (6.6)
Shares issued for the exercise of options - 1.5
Closing shares 94.1 99.3
In total 38.7 million shares were traded in the market during 2002. The share
price on 26 February 2003 was 190.0 pence.
The share price of CLS increased by 0.7 per cent in the year to 31 December 2002
compared to a decrease of 0.3 per cent in the FTSE All Share Real Estate Index
and a decrease of 25.0 per cent in the FTSE All-Share Index
An analysis of the ownership structure is set out below:
Number of shares Percentage of shares
Institutions 40,766,967 43.3
Private investors 2,766,451 2.9
The Mortstedt family 47,495,177 50.5
Other 3,100,836 3.3
Total 94,129,431 100.0
The Company operates share option schemes to enable its staff to participate in
the prosperity of the Group. At 31 December 2002 there were 1,225,000 options
in existence with an average exercise price of 167.8 pence.
Distribution - As the current share price remains at a considerable discount
to net asset value, your Board is intending to propose a further tender offer
buy-back of shares in lieu of paying a cash dividend, on the basis of 1 in 27
shares at a price of 240.0 pence per share. This will enhance net asset value
per share and is equivalent in cash terms to a final dividend per share of 8.9
pence, yielding a total distribution in cash terms of 14.4 pence per share for
the year (2001: 12.1 pence).
Corporate Structure - The aim has been to continue to hold individual
properties within separate subsidiary companies, each with one loan on a
non-recourse basis.
PROPERTY REVIEW
Introduction - We continue to focus upon low risk high return properties in
our core locations of London, France and Sweden. At the same time we actively
manage the portfolio with a view to maximising capital returns. The Group now
owns 110 properties with a total lettable area of 582,953 sq m (6,274,994 sq
ft), of which 46 properties are in the UK, 23 in Sweden and 41 in France. We
have 453 commercial tenants and 1,415 residential tenants.
Strategy - Our strategy is to target above average returns on equity through
acquisition, active management, refurbishment, and selective sales.
An analysis of contracted rent, book value and yields is set out below:
Region Total Rent % Net Rent % Book Value % Yield on Yield
contracted When
£000 £000 £000 rent Fully
Let
London City Fringes 280 0.4 280 0.4 2,550 0.3 11.0
London Mid Town 6,639 9.4 6,639 9.9 96,500 11.3 6.9
London West End 3,131 4.4 3,076 4.6 67,285 7.9 4.6
London West 5,583 7.9 5,368 8.0 59,704 7.0 9.0
London South Bank 8,888 12.5 8,754 13.1 120,295 14.2 7.3
London South West 2,042 2.9 2,055 3.1 26,650 3.1 7.7
London North West 5,494 7.8 5,527 8.3 45,420 5.4 12.2
Outside London 350 0.5 350 0.5 3,000 0.4 11.7
Total UK 32,407 45.8 32,049 47.9 421,404 49.6 7.6 8.3
Germany 206 0.3 184 0.3 2,672 0.3 6.9
Total Germany 206 0.3 184 0.3 2,672 0.3 6.9 6.9
Sweden Gothenburg 5,890 8.3 3,805 5.7 37,056 4.4 10.3
Sweden Stockholm 11,236 15.9 10,139 15.2 131,831 15.5 7.7
Sweden Vanersborg 4,384 6.2 3,998 6.0 45,536 5.4 8.8
Total Sweden 21,510 30.4 17,942 26.9 214,423 25.3 8.4 8.2*
France Paris 13,346 18.9 13,346 20.0 173,081 20.4 7.7
France Lyon 2,448 3.4 2,448 3.6 28,513 3.4 8.6
France Lille 464 0.7 464 0.7 5,324 0.6 8.7
France Antibes 377 0.5 377 0.6 3,501 0.4 10.8
Total France 16,635 23.5 16,635 24.9 210,419 24.8 7.9 8.2
Group Total 70,758 100.0 66,810 100.0 848,918 100.0 7.9 8.2
• Conversion Rates: SEK/GBP 14.033 : Eur/GBP 1.5309.
(*)Yields based on receivable rent and potential rents have been calculated on
the assumption that year-end book values will increase by anticipated
refurbishment expenditure of approximately £66.8 million in respect of
refurbishment projects in Solna, Stockholm, Sweden
Rent analysed by length of lease and location
Contracted Space under
Contracted but not refurb. or
Aggregate income Unlet space with plan.
Rental producing at ERV consent at ERV Total
Description Sq.m. Sq.ft. £000 £000 £000 £000 £000
UK < 5 years 32,709 352,033 7,380 21 - - 7,401
UK 5 - 10 years 45,247 487,043 10,589 116 - - 10,705
UK > 10 years 68,951 742,197 14,301 - - - 14,301
Vacant 11,641 125,315 - - 2,830 - 2,830
Total UK 158,548 1,706,588 32,270 137 2,830 - 35,237
Germany 3,095 33,315 206 - - - 206
Total Germany 3,095 33,315 206 - - - 206
Sweden <5 years 179,663 1,933,940 12,481 192 - - 12,673
Sweden 5-10 years 11,356 122,239 1,293 452 - - 1,745
Sweden >10 years 69,224 745,145 4,987 2,105 - - 7,092
Refurbished space 17,484 188,202 - - - 5,675 5,675
Vacant 17,374 187,018 - - 1,079 - 1,079
Total Sweden 295,101 3,176,544 18,761 2,749 1,079 5,675 28,264
France < 5 years 55,260 594,833 7,000 - - - 7,000
France 5-10 years 67,481 726,383 9,635 - - - 9,635
Vacant 3,468 37,330 - 525 - 525
Total France 126,209 1,358,546 16,635 - 525 - 17,160
GROUP TOTAL 582,953 6,274,993 67,872 2,886 4,434 5,675 80,867
The above table shows rental income by category and the future potential income
available from new lettings and refurbishments.
We estimate that open market rents are approximately 3.0 per cent higher than
current contracted rents receivable, which represents a potential increase of
£2.1 million. This excludes the additional rents we will receive as a result of
our refurbishment programme. An analysis of the net increase is set out below:
Estimated Rental Reversionary Element
Contracted Rent Value
£ Million £ Million %
UK & Germany 32.6 32.0 (1.8)
Sweden 21.6 21.4 (0.9)
France 16.6 19.5 17.5
Total 70.8 72.9 3.0
The total potential gross rental income (comprising contracted rentals, and
estimated rental value of unlet space and refurbishment) of the portfolio is
£80.9 million p.a.
UK Portfolio -
In our continued efforts to work the UK portfolio in a down turning market we
have concentrated on retaining existing tenants and enhancing the properties
currently held within the portfolio.
During the year we completed the infill between units 2 and 3 at Spring Gardens
and extended the leases to the Home Office that now expire between 2010 and
2025. The UK government is now responsible for 100 per cent of the rental
income.
Our serviced offices continue to perform well and made a contribution during
2002 of £0.5 million. We have expanded the operation at Vista and hope to
increase the space available at London House in the early part of 2003. At
present we have an average occupation rate of 86.0 per cent and are looking into
expanding the concept into other buildings where there are vacant floors.
We took possession of One Leicester Square from the previous tenant in September
of 2002 and are actively marketing the premises. We hope to be able to announce
a new letting on the majority of the space in the near future.
The eighteen flats at Coventry House will be completely refurbished by March
2003 and are currently being actively marketed. They have been very well
received in the market and a third of the apartments have already been reserved.
The sign at the top of the building was successfully upgraded by Van Wagner at
the end of 2002 and now that it has been let to Vodafone is fully income
producing.
Our planning application to build a new tower at London Bridge Station, designed
by Renzo Piano, has been called in by the Secretary of State and the public
enquiry is due to commence on 15 April 2003. We own a one third interest in the
project and in the existing fully income producing investment property known as
Southwark Towers which is let to PricewatehouseCoopers. We have not taken into
account any development hope value in the accounts for 31 December 2002.
Although there has been a further down turn in the UK property market during
2002 the portfolio continues to perform well. We have successfully managed to
achieve increases on rent reviews at New Printing House Square, Coombe Hill
House, CI Tower and Westminster Tower. The overall vacancy rate by rental
income within the UK portfolio has increased to 8.0 per cent, more than half of
which is represented by One Leicester Square. The majority of our portfolio (75
per cent) in the UK continues to be let to government bodies and large
corporates. Additionally 77.2 per cent of leases run for more than five years.
We continue to work with our tenants in meeting their needs as well as investing
in our buildings in order to retain existing tenants and attract new ones.
In a falling German market we sold Westbahnhof for £1.6 million, for which the
Group originally paid £1.2 million. We now have only one remaining minor
investment in Germany.
Swedish Portfolio -
In Sweden the portfolio continues to perform well. We remain dedicated to
enhancing our properties at Solna Business Park, Lovgardet and Vanerparken,
and we continue to attract new tenants where vacant space is available.
Solna Business Park
Although the Stockholm market has weakened Solna Business Park continues to
attract new tenants. We signed a major letting to Coop in the fourth quarter
of 2002. Coop are relocating from there offices in Stockholm centre where they
have been located for over 70 years to Solna in January 2004 on a ten-year lease
and will initially occupy a total of 14,350 sq m (154,150 sq ft). This letting
means that Frasaren 11 is now over 84% let and we remain hopeful of securing
tenants for most of the remainder in the first half of 2003.
The facilities at Solna Business Park will be expanded to include an enhanced
onsite restaurant to be opened in April 2003 and, in addition, a business hotel,
a conference centre and a number of shops will open at the end of 2003. The
existing gym at Solna continues to be very popular and we are confident that
these ancillary services will add to Solna's appeal to new and existing tenants.
Lovgardet, Gothenburg
Since the acquisition of Lovgardet in January 2002 we have improved the
services to our tenants and built up a close relationship with the tenants'
association in respect of the residential properties and hence obtained a
reduced vacancy rate. As of the year end only seven flats out of 1,281 were
vacant while being refurbished. Regarding the commercial leases, we have
implemented CLS's normal close tenant contacts and we begin to see improvements
in tenant relationships. Leases on 76 per cent of the commercial space expire in
2014.
Vanerparken
Vanerparken is let primarily to the local council on long leases, 75 per cent
of leases on the space expire in June 2015.
We work closely with the local council and the other tenants in order to
continue to meet their demand for occupation and simultaneously securing
prolongation of the shorter leases of which only 2.6 per cent by rental income
expires within the next three years.
French Portfolio -
Throughout 2002 France has continued to perform extremely well. We have
continued to see growth in our existing portfolio and have acquired 11 new
properties throughout the year.
Through active management we have let or restructured leases covering 13,348 sq
m (143,424 sq ft), or 10.5 per cent of the total French portfolio with a
weighted average increase of 28.0 per cent, €562,300 (£367,300). In addition
automatic indexation has increased the rent during the year by €691,732
(£451,800), equating to 3.4 per cent. The overall uplift in rental income on a
like for like basis was therefore 6.2 per cent.
The acquisitions made during the year have been of high quality, well-let
offices at high initial yields. These acquisitions have been funded on a
floating rate basis. The investments generate a very high initial return,
further enhanced through the recent reduction in interest rates. In addition we
see potential for rental growth, especially within the portfolio acquired from
Banque Hervet.
During 2003 we expect to see further investment opportunities in the French
market. The French investment market has remained strong in 2002 and has not
showed any signs of a slowdown. However, the demand in the letting market slowed
during the year with a subsequent easing of letting levels. Where possible we
will continue to restructure leases and retain existing tenants. The portfolio
is still underlet and hence we see a possibility for rental growth even if
market rents are reduced from peak levels obtained in 2001.
Consolidated Profit and Loss Account...
for the year ended 31 December 2002
2002 2001
£000 £000
Re-stated
Net rental income (including associates & joint ventures) 60,328 51,100
Continuing operations 60,328 51,100
Acquisitions - -
Less: Joint venture (continuing operations) (907) (924)
Group net rental income 59,421 50,176
Other income 1,289 4,309
60,710 54,485
Administrative expenses (8,342) (8,010)
Net property expenses (3,998) (3,318)
(12,340) (11,328)
Other operating losses (3,054) (6,301)
Group operating profit 45,316 36,856
Continuing operations 46,029 36,856
Acquisitions (713) -
Share of joint venture's operating profit (continuing operations) 883 873
Share of associate's operating loss (acquisitions) (93) -
Operating profit including joint ventures and associates 46,106 37,729
(Losses)/gains from sale of investment property (153) 524
Profit on ordinary activities before interest 45,953 38,253
Interest receivable and similar income:
Group 1,915 2,223
Joint Venture 1 17
Associate - -
Interest payable and similar charges:
Group (29,925) (28,350)
Joint Venture (860) (864)
Associate (17) -
Profit on ordinary activities before taxation 17,067 11,279
Tax on profit on ordinary activities:
Group - current (648) (938)
- deferred (1,497) (3,273)
Joint Venture - -
Associate - -
Profit on ordinary activities after taxation 14,922 7,068
Equity minority interest 388 -
Retained profit for the year 15,310 7,068
Basic Earnings per Share 15.7p 9.8p
Diluted Earnings per Share 15.7p 9.7p
Consolidated Balance Sheet
at 31 December 2002
2002 2001
£000 £000
Re-stated
Fixed assets
Tangible assets 852,354 729,760
Investments:
Interest in joint venture:
Share of gross assets 17,024 15,257
Share of gross liabilities (14,257) (13,147)
2,767 2,110
Interest in associate 1,730 -
Other investments 301 712
857,152 732,582
Current assets
Debtors - amounts falling due after more than one year 4,354 5,179
Debtors - amounts falling due within one year 6,864 11,740
Investments 4,580 6,275
Cash at bank and in hand 65,650 55,239
81,448 78,433
Creditors: amounts falling due within one year (45,890) (58,933)
Net current assets 35,558 19,500
Total assets less current liabilities 892,710 752,082
Creditors: amounts falling due after more than one year (507,735) (389,788)
Provisions for liabilities and charges (13,255) (11,482)
Net Assets 371,720 350,812
Capital and reserves
Called up share capital 23,532 24,817
Share premium account 68,551 68,476
Revaluation reserve 218,837 202,022
Capital Redemption Reserve 9,975 8,675
Other reserves 22,637 19,657
Profit and loss account 28,468 27,165
Total equity shareholders' funds 372,000 350,812
Equity minority interests (280) -
Capital employed 371, 720 350,812
Consolidated Cash Flow Statement
for the year ended 31 December 2002
2002 2001
£000 £000
Net cash inflow from operating activities 53,044 38,851
Returns on investments and servicing of finance
Interest received 1,541 2,627
Interest paid (26,598) (25,968)
Issue costs on new bank loans (2,196) (1,940)
Interest rate caps purchased (1,062) (2,275)
Net cash outflow from returns on investments
and servicing of finance (28,315) (27,556)
Taxation (223) (887)
Capital expenditure and financial investment
Purchase and enhancement of properties (90,270) (41,947)
Sale of investment properties 1,802 3,488
Purchase of other fixed assets (945) (1,609)
Purchase of own shares (14,007) (25,604)
Net cash outflow for capital expenditure and
financial investment (103,420) (65,672)
Acquisitions and disposals
Investment in associate/joint venture (461) (331)
Purchase of subsidiary undertaking (92) -
Cash acquired on purchase of subsidiary undertaking 228 -
Net cash outflow before use of liquid resources and financing (79,239) (55,595)
Management of liquid resources
Cash (placed on)/released from short term deposits (8,364) 12,732
Financing
Issue of ordinary share capital 90 1,446
New loans 113,034 139,699
Repayment of loans (24,231) (69,577)
Net cash inflow from financing 88,893 71,568
Increase in cash 1,290 28,705
Statement of Total Recognised Gains & Losses
for the year ended 31 December 2002
2002 2001
£000 £000
Re-stated
Profit for the financial year 15,310 7,068
Unrealised surplus on revaluation of properties 7,530 30,344
Share of joint venture unrealised surplus on revaluation of properties 333 -
Release of revaluation deficit on property disposal 443 -
Currency translation differences on foreign currency net investments 11,489 (6,152)
Other recognised gains relating to the year 19,795 24,192
Total recognised gains and losses relating to the year 34,662 31,260
Prior year adjustment (11,482) -
Total gains and losses recognised since last annual report 23,623 31,260
Reconciliation of Historical Cost Profits & Losses
For the year ended 31 December 2002
2002 2001
£000 £000
Re-stated
Reported profit on ordinary activities before taxation 17,067 11,279
Realisation of property revaluation gains of previous years - 1,559
Historical cost profit on ordinary activities before taxation 17,067 12,838
Historical cost profit for the year retained after taxation, minority
interests and dividends 15,310 8,627
Reconciliation of Movements in Shareholders' Funds
for the year ended 31 December 2002
2002 2001
£000 £000
Re-stated
Profit for the financial year 15,310 7,068
Other recognised gains relating to the year 19,795 24,192
New share capital issued 90 1,532
Purchase of own shares (13,831) (25,344)
Expenses of share issue/purchase of own shares (176) (261)
Net additions to shareholders' funds 21,188 7,187
Opening shareholders' funds 350,812 343,625
(originally £362,294 before deducting prior year adjustment of
£11,482 million)
Closing shareholders' funds 372,000 350,812
Reconciliation of Statutory to disclosed Adjusted statistics
Statutory figure Deferred tax
adjustment Adjusted figure
Net Assets £371.7 m £13.0 m £384.7 m
NAV per share 394.9 p 13.8 p 408.7 p
Earnings per share 15.7 p 1.6 p 17.3 p
Diluted earnings per share 15.7 p 1.6 p 17.3 p
Gearing 123.8 % 4.2 % 119.6 %
Basis of preparation and accounting policies
The information contained in this preliminary statement does not constitute
accounts as defined by section 240 of the Companies Act 1985. The un-audited
results for the year to 31 December 2002 have been prepared in accordance with
UK generally accepted accounting principles. The accounting policies applied
are those set out in the Group's 2001 Annual Report and Accounts with the
exception of the adoption of Financial Reporting Standard (FRS) 19 'Deferred
Tax' with effect from 1 January 2002. FRS19 requires the Group to provide in
full for taxation on timing differences relating principally to capital
allowances. The impact of adopting this Standard has been to reduce opening
reserves by £11.5 million and the current period retained profit by £1.5
million. The information relating to the year ended 31 December 2001 is an
extract from the latest published accounts, which have been delivered to the
Registrar of Companies. The audit report on the published accounts was
unqualified and did not contain a statement under section 237 (2) or section 237
(3) Companies Act 1985.
Sten Mortstedt, Executive Chairman
Tom Thomson, Vice Chairman and Acting Chief Executive
CLS Holdings plc
www.clsholdings.com Tel. +44 (0)20 7582 7766
Adam Reynolds / Ben Simons Tel. +44 (0)20 7245 1100
Hansard Comunications Tel. +44 (0)7785 908 158
This information is provided by RNS
The company news service from the London Stock Exchange
Monday, 20th May 2024
COMPANIES COVERED:
Latest directors dealings
- 1 hour ago Aquila Energy Efficiency Trust (EUR)
- 2 hours ago Boohoo Group
- 2 hours ago Tritax Big Box Reit
- 2 hours ago Standard Chartered
- 3 hours ago Coca-Cola HBC AG (CDI)