Interim Results
CLS Holdings PLC
20 July 2000
Interim Report 2000
Chairman's Statement
The Board is pleased to announce the Group's results for the six months
ended 30 June 2000. Our core business has continued its strong growth
and results have been further enhanced by the growing profits of our
Investment Division and a profitable property disposal. An external
valuation of the Group's property portfolio has shown good progress; in
particular, our efforts at Solna, Stockholm combined with a strong local
market has had a significant impact.
We are pleased to report record profits before taxation of £13.1
million, up 32.5 per cent from last year and record NAV per share of
284.0 pence per share, up 16.4 per cent since 31 December 1999. This has
been achieved without a revaluation of non-property investments which
are held in the balance sheet at the lower of cost or market value.
In addition CLS and Citadel Holdings plc have today made a separate
announcement of a proposed merger by way of a recommended offer by CLS
for the shares in Citadel not already owned by CLS.
Financial Highlights
- NAV per share of 284.0 pence, (up 16.4 per cent since 31 December
1999) after external valuation.
- Profit before tax up 32.5 per cent at £ 13.1 million (£9.9 million
for the period to 30 June 1999).
- Share buy-back of 7.5 million shares since 31 December 1999
representing 7.3 per cent of share capital
- Further distribution of £3.7 million proposed by way of tender
offer buy-back on the basis of 1 for 60 at 235 pence per share.
- Cash at bank at 30 June 2000 of £ 31.5 million (30 June 1999:
£42.2 million).
- Potential annual rent roll of £49.4 million.
Key Statistics
30.06.00 30.06.99
NAV per share 284.0 p 217.0 p up 30.9 %
FRS 13 adjustment (after tax) (10.9) p (15.9) p Down 31.4 %
Earnings per share 12.4 p 8.3 p up 49.4 %
Shares in issue (000's) 94,539.5 104,372.7 Down 9.4 %
Distribution per share X3.92 p 2.85 p up x37.5 %
The Group's financial performance is continuing to show strong growth.
Other Financial Information
30.06.00 30.06.99 31.12.99
Property portfolio £ 509.6 m £ 470.3 m up 8.3 % £ 499.2 m
Net rental income £ 19.0 m £ 15.3 m up 24.2 % £ 33.7 m
Other property
related income £ 0.6 m £ 4.1 m down 84.9 % £ 4.9 m
Investment division
profit £ 7.2 m £ 1.7 m up 324.9 % £ 4.6 m
Operating profit £ 16.3 m £ 17.3 m down 5.5 % £ 32.2 m
Financial income £ 7.8 m £ 2.4 m up 222.4 % £ 5.7 m
Profit before
taxation £ 13.1 m £ 9.9 m up 32.5 % £ 16.9 m
Profit after taxation £ 12.1 m £ 8.9 m up 35.4 % £ 14.8 m
Value of net assets £ 268.5 m £ 226.5 m up 18.5 % £ 248.7m
Cash £ 31.5 m £ 42.2 m down 25.4 % £ 36.1 m
Gearing 91.7 % 107.3 % down 14.5 % 100.7 %
Interest Cover 2.10 2.34 down 10.3 % 1.83
A summary of the results for the six months to 30 June 2000 is detailed
below:
Financial
Growth in profit has continued, with profit before taxation of £13.1
million increased by 32.5 per cent over profit for the period to 30 June
1999. This in turn was 96.3 per cent higher than for the period to 30
June 1998.
The balance sheet has also strengthened. Net asset value per share of
284.0 pence represents an increase of 16.4 per cent since 31 December
1999 and 54.3 per cent since 31 December 1998.
Total return on shareholder's funds for the six months is 9.8 per cent.
This follows returns of 23.6 per cent and 18.3 per cent for the years
ended 31 December 1999 and 1998 respectively.
Net rental income
Net rental income, at £19.0 million is inclusive of the Group's share of
joint venture and associate company turnover and has increased by £3.7
million over 30 June 1999. This reflects the underlying rising trend in
our core business, despite loss of income due to the sale of 230
Blackfriars Road in March 2000. The principal reason for the increased
rental is the inclusion of the results of Solna Business Centre, which
was acquired in June 1999. In addition, as previously reported, a
number of leases had rent free periods during the period to June 1999
but were income generating in the first half of 2000
Rental income is shown net of service charges of £1.6 million ( 30 June
1999 : £0.7 million),as an increasing proportion of the portfolio,
mainly relating to Swedish properties, were invoiced at an all inclusive
rent.
As we continue to let the remaining vacant space in the portfolio, our
net rental income should rise to an annualised amount of £49.4 million.
Other property related income
Other property related income of £0.6 million included the management
charge to Citadel Holdings plc of £0.4 million. The reduction in income
of £3.5 million over the six months to June 1999 arose mainly because
the previous period included profit of £3.1 million from lease
surrenders at Vista Office Centre and Drury Lane
Administrative expenditure
Administrative expenditure increased by £1.0 million to £2.6 million
reflecting the inclusion of the results of Solna Business Centre of £0.4
million and increased staff costs mainly in respect of the investment
division. Included within staff costs is an amount of £0.3 million that
was recovered as part of the management charge to Citadel Holdings plc.
Net property expenses
Net property expenses of £0.6 million reflects fees incurred due to the
continued letting activity in respect of the remaining vacant space
within the portfolio.
Gains from sale of investment property
The gain from sale of investment property of £1.4 million represents
profit on the disposal of 230 Blackfriars Road, which was sold in March
2000 for £20.7 million.
Financial income and costs
Interest receivable and financial income increased from £2.4 million for
the period to 30 June 1999, to £7.8 million for the six months to 30
June 2000. This was due to a significant increase in profit generated by
the Investment Division which included a profit of £1.5 million on the
disposal of our investment in Microcosm Communications Limited, trading
profit in equity options and shares of £5.7 million, and interest
receivable of £0.6 million from the Group's substantial cash reserves.
The increase in interest payable and related charges of £2.7 million to
£12.5 million reflects the inclusion of interest payable and related
charges in respect of Solna Business Centre amounting to £0.9 million
(30 June 1999: nil) and associated company and joint venture interest of
£0.6 million (30 June 1999 : £0.1million). The increased charge also
reflects the full effect of refinancings undertaken during the year
ended 31 December 1999 and increased interest rates during the six
months to June 2000. At the period end UK sterling floating rate loans
totalled £155.9 million. All of our UK floating rate debt is hedged by
interest rate caps at an average cap rate of 7.97 per cent. Three month
LIBOR rates moved from 5.16 per cent at 30 June 1999 to 6.16 per cent at
30 June 2000. The average cost of borrowing for the UK portion of our
debt was 8.64 per cent inclusive of the cost of interest rate caps and
amortisation of arrangement fees and 5.65 per cent for the international
element.
The Group is continuing with its refinancing programme and during the
first half of the year it amortised costs of £0.4 million in relation to
associated valuation and legal fees.
Taxation
The Group continues to benefit from brought forward tax losses and
capital allowances. The charge in the profit and loss account of £1.0
million reflects an apportioned estimate of the charge for the whole
year.
Buy-backs and dividends
In place of a final dividend for 1999, a distribution by way of a tender
offer buy-back was taken up in full in April of this year. With the
current share price remaining at a considerable discount to net asset
value we are proposing an interim distribution of £3.7 million by way of
a further tender offer buy-back of shares in November 2000 on the basis
of 235 pence per share for 1 in 60 shares held. In view of the
timescale, the details of the tender offer will be circulated later and
the board may increase the share price and alter the ratio if market
conditions change. This will enhance net asset value per share and is
equivalent in cash terms to an interim net dividend 3.92 pence per share
(1999: 2.85 pence per share), an increase of 37.5 per cent.
At 31 December 1999 there were 101,962,238 ordinary shares in issue.
Since that date the Company has purchased 5,282,047 shares in the
market for cancellation and completed the 1999 year end tender offer buy
back of 2,185,670 shares. This has involved a total cash expenditure of
£12.9 million and leaves the number of shares in issue at today's date
of 94,539,521.
Investment Properties
Tangible Assets, at £510.2 million, have increased by £10.4 million (2.1
per cent) since 31 December 1999.
The growth in the value of tangible assets mainly resulted from an
increase in valuation of existing properties of £28.8 million which was
reduced by the sale of 230 Blackfriars Road, which had been carried at a
book value of £18.5 million. The valuation of Solna increased by SEK
190 million from SEK750 million (£54.4 million) at 31 December 1999 to
SEK940 million (£70.7 million) at 30 June 2000, including refurbishment
costs incurred during the six months of SEK39 million.
Creditors
Creditors falling due within one year at £51.4 million show an increase
of £17.4 million over 31 December 1999, which is mainly the result of a
loan, previously treated as repayable after one year, maturing to be re-
classified as short term debt. Negotiations are underway to renew the
loan on a long term basis.
Debt Structure
The net borrowing of the Group at 30 June 2000 was £244.2 million (31
December 1999 - £249.4 million). The main reason for this reduction is
the repayment of a loan of £7.2 million following the disposal of 230
Blackfriars Road.
The fair value of the Group's fixed rate debt was in excess of book
value by an amount of £14.8 million (31 December 1999 - £14.9 million).
The notional after tax adjustment to NAV, at a corporation tax rate of
30 per cent (31 December 1999 - 30 per cent), resulting from holding
loans at fair value was £10.3 million or 10.9 pence per share (31
December 1999 - £10.4 million or 10.2 pence per share).
Whilst the FRS13 adjustment is noteworthy the additional interest cost
is of course expensed through the Profit & Loss Account. This excess
interest charge amounted to approximately £0.8 million in the six months
to 30 June 2000.
Gearing at 30 June 2000 was 91.7 per cent, (31 December 1999 - 100.7 per
cent). Non-interest bearing debt amounted to £26.1 million (31 December
1999: £22.5 million).
Property
The total portfolio valuation over the period to 30th June 2000 has
risen from £499.2 million to £509.6 million despite the sale of 230
Blackfriars Road in March of this year for £20.69m gross, at an initial
yield of 6.95%. The majority of the increase in value has come through
proactive management of the portfolio and particular highlights include
the following:
Solna, Sweden
The refurbishment plans at Solna continue. The works to be carried out
for the Swedish Post are on schedule to be completed in October. A
planning application for the next phase for the development will be
submitted before 4th September 2000. This application will total
approximately 36,755 sq. m. (395,627 sq. ft.) of office accommodation
including an extension of 5,070 sq. m. (54,573 sq. ft.).
Vista Office Centre
The 1st and 2nd phases of the refurbishment programme have now been
completed, to provide 86,619 sq. ft. of office space of which 71,229 sq.
ft. has now been let. The gymnasium, swimming pool and restaurant are
all now completed and are proving to be popular with the tenants. An
extension to the restaurant is currently underway and is expected to be
completed in August. The letting market in the Heathrow area continues
to be strong and we expect phase 2 will be fully let by the autumn.
172 Drury Lane, WC2
Following the surrender of the office lease we have marketed and re-let
the 3rd floor to Speed Ventures on a lease expiring in 2010 at an
initial rental of £252,383 per annum. In addition we have invested in
category 5 cabling to the remaining floors within the building and have
targeted the emerging e-commerce and internet market. Short term
inclusive lettings have been achieved on the basis of £55.00 per sq. ft.
We continue to market the first floor (5,770 sq. ft) at this level.
Coventry House
We have signed an agreement to lease with Van Wagner communications at a
base rent of £250,000 per annum for the high level advertising site on
the roof of the building. The agreement to lease is conditional only
upon Van Wagner achieving detailed planning consent and there may be an
additional profit rental to be shared between both parties.
Cambridge House
In April of this year we successfully completed the letting of 3000 sq.
ft. of office space at Cambridge House at a record rent of £25.00 per
sq. ft. exclusive of rates and service charge. The building is now
fully let and proves the rental growth in the Hammersmith market, on
which we would hope to capitalise in future years with regard to lease
expiries and rent reviews.
Buspace Studios
Works have commenced at Buspace studios to replace the existing roof and
extend the building by a further 7,000 sq. ft. to provide 35,000 sq. ft.
of office/studio space. It is anticipated this extra space will result
in an increased gross income of £500,000 per annum.
Southwark Towers
We hold a 25 per cent interest in Teighmore Limited which holds a long
leasehold interest in Southwark Towers, a 204,119 sq.ft building
adjoined to London Bridge railway station. Teighmore Limited is
currently seeking planning permission for a major office development on
the site, which when completed, would be the tallest office building in
Europe.
Set out below is an analysis of the portfolio:
Yield
Yield Rent based on
based contracted ERV receivable
Area Area Year End on not yet of rent +
sq. m. sq. ft. Book receiv- receivable unlet potential
(000's) (000's) Value able £m space rents
£m rent Receiv- £m £m
% able
rent
£m
Property Type
International
173.7 1,895.1 119.5 8.24 9.9 0.7 5.2 *10.9
London Property
let > 10 years
52.4 564.0 169.2 7.87 13.3 - - 7.87
London Property
let 5-10 years
53.1 571.6 125.6 7.78 9.8 0.5 0.2 8.34
London Property
let < 5 years
38.9 418.7 59.9 9.92 5.9 - - 9.94
Refurbishment Projects
17.4 186.9 35.4 5.51 1.9 0.5 1.5 9.75
Totals 335.5 3.636.3 509.6 8.01 40.8 1.7 6.9 *9.16
The above table shows the categories of assets we own and the future
potential available from new lettings and refurbishment.
* Yields based on receivable rent and potential rents have been
calculated on the assumption that book values at 30 June 2000 will
increase by anticipated refurbishment expenditure of £ 24.8 million for
international assets and £ 4.75 million in respect of refurbishment
projects.
Investment Division
The performance of the investment division has been particularly
pleasing during a period when the market has been relatively turbulent
with record profits of £7.2 million being realised in the first six
months (full year profits for 1999 and 1998 were £4.6 million and £0.7
million respectively).
Profits in the period have mainly been generated from trading in equity
options and shares, principally on the Swedish Stock Exchange. However,
as previously reported, in January of this year our interest in
Microcosm Communications Limited was disposed of for £1.6 million,
producing a profit of £1.5 million.
Utilising the substantial experience of our management team, we have
continued to selectively invest in new technology companies and
currently hold investments of £9.8 million, of which £6.2 million is
represented by listed investments. These investments are carried in our
Balance Sheet at the lower of cost or market value. We continue to
actively monitor the performance of these investments and are confident
of their potential.
Conclusion
Having produced a very satisfactory first half result we look forward
with confidence. We have a strong balance sheet and a well-let portfolio
that is being actively managed and our substantial cash reserves enable
us to continue to take advantage of attractive opportunities as and when
they arise.
The ambitious refurbishment of Vista Office Centre is nearing its
successful conclusion and we are pleased with the tenant demand for this
high quality office scheme.
Our investment in Solna is a significant element in the future growth in
the property portfolio and I am pleased to say that our plans are
progressing well.
At today's date the Group's aggregate annual contracted rent roll stands
at £42.5 million with a further £6.9 million projected to be receivable
as we let vacant space and complete the re-development of Solna. This
will provide the fuel for further growth.
S. A. Mortstedt
Executive Chairman
20 July 2000
CLS Holdings plc
Consolidated Profit and Loss Account
6 months to
6 months to 30.06.99
30.06.00 £ 000 12 months to
£ 000 Restated 31.12.99
(unaudited) (unaudited) £ 000
Net rental income (including 19,038 15,332 33,732
associates & joint ventures)
Less: Joint venture (340) - (190)
Associate (883) (203) (1,047)
17,815 15,129 32,495
Other property related income 621 4,109 4,907
18,436 19,238 37,402
Administrative expenses (2,573) (1,621) (4,791)
Net property expenses (570) (503) (1,427)
(3,143) (2,124) (6,218)
Group Operating Profit 15,293 17,114 31,184
Share of Joint ventures' operating 332 - 184
profit
Share of associates' operating 710 170 837
profit
Operating profit including joint 16,335 17,284 32,205
ventures and associates
Gains from sale of investment 1,423 - -
properties
Profit on Ordinary Activities Before 17,758 17,284 32,205
Interest
Interest receivable and financial
income: Group 7,845 2,433 5,675
Joint Venture 1 - -
Associate 12 5 23
Interest payable and related
charges: Group (11,867) (9,744) (20,373)
Joint Venture (302) - (173)
Associate (344) (87) (444)
Profit on Ordinary Activities Before 13,103 9,891 16,913
Taxation
Tax on ordinary activities:
Group (950) (939) (2,121)
Joint Venture - - -
Associate (43) (7) (4)
Profit For The Period 12,110 8,945 14,788
Dividends - - -
Retained Profit For The Period 12,110 8,945 14,788
Earnings per Share 12.4p 8.3p 14.0p
Diluted Earnings per Share 12.3 p 8.2 p 13.9 p
'000 '000 '000
Ordinary shares in issue
Cumulative total 94,540 104,373 101,962
Weighted average number during the 97,806 107,989 105,773
period
CLS Holdings plc
Consolidated Balance Sheet
30.06.00 30.06.99 31.12.99
£ 000 £ 000 £ 000
(unaudited) (unaudited)
Fixed Assets
Tangible Assets 510,239 470,641 499,847
Investments:
Interest in joint venture:
Share of gross assets 9,983 - 9,856
Share of gross liabilities (9,270) - (9,165)
713 - 691
Investment in associate 7,342 6,268 6,631
Other investments 760 468 391
519,054 477,377 507,560
Current Assets
Stocks: trading properties - 83 -
Debtors - amounts falling due after 2,562 2,402 2,958
more than one year
Debtors - amounts falling due within 7,880 8,238 5,754
one year
Investments 9,307 2,594 4,326
Cash at bank and in hand 31,527 42,240 36,072
51,276 55,557 49,110
Creditors: amounts falling due (51,371) (80,146) (33,984)
within one year
Net Current (Liabilities) /Assets (95) (24,589) 15,126
Total Assets Less Current 518,959 452,788 522,686
Liabilities
Creditors: amounts falling due after
more than one year
Bank and other loans (250,442) (226,250) (273,968)
Net Assets 268,517 226,538 248,718
Capital and Reserves
Called up share capital 23,635 26,093 25,491
Share premium account 37,678 38,153 37,643
Revaluation reserve 129,960 101,080 117,589
Capital Redemption Reserve 5,327 2,816 3,460
Other reserves 19,426 18,996 18,977
Profit and loss account 52,491 39,400 45,558
Total Equity Shareholders' Funds 268,517 226,538 248,718
CLS Holdings plc
Statement of Total Recognised
Gains and Losses
30.06.00 30.06.99 31.12.99
£ 000 £ 000 £ 000
(unaudited) (unaudited)
Profit for the period/year 12,110 8,945 14,788
Unrealised surplus on the 20,177 20,352 40,932
revaluation of properties
Share of Associate unrealised
surplus on the revaluation of 208 727 474
properties
Currency translation differences
on foreign (73) (14) (109)
currency net investments
Share of Associate other reserves 167 - (404)
Other recognised gains relating 20,479 21,065 40,893
to the year
Total gains and losses recognised 32,589 30,010 55,681
CLS Holdings plc
Cash Flow Information
30.06.00 30.06.99 31.12.99
£ 000 £ 000 £ 000
(unaudited) (unaudited)
Net cash inflow from
operating activities 16,816 21,616 37,905
Returns on investments and servicing of
finance
Interest received 7,642 2,370 5,978
Interest paid (10,376) (8,938) (17,660)
Issue costs on new bank loans - - (1,635)
Interest rate caps purchased - (95) (925)
Net cash outflow from returns on (2,734) (6,663) (14,242)
investments and servicing of finance
Taxation paid (13) (1,622) (3,344)
Capital expenditure
Purchase and enhancement of properties (8,290) (12,369) (59,892)
Sale of investment properties 19,923 - -
Disposal of other fixed assets 13 79 17
Purchase of other fixed assets (141) (2,143) (913)
Purchase of own shares (12,983) (10,335) (14,695)
Net cash outflow for capital expenditure (1,478) (24,768) (75,483)
and financial investment
Acquisitions and disposals
Investment in associate undertaking - - (2,072)
Cash inflow/(outflow) before management
of liquid resources and financing 12,591 (11,437) (57,236)
Management of liquid resources
Cash (placed on)/released from short - (4,550) 4,824
term deposits
Current asset investments (4,982) 623 (1,790)
Financing
Issue of ordinary share capital 46 - 162
New loans 450 38,656 101,916
Repayment of loans (12,651) (14,577) (35,955)
Net cash (outflow)/inflow
from financing (12,155) 24,079 66,123
(Decrease) /increase in cash (4,546) 8,715 11,921
Basis of Preparation and Accounting policies
The unaudited results for the half-year to 30 June 2000 have been
prepared in accordance with UK generally accepted accounting principles.
The accounting policies applied are those set out in the Group's 1999
Annual Report and Accounts.
INDEPENDENT REVIEW REPORT TO CLS HOLDINGS PLC
Introduction
We have been instructed by the company to review the financial
information set out on pages 8 to 11 and we have read the other
information contained in the interim report for any apparent
misstatements or material inconsistencies with the financial
information.
Directors' responsibilities
The interim report, including the financial information contained
therein, is the responsibility of, and has been approved by the
directors. The Listing Rules of the London Stock Exchange require that
the accounting policies and presentation applied to the interim figures
should be consistent with those applied in preparing the preceding
annual accounts except where any changes, and the reasons for them, are
disclosed.
Review work performed
We conducted our review in accordance with guidance contained in
Bulletin 1999/4 issued by the Auditing Practices Board. A review
consists principally of making enquiries of group management and
applying analytical procedures to the financial information and
underlying financial data, and based thereon, assessing whether the
accounting policies and presentation have been consistently applied
unless otherwise disclosed. A review excludes audit procedures such as
tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed
in accordance with Auditing Standards and therefore provides a lower
level of assurance than an audit. Accordingly we do not express an audit
opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material
modifications that should be made to the financial information as
presented for the six months ended 30 June 2000.
PricewaterhouseCoopers
Chartered Accountants
London
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