Interim Results

CLS Holdings PLC 11 September 2003 Embargoed 0700hrs 11 September 2003 CLS Holdings plc ('CLS', the 'Company', or the 'Group') Interim Report 2003 For the six month period ended 30 June 2003 Financial Highlights â€¢ Adjusted NAV per share* of 435.1 pence, up 6.5 per cent since 31 December 2002 (Statutory NAV per share of 422.5 pence, up 7.0 per cent since 31 December 2002). â€¢ Profit before tax Â£7.7 million (Â£8.2 million for the period to 30 June 2002). â€¢ Intended distribution at 30 June 2003 of Â£5.8 million by way of tender offer buy-back on the basis of 1 for 46 at 300 pence per share. â€¢ Portfolio valued at Â£884.0 million up 4.1 per cent since 31 December 2002. â€¢ Net rental income (including associate and JV) Â£31.6 million (Â£30.4 million for the period to 30 June 2002). â€¢ Cash at 30 June 2003 of Â£62.1 million (31 December 2002: Â£65.7 million). For further information please contact: Sten Mortstedt, Executive Chairman Tom Thomson, Vice chairman and Acting Chief Executive CLS Holdings plc 020 7582 7766 Adam Reynolds / Ben Simons Hansard Communications 020 7245 1100 / 0771 309 0135 Key Statistics 30 June 2003 30 June 2002 ------------------ ------------- ------------- -------- ------ ----- Adjusted NAV per share* 435.1 p 394.7 p Up 10.2 % Statutory NAV per share 422.5 p 381.7 p Up 10.7 % Adjusted earnings per 8.7 p 7.2 p Up 20.8 % share* Earnings per share 7.4 p 6.1 p Up 21.3 % Shares in issue (000's) 89,592 96,808 Down 7.5 % Proposed distribution per 6.5 p 5.6 p Up 16.1 % share (from tender offer buy-backs) Other Financial Information 31 December ----------------------------- 30 June 2003 30 June 2002 2002 ---------- ------------ --------- ------ ------------- Property portfolio Â£ 884.0 m Â£ 830.6 m up 6.4 % Â£ 848.9 m Net asset value Â£ 378.5 m Â£ 369.6 m up 2.4 % Â£ 371.7 m Cash Â£ 62.1 m Â£ 39.7 m up 56.4 % Â£ 65.7 m Net rental income (including Â£ 31.6 m Â£ 30.4 m up 3.9 % Â£ 60.3 m associate and JV) Operating profit (including Â£ 21.8 m Â£ 22.1 m down 1.4 % Â£ 46.1 m associate and JV) Net interest payable Â£ 14.8 m Â£ 13.9 m up 6.5 % Â£ 28.9 m Core profit before tax (see Â£ 10.5 m Â£ 9.5 m up 10.5 % Â£ 20.9 m page 2) Profit before taxation Â£ 7.7 m Â£ 8.2 m down 6.1 % Â£ 17.1 m Retained profit Â£ 6.8 m Â£ 6.0 m up 13.3 % Â£ 15.3 m Adjusted gearing* 125.4 % 117.5 % up 7.9 % 119.6 % Gearing 129.1 % 121.5 % up 7.6 % 123.8 % Solidity (net assets as a 38.8 % 41.1 % down 2.3 % 39.6 % ratio of gross assets) FRS13 fair value adjustment (27.3) p (15.5) p up 76.1 % (23.6) p after tax * 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 on page 14. At 30 June 2003 the FRS 19 deferred tax charge included in the profit and loss account was Â£1.3 million and the cumulative reduction to net assets was Â£11.2 million (31 December 2002 : Â£1.5 million and Â£13.0 million respectively). The remaining accounting policies are as set out in the Group's Annual Report and Accounts 31 December 2002. Chairman's Statement I am delighted to report once again record adjusted NAV per share of 435.1 pence, up 6.5 per cent since 31 December 2002 (Statutory NAV per share 422.5 pence, up 7.0 per cent). The underlying business has continued its robust performance, with core property profit before taxation of Â£10.5 million, showing strong growth despite trading in a current environment of slow economic activity. The Group has acquired two new properties in Vauxhall Cross, London at a total cost of Â£4.1 million, and sold its freehold building at 142-170 Vauxhall Street, London for Â£2.3 million, producing a profit of Â£0.7 million over the year end valuation. Other sales include six out of the eighteen newly refurbished apartments at Coventry House, London for a total consideration of Â£1.8 million. Since 30 June, we have fixed the interest on part of our variable rate loan portfolio and prolonged other fixed interest loans about to mature. The amount of the loans affected was Â£129.8 million with interest on them fixed at an average rate of 3.87 per cent. This exercise was carried out just prior to the rise in long term interest rates and as a result, approximately half of the Group's net loans will pay interest at a fixed rate. Financial Core property profit of Â£10.5 million has increased by Â£1.0 million (10.5 per cent) over the six months ended 30 June 2002 reflecting increased income streams in the Swedish and French operations. The calculation of core property profit is set out below: 30 June 2003 30 June 2002 Restated Â£m Â£m ------------------------------------ -------- --------- Profit before taxation 7.7 8.2 Less: Lease surrenders and variations (0.3) (0.4) Back-dated rent settlement at New - (1.2) Printing House Square Sale of investment property (0.7) - Consolidated cable company losses 2.4 - Losses and write-downs on equity investment 1.4 2.9 ------------------------------------ -------- --------- Core property profit 10.5 9.5 ==================================== ======== ========= The results of the Group analysed by location and main business activity are as set out below: June 2003 UK(*) Sweden June 2002 Equity investments France Â£m Â£m Â£m Â£m Â£m Â£m --------------------------- ------ ------- ------ ------- -------- ------- Net rental income 31.6 15.9 7.0 8.7 - 30.4 Less JV income (0.5) (0.5) - - - (0.5) Other income 1.9 0.6 0.2 - 1.1 0.5 --------------------------- ------ ------- ------ ------- -------- ------- Net rental and property related income (excluding JV) 33.0 16.0 7.2 8.7 1.1 30.4 Operating expenses (10.3) (3.9) (1.7) (0.9) (3.8) (5.8) Losses and write-downs on (1.2) - - - (1.2) (2.9) equity investments JV & Associate operating 0.3 0.5 - - (0.2) 0.4 profit --------------------------- ------ ------- ------ ------- -------- ------- Operating profit 21.8 12.6 5.5 7.8 (4.1) 22.1 Gains from sale of 0.7 0.7 - - - - investment properties Net interest payable and (14.8) (7.6) (4.8)+ (2.2) (0.2) (13.9) related charges ------ ------- ------ ------- -------- ------- Profit on ordinary 7.7 5.7 0.7 5.6 (4.3) 8.2 activities before tax ====== ======= ====== ======= ======== ======= (*)Results relating to Germany were immaterial in the context of the overall results of the Group and have therefore been included within the UK segment for all analyses. + Of the net interest payable of Â£4.8 million, Â£0.5 million relates to space undergoing refurbishment at Solna Balance sheet Total Balance Sheet UK (**) Sweden France ------------- ------ ------ ------ --- ----- ------ ----- ------- ------ June 2003 Â£m % Â£m % Â£m % Â£m % ------------- ------ ------ ------ --- ----- ------ ----- ------- ------ Investment 884.0 100 427.5 48.4 230.3 26.0 226.2 25.6 Properties Loans (550.9) 100 (280.1) 50.8 (133.1) 24.2 (137.7) 25.0 ------------- ------ ------ ------ --- ----- ------ ----- ------- ------ Equity in 333.1 100 147.4 44.2 97.2 29.2 88.5 26.6 Property Assets Other 45.4 100 22.5 49.5 8.2 18.1 14.7 32.4 ------------- ------ ------ ------ --- ----- ------ ----- ------- ------ Net Equity 378.5 100 169.9 44.9 105.4 27.8 103.2 27.3 ============= ====== ====== ====== === ===== ====== ===== ======= ====== Equity in Property as a Percentage of Investment 37.7% 34.5% 42.2% 39.1% (**) results relating to Germany were immaterial in the context of the overall results of the Group and have therefore been included within the UK segment for all analyses. -------------------------- ---------------- ------------- Share capital No of shares No of shares Million Million 2003 2002 (six months) (full year) -------------------------- ---------------- ------------- Opening shares 94.1 99.3 Tender offer buy back (3.4) (4.6) Buybacks in the market for cancellation (1.5) (0.6) Share options exercised 0.4 - ========================== ================ ============= Closing shares 89.6 94.1 ========================== ================ ============= Options to purchase 849,000 shares were held by staff and management at 30 June 2003. Net rental income Net rental income of Â£31.6 million is inclusive of the Group's share of joint venture turnover and has increased by Â£1.2 million over the six months ended 30 June 2002. The results for the period to 30 June 2002 reflected the settlement of a rent review at New Printing House Square of Â£1.2 million (including backdated rent to 1 July 2000). The like for like increase is Â£2.4 million higher (7.9 per cent) and includes Â£1.1 million of rent from 10 properties in France acquired at the end of June 2002, and organic growth in Sweden and France. Net rental income is shown net of service charges of Â£3.4 million (30 June 2002: Â£2.8 million). Other income Other income of Â£1.9 million (30 June 2002: Â£0.5 million) includes Â£0.3 million profit on lease surrenders at Great West House and gross profit for WightCable and OMNE Communications of Â£1.1 million derived from turnover of Â£1.9 million. These companies were not subsidiaries at 30 June 2002. Administrative expenditure Administrative expenditure of Â£7.9 million (30 June 2002: Â£3.9 million) includes overheads relating to OMNE Communications of Â£2.3 million, and WightCable overheads of Â£1.2 million. Excluding the results of these two companies, comparative expenditure to 2002 has increased by Â£0.5 million which is mainly due to the timing of expenditure falling within the first half, particularly in respect of professional fees. Net property expenses Net property expenses of Â£2.5 million (30 June 2002: Â£2.0 million) includes amortisation costs of Â£0.4 million of the residue of the short lease to NIG at Elan House (now fully written off) and marketing expenditure of Â£0.4 million. Repair and maintenance costs of Â£0.5 million relate to refurbishment of properties in Vanerparken and Paris. Financial income and costs Interest income at Â£1.5 million included favourable foreign exchange movements of Â£0.5 million, mainly relating to foreign currency cash balances. Interest payable of Â£16.2 million comprises bank interest of Â£15.2 million, net interest rate cap depreciation of Â£0.5 million and depreciation of bank loan issue costs of Â£0.5 million. The Group's policy is to expense all interest payable and financial costs to the profit and loss account, including interest incurred in the funding of refurbishment and development projects which amounted to Â£0.5 million for the six months to 30 June 2003. At the period end floating rate loans totalled Â£357.8 million. All floating rate debt was hedged by interest rate caps at an average cap rate of 6.35 per cent for Sterling, 6.07 per cent for Swedish Kronor and 6.09 per cent for Euro (excluding bank margin). Three month LIBOR sterling rate fell from 4.1 per cent at 30 June 2002 to 3.6 per cent at 30 June 2003. The average cost of borrowing for the UK portion of our debt was 6.5 per cent, inclusive of the cost of fixed rate borrowings, interest rate caps and amortisation of arrangement fees, and 4.8 per cent for the international portion. Gearing has increased to 129.1 per cent reflecting the re-financing at Solna Business Park at the period end, and interest cover has decreased to 1.52 times from 1.59 times at 30 June 2002. Taxation Within the total charge of Â£1.6 million there is a provision under FRS 19, for deferred taxation in respect of accelerated capital allowances, amounting to Â£1.3 million. Buy-backs and dividends In lieu of a final dividend for 2002 there was a tender offer buy-back 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 Â£5.8 million by way of a further tender offer buy-back of shares on the basis of 300 pence per share for 1 in 46 shares held. This will enhance net asset value per share and is equivalent in cash terms to an interim net dividend of 6.5 pence per share (30 June 2002: 5.6 pence per share), an increase of 16.0 per cent. At 31 December 2002 there were 94,129,431 ordinary shares in issue. Since that date the Company has completed the 2002 year end tender offer buy back of 3,435,835 shares (Â£8.3 million) and bought back a further 1,487,884 shares in the market (Â£3.0 million), involving a total cash expenditure of Â£11.3 million. This left the number of shares in issue at 30 June 2003 at 89,591,712 after taking into account the exercise of 386,000 management options during the period. Tangible Assets Tangible assets of Â£893.6 million have increased by Â£41.2 million (4.8 per cent) since 31 December 2002. The increase included new building purchases amounting to Â£4.1 million, refurbishment expenditure of Â£6.9 million, principally at Solna, Stockholm and a revaluation surplus of Â£0.4 million arising at 30 June on the existing portfolio. The revaluation surplus comprises : Â£m UK revaluation increase 1.4 Sweden revaluation decrease (3.1) France revaluation increase 2.1 ----- Â£m 0.4 In addition, foreign exchange gains on the translation of Swedish and French assets has enhanced the value by Â£27.4 million. We have also purchased a majority stake in a new telecommunications subsidiary in the period, the fair value of whose network assets amounted to Â£4.5 million. Cash Cash at bank amounted to Â£62.1 million compared to Â£65.7 million at 31 December 2002. Debt Structure The net interest bearing debt of the Group at 30 June 2003 was Â£488.8 million (31 December 2002: Â£460.5 million). The increase includes a further draw-down of financing at Solna Business Park of SEK 232.0 million (Â£17.3 million), reflecting the increase in value of the properties. The strengthening of the Swedish Kronor and the Euro against Sterling increased the sterling equivalent of foreign currency loans by Â£16.1 million. These loans finance properties in Sweden and France. The fair value of the Group's fixed rate debt was in excess of book value by an amount of Â£35.0 million (31 December 2002: Â£31.7 million) reflecting lower long-term interest rates at 30 June 2003. The notional after tax adjustment to NAV, at a corporation tax rate of 30 per cent (31 December 2002: 30 per cent), if we were to hold loans at fair value was Â£24.5 million or 27.3 pence per share (31 December 2002: Â£22.2 million or 23.6 pence per share). Gearing adjusted for FRS 19 deferred tax, at 30 June 2003 was 125.4 per cent (31 December 2002: 119.6 per cent), statutory gearing 129.1 per cent (31 December 2002 : 123.8 per cent). Since 30 June, CLS has fixed the interest of part of its previously floating loans and prolonged the interest rate fixing period for some of its fixed loans with short fixed term remaining. The major changes in respect of the loan portfolio are set out below: UK Fixing of Â£45.0 million from 10 October 2003 until 10 January 2008 at an average rate of 4.15% (excluding margin). Sweden Prolonged fixing of SEK100.0 million from 20 July 2004 to 20 July 2008 at an average rate of 4.71% (excluding margin). France Fixing of â‚¬91.8 million of loans at an average rate of 3.57% (excluding margin) for five years. Effect of foreign exchange translation on overseas net assets An exchange gain on translation of net assets in Sweden and France of Â£10.7 million (12.2 pence per share) was included within the Group net assets at 30 June 2003. The gain on overseas fixed assets was Â£27.4 million, offset by an exchange translation loss mainly on bank borrowings, of Â£16.5 million. Property The valuation of the Group's portfolio at 30 June 2003, undertaken by Allsop & Co. in respect of the UK and Swedish properties and by DTZ Debenham Tie Leung in respect of the French properties, amounted to Â£884.0 million, an increase of Â£35.1million (inclusive of foreign exchange gains of Â£27.4 million) since the year end. The portfolio comprises 111 properties of which 47 are located in the UK, 23 in Sweden and 41 in France with a total lettable area of 571,558 sq.m (6,152,377 sq. ft.). UK The UK property portfolio has seen values improving for the properties with long leases let to strong covenants, principally Spring Gardens Business Park, Vauxhall SE11 and New Printing House Square, Gray's Inn Road WC1; and in respect of those properties such as Brent House and Drury Lane where we have achieved significant new lettings during the period. These increases have more than offset reductions elsewhere in the portfolio in particular where we have vacant space and limited occupier demand. We have agreed the rent review with Cap Gemini at Hoskyns House, 95-97 Wandsworth Road, SW8. The new rent is Â£1,736,000 per annum which will be payable from March 2004 until their lease expiry in March 2009. This represents an increase of Â£219,500 per annum. We have acquired the freehold interests of three adjoining properties at 80-84 Bondway, 86 Bondway and 18-20 Miles Street, Vauxhall SW8 for Â£4.1 million. These buildings complete a site assembly at Hoskyns House which we anticipate will release additional development value when the leases expire in 2009. In the meantime, these three additional buildings totalling 30,100 sq ft, currently produce an income of Â£212,250 p.a, rising to around Â£365,000 p.a. upon the letting of the vacant space. At Great West House and Computer House on the Great West Road, Brentford we have completed a series of lettings to Alliance Cornhill Insurance, Cara Information Technology and Steria Ltd totalling just over 48,000 sq ft. The majority of the leases expire in Sep 2013 and generate a total rent of approximately Â£687,000 per annum. Brent House, High Road, Wembley is now fully let following the letting of the remaining 18,650 sq ft to Capita Group who has taken a lease expiring in April 2011 at an annual rent of Â£212,119 per annum. The vacancy rate in respect of the portfolio has increased from 7.3 per cent at the year end to 8.6 per cent at 30 June 2003. Our principal vacancies are at 1 Leicester Square, WC1, Vista Office Centre, Salisbury Road, Hounslow and Great West House, Great West Road, Brentford. We are encouraged by the level of interest being shown by prospective tenants in 1 Leicester Square and have active marketing initiatives in place for Great West House and Vista. Sweden At Solna Business Park, completion of the fit-out for Coop (14,350 sq.m / 154,462 sq.ft) is on time for occupation of the premises in January 2004. Various further lettings and prolongation of existing tenancies have been completed during the period. An hotel and a conference centre will open in early 2004. In addition, a business centre using the same concept as we have successfully developed in the UK will open in January 2004. France Despite a falling letting market we have been active and successful in letting space in the period. New leases and prolongation of existing leases totalling 8,102 sq. m have produced a rental income of â‚¬1,626,992 (Â£1.1 million) with an average 10 per cent rent increase. Rent indexation has increased rents by â‚¬393,000 (Â£274,000) at the end of June compared with 31 December 2002. We have been actively pursuing various new investments, but are finding it harder to source well-let office buildings generating a satisfactory return on capital. Rent, book value and yields are analysed by location as set out below: -------- ------ ------ ------ ------ ------ ------ ------ Total Net Book Yield Yield Rent rent Value on net when rent fully let in '000 Â£ % in '000 Â£ % in '000 Â£ % % % -------- ------ ------ ------ ------ ------ ------ ------ London City 280 0.4% 280 0.4% 2,385 0.3% 11.7% Fringes London Mid 6,640 9.2% 6,640 10.2% 100,700 11.4% 6.6% Town London West 3,193 4.4% 3,173 4.9% 64,385 7.3% 4.9% End London 5,243 7.3% 4,835 7.5% 56,125 6.3% 8.6% West London South 8,966 12.5% 8,855 13.7% 127,264 14.4% 7.0% Bank London South 2,175 3.0% 1,792 2.8% 23,425 2.7% 7.7% West London North 5,547 7.7% 5,229 8.1% 48,475 5.5% 10.8% West Outside 350 0.5% 350 0.5% 2,590 0.3% 13.5% London -------- ------ ------ ------ ------ ------ ------ ------ Total 32,394 45.0% 31,154 48.1% 425,349 48.1% 7.3% 8.1%(***) UK Germany 226 0.3% 204 0.3% 2,088 0.2% 9.8% -------- ------ ------ ------ ------ ------ ------ ------ Total 226 0.3% 204 0.3% 2,088 0.2% 9.8% 9.8% Germany Sweden 6,313 8.8% 3,241 5.0% 40,880 4.6% 7.9% Gothenburg Sweden 11,152 15.5% 9,024 13.9% 140,960 15.9% 6.4% Stockholm Sweden 4,546 6.3% 3,799 5.9% 48,450 5.5% 7.8% Vanersborg -------- ------ ------ ------ ------ ------ ------ ------ Total 22,011 30.6% 16,064 24.8% 230,290 26.1% 7.0% 7.1%++ Sweden France 13,901 19.3% 13,901 21.5% 186,583 21.1% 7.5% Paris France 2,649 3.7% 2,649 4.1% 30,104 3.4% 8.8% Lyon France 504 0.7% 504 0.8% 5,658 0.6% 8.9% Lille France 323 0.4% 323 0.5% 3,883 0.4% 8.3% Antibes -------- ------ ------ ------ ------ ------ ------ ------ Total 17,377 24.1% 17,377 26.8% 226,228 25.6% 7.7% 8.3% France -------- ------ ------ ------ ------ ------ ------ ------ Group 72,008 100.0% 64,799 100.0% 883,955 100.0% 7.3% 7.8% Total ======== ====== ====== ====== ====== ====== ====== ====== -------- ------ ------ ------ ------ ------ ------ ------ Conversion rates : SEK/GBP 13.2094 Euro/GBP 1.437 (***) Yields based on receivable rent and potential rents have been calculated on the assumption that book values at 30 June 2003 will increase by anticipated refurbishment expenditure of approximately Â£1.6 million in respect of projects in the UK. (++)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 Â£24.8 million in respect of projects in Solna, Stockholm, Sweden. Rent analysed by length of lease and location is set out below: -------- ------- --------- -------- ------ --------- ------- Space under Portfolio Contracted Contracted Unlet Refurbishment Total analysed Aggregate but not Space or with by lease Rental income at ERV planning term producing consent Sq. m Sq.ft Â£000 Â£000 Â£000 Â£000 Â£000 -------- ------- --------- -------- ------ --------- ------- UK< 5 yrs 31,377 337,720 7,246 7,246 UK 5-10 45,510 489,898 10,700 204 10,904 yrs UK>10 yrs 67,401 725,526 14,150 94 14,244 Vacant 13,558 145,928 3,095 3,095 -------- ------- --------- -------- ------ --------- ------- Total 157,846 1,699,072 32,096 298 3,095 - 35,489 UK Germany < 5 3,095 33,315 226 226 yrs -------- ------- --------- -------- ------ --------- ------- Total 3,095 33,315 226 - - - 226 Germany Sweden< 5 180,561 1,943,606 12,925 148 13,073 yrs Sweden 28,517 306,965 2,598 191 2,789 5-10yrs Sweden > 51,090 549,946 4,188 1,960 6,148 10yrs Refurbished 4,296 46,243 1,070* 1,070 space Vacant 19,945 214,693 1,224 1,224 -------- ------- --------- -------- ------ --------- ------- Total 284,409 3,061,453 19,711 2,299 1,224 1,070 24,304 Sweden France < 5 71,513 769,785 10,356 10,356 yrs France 5-10 46,946 505,339 7,021 7,021 yrs Vacant 7,749 83,412 1,333 1,333 -------- ------- --------- -------- ------ --------- ------- Total 126,208 1,358,536 17,377 - 1,333 - 18,710 France -------- ------- --------- -------- ------ --------- ------- Group 571,558 6,152,376 69,410 2,597 5,652 1,070 78,729 Total ======== ======= ========= ======== ====== ========= ======= -------- ------- --------- -------- ------ --------- ------- * Of the rental due on refurbished space in Sweden, Â£1.1 million relates to FrTM?saren 11, Solna (4,296 sq m) requiring further capital expenditure of Â£10.8 million. Equity investments Equity investments form just 0.5 per cent of the Group's gross assets. A number of investments are now progressing toward successful maturity and it is our intention to seek an exit from these in due course. At the end of January we purchased 75.5 per cent of a Scottish telecoms operator, OMNE Communications that had capital assets of Â£50 million and an established customer base. The cash outlay amounted to Â£4.1 million of which Â£3.1 million is represented by a secured loan. It is our intention to maximise its potential in the short to medium term. The revenue projections on which we based our purchase have not been achieved to date and therefore it is likely we will need to inject limited further funds in order to secure the results we require. We were however, conservative in assessing the potential ancillary benefits attaching to the assets which may be of greater value to us than first expected. Conclusion The strong growth in our balance sheet and core profits for the six months are the continuing result of our strategy to actively manage the business in a risk averse manner concentrating on our core markets of the UK, Sweden and France. The aggregate annual contracted rent roll of the Group has grown from Â£70.8 million in December 2002 to Â£72.0 million with a further Â£6.7 million projected to be received as vacant space is let and the refurbishment at Solna is completed. Although the letting market throughout Europe continues to be relatively weak we are well placed for continued organic growth. With 36 per cent of our contracted rent roll let to the UK, Swedish and French government, the majority on leases in excess of ten years, and a further 32 per cent let to large companies and major partnerships, our ongoing rental income is well secured We believe that the overall business is in a strong position and able to generate growth in profits while continuing to benefit from relatively low charges to taxation. S. A. Mortstedt Executive Chairman 11 September 2003 CLS Holdings plc Consolidated Profit and Loss Account 6 months to 6 months to 12 months to 30 June 2003 30 June 2002 31 December 2002 Â£ 000 Â£ 000 Â£ 000 (un-audited) (un-audited) Net rental income (continuing operations, including joint ventures) 31,627 30,360 60,328 Less: Joint venture (continuing (453) (454) (907) operations) ---------- ---------- ----------- Group net rental income 31,174 29,906 59,421 Other income 1,935 546 1,289 ---------- ---------- ----------- 33,109 30,452 60,710 ---------- ---------- ----------- Administrative expenses (7,881) (3,857) (8,342) Net property expenses (2,467) (1,982) (3,998) ---------- ---------- ----------- (10,348) (5,839) (12,340) Other operating losses (1,246) (2,932) (3,054) ---------- ---------- ----------- Group operating profit 21,515 21,681 45,316 ---------- ---------- ----------- Continuing 23,242 21,681 45,316 Acquisitions (1,727) - - ---------- ---------- ----------- Share of joint venture's 414 436 883 operating profit (continuing) Share of associates'operating (154) - (93) losses (continuing operations) ---------- ---------- ----------- Operating profit including joint 21,775 22,117 46,106 ventures and associates Gains/(losses) from sale of 688 - (153) investment property ---------- ---------- ----------- Profit on ordinary activities 22,463 22,117 45,953 before interest Interest receivable and similar 1,472 1,042 1,915 income: Group Joint venture 3 8 1 Interest payable and similar (15,799) (14,493) (29,925) charges: Group Joint venture (432) (432) (860) Associate - - (17) ---------- ---------- ----------- Profit on ordinary activities 7,707 8,242 17,067 before taxation Tax on profit on ordinary activities: Group - current (347) (1,188) (648) - deferred (1,250) (1,081) (1,497) Joint venture - current (10) - - ---------- ---------- ----------- Profit on ordinary activities 6,100 5,973 14,922 after taxation Equity minority interests 724 - 388 ---------- ---------- ----------- Retained profit for the period 6,824 5,973 15,310 ========== ========== =========== Adjusted basic earnings per 8.7 p 7.2 p 17.2 p share FRS 19 adjustment per share (1.3)p (1.1)p (1.5)p ---------- ---------- ----------- Basic earnings per share 7.4p 6.1p 15.7p ========== Adjusted diluted earnings per 8.6p 7.2p 17.0 p share FRS 19 adjustment per share (1.4)p (1.1)p (1.5)p ---------- ---------- ----------- Diluted earnings per share 7.2p 6.1p 15.5p ========== ========== =========== Ordinary shares in issue '000 '000 '000 Cumulative total 89,592 96,808 94,129 Weighted average number during 92,461 98,710 97,428 the period ========== ========== =========== CLS Holdings plc Consolidated Balance Sheet 30 June 2003 30 June 2002 31 December 2002 Â£ 000 Â£ 000 Â£ 000 (un-audited) (un-audited) Fixed assets Tangible assets 893,556 833,582 852,354 Investments: Interest in joint venture: Share of gross assets 17,306 15,701 17,024 Share of gross liabilities (14,257) (13,147) (14,257) ---------- --------- ----------- 3,049 2,554 2,767 Interest in associates 3,355 - 1,730 Other investments 730 809 301 --------- --------- ----------- 900,690 836,945 857,152 Current assets ---------- --------- ----------- Debtors - amounts falling due 4,032 5,694 4,354 after more than one year Debtors - amounts falling due 5,490 11,398 9,156 within one year Investments 2,918 6,059 4,580 Cash at bank and in hand 62,083 39,738 65,650 ---------- --------- ----------- 74,523 62,889 83,740 Creditors: amounts falling due (70,029) (59,996) (48,182) within one year ---------- --------- ----------- Net current assets 4,494 2,893 35,558 ---------- --------- ----------- Total assets less current 905,184 839,838 892,710 liabilities Creditors: amounts falling due after more than one year (515,407) (457,699) (507,735) Provisions for liabilities and (11,229) (12,563) (13,255) charges ---------- --------- ----------- Net Assets 378,548 369,576 371,720 ========== ========= =========== Capital and Reserves ---------- --------- ----------- Called up share capital 22,398 24,202 23,532 Share premium account 68,928 68,506 68,551 Revaluation reserve 227,606 218,637 218,837 Capital redemption reserve 11,206 9,295 9,975 Other reserves 24,978 23,115 22,637 Profit and loss account 23,769 25,712 28,468 ---------- --------- ----------- Total equity shareholders' 378,885 369,467 372,000 funds Equity minority interests (337) 109 (280) ========== ========= =========== Capital employed 378,548 369,576 371,720 ========== ========= =========== CLS Holdings plc Statement of Total Recognised Gains and Losses 30 June 2003 30 June 2002 31 December 2002 Â£ 000 Â£ 000 Â£ 000 (un-audited) (un-audited) Profit for the period/year 6,824 5,973 15,310 ========== ========== ============ Unrealised surplus on revaluation 399 8,341 7,530 of properties Share of joint venture unrealised surplus on revaluation of properties - 333 333 Release of revaluation deficit on - - 443 property disposal ---------- ---------- ------------ Currency translation differences on foreign currency net investments 10,713 11,400 11,489 ---------- ---------- ------------ Other recognised gains relating to 11,112 20,074 19,795 the period/year ========== ========== ============ Total recognised gains and losses relating to the period/year 17,936 26,047 35,105 ========== ========== ============ CLS Holdings plc Consolidated Cash Flow Statement 30 June 30 June 2002 31 Dec 2003 2002 Â£ 000 Â£ 000 Â£ 000 (un-audited) (un-audited) Net cash inflow from operating 26,685 21,913 52,143 activities --------- -------- -------- Returns on investments and servicing of finance Interest received 909 884 1,541 Interest paid (13,979) (13,013) (26,598) Issue costs on new bank loans (773) (1,411) (2,196) Interest rate caps purchased (149) (448) (1,062) -------- Net cash outflow from returns on investments and servicing of finance (13,992) (13,988) (28,315) Taxation (1,169) (141) (223) Capital expenditure and financial investment Purchase and enhancement of (11,834) (71,725) (90,270) properties Sale of investment properties 4,010 - 1,802 Purchase of other fixed assets (2,213) (166) (945) Purchase of own shares (11,286) (7,426) (14,007) --------- -------- -------- Net cash outflow for capital (21,323) (79,317) (103,420) expenditure and financial investment Acquisitions and disposals Purchase of subsidiary (2,243) (91) (92) undertakings Cash acquired on purchase of 572 228 228 subsidiary undertakings Investment in associate/joint (333) - (461) venture --------- -------- -------- Net cash outflow before use of (11,803) (71,396) (80,140) liquid resources and financing Management of liquid resources Cash released from/(placed on) short 3,864 (7,790) (8,364) term deposits Financing Issue of ordinary share capital 474 35 90 New loans 20,766 59,985 113,935 Repayment of loans (13,304) (4,322) (24,231) --------- -------- -------- Net cash inflow from financing 7,936 55,698 89,794 --------- -------- -------- (Decrease)/increase in cash (3) (23,488) 1,290 ========= ======== ======== Basis of preparation and accounting policies The information contained in this interim statement does not constitute accounts as defined by section 240 of the Companies Act 1985. The un-audited results for the half-year to 30 June 2003 have been prepared in accordance with UK generally accepted accounting principles. The accounting policies applied are those set out in the Group's 2002 Annual Report and Accounts The information relating to the year ended 31 December 2002 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. Reconciliation of Statutory to disclosed Adjusted statistics Statutory figure Deferred tax adjustment Adjusted figure Net Assets Â£378.5 m Â£11.2 m Â£389.7 m NAV per 422.5 p 12.6 p 435.1 p share Earnings per 7.4 p 1.3 p 8.7 p share Diluted 7.2 p 1.4 p 8.6 p earnings per share Gearing 129.1 % 3.7 % 125.4 % Independent Review report to CLS Holdings plc Introduction We have been instructed by the company to review the financial information which comprises the profit and loss account, balance sheet, cash flow statement and the statement of total recognised gains and losses. 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 directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which 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 for use in the United Kingdom. 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. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Listing Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 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 2003. PricewaterhouseCoopers LLP Chartered Accountants London 11 September 2003 CLS Holdings plc Directors, Officers and Advisors Directors Sten Mortstedt (Executive Chairman) Thomas Thomson BA (Vice Chairman and Acting Chief Executive) Dan Baverstam (Chief Financial Officer) Anna Seeley BSc MRICS (Group Property Director) Steven Board FCCA (Chief Operating Officer ) Bengt Mortstedt Juris Cand (Non-Executive Director) Keith Harris PhD (Non-executive Director) Thomas Lundqvist (Non-executive Director) James Dean FRICS (Non-executive Director) Company Secretary Steven Board FCCA (Chief Operating Officer) Registered Office One Citadel Place Tinworth Street London SE11 5EF Registered Number 2714781 Registered Auditors PricewaterhouseCoopers LLP Chartered Accountants 1 Embankment Place London WC2N 6NN Registrars and Transfer Office Computershare Services plc P O Box 435 Owen House 8 Bankhead Crossway North Edinburgh EH11 4BR Clearing Bank Royal Bank of Scotland plc 24 Grosvenor Place London SW1X 7HP Financial Advisors HSBC Bank plc 8 Canada Square London E14 5HQ Joint Stockbrokers HSBC Bank plc 8 Canada Square London E14 5HQ KBC Peel Hunt 11 Old Broad Street London EC2N 1PH CLS Holdings plc on line: www.clsholdings.com e-mail: enquiries@clsholdings.com This information is provided by RNS The company news service from the London Stock Exchange

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