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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Cls Holdings Plc | LSE:CLI | London | Ordinary Share | GB00BF044593 | ORD 2.5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.30 | 0.36% | 82.80 | 82.50 | 83.00 | 84.50 | 82.50 | 84.50 | 438,519 | 16:35:07 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Agents & Mgrs | 113M | -249.8M | -0.6286 | -1.32 | 329.85M |
From Apr 2019 to Apr 2024
TIDMCLI
RNS Number : 8109Y
CLS Holdings PLC
08 March 2017
Release date: 8 March 2017 Embargoed until: 07:00
CLS HOLDINGS PLC
("CLS", THE "COMPANY" OR THE "GROUP")
ANNOUNCES ITS FULL YEAR FINANCIAL REPORT
FOR THE 12 MONTHS TO 31 DECEMBER 2016
strong results in an uncertain market
CLS is a FTSE 250 property investment company with a GBP1.57bn portfolio in the UK, Germany and France offering geographical diversification with local presence and knowledge.
FINANCIAL HIGHLIGHTS
-- EPRA net assets per share: up 17.9% to 2,456 pence (2015: 2,083 pence) -- Basic NAV per share increased by 18.8% to 2,151 pence (2015: 1,810 pence) -- EPRA earnings per share up 45.2% to 123.0 pence (2015: 84.7 pence) -- Net rents rose by 8.2% for the year to GBP107.1 million (2015: GBP99.0 million)
-- Profit after tax of GBP97.8 million (2015: GBP129.9 million) included a property revaluation uplift of GBP36.1 million (2015: GBP98.0 million)
-- Increase in distributions to shareholders of 23% for the full year, with a proposed final dividend of 40 pence per share which will be paid on 28 April 2017 to shareholders on the register at 17 March 2017
OPERATIONAL HIGHLIGHTS
Investment Property Portfolio:
-- 634,349 sq ft (58,933 sqm) of new lettings and lease renewals and 639,225 sq ft (59,386 sqm) of expiries
-- Vacancy rate reduced to lowest ever of 2.9% (2015: 3.1%) -- 4 properties acquired for GBP45.7 million at an average net initial yield of 6.9% -- 4 properties sold for GBP85.5 million at an average net initial yield of 5.6%
-- 5 further acquisitions since the year end for GBP31.4 million and at a net initial field of 8.0%
Developments:
-- Obtained enhanced planning consent on Vauxhall Square, SW8, and began demolition of Wendle Court
-- Began development of Phase 2 of Spring Mews, SE11 and progressed Ateliers Victoires in Paris
Financing:
-- 14 new loans or refinancings completed with a value of GBP177 million and at an average all-in annual rate of 1.90%
-- Repositioned the loan portfolio to 63% at fixed rates (2015: 51%)
-- Reduced the weighted average cost of debt by 49 bps to 2.91%, our lowest ever (2015: 3.40%), 270 bps below our net initial yield of 5.6%
Henry Klotz, Executive Chairman of CLS, commented:
"Our record results illustrate the benefits of our diversified business: investing in high-yielding properties in major cities across our core markets, with a broad tenant base and diversified sources of funding.
"In changing to paying a progressive dividend, we intend to offer a more attractive investment proposition for shareholders, to improve liquidity in the Group's shares and broaden our shareholder base.
"With our proven and successful business model, a strong balance sheet and ample liquid resources, we are well positioned to benefit from any challenges and opportunities which lie ahead."
-S-
For further information, please contact:
CLS Holdings plc +44 (0)20 7582 7766
www.clsholdings.com
Henry Klotz, Executive Chairman
Fredrik Widlund, Chief Executive Officer
John Whiteley, Chief Financial Officer
Sten Mortstedt, Executive Director
Liberum Capital Limited +44 (0)20 3100 2222
Richard Crawley
Jamie Richards
Panmure Gordon (UK) Limited +44 (0)20 7886 2500
Dominic Morley
Andrew Potts
Elm Square Advisers Limited +44 (0)20 7823 3695
Jonathan Gray
Smithfield Consultants (Financial PR) +44 (0)20 7360 4900
Alex Simmons
CLS will be presenting to analysts at 9.00am on Wednesday, 8 March 2017, at Smithfield Consultants, 10 Aldersgate Street, London, EC1A 4HJ.
Conference call dial in numbers as follows:
Participant telephone number +44(0)20 3427 1905
Confirmation code 4959351
Please dial in at least 5 minutes prior to the start of the meeting and quote the above confirmation code when prompted.
An interview with Fredrik Widlund, CEO, looking at CLS's performance and strategy can be found here:
Chairman's Statement
Our results show the benefits of a diverse business investing in high-yielding offices in major cities across three markets with a broad tenant base and diversified sources of funding
Overview
Our 2016 results reflected a successful year for the Group in which we passed several milestones. While EPRA earnings per share and EPRA NAV rose to their highest ever levels, the vacancy rate and cost of debt fell to record lows.
The rise in EPRA NAV was driven by underlying earnings, foreign exchange gains and property valuation uplifts across London and Europe, and the strong cash flow from operations underpinned the increase in distributions to our shareholders. To make the Group more comparable with other listed companies, and following feedback from our shareholders, we have decided to change our method of distribution and in April we will pay the final distribution for 2016 by way of a dividend.
In the year we made acquisitions and selective disposals across the Group as we continued to reposition our investment property portfolio to further improve returns, and we gained an enhanced planning consent on our Vauxhall Square development scheme in London which increased the office space.
In the second half of the year the UK investment market demonstrated resilience to the prospect of the UK leaving the EU, while the rise in the relative value of the euro further emphasised the benefits of the Group's geographical diversity.
The Group is strongly cash-generative. Our portfolio produces a net initial yield of 5.6%, which will rise to 5.9% on the expiry of rent-frees, and is financed by debt with a weighted average cost of 2.91%. In 2016 our Group revenue rose 8.1% to GBP128.5 million (2015: GBP118.9 million), and our net cash flow from operating activities was GBP40.1 million (2015: GBP48.9 million).
Property Portfolio
The increase in EPRA net assets per share was driven by a rise in values across virtually all of our regions. The Group's property portfolio grew to GBP1.57 billion, due predominantly to revaluation uplifts and foreign exchange gains. The investment property portfolio rose by 2.7% in local currencies, with strong contributions from France (+4.8%), Germany (+3.8%) and London (+2.5%). The only part of our portfolio to see a decline in value was the rest of the UK, representing 6% of the total portfolio, lower by 6.1% as it approached several lease events in March 2018, but which are already under negotiation.
At the year end the contracted rent roll was GBP91.2 million (2015: GBP89.0 million), of which 67% came from governments and major corporations and 50% was index-linked. Overall, the vacancy rate at 31 December 2016 was only 2.9% (2015: 3.1%); whilst 59,386 sqm of space was vacated in the year, 4,026 sqm was taken to development stock and 58,933 sqm was let or renewed.
Our development schemes in Vauxhall have progressed in line with expectations. As previously reported, at Vauxhall Square, SW8, in February 2016 we gained an amendment to the overall planning consent, replacing a four-star hotel with offices, increasing the office element of the entire scheme to 353,300 sq ft (32,823 sqm). In September, we began the demolition of Wendle Court in preparation for the construction of a new hostel and at the end of 2016 we gained vacant possession of 95 Wandsworth Road. The Board is considering several options for Vauxhall Square and I look forward to informing our shareholders of those discussions when they have been concluded.
At Spring Mews, SE11, in July we began the development of the next phase of the site, adjacent to the hotel, student and office scheme which completed in 2014. Phase 2 comprises a GBP8.6 million, 7-storey development of 9,181 sq ft (853 sqm) of office accommodation and nine residential apartments, expected to reach practical completion by the end of this year.
We acquired four properties in Düsseldorf, Hamburg and Leatherhead during the year at an aggregate cost of GBP45.7 million, generating a net initial yield of 6.9%. The largest, Parsevalstrasse 11, Düsseldorf, comprised 239,496 sq ft (22,701 sqm) of high quality, mixed-use space, and was acquired for EUR43.6 million at a net initial yield of 7.1% and financed for 7 years at a fixed rate of 0.92%.
Since the year end we have bought a portfolio of five buildings in the UK comprising 107,000 sq ft (9,940 sqm) of offices in Reigate, Teddington, Sidcup, Maidenhead and Birmingham for GBP31.4 million generating a net initial yield of 8.0%, and providing excellent short to medium-term asset management opportunities.
We also continued to dispose of peripheral assets which did not fit within the Group's strategy. We sold Vänerparken, our only remaining investment property in Sweden, for SEK590 million, and we disposed of our only properties in Luxembourg and Antibes. In London, we sold Chancel House, Neasden at 39% above its book value. In total, disposals produced proceeds of GBP85.5 million, generating an aggregate profit on disposal of GBP9.1 million, and a release of tax of a further GBP6.6 million.
Results
In 2016 EPRA net assets per share rose by 17.9% to 2,456 pence (2015: 2,083 pence), and basic NAV increased by 18.8% to 2,151 pence (2015: 1,810 pence). Profit after tax of GBP97.8 million (2015: GBP129.9 million) included a property revaluation uplift of GBP36.1 million (2015: GBP98.0 million) and, excluding such revaluations, EPRA earnings per share rose by 45.2% to 123.0 pence (2015: 84.7 pence); basic earnings per share were 236.3 pence (2015: 305.7 pence).
The 373 pence increase in EPRA net assets per share to 2,456 pence largely comprised underlying earnings (131 pence), foreign exchange gains (119 pence) and property valuation uplifts (97 pence). Shareholders' funds rose by 14.9% to GBP876.4 million, after distributions to shareholders of GBP24.8 million, and the balance sheet continued to be strong, with cash and liquid resources of GBP164.1 million.
Recurring interest cover remained robust at 3.4 times (2015: 3.2 times), as the Group continued to enjoy a very low weighted average cost of debt and at 31 December 2016 the weighted average loan to value of our secured debt was 49.8% (2015: 48.1%).
Financing
The Group's strategy is to have diversity of financing from banks and other debt providers and to ring-fence debt on individual properties where appropriate. During the year, GBP177 million was financed in 14 new loans at a weighted average rate of 1.90%, and our weighted average cost of debt was reduced to 2.91%. Diversity of financing is important to reduce risk and we enjoy active lending relationships with 24 debt providers. Medium-term interest rate swaps have remained attractively low, and by taking advantage of these we have increased the proportion of loans at fixed rate to 63% (2015: 51%), with a further 5% protected against rising rates with interest rate caps. 32% of our debt remains unhedged.
The Group's corporate bond portfolio has continued to be a valuable part of our cash management strategy. The portfolio outperformed the bond market during the year, delivering a total return of GBP10.5 million, or 18.6% in local currencies on invested capital. At the year end the portfolio consisted of 31 bonds valued at GBP65.1 million with a running yield of 7.8% on market value, and a weighted average duration of 12.6 years.
People
Our skilled and motivated workforce, drawn from 15 nationalities and split evenly between men and women, is key to the Group's success. In order to continue to understand the needs and requirements of our employees, we conducted an anonymous Group-wide staff survey during the year, from which we received positive and constructive feedback and have begun to implement several of the suggestions, with a timetable to address those which remain.
Sustainability
We have continued to implement our sustainability strategy across the Group, with technological improvements in the way we are able to monitor energy usage and to work with our customers to reduce costs. We maintain our involvement in the communities in which we invest, and have increased staff involvement in community and charitable events. I am very pleased that we have been able to reduce our carbon emissions for the fifth consecutive year, which will continue with the installation of further photovoltaic arrays during 2017. Further details of these initiatives are set out in the Corporate Social Responsibility Report on page 30 of the 2016 Annual Report and Accounts.
Distributions to Shareholders
In 2016, the Group distributed through tender offer buy-backs GBP13.4 million in April, equivalent to 31.8 pence per share, and GBP7.2 million in September, equivalent to 17.5 pence per share. In addition, GBP4.1 million was spent pursuant to market purchases on acquiring 255,099 shares which were placed in treasury.
The Board intends to make future distributions by way of a progressive dividend paid twice-yearly. Accordingly, the Board is proposing a final dividend of 40 pence per share, bringing the total distribution for the year to 57.5 pence per share, or GBP23.5 million. In addition, the Board is proposing a share sub-division of the existing ordinary shares of 25 pence each into 10 ordinary shares of 2.5 pence each.
Outlook
Our record results illustrate the benefits of our diversified business: investing in high-yielding properties in secondary areas of major cities, across three markets, with a broad tenant base and diversified sources of funding.
Looking ahead, 2017 is set to be an eventful year, with the UK due to start the process of leaving the European Union and several important elections taking place in Europe. With our proven and successful business model, a strong balance sheet and ample liquid resources, and our highly skilled and committed staff, we are well positioned to benefit from any challenges and opportunities which lie ahead.
With our proven opportunistic business approach we will continue to focus on cash flow, selling low yielding assets with no immediate prospect of value-adding initiatives, and redeploying our capital elsewhere with our customary discipline. I remain confident that the Group is well positioned to continue to deliver value to our shareholders.
Henry Klotz
Executive Chairman
8 March 2017.
Investors
DISTRIBUTIONS TO SHAREHOLDERS
The Board intends to make future distributions by way of twice-yearly dividends and to sub-divide the ordinary shares
Tender Buy-Backs
For many years the Company has made distributions to shareholders twice a year through tender offer buy-backs. The last of these was in September 2016, being GBP7.2 million with which the Company bought back 1 in 100 shares at 1,750 pence per share.
Dividends
On 8 February 2017, the Company announced that future distributions would be by dividend, beginning in April 2017 when we propose to distribute GBP16.3 million (40 pence per share), making a total of GBP23.5 million for the year. This is an increase of 23.0% on distributions last year and 47.6% above the level of two years ago.
Share Split
At the annual general meeting we will ask shareholders to approve a sub-division of each of the Company's ordinary shares of 25 pence into 10 shares of 2.5 pence each.
Why Change?
We believe that changing the distribution method to one of dividends and splitting the shares will make CLS more easily comparable with other listed property companies and a more attractive investment proposition for new shareholders. Our aim is to improve liquidity in the Group's shares and broaden the shareholder base.
Dividend Policy
The Company expects sufficient cash flow to be able to meet the growth requirements of the business, maintain an appropriate level of debt and provide cash returns to shareholders via a dividend. It is our intention to pay a progressive dividend fully covered by EPRA earnings. Approximately one-third of the annual dividend will be made as an interim in September, with the balance paid as a final dividend in April.
Market Purchases
Between 13 May and 31 May 2016, the Company engaged in a share buy-back programme, acquiring 255,099 shares in the market at an aggregate cost of GBP4.1 million and at an average price of 1,595 pence per share, which added 3 pence per share to NAV.
business review
The main activity of the Group is the investment in commercial real estate across four European regions - London, the rest of the United Kingdom, Germany and France - with a focus on providing well-managed, cost-effective offices in key European cities.
INVESTMENT PROPERTIES
Overview
At 31 December 2016, the directly held investment property portfolio was independently valued at GBP1,536.6 million (31 December 2015: GBP1,366.8 million). The increase of GBP169.8 million comprised new acquisitions of GBP45.7 million and other capital expenditure of GBP20.7 million, a GBP38.5 million valuation uplift, GBP77.2 million of positive exchange rate variances, and GBP9.2 million transferred from properties held for sale; the cumulative effect of these was mitigated by disposals of GBP21.5 million. In local currencies, the portfolio rose by 2.7%, after acquisitions and development expenditure. The drivers were the French (+4.8%), German (+3.8%) and London (+2.5%) portfolios; the rest of the UK fell by 6.1%.
At the beginning of the year the last Swedish investment property, Vänerparken, was held in the balance sheet as a property held for sale, and was duly sold in 2016.
Of the GBP45.7 million spent on acquisitions in the year, GBP39.3 million related to two properties in Germany, and GBP6.4 million to two in London. Our only properties in Sweden, Luxembourg and Antibes were sold, and a London property was sold to a special purchaser. Contracted rent rose by 0.7% on a like-for-like basis. The increase in capital values was driven by a fall in yields: the EPRA net initial yield of the overall investment property portfolio (excluding developments) at 31 December 2016 fell to 5.6% (2015: 5.9%) and the topped-up EPRA net initial yield to 5.9% (2015: 6.2%). The average rent across the Group remained very affordable at GBP16 per sq ft (GBP172 per sqm), and the average capital value was also low at just GBP268 per sq ft (GBP2,883 per sqm). This was very close to replacement cost, meaning that the land element of our investments in key European cities was minimal. This also highlights how successful the Group can be in attracting occupiers with cost-effective rents.
The bedrock of the Group's rental income is strong, with 36% being paid by government occupiers and 31% from major corporations, and 50% of our rents are subject to indexation. The weighted average lease length at 31 December 2016 increased to 6.2 years, or 4.7 years to first break, and the portfolio was let at a net GBP5.1 million below current market rents.
The overall vacancy rate remained very low at just 2.9% (2015: 3.1%), which is testament to the benefit of active in-house asset management and property management, and of maintaining strong links with our customers to ensure we understand and respond to their needs.
The benefits of the Group's geographical diversification remain self-evident: the threat of Brexit undermined the London investment market for a time in 2016, but it also weakened sterling, adding to the sterling value of our euro-denominated assets, whilst we saw good growth in values in Germany and France, and Germany continues to provide good investment opportunities and readily available debt.
The Group maintains its strong commitment to sustainability, which has benefited both occupiers and the Group. The Corporate, Social and Environmental Responsibility Statement on page 30 of the 2016 Annual Report and Accounts provides more detail.
LONDON
Market during the year:
-- The UK economy performed better than expected with GDP growth of 2% and unemployment remains low at 4.8%
-- The Bank of England has revised its growth forecasts upwards to 2% for 2017 -- PMI of business confidence remains above 50
-- Investment volumes rebounded in Q4 2016 with the level of transactions across the UK being worth GBP12.1bn almost in line with the 5 year average
-- Rents across the UK grew marginally although the office sector is currently lagging behind industrial property in terms of growth
Outlook:
The decision to leave the EU created uncertainty in the London commercial property market, especially in the City where the demand for space from the financial services sector is likely to decline in the medium term. In the assets in which CLS invests, which are outside the City and prime West End, tenant demand remains robust. A negative impact on the broader economy could affect CLS more tangibly, but the supply of commercial space in London remains constrained and by managing all of our assets in-house we are in a strong position to withstand such an impact.
In 2016 the supply of, and demand for, investment opportunities in London were constrained by the prospect of the EU referendum and by its outcome. Consequently, in January we made our only acquisition in Greater London in the year, comprising Cassini Court and Pascal Place, Randalls Research Park, Leatherhead for GBP6.4 million, including costs. These adjacent buildings provided 28,122 sq ft (2,613 sqm) of offices and, with a net initial yield of 6.0% and around 10,580 sq ft of vacant space, presented the opportunity to undertake a modernisation programme, which is now under way.
Since the end of the year we have acquired a portfolio of five properties comprising 107,000 sq ft (9,940 sqm) of offices in Reigate, Teddington, Sidcup and Maidenhead (which will be managed within the London portfolio) and Birmingham (Rest of UK) for GBP31.4 million generating a net initial yield of 8.0% from 10 tenants, and providing excellent short to medium-term asset management opportunities.
In October, Chancel House, Neasden Lane NW10 was sold to the Education Funding Agency for GBP18.7 million, 39% above its valuation at 31 December 2015. It comprised 74,700 sq ft (7,081 sqm) of office space; 56% of the building was income-producing from the Department of Works and Pensions until March 2018 and, with 44% of the property vacant, the sales price represented a net initial yield of 3.3%.
The London occupancy market in which we operate maintained its strength in 2016, largely ignoring the impact Brexit might have, and with a lack of new developments to satisfy this demand, rental values rose. On average, new lettings were achieved at 5.4% above their estimated rental values (ervs) of 31 December 2015. During 2016, ervs of the London portfolio rose by 2.6%, and at 31 December 2016 the London portfolio was net reversionary. Those leases which were reversionary were GBP9.0 million or 21.7% under-rented; of the GBP1.1 million (2.6%) of over-renting in London, GBP0.7 million was on leases which expire in 2026. The vacancy rate for London remained low at just 4.0% (2015: 3.6%), excluding development stock. During 2016, 142,374 sq ft (13,227 sqm) became vacant, of which 43,335 sq ft (4,026 sqm) was taken into development stock, and we let or renewed leases on 106,573 sq ft (9,901 sqm).
At Vauxhall Square, SW8, our 1.6 million sq ft (151,700 sqm) major development opportunity adjacent to Vauxhall's transport hub, construction is well advanced on the 454 bed, 30 storey student tower by Urbanest, to whom we sold this adjacent site in 2015. This represents just one of a number of tower developments under way in the immediate vicinity of our main development site. In February 2016 we gained an amendment to the overall planning consent, replacing a four-star hotel with 108,586 sq ft (10,088 sqm) of Grade A offices, increasing the office element of the entire scheme to 353,300 sq ft (32,823 sqm). In September, we began the demolition of Wendle Court to the south of the scheme at 131/137 Wandsworth Road, in preparation for the construction of a new hostel to replace the one on the main site. As previously indicated, at the end of 2016 we were able to gain vacant possession from Cap Gemini of 95 Wandsworth Road, the largest existing building on the main site. We are considering several options on the future of the main scheme.
At Spring Mews, SE11, in July we began the development of the next phase of the site, adjacent to the hotel, student and office scheme which completed in 2014. Phase 2 comprises a GBP8.6 million, 7-storey development of 9,181 sq ft (853 sqm) of office accommodation and nine residential apartments expected to reach practical completion by the end of this year.
The London portfolio rose in value by 2.5% in the year, dampened by the 1% increase in stamp duty land tax, and reflected a 30 bps fall in yield and a 1.6% growth like-for-like in contracted rents.
REST OF UK
Market during the year:
-- Lower transactional volumes post Brexit, with South East office market trading volumes falling by 30% to GBP2.6bn
-- Trading activity resumed to relatively normal levels in Q3 -- Decrease in value of sterling brought about an influx of overseas investors -- Demand remained stable in regional cities
Outlook:
The key to the Rest of UK portfolio is the impact of the lease events in March 2018.
The Rest of UK portfolio is predominantly let to government departments. In 2016 there were no acquisitions or disposals; during the year we exchanged contracts to sell Atholl House, 84/88 Guild Street, Aberdeen, with vacant possession but the purchaser did not complete the contract, and a non-refundable deposit of GBP1.5 million was taken to Other Property Income in the income statement.
Since the year end, the acquisition in Birmingham referred to above has been added to the rest of UK portfolio.
In 2016, the only lease to expire was of 7,664 sq ft (712 sqm) and was renewed to the existing tenant.
There are 11 leases with the Department of Work and Pensions (Job Centres) which have tenant breaks or expiries in March 2018 and we are in discussions with the tenant's advisers to extend most of these.
The Rest of UK portfolio fell in value by 6.1% in the year, including the effect of the rise in stamp duty land tax. Excluding the impact of stamp duty and Atholl House, the remaining 25 properties in the portfolio fell by less than 1.5% as the March 2018 lease events approached.
GERMANY
Market during the year:
-- GDP growth stable at 1.9% further growth predicted in 2017 -- Unemployment continued to fall to 5.8%
-- Real estate markets remained buoyant; still well above the 10 year average. Investment transactions surpassed EUR50 million for third consecutive year
-- Office lettings grew by 12%, primarily in Frankfurt and Stuttgart -- Prime sector yields fell to 3.3% in Munich -- Further yield compression in secondary locations now between 5.25% and 6.25%
Outlook:
Vacancies are falling, rental growth in larger cities has been over 5% per annum and the economy grew by 1.9% in 2016. Further strong economic growth is expected in 2017 which, underpinned by a widely-diversified economic structure, will benefit our tenants. The general election will inevitably create some uncertainty, but the economy is strong enough to withstand it. We intend to grow our portfolio in a German economy which provides attractive investment and financing opportunities in non-prime offices.
We continue to see good investment value in German commercial real estate, supported by favourable financing conditions. In September, we acquired Parsevalstrasse 11, Düsseldorf, comprising 239,496 sq ft (22,700 sqm) of high quality, mixed-use space close to the airport. The cost of EUR43.6 million provided a net initial yield of 7.1% and we financed the acquisition for 7 years at a fixed rate of 0.92%. In August, we bought Harburger Ring 35, Hamburg, adjacent to our existing holding of Harburger Ring 33, for EUR5.7 million, which comprised 36,028 sq ft (3,415 sqm) of office space.
During 2016, 213,093 sq ft (19,797 sqm) vacated or expired in the German portfolio, but 232,789 sq ft (21,627 sqm) was relet or renewed and, consequently, the vacancy rate fell to 1.7% (2015: 2.5%). New leases and renewals were achieved at 6.1% above their ervs at the end of 2015.
The valuation of the German portfolio rose by 3.8% in local currency, or by 18.4% in sterling. The uplift was driven by a 5 bps fall in yields, whilst ervs were up 0.3% on a like-for-like basis in the year.
FRANCE
Market during the year:
-- Unemployment rate declined for the second consecutive year, now at 10% -- Government deficit cut from 7.2% of GDP to 3.4% -- 2.4 million sq m office space let, representing a 7% increase -- Office supply fell to 3.5 million sqm for fifth consecutive quarter -- Paris region vacancy rates reduced by 11% during the year to 6.5% -- Prime rents remained stable at EUR780 per sqm and yields at 3%
Outlook:
The French economy remains challenging, with GDP growth in 2016 of only 1.1% and unemployment at 10%, and uncertainty surrounds both the outcome of the 2017 presidential election and its economic consequences. But 2016 proved the strength of the Paris office letting market, and a continuing fall in supply bodes well for rents. Robust valuations reflect a market dominated by domestic investors and a lack of supply. Overall, we remain cautious of further investment in France until signs of recovery and political stability have returned.
In a highly competitive market, no acquisitions were made in France during the year, but we took the opportunity to dispose of peripheral assets which did not fit within the Group's strategy of investing in Greater London and the larger cities of Germany and France. We disposed of our only property investment in Luxembourg, at 16 Rue Eugene Ruppert, for EUR10.2 million, marginally ahead of the 2015 valuation for this empty property. Later in the year we sold Le Chorus, 2203 Chemin de St Claude, Antibes a 46,640 sq ft (4,421 sqm) office building at a price of EUR9.4 million, 2.4% above its valuation at 31 December 2015.
Our in-house French team managed to reduce still further our vacancy rate in France to only 2.9% (2015: 3.9%). Whilst a significantly large 276,094 sq ft (25,650 sqm) of space vacated or expired during the year, 287,321 sq ft (26,693 sqm) was let. This was achieved at a weighted average rent 1.9% above ervs at 31 December 2015.
The French portfolio valuation rose by 4.8% in the year in local currency, and by 21.6% in sterling. Contracted rent on a like-for-like basis fell by 1.5%, but yields fell by 8 bps, which accounted for most of the rise in the value of the properties.
OTHER INVESTMENTS
Financial Investments
At 31 December 2016 the Group held financial investments in the shares of two companies listed on Nasdaq Stockholm. The Group's main financial investment was an 11.2% interest in the share capital of Catena AB, a property company which specialises in logistics warehouses in Sweden, from which we received a dividend of GBP1.0 million during the year. NP3 Fastigheter AB is an investor in commercial real estate in northern Sweden which produced good capital growth during the Group's ownership, and was sold in full in February 2017.
The Group's other significant financial investment is in corporate bonds, which are held as an alternative to cash as a cash management tool. The average capital invested in corporate bonds in the year was GBP56.4 million, which generated a total return in local currencies of 18.6%. At the year end the Group owned bonds from 31 issuers with an aggregate value of GBP65.1 million.
Property, Plant and Equipment
The Staybridge Suites London - Vauxhall hotel is part of our Spring Mews development completed in 2014, and is operated under a franchise agreement with Intercontinental Hotels Group. It increased its revenue by 21.6% in 2016, contributing GBP4.3 million (2015: 3.5 million) to other property income.
The assets of First Camp Sverige Holding AB, predominantly vacation sites in Sweden, were valued at GBP66.8 million at 31 December 2016, and accounted for the majority of additions in property, plant and equipment in 2016 as the company consolidated its share of the Swedish market. The Group's share in the net assets of First Camp at the year end was GBP14.1 million.
RESULTS FOR THE YEAR
Headlines
Profit after tax attributable to the owners of the Company of GBP97.8 million (2015: GBP129.9 million) generated EPRA earnings per share of 123.0 pence (2015: 84.7 pence), and basic earnings per share of 236.3 pence (2015: 305.7 pence). Investment properties at 31 December 2016 were GBP1,536.6 million (2015: GBP1,366.8 million), EPRA net assets per share were 17.9% higher at 2,456 pence (2015: 2,083 pence), and basic net assets per share rose by 18.8% to 2,151 pence (2015: 1,810 pence).
Approximately 55% of the Group's business is conducted in the reporting currency of sterling, 32% in euros, with the balance in Swedish kronor. Compared to last year, sterling weakened against the euro by 11.1% and against the krona by 10.1%, increasing profits accordingly. Likewise, at 31 December 2016 the euro was 15.1% stronger and the krona 10.3% stronger against sterling than twelve months previously, increasing the sterling equivalent value of non-sterling net assets.
Exchange rates to the GBP
Hot Features
Premium
EUR SEK
--------------------- ------- --------
At 31 December 2014 1.2876 12.1654
2015 average rate 1.3774 12.8889
At 31 December 2015 1.3571 12.4420
2016 average rate 1.2242 11.5801
At 31 December 2016 1.1731 11.2754
Income Statement
In 2016, rental income of GBP91.3 million was GBP6.0 million higher than in 2015. Acquisitions added GBP3.7 million, completed developments contributed GBP1.8 million for the first time, general letting activity added GBP1.0 million and the weakness of sterling added GBP4.3 million; these were offset by GBP4.8 million of income lost through disposals. Other property income of GBP21.4 million included income from First Camp of GBP12.5 million (2015: GBP14.0 million), hotel revenue from Spring Mews of GBP4.3 million (2015: GBP3.5 million) and one-off receipts of GBP1.5 million on the aborted disposal of Atholl House and GBP1.0 million from a rights of light settlement. In aggregate net rental income rose by 8.2% to GBP107.1 million (2015: GBP99.0 million).
We monitor the administration expenses incurred in running the property portfolio by reference to the income derived from it, which we call the administration cost ratio, and this is a key performance indicator of the Group. In 2016, the one-off cost of closing the Lyon office and of moving the Paris office to larger premises to accommodate the entire French team was part of the increase in administration expenses of the property segment of the Group to GBP14.1 million (2015: GBP13.5 million). But net rental income rose more steeply, and the administration cost ratio fell to 14.9% (2015: 15.9%), well within our KPI target for the year of 16.5%.
The net surplus on revaluation of investment properties of GBP36.1 million was predominantly generated by the London portfolio, which rose in value by GBP18.3 million, Germany rose by GBP12.4 million and France by GBP11.6 million.
The disposals in Neasden, Luxembourg, Antibes and Vänerparken together raised proceeds of GBP85.5 million realising a gain of GBP9.1 million after costs over their aggregate valuation at 31 December 2015. In addition, tax liabilities of GBP6.6 million were extinguished for the Group by selling the corporate vehicles which contained the properties (and their associated tax liabilities).
Finance income of GBP13.6 million (2015: GBP10.0 million) included interest income of GBP4.1 million (2015: GBP4.9 million) from our corporate bond portfolio, and also foreign exchange gains on non-sterling monetary net assets at the year end, dividends from Catena and interest on the deferred consideration on the sale of Vänerparken. The average balance of corporate bond investments in the year was lower than in previous years, but they remained an important cash management tool of the Group.
Finance costs of GBP32.7 million (2015: GBP27.5 million) were higher than last year, but the underlying cost, excluding the fair value movements of derivative financial instruments and atypical losses on buying back the remaining balance of a zero coupon note, fell to GBP26.3 million (2015: GBP26.6 million), after capitalising interest of GBP0.7 million (2015: GBP0.4 million) on developments. Interest costs before such capitalisation were in line with last year at GBP27.0 million (2015: GBP27.0 million) reflecting a higher level of borrowings in the year at a lower average cost.
The tax charge of 1.8% was significantly below the weighted average rate of the countries in which we do business (22.2%), primarily due to the change in the tax rate on existing liabilities, and the release of liabilities on the disposal of properties by selling the corporate vehicles which owned them. The tax rate in France fell from 33.3% to 28.0%, and in the UK from 18.0% to 17.0%, the collective effect of which was a one-off reduction of the tax charge of GBP10.3 million. Without this and the effect of the property disposals the effective tax rate would have been 18.7%.
Overall, profit attributable to the owners of the Company was GBP97.8 million (2015: 129.9 million). EPRA earnings, which excludes items which are non-recurring in nature, such as profits on sales of investment properties, or which have no impact to earnings over their life, such as movements on the revaluation of investment properties, were GBP50.9 million (2015: 36.0 million), and generated EPRA earnings per share up 45.2% at 123.0 pence (2015: 84.7 pence).
EPRA Net Asset Value
At 31 December 2016, EPRA net assets per share (a diluted measure which highlights the fair value of the business on a long-term basis) were 2,456 pence (2015: 2,083 pence), a rise of 17.9%, or 373 pence per share. The main reasons for the increase were underlying profit after tax of 131 pence, foreign exchange gains from the weakness of sterling (119 pence), and the benefit of the uplift in the valuation of the investment property portfolio (97 pence). Smaller gains were made from buying back shares at a discount to NAV (11 pence) and the revaluation of bonds and equities (15 pence).
Cash Flow, Net Debt and Gearing
Net cash flow from operating activities generated GBP40.1 million, of which GBP24.8 million was distributed to shareholders through tender buy-backs or market purchases of shares; a further GBP39.4 million was raised from disposals of investment properties, and GBP24.7 million from net sales of corporate bonds and equity investments. The main cash outflows were GBP45.7 million spent on the four acquisitions in the year, and GBP41.8 million on other capital expenditure. At 31 December 2016, the Group's cash balances were GBP99.0 million, virtually unchanged from twelve months previously, and were supplemented by GBP65.1 million of corporate bonds and undrawn bank facilities of GBP105 million.
Gross debt rose by GBP54.5 million to GBP854.5 million, of which GBP49.6 million was due to foreign exchange rate movements. GBP191.6 million of loans and a net GBP8.6 million of overdrafts were drawn, replacing GBP199.6 million of loan repayments. At 31 December 2016, the weighted average unexpired term of the Group's debt was 4.0 years, excluding overdrafts.
Balance sheet loan to value (net debt to gross assets less cash) fell to 41.1% (2015: 42.5%), and the weighted average loan-to-value on borrowings secured against properties was a comfortable 49.8% (2015: 48.1%). Adjusted solidity was 52.1% (2015: 50.4%).
The weighted average cost of debt at 31 December 2016 was 2.91%, 49 basis points lower than 12 months earlier. The fall was largely due to taking out new debt of GBP177 million at a weighted average cost of 1.90%, and was further helped by the weakness in sterling (our cheapest debt is in euros) and by buying back early the zero coupon note taken out in 1992 at 11.2%.
In 2016, our low cost of debt led to strong recurring interest cover of 3.4 times (2015: 3.2 times).
Financing Strategy
The Group's strategy is to hold its investment properties predominantly in single-purpose vehicles financed primarily by non-recourse bank debt in the currency used to purchase the asset. In this way credit and liquidity risk can most easily be managed, around 50% of the Group's exposure to foreign currency is naturally hedged, and the most efficient use can be made of the Group's assets. Bank debt ordinarily attracts covenants on loan-to-value and on interest and debt service cover. None of the Group's debt was in breach of covenants at 31 December 2016. The Group had 55 loans across the portfolio from 24 banks, plus a debenture, secured notes and an unsecured bond.
To the extent that Group borrowings are not at fixed rates, the Group's exposure to interest rate risk is mitigated by the use of financial derivatives, particularly interest rate caps and swaps. Since 2015, medium-term interest swap rates have been close to short-term rates, and the Board chose to take advantage of these conditions, fixing medium-term debt taken out during the year predominantly with co-terminus interest rate swaps. During the year the Group financed or refinanced 14 loans to a value of GBP177 million at a weighted average all-in rate of 1.90%, and of these GBP119 million was fixed at a weighted average all-in rate of 1.75%. Consequently, at 31 December 2016, 63% of the Group's borrowings were at fixed rates or subject to interest rate swaps, 5% were subject to caps and 32% of debt costs were unhedged.
The Group's financial derivatives - predominantly interest rate caps and interest rate swaps - are marked to market at each balance sheet date. At 31 December 2016 they were a net liability of GBP9.3 million (2015: GBP5.3 million).
Distributions to Shareholders
In April 2016, GBP13.4 million was distributed as a final distribution to shareholders for 2015 by means of a tender offer buy-back of 1 in 57 shares at 1,810 pence per share. In September, GBP7.2 million was distributed as an interim distribution to shareholders for 2016 by means of a tender offer buy-back of 1 in 100 shares at 1,750 pence per share. The Board has decided to change the nature of distributions to shareholders and the proposed final distribution for 2016, which will be put to shareholders at the Annual General Meeting in April 2017, is to be a dividend of 40 pence per share, representing GBP16.3 million. Accordingly, distributions for 2016 will comprise GBP23.5 million in aggregate, an increase of 23.0% over last year.
Share Capital
At 1 January 2016, there were 45,028,684 shares in issue, of which 2,888,103 were held as treasury shares. Shares were cancelled during the year under the distribution policy of tender offer buy-backs: in April, 739,396 shares, and in September, 411,510 shares, were cancelled. Also during the year, 255,099 shares were acquired in the market at an average cost of 1,595 pence per share and were placed in treasury, and 5,000 shares were issued from treasury shares to a Director in compensation for incentives forfeited on cessation of his previous employment.
Consequently, at 31 December 2016, 40,739,576 shares were listed on the London Stock Exchange, and 3,138,202 shares remained held in Treasury.
TOTAL RETURNS TO SHAREHOLDERS
The prospect of the possible fallout from Brexit adversely affected the share prices of much of the property sector, including that of CLS, and so for the first time in ten years the share price ended the year below the level at which it started it, and consequently total shareholder return in 2016 was a negative 16.0%. Nevertheless, in the five years to 31 December 2016, our total shareholder return of 159.1%, which represented a compound annual return of 21.0%, was one of the best performances in the listed real estate sector.
Since the Company listed on the London Stock Exchange, it has outperformed the FTSE Real Estate and FTSE All Share indices, as set out in the graph on page 11 of the 2016 Annual Report and Accounts.
KEY PERFORMANCE INDICATORS
Our performance against our key performance indicators is set out on page 4 of the 2016 Annual Report and Accounts.
PRINCIPAL RISKS AND UNCERTAINTIES
There are a number of potential risks and uncertainties which could have a material impact on the Group's performance and could cause the results to differ materially from expected or historical results; the management and mitigation of these risks are the responsibility of the Board
Risk Areas of Mitigation Change in
impact risk in year
-------------------------------------------------------- --------------- --------------------------- --------------
Property investment risk
Underperformance Cash flow Geographically-diversified Increased
of investment portfolio Profitability portfolio with 40%
due to: Net asset of the Group's properties
* Cyclical downturn in property market value being outside the
Banking UK.
covenants
-------------------------------------------------------- --------------- --------------------------- --------------
Rental income 51% of London and Increased
* Changes in supply of space and/or occupier demand Cash flow rest of UK income
Vacancy rate is derived from
Void running Government tenants.
costs Minimal exposure
Property to the type of tenant
values who may want to
Net asset relocate from the
value UK to elsewhere
in Europe. In-house
asset management
enables management
to highlight and
address tenant disquiet.
-------------------------------------------------------- --------------- --------------------------- --------------
Rental income Asset management Unchanged
* Poor asset management Cash flow is not outsourced,
Vacancy rate property teams proactively
Void running manage customers
costs to ensure changing
Property needs are met, and
values review the current
Net asset status of all properties
value weekly. Written
reports are submitted
monthly to senior
management on, inter
alia, vacancies,
lease expiry profiles
and progress on
rent reviews.
-------------------------------------------------------- --------------- --------------------------- --------------
OTHER INVESTMENT RISK
Corporate bond investments: Net asset In advance of the Increased
* Underperformance of portfolio value referendum, the
Liquid Group sold GBP47
resources million of bonds.
-------------------------------------------------------- --------------- --------------------------- --------------
Risk Areas of Mitigation Change in
impact risk in year
----------------------------- --------------------- ---------------------------- --------------
DEVELOPMENT RISK
Failure to secure Abortive Planning permission Unchanged
planning permission costs Reputation is sought only after
engaging in depth
with all stakeholders.
----------------------------- --------------------- ---------------------------- --------------
Contractor solvency Reduced development Only leading contractors Unchanged
and availability returns are engaged. Prior
Cost overruns to appointment,
Loss of rental contractors are
revenue the subject of a
due diligence check
and assessed for
financial viability.
----------------------------- --------------------- ---------------------------- --------------
Downturn in investment Net asset Developments are Unchanged
or occupational markets value undertaken only
Cash flow after an appropriate
Profitability level of pre-lets
have been sought.
----------------------------- --------------------- ---------------------------- --------------
Increased construction Net asset All development Reduced
costs value appraisals contain
Reduced development contingencies, and
returns are subject to sensitivity
Cost overruns analysis. Monthly
cost reports are
produced for the
Executive Directors
to identify and
address potential
issues at an early
stage.
----------------------------- --------------------- ---------------------------- --------------
Taxation risk
Increases in tax Cash flow The Group monitors Reduced
rates or changes Profitability legislative proposals
to the basis of taxation Net asset and consults external
value advisors to understand
and mitigate the
effects of any such
change.
----------------------------- --------------------- ---------------------------- --------------
SUSTAINABILITY RISK
Increasing building Rental income Continual assessment Unchanged
regulation and obsolescence Cash flow of all properties
Vacancy rate against emerging
Net asset regulatory changes.
value Fit-out and refurbishment
Profitability projects benchmarked
Liquid resources against third party
schemes.
----------------------------- --------------------- ---------------------------- --------------
Increasing energy Net asset Investment in energy Unchanged
costs and regulation value efficient plant
Profitability and building mounted
Liquid resources renewable energy
systems.
----------------------------- --------------------- ---------------------------- --------------
Risk Areas of Mitigation Change in
impact risk in year
------------------------- --------------------- --------------------------- --------------
Funding risk
Unavailability of Cost of borrowing The Group has a Unchanged
financing at acceptable Ability to dedicated treasury
prices invest or team and relationships
develop are maintained with
some 24 banks, thus
reducing credit
and liquidity risk.
The exposure on
refinancing debt
is mitigated by
the lack of concentration
in maturities.
------------------------- --------------------- --------------------------- --------------
Adverse interest Cost of borrowing 63% of borrowings Increased
rate movements Cost of hedging are at fixed rates
and 5% are subject
to interest rate
caps
------------------------- --------------------- --------------------------- --------------
Breach of borrowing Cost of borrowing Borrowing agreements Increased
covenants contain cure clauses
to rectify LTV breaches
through part repayment
of the loan or the
depositing of cash.
------------------------- --------------------- --------------------------- --------------
Foreign currency Net asset Property investments Reduced
exposure value are partially funded
Profitability in matching currency.
The difference between
the value of the
property and the
amount of financing
is generally unhedged
and monitored on
an ongoing basis.
------------------------- --------------------- --------------------------- --------------
Financial counterparty Loss of deposits The Group has a Unchanged
credit risk Cost of rearranging dedicated treasury
facilities team and relationships
Incremental are maintained with
cost some 24 banks, thus
of borrowing reducing credit
and liquidity risk.
The exposure on
refinancing debt
is mitigated by
the lack of concentration
in maturities.
------------------------- --------------------- --------------------------- --------------
Political and Economic
Risk
Break-up of the Euro Net asset Euro-denominated Unchanged
value liquid resources
Profitability are kept to a minimum.
Euro property assets
are largely financed
with euro borrowings
in the countries
in which they are
situated.
------------------------- --------------------- --------------------------- --------------
Impact of UK exit Net asset 51% of rents in Increased
from the EU value London and the rest
Profitability of the UK are derived
Availability from central government
of funding departments. On
a macro level, the
Group operates in
the three largest
and most stable
economies in Europe.
------------------------- --------------------- --------------------------- --------------
Risk Areas of Mitigation Change in
impact risk in year
-------------------------- --------------------- --------------------------- --------------
Other corporate risk
Failure to recruit Net Asset The Remuneration Unchanged
and retain key personnel Value Profitability Committee regularly
reviews and sets
individual Executive
Directors remuneration
packages. Annual
reviews are performed
to assess competency,
training requirements,
as well as employee
satisfaction.
-------------------------- --------------------- --------------------------- --------------
Cyber attacks Net Asset The Group's IT systems Increased
Value Profitability are protected by
Reputation anti-virus software
and firewalls that
regularly tested
and updated. Data
is periodically
backed up and stored
offsite.
-------------------------- --------------------- --------------------------- --------------
Major health & safety Profitability The Health and Safety Unchanged
incidents Reputation Committee meets
regularly to ensure
ongoing compliance
with health and
safety legislation
as well as undertaken
periodic risk assessments
across the business.
-------------------------- --------------------- --------------------------- --------------
Terrorism
-------------------------- --------------------- --------------------------- --------------
Security threat/attack Net Asset The Group adopts Unchanged
Value appropriate security
Profitability measures across
the portfolio based
on our experienced
Property Managers
risk assessment,
and takes out insurance
to cover losses
of rent and service
charge from acts
of terrorism where
appropriate. The
Group has also developed
a disaster recovery
plan to ensure business
continuity.
-------------------------- --------------------- --------------------------- --------------
Property Portfolio
Rental data
Gross
rental
income Net rental ERV
for income Contracted at Contracted
the for the Lettable rent at year rent subject Vacancy
year year space year end end to indexation rate at
GBPm GBPm sqm GBPm GBPm GBPm year end
----------------- -------- ----------- --------- ----------- ------ --------------- ----------
London 43.4 41.8 169,697 41.5 51.1 7.2 4.0%
Rest of
UK 11.5 13.2 80,693 11.3 8.6 6.0 0.9%
Germany 20.4 19.4 209,450 22.5 23.3 16.3 1.7%
France 14.7 15.0 83,675 15.9 16.0 15.9 2.9%
Sweden 1.3 0.9 -
----------------- -------- ----------- --------- ----------- ------ ---------------
Total Portfolio 91.3 90.3 543,515 91.2 99.0 45.4 2.9%
----------------- -------- ----------- --------- ----------- ------ ---------------
Valuation data
Valuation movement
in the year
-----------------------
EPRA
Market EPRA topped
value Foreign net up net True
of property Underlying exchange initial initial equivalent
GBPm GBPm GBPm yield yield Reversion Over-rented yield
---------------- ------------- ----------- ---------- --------- --------- ---------- ------------ ------------
London 826.6 20.4 - 4.7% 5.0% 21.7% 2.6% 5.7%
Rest of
UK 94.7 (6.2) - 11.9% 11.9% 0.8% 25.6% 8.4%
Germany 356.9 12.5 43.0 5.8% 5.9% 7.4% 5.9% 5.9%
France 258.4 11.8 34.2 5.6% 6.0% 2.8% 4.9% 5.8%
---------------- ------------- ----------- ----------
Total Portfolio 1,536.6 38.5 77.2 5.6% 5.9% 12.3% 6.7%
---------------- ------------- ----------- ----------
Lease Data
Average Passing rent of leases ERV of leases expiring
lease length expiring in: in:
----------------- ------------------------------- ------------------------------
Year After Year After
To To Year Year 3 to year Year Year 3 to year
break expiry 1 2 5 5 1 2 5 5
years years GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------- -------- ------- ------ ------ ------ ------ ------ ------ ------
London 4.7 6.1 6.5 1.2 7.5 26.3 9.4 1.2 9.0 29.9
Rest of UK 2.3 5.4 1.2 2.0 1.6 6.5 0.9 1.5 1.4 4.6
Germany 7.0 7.2 2.3 2.2 8.8 9.3 3.2 2.3 8.6 8.8
France 3.0 5.7 0.8 1.5 1.8 11.8 0.7 1.2 1.8 11.8
------ ------ ------ ------ ------ ------ ------ ------
Total Portfolio 4.7 6.2 10.8 6.9 19.6 53.9 14.2 6.2 20.8 55.1
------ ------ ------ ------ ------ ------ ------ ------
Note:
Property portfolio data comprises investment properties; it excludes the hotel, owner-occupied property, landholdings and First Camp land and buildings
Responsibility statement
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
-- the strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
-- the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
This statement of responsibilities was approved by the Board on 8 March 2017.
On behalf of the Board
David Fuller BA FCIS
Company Secretary
8 March 2017
group income statement
for the year ended 31 December 2016
2016 2015
Notes GBPm GBPm
----------------------------------------------- -------- -------- --------
Continuing operations
Group revenue 128.5 118.9
----------------------------------------------- -------- -------- --------
Net rental income 2 107.1 99.0
Administration expenses (21.3) (19.5)
Other expenses (14.0) (13.8)
----------------------------------------------- -------- -------- --------
Group revenue less costs 71.8 65.7
Net movements on revaluation of investment
properties 8 36.1 98.0
Profit on sale of investment properties 9.1 4.3
Gain on sale of corporate bonds and
other financial instruments 3.2 0.7
----------------------------------------------- -------- -------- --------
Operating profit 120.2 168.7
Finance income 3 13.6 10.0
Finance costs 4 (32.7) (27.5)
Share of loss of associates after tax 10 (1.0) -
----------------------------------------------- -------- -------- --------
Profit before tax 100.1 151.2
Taxation 5 (1.8) (19.1)
----------------------------------------------- -------- -------- --------
Profit for the year 98.3 132.1
----------------------------------------------- -------- -------- --------
Attributable to:
Owners of the Company 97.8 129.9
Non-controlling interests 0.5 2.2
----------------------------------------------- -------- -------- --------
98.3 132.1
----------------------------------------------- -------- -------- --------
Earnings per share from continuing operations
(expressed in pence per share)
Basic 6 236.3 305.7
----------------------------------------------- -------- -------- --------
Group Statement of Comprehensive Income
for the year ended 31 December 2016
2016 2015
Notes GBPm GBPm
----------------------------------------------- ------ ------ ------
Profit for the year 98.3 132.1
----------------------------------------------- ------ ------ ------
Other comprehensive income
Items that will not be reclassified
to profit or loss
Foreign exchange differences 33.1 (8.7)
----------------------------------------------- ------ ------ ------
Items that may be reclassified to profit
or loss
Fair value gains/(losses) on corporate
bonds and other financial investments 11 7.7 (0.2)
Fair value losses taken to net gain
on sale of corporate bonds and other
financial investments 11 1.3 -
Revaluation of property, plant and equipment 9 2.6 2.9
Deferred tax on net fair value (gains)/losses 15 (3.8) 0.5
----------------------------------------------- ------ ------ ------
Total items that may be reclassified
to profit or loss 7.8 3.2
----------------------------------------------- ------ ------ ------
Total comprehensive income for the year 139.2 126.6
----------------------------------------------- ------ ------ ------
Total comprehensive income attributable
to:
Owners of the Company 138.3 126.0
Non-controlling interests 0.9 0.6
----------------------------------------------- ------ ------ ------
139.2 126.6
----------------------------------------------- ------ ------ ------
Group Balance Sheet
at 31 December 2016
2016 2015
Notes GBPm GBPm
---------------------------------- ------ ---------- ----------
Non-current assets
Investment properties 8 1,536.6 1,366.8
Property, plant and equipment 9 106.4 78.9
Goodwill and intangibles 1.2 1.1
Investments in associates 10 0.2 1.5
Other financial investments 11 116.4 121.0
Deferred tax 15 3.1 3.3
---------------------------------- ------ ---------- --------
1,763.9 1,572.6
---------------------------------- ------ ---------- --------
Current assets
Trade and other receivables 12 59.9 13.5
Properties held for sale - 58.6
Derivative financial instruments 17 0.5 0.5
Cash and cash equivalents 13 99.0 100.7
---------------------------------- ------ ---------- --------
159.4 173.3
---------------------------------- ------ ---------- --------
Total assets 1,923.3 1,745.9
---------------------------------- ------ ---------- --------
Current liabilities
Trade and other payables 14 (50.5) (54.2)
Current tax (9.9) (7.7)
Borrowings 16 (125.8) (220.3)
---------------------------------- ------ ---------- --------
(186.2) (282.2)
---------------------------------- ------ ---------- --------
Non-current liabilities
Deferred tax 15 (120.7) (114.7)
Borrowings 16 (724.1) (575.2)
Derivative financial instruments 17 (9.8) (5.8)
---------------------------------- ------ ---------- --------
(854.6) (695.7)
---------------------------------- ------ ---------- --------
Total liabilities (1,040.8) (977.9)
---------------------------------- ------ ---------- --------
Net assets 882.5 768.0
---------------------------------- ------ ---------- --------
Equity
Share capital 19 11.0 11.3
Share premium 21 83.1 83.0
Other reserves 22 125.9 85.1
Retained earnings 656.4 583.4
---------------------------------- ------ ---------- --------
Equity attributable to owners of
the Company 876.4 762.8
Non-controlling interests 6.1 5.2
---------------------------------- ------ ---------- --------
Total equity 882.5 768.0
---------------------------------- ------ ---------- --------
The financial statements of CLS Holdings plc (registered number: 2714781) were approved by the Board of Directors and authorised for issue on 8 March 2017 and were signed on its behalf by:
Mr E H Klotz Executive Chairman
Group Statement of Changes in Equity
for the year ended 31 December 2016
Share Share Other
capital premium reserves
GBPm GBPm GBPm Retained Non-controlling Total
Note Note Note earnings Total interest equity
19 21 22 GBPm GBPm GBPm GBPm
------------------------ --------- -------- --------- --------- ------- --------------- --------
Arising in 2016:
Total comprehensive
income
for the year - - 40.5 97.8 138.3 0.9 139.2
Issue of share capital - 0.1 - - 0.1 - 0.1
Purchase of own
shares (0.3) - 0.3 (24.7) (24.7) - (24.7)
Expenses thereof - - - (0.1) (0.1) - (0.1)
------------------------- --------- -------- --------- --------- ------- --------------- --------
Total changes arising
in 2016 (0.3) 0.1 40.8 73.0 113.6 0.9 114.5
At 1 January 2016 11.3 83.0 85.1 583.4 762.8 5.2 768.0
------------------------- --------- -------- --------- --------- ------- --------------- --------
At 31 December 2016 11.0 83.1 125.9 656.4 876.4 6.1 882.5
------------------------- --------- -------- --------- --------- ------- --------------- --------
Share Share Other
capital premium reserves
GBPm GBPm GBPm Retained Non-controlling Total
Note Note Note earnings Total interest equity
19 21 22 GBPm GBPm GBPm GBPm
------------------------ --------- -------- --------- --------- ------- --------------- --------
Arising in 2015:
Total comprehensive
income
for the year - - (3.9) 129.9 126.0 0.6 126.6
Issue of share capital - 0.1 - - 0.1 - 0.1
Purchase of own
shares (0.2) - 0.2 (16.1) (16.1) - (16.1)
Expenses thereof - - - (0.1) (0.1) - (0.1)
------------------------- --------- -------- --------- --------- ------- --------------- --------
Total changes arising
in 2015 (0.2) 0.1 (3.7) 113.7 109.9 0.6 110.5
At 1 January 2015 11.5 82.9 88.8 469.7 652.9 4.6 657.5
------------------------- --------- -------- --------- --------- ------- --------------- --------
At 31 December 2015 11.3 83.0 85.1 583.4 762.8 5.2 768.0
------------------------- --------- -------- --------- --------- ------- --------------- --------
Group Statement of Cash Flows
for the year ended 31 December 2016
2016 2015
Notes GBPm GBPm
---------------------------------------------------- ------ -------- --------
Cash flows from operating activities
Cash generated from operations 23 62.0 72.1
Interest received 5.8 6.9
Interest paid (20.5) (22.9)
Income tax paid (7.2) (7.2)
---------------------------------------------------- ------ -------- --------
Net cash inflow from operating activities 40.1 48.9
---------------------------------------------------- ------ -------- --------
Cash flows from investing activities
Purchase of investment properties (45.7) (81.4)
Capital expenditure on investment properties (20.9) (16.6)
Proceeds from sale of investment properties 39.4 34.8
Purchases of property, plant and equipment (20.9) (9.3)
Purchase of corporate bonds (35.9) (40.9)
Proceeds from sale of corporate bonds 54.3 28.5
Purchase of equity investments (1.1) (6.2)
Proceeds from sale of equity investments 7.4 0.5
Dividends received from equity investments 1.4 1.0
Distributions received from associate undertakings 0.3 -
Costs on foreign currency transactions (1.5) (0.1)
Net cash outflow from investing activities (23.2) (89.7)
---------------------------------------------------- ------ -------- --------
Cash flows from financing activities
Purchase of own shares (24.8) (16.2)
New loans 200.2 301.6
Issue costs of new loans (1.5) (2.8)
Repayment of loans (199.6) (236.2)
---------------------------------------------------- ------ -------- --------
Net cash (outflow)/inflow from financing
activities (25.7) 46.4
---------------------------------------------------- ------ -------- --------
Cash flow element of net (decrease)/increase
in cash and cash equivalents (8.8) 5.6
Foreign exchange gain/(loss) 7.1 (5.1)
---------------------------------------------------- ------ -------- --------
Net (decrease)/increase in cash and cash
equivalents (1.7) 0.5
Cash and cash equivalents at the beginning
of the year 100.7 100.2
---------------------------------------------------- ------ -------- --------
Cash and cash equivalents at the end of
the year 13 99.0 100.7
---------------------------------------------------- ------ -------- --------
Notes to the group financial statements
31 December 2016
1 General Information
CLS Holdings plc (the "Company") and its subsidiaries (together "CLS Holdings" or the "Group") is an investment property group which is principally involved in the investment, management and development of commercial properties, and in other investments. The Group's principal operations are carried out in the United Kingdom, Germany and France.
The Company is registered in the UK, registration number 2714781, with its registered address at 86 Bondway, London, SW8 1SF. The Company is listed on the London Stock Exchange.
The annual financial report (produced in accordance with the Disclosure and Transparency Rules) can be found on the Company's website www.clsholdings.com. The 2016 Annual Report and Accounts will be posted to shareholders on 23 March 2016 and will also be available on the Company's website.
The financial information contained in this announcement has been prepared on the basis of the accounting policies set out in the statutory accounts for the year ended 31 December 2016. Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS. The financial information does not constitute the Company's statutory accounts for the years ended 31 December 2016 or 2015, but is derived from those accounts. Those accounts give a balanced, true and fair view of the assets, liabilities, financial position and profit and loss of the Company and the undertakings included in the consolidation taken as a whole. Statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts and the auditors' reports on both the 2015 and 2016 accounts were unqualified; did not draw attention to any matters by way of emphasis; and did not contain statements under s498(2) or (3) Companies Act 2006 or preceding legislation.
Going Concern
The Group's business activities, and the factors likely to affect its future development, performance and position are set out in the Strategic Report within the 2016 Annual Report and Accounts. The financial position of the Group, its liquidity position and borrowing facilities are described in the Strategic Report within the 2016 Annual Report and Accounts and in the notes to the accounts.
The Directors regularly stress-test the business model to ensure that the Group has adequate working capital and have reviewed the current and projected financial positions of the Group, taking into account the repayment profile of the Group's loan portfolio, and making reasonable assumptions about future trading performance. The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and, therefore, they continue to adopt the going concern basis in preparing the annual report and accounts.
2 Segment information
The Group has two operating segments - Investment Property and Other Investments. Other Investments comprise the hotel at Spring Mews, corporate bonds, shares in Catena AB and First Camp Sverige Holding AB, and other small corporate investments. The Group manages the Investment Property segment on a geographical basis due to its size and geographical diversity. Consequently, the Group's principal operating segments are:
Investment Property London
-
Rest of United Kingdom
Germany
France
Sweden
Other Investments
There are no transactions between the operating segments.
The Group's results for the year ended 31 December 2016 by operating segment were as follows:
Investment Property
--------------------------------------------
Rest Other
London of UK Germany France Sweden Investments Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------- ------- -------- ------- ------- ------------- -------
Rental income 43.4 11.5 20.4 14.7 1.3 - 91.3
Other property-related
income 2.0 1.7 - 0.9 - 16.8 21.4
Service charge
income 6.3 - 4.6 4.8 0.1 - 15.8
Service charges
and similar
expenses (9.9) - (5.6) (5.4) (0.5) - (21.4)
------------------------ ------- ------- -------- ------- ------- ------------- -------
Net rental
income 41.8 13.2 19.4 15.0 0.9 16.8 107.1
Administration
expenses (5.6) (0.1) (1.4) (1.8) (0.2) (7.2) (16.3)
Other expenses (4.6) (0.6) (1.4) (0.8) - (6.6) (14.0)
------------------------ ------- ------- -------- ------- ------- ------------- -------
Group revenue
less costs 31.6 12.5 16.6 12.4 0.7 3.0 76.8
Net movements
on revaluation
of investment
properties 18.3 (6.2) 12.4 11.6 - - 36.1
Profit/(loss)
on sale of
investment
property 4.8 - - (1.1) 5.4 - 9.1
Gain on sale
of corporate
bonds - - - - - 3.2 3.2
------------------------ ------- ------- -------- ------- ------- ------------- -------
Segment operating
profit/(loss) 54.7 6.3 29.0 22.9 6.1 6.2 125.2
Finance income - - - 0.1 1.4 12.1 13.6
Finance costs (20.2) (3.0) (3.1) (2.2) (0.1) (4.1) (32.7)
Share of loss
of associates
after tax - - - - - (1.0) (1.0)
------------------------ ------- ------- -------- ------- ------- ------------- -------
Segment profit/(loss)
before tax 34.5 3.3 25.9 20.8 7.4 13.2 105.1
------------------------ ------- ------- -------- ------- ------- -------------
Central administration
expenses (5.0)
------------------------ ------- ------- -------- ------- ------- ------------- -------
Profit before
tax 100.1
------------------------ ------- ------- -------- ------- ------- ------------- -------
The Group's results for the year ended 31 December 2015 by operating segment were as follows:
Investment Property
--------------------------------------------
Rest Other
London of UK Germany France Sweden Investments Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------- ------- -------- ------- ------- ------------- -------
Rental income 37.8 13.0 16.2 13.8 4.5 - 85.3
Other property-related
income 0.8 0.2 - 0.1 0.4 17.5 19.0
Service charge
income 6.5 - 3.3 4.5 0.3 - 14.6
Service charges
and similar
expenses (9.7) - (3.5) (4.7) (2.0) - (19.9)
------------------------ ------- ------- -------- ------- ------- ------------- -------
Net rental
income 35.4 13.2 16.0 13.7 3.2 17.5 99.0
Administration
expenses (4.2) (0.1) (1.4) (1.4) (0.4) (6.0) (13.5)
Other expenses (4.3) (0.4) (1.1) (0.7) - (7.3) (13.8)
------------------------ ------- ------- -------- ------- ------- ------------- -------
Group revenue
less costs 26.9 12.7 13.5 11.6 2.8 4.2 71.7
Net movements
on revaluation
of investment
properties 62.3 8.7 19.5 6.7 0.8 - 98.0
Profit/(loss)
on sale of
investment
property 3.2 1.5 (0.4) - - - 4.3
Gain on sale
of corporate
bonds - - - - - 0.7 0.7
------------------------ ------- ------- -------- ------- ------- ------------- -------
Segment operating
profit/(loss) 92.4 22.9 32.6 18.3 3.6 4.9 174.7
Finance income - - - - - 10.0 10.0
Finance costs (17.0) (3.2) (2.5) (2.3) (0.5) (2.0) (27.5)
------------------------ ------- ------- -------- ------- ------- ------------- -------
Segment profit/(loss)
before tax 75.4 19.7 30.1 16.0 3.1 12.9 157.2
------------------------ ------- ------- -------- ------- ------- -------------
Central administration
expenses (6.0)
------------------------ ------- ------- -------- ------- ------- ------------- -------
Profit before
tax 151.2
------------------------ ------- ------- -------- ------- ------- ------------- -------
Other segment information:
Assets Liabilities Capital expenditure
------------------ ---------------- ----------------------
2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- -------- -------- -------- ------ ---------- ----------
Investment Property
London 851.5 824.2 493.1 458.5 20.2 53.7
Rest of UK 97.4 102.5 74.5 79.9 - 0.3
Germany 368.4 263.3 206.5 162.7 42.0 19.1
France 263.8 227.1 184.2 172.7 4.4 2.2
Sweden 42.8 50.3 3.4 35.0 - 0.6
Other Investments 299.4 278.5 79.1 69.1 20.6 12.0
--------------------- -------- -------- -------- ------ ---------- ----------
1,923.3 1,745.9 1,040.8 977.9 87.2 87.9
--------------------- -------- -------- -------- ------ ---------- ----------
Included within the assets of other investments are investments in associates of GBP0.2 million (2015: GBP1.5 million).
The majority of the assets in Sweden at 31 December 2016 was an amount due on the disposal of an investment property.
3 FINANCE INCOME
2016 2015
GBPm GBPm
---------------------------- ------ ------
Interest income 7.4 7.2
Other finance income 1.4 1.0
Foreign exchange variances 4.8 1.8
---------------------------- ------ ------
13.6 10.0
---------------------------- ------ ------
4 FINANCE COSTS
2016 2015
GBPm GBPm
--------------------------------------------------- ------ ------
Interest expense
Bank loans 15.2 13.3
Debenture loan 2.8 3.0
Zero coupon note 0.8 1.1
Secured notes 2.9 3.1
Unsecured bonds 3.8 4.5
Amortisation of loan issue costs 1.5 2.0
--------------------------------------------------- ------ ------
Total interest costs 27.0 27.0
Less interest capitalised on development projects (0.7) (0.4)
--------------------------------------------------- ------ ------
26.3 26.6
Loss on partial redemption of zero coupon note 2.4 1.2
Movement in fair value of derivative financial
instruments
Interest rate swaps: transactions not qualifying
as hedges 4.0 (0.4)
Interest rate caps: transactions not qualifying
as hedges - 0.1
32.7 27.5
--------------------------------------------------- ------ ------
5 taxation
2016 2015
GBPm GBPm
---------------------------------------- ------ ------
Current tax charge 8.9 5.6
Deferred tax (credit)/charge (note 15) (7.1) 13.5
---------------------------------------- ------ ------
1.8 19.1
---------------------------------------- ------ ------
A deferred tax charge of GBP3.8 million (2015: credit of GBP0.5 million) was recognised directly in equity (note 15).
The charge for the year differs from the theoretical amount which would arise using the weighted average tax rate applicable to profits of Group companies as follows:
2016 2015
GBPm GBPm
--------------------------------------------------- ------- ------
Profit before tax 100.1 151.2
--------------------------------------------------- ------- ------
Tax calculated at domestic tax rates applicable
to profits in the respective countries 22.2 31.9
Expenses not deductible for tax purposes 1.5 0.1
Tax effect of fair value movements on investments (1.0) (0.6)
Change in tax basis of United Kingdom properties,
including indexation uplift (3.1) (6.6)
Non-taxable income (0.3) (0.4)
Change in tax rate (10.3) (5.0)
Deferred tax on losses not recognised 0.5 (0.6)
Tax effect of losses in associates and joint 0.2 -
ventures
Tax liability released on disposals (6.6) -
Adjustment in respect of prior periods (1.3) -
Other deferred tax adjustments - 0.3
--------------------------------------------------- ------- ------
Tax charge for the year 1.8 19.1
--------------------------------------------------- ------- ------
The weighted average applicable tax rate of 22.2% (2015: 21.1%) was derived by applying to their relevant profits and losses the rates in the jurisdictions in which the Group operated.
The tax rate in France fell from 33.3% to 28.0% and in the UK from 18.0% to 17.0%, the collective effect of which was a reduction of the tax charge in 2016 of GBP10.3 million.
6 EARNINGS PER SHARE
Management has chosen to disclose the European Public Real Estate Association (EPRA) measure of earnings per share which has been provided to give relevant information to investors on the long-term performance of the Group's underlying property investment business. The EPRA measure excludes items which are non-recurring in nature such as profits (net of related tax) on sale of investment properties and of other non-current investments, and items which have no impact to earnings over their life, such as the change in fair value of derivative financial instruments and the net movement on revaluation of investment properties, and the related deferred taxation on these items.
2016 2015
Earnings GBPm GBPm
------------------------------------------------ ------- -------
Profit for the year attributable to owners
of the Company 97.8 129.9
Net movements on revaluation of investment
properties (36.1) (98.0)
Other gains and losses - (2.9)
Profit on sale of investment properties, net
of tax (6.8) (4.3)
Gain on sale of corporate bonds (3.2) (0.7)
Change in fair value of derivative financial
instruments 5.4 (0.3)
Impairment of carrying value of associates 1.0 -
Deferred tax relating to the above adjustments (7.2) 12.3
------------------------------------------------ ------- -------
EPRA earnings 50.9 36.0
------------------------------------------------ ------- -------
2016 2015
Weighted average number of ordinary shares GBPm GBPm
-------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
in circulation 41,379,855 42,494,950
-------------------------------------------- ----------- -----------
2016 2015
Earnings per Share GBPm GBPm
-------------------- ------ ------
Basic 236.3 305.7
EPRA 123.0 84.7
-------------------- ------ ------
7 NET ASSETS PER SHARE
Management has chosen to disclose the two European Public Real Estate Association (EPRA) measures of net assets per share: EPRA net assets per share and EPRA triple net assets per share. The EPRA net assets per share measure highlights the fair value of equity on a long-term basis, and so excludes items which have no impact on the Group in the long term, such as fair value movements of derivative financial instruments and deferred tax on the fair value of investment properties. The EPRA triple net assets per share measure discloses net assets per share on a true fair value basis: all balance sheet items are included at their fair value in arriving at this measure, including deferred tax, fixed rate loan liabilities and any other balance sheet items not reported at fair value.
2016 2015
Net Assets GBPm GBPm
------------------------------------------------ -------- -------
Basic net assets attributable to owners of
the Company 876.4 762.8
Adjustment to increase fixed rate debt to fair
value, net of tax (28.3) (27.7)
Goodwill as a result of deferred tax (1.1) (1.1)
------------------------------------------------ -------- -------
EPRA triple net assets 847.0 734.0
Deferred tax on property and other non-current
assets, net of minority interest 115.8 110.9
Fair value of derivative financial instruments 9.3 5.3
Adjustment to decrease fixed rate debt to book
value, net of tax 28.3 27.7
------------------------------------------------ -------- -------
EPRA net assets 1,000.4 877.9
------------------------------------------------ -------- -------
2016 2015
Number of ordinary shares Number Number
------------------------------------------ ----------- -----------
Number of ordinary shares in circulation 40,739,576 42,140,581
------------------------------------------ ----------- -----------
2016 2015
Net Assets Per Share Pence Pence
---------------------- ------- -------
Basic 2,151 1,810
EPRA 2,456 2,083
EPRA triple net 2,079 1,742
---------------------- ------- -------
8 Investment properties
Rest
London of UK Germany France Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------- ------- -------- ------- --------
At 1 January 2016 800.1 91.7 259.4 215.6 1,366.8
Acquisitions 6.4 - 39.3 - 45.7
Capital expenditure 13.6 - 2.7 4.4 20.7
Disposals (13.9) - - (7.6) (21.5)
Net movement on revaluation of
investment
properties 18.3 (6.2) 12.4 11.6 36.1
Rent-free period debtor adjustments 2.1 - 0.1 0.2 2.4
Exchange rate variances - - 43.0 34.2 77.2
Transfer from properties held
for sale - 9.2 - - 9.2
------------------------------------- ------- ------- -------- ------- --------
At 31 December 2016 826.6 94.7 356.9 258.4 1,536.6
------------------------------------- ------- ------- -------- ------- --------
Rest
London of UK Germany France Sweden Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------- ------- -------- ------- ------- --------
At 1 January 2015 705.0 97.6 235.5 225.1 46.9 1,310.1
Acquisitions 39.3 - 18.5 - - 57.8
Capital expenditure 14.2 0.3 0.6 2.2 0.6 17.9
Disposals (21.6) (5.8) (3.1) - - (30.5)
Net movement on revaluation
of investment properties 62.3 8.7 19.5 6.7 0.8 98.0
Rent-free period debtor adjustments 0.9 0.1 - 0.4 (0.1) 1.3
Exchange rate variances - - (11.6) (11.5) (0.9) (24.0)
Transfer to properties held
for sale - (9.2) - (7.3) (42.1) (58.6)
Transfer to property, plant
and equipment - - - - (5.2) (5.2)
------------------------------------- ------- ------- -------- ------- ------- --------
At 31 December 2015 800.1 91.7 259.4 215.6 - 1,366.8
------------------------------------- ------- ------- -------- ------- ------- --------
The investment properties (and the hotel, landholding and owner-occupied property detailed in note 9) were revalued at 31 December 2016 to their fair value. Valuations were based on current prices in an active market for all properties. The property valuations were carried out by external, professionally qualified valuers as follows:
London: Cushman and Wakefield; Knight Frank
Rest of UK: Cushman and Wakefield
Germany: Cushman and Wakefield
France: Jones Lang LaSalle
Sweden: L Fällström AB
Property valuations are complex and require a degree of judgement and are based on data which is not publicly available. Consistent with EPRA guidance, we have classified the valuations of our property portfolio as level 3 as defined by IFRS 13. Inputs into the valuations include equivalent yields and rental income and are described as 'unobservable' as per IFRS 13. These inputs are analysed by segment in the property portfolio information on the inside front cover of the 2016 Annual Report and Accounts. All other factors remaining constant, an increase in rental income would increase valuations, whilst an increase in equivalent nominal yield would result in a fall in value and vice versa.
Investment properties included leasehold properties with a carrying amount of GBP48.1 million (2015: GBP38.7 million).
Interest capitalised within capital expenditure in the year amounted to GBP0.7 million (2015: GBP0.4 million).
Where the Group leases out its investment property under operating leases the duration is typically three years or more. No contingent rents have been recognised in either the current or the comparative year.
Substantially all investment properties (and the hotel and owner-occupied property detailed in note 9) are secured against debt.
In 2010 the Group purchased a property in London for GBP1.8 million. Under the terms of the purchase agreement, should the site be developed additional consideration may become due to the vendor. The maximum liability in respect of this is estimated to be GBP0.5 million. At the balance sheet date the fair value of the liability was GBPnil (2015: GBPnil).
9 Property, plant and equipment
Land Owner- Fixtures
and occupied and
Hotel buildings property fittings Total
GBPm GBPm GBPm GBPm GBPm
----------------------------------------- ------ ----------- ---------- ---------- ------
Cost or valuation
At 1 January 2015 21.3 32.1 4.1 4.5 62.0
Additions - 12.0 - 0.2 12.2
Acquired during the year
Transfer from investment properties - 5.2 - - 5.2
Exchange rate variances - (0.5) - - (0.5)
Revaluation 5.4 (4.4) 1.9 - 2.9
----------------------------------------- ------ ----------- ---------- ---------- ------
At 31 December 2015 26.7 44.4 6.0 4.7 81.8
Additions - 20.6 - 0.2 20.8
Exchange rate variances - 5.2 - - 5.2
Revaluation 0.4 2.3 (0.1) - 2.6
----------------------------------------- ------ ----------- ---------- ---------- ------
At 31 December 2016 27.1 72.5 5.9 4.9 110.4
----------------------------------------- ------ ----------- ---------- ---------- ------
Comprising:
At cost - - - 4.9 4.9
At valuation 31 December 2016 27.1 72.5 5.9 - 105.5
----------------------------------------- ------ ----------- ---------- ---------- ------
27.1 72.5 5.9 4.9 110.4
----------------------------------------- ------ ----------- ---------- ---------- ------
Accumulated depreciation and impairment
At 1 January 2015 - - (0.2) (1.4) (1.6)
Depreciation charge (0.2) (0.4) - (0.7) (1.3)
----------------------------------------- ------ ----------- ---------- ---------- ------
At 31 December 2015 (0.2) (0.4) (0.2) (2.1) (2.9)
Depreciation charge (0.2) (0.4) - (0.5) (1.1)
----------------------------------------- ------ ----------- ---------- ---------- ------
At 31 December 2016 (0.4) (0.8) (0.2) (2.6) (4.0)
----------------------------------------- ------ ----------- ---------- ---------- ------
Net book value
At 31 December 2016 26.7 71.7 5.7 2.3 106.4
----------------------------------------- ------ ----------- ---------- ---------- ------
At 31 December 2015 26.5 44.0 5.8 2.6 78.9
----------------------------------------- ------ ----------- ---------- ---------- ------
A hotel, an owner-occupied property and a landholding were revalued at each balance sheet date based on the external valuation performed by Cushman and Wakefield, Knight Frank and L Fällström AB, respectively, as detailed in note 8.
The other land and buildings were revalued based on an external valuation performed by Forum Fastighetsekonomi AB.
10 Investments in associates
Net assets Goodwill Impairment Total
GBPm GBPm GBPm GBPm
----------------------------- ----------- --------- ----------- ------
At 1 January 2016 0.6 1.3 (0.4) 1.5
Share of loss of associates
after tax (0.1) - 0.1 -
Dividends received (0.3) - - (0.3)
Impairment - (1.3) 0.3 (1.0)
----------------------------- ----------- --------- ----------- ------
At 31 December 2016 0.2 - - 0.2
----------------------------- ----------- --------- ----------- ------
Net assets Goodwill Impairment Total
GBPm GBPm GBPm GBPm
----------------------------- ----------- --------- ----------- ------
At 1 January 2015 6.2 1.3 (6.0) 1.5
Share of loss of associates
after tax (5.2) - 5.2 -
Exchange rate differences (0.4) - 0.4 -
----------------------------- ----------- --------- ----------- ------
At 31 December 2015 0.6 1.3 (0.4) 1.5
----------------------------- ----------- --------- ----------- ------
11 Other Financial investments
Destination
of 2016 2015
Investment type Investment GBPm GBPm
------------------------------ ---------------------- ------------- ------ ------
Available-for-sale financial
investments Listed corporate
carried at fair value bonds UK 10.9 24.0
Eurozone 9.8 4.2
Other 44.4 45.2
------ ------
65.1 73.4
Listed equity
securities UK - 0.3
Sweden 50.8 42.8
Unlisted investments Sweden 0.5 4.5
---------------------- -------------------------------------------- ------ ------
116.4 121.0
------------------------------------------------------------------- ------ ------
The movement of other financial investments, analysed based on the methods used to measure their fair value, was as follows:
Level Level Level
1 2 3
Quoted Observable Other
market market valuation
prices data methods* Total
GBPm GBPm GBPm GBPm
--------------------------------------------- -------- ------------ ----------- -------
At 1 January 2016 43.1 73.4 4.5 121.0
Additions 1.1 35.9 - 37.0
Disposals (2.3) (52.1) (4.1) (58.5)
Fair value movements recognised
in reserves on available-for-sale
assets 4.7 3.0 - 7.7
Fair value movements recognised
in profit before tax on available-for-sale
assets (0.4) 1.7 - 1.3
Exchange rate variations 4.6 3.2 0.1 7.9
--------------------------------------------- -------- ------------ ----------- -------
At 31 December 2016 50.8 65.1 0.5 116.4
--------------------------------------------- -------- ------------ ----------- -------
Level Level Level
1 2 3
Quoted Observable Other
market market valuation
prices data methods* Total
GBPm GBPm GBPm GBPm
------------------------------------ -------- ------------ ----------- -------
At 1 January 2015 34.8 61.8 3.3 99.9
Additions 4.4 40.9 1.8 47.1
Disposals - (25.6) (0.5) (26.1)
Fair value movements recognised
in reserves on available-for-sale
assets 4.6 (4.8) - (0.2)
Exchange rate variations (0.7) 1.1 (0.1) 0.3
------------------------------------ -------- ------------ ----------- -------
At 31 December 2015 43.1 73.4 4.5 121.0
------------------------------------ -------- ------------ ----------- -------
*Unlisted equity shares valued using multiples from comparable listed organisations.
Corporate Bond Portfolio
At 31 December 2016
Travel
and Telecoms Energy and
Sector Banking Insurance Tourism and IT Resources Other Total
--------- ----------------- --------------- --------------- ------------ ----------------- ------- --------
Value GBP22.4m GBP1.8m GBP10.8m GBP13.1m GBP15.2m GBP1.8m GBP65.1m
Running
yield 7.6% 6.4% 7.5% 7.6% 8.9% 6.5% 7.8%
--------- ----------------- --------------- --------------- ------------ ----------------- ------- --------
Issuers RBS PGH Capital SAS Dell Enel Stora
HSBC Brit Insurance Hertz Seagate Seadrill Enso
Lloyds Stena Millicom Transocean
Investec British Centurylink ArcelorMittal
Barclays Airways Telecom Freeport-McMoRan
Unicredit Air France-KLM Italia
Santander Western
Allied Irish Digital
Credit Agricole
Bank of Ireland
Deutsche Bank
Societe Generale
--------- ----------------- --------------- --------------- ------------ ----------------- ------- --------
12 Trade and other receivables
2016 2015
GBPm GBPm
------------------- ------ ------
Current
Trade receivables 3.8 5.8
Prepayments 2.3 2.3
Accrued income 3.4 1.8
Other debtors 50.4 3.6
------------------- ------ ------
59.9 13.5
------------------- ------ ------
There was no concentration of credit risk with respect to trade receivables as the Group had a large number of customers spread across the countries in which it operated.
There were no material trade and other receivables classified as past due but not impaired (2015: none). No trade and other receivables were interest-bearing.
Included within other debtors is GBP0.2 million (2015: GBP1.0 million) due after more than one year, and GBP42.1 million (2015: GBPnil) due on the disposal of an investment property.
13 Cash and cash equivalents
2016 2015
GBPm GBPm
-------------------------- ------ ------
Cash at bank and in hand 99.0 100.7
-------------------------- ------ ------
At 31 December 2016, Group cash at bank and in hand included GBP12.5 million (2015: GBP11.0 million) which was restricted by a third-party charge.
14 Trade and other payables
2016 2015
GBPm GBPm
--------------------------------- ------ ------
Current
Trade payables 3.4 6.4
Social security and other taxes 8.2 6.7
Other payables 11.1 10.7
Accruals 13.9 15.8
Deferred income 13.9 14.6
--------------------------------- ------ ------
50.5 54.2
--------------------------------- ------ ------
15 Deferred tax
2016 2015
GBPm GBPm
----------------------------- ------ ------
Deferred tax assets:
- after more than 12 months (3.1) (3.3)
Deferred tax liabilities:
- after more than 12 months 120.7 114.7
----------------------------- ------ ------
117.6 111.4
----------------------------- ------ ------
The movement in deferred tax was as follows:
2016 2015
GBPm GBPm
-------------------------------------------------- ------ ------
At 1 January 111.4 101.1
(Credited)/charged in arriving at profit after
tax (7.1) 13.5
Charged/(credited) to other comprehensive income 3.8 (0.5)
Exchange rate variances 9.5 (2.7)
-------------------------------------------------- ------ ------
At 31 December 117.6 111.4
-------------------------------------------------- ------ ------
The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, was as follows:
Tax losses Other Total
Deferred tax assets GBPm GBPm GBPm
--------------------------------------- ----------- ------ ------
At 1 January 2016 (0.1) (3.2) (3.3)
Charged in arriving at profit after
tax 0.1 - 0.1
Charged to other comprehensive income - 0.2 0.2
Exchange rate variances - (0.1) (0.1)
--------------------------------------- ----------- ------ ------
At 31 December 2016 - (3.1) (3.1)
--------------------------------------- ----------- ------ ------
Deferred tax assets Tax losses Other Total
GBPm GBPm GBPm
---------------------------------------- ----------- ------ ------
At 1 January 2015 (1.3) (3.5) (4.8)
Charged in arriving at profit after
tax 1.2 1.1 2.3
Credited to other comprehensive income - (0.8) (0.8)
---------------------------------------- ----------- ------ ------
At 31 December 2015 (0.1) (3.2) (3.3)
---------------------------------------- ----------- ------ ------
Fair value
UK capital adjustments
allowances to properties Other Total
Deferred tax liabilities GBPm GBPm GBPm GBPm
-------------------------------- ------------ --------------- ------ ------
At 1 January 2016 10.5 102.8 1.4 114.7
Charged/(credited) in arriving
at profit after tax 0.5 (8.1) 0.4 (7.2)
Charged to other comprehensive
income - 2.8 0.8 3.6
Exchange rate variances 0.1 9.4 0.1 9.6
-------------------------------- ------------ --------------- ------ ------
At 31 December 2016 11.1 106.9 2.7 120.7
-------------------------------- ------------ --------------- ------ ------
Fair value
UK capital adjustments
allowances to properties Other Total
Deferred tax liabilities GBPm GBPm GBPm GBPm
-------------------------------- ------------ --------------- ------ ------
At 1 January 2015 10.6 91.8 3.5 105.9
(Credited)/charged in arriving
at profit after tax (0.1) 11.3 - 11.2
Charged to other comprehensive
income - 0.1 0.2 0.3
Exchange rate variances - (0.4) (2.3) (2.7)
-------------------------------- ------------ --------------- ------ ------
At 31 December 2015 10.5 102.8 1.4 114.7
-------------------------------- ------------ --------------- ------ ------
Deferred tax has been calculated at a weighted average across the Group of 20.7%, and has been based on the rates applicable under legislation substantively enacted at the balance sheet date.
Deferred tax assets are recognised in respect of tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. At 31 December 2016 the Group did not recognise deferred tax assets of GBP6.7 million (2015: GBP5.6 million) in respect of losses amounting to GBP26.5 million (2015: GBP22.7 million) which can be carried forward against future taxable income or gains. The majority of deferred tax assets recognised within the "other" category relate either to deferred tax on swaps with a negative book value or to corporate bonds carried at below cost. Losses recognised as deferred tax assets can be carried forward without restriction.
16 Borrowings
At 31 December 2016 At 31 December 2015
------------------------------------ ------------------------------------
Total Total
Current Non-current borrowings Current Non-current borrowings
GBPm GBPm GBPm GBPm GBPm GBPm
Bank loans 119.8 573.2 693.0 190.5 409.8 600.3
Debenture loans 2.0 23.4 25.4 1.8 25.5 27.3
Zero coupon
note - - - - 8.4 8.4
Unsecured bonds (0.1) 64.7 64.6 23.9 64.6 88.5
Secured notes 4.1 62.8 66.9 4.1 66.9 71.0
----------------- -------- ------------ ------------ -------- ------------ ------------
125.8 724.1 849.9 220.3 575.2 795.5
----------------- -------- ------------ ------------ -------- ------------ ------------
Arrangement fees of GBP4.5 million (2015: GBP4.5 million) have been offset in arriving at the balances in the above tables.
Bank loans
Interest on bank loans is charged at fixed rates ranging between 0.8% and 6.9%, including margin (2015: 1.4% and 6.9%) and at floating rates of typically LIBOR, EURIBOR or STIBOR, plus a margin. Floating rate margins range between 0.8% and 3.8% (2015: 0.8% and 3.8%). All bank loans are secured by legal charges over the respective properties, and in most cases a floating charge over the remainder of the assets held in the company which owns the property. In addition, the share capital of some of the subsidiaries within the Group has been charged.
Debenture loans
The debenture loans represent amortising bonds which are repayable in equal quarterly instalments of GBP1.2 million (2015: GBP1.2 million) with final repayment due in January 2025. Each instalment is apportioned between principal and interest on a reducing balance basis. Interest is charged at an annual fixed rate of 10.8%, including margin. The debentures are secured by a legal charge over a property and securitisation of its rental income.
Zero coupon note
The zero coupon note accrued interest at an annual rate of 11.2%, including margin. It was unsecured and was redeemable as a balloon repayment of principal and interest of GBP21.8 million in aggregate in February 2025. The element of the zero coupon note still held by third parties was bought back in 2016; GBP9.0 million (2015: GBP4.0 million) of the zero coupon note was bought back in the year at a cost of GBP12.0 million (2015: GBP5.2 million).
Unsecured bonds
On 11 September 2012, the Group issued GBP65.0 million unsecured retail bonds, which attract a fixed rate coupon of 5.5% and are due for repayment in 2019. The bonds are listed on the London Stock Exchange's Order book for Retail Bonds.
On 15 April 2011, the Group issued SEK 300 million unsecured bonds. The bonds attract a floating rate coupon of 3.75% over six months' STIBOR and were repaid in 2016. The bonds were listed on Nasdaq Stockholm on 5 July 2011.
Secured notes
On 3 December 2013, the Group issued GBP80.0 million secured, partially-amortising notes. The notes attract a fixed rate coupon of 4.17% on the unamortised principal, the balance of which is repayable in December 2022.
The maturity profile of the carrying amount of the Group's borrowings was as follows:
Zero
Bank Debenture coupon Unsecured Secured
loans loans note bonds notes Total
At 31 December 2016 GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- -------- ---------- -------- ---------- -------- --------
Within one year or on demand 120.9 2.0 - - 4.2 127.1
More than one but not more
than two years 112.2 2.2 - - 4.2 118.6
More than two but not more
than five years 368.5 8.4 - 65.0 12.5 454.4
More than five years 95.0 12.8 - - 46.5 154.3
-------------------------------- -------- ---------- -------- ---------- -------- --------
696.6 25.4 - 65.0 67.4 854.4
Unamortised issue costs (3.6) - - (0.4) (0.5) (4.5)
-------------------------------- -------- ---------- -------- ---------- -------- --------
Borrowings 693.0 25.4 - 64.6 66.9 849.9
Less amount due for settlement
within 12 months (119.8) (2.0) - 0.1 (4.1) (125.8)
-------------------------------- -------- ---------- -------- ---------- -------- --------
Amounts due for settlement
after 12 months 573.2 23.4 - 64.7 62.8 724.1
-------------------------------- -------- ---------- -------- ---------- -------- --------
Zero
Bank Debenture coupon Unsecured Secured
loans loans note bonds notes Total
At 31 December 2015 GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- -------- ---------- -------- ---------- -------- --------
Within one year or on demand 191.5 1.8 - 24.1 4.2 221.6
More than one but not more
than two years 57.1 2.0 - - 4.2 63.3
More than two but not more
than five years 186.2 7.6 - 65.0 12.5 271.3
More than five years 168.8 15.9 8.4 - 50.7 243.8
-------------------------------- -------- ---------- -------- ---------- -------- --------
603.6 27.3 8.4 89.1 71.6 800.0
Unamortised issue costs (3.3) - - (0.6) (0.6) (4.5)
-------------------------------- -------- ---------- -------- ---------- -------- --------
Borrowings 600.3 27.3 8.4 88.5 71.0 795.5
Less amount due for settlement
within 12 months (190.5) (1.8) - (23.9) (4.1) (220.3)
-------------------------------- -------- ---------- -------- ---------- -------- --------
Amounts due for settlement
after 12 months 409.8 25.5 8.4 64.6 66.9 575.2
-------------------------------- -------- ---------- -------- ---------- -------- --------
The interest rate risk profile of the Group's fixed rate borrowings was as follows:
At 31 December At 31 December
2016 2015
------------------------- -------------------------
Weighted Weighted
Weighted average Weighted average
average period average period
fixed for fixed for
rate which rate which
of financial rate is of financial rate is
liabilities fixed liabilities fixed
% Years % Years
---------- -------------- --------- -------------- ---------
Sterling 5.6 5.1 5.8 6.2
Euro 1.3 5.7 1.8 6.0
---------- -------------- --------- -------------- ---------
The interest rate risk profile of the Group's floating rate borrowings was as follows:
At 31 December 2016 At 31 December 2015
-------------------------------- --------------------------------
% of net Average % of net Average
floating capped floating capped
rate interest Average rate interest Average
loans rate tenure loans rate tenure
capped % Years capped % Years
---------- ---------- ---------- -------- ---------- ---------- --------
Sterling 10 4.1 1.0 20 3.3 0.7
Euro 11 3.8 1.9 65 3.4 0.9
---------- ---------- ---------- -------- ---------- ---------- --------
The carrying amounts of the Group's borrowings are denominated in the following currencies:
At 31 December 2016 At 31 December 2015
------------------------------------ ------------------------------------
Fixed Floating Fixed Floating
rate rate rate rate
financial financial financial financial
liabilities liabilities Total liabilities liabilities Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------------- ------------- ------ ------------- ------------- ------
Sterling 182.7 296.3 479.0 247.2 198.8 446.0
Euro 92.8 223.8 316.6 60.5 207.0 267.5
Swedish Krona 14.6 39.7 54.3 - 75.0 75.0
Other - - - - 7.0 7.0
--------------- ------------- ------------- ------ ------------- ------------- ------
290.1 559.8 849.9 307.7 487.8 795.5
--------------- ------------- ------------- ------ ------------- ------------- ------
The carrying amounts and fair values of the Group's borrowings are as follows:
Carrying amounts Fair values
------------------- --------------
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
------------------------ --------- -------- ------ ------
Current borrowings 125.8 220.3 125.8 220.4
Non-current borrowings 724.1 575.2 748.2 609.6
------------------------ --------- -------- ------ ------
849.9 795.5 874.0 830.0
------------------------ --------- -------- ------ ------
The valuation methods used to measure the fair values of the Group's borrowings were derived from inputs which were either observable as prices or derived from prices (Level 2).
Arrangement fees of GBP4.5 million (2015: GBP4.5 million) have been offset in arriving at the balances in the above table.
The fair value of non-current borrowings represents the amount at which a financial instrument could be exchanged in an arm's length transaction between informed and willing parties, discounted at the prevailing market rate, and excludes accrued interest.
The Group has the following undrawn committed facilities available at 31 December:
2016 2015
GBPm GBPm
---------------------------- ------ ------
Floating rate:
- expiring within one year 45.8 39.7
---------------------------- ------ ------
17 Derivative financial instruments
2016 2016 2015 2015
Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm
------------------------------------ -------- ------------- -------- -------------
Non-current
Interest rate swaps - (9.8) - (5.8)
Current
Forward foreign exchange contracts 0.5 - 0.5 -
------------------------------------ -------- ------------- -------- -------------
0.5 (9.8) 0.5 (5.8)
------------------------------------ -------- ------------- -------- -------------
The valuation methods used to measure the fair value of all derivative financial instruments were derived from inputs which were either observable as prices or derived from prices (Level 2).
There were no derivative financial instruments accounted for as hedging instruments.
Interest rate swaps
The aggregate notional principal of interest rate swap contracts at 31 December 2016 was GBP158.4 million (2015: GBP135.7 million). The average period to maturity of these interest rate swaps was 4.9 years (2015: 6.1 years).
Forward foreign exchange contracts
The Group uses forward foreign exchange contracts from time to time to add certainty to, and to minimise the impact of foreign exchange movements on, committed cash flows. At 31 December 2016 the Group had GBP18.4 million of outstanding net foreign exchange contracts (2015: GBP20.0 million).
18 Financial instruments
Categories of financial instruments
Financial assets of the Group comprise: interest rate caps; foreign currency forward contracts; available-for-sale investments; investments in associates; trade and other receivables; and cash and cash equivalents.
Financial liabilities of the Group comprise: interest rate swaps; forward foreign currency contracts; bank loans; debenture loans; zero coupon notes; unsecured bonds; secured notes; trade and other payables; and current tax liabilities.
The fair values of financial assets and liabilities are determined as follows:
(a) Interest rate swaps and caps are measured at the present value of future cash flows based on applicable yield curves derived from quoted interest rates.
(b) Foreign currency options and forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts.
(c) The fair values of non-derivative financial assets and liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices. Financial assets in this category include available-for-sale instruments such as listed corporate bonds and equity investments.
(d) In more illiquid conditions, non-derivative financial assets are valued using multiple quotes obtained from market makers and from pricing specialists. Where the spread of prices is tightly clustered the consensus price is deemed to be fair value. Where prices become more dispersed or there is a lack of available quoted data, further procedures are undertaken such as evidence from the last non-forced trade.
(e) The fair values of other non-derivative financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis, using prices from observable current market transactions and dealer quotes for similar instruments.
Except for investments in associates and fixed rate loans, the carrying amounts of financial assets and liabilities recorded at amortised cost approximate to their fair value.
Capital risk management
The Group manages its capital to ensure that entities within the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of debt and equity balances. The capital structure of the Group consists of debt, cash and cash equivalents, other investments and equity attributable to the owners of the parent, comprising issued capital, reserves and retained earnings. Management perform "stress tests" of the Group's business model to ensure that the Group's objectives can be met. The objectives have been met in the year.
The Directors review the capital structure on a quarterly basis to ensure that key strategic goals are being achieved. As part of this review they consider the cost of capital and the risks associated with each class of capital.
The gearing ratio at the year end was as follows:
2016 2015
GBPm GBPm
-------------------------- -------- --------
Debt 854.4 800.0
Liquid resources (164.1) (174.1)
-------------------------- -------- --------
Net debt 690.3 625.9
-------------------------- -------- --------
Equity 882.5 768.0
-------------------------- -------- --------
Net debt to equity ratio 78% 81%
-------------------------- -------- --------
Debt is defined as long-term and short-term borrowings before unamortised issue costs as detailed in note 16. Liquid resources are cash and short-term deposits and listed corporate bonds. Equity includes all capital and reserves of the Group attributable to the owners of the Company.
Externally imposed capital requirement
At 31 December 2016 the Group was subject to a minimum equity ratio of total equity to total assets of 22.5% imposed by unsecured bonds of GBP65.0 million (2015: GBP89.1 million). The Group was also restricted from making distributions to shareholders if to do so would reduce net assets below GBP250 million, imposed by unsecured bonds of GBP65.0 million (2015: GBP65.0 million). Additionally, the Group was subject to externally imposed capital requirements to the extent that debt covenants may require Group companies to maintain ratios such as debt to equity (or similar) below certain levels.
Risk management objectives
The Group's activities expose it to a variety of financial risks, which can be grouped as:
-- market risk
-- credit risk
-- liquidity risk
The Group's overall risk management approach seeks to minimise potential adverse effects on the Group's financial performance whilst maintaining flexibility.
Risk management is carried out by the Group's treasury department in close co-operation with the Group's operating units and with guidance from the Board of Directors. The Board regularly assesses and reviews the financial risks and exposures of the Group.
(a) Market risk
The Group's activities expose it primarily to the financial risks of changes in interest rates and foreign currency exchange rates, and to a lesser extent other price risk. The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk and also uses natural hedging strategies such as matching the duration, interest payments and currency of assets and liabilities.
(i) Interest rate risk
The Group's most significant interest rate risk arises from its long-term variable rate borrowings. Interest rate risk is regularly monitored by the treasury department and by the Board on both a country and a Group basis. The Board's policy is to mitigate variable interest rate exposure whilst maintaining the flexibility to borrow at the best rates and with consideration to potential penalties on termination of fixed rate loans. To manage its exposure the Group uses interest rate swaps, interest rate caps and natural hedging from cash held on deposit.
In assessing risk, a range of scenarios is taken into consideration such as refinancing, renewal of existing positions and alternative financing and hedging. Under these scenarios, the Group calculates the impact on the income statement for a defined movement in the underlying interest rate. The impact of a reasonably likely movement in interest rates is set out below:
2016 2015
Income Income
statement statement
Scenario GBPm GBPm
-------------------------------------- ----------- -----------
Cash +50 basis points 0.5 0.5
Variable borrowings (including caps)
+50 basis points (2.8) (2.4)
Cash -50 basis points (0.5) (0.5)
Variable borrowings (including caps)
-50 basis points 1.5 1.0
-------------------------------------- ----------- -----------
(ii) Foreign exchange risk
The Group does not have any regular transactional foreign exchange exposure. However, it has operations in Europe which transact business denominated in euros and, to a lesser extent, in Swedish kronor. Consequently, there is currency exposure caused by translating into sterling the local trading performance and net assets for each financial period and balance sheet, respectively.
The policy of the Group is to match the currency of investments with the related borrowing, which largely eliminates foreign exchange risk on property investments. A portion of the remaining operations, equating to the net assets of the foreign property operations, is not hedged except in exceptional circumstances, such as the uncertainty surrounding the euro in late 2011. Where foreign exchange risk arises from future commercial transactions, the Group will hedge the future committed commercial transaction using foreign exchange swaps or forward foreign exchange contracts.
The Group's principal currency exposures are in respect of the euro and the Swedish krona. If the value of sterling were to increase or decrease in strength the Group's net assets and profit for the year would be affected. The impact of a 1% increase or decrease in the strength of sterling against these currencies is set out below:
2016 2016 2015 2015
----------------------------------
Profit Profit
Net before Net before
assets tax assets tax
Scenario GBPm GBPm GBPm GBPm
---------------------------------- -------- -------- -------- --------
1% increase in value of sterling
against the euro (2.0) (0.4) (2.2) (0.4)
1% increase in value of sterling
against the Swedish krona (0.4) (0.1) (0.3) (0.1)
1% fall in value of sterling
against the euro 2.0 0.4 2.2 0.4
1% fall in value of sterling
against the Swedish krona 0.4 0.1 0.3 0.1
---------------------------------- -------- -------- -------- --------
(iii) Other price risk
The Group is exposed to corporate bond price risk and, to a lesser extent, to equity securities price risk, because of investments held by the Group and classified in the balance sheet as available-for-sale.
In order to manage the risk in relation to the holdings of corporate bonds and equity securities the Group holds a diversified portfolio. Diversification of the portfolio is managed in accordance with the limits set by the Group.
The table below shows the effect on other comprehensive income which would result from an increase or decrease of 10% in the market value of corporate bonds and listed equity securities, which is an amount management believes to be reasonable in the current market:
2016 2015
Other Other
Comprehensive Comprehensive
Income Income
Scenario: Shift of 10% in valuations GBPm GBPm
-------------------------------------- --------------- ---------------
10% fall in value (11.6) (11.7)
10% increase in value 11.6 11.7
-------------------------------------- --------------- ---------------
(b) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises from the ability of customers to meet outstanding receivables and future lease commitments, and from financial institutions with which the Group places cash and cash equivalents, and enters into derivative financial instruments. The maximum exposure to credit risk is partly represented by the carrying amounts of the financial assets which are carried in the balance sheet, including derivatives with positive fair values.
For credit exposure other than to occupiers, the Directors believe that counterparty risk is minimised to the fullest extent possible as the Group has policies which limit the amount of credit exposure to any individual financial institution.
The Group has policies in place to ensure that rental contracts are made with customers with an appropriate credit history. Credit risk to customers is assessed by a process of internal and external credit review, and is reduced by obtaining bank guarantees from the customer or its parent, and rental deposits. The overall credit risk in relation to customers is monitored on an ongoing basis. Moreover, a significant proportion of the Group portfolio is let to Government occupiers which can be considered financially secure.
At 31 December 2016 the Group held GBP116.4 million (2015: GBP121.0 million) of available-for-sale financial assets. Management considers the credit risk associated with individual transactions and monitors the risk on a continuing basis. Information is gathered from external credit rating agencies and other market sources to allow management to react to any perceived change in the underlying credit risk of the instruments in which the Group invests. This allows the Group to minimise its credit exposure to such items and at the same time to maximise returns for shareholders.
The table below shows the external Standard & Poor's credit banding on the available-for-sale financial investments held by the Group:
2016 2015
S&P Credit rating at balance sheet date GBPm GBPm
----------------------------------------- ------ ------
Investment grade 6.8 9.4
Non-investment grade 43.7 56.6
Not rated 65.9 55.0
----------------------------------------- ------ ------
Total 116.4 121.0
----------------------------------------- ------ ------
(c) Liquidity risk
Liquidity risk management requires maintaining sufficient cash, other liquid assets and the availability of funding to meet short, medium and long-term requirements. The Group maintains adequate levels of liquid assets to fund operations and to allow the Group to react quickly to potential opportunities.
Management monitors rolling forecasts of the Group's liquidity on the basis of expected cash flows so that future requirements can be managed effectively.
The majority of the Group's debt is arranged on an asset-specific, non-recourse basis. This allows the Group a higher degree of flexibility in dealing with potential covenant defaults than if the debt was arranged under a Group-wide borrowing facility.
Loan covenant compliance is closely monitored by the treasury department. Potential covenant breaches can ordinarily be avoided by placing additional security or a cash deposit with the lender, or by partial repayment to cure an event of default.
The table below analyses the Group's contractual undiscounted cash flows payable under financial liabilities and derivative assets and liabilities at the balance sheet date, into relevant maturity groupings based on the period remaining to the contractual maturity date. Amounts due within one year are equivalent to the carrying values in the balance sheet as the impact of discounting is not significant.
Less than 1 to 2 2 to 5 Over 5
1 year years years years
At 31 December 2016 GBPm GBPm GBPm GBPm
--------------------------------- ---------- ------- ------- -------
Non-derivative financial
liabilities:
Borrowings 127.1 118.6 454.4 154.3
Interest payments on borrowings 25.9 25.0 24.4 24.3
Trade and other payables 50.5 - - -
--------------------------------- ---------- ------- ------- -------
Forward foreign exchange
contracts:
Cash flow hedges
- Outflow (18.4) - - -
- Inflow 18.4 - - -
--------------------------------- ---------- ------- ------- -------
Less than 1 to 2 2 to 5 Over 5
1 year years years years
At 31 December 2015 GBPm GBPm GBPm GBPm
--------------------------------- ---------- ------- ------- -------
Non-derivative financial
liabilities:
Borrowings 221.6 63.3 271.3 243.8
Interest payments on borrowings 27.1 27.0 30.4 33.9
Trade and other payables 54.2 - - -
--------------------------------- ---------- ------- ------- -------
Forward foreign exchange
contracts:
Cash flow hedges
- Outflow (20.0) - - -
- Inflow 20.0 - - -
--------------------------------- ---------- ------- ------- -------
Interest payments on borrowings are calculated without taking into account future events. Floating rate interest is estimated using a future interest rate curve as at 31 December.
19 Share capital
Number
---------------------------------------
Ordinary
Ordinary shares Total
shares Total in Treasury ordinary
in Treasury ordinary circulation shares shares
circulation shares shares GBPm GBPm GBPm
------------------------- ------------- ---------- ------------ ------------- --------- ----------
At 1 January 2016 42,140,581 2,888,103 45,028,684 10.6 0.7 11.3
Issued 5,000 (5,000) - - - -
Cancelled following
tender offers (1,150,906) - (1,150,906) (0.3) - (0.3)
Purchase of own shares:
- pursuant to market
purchase (255,099) 255,099 - (0.1) 0.1 -
------------------------- ------------- ---------- ------------ ------------- --------- ----------
At 31 December 2016 40,739,576 3,138,202 43,877,778 10.2 0.8 11.0
------------------------- ------------- ---------- ------------ ------------- --------- ----------
Number
--------------------------------------
Ordinary
Ordinary shares Total
shares Total in Treasury ordinary
in Treasury ordinary circulation shares shares
circulation shares shares GBPm GBPm GBPm
--------------------- ------------- ---------- ----------- ------------- --------- ----------
At 1 January 2015 42,924,061 2,903,103 45,827,164 10.8 0.7 11.5
Issued 15,000 (15,000) - - - -
Cancelled following
tender offers (798,480) - (798,480) (0.2) - (0.2)
--------------------- ------------- ---------- ----------- ------------- --------- ----------
At 31 December 2015 42,140,581 2,888,103 45,028,684 10.6 0.7 11.3
--------------------- ------------- ---------- ----------- ------------- --------- ----------
The Directors are proposing a share sub-division of each of the existing ordinary shares of 25 pence each into 10 new ordinary shares of 2.5 pence each. Subject to shareholder approval at the annual general meeting to be held on 26 April 2017, the share sub-division will take place following the payment of the final dividend.
20 Distributions to Shareholders
A tender offer by way of a Circular dated 18 March 2016 for the purchase of 1 in 57 shares at 1,810 pence per share was completed in April. It returned GBP13.4 million to shareholders, equivalent to 31.8 pence per share.
A tender offer by way of a Circular dated 26 August 2016 for the purchase of 1 in 100 shares at 1,750 pence per share was completed in September. It returned GBP7.2 million to shareholders, equivalent to 17.5 pence per share.
The Directors are proposing a final dividend in respect of the financial year ended 31 December 2016 of 40 pence per share, bringing the total distribution in respect of 2016 to 57.5 pence per share. The final dividend will return GBP16.3 million to shareholders. Subject to shareholder approval at the annual general meeting to be held on 26 April 2017, the dividend will be paid on 28 April 2017 to shareholders who are on the register of members on 17 April 2017.
Between 13 May 2016 and 31 May 2016, the Company bought 255,099 shares in the market at an average of 1,595 pence per share.
21 share premium
2016 2015
GBPm GBPm
--------------------------------------------- ------ ------
At 1 January 83.0 82.9
Ordinary shares issued from treasury shares 0.1 0.1
--------------------------------------------- ------ ------
At 31 December 83.1 83.0
--------------------------------------------- ------ ------
22 Other reserves
Capital Cumulative
redemption translation Fair value Other
reserve reserve reserve reserves Total
GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------ ------------- ----------- ---------- ------
At 1 January 2016 22.4 24.6 10.0 28.1 85.1
Purchase of own shares:
- cancellation pursuant
to tender offer 0.3 - - - 0.3
Exchange rate variances - 32.6 - - 32.6
Property, plant and equipment
- net fair value gains
in the year - - 1.7 - 1.7
- deferred tax thereon - - (1.8) - (1.8)
Available-for-sale financial
assets:
- net fair value gains
in the year - - 9.0 - 9.0
- deferred tax thereon - - (1.0) - (1.0)
------------------------------- ------------ ------------- ----------- ---------- ------
At 31 December 2016 22.7 57.2 17.9 28.1 125.9
------------------------------- ------------ ------------- ----------- ---------- ------
Capital Cumulative
redemption translation Fair value Other
reserve reserve reserve reserves Total
GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------ ------------- ----------- ---------- ------
At 1 January 2015 22.2 33.2 5.3 28.1 88.8
Purchase of own shares:
- cancellation pursuant
to tender offer 0.2 - - - 0.2
Exchange rate variances - (8.6) - - (8.6)
Property, plant and equipment
- net fair value gains
in the year - - 4.7 - 4.7
- deferred tax thereon - - (0.4) - (0.4)
Available-for-sale financial
assets:
- net fair value losses
in the year - - (0.2) - (0.2)
- deferred tax thereon - - 0.6 - 0.6
------------------------------- ------------ ------------- ----------- ---------- ------
At 31 December 2015 22.4 24.6 10.0 28.1 85.1
------------------------------- ------------ ------------- ----------- ---------- ------
The cumulative translation reserve comprises the aggregate effect of translating net assets of overseas subsidiaries into sterling since acquisition.
The fair value reserve comprises the aggregate movement in the value of corporate bonds, other available-for-sale assets and owner-occupied property since acquisition, net of deferred tax.
The amount classified as other reserves was created prior to listing in 1994 on a Group reconstruction and is considered to be non-distributable.
23 Cash generated from operations
2016 2015
GBPm GBPm
-------------------------------------------- ------- -------
Operating profit 120.2 168.7
Adjustments for:
Net movements on revaluation of investment
properties (36.1) (98.0)
Depreciation and amortisation 1.1 1.3
Profit on sale of investment property (9.1) (4.3)
Gain on sale of corporate bonds (3.2) (0.7)
Non-cash rental income (2.4) (1.3)
Share-based payment expense 0.1 0.2
Other gains and losses - (2.9)
Changes in working capital:
Increase in receivables (2.7) (2.5)
(Decrease)/increase in payables (5.9) 11.6
-------------------------------------------- ------- -------
Cash generated from operations 62.0 72.1
-------------------------------------------- ------- -------
24 Contingencies
At 31 December 2016 CLS Holdings plc had guaranteed certain liabilities of Group companies. These were primarily in relation to Group borrowings and covered interest and amortisation payments. No cross-guarantees had been given by the Group in relation to the principal amounts of these borrowings.
25 Commitments
At the balance sheet date the Group had contracted with customers for the following minimum lease payments:
Operating lease commitments - where the Group 2016 2015
is lessor GBPm GBPm
----------------------------------------------- ------ ------
Within one year 84.9 83.2
More than one but not more than five years 268.5 253.7
More than five years 193.1 202.5
----------------------------------------------- ------ ------
546.5 539.4
----------------------------------------------- ------ ------
Operating leases where the Group is the lessor are typically negotiated on a customer-by-customer basis and include break clauses and indexation provisions.
Other commitments
At 31 December 2016 the Group had contracted capital expenditure of GBP9.3 million (2015: GBP4.7 million). At the balance sheet date, the Group had conditionally exchanged contracts to acquire an investment property for GBP31.4 million (2015: GBP6.1 million). There were no authorised financial commitments which were yet to be contracted with third parties (2015: none).
glossary of terms
ADJUSTED NET ASSETS or adjusted shareholders' funds
Net assets excluding the fair value of financial derivatives, deferred tax on revaluations, and goodwill arising as a result of deferred tax
ADJUSTED NET GEARING
Net debt expressed as a percentage of adjusted net assets
ADJUSTED SOLIDITY
Adjusted net assets expressed as a percentage of adjusted total assets
ADJUSTED TOTAL ASSETS
Total assets excluding deferred tax assets
Administration Cost Ratio
Recurring administration expenses of the Investment Property operating segment expressed as a percentage of net rental income
Balance sheet loan to value
Net debt expressed as a percentage of total assets less cash and short-term deposits
CONTRACTED RENT
Annual contracted rental income after any rent-free periods have expired
CORE PROFIT
Profit before tax and before net movements on revaluation of investment properties, profit on sale of investment properties, subsidiaries and corporate bonds, impairment of intangible assets and goodwill, non-recurring costs, change in fair value of derivatives and foreign exchange variances
DILUTED EARNINGS PER SHARE
Profit after tax divided by the diluted weighted average number of ordinary shares
DILUTED NET ASSETS
Equity shareholders' funds increased by the potential proceeds from issuing those shares issuable under employee share schemes
DILUTED NET ASSETS PER SHARE OR DILUTED NET ASSET VALUE
Diluted net assets divided by the diluted number of ordinary shares
DILUTED NUMBER OF ORDINARY SHARES
Number of ordinary shares in circulation at the balance sheet date adjusted to include the effect of potential dilutive shares issuable under employee share schemes
DILUTED WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES
Weighted average number of ordinary shares in issue during the period adjusted to include the effect of potential weighted average dilutive shares issuable under employee share schemes
EARNINGS PER SHARE
Profit after tax divided by the weighted average number of ordinary shares in issue in the period
EPRA
European Public Real Estate Association
EPRA EARNINGS PER SHARE
Profit after tax, but excluding net gains or losses from fair value adjustments on investment properties, profits or losses on disposal of investment properties and other non-current investment interests, impairment of goodwill and intangible assets, movements in fair value of derivative financial instruments and their related current and deferred tax
EPRA NET ASSETS
Diluted net assets excluding the fair value of financial derivatives, deferred tax on revaluations, and goodwill arising as a result of deferred tax
EPRA NET ASSETS PER SHARE
EPRA net assets divided by the diluted number of ordinary shares
EPRA net initial yield
Annual passing rent less net service charge costs on investment properties expressed as a percentage of the investment property valuation after adding purchasers' costs
EPRA topped up net initial yield
Annual net rents on investment properties expressed as a percentage of the investment property valuation after adding purchasers' costs
EPRA TRIPLE NET ASSETS
EPRA net assets adjusted to reflect the fair value of debt and derivatives and to include the fair value of deferred tax on property revaluations
EPRA TRIPLE NET ASSETS PER SHARE
EPRA triple net assets divided by the diluted number of ordinary shares
ESTIMATED RENTAL VALUE (ERV)
The market rental value of lettable space as estimated by the Group's valuers
INTEREST COVER
The aggregate of group revenue less costs, divided by the aggregate of interest expense and amortisation of loan issue costs, less interest income
liquid resources
Cash and short-term deposits and listed corporate bonds
NET ASSETS PER SHARE OR NET ASSET VALUE (NAV)
Equity shareholders' funds divided by the number of ordinary shares in circulation at the balance sheet date
NET DEBT
Total borrowings less liquid resources
NET GEARING
Net debt expressed as a percentage of net assets
NET INITIAL YIELD
Annual net rents on investment properties expressed as a percentage of the investment property valuation
NET RENT
Contracted rent less net service charge costs
OCCUPANCY RATE
Contracted rent expressed as a percentage of the aggregate of contracted rent and the ERV of vacant space
OVER-RENTED
The amount by which ERV falls short of the aggregate of passing rent
PASSING RENT
Contracted rent before any rent-free periods have expired
Property LOAN TO VALUE
Property borrowings expressed as a percentage of the market value of the property portfolio
RENT ROLL
Contracted rent
RETURN ON EQUITY
The aggregate of the change in equity attributable to the owners of the company plus the amounts paid to the shareholders by way of distributions and the purchase of shares in the market, divided by the opening equity attributable to the owners of the Company.
SOLIDITY
Equity shareholders' funds expressed as a percentage of total assets
TOTAL SHAREHOLDER RETURN
The change in the market price of a share
True equivalent yield
The capitalisation rate applied to future cash flows to calculate the gross property value, as determined by the Group's external valuers
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAKDPESFXEEF
(END) Dow Jones Newswires
March 08, 2017 02:01 ET (07:01 GMT)
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