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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 1.20 | 1.69% | 72.40 | 71.60 | 71.90 | 72.00 | 69.70 | 71.20 | 188,823 | 16:35:24 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Agents & Mgrs | 148.7M | -249.8M | -0.6275 | -1.15 | 283.45M |
From Feb 2020 to Feb 2025
TIDMCLI
RNS Number : 0898Z
CLS Holdings PLC
04 March 2013
Hot Features
Premium
Release date: 4 March
2013
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 2012
Robust performance in challenging market conditions
CLS is a property investment company with a diverse portfolio of GBP934 million modern, well-let properties in London, France, Germany and Sweden. CLS's properties have been selected for their potential to add value and to generate high returns on capital investment through active asset management.
FINANCIAL HIGHLIGHTS
Robust performance demonstrating resilience of the Group:-
-- Profit before tax up 48.8% to GBP56.1 million (2011: GBP37.7 million) -- EPRA net assets per share up 17.4% to 1,154.4 pence (31 December 2011: 983.1 pence) -- EPRA earnings per share up to 65.3 pence (2011: 64.9 pence)
-- Portfolio valued at GBP934.5 million (31 December 2011: GBP902.1 million), up 1.7% in local currencies
-- Contracted rental income up to GBP68.3 million (2011 GBP66.2 million), up 2.4% like-for-like -- Return on corporate bond portfolio of GBP32.5m or 31.4% -- Successful issue of 5.5% GBP65 million retail bond 2019 -- Weighted average cost of debt down to 3.67% (31 December 2011: 4.06%) -- Interest cover of 3.9 times (2011: 2.6 times) -- GBP224.9 million of liquid resources available for new investments
-- Proposed year end distribution up 7.6% to GBP8.5 million (2011: GBP7.9 million) by way of tender offer buy-back: 1 in 46 at 900 pence, equivalent to 19.6 pence per share
-- Total shareholder return of 30% for the year, and the highest total shareholder return performance by a UK listed property company over 5 years with 135%
OPERATIONAL HIGHLIGHTS
Significant progress across letting, financing and development:-
-- Planning application approved for the 143,000 sq m Vauxhall Square, SW8 development
-- Planning permission also secured for the Spring Mews, SE11 mixed-use development in Vauxhall. Demolition took place before the end of the year and completion is targeted for late 2014
-- Planning application approved for 150,000 sq m mixed-use scheme in Solna, Stockholm, for 29.99% associate, Catena AB
-- Vacancy rate reduced to 3.8%, (31 December 2011: 3.9%), less than half the benchmark average of over 9% for our type of portfolio
-- Net initial yield of 7.0%, 330 basis points above cost of debt, one of the highest differentials in the sector
-- The quality of rental income remains high, with 40% from governments and 29% from major corporations, and 65% subject to indexation
Sten Mortstedt, Executive Chairman of CLS, commented:
"This has been a very successful year for the group and I am delighted to report such strong results. We continue to focus our energies on our core portfolio to drive our rental performance. The planning permissions we have gained this year provide significant opportunities to deliver additional value for shareholders over the coming years. With a solid balance sheet, a strong cash generating operation and a tangible, medium-term development programme, we are in an excellent position to benefit from the attractive opportunities ahead."
-ENDS-
For further information please contact:
CLS Holdings plc +44 (0)20 7582 7766 www.clsholdings.com Sten Mortstedt, Executive Chairman Henry Klotz, Executive Vice Chairman Richard Tice, Chief Executive Officer Kinmont Limited +44 (0)20 7087 9100 Jonathan Gray Smithfield Consultants Limited +44 (0)20 7360 4900 Alex Simmons Liberum Capital Limited +44 (0)20 3100 2222 Tom Fyson Charles Stanley Securities +44 (0)20 7149 6000 Mark Taylor Hugh Rich
CLS will be presenting to analysts at 8.30am on Monday, 4 March 2013, at Smithfield Consultants, 10 Aldersgate Street, London, EC1A 4HJ.
Conference call dial in numbers as follows:
Conference call access numbers:
Participant telephone +44 (0)20 7136 2056 (UK Toll) number: Confirmation code: 9294901
Chairman's Statement
This has been a successful year for the Group, with continued progress on many fronts: we have gained two significant planning permissions, reduced the vacancy rate, acquired properties, expanded the sources of our financing, increased profits and delivered strong returns for shareholders.
OVERVIEW
Our total shareholder return for the year was 30% and the annualised return since 2008 has been almost 19% compound, making CLS the top performing UK listed real estate share over the last five years.
The profit before tax was up 48.8% to GBP56.1 million (2011: GBP37.7 million) and EPRA net assets per share increased by 17.4% to 1,154.4 pence (2011: 983.1 pence). EPRA earnings per share were marginally ahead at 65.3 pence (2011: 64.9 pence).
The core fundamentals of our business have remained strong: we have secure income from over 400 customers across four countries, a broad range of financing sources from over 20 banks and the capital markets, and high levels of cash and other liquid resources.
The conditions in the financial markets improved during the second half of the year as concerns regarding the future of the Eurozone eased after some decisive measures from the European Central Bank. This led to a strong performance in the securities markets, even though many fundamental challenges are still to be addressed in the economy.
INVESTMENT PROPERTY PORTFOLIO
During the year, the investment property portfolio in local currency terms and on a like-for-like basis grew by 1.7%, due largely to planning consents gained on two important sites in London. Elsewhere across the Group values were broadly unchanged. Total acquisitions, all in London, were GBP13.1 million while no properties were sold. At the year end the total portfolio value had increased to GBP934.5 million (2011: GBP902.1 million), notwithstanding a negative currency effect of GBP11.1 million.
The Group continues to generate cash from its core investment portfolio with a high net initial yield of 7.0% and a low cost of debt of just 3.67%. This spread of 330 basis points, amongst the highest in the listed property sector, is a key factor in our performance.
Contracted rental income in the year grew by GBP1.6 million, or 2.4%, on a like-for-like basis and the rent roll at 31 December 2012 was GBP68.3 million. At a time of rising inflation, it is worth emphasising that 65% of our rents are subject to indexation, and the quality of our income remains high, with 40% from governments and 29% from major corporations.
We work closely with our customers to understand their space needs, and having in-house property management in all our regions is a key factor in meeting our occupiers' expectations in well-maintained buildings. As an example, we were able to accommodate the expansion needs of one of our occupiers by moving them from one of our London buildings to 1,500 sq m in another, and we provided a full facilities management service as part of the move. This attention to detail is a material reason for our low vacancy rate, which reduced in the year to just 3.8%, less than half the benchmark average of over 9% for our type of property.
Letting enquiries remain resilient, in particular in London and Germany. The French economy is currently the weakest in which we invest, and where we are aware of the intentions of certain occupiers to depart in 2013; we will need to work hard to replace them. The weighted average lease length across the Group is 7.2 years, and 6.1 years to first break clause.
During the year we acquired a number of high yielding office properties in London, the three most significant of which cost GBP10.8 million with an average yield of 9.97% and an average capital value per sq m of GBP1,489, which was well below replacement cost. The UK government's initiatives to improve the planning system to ease the housing shortage are to be welcomed and we are actively exploring the potential for conversions of offices to residential for selected elements of our London portfolio.
We completed the development of two pre-let office buildings in Germany totalling 7,042 sq m to generate an extra EUR659,000 per annum. We secured planning permission on both the significant applications in Vauxhall. In May, we gained consent for the student and hotel scheme, Spring Mews, SE11, where demolition took place before the end of the year and completion is targeted for late 2014. The annual net income is expected to be some GBP5.5 million after a development cost of GBP50 million. Secondly, in December the major 143,000 sq m mixed-use scheme, Vauxhall Square, SW8 gained planning permission. We will now progress options and details on this site, where vacant possession is available from the end of 2014.
Since the year end, we have gained planning consent for a prime 3,423 sq m office refurbishment and 500 sq m residential development at Clifford's Inn, Fetter Lane, London EC4, which we expect to complete by the end of 2014.
In Sweden, Catena AB, a Stockholm-listed company in which we own a 29.9% interest, also secured its planning approval for a 150,000 sq m mixed-use development and will, likewise, be advancing its plans during 2013.
RESULTS
Profit after tax grew by 20.4% to GBP46.7 million (2011: GBP38.8 million), and shareholders' funds increased to GBP417.1 million after distributions to shareholders of GBP12.6 million.
The uplift in EPRA net assets per share of 17.4% to 1,154.4 pence (2011: 983.1 pence) was after an adverse foreign exchange effect of 8.7 pence, equating to GBP3.8 million, due to the weaker euro against sterling. Net assets per share rose by 17.8% to 963.1 pence (2011: 817.5 pence). Since 1 January 2013, sterling has weakened against the euro and Swedish krona. Had the current exchange rates applied at 31 December 2012, our net assets would have increased by 3.2%, or GBP13.4 million, to GBP430.5 million, and pro forma EPRA NAV would have been 40.0 pence higher at 1,194.4 pence. Also, since the year end the corporate bond portfolio has risen in value by GBP2.4 million, equivalent to 5.5 pence on EPRA net assets per share.
Recurring interest cover was a healthy 3.9 times (2011: 2.6 times) reflecting, in particular, the Group's reduced cost of debt. Net debt as a percentage of property loan to value was 58.8% (2011: 62.5%).
FINANCING
The Group seeks to have a wide variety of different financing from banks and other debt sources, and to ring-fence debt against individual properties where appropriate, a strategy which has served the Group well over the years. This year we welcome two new lenders to the Group, an Asian bank and a German Sparkasse lender, which brings the total number of banks with which we enjoy an active relationship to 21. This shows that there continue to be new borrowing sources in the market, even as others stop lending, and to exploit this we typically approach a wide range of banks for any new financing.
During the year we refinanced GBP95 million of debt with banks and in September raised our second corporate bond, this time in London on the relatively new Order book for Retail Bonds (ORB). It raised GBP65 million, from some 5,000 private investor bondholders, at a fixed rate of interest of 5.5% for over seven years. This retail bond increased the diversity of our funding sources, and was for a longer term and enjoyed additional flexibility than traditional bank debt. It also had the intangible benefit of raising the awareness of the Group amongst the private investor and wealth management community. We were only the second listed property company to raise money this way, which highlighted our ability to innovate; a further three listed property companies subsequently issued bonds on ORB and we are optimistic that this market will offer increasing choice and sophistication as it grows, evolves and matures.
In addition, in December we signed a new GBP15 million general facility with one of our existing lenders to finance the acquisition of new purchases.
Our weighted average cost of debt at 31 December 2012 was just 3.67% (2011: 4.06%), with an average loan length of 4.6 years. We continue to believe in a benign interest rate environment and, therefore, have 73% of our debt at floating rates whilst 67% is protected against interest rate rises, mainly using caps for 40%.
The Group's balance sheet is strong and we have cash and other liquid resources of GBP224.9 million, excluding substantial credit facility headroom. The Group's portfolio of corporate bonds performed well during the year with a total return, being an aggregate of price changes and income, of GBP32.5 million, or 31.4%. All bonds met with their respective terms and the Group received around GBP9.1 million of interest income during the year, corresponding to an 8.8% running yield. At the end of the year, the average annual running yield was 8.2% against market value and the bonds had a weighted average duration of 7.4 years.
ENERGY EFFICIENCY
The extra attention and investment that the Group has made in this important area is paying dividends. Driven by our in-house Sustainability Manager, we have progressed a wide range of measures, including installing our first photovoltaic panels on the roof of one of our London properties. It is pleasing to report that in London we have reduced our gas consumption by over 25% in each of the last two years across our portfolio. In our HQ office we have reduced paper consumption by some 31% in one year. Many efficiency improvements have been behavioural, together with better use and monitoring of controls. During the year we have installed over 500 LED lights.
As we share our knowledge with our customers, we are enhancing our service to them, which can help to retain them in our properties.
DISTRIBUTIONS TO SHAREHOLDERS
During 2012, using our traditional tender offer buy back of shares, we distributed GBP7.9 million in April and GBP4.6 million in September. The Board proposes to distribute GBP8.5 million in April 2013 at a rate of 1 in 46 shares at 900 pence per share. A circular setting out the details will be sent to shareholders with the Annual Report and Accounts.
OUTLOOK
In last year's report, I referred to the need for a credible solution to the Eurozone crisis and a greater supply of credit to provide a platform for economies to grow. There has been some progress on both counts which has lessened risk and volatility, but much remains to be done to restore confidence amongst the business community.
Our central expectation is that growth in the countries in which we operate will remain volatile, but that attractive opportunities will continue to emerge. With a solid balance sheet, a strong cash generating operation and a tangible, medium-term development programme, we are in an excellent position to benefit from any such opportunities.
Sten Mortstedt
Executive Chairman
4 March 2013
Business Review
The main activity of the Group is investment in commercial real estate across four European regions: London, France, Germany and Sweden. There is a particular focus on providing well-managed, cost-effective offices and property for cost-conscious occupiers in key European cities.
The Group's total property interests at 31 December 2012 were GBP959.9 million, comprising the wholly-owned investment property portfolio valued at GBP934.5 million, a 29.9% interest in Swedish listed property company Catena AB valued at GBP20.7 million and a GBP4.7 million interest in 16.6% of Cood Investments AB. The Group's Other Investments comprised the corporate bond portfolio, valued at GBP127.3 million at the year end, and smaller equity holdings of GBP2.6 million.
PROPERTIES
OVERVIEW
At 31 December 2012, the directly held investment portfolio totalled GBP934.5 million, a like-for-like annual increase of 1.7% in local currencies or 0.5% when translated into sterling. In local currencies, the London portfolio rose by 4.7% and the other portfolios were broadly unchanged (Germany +0.1%, Sweden -0.3% and France -1.4%). At the year end, and excluding Spring Mews, which is under development, the average capital value of GBP2,164 per sq m was close to replacement cost, meaning that the land element of our investments in key European cities was minimal; this highlights how competitive the Group can be in attracting occupiers with cost-effective rents.
The contracted rent grew in the year on a like-for-like basis by 2.4% in local currencies and at the year end was GBP68.3 million. This produces a net initial yield of 7.0% on value, again excluding Spring Mews, and an average rent of just GBP169 per sq m. The income stream is strongly secured as 40% is from government occupiers and 29% from major corporations, and 65% of rents are subject to indexation. The weighted average lease length is 7.2 years, or 6.1 years to the first break. Over the next three years, just 23% of the current rent roll expires and the rent on these expiries is broadly in line with current open market rental values.
The overall vacancy rate remains low at just 3.8%, reflecting the benefits of active, in-house asset and property management together with maintaining strong relationships with our occupiers, working to understand their needs as our customers.
The Group's portfolio spread provides diversification and protection. Inevitably occupier demand will vary year on year as different economies grow at different speeds. As previously forecast, the lack of new speculative offices in most of our local markets is a positive for our portfolio and our ability to attract occupiers, and this is likely to remain the case for the foreseeable future.
Whilst the availability of debt continued to shrink over the last 12 months (presenting buying opportunities) our extensive banking contacts meant that we were able to identify new lenders to the Group, including from the Far East.
Across the Group, the extra focus on sustainability in our operations and our properties has paid real dividends and improved energy efficiency. Occupiers have appreciated the collaborative approach we have adopted on this, sharing knowledge, and this has been a powerful incentive for occupiers to stay with the Group. The benefits of our employing a full-time Sustainability Manager are evident in the Corporate, Social and Environmental Responsibility Report in the 2012 Annual Report and Accounts.
London
Value GBP437.5 million Group's property interests 46% No of properties 28 Lettable space 137,753 sq m Net initial yield 6.6% Vacancy rate 2.3% Like-for-like valuation uplift 4.7% Government and major corporates 79% Average unexpired lease length 8.4 years To first break 7.6 years
The London division has had another very successful year, with a significant fall in the vacancy rate and the achievement of two key planning permissions.
It continues to be most encouraging to have further reduced vacancy levels from 4.0% in 2011 to just 2.3%. This reinforces the trend referred to last year of occupiers clearly making decisions not just on price but also towards better managed and refurbished buildings. This is coupled with the clear benefits of in-house property management. For example, service charges are prepared on our multi-let buildings within just three weeks of the year end, giving confidence to occupiers.
During the year, 12,815 sq m became vacant, and we let or renewed leases with existing occupiers on 15,116 sq m. In particular we let 1,801 sq m at Great West House, reducing its vacancy to its lowest level for over five years. Westminster Tower, Quayside and Falcon House all became fully let in the year.
During the second half of the year we acquired three office buildings: Crosspoint House in Wallington near Croydon (1,963 sq m yielding 14.1%), Gateway House in Kennington, SW8 (1,844 sq m yielding 8.5%) and Sentinel House, Coulsdon near Croydon (3,411 sq m yielding 8.9%) in separate transactions totalling GBP10.8 million before costs. This equated to an average capital value of GBP1,489 per sq m, which was below replacement cost. These transactions were of a size where competition to buy them was reduced due to other parties' difficulties in finding debt.
Significant progress has been made since January 2012 on progressing development opportunities from within the investment portfolio:
-- Spring Mews, Vauxhall, SE11 - in May, planning consent was granted for a 20,800 sq m mixed-use scheme which will consist of 400 student bedrooms, and a 93 bedroom suite hotel, together with a 561 sq m community centre and café, 468 sq m of offices and a 245 sq m convenience store. We will also provide a new pedestrian thoroughfare for the public linking Spring Gardens to Tinworth Street. Demolition has been completed and construction is under way, with a target completion in late 2014. The development is expected to generate over GBP5.5 million net income per annum when complete. Detailed discussions are well advanced with our selected operators for both the hotel and the student housing.
-- Vauxhall Square, SW8 - in December, and subject to signing a Section 106 agreement, this 143,000 sq m mixed-use scheme was also granted planning consent for 410 private residential apartments, 110 affordable homes, 22,732 sq m of offices, 3,119 sq m of shops and restaurants, a 278 bedroom hotel and a 123 suite hotel, 359 student rooms and a 50 bedroom new hostel for the homeless, together with a 3,777 sq m multi-screen cinema. There will also be associated community facilities, all built around a substantial new public square. The Group will progress plans during 2013, with a start date on site expected to be in 2015 on a phased basis. The development cost is anticipated to be in excess of GBP500 million. The Vauxhall Nine Elms Opportunity area has seen significant achievements in 2012, with the Battersea Power Station's future being secured, the Northern Line extension funding confirmed by the Government, and construction well under way on the new United States embassy and on numerous other sites with substantial pre-sales of residential apartments. The Dutch embassy is reported to be coming to the area and other requirements are emerging. The pace of activity bodes well for Vauxhall Square, which is located in the heart of the area, adjacent to the Vauxhall transport interchange. The Vauxhall Business Improvement District has had a positive first nine months of operation, with a series of initiatives which have raised awareness of the benefits of Vauxhall as a business location, to the advantage of the Group's holdings in the area.
-- Clifford's Inn, EC4 - in January 2013, planning consent was gained to comprehensively refurbish the existing space to create 3,423 sq m of offices behind a new Portland stone façade, with an infill extension, and eight new residential apartments, at a total cost of GBP10.1 million. The twelve month programme is expected to begin in the second quarter of 2013.
Overall the London portfolio increased in value by 4.7%. Spring Mews and Vauxhall Square rose in value by 51.7% in aggregate, reflecting the effect of their planning gains. Excluding these properties, the London portfolio fell by 0.3%; the effect of the weakening of the high-yielding investment market was mitigated by our success in significantly reducing the vacancy rate of the portfolio, and by other asset management initiatives.
FRANCE
Value GBP239.6 million Group's property interests 25% No of properties 26 Lettable space 96,244 sq m Net initial yield 7.7% Vacancy rate 3.8% Like-for-like valuation fall -1.4% Government and major corporates 59% Average unexpired lease length 5.0 years To first break 2.4 years
The French economy has been impacted noticeably by the Eurozone crisis, concern over rising sovereign debt levels, and a presidential election year when change was expected. GDP growth was only just in positive territory at 0.2%, with economists' forecasts for 2013 being not much higher.
Unsurprisingly this has led some businesses to pause their investment plans and this, coupled with some struggling financially, has led to a reduction in new letting enquiries and a rise in our vacancy rate over the year to from 2.7% twelve months ago to 3.8% at December 2012. This is still well below the market average vacancy of 6.5%. Take up of offices fell in both the Paris and Lyon markets by 4% and 29% respectively.
Leases were renewed on 3,596 sq m, and whilst new leases were signed on 4,066 sq m, occupiers vacated 5,202 sq m. In France the property fundamentals are good, with the lack of new construction protecting rents and vacancy levels, especially in Lyon. However, we must be prepared for vacancy levels to rise if the economy does not grow, as there are more lease expiries and breaks in our French portfolio in 2013 than in either of the previous two years. At our property in Rueil Malmaison, to the west of Paris, an occupier departure in 2013 from 2,867 sq m provides an opportunity to refurbish and reconfigure some of the common areas.
The investment market has seen an expected reduction in volumes of almost 8% in the year; however, there were still over 30 individual transactions of more than EUR100 million. There are fewer properties being offered for sale and there are still almost no signs of distress sales in this region. The Group's own investment portfolio fell in value by 1.4% in local currency terms, largely reflecting the increase in voids.
GERMANY
Value GBP197.4 million Group's property interests 20% No of properties 16 Lettable space 144,991 sq m Net initial yield 7.0% Vacancy rate 7.4% Like-for-like valuation uplift 0.1% Government and major corporates 49% Average unexpired lease length 9.0 years To first break 8.9 years
The German economy has demonstrated resilience with GDP growth in 2012 of 0.9% and a forecast of 1.5% for 2013, and with employment data at an all-time high of over 41 million people and unemployment at only 6.7%. In real estate markets, whilst the volume of new lettings in 2012 was lower than 2011, it was still above the 10 year average at over 3 million sq m. Inevitably, there have been some pauses in decision-making by occupiers, but vacancy levels are at their ten-year low of 9%, and new construction is at a five-year low. The level of investment increased by some 11% compared to 2011, to the highest level since 2007.
The Group's German vacancy rate at the year end was 7.4%, which reflected a long-planned departure in December of an occupier in Berlin from 3,500 sq m. Current enquiries, however, are encouraging, notably at the Group's two multi-let properties in the Munich area; by letting space currently under offer the vacancy rate would fall to 5.1%.
During the year we completed the two pre-let developments near Munich on time and budget, let to Dr Honle AG and E.ON Service Plus GmbH, increasing the annual rent roll by EUR856,000. The value of the German portfolio remained flat in the year in local currency terms, with the positive effect of the new developments being largely offset by the increased vacancy rate.
We continue to look actively for opportunities in this market. The availability of bank debt is most advantageous in Germany compared to the Group's other regions.
SWEDEN
Value GBP85.4 million Directly owned Value GBP60.0 million Group's property interests 6% No of properties 1 Lettable space 45,354 sq m Net initial yield 7.5% Vacancy rate 1.7% Like-for-like valuation fall -0.3% Government and major corporates 97% Average unexpired lease length 3.5 years To first break 3.5 years Indirectly owned Value in Catena GBP20.7 million Group's property interest 2% Interest in Catena AB 29.9% Value in Cood Investments GBP4.7 million Group's property interest 1% Interest in Cood Investments 16.6%
The Group's property interests in Sweden span two operating segments: Investment Properties and Other Investments.Two of our Other Investments are equity stakes in associates which invest in Swedish real estate, and as these operate against the same economic backdrop, they are considered together with the directly-held Swedish investment properties in this Business Review.
The Swedish economy continues to perform relatively well, with GDP growth in 2013 and 2014 expected to be 1.2% and 2.6%, respectively, low levels of sovereign debt at just 35% of GDP, and unemployment at 8%. Sweden's rising working age population is also good for economic growth prospects, due to its productivity and consumption potential.
The directly-owned interest is a 45,354 sq m office complex at Vänersborg, near Gothenburg, called Vänerparken, which has over 98% occupancy. The leases to the largest occupier, the local County Council, expire in 2015, and in 2013 negotiations are expected to begin on lease renewals. Our new GBP2.3 million energy centre has been through its first full year of operation and is performing well. The Swedish engineers who designed the system are advising the Group on similar opportunities in London, most notably at Spring Mews, Vauxhall.
The Group owns 29.9% in the Stockholm-listed real estate company, Catena AB, which has one remaining but significant property in Stockholm. Catena secured planning permission in December for some 800 apartments and 73,000 sq m of commercial space which can be delivered over the next few years. The valuation uplift from gaining this permission drove its contribution to share of profit of associates after tax to GBP5.8 million, and during the year we also received a distribution from Catena of GBP0.6 million. At the year end, the market value of the Group's shareholding was GBP20.7 million, being a surplus of GBP1.8 million over the book value; this equates to an extra 4 pence per share on our EPRA net asset value.
The Group's 16.6% interest in the residential property company, Cood Investments AB, which specialises in holiday homes on vacation sites. Since the Group's initial investment in January 2012, operational improvements at Cood have delivered encouraging results with an associate profit after tax of GBP0.8 million, in addition to a dividend of GBP0.2 million paid in the year. The remaining carrying value of this associate holding was GBP4.7 million and future potential is significant.
RESULTS FOR THE YEAR
Headlines
Profit after tax of GBP46.7 million (2011: GBP38.8 million) generated EPRA earnings per share of 65.3 pence (2011: 64.9 pence), and basic earnings per share of 106.0 pence (2011: 82.0 pence). Gross property assets at 31 December 2012 were GBP934.5 million (2011: GBP902.1 million), EPRA net assets per share were 17.4% higher at 1,154.4 pence (2011: 983.1 pence), and basic net assets per share rose by 17.8% to 963.1 pence (2011: 817.5 pence).
Approximately 40% of the Group's business is conducted in the reporting currency of sterling, around 50% is in euros, and the balance is in Swedish kronor. Compared to last year, profits suffered as the average rate of the euro was 7.0% weaker and the krona 3.1% weaker against sterling than in 2011. Likewise, at 31 December 2012 the closing rate of the euro was 2.8% weaker against sterling than twelve months previously, reducing the sterling equivalent value of net assets.
Exchange rates to the GBP
EUR SEK
--------------------- ------- --------
At 31 December 2010 1.1664 10.4828
2011 average rate 1.1525 10.4091
At 31 December 2011 1.1987 10.7088
2012 average rate 1.2332 10.7326
At 31 December 2012 1.2317 10.5677
--------------------- ------- --------
STATEMENT OF COMPREHENSIVE INCOME
At GBP66.1 million, rental income in 2012 was GBP0.1 million less than in 2011, but acquisitions added GBP1.0 million of rent, and indexation a further GBP1.3 million, and it was the weakness of the euro and krona, reducing rent by GBP2.3 million, which distorted the underlying strong rental performance of the Group. Other property-related income and net service charge expenses were in line with last year, resulting in net rental income of GBP62.9 million being broadly unchanged from last year (2011: GBP63.0 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 2012, we expanded the property development team in London ahead of gaining planning consents for Spring Mews and Vauxhall Square, and administration expenses, net of GBP0.1 million capitalised since gaining the planning consents, increased to GBP10.0 million (2011: GBP9.7 million). As a proportion of net rental income, the administration cost ratio increased to 15.9% (2011: 15.4%), but would have fallen had the euro and Swedish krona not weakened against sterling.
The net surplus on revaluation of investment properties in the year was GBP16.2 million (2011: GBP18.0 million). GBP21.0 million of uplift came from the two London properties on which we gained planning permission, and the remaining portfolio fell by 0.5% in local currencies, and by 1.7% after foreign exchange effects.
Finance income of GBP10.6 million (2011: GBP12.2 million) comprised predominantly interest income of GBP9.1 million (2011: GBP8.4 million) from our corporate bond portfolio. This portfolio appreciated in value strongly, particularly in the second half of the year, producing a total return in the year of 31.4%, and ended the year with a value of GBP127.3 million.
The fall in short-term interest rates, the switch from fixed rates to floating rates for certain loans, the termination in December 2011 of an onerous interest rate swap, and the weakness of the euro and Swedish krona relative to sterling, all contributed to the fall in the interest expense of bank loans, debenture loans and unsecured bonds in the year to GBP24.2 million (2011: GBP29.2 million). These effects were only partially offset by the increase in borrowings, particularly the issue of the retail bond. With significantly fewer derivative liabilities than in 2011, the movement in the fair value of derivatives in 2012 was only GBP1.5 million (2011: GBP18.5 million).
The majority of the GBP5.8 million (2011: GBP3.0 million) share of results of associates was contributed by Catena AB. This contribution reflected Catena's planning consent gained on its large development site in Stockholm.
Once again this year the tax charge was below the weighted average rate of the countries in which we do business, due primarily to the accruing benefit of indexation on the original cost of UK properties.
EPRA NET ASSET VALUE
At 31 December 2012, EPRA net assets per share (a diluted measure which highlights the fair value of the business on a long-term basis) were 1,154.4 pence (2011: 983.1 pence), a rise of 17.4%, or 171.3 pence per share. The main reason for the increase was underlying profit after tax which added 89.4 pence. The two tender offer buy-backs in the year added 8.5 pence per share, the fair value movement on investment properties added a further 37.1 pence, and the valuation uplift of the corporate bonds added 45.0 pence; against this, exchange rate variances reduced EPRA net assets per share by 8.7 pence.
CASH FLOW, NET DEBT AND GEARING
At 31 December 2012, the Group's cash balances of GBP97.6 million were GBP42.3 million higher than twelve months previously, mainly due to GBP31.9 million from operating activities and net new loans of GBP69.2 million, less capital expenditure of GBP26.6 million, GBP12.6 million of distributions to shareholders, and net investments in corporate bonds of GBP19.8 million.
Following the success of the issue of a SEK 300 million unsecured bond in Stockholm in 2011, in September 2012 the Company issued its first retail bond on the Order book for Retail Bonds (ORB) of the London Stock Exchange. This GBP65 million unsecured bond attracts a coupon of 5.5% and expires in December 2019. It was taken up by some 5,000 investors, extending the constituency of investor stakeholders, and thereby raising the profile of the Company. GBP101.3 million of bank debt, excluding overdrafts, was drawn or refinanced in the year, including GBP78.5 million at our largest asset, Spring Gardens. GBP121.9 million of loans were repaid in 2012, including GBP11.7 of amortisation of loan balances in the normal course of business. At 31 December 2012 the weighted average unexpired term of the Group's debt, excluding overdrafts, was 4.6 years.
Adjusted net gearing, which is based on EPRA net assets, was 92.7% at 31 December 2012 (2011: 109.3%) and the weighted average loan-to-value on borrowings against properties was a comfortable 58.8% (2011: 62.5%). Adjusted solidity was 41.1% (2011: 40.5%).
The weighted average cost of debt at 31 December 2012 was 3.67%, one of the lowest in the property sector, and down from 4.06% twelve months earlier. The fall was primarily caused by cancelling a long-term swap, and a fall in short-term interest rates. With bank financing now more expensive than when certain existing loans were taken out, refinancing them as they fall due will probably gradually increase the average cost of debt of the Group.
In 2012, our low cost of debt led to recurring interest cover of a comfortable 3.9 times (2011: 2.6 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 75% 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 2012. The Group had 56 loans across the portfolio from 21 banks, a debenture, a zero-coupon loan and two unsecured bonds. None of the loans at 31 December 2012 had been securitised by any lender, and the Group had no exposure to the CMBS market.
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 swaps and caps. The Board believes that interest rates are likely to remain low longer than the forward interest curve would imply, and, therefore, its policy is to allow a majority of debt to remain subject to floating rates. To mitigate the risk of interest rates increasing more sharply than the Board expects, the Group enters into interest rate caps. At 31 December 2012, 27% of the Group's borrowings were at fixed rates or subject to interest rate swaps, 40% were subject to caps and 33% of debt costs were unhedged.
The Group's financial derivatives - predominantly interest rate swaps and interest rate caps - are marked to market at each balance sheet date. At 31 December 2012 they were a net liability of GBP8.4 million (2011: GBP7.3 million).
SHARE CAPITAL AND DISTRIBUTIONS TO SHAREHOLDERS
At 1 January 2012, there were 49,756,714 shares in issue, of which 4,803,103 were held as treasury shares. In April, GBP7.9 million was distributed to shareholders by means of a tender offer buy-back of 1 in 42 shares at 735 pence per share, which cancelled 1,070,324 shares. In September, a further GBP4.6 million was distributed by means of a tender offer buy-back of 1 in 76 shares at 805 pence per share, which cancelled 577,411 shares. Consequently, at 31 December 2012, 43,305,876 shares were listed on the London Stock Exchange, and 4,803,103 shares remained held in Treasury.
In April 2013, the Directors intend to put to a General Meeting of the Company a proposal to issue a tender offer buy-back of 1 in 46 shares at 900 pence per share. If approved by shareholders this could lead to the purchase and cancellation of 941,432 shares, and a distribution to shareholders of GBP8.5 million, being an increase of 7.7% on the same time last year, and distributions paid and proposed for the year of GBP13.1 million (2011: GBP12.3 million), an increase of 6.7%.
TOTAL RETURNS TO SHAREHOLDERS
In addition to the distributions and share cancellations associated with the tender offer buy-backs, shareholders benefited from a rise in the share price in the year from 590 pence on 31 December 2011 to 765 pence at 31 December 2012. Accordingly, the total shareholder return in 2012 was 29.7%. In the five years to 31 December 2012, our total shareholder return of 135.4%, which represented a compound annual return of 18.7%, represented the best performance in the UK listed real estate sector.
Since the Company listed on the London Stock Exchange in 1994, it has outperformed the FTSE Real Estate and FTSE All Share indices.
Key Performance Indicators
Total Shareholder Return
Aim
* to provide a TSR of over 12% p.a. over the medium
term
Achievement * 2008-2012: 135.4%, or 18.7% p.a. compound
Effective management of balance sheet
Aim
* to sell assets with limited growth potential and
invest in high yielding alternatives
Achievement
* 2007 to 2012: GBP746 million of property sales
* Pre-let developments in Landshut and Gräfelfing,
Germany are providing returns on equity of 19.4% and
18.3% p.a., respectively
Administration
cost ratio
Aim
* to maintain administration costs below 15.0% of net
rental income
Achievement * 2012: 15.9%
* 2011: 15.4%
* 2010: 15.2%
Occupancy rate
Aim * to maintain an occupancy level of over 95%
Achievement * 2012: 96.2%
* 2011: 96.1%
* 2010: 95.7%
Top 10 Customers
The 10 customers which contribute most rental income to the Group account for 41.2% of the rent roll, and comprise:
London
-- The Home Office Government -- Secretary of State for Work and Pensions Government -- Cap Gemini Major Corporation -- BAE Systems Major Corporation
Germany
-- City of Bochum Government -- E.ON Major Corporation -- BrainLab Major Corporation
Sweden
-- Västra Götaland County Council Government -- Vänersborg Kommun Government
France
-- Grand Duchy of Luxembourg Government
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 Impact Mitigation
------------------------------------- -------------------------------- --------------------------------------
Property investment risks
Underperformance of investment Cash flow Senior management has
portfolio due to: Profitability detailed knowledge of
* Cyclical downturn in property Net asset value core markets and experience
Banking covenants gained through many market
cycles. This experience
* market is supplemented by external
advisors and financial
models used in capital
* Inappropriate buy/sell/hold allocation decision-making.
* decisions
------------------------------------- -------------------------------- --------------------------------------
Changes in supply of space Rental income The Group's property portfolio
and/or occupier demand Cash flow is diversified across
Vacancy rate four countries. The weighted-average
Void running costs unexpired lease term is
Bad debts 7.2 years and the Group's
Net asset value largest occupier concentration
is with the Government
sector (39.6%).
------------------------------------- -------------------------------- --------------------------------------
Poor asset management Rental income Property teams proactively
Cash flow manage customers to ensure
Vacancy rate changing needs are met,
Void running costs and review the current
Property values status of all properties
Net asset value weekly. Written reports
are submitted bi-weekly
to senior management on,
inter alia, vacancies,
lease expiry profiles
and progress on rent reviews.
------------------------------------- -------------------------------- --------------------------------------
Other investment risks
Corporate bond investments: Net asset value In assessing potential
* Underperformance of portfolio Liquid resources investments, the Treasury
department undertakes
research on the bond and
* Insolvency of bond issuer its issuer, seeks third-party
advice, and receives legal
advice on the terms of
the bond, where appropriate.
The Treasury department
and Executive Directors
receive updates on bond
price movements and third
party market analysis
on a daily basis, and
reports on corporate bonds
to the full Board on a
bi-weekly basis. The Executive
Directors formally review
the corporate bond strategy
monthly.
------------------------------------- -------------------------------- --------------------------------------
Development risks
Failure to secure planning Abortive costs Planning permission is
permission Reputation sought only after engaging
in depth with all stakeholders.
------------------------------------- -------------------------------- --------------------------------------
Contractor solvency and Reduced development returns Only leading contractors
availability Cost overruns. are engaged. Prior to
Loss of rental revenue appointment, contractors
are the subject of a due
diligence check and assessed
for financial viability.
------------------------------------- -------------------------------- --------------------------------------
Downturn in investment Net asset value Developments are undertaken
or occupational markets only after an appropriate
level of pre-lets have
been obtained.
------------------------------------- -------------------------------- --------------------------------------
Funding risks
Unavailability of financing Cost of borrowing The Group has a dedicated
at Ability to invest or Treasury department and
acceptable prices develop relationships are maintained
with some 21 banks, thus
reducing credit and liquidity
risk. The exposure on
re-financing debt is mitigated
by the lack of concentration
in maturities.
------------------------------------- -------------------------------- --------------------------------------
Adverse interest rate Cost of borrowing The Group's exposure to
movements Cost of hedging changes in prevailing
market rates is largely
hedged on existing debt
through interest rate
swaps and caps, or by
borrowing at fixed rates.
------------------------------------- -------------------------------- --------------------------------------
Breach of borrowing covenants Cost of borrowing Financial covenants are
monitored by the Treasury
department and regularly
reported to the Board.
------------------------------------- -------------------------------- --------------------------------------
Foreign currency exposure Net asset value Property investments are
Profitability partially funded in matching
currency. The difference
between the value of the
property and the amount
of the financing is generally
unhedged and monitored
on an ongoing basis.
------------------------------------- -------------------------------- --------------------------------------
Financial counterparty Loss of deposits The Group has a dedicated
credit risk Cost of rearranging facilities Treasury department and
Incremental cost of borrowing relationships are maintained
with some 21 banks, thus
reducing credit and liquidity
risk. The exposure on
re-financing debt is mitigated
by the lack of concentration
in maturities.
------------------------------------- -------------------------------- --------------------------------------
Taxation risk
Increases in tax rates Cash flow The Group monitors legislative
or changes to the basis Profitability proposals and consults
of taxation Net asset value external advisors to understand
and mitigate the effects
of any such change.
------------------------------------- -------------------------------- --------------------------------------
Political and economic
risk Net asset value Euro-denominated liquid
Break-up of the Euro Profitability resources are kept to
a minimum. Euro property
assets are largely financed
with euro borrowings.
------------------------------------- -------------------------------- --------------------------------------
Economic downturn Cash flow The Group's property portfolio
Profitability is diversified across
Net asset value four countries. The weighted-average
Banking covenants unexpired lease term is
7.2 years and the Group's
largest customer concentration
is with the Government
sector (39.6%). 65% of
rental income is subject
to indexation.
------------------------------------- -------------------------------- --------------------------------------
Going concern
The Group will not have Pervasive The Directors regularly
adequate working capital stress-test the business
to remain a going concern model to ensure the Group
for the next 12 months. has adequate working capital.
------------------------------------- -------------------------------- --------------------------------------
Property Portfolio
Rental data
Gross rental Net rental
income income Contracted Contracted Vacancy
for for Lettable rent at ERV at rent subject rate at
the year the year space year end year end to indexation year end
GBPm GBPm sq m GBPm GBPm GBPm %
----------------- ------------- ----------- --------- ----------- ---------- --------------- ----------
London 27.5 26.8 136,504 29.1 27.4 5.4 2.3%
France 18.5 18.5 96,244 18.7 17.8 18.7 3.8%
Germany 13.9 13.1 144,991 14.1 14.5 14.1 7.4%
Sweden 6.2 4.5 45,354 6.4 5.7 6.4 1.7%
----------------- ------------- ----------- --------- ----------- ---------- ---------------
Total Portfolio 66.1 62.9 423,093 68.3 65.4 44.6 3.8%
----------------- ------------- ----------- --------- ----------- ---------- ---------------
Note: a further GBP3.8 million of London contracted rent will be subject to annual indexation from 2015
Valuation data
Valuation movement
in the year
-----------------------
True
Market
value Foreign EPRA equivalent
topped
up net
Net initial initial
of property Underlying exchange yield(1) yield(2) Reversion Over-rented yield
GBPm GBPm GBPm % % % % %
----------- ------------- ----------- ---------- ------------ ----------- ---------- ------------ ------------
London 437.5 19.8 - 6.6% 6.3% 3.0% 11.4% 6.9%
France 239.6 (3.5) (6.6) 7.7% 7.3% 0.8% 9.6% 7.1%
Germany 197.4 0.1 (5.3) 7.0% 6.6% 0.9% 6.0% 6.0%
Sweden 60.0 (0.2) 0.8 7.5% 7.1% 2.6% 14.7% 9.4%
----------- ------------- ----------- ----------
Total
Portfolio 934.5 16.2 (11.1) 7.0% 6.6% 1.9% 10.1%
----------- ------------- ----------- ----------
(1) Based on contracted rent less non-recoverable service charges and before adding purchasers' costs to investment property values; if based on passing rent, net initial yield would be 6.8%
(2) Based on contracted rent less non-recoverable service charges and after adding purchasers' costs to investment property values; if based on passing rent, EPRA net initial yield would be 6.5%
Lease Data
Average lease Passing rent of leases ERV of leases expiring
length expiring in: in:
--------------------- ------------------------------ ------------------------------
Year After Year After
Year Year 3 to year Year Year 3 to year
To break To expiry 1 2 5 5 1 2 5 5
years years GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- --------- ---------- ------ ------ ------ ------ ------ ------ ------ ------
London 7.6 8.4 2.1 1.2 6.9 18.9 2.2 1.3 6.5 16.6
France 2.4 5.0 0.9 1.7 5.5 10.6 0.8 1.4 5.0 9.9
Germany 8.9 9.0 0.4 1.6 4.6 7.5 0.3 1.5 4.3 7.3
Sweden 3.5 3.5 0.2 - 4.6 1.6 0.2 - 3.7 1.6
------ ------ ------ ------ ------ ------ ------ ------
Total Portfolio 6.1 7.2 3.6 4.5 21.6 38.6 3.5 4.2 19.5 35.4
------ ------ ------ ------ ------ ------ ------ ------
Statement of Directors' responsibilities
We confirm to the best of our knowledge that:
-- 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 of the Company and the undertakings included in the consolidation as a whole; and
-- the Business Review, which is incorporated into the Directors' 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 they face.
This statement of responsibilities was approved by the Board on 4 March 2013.
By order of the Board
David Fuller BA FCIS
Company Secretary
4 March 2013
Group Statement of comprehensive income
for the year ended 31 December 2012
2012 2011
Notes GBPm GBPm
------------------------------------------------------------ ------- ------- -------
Continuing operations
Group revenue 80.2 80.1
------------------------------------------------------------ ------- ------- -------
Net rental income 2 62.9 63.0
Income from non-property activities - 0.8
Administration expenses (10.5) (12.1)
Other expenses (2.9) (2.2)
------------------------------------------------------------ ------- ------- -------
Group revenue less costs 49.5 49.5
Net movements on revaluation of investment properties 8 16.2 18.0
Net (loss)/gain on sale of corporate bonds and other
investments (0.4) 0.5
Profit on sale of subsidiaries and associates 25 - 2.2
------------------------------------------------------------ ------- ------- -------
Operating profit 65.3 70.2
Finance income 3 10.6 12.2
Finance costs 4 (25.6) (47.7)
Share of profit of associates after tax 12 5.8 3.0
------------------------------------------------------------ ------- ------- -------
Profit before tax 56.1 37.7
Taxation 5 (9.4) 1.1
------------------------------------------------------------ ------- ------- -------
Profit for the year 46.7 38.8
Other comprehensive income
Foreign exchange differences (2.6) (5.0)
Fair value gains/(losses) on corporate bonds and
other investments 13 19.7 (16.0)
Fair value losses/(gains) taken to (loss)/gain on
sale of corporate bonds and other investments 13 4.0 (0.8)
Deferred tax on net fair value gains on corporate
bonds and other investments 17 (5.9) 4.6
Revaluation of owner-occupied property 9 0.1 0.3
------------------------------------------------------------ ------- ------- -------
Total comprehensive income for the year 62.0 21.9
------------------------------------------------------------ ------- ------- -------
Profit attributable to:
Owners of the Company 46.7 37.5
Non-controlling interests - 1.3
------------------------------------------------------------ ------- ------- -------
Profit for the year 46.7 38.8
------------------------------------------------------------ ------- ------- -------
Total comprehensive income attributable to:
Owners of the Company 62.0 20.6
Non-controlling interests - 1.3
------------------------------------------------------------ ------- ------- -------
Total comprehensive income for the year 62.0 21.9
------------------------------------------------------------ ------- ------- -------
Earnings per share from continuing operations attributable
to the
owners of the Company during the year (expressed
in pence per share)
Basic 6 106.0 82.0
Diluted 6 105.8 81.9
------------------------------------------------------------ ------- ------- -------
Group Balance Sheet
At 31 December 2012
2012 2011
Notes GBPm GBPm
-------------------------------------- ------- -------- --------
Non-current assets
Investment properties 8 934.5 902.1
Property, plant and equipment 9 2.8 2.7
Goodwill and other intangible assets 11 1.1 1.1
Investments in associates 12 33.3 24.1
Other investments 13 129.9 87.8
Derivative financial instruments 19 0.2 1.5
Deferred tax 17 8.7 17.7
-------------------------------------- ------- -------- --------
1,110.5 1,037.0
-------------------------------------- ------- -------- --------
Current assets
Trade and other receivables 14 17.0 11.6
Derivative financial instruments 19 0.6 0.4
Cash and cash equivalents 15 97.6 55.3
-------------------------------------- ------- -------- --------
115.2 67.3
-------------------------------------- ------- -------- --------
Total assets 1,225.7 1,104.3
-------------------------------------- ------- -------- --------
Current liabilities
Trade and other payables 16 (33.0) (30.4)
Current tax (3.6) (1.2)
Borrowings 18 (135.6) (151.2)
Derivative financial instruments 19 (0.4) (0.1)
-------------------------------------- ------- -------- --------
(172.6) (182.9)
-------------------------------------- ------- -------- --------
Non-current liabilities
Deferred tax 17 (77.8) (75.0)
Borrowings 18 (549.4) (469.8)
Derivative financial instruments 19 (8.8) (9.1)
-------------------------------------- ------- -------- --------
(636.0) (553.9)
-------------------------------------- ------- -------- --------
Total liabilities (808.6) (736.8)
-------------------------------------- ------- -------- --------
Net assets 417.1 367.5
-------------------------------------- ------- -------- --------
Equity
Share capital 20 12.0 12.5
Share premium 22 71.5 71.5
Other reserves 23 101.8 86.0
Retained earnings 231.8 197.5
-------------------------------------- ------- -------- --------
Total equity 417.1 367.5
-------------------------------------- ------- -------- --------
The financial statements of CLS Holdings plc (registered number: 2714781) were approved by the Board of Directors and authorised for issue on 4 March 2013 and were signed on its behalf by:
Mr S A Mortstedt Mr E H Klotz Director Director
Group Statement of Changes in Equity
for the year ended 31 December 2012
Attributable to the owners of
the Company
-----------------------------------------------------
Share Share Other Retained Non-controlling
capital premium reserves earnings Total interests Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------ --------- --------- ---------- ---------- ------- ---------------- -------
At 1 January 2012 12.5 71.5 86.0 197.5 367.5 - 367.5
-------------------------- ------ --------- --------- ---------- ---------- ------- ---------------- -------
Arising in 2012:
Total comprehensive
income
for the year - - 15.3 46.7 62.0 - 62.0
Purchase of own shares 20 (0.5) - 0.5 (12.5) (12.5) - (12.5)
Expenses thereof - - - (0.1) (0.1) - (0.1)
Employee share option
schemes - - - 0.2 0.2 - 0.2
-------------------------- ------ --------- --------- ---------- ---------- ------- ---------------- -------
Total changes arising
in 2012 (0.5) - 15.8 34.3 49.6 - 49.6
-------------------------- ------ --------- --------- ---------- ---------- ------- ---------------- -------
At 31 December 2012 12.0 71.5 101.8 231.8 417.1 - 417.1
-------------------------- ------ --------- --------- ---------- ---------- ------- ---------------- -------
Attributable to the owners of
the Company
-----------------------------------------------------
Share Share Other Retained Non-controlling
capital premium reserves earnings Total interests Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------ --------- --------- ---------- ---------- ------- ---------------- -------
At 1 January 2011 12.9 71.5 102.5 171.6 358.5 (1.3) 357.2
-------------------------- ------ --------- --------- ---------- ---------- ------- ---------------- -------
Arising in 2011:
Total comprehensive
income
for the year - - (16.9) 37.5 20.6 1.3 21.9
Purchase of own shares 20 (0.4) - 0.4 (11.7) (11.7) - (11.7)
Expenses thereof - - - (0.1) (0.1) - (0.1)
Employee share option
schemes - - - 0.2 0.2 - 0.2
-------------------------- ------ --------- --------- ---------- ---------- ------- ---------------- -------
Total changes arising
in 2011 (0.4) - (16.5) 25.9 9.0 1.3 10.3
-------------------------- ------ --------- --------- ---------- ---------- ------- ---------------- -------
At 31 December 2011 12.5 71.5 86.0 197.5 367.5 - 367.5
-------------------------- ------ --------- --------- ---------- ---------- ------- ---------------- -------
Group Statement of Cash Flows
for the year ended 31 December 2012
2012 2011
Notes GBPm GBPm
---------------------------------------------------- ------- -------- --------
Cash flows from operating activities
Cash generated from operations 24 54.3 54.1
Interest paid (22.5) (26.1)
Income tax refunded/(paid) 0.1 (2.9)
---------------------------------------------------- ------- -------- --------
Net cash inflow from operating activities 31.9 25.1
---------------------------------------------------- ------- -------- --------
Cash flows from investing activities
Purchase of investment property (13.1) (7.2)
Capital expenditure on investment property (13.5) (13.2)
Interest received 8.2 6.9
Purchase of corporate bonds (65.6) (54.5)
Proceeds from sale of corporate bonds 45.8 31.8
Purchase of equity investments (0.6) (7.6)
Dividends received from equity investments 0.1 -
Proceeds from sale of equity investments 0.6 7.2
Purchase of interests in associate undertakings (4.1) (0.2)
Loans to associate undertakings (4.5) -
Distributions received from associate undertakings 0.8 19.9
Income/(costs) on foreign currency transactions 0.3 (1.4)
Costs of corporate disposals (0.8) (1.8)
Purchases of property, plant and equipment (0.2) (0.2)
---------------------------------------------------- ------- -------- --------
Net cash outflow from investing activities (46.6) (20.3)
---------------------------------------------------- ------- -------- --------
Cash flows from financing activities
Purchase of own shares (12.6) (11.8)
New loans 223.3 174.2
Issue costs of new loans (2.4) (2.8)
Repayment of loans (151.7) (132.2)
Purchase or cancellation of derivative financial
instruments (0.1) (25.9)
---------------------------------------------------- ------- -------- --------
Net cash inflow from financing activities 56.5 1.5
---------------------------------------------------- ------- -------- --------
Cash flow element of net increase in cash and cash
equivalents 41.8 6.3
Foreign exchange gain 0.5 0.7
---------------------------------------------------- ------- -------- --------
Net increase in cash and cash equivalents 42.3 7.0
Cash and cash equivalents at the beginning of the
year 55.3 48.3
---------------------------------------------------- ------- -------- --------
Cash and cash equivalents at the end of the year 15 97.6 55.3
---------------------------------------------------- ------- -------- --------
Interest received has been included in cash flows from investing activities as the majority of it arises from investing in corporate bonds. Previously, interest received was disclosed in cash flows from operating activities.
Notes to the group financial statements
31 December 2012
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 London, France, Germany and Sweden.
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 2012 Annual Report and Accounts will be posted to shareholders on 15 March 2013 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 2012. 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 2012 or 2011, but is derived from those accounts. Those accounts give a 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 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts and the auditors' reports on both the 2011 and 2012 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 current macro-economic conditions have created a number of uncertainties. The Group's business activities, together with the factors likely to affect its future development and performance are set out in the Business Review. The financial position of the Group, its liquidity position and borrowing facilities are described in the Business Review.
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 divisions - Investment Property and Other Investments. Other Investments comprise corporate bonds, shares in Catena AB, Bulgarian Land Development Plc and Cood Investments AB, and other small corporate investments. The Group manages the Investment Property division on a geographical basis due to its size and geographical diversity. Consequently, the Group's principal operating segments are:
Investment London
Property - France
Germany
Sweden
Other Investments
There are no transactions between the operating segments.
The Group's results for the year ended 31 December 2012 by operating segment were as follows:
Investment Property
-----------------------------------
Other
London France Germany Sweden Investments Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------- ------- -------- ------- ------------- -------
Rental income 27.5 18.5 13.9 6.2 - 66.1
Other property-related
income 0.6 0.1 0.1 - - 0.8
Service charge income 4.7 5.5 2.7 0.4 - 13.3
Service charges and similar
expenses (6.0) (5.6) (3.6) (2.1) - (17.3)
--------------------------------- ------- ------- -------- ------- ------------- -------
Net rental income 26.8 18.5 13.1 4.5 - 62.9
Administration expenses (2.3) (1.4) (0.9) (0.3) (0.5) (5.4)
Other expenses (1.5) (0.4) (0.9) (0.1) - (2.9)
--------------------------------- ------- ------- -------- ------- ------------- -------
Group revenue less costs 23.0 16.7 11.3 4.1 (0.5) 54.6
Net movements on revaluation
of
investment properties 19.8 (3.5) 0.1 (0.2) - 16.2
Net loss on sale of corporate
bonds and
other investments - - - - (0.4) (0.4)
--------------------------------- ------- ------- -------- ------- ------------- -------
Segment operating profit/(loss) 42.8 13.2 11.4 3.9 (0.9) 70.4
Finance income - 0.1 - - 10.5 10.6
Finance costs (11.9) (4.6) (4.6) (1.2) (3.3) (25.6)
Share of profit of associates
after tax - - - - 5.8 5.8
--------------------------------- ------- ------- -------- ------- ------------- -------
Segment profit before tax 30.9 8.7 6.8 2.7 12.1 61.2
Taxation (5.2) (3.5) (0.7) - - (9.4)
--------------------------------- ------- ------- -------- ------- ------------- -------
Segment profit after tax 25.7 5.2 6.1 2.7 12.1 51.8
--------------------------------- ------- ------- -------- ------- -------------
Central administration
expenses (5.1)
--------------------------------- ------- ------- -------- ------- ------------- -------
Profit for the year 46.7
--------------------------------- ------- ------- -------- ------- ------------- -------
The Group's results for the year ended 31 December 2011 by operating segment were as follows:
Investment Property
-----------------------------------
Other
London France Germany Sweden Investments Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------- ------- -------- ------- ------------- -------
Rental income 26.5 19.1 14.4 6.2 - 66.2
Other property-related
income 0.8 0.1 - - - 0.9
Service charge income 4.2 5.2 2.5 0.3 - 12.2
Service charges and similar
expenses (5.9) (5.5) (3.3) (1.6) - (16.3)
-------------------------------- ------- ------- -------- ------- ------------- -------
Net rental income 25.6 18.9 13.6 4.9 - 63.0
Income from non-property
activities - - - - 0.8 0.8
Administration expenses (1.9) (1.5) (1.1) (0.4) (1.7) (6.6)
Other expenses (1.0) (0.5) (0.6) (0.1) - (2.2)
-------------------------------- ------- ------- -------- ------- ------------- -------
Group revenue less costs 22.7 16.9 11.9 4.4 (0.9) 55.0
Net movements on revaluation
of investment properties 10.2 4.9 2.0 0.9 - 18.0
Net gain on sale of corporate
bonds and other investments - - - - 0.5 0.5
Profit on sale of subsidiaries
and associates - - - 1.8 0.4 2.2
-------------------------------- ------- ------- -------- ------- ------------- -------
Segment operating profit 32.9 21.8 13.9 7.1 - 75.7
Finance income 0.3 0.1 - - 11.8 12.2
Finance costs (30.3) (7.9) (7.1) (1.6) (0.8) (47.7)
Share of profit of associates
after tax - - - - 3.0 3.0
-------------------------------- ------- ------- -------- ------- ------------- -------
Segment profit before tax 2.9 14.0 6.8 5.5 14.0 43.2
Taxation 7.7 (4.4) (0.4) (2.2) 0.4 1.1
-------------------------------- ------- ------- -------- ------- ------------- -------
Segment profit after tax 10.6 9.6 6.4 3.3 14.4 44.3
-------------------------------- ------- ------- -------- ------- -------------
Central administration
expenses (5.5)
-------------------------------- ------- ------- -------- ------- ------------- -------
Profit for the year 38.8
-------------------------------- ------- ------- -------- ------- ------------- -------
Other segment information:
Assets Liabilities Capital expenditure
------------------ -------------- ----------------------
2012 2011 2012 2011 2012 2011
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- -------- -------- ------ ------ ---------- ----------
Investment Property
London 463.5 435.5 358.7 304.9 19.9 12.6
France 247.0 252.9 207.5 212.9 1.4 1.8
Germany 202.5 201.1 144.4 147.2 5.5 4.0
Sweden 62.9 65.2 40.2 42.0 0.7 2.5
Other investments 249.8 149.6 57.8 29.8 - -
--------------------- -------- -------- ------ ------ ---------- ----------
1,225.7 1,104.3 808.6 736.8 27.5 20.9
--------------------- -------- -------- ------ ------ ---------- ----------
Included within the assets of other investments are investments in associates of GBP33.3 million (2011: GBP24.1 million).
3 FINANCE INCOME
2012 2011
GBPm GBPm
---------------------------- ------ ------
Interest income 9.9 9.2
Other finance income 0.1 2.3
Foreign exchange variances 0.6 0.7
---------------------------- ------ ------
10.6 12.2
---------------------------- ------ ------
4 FINANCE COSTS
2012 2011
GBPm GBPm
------------------------------------------------------------ ------ ------
Interest expense
Bank loans 15.4 21.2
Debenture loans 4.7 4.7
Unsecured bonds 2.8 1.2
Amortisation of loan issue costs 1.3 2.1
------------------------------------------------------------ ------ ------
Total interest costs 24.2 29.2
Less interest capitalised on development projects (0.1) -
------------------------------------------------------------ ------ ------
24.1 29.2
Movement in fair value of derivative financial instruments
Interest rate swaps: transactions not qualifying as
hedges 0.2 14.2
Interest rate caps: transactions not qualifying as
hedges 1.3 4.3
------------------------------------------------------------ ------ ------
25.6 47.7
------------------------------------------------------------ ------ ------
5 taxation
2012 2011
GBPm GBPm
------------------------------- ------ ------
Current tax charge/(credit) 2.3 (1.2)
Deferred tax charge (note 17) 7.1 0.1
------------------------------- ------ ------
9.4 (1.1)
------------------------------- ------ ------
A deferred tax charge of GBP5.9 million (2011: credit of GBP4.6 million) was recognised directly in equity (note 17).
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:
2012 2011
GBPm GBPm
------------------------------------------------------------ ------ ------
Profit before tax 56.1 37.7
------------------------------------------------------------ ------ ------
Tax calculated at domestic tax rates applicable to profits
in the respective countries 13.9 10.1
Expenses not deductible for tax purposes (0.7) (0.1)
Tax effect of unrecognised profits in associates and
joint ventures (1.2) (0.8)
Adjustment in respect of indexation allowance on London
properties (3.0) (4.6)
Other deferred tax adjustments (0.9) (1.6)
Deferred tax assets not recognised 0.1 (0.8)
Adjustment in respect of prior periods 1.2 (3.3)
------------------------------------------------------------ ------ ------
Tax charge/(credit) for the year 9.4 (1.1)
------------------------------------------------------------ ------ ------
The weighted average applicable tax rate of 24.9% (2011: 26.7%) was derived by applying to their relevant profits and losses the rates in the jurisdictions in which the Group operated.
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 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.
2012 2011
Earnings GBPm GBPm
----------------------------------------------------------- ----------- -----------
Profit for the period attributable to the owners of
the Company 46.7 37.5
Revaluation gains on investment properties (16.2) (18.0)
Profit on sale of subsidiaries and associates - (2.2)
Net loss/(gain) on sale of corporate bonds and other
investments 0.4 (0.5)
Change in fair value of derivative financial instruments 1.5 18.5
Deferred tax relating to the above adjustments 2.0 0.5
Adjustments in respect of associates (5.6) (3.8)
Non-recurring finance income - (2.3)
----------------------------------------------------------- ----------- -----------
EPRA earnings 28.8 29.7
----------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares 2012 2011
Number Number
----------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares in circulation 44,072,410 45,738,600
Dilutive share options 85,002 67,542
----------------------------------------------------------- ----------- -----------
Diluted weighted average number of ordinary shares 44,157,412 45,806,142
----------------------------------------------------------- ----------- -----------
2012 2011
Earnings per Share Pence Pence
---------------------- ------- -------
Basic 106.0 82.0
Diluted 105.8 81.9
EPRA 65.3 64.9
---------------------- ------- -------
300,000 share options were granted on 11 March 2010 at an exercise price of 470 pence.
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 movements on fair value of investment properties, and associated deferred tax. 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.
2012 2011
Net Assets GBPm GBPm
------------------------------------------------------- ------- -------
Basic net assets 417.1 367.5
Dilutive impact of share options 1.4 1.4
------------------------------------------------------- ------- -------
Diluted net assets 418.5 368.9
Adjustment to increase fixed rate debt to fair value,
net of tax (23.9) (23.7)
Goodwill as a result of deferred tax (1.1) (1.1)
------------------------------------------------------- ------- -------
EPRA triple net assets 393.5 344.1
Deferred tax on property and other non-current assets 74.6 67.9
Fair value of derivative financial instruments 8.4 7.3
Adjustment to decrease fixed rate debt to book value,
net of tax 23.9 23.7
Adjustments in respect of associates 3.0 1.9
------------------------------------------------------- ------- -------
EPRA net assets 503.4 444.9
------------------------------------------------------- ------- -------
2012 2011
Number of ordinary shares Number Number
------------------------------------------ ----------- -----------
Number of ordinary shares in circulation 43,305,876 44,953,611
Dilutive share options 300,000 300,000
------------------------------------------ ----------- -----------
Diluted number of ordinary shares 43,605,876 45,253,611
------------------------------------------ ----------- -----------
2012 2011
Net Assets Per Share Pence Pence
---------------------- -------- -------
Basic 963.1 817.5
Diluted 959.7 815.2
EPRA 1,154.4 983.1
EPRA triple net 902.5 760.4
---------------------- -------- -------
8 Investment properties
London France Germany Sweden Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------- ------- -------- ------- -------
At 1 January 2012 398.0 248.3 197.1 58.7 902.1
Acquisitions 13.1 - - - 13.1
Capital expenditure 6.6 1.4 5.5 0.7 14.2
Net movement on revaluation of
investment properties 19.8 (3.5) - (0.1) 16.2
Rent-free period debtor adjustments - - 0.1 (0.1) -
Exchange rate variances - (6.6) (5.3) 0.8 (11.1)
------------------------------------- ------- ------- -------- ------- -------
At 31 December 2012 437.5 239.6 197.4 60.0 934.5
------------------------------------- ------- ------- -------- ------- -------
London France Germany Sweden Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------- ------- -------- ------- -------
At 1 January 2011 375.0 248.7 196.5 56.7 876.9
Acquisitions 6.4 - 0.8 - 7.2
Capital expenditure 6.1 1.7 3.2 2.5 13.5
Net movement on revaluation of
investment properties 10.2 4.9 2.0 0.9 18.0
Rent-free period debtor adjustments 0.3 - - (0.1) 0.2
Exchange rate variances - (7.0) (5.4) (1.3) (13.7)
------------------------------------- ------- ------- -------- ------- -------
At 31 December 2011 398.0 248.3 197.1 58.7 902.1
------------------------------------- ------- ------- -------- ------- -------
The investment properties (and the owner-occupied property detailed in note 9) were revalued at 31 December 2012 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: Lambert Smith Hampton
France: Jones Lang LaSalle
Germany: Colliers International
Sweden: CB Richard Ellis
Investment properties included leasehold properties with a carrying amount of GBP18.3 million (2011: GBP19.1 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 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 (2011: GBPnil).
9 Property, plant and equipment
2012 2011
GBPm GBPm
----------------------------------------- ------ ------
Cost or valuation
At 1 January 4.0 5.4
Additions 0.2 0.2
Disposals (0.4) (1.9)
Revaluation 0.1 0.3
----------------------------------------- ------ ------
At 31 December 3.9 4.0
----------------------------------------- ------ ------
Accumulated depreciation and impairment
At 1 January (1.3) (2.8)
Depreciation charge (0.2) (0.2)
Disposals 0.4 1.7
----------------------------------------- ------ ------
At 31 December (1.1) (1.3)
----------------------------------------- ------ ------
Net book value
At 31 December 2.8 2.7
----------------------------------------- ------ ------
An owner-occupied property was revalued at 31 December 2012 based on the external valuation performed by Lambert Smith Hampton as detailed in note 8.
10 Joint ventures
At 31 December 2012 the Group had a one-third interest (2011: one-third) in the issued ordinary share capital of Fielden House Investment Limited, a company incorporated in England and Wales, which had a coterminous year end to that of the Group.
The principal activity of Fielden House Investment Limited is investment in, and management and development of, commercial property.
The following amounts represent the Group's share of the assets and liabilities, and of the income and expenditure of Fielden House Investment Limited which are included in the balance sheet and statement of comprehensive income of the Group:
2012 2011
GBPm GBPm
------------------------- ------- ------
Assets
Non-current assets 2.7 2.3
Current assets 0.2 0.1
------------------------- ------- ------
2.9 2.4
------------------------- ------- ------
Liabilities
Current liabilities (0.1) (0.1)
Non-current liabilities (2.0) (2.3)
------------------------- ------- ------
(2.1) (2.4)
------------------------- ------- ------
Net assets 0.8 -
------------------------- ------- ------
Income 0.2 0.2
Expenses (0.2) (0.2)
------------------------- ------- ------
Profit after tax - -
------------------------- ------- ------
11 goodwill and other Intangible assets
Other
Goodwill intangibles Total
GBPm GBPm GBPm
---------------------------------------- --------- ------------- ------
Cost
At 1 January 2012 and 31 December 2012 1.1 - 1.1
Amortisation
At 1 January 2012 and 31 December 2012 - - -
---------------------------------------- --------- ------------- ------
Net book value
At 31 December 2012 1.1 - 1.1
---------------------------------------- --------- ------------- ------
Other
Goodwill intangibles Total
GBPm GBPm GBPm
--------------------- --------- ------------- -------
Cost
At 1 January 2011 18.6 7.2 25.8
Disposals (17.5) (7.2) (24.7)
--------------------- --------- ------------- -------
At 31 December 2011 1.1 - 1.1
--------------------- --------- ------------- -------
Amortisation
At 1 January 2011 (17.5) (7.2) (24.7)
Disposals 17.5 7.2 24.7
--------------------- --------- ------------- -------
At 31 December 2011 - - -
--------------------- --------- ------------- -------
Net book value
At 31 December 2011 1.1 - 1.1
--------------------- --------- ------------- -------
Goodwill comprised GBP0.8 million (2011: GBP0.8 million) on the acquisition of a French property portfolio in 2004 and GBP0.3 million (2011: GBP0.3 million) on a German property acquisition in 2005. All other goodwill and other intangibles (relating to trade names, technology, customer relationships, capitalised development and other costs), which had been fully written down, related to the Wyatt Media Group, which was sold in 2011, as described in note 25.
Impairment review 2012 and 2011
Goodwill was reviewed for impairment at 31 December 2012 and at 31 December 2011 using the key assumptions set out below. No adjustment for impairment was required.
Key assumptions:
Unamortised goodwill at 31 December 2012 and at 31 December 2011 related to contingent deferred tax arising on acquisitions of corporate entities for which an equal deferred tax liability was recognised in the balance sheet. Management have reviewed the sensitivity to a fall in property values of each cash generating unit. A fall of 10% would result in a potential impairment of goodwill of up to GBP0.1 million (2011: GBP0.1 million).
12 Investments in associates
Net assets Goodwill Total
GBPm GBPm GBPm
----------------------------------------- ----------- --------- ------
At 1 January 2012 17.4 6.7 24.1
Additions 3.1 1.0 4.1
Share of profit of associates after tax 5.8 - 5.8
Dividends received (0.8) - (0.8)
Exchange rate differences - 0.1 0.1
----------------------------------------- ----------- --------- ------
At 31 December 2012 25.5 7.8 33.3
----------------------------------------- ----------- --------- ------
Net assets Goodwill Total
GBPm GBPm GBPm
----------------------------------------- ----------- --------- -------
At 1 January 2011 33.8 6.8 40.6
Additions 0.7 1.4 2.1
Disposals - (1.5) (1.5)
Share of profit of associates after tax 3.0 - 3.0
Dividends received (19.9) - (19.9)
Exchange rate differences (0.2) - (0.2)
----------------------------------------- ----------- --------- -------
At 31 December 2011 17.4 6.7 24.1
----------------------------------------- ----------- --------- -------
The Group's interests in its principal associates were as follows:
Bulgarian
Land
Catena Development Other
AB Plc associates Total
At 31 December 2012 GBPm GBPm GBPm GBPm
-------------------------------------------- ------- ------------- ------------ -------
Interest held in ordinary share capital 29.9% 48.3% various
Revenues 0.7 0.4 2.7 3.8
-------------------------------------------- ------- ------------- ------------ -------
Share of profit/(loss) of associates after
tax 5.8 (0.7) 0.7 5.8
-------------------------------------------- ------- ------------- ------------ -------
Assets 26.1 8.4 10.0 44.5
Liabilities (12.4) (0.6) (6.0) (19.0)
-------------------------------------------- ------- ------------- ------------ -------
Net assets 13.7 7.8 4.0 25.5
Goodwill 5.2 - 2.6 7.8
-------------------------------------------- ------- ------------- ------------ -------
Investments in associates 18.9 7.8 6.6 33.3
-------------------------------------------- ------- ------------- ------------ -------
Market value of interest 20.7 n/a n/a
-------------------------------------------- ------- ------------- ------------ -------
Bulgarian
Land
Catena Development Other
AB Plc associates Total
At 31 December 2011 GBPm GBPm GBPm GBPm
-------------------------------------------- ------- ------------- ------------ -------
Interest held in ordinary share capital 29.9% 48.3% various
Revenues 0.8 0.6 0.6 2.0
-------------------------------------------- ------- ------------- ------------ -------
Share of profit/(loss) of associates after
tax 3.7 (0.5) (0.2) 3.0
-------------------------------------------- ------- ------------- ------------ -------
Assets 19.9 9.3 0.8 30.0
Liabilities (11.5) (0.6) (0.5) (12.6)
Net assets 8.4 8.7 0.3 17.4
Goodwill 5.1 - 1.6 6.7
-------------------------------------------- ------- ------------- ------------ -------
Investments in associates 13.5 8.7 1.9 24.1
-------------------------------------------- ------- ------------- ------------ -------
Market value of interest 17.8 n/a n/a
-------------------------------------------- ------- ------------- ------------ -------
Catena AB
At 31 December 2012 the Group had a 29.9% (2011: 29.9%) interest in Catena AB, a listed Swedish property company. Henry Klotz, Executive Vice Chairman of the Company, is the Non-Executive Chairman of Catena AB.
Bulgarian Land Development Plc
At 31 December 2012 the Group had a 48.3% (2011: 48.3%) interest in Bulgarian Land Development Plc ("BLD"), an unlisted developer of residential and commercial real estate in Bulgaria. Henry Klotz, Executive Vice Chairman of the Company, is the Non-Executive Chairman of BLD.
Other associates
As described in note 25, on 31 May 2011 the Group sold the remaining operating subsidiaries and certain associates of the Wyatt Media Group. The entities were acquired by Nyheter 24 (a Swedish on-line news and media business) in exchange for a 20% interest in the enlarged Nyheter 24 group. The fair value of the Group's interest in Nyheter 24 was determined on acquisition to be GBP1.9 million. Henry Klotz, Executive Vice Chairman of the Company, was appointed to the board of Nyheter 24.
The Group retains an associate interest in one former associate of the Wyatt Media Group.
On 12 January 2012, the Group acquired a 16.6% interest in Cood Investments AB ("Cood"), an unlisted residential property company specialising in holiday cottages and cabins on vacation sites in Sweden. Henry Klotz, Executive Vice Chairman of the Company, was appointed to the board of Cood.
Impairment
2012
In assessing the carrying value of Catena AB, management considered it was not impaired as the market value of the Group's interest in Catena exceeded its carrying value by GBP1.8 million at 31 December 2012.
BLD was carried in the balance sheet at a value equal to the Group's share of its net assets. BLD's audited net assets, which were prepared under IFRS, were reviewed and found not to be impaired at 31 December 2012. Accordingly there was no requirement to provide for further impairment in the carrying value of the Group's interest in BLD at 31 December 2012.
The fair value of Nyheter 24 was determined on acquisition to be GBP1.9 million and was based upon detailed forward forecasts. As the progress to date has not been materially dissimilar from these forecasts, management considered the carrying value of Nyheter 24 not to be impaired at 31 December 2012.
The fair value of Cood was assessed on acquisition and the results to date, including the payment of a dividend, support the fair value.
2011
In assessing the carrying value of Catena AB, management considered that the net asset value of Catena's balance sheet was not representative of true fair value as it did not include the latent development profit on Catena's remaining single development site, Haga Norra. Furthermore, the market value of the Group's interest in Catena exceeded its carrying value by GBP4.3 million at 31 December 2011.
BLD was carried in the balance sheet at a value equal to the Group's share of its net assets. BLD's audited net assets, which were prepared under IFRS, were reviewed and found not to be impaired at 31 December 2011. Accordingly there was no requirement to provide for further impairment in the carrying value of the Group's interest in BLD at 31 December 2011.
The fair value of Nyheter 24 was determined on acquisition to be GBP1.9 million and was based upon detailed forward forecasts. As the progress to date has not been materially dissimilar from these forecasts, management considered the carrying value of Nyheter 24 not to be impaired at 31 December 2011.
13 Other investments
Destination
of 2012 2011
Investment type Investment GBPm GBPm
------------------------ -------------------------- ------------- ------ ------
Available-for-sale
financial investments
carried at fair value Listed corporate bonds UK 73.2 56.0
Eurozone 21.7 12.2
Other 32.4 16.9
------ ------
127.3 85.1
Listed equity securities UK 0.3 0.5
Sweden 1.7 1.6
Other 0.2 0.1
Unlisted investments Sweden 0.3 0.4
Government securities UK 0.1 0.1
-------------------------- -------------------------------------- ------ ------
129.9 87.8
----------------------------------------------------------------- ------ ------
The movement of other 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 2012 2.3 85.1 0.4 87.8
Additions 0.6 65.6 - 66.2
Disposals (0.9) (46.3) (0.3) (47.5)
Fair value movements recognised in reserves
on available-for-sale assets 0.1 19.6 - 19.7
Fair value movements recognised in profit
before tax on available-for-sale assets 0.3 3.5 0.2 4.0
Exchange rate variations (0.1) (0.2) - (0.3)
--------------------------------------------- -------- ------------ ----------- -------
At 31 December 2012 2.3 127.3 0.3 129.9
--------------------------------------------- -------- ------------ ----------- -------
Level Level Level
1 2 3
Quoted Observable Other
market market valuation
prices data methods* Total
GBPm GBPm GBPm GBPm
--------------------------------------------- -------- ------------ ----------- -------
At 1 January 2011 3.1 78.1 0.4 81.6
Additions 7.6 54.5 - 62.1
Disposals (7.7) (31.1) - (38.8)
Fair value movements recognised in reserves
on available-for-sale assets (0.4) (15.6) - (16.0)
Fair value movements recognised in profit
before tax on available-for-sale assets (0.1) (0.7) - (0.8)
Exchange rate variations (0.2) (0.1) - (0.3)
--------------------------------------------- -------- ------------ ----------- -------
At 31 December 2011 2.3 85.1 0.4 87.8
--------------------------------------------- -------- ------------ ----------- -------
* Unlisted equity shares valued using multiples from comparable listed organisations.
Corporate Bond Portfolio
At 31 December 2012
Building
Sector Banking Insurance Societies Financials Other Total
--------- ------------- ------------------ ----------- ----------- ----------------- ----------
Value GBP29.3m GBP42.8m GBP8.7m GBP7.3m GBP39.2m GBP127.3m
Running
yield 8.5% 7.5% 8.7% 7.0% 8.9% 8.2%
--------- ------------- ------------------ ----------- ----------- ----------------- ----------
Issuers KBC Brit Yorkshire Man Group TUI
RBS AXA Nationwide Aberdeen Fiat
AM
HBoS Aviva SAS
Lloyds Generali Boparan
Investec Irish Life Europcar
Dresdner Swiss Re Telefonica
SNS Bank* Swiss Life Swissport
Rothschild Direct Line Alliance Oil
Danske Bank* RL Finance Lottomatica
Phoenix Life Norske Skog
Legal & General Corral Finans
Friends Provident Thomas Cook
British Airways
Renewable Energy
Corp
--------- ------------- ------------------ ----------- ----------- ----------------- ----------
* Less than GBP0.3 million market value.
14 Trade and other receivables
2012 2011
GBPm GBPm
------------------- ------ ------
Current
Trade receivables 3.0 3.6
Prepayments 0.9 0.5
Accrued income 6.8 5.2
Other debtors 6.3 2.3
------------------- ------ ------
17.0 11.6
------------------- ------ ------
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 (2011: none). No trade and other receivables were interest-bearing.
Included within other debtors is GBP5.0 million (2011: GBP0.5 million) due after more than one year.
15 Cash and cash equivalents
2012 2011
GBPm GBPm
-------------------------- ------ ------
Cash at bank and in hand 96.8 25.7
Short-term bank deposits 0.8 29.6
-------------------------- ------ ------
97.6 55.3
-------------------------- ------ ------
At 31 December 2012, Group cash at bank and in hand included GBP6.8 million (2011: GBP5.8 million) which was restricted by a third-party charge.
Cash and short-term deposits are invested at floating rates of interest based on relevant national LIBID and base rates or equivalents in the UK, France, Germany and Sweden.
The cash and cash equivalents currency profile was as follows:
Cash at
bank and Short-term
in hand deposits Total
At 31 December 2012 GBPm GBPm GBPm
--------------------- ---------- ----------- ------
Sterling 59.6 0.8 60.4
Euro 15.8 - 15.8
Swedish Krona 21.2 - 21.2
Other 0.2 - 0.2
--------------------- ---------- ----------- ------
96.8 0.8 97.6
--------------------- ---------- ----------- ------
Cash at
bank and Short-term
in hand deposits Total
At 31 December 2011 GBPm GBPm GBPm
--------------------- ---------- ----------- ------
Sterling 10.1 5.2 15.3
Euro 13.6 0.4 14.0
Swedish Krona 2.0 24.0 26.0
--------------------- ---------- ----------- ------
25.7 29.6 55.3
--------------------- ---------- ----------- ------
16 Trade and other payables
2012 2011
GBPm GBPm
--------------------------------- ------ ------
Current
Trade payables 1.6 1.7
Social security and other taxes 2.2 1.9
Other payables 7.4 6.0
Accruals 11.0 11.4
Deferred income 10.8 9.4
--------------------------------- ------ ------
33.0 30.4
--------------------------------- ------ ------
17 Deferred tax
2012 2011
GBPm GBPm
----------------------------- ------ -------
Deferred tax assets:
- after more than 12 months (8.7) (17.7)
Deferred tax liabilities:
- after more than 12 months 77.8 75.0
----------------------------- ------ -------
69.1 57.3
----------------------------- ------ -------
The movement in deferred tax was as follows:
2012 2011
GBPm GBPm
-------------------------------------------------- ------ ------
At 1 January 57.3 63.3
Charged in arriving at profit after tax 7.1 0.1
Charged/(credited) to other comprehensive income 5.9 (4.6)
Exchange rate variances (1.2) (1.5)
-------------------------------------------------- ------ ------
At 31 December 69.1 57.3
-------------------------------------------------- ------ ------
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 2012 (10.6) (7.1) (17.7)
Charged in arriving at profit after tax 5.1 1.0 6.1
Charged to other comprehensive income - 2.9 2.9
----------------------------------------- ----------- ------ -------
At 31 December 2012 (5.5) (3.2) (8.7)
----------------------------------------- ----------- ------ -------
Deferred tax assets Tax losses Other Total
GBPm GBPm GBPm
------------------------------------------------ ----------- ------ -------
At 1 January 2011 (5.1) (6.1) (11.2)
(Credited)/charged in arriving at profit after
tax (5.5) 2.0 (3.5)
Credited to other comprehensive income - (3.1) (3.1)
Exchange rate variances - 0.1 0.1
------------------------------------------------ ----------- ------ -------
At 31 December 2011 (10.6) (7.1) (17.7)
------------------------------------------------ ----------- ------ -------
Fair value
adjustments
to
UK capital investment
allowances properties Other Total
Deferred tax liabilities GBPm GBPm GBPm GBPm
------------------------------------------ ------------ ------------- ------ ------
At 1 January 2012 9.7 64.5 0.8 75.0
(Credited)/charged in arriving at profit
after tax (0.3) 1.4 (0.1) 1.0
Charged to other comprehensive income - - 3.0 3.0
Exchange rate variances - (1.2) - (1.2)
------------------------------------------ ------------ ------------- ------ ------
At 31 December 2012 9.4 64.7 3.7 77.8
------------------------------------------ ------------ ------------- ------ ------
Fair value
adjustments
to
UK capital investment
allowances properties Other Total
Deferred tax liabilities GBPm GBPm GBPm GBPm
------------------------------------------ ------------ ------------- ------ ------
At 1 January 2011 10.2 62.3 2.0 74.5
(Credited)/charged in arriving at profit
after tax (0.5) 3.8 0.3 3.6
Credited to other comprehensive income - - (1.5) (1.5)
Exchange rate variances - (1.6) - (1.6)
------------------------------------------ ------------ ------------- ------ ------
At 31 December 2011 9.7 64.5 0.8 75.0
------------------------------------------ ------------ ------------- ------ ------
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 2012 the Group did not recognise deferred tax assets of GBP8.2 million (2011: GBP7.2 million) in respect of losses amounting to GBP33.2 million (2011: GBP27.9 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.
On 1 April 2013 the UK corporation tax rate reduces from 25% to 23%. As this has been substantively enacted at the balance sheet date the UK deferred tax assets and liabilities have been calculated at a rate of 23%. The impact on net assets for 2012 as a result of this change was an increase of GBP1.0 million. It is expected that UK tax rates will reduce to 22% by 1 April 2014. A further 1% fall in the rate of UK tax would increase net assets by GBP0.5 million, and increase profit after tax by GBP0.5 million.
18 Borrowings
Total
Current Non-current borrowings
At 31 December 2012 GBPm GBPm GBPm
--------------------- -------- ------------ ------------
Bank loans 134.5 414.6 549.1
Debenture loans 1.3 30.5 31.8
Zero coupon note - 12.1 12.1
Unsecured bonds (0.2) 92.2 92.0
--------------------- -------- ------------ ------------
135.6 549.4 685.0
--------------------- -------- ------------ ------------
Total
Current Non-current borrowings
At 31 December 2011 GBPm GBPm GBPm
--------------------- -------- ------------ ------------
Bank loans 150.0 399.6 549.6
Debenture loans 1.2 31.8 33.0
Zero coupon note - 10.9 10.9
Unsecured bonds - 27.5 27.5
--------------------- -------- ------------ ------------
151.2 469.8 621.0
--------------------- -------- ------------ ------------
Arrangement fees of GBP5.2 million (2011: GBP4.1 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 3.1% and 11.2%, including margin (2011: 3.1% and 11.2%) and at floating rates of typically LIBOR, EURIBOR or STIBOR, plus a margin. Fixed rate margins range between 0.8% and 1.8% (2011: 0.8% and 1.8%) and floating rate margins range between 0.8% and 3.8% (2011: 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 (2011: 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 accrues interest at an annual rate of 11.2%, including margin. It is unsecured and is redeemable as a balloon repayment of principal and interest of GBP43.7 million in aggregate in February 2025.
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 three months' STIBOR and are due for repayment in 2016. After two years, the Group has an option to redeem all outstanding bonds subject to an early repayment premium. The bonds were listed on the NASDAQ OMX Stockholm on 5 July 2011.
Loan covenants
There were no covenant breaches at 31 December 2012 or at 31 December 2011.
The maturity profile of the carrying amount of the Group's borrowings was as follows:
Debenture Zero coupon Unsecured
Bank loans loans note bonds Total
At 31 December 2012 GBPm GBPm GBPm GBPm GBPm
---------------------------------- ----------- ---------- ------------ ---------- --------
Within one year or on demand 135.7 1.3 - - 137.0
More than one but not more than
two years 37.1 1.5 - - 38.6
More than two but not more than
five years 286.1 5.5 - 28.4 320.0
More than five years 94.0 23.5 12.1 65.0 194.6
---------------------------------- ----------- ---------- ------------ ---------- --------
552.9 31.8 12.1 93.4 690.2
Unamortised issue costs (3.8) - - (1.4) (5.2)
---------------------------------- ----------- ---------- ------------ ---------- --------
Borrowings 549.1 31.8 12.1 92.0 685.0
Less amount due for settlement
within 12 months (134.5) (1.3) - 0.2 (135.6)
---------------------------------- ----------- ---------- ------------ ---------- --------
Amounts due for settlement after
12 months 414.6 30.5 12.1 92.2 549.4
---------------------------------- ----------- ---------- ------------ ---------- --------
Debenture Zero coupon Unsecured
Bank loans loans note bonds Total
At 31 December 2011 GBPm GBPm GBPm GBPm GBPm
---------------------------------- ----------- ---------- ------------ ---------- --------
Within one year or on demand 151.0 1.2 - - 152.2
More than one but not more than
two years 71.9 1.3 - - 73.2
More than two but not more than
five years 199.4 5.0 - 28.0 232.4
More than five years 130.9 25.5 10.9 - 167.3
---------------------------------- ----------- ---------- ------------ ---------- --------
553.2 33.0 10.9 28.0 625.1
Unamortised issue costs (3.6) - - (0.5) (4.1)
---------------------------------- ----------- ---------- ------------ ---------- --------
Borrowings 549.6 33.0 10.9 27.5 621.0
Less amount due for settlement
within 12 months (150.0) (1.2) - - (151.2)
---------------------------------- ----------- ---------- ------------ ---------- --------
Amounts due for settlement after
12 months 399.6 31.8 10.9 27.5 469.8
---------------------------------- ----------- ---------- ------------ ---------- --------
The interest rate risk profile of the Group's fixed rate borrowings was as follows:
At 31 December At 31 December
2012 2011
------------------------- -------------------------
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 7.5 8.5 9.6 11.1
Euro 5.1 1.6 5.1 2.3
---------- -------------- --------- -------------- ---------
The interest rate risk profile of the Group's floating rate borrowings was as follows:
At 31 December 2012 At 31 December 2011
-------------------------------- --------------------------------
% 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 33 3.0 2.9 66 3.7 2.2
Euro 79 3.1 2.9 75 3.2 3.8
Swedish Krona 44 2.6 0.9 53 2.6 1.9
Other - n/a n/a - n/a n/a
--------------- ---------- ---------- -------- ---------- ---------- --------
The carrying amounts of the Group's borrowings are denominated in the following currencies:
Fixed Floating
rate rate
financial financial
liabilities liabilities Total
At 31 December 2012 GBPm GBPm GBPm
--------------------- ------------- ------------- ------
Sterling 123.9 206.9 330.8
Euro 60.5 223.6 284.1
Swedish Krona - 68.6 68.6
Other - 1.5 1.5
--------------------- ------------- ------------- ------
184.4 500.6 685.0
--------------------- ------------- ------------- ------
Fixed Floating
rate rate
financial financial
liabilities liabilities Total
At 31 December 2011 GBPm GBPm GBPm
--------------------- ------------- ------------- ------
Sterling 60.2 183.5 243.7
Euro 73.2 239.6 312.8
Swedish Krona - 58.7 58.7
Other - 5.8 5.8
--------------------- ------------- ------------- ------
133.4 487.6 621.0
--------------------- ------------- ------------- ------
The carrying amounts and fair values of the Group's borrowings are as follows:
Carrying
amounts Fair values
2012 2011 2012 2011
GBPm GBPm GBPm GBPm
------------------------ --------- ------ ------------ ------
Current borrowings 135.6 151.2 136.1 151.2
Non-current borrowings 549.4 469.8 579.8 501.1
------------------------ --------- ------ ------------ ------
685.0 621.0 715.9 652.3
------------------------ --------- ------ ------------ ------
Arrangement fees of GBP5.2 million (2011: GBP4.1 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:
2012 2011
GBPm GBPm
---------------------------- ------ ------
Floating rate:
- expiring within one year 21.9 0.6
- expiring after one year 12.9 -
---------------------------- ------ ------
34.8 0.6
---------------------------- ------ ------
19 Derivative financial instruments
2012 2012 2011 2011
Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm
------------------------------------ -------- ------------- -------- -------------
Non-current
Interest rate swaps - (8.8) - (9.1)
Interest rate caps 0.2 - 1.5 -
------------------------------------ -------- ------------- -------- -------------
0.2 (8.8) 1.5 (9.1)
------------------------------------ -------- ------------- -------- -------------
Current
Interest rate swaps - (0.4) - -
Currency options 0.6 - 0.4 -
Forward foreign exchange contracts - - - (0.1)
------------------------------------ -------- ------------- -------- -------------
0.6 (0.4) 0.4 (0.1)
------------------------------------ -------- ------------- -------- -------------
0.8 (9.2) 1.9 (9.2)
------------------------------------ -------- ------------- -------- -------------
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 2012 was GBP48.4 million (2011: GBP50.0 million). The average period to maturity of these interest rate swaps was 3.1 years (2011: 4.1 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 2012 the Group had GBP9.9 million of outstanding net foreign exchange contracts (2011: GBP19.9 million).
Currency options
The Group uses currency options from time to time to hedge the foreign exchange risk relating to the translation of the Group's net investment in overseas subsidiaries. At 31 December 2012 the Group had no currency options (2011: EUR90.0 million in exchange for sterling at an average exchange rate of GBP1:EUR1.2876).
20 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 2012 44,953,611 4,803,103 49,756,714 11.3 1.2 12.5
Cancelled following tender
offers (1,647,735) - (1,647,735) (0.5) - (0.5)
---------------------------- ------------- ---------- ------------ ------------- --------- ----------
At 31 December 2012 43,305,876 4,803,103 48,108,979 10.8 1.2 12.0
---------------------------- ------------- ---------- ------------ ------------- --------- ----------
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 2011 46,588,244 4,793,000 51,381,244 11.7 1.2 12.9
Cancelled following tender
offer (1,624,530) - (1,624,530) (0.4) - (0.4)
Purchase of own shares:
- pursuant to market purchase (10,103) 10,103 - - - -
------------------------------- ------------- ---------- ------------ ------------- --------- ----------
At 31 December 2011 44,953,611 4,803,103 49,756,714 11.3 1.2 12.5
------------------------------- ------------- ---------- ------------ ------------- --------- ----------
Ordinary shares have a nominal value of 25 pence each.
21 Tender offer buy-backs
A tender offer by way of a Circular dated 16 March 2012 for the purchase of 1 in 42 shares at 735 pence per share was completed in April. It returned GBP7.9 million to shareholders, equivalent to 17.5 pence per share.
A tender offer by way of a Circular dated 24 August 2012 for the purchase of 1 in 76 shares at 805 pence per share was completed in September. It returned GBP4.6 million to shareholders, equivalent to 10.6 pence per share.
22 share premium
2012 2011
GBPm GBPm
--------------------------------- ------ ------
At 1 January and at 31 December 71.5 71.5
--------------------------------- ------ ------
A further tender offer will be put to shareholders in April 2013 for the purchase of 1 in 46 shares at a price of 900 pence per share which, if approved, will return GBP8.5 million to shareholders, equivalent to 19.6 pence per share
23 Other reserves
Capital Cumulative
redemption translation Fair value Other
reserve reserve reserve reserves Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------------ ------------- ----------- ---------- ------
At 1 January 2012 21.2 46.4 (9.7) 28.1 86.0
Purchase of own shares:
- cancellation pursuant to tender
offer 0.5 - - - 0.5
Exchange rate variances - (2.6) - - (2.6)
Available-for-sale financial assets:
- net fair value gains in the
year - - 23.7 - 23.7
- deferred tax thereon - - (5.9) - (5.9)
Revaluation of owner-occupied
property - - 0.1 - 0.1
-------------------------------------- ------------ ------------- ----------- ---------- ------
At 31 December 2012 21.7 43.8 8.2 28.1 101.8
-------------------------------------- ------------ ------------- ----------- ---------- ------
Capital Cumulative
redemption translation Fair value Other
reserve reserve reserve reserves Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------------ ------------- ----------- ---------- -------
At 1 January 2011 20.8 51.4 2.2 28.1 102.5
Purchase of own shares:
- cancellation pursuant to tender
offer 0.4 - - - 0.4
Exchange rate variances - (5.0) - - (5.0)
Available-for-sale financial assets:
- net fair value losses in the
year - - (16.8) - (16.8)
- deferred tax thereon - - 4.6 - 4.6
Revaluation of owner-occupied
property - - 0.3 - 0.3
-------------------------------------- ------------ ------------- ----------- ---------- -------
At 31 December 2011 21.2 46.4 (9.7) 28.1 86.0
-------------------------------------- ------------ ------------- ----------- ---------- -------
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.
24 Cash generated from operations
2011
------------------------------------------------------- -------
2012
GBPm GBPm
------------------------------------------------------- ------- -------
Operating profit 65.3 70.2
Adjustments for:
Net movements on revaluation of investment properties (16.2) (18.0)
Depreciation and amortisation 0.2 0.2
Profit on sale of subsidiaries and associates - (2.2)
Net loss/(gain) on sale of corporate bonds and other
investments 0.4 (0.5)
Share-based payment expense 0.2 0.2
Non-cash rental income - (0.2)
Revaluation of currency options - 0.1
Changes in working capital:
Decrease in debtors 0.8 2.8
Increase in creditors 3.6 1.5
------------------------------------------------------- ------- -------
Cash generated from operations 54.3 54.1
------------------------------------------------------- ------- -------
25 Business disposals
Wyatt Media Group
On 31 May 2011, the Group disposed of its interests in Wyatt Media Group, comprising five subsidiaries and two associates. All of the corporate entities sold were previously reported in the "Other Investments" division. The entities were disposed of in a share-for-share exchange with Nyheter 24 (a Swedish on-line news and media business) and the Group received a 20% interest in Nyheter 24 following the transaction. In addition the Group received a GBP0.5 million convertible loan note.
GBPm
------------------------------------------------- -------
Net assets disposed of:
Investments in associates 1.5
Property, plant and equipment 0.1
Trade and other receivables 0.4
Cash and cash equivalents 0.1
Trade and other payables (0.5)
------------------------------------------------- -------
1.6
Gain on disposal of subsidiaries and associates 0.5
Costs of disposal 0.3
------------------------------------------------- -------
Total consideration 2.4
------------------------------------------------- -------
Satisfied by:
Convertible loan notes received 0.5
Shares in Nyheter 24 (note 17) 1.9
------------------------------------------------- -------
2.4
------------------------------------------------- -------
Net cash inflow arising on disposal:
Cash consideration -
Cash and cash equivalents disposed of (0.1)
------------------------------------------------- -------
(0.1)
------------------------------------------------- -------
2012 2011
Profit on disposal of subsidiaries and associates GBPm GBPm
----------------------------------------------------- ------- ------
Disposal of the Wyatt Media Group - 0.5
Release of provisions and guarantees in relation to
corporate disposals made in prior years - 1.7
----------------------------------------------------- ------- ------
- 2.2
------------------------------------------------------------- ------
26 RELATED PARTY TRANSACTIONS
Associates and Joint Ventures
A Group company provided accounting services to Bulgarian Land Development plc, an associate of the Group, for which a charge of GBP48,000 was made (2011: GBP48,000), of which GBPnil (2011: GBP15,000) remained outstanding at the balance sheet date.
In 2011, a Group company charged Catena AB, an associate of the Group, GBP74,700 for management services provided by Henry Klotz, the Executive Vice Chairman of CLS Holdings plc. In relation to this transaction GBPnil (2011: GBP74,700) remained outstanding at the balance sheet date.
At 31 December 2012, the Group had a convertible loan of GBP473,140 (2011: GBP466,905), due from Nyheter24 Media Network AB, an associate company. Until 1 May 2015, this loan is interest free, and thereafter attracts Swedish base rate plus 2%. At any date between 1 May 2016 and 30 June 2016, the Group is permitted to convert the loan into shares in Nyheter24 Media Network AB
at SEK 40.5 each.
The Group had a one-third interest in a joint venture, Fielden House Investment Limited, which owed a loan to a Group company of GBP350,000 (2011: GBP350,000). Interest of GBP8,774 (2011: GBP8,750), receivable on this loan at a rate of 2.0% above base rate, was accrued in the year. Accrued interest of GBP87,531 (2011: GBP78,757) remained outstanding at the balance sheet date.
On 12 January 2012, the Group acquired a 16.64% interest in Cood Investments AB ("Cood"), for GBP4.1 million, and also provided to Cood up to GBP8.0 million of lending facilities at market rates. This was a related party transaction as: first, the trust in which Sten Mortstedt, Executive Chairman of CLS Holdings plc, is beneficially interested (the "Trust") simultaneously acquired at the same price per share an 8.39% in, and provided lending facilities on the same terms to, Cood; and, second, Christer Sandberg, who is a director of certain Group companies, owned 7.5% of the enlarged equity of Cood. At the balance sheet date, loans to Cood from the Group were GBP4,525,110 (2011: GBPnil), and during the year interest of GBP42,920 (2011: GBPnil) was charged on these loans, of which GBP25,270 (2011: GBPnil) was outstanding at the balance sheet date. The Group also charged Cood fees of GBP44,555 (2011: GBPnil) relating to the arrangement of these loans. As a result of overpayment of these fees, a balance of GBP9,580 (2011: GBPnil) was owed to Cood at the balance sheet date.
Transactions with Directors
Distributions totalling GBP7,737,720 (2011: GBP6,718,039) were made through tender offer buy-backs in the year in respect of ordinary shares held by the Company's Directors.
In August 2012, companies connected with Sten Mortstedt subscribed for retail bonds totalling GBP1,120,000, Richard Tice subscribed for GBP90,000, Thomas Thomson subscribed for GBP46,900 and Malcolm Cooper subscribed for GBP30,000 on the issue by the Company of its unsecured retail bond.
During the year, a company owned by Sten Mortstedt rented office space to a Group company, Vänerparken Investment AB ("Vänerparken"), at a cost of GBP37,270 (2011: GBP19,000), and in 2011 to another Group company, Förvaltnings AB Klio ("Klio"), at a cost of GBP19,000. At the balance sheet date Vänerparken had signed an agreement to lease the office space until 31 December 2014 at a cost of GBP37,270 per annum. Also, a company owned by Sten Morstedt purchased accountancy services from Vänerparken during the year amounting to GBP8,950 (2011: GBP5,000), and in 2011 from Klio for GBP5,000. In relation to all of these transactions, no balances were outstanding at the balance sheet date (2011: GBPnil).
Directors' Remuneration
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Information about the remuneration of individual directors is provided in the audited part of the Remuneration Committee Report in the 2012 Annual Report and Accounts .
2012 2011
GBP000 GBP000
------------------------------ -------- --------
Short-term employee benefits 1,960 1,735
Post-employment benefits 20 19
------------------------------ -------- --------
1,980 1,754
------------------------------ -------- --------
glossary of terms
Administration Cost Ratio
Recurring administration expenses of the Investment Property operating segment expressed as a percentage of net rental income
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
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
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 and the ERV of vacant space
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
RECURRING INTEREST COVER
The aggregate of group revenue less costs plus share of results of associates, divided by the aggregate of interest expense and amortisation of issue costs of debt, less interest income
RENT ROLL
Contracted rent
SOLIDITY
Equity shareholders' funds expressed as a percentage of total assets
TOTAL SHAREHOLDER RETURN
For a given number of shares, the aggregate of the proceeds from tender offer buy-backs and change in the market value of the shares during the year adjusted for cancellations occasioned by such buy-backs, as a percentage of the market value of the shares at the beginning of the year
True equivalent yield
The capitalisation rate applied to future cash flows to calculate the gross property value, as determined by the Group's external valuer
This information is provided by RNS
The company news service from the London Stock Exchange
END
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