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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Cls Holdings Plc | LSE:CLI | London | Ordinary Share | GB00BF044593 | ORD 2.5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.50 | -0.60% | 83.00 | 82.80 | 83.00 | 83.50 | 82.80 | 83.00 | 351,440 | 16:16:58 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Agents & Mgrs | 113M | -249.8M | -0.6286 | -1.32 | 329.85M |
TIDMCLI
RNS Number : 1466S
CLS Holdings PLC
07 March 2019
Release date: 7 March 2019
CLS Holdings plc
("CLS", the "Company" or the "Group")
announces its UNAUDITED Annual Results
for the year ended 31 December 2018
Delivering robust and disciplined growth
CLS is a FTSE 250 property investment company with a GBP1.9bn portfolio in the UK, Germany and France offering geographical diversification with local presence and knowledge. For the year ended 31 December 2018, the Group has delivered the following results:
FINANCIAL HIGHLIGHTS
-- EPRA net asset value: up 8.5% to 309.8 pence (31 December 2017: 285.6 pence(1) ) -- Basic net asset value: up 9.3% to 275.5 pence (31 December 2017: 252.0 pence) -- EPRA earnings per share up 4.0% to 13.1 pence (2017: 12.6 pence(1) )
-- Basic earnings per share of 30.5 pence (2017: 38.7 pence including profit on sale of Vauxhall Square)
-- Profit before tax from continuing operations of GBP144.9 million (2017: GBP190.5 million, including profit on sale of Vauxhall Square)
-- Contracted rents rose by 5.6% to GBP109.6 million (31 December 2017: GBP103.8 million)
-- A proposed final dividend of 4.7 pence per share to be paid on 29 April 2019, contributing to a total of 6.9 pence per share for the year, an uplift of 8.7% (2017: 6.35 pence per share)
OPERATIONAL HIGHLIGHTS
Investment Property Portfolio:
-- Rental income increased by 9.9% to GBP103.0 million (2017: GBP93.7 million) -- Vacancy rate reduced to 3.8% (31 December 2017: 5.8%) -- Completed 176 lease events securing rental income of GBP16.2 million -- 57% of contracted rent is from Governments and major corporations
-- Valuation gains up 4.4% (3.7% in local currency), reflecting increases in all three countries
-- Disposal proceeds of GBP48.5 million from 11 properties: 8 properties in the UK, 2 in Germany and 1 in France
-- Acquired properties for GBP70.0 million in the UK and France with an average net initial yield of 6.4%
-- Significant acquisitions made after period end of 9 Prescot Street, London E1 and Les Reflets, Lille for GBP64 million in aggregate
Developments:
-- Completed the refurbishment of Ateliers Victoires in central Paris, and the development of 16 Tinworth Street, SE11 - both fully let
-- Invested a total of GBP18 million in developments and refurbishments, part of a rolling programme to maintain and upgrade the portfolio
Financing:
-- Balance sheet loan to value 36.7% (31 December 2017: 36.9%)
-- Further reduced the weighted average cost of debt at 31 December 2018 to 2.43% (31 December 2017: 2.51%)
-- Financed or refinanced GBP137.7 million of debt at 2.16%, including GBP92.0m fixed at 2.20%
-- Repaid debt of GBP158.6 million with an average interest rate of 3.26%, including a GBP65 million 5.5% retail bond 17 months early
-- The loan portfolio as at 31 December 2018 had 79% at fixed rates (31 December 2017: 74%)
Governance
-- Malcolm Cooper, who joined the Board in May 2009 and is Senior Independent Director and Chairman of the Audit Committee, has expressed a wish to stand down from the Board in 2019, but to continue in post to assist in the handover to his successor
-- Mrs Anna Seeley, Non-Executive Vice Chairman, will become Chairman of the Nominations Committee with immediate effect; Mr Sten Mortstedt will remain as a member of the Nominations Committee
-- As previously announced, John Whiteley, Chief Financial Officer, will retire from the Board on 30 June 2019
(1) Restated to exclude discontinued operations of First Camp.
Henry Klotz, Executive Chairman of CLS, commented:
"I am delighted to report a robust set of results in 2018 which once again endorses CLS's strategy of geographical diversity as a long-term investor in the three largest economies in Europe.
"We shall continue to follow our medium-term strategy and long-term vision. Our balance sheet is strong, our business well-placed, and we remain focused on continuing to deliver value to our shareholders."
-ends-
For further information, please contact:
CLS Holdings plc
(LEI: 213800A357TKB2TD9U78)
www.clsholdings.com
Henry Klotz, Executive Chairman
Fredrik Widlund, Chief Executive Officer
John Whiteley, Chief Financial Officer
Sten Mortstedt, Executive Director and Founding Shareholder
+44 (0)20 7582 7766
Liberum Capital Limited
Richard Crawley
Jamie Richards
+44 (0)20 3100 2222
Whitman Howard
Hugh Rich
+44 (0)20 7659 1261
Elm Square Advisers Limited
Jonathan Gray
+44 (0)20 7823 3695
Smithfield Consultants (Financial PR)
Alex Simmons
Rob Yates
+44 (0)20 3047 2546
CLS will be presenting to analysts at 9.30am on Thursday, 7 March 2019, at Liberum Capital, Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY.
Participant
1. In the 10 minutes prior to call start time, call the appropriate Participant Dial-In Number listed in the Conference Dial-In Number section below.
2. Provide the Operator with the Conference ID Number.
Conference ID 4569809
United Kingdom 08445 718892 Std International Dial-In +44 (0) 2071 928000 United States, New York 1631 510 7495
Forward-looking statements
This document may contain certain 'forward-looking statements'. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from those expressed or implied by such forward-looking statements. Any forward-looking statements made by or on behalf of CLS speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. Except as required by its legal or statutory obligations, the Company does not undertake to update forward-looking statements to reflect any changes in its expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. Information contained in this document relating to the Company or its share price, or the yield on its shares, should not be relied upon as an indicator of future performance.
Dividend Timetable
Further to this announcement, in which the Board recommended a final dividend of 4.7 pence per ordinary share, the Company confirmed its dividend timetable as follows:
Hot Features
Premium
Announcement date 7 March 2019
Ex-Dividend date 4 April 2019
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Record date 5 April 2019
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Payment date 29 April 2019
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Chairman's Statement
Strength in diversity
Performance
I am delighted to be able to report another robust set of results which once again are an endorsement of CLS's strategy of focusing on geographical diversity as a long-term investor in the three largest economies in Europe: the UK, Germany and France. During the year, EPRA NAV rose by 8.5% to 309.8 pence per share (31 December 2017: 285.6 pence).
As a result of this diversity, we are ready to face the prospect of Brexit-related macro uncertainty with great confidence in the underlying strength of the business.
Property portfolio
In 2018, our property portfolio rose in value by 3.7% in local currencies, with an outstanding performance in Germany which saw an uplift of 9.3%. At 31 December 2018, the portfolio was valued at just over GBP1.9 billion, of which 51% was in the UK, 33% in Germany and 16% in France. For many years, we have benefited from our established presence in these markets. In each we operate the same core strategy: a focus on office buildings in high quality, predominantly non-prime locations in larger cities and managed by our own staff. Having our in-house management well-established in each local market remains key to our success as it allows us to establish strong relationships with our customers, gain a deep knowledge of their changing requirements, and ultimately improve the service we provide, to our mutual benefit. It is also hugely important for new business opportunities to be fully integrated in the local property networks.
In 2018, we invested GBP70.0 million in acquisitions, primarily in London, where our confidence in the longer-term future provided opportunities to acquire at attractive prices.
Culture
We continue to promote an open, entrepreneurial culture for our workforce, with an efficient decision-making structure which engenders responsibility and enables a hands-on operating process.
We enhanced the communication within the organisation to engage our employees; in 2018, we introduced an in-house social media initiative. In order to attract and retain high-quality talent, we have to understand and respect the different business cultures in which we operate and to dovetail our Group culture with that of local markets.
The high levels of engagement within our team, levels of professionalism and expert knowledge all make a tangible contribution to the strength of our organisation. On behalf of the Board, I would like to thank all of our employees for their continued hard work and commitment to the success of CLS.
Sustainability
Our aim is to be a leading sustainable business, and in 2018 we have taken every opportunity to invest in renewable technology, such as additional photovoltaic panels and thermodynamic heat pumps. Our committed in-house team is dedicated to environmental issues across all our markets both within CLS and in our local communities, and we are working hard to implement best practice in all areas. Our corporate, social and environmental responsibility report contains details of our work on sustainability and can be found on page 30 of the 2018 Annual Report and Accounts.
Shareholder engagement
Around 60% of the shares in the Company are held by representatives of the Board, and by engaging with external shareholders we typically are able to meet at least once a year with around 90% of our shareholder base, and others wishing to join it. This is important; we meet most shareholders every six months, and we consult with them on an ad hoc basis on specific topics, such as directors' remuneration. In this way we are able to run the business with a mindset very much in step with shareholders' views.
Board changes
John Whiteley, our Chief Financial Officer, who has been with us for almost ten years, has chosen to retire later this year and the process to find his successor is well advanced. I would like to thank John for his hard work and contribution to CLS over the years and to wish him well in his new status as a young pensioner.
Malcolm Cooper, who joined the Board in May 2007 and is our Senior Independent Director and Chairman of the Audit Committee, has expressed a wish to stand down in 2019, but to continue in post to assist in the handover to his successor and to the new CFO.
As Chairman, it is one of my primary responsibilities to ensure that the Board is effective in running the Company, and that succession plans are in place for all directors. The composition of our Board does not currently comply with the provisions of the Code in that it does not have a majority of independent non-executive directors; indeed, this has always been the case, but this is exacerbated when non-executives have been with us for more than nine years. A key focus of mine in 2018 has been to hold discussions with the Board with a view to refreshing the composition of the non-executives in the short to medium term and broadening the experience they bring to the Board, and I expect to be able to announce progress on this in due course.
Dividend
In line with our strategy that the dividend should be progressive and well-covered by EPRA earnings, the Board is pleased to propose a final dividend for 2018 of 4.7 pence per share, making the total for the year of 6.9 pence, being 1.9 times covered by EPRA earnings and an increase over last year of 8.7%.
Outlook
In the UK there has been a trend for new market entrants in the property sector to provide very flexible leases although, with a question remaining over the sustainability of their business models, this may now be slowing down. We embrace these changes, which have had a positive impact on the way in which people work due to the way some UK offices are designed. For many years, the tradition in Germany and France has been to have more flexible leases than in the UK, but our tenant base in the UK has long enjoyed such flexibility, and we expect this to continue.
The key for us is to have a close relationship to our customers in order to be well informed about and understand the evolving requirements for their businesses. The main risk that I see is if the demand for our premises in the UK were to decrease significantly, but as we have a strong focus on keeping the vacancy below 5%, and 43% of our UK rental income is derived from the UK Government, I believe the risk is manageable.
The economic and political environment is as challenging to interpret as I have known for some time. The impact of Brexit on our business is, of course, difficult to predict, but the spread of our operations across the three strongest European economies places CLS at a competitive advantage.
We shall continue to follow our medium-term strategy and long-term vision, whilst constantly challenging both to ensure they remain robust. Our balance sheet is strong, our business well-placed, and we remain focused on continuing to deliver value to our shareholders.
Henry Klotz
Executive Chairman
Chief Executive's review
Driving growth through active management and portfolio repositioning
Overview
During the year we made significant progress in working the property portfolio through active, hands-on asset management, reducing the vacancy rate from 5.8% to 3.8%. We also continued to reposition the portfolio with selective disposals and value-add acquisitions. As a result, we have reported an 8.5% increase in EPRA net asset value, a total accounting return of 10.8%, pre-tax profits from continuing operations of GBP144.9 million and an 8.7% increase in our dividend. The Company has a well-diversified office portfolio of over 120 properties in the largest cities in the UK, Germany and France and we take a long-term view on the prospects of our markets.
Repositioning the property portfolio
We have continued to reposition the portfolio and have enhanced both our investment team and the local German team to reflect our ambitions and accommodate our growing portfolio in the country.
In 2018, we saw good value in selective opportunities in Germany, but the competition in the investment market strengthened during the year, and despite coming close on a couple of significant potential acquisitions we did not buy any new properties. However, in the UK we were able to recycle capital with a focus on properties where we could add value, with the acquisitions of Harman House, Uxbridge for GBP51.4 million and 401 King Street, Hammersmith for GBP16.1 million. Both are close to major rail and road networks. Since the year end, we have exchanged contracts to acquire two properties: in London, a 96,948 sq ft (9,007 sqm) multi-let office property with significant refurbishment potential, 9 Prescot Street, Aldgate, E1 for GBP53.9 million; and in France, a 44,756 sq ft (4,158 sqm) multi-let office building, Les Reflets, in Lille for GBP10.2 million, further enhancing our scale in that city.
Our disposal criteria remained threefold: assets which were low yielding with limited potential; investments on which the risk/reward ratio was unfavourably balanced; and properties which were too small to have a meaningful impact on the Group. In aggregate we sold a further eleven assets in 2018 which met these criteria, generating net proceeds of GBP48.5 million and a profit of 5.3% over book value. Eight of these smaller assets were in the UK, two were in Germany and one in France. In late December, we exchanged contracts on the disposal of a further small property in Germany, purchased within the Metropolis portfolio in 2017, the sale of which for GBP3.5 million will complete in the first half of 2019.
We completed the developments of 16 Tinworth Street, SE11 and Ateliers Victoires in central Paris. The former is now our Group headquarters above which are nine student apartments which extend our Spring Mews student accommodation development, and the latter was pre-let in its entirety to a leading corporate communications consultancy. Two significant refurbishments were completed towards the end of the year, in New Malden and Brentford, and in total GBP18.0 million was spent on capital expenditure as part of our upgrading of the portfolio. We have a rolling refurbishment programme and intend to keep investing in our properties to ensure that they continue to meet the needs of our customers now and in the future, and to offer an attractive environment for our occupiers and their employees.
Towards the end of the year, we agreed terms to exit our 58.02% ownership in Swedish vacation site owner and operator, First Camp, with completion expected this month. Under accounting rules, First Camp has been classified as a discontinued operation in 2018 and 2017, and its results have been excluded from our profit after tax, making the income statement a cleaner reflection of our investment property business.
Investing in asset management opportunities
The diversified nature of the portfolio and the strong cash flow it generates allow us to make investments when we see opportunities where others might see short-term, macro-related challenges. In 2018, this was especially true in the UK, where Brexit concerns created openings for contrarian acquisitions which had strong individual property fundamentals over the medium to long term.
We have continued to buy properties with vacancy or with shorter lease lengths if they meet our fundamental criteria of location and connectivity. The validity of these criteria has also manifested itself in the high proportion of tenants which chose to remain in situ at break or lease expiry.
Active asset management
We strongly believe that we get a more efficient and committed performance from our own employees than if their roles were outsourced, and so we perform all our asset and property management, and financial functions in-house. This is also key to ensuring a close and long-term relationship with our customers.
Having bought properties in 2017 with significant vacancies, in 2018 our team set about filling them, and reduced our vacancy rate from 5.8% to 3.8% in twelve months. To achieve this, we signed 641,500 sq ft (59,600 sqm) in 164 new lettings and renewals at an average of 2.2% above their December 2017 ERVs, whilst only 512,600 sq ft (47,600 sqm) of space vacated or expired. This evidenced the solid demand for non-prime office space in our chosen markets. The major contributors to this result were lettings of 37,243 sq ft (3,460 sqm) and 32,668 sq ft (3,035 sqm) at East Gate, Munich, 12,594 sq ft (1,170 sqm) in Adlershofer Tor in Berlin, and 24,700 sq ft (2,295 sqm) in Bromley.
Two other asset management initiatives are worthy of note. First, excluded from the above numbers because they were reported last year, with effect from 31 March 2018 in properties across the UK we renewed all 15 leases with the Secretary of State for Housing, Communities and Local Government which were due to expire or break on that date, securing annual rental income of GBP6.6 million for an average of over 5 years. Secondly, and included in this year's numbers, we agreed an annual uplift of over GBP0.7 million from the Secretary of State for Work and Pensions at New Printing House Square, Gray's Inn Road, WC1 which was backdated to June 2015 and so contributed an additional GBP2.5 million to rental income in 2018.
Value uplifts across the portfolio
At 31 December 2018, there were uplifts in valuations across the entire Group, with a 3.7% increase in values in local currencies (4.4% in sterling). In the UK, the portfolio rose by 0.5%, Germany added 9.3% in local currency, driven by rental growth and reduced vacancy, and the French portfolio rose by 3.8%, of which two-thirds came from the completed development at Ateliers Victoires. In aggregate, the fair value uplifts of the property portfolio added 15.6 pence to EPRA NAV in the year.
The reduction in vacancies in the UK to 4.0% (31 December 2017: 5.5%) drove up the UK's net initial yield, whilst the lower rents from the 15 leases with the Secretary of State reduced it, such that overall the net initial yield based on contracted rents remained broadly unchanged in the UK at 5.6% (31 December 2017: 5.6%). In Germany, the net initial yield was unchanged at 5.4% (31 December 2017: 5.4%); like-for-like contracted rent rose by 4.7% and the vacancy rate reduced to 4.2% (31 December 2017: 7.1%), which drove the valuation uplift in the year. In France, the reduction in vacancies to 2.3% (31 December 2017: 4.4%) was reflected in the 2.1% increase in like-for-like contracted rent, which contributed, with the completion of the development of Ateliers Victoires, to the increase in values in local currency.
Results
EPRA earnings of 13.1 pence (2017: 12.6 pence) reflected a strengthening of the underlying business, with EPRA operating profit growing by GBP3.1 million, and I look forward to further growth in underlying earnings from our strategy to reposition the portfolio towards more growth opportunities. Profit before tax from continuing operations of GBP144.9 million (2017: GBP190.5 million) did not have a one-off significant capital profit such as from the sale of Vauxhall Square last year, but did have a gain on revaluation of equities of GBP22.2 million which is shown in the income statement this year for the first time under a change in accounting standards. It was also driven by the uplift in the fair value of the property portfolio of GBP62.8 million (2017: GBP94.2 million) and the profit on sale of properties of GBP2.3 million (2017: GBP43.7 million).
Long-term capital growth
CLS has a business focused on cash flow, a principle to which we adhere strictly for existing properties and acquisitions alike. By maintaining close contact with our customers, we are able to keep the vacancy rate low, and so the difference between our net initial yield of 5.5% and our cost of debt of 2.43% becomes the main driver of cash flow. In 2018, net cash from operating activities was GBP48.0 million (2017: GBP48.8 million) and EPRA earnings were GBP53.5 million (2017: GBP51.5 million). Of this, GBP28.1 million (2017: GBP25.9 million) will be distributed to shareholders, with the balance available to reinvest in the business, together with proceeds of disposals. The results of such reinvestment are evident in the growth in EPRA NAV of 144% in the past five years.
In 2018, we continued to reduce our cost of debt, which reached its lowest ever year end level of 2.43% (31 December 2017: 2.51%), mainly due to the early redemption of our GBP65 million 5.5% unsecured bonds due 2019. Our financing is largely insulated from any economic downturn; 79% of our debt is now at fixed rates and for an average duration of 3.8 years.
A culture built on relevance and sustainability
Office occupation is changing, with customer requirements and, arguably even more so, employees' preferences becoming more demanding. This is a trend which is likely to continue, and one which we embrace and encourage. We work closely with our customers to ensure the space which we provide is to their needs and specifications, whilst fitting to a cost-conscious mindset. Likewise, we listen to our employees and design their work experience accordingly. In 2018 we relocated into new offices owned by the Group in London and Hamburg so that now all of our offices are in newly-built or refurbished premises which incorporate recommendations and suggestions from our latest employee survey, and represent best practice in office accommodation.
We have a rolling programme to make our buildings more sustainable, and we work closely with tenants to ensure the best standards of recycling and environmental welfare are followed. Full details of our work on sustainability is set out in the corporate, social and environmental responsibility report on page 30 of the 2018 Annual Report and Accounts.
The future
The Group continues to benefit from its geographical diversification with both Germany and France likely to offset future challenges in the UK from Brexit. However, despite recent uncertainty, our UK portfolio continues to deliver a resilient performance due to its lower exposure to the prime locations which are likely to be more affected by Brexit. We are strong believers in the long-term prospects for Greater London, and with increased infrastructure spending and clarity on Brexit, we believe the current market sentiment will turn to a more balanced view. Economic growth has slowed globally but the resilience of the German economy and the lack of new office space supply in both Germany and France are creating good opportunities over time.
At 31 December 2018, the United Kingdom accounted for 51% of the portfolio, Germany 33% and France 16%. Our investment strategy remains geographically flexible and based on the characteristics of individual assets. We will continue to investigate opportunities in each of our three core countries, and to dispose of properties with limited potential and reinvest the proceeds in better prospects. 2018 was a year of uncertainty from which we were able to prosper, and with the existing pipeline of new opportunities, we face the future with confidence.
Fredrik Widlund
Chief Executive
Chief Financial Officer's review
A strong underlying business supported by a low cost of debt
Restatement of comparatives
In the 2018 Annual Report and Accounts, the Group's 58.02% interest in First Camp Sverige Holding AB has been disclosed as a discontinued operation for the first time (see note 21), and all comparatives have been restated accordingly.
Headlines
Profit after tax from continuing operations and attributable to the owners of the Company of GBP132.8 million (2017: GBP157.0 million) generated basic earnings per share of 32.6 pence (2017: 38.5 pence) and EPRA earnings per share of 13.1 pence (2017: 12.6 pence). The loss after tax from discontinued operations and attributable to the owners of the Company of GBP8.5 million (2017: profit of GBP0.7 million) generated a basic loss per share of 2.1 pence (2017: earnings of 0.2 pence). EPRA net assets per share rose by 8.5% to 309.8 pence (2017: 285.6 pence), and basic net assets per share by 9.3% to 275.5 pence (2017: 252.0 pence).
Approximately 51% of the Group's business is conducted in the reporting currency of sterling and 49% in euros. Compared to last year, relative movements of sterling against the euro did not have a material impact on the Group's results for the year or on its state of affairs: sterling's average rate weakened against the euro by 1.0% and at 31 December 2018 sterling was 1.2% weaker against the euro than twelve months previously.
Exchange rates to the GBP
EUR
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At 31 December 2016 1.1731
--------------------- -------
2017 average rate 1.1416
--------------------- -------
At 31 December 2017 1.1260
--------------------- -------
2018 average rate 1.1304
--------------------- -------
At 31 December 2018 1.1122
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Income statement
In 2018, rental income of GBP103.0 million was GBP9.3 million higher than in 2017. Acquisitions added GBP11.4 million and a back-dated rent review at New Printing House Square a further GBP1.8 million, whilst disposals accounted for a fall of GBP4.6 million. Other general letting activity produced a like-for-like increase of 1% in rental income over last year's.
Other property income of GBP6.9 million (2017: GBP8.3 million) included hotel revenue from Spring Mews of GBP4.4 million (2017: GBP4.4 million) and dilapidations and other one-off receipts of GBP2.5 million (2017: GBP3.9 million). In aggregate net rental income rose by 7.3% to GBP107.3 million (2017: GBP100.0 million).
We monitor the administration expenses incurred in running the property portfolio by reference to the net rental income derived from it, which we call the administration cost ratio, and this is a key performance indicator of the Group (see note 3). Personnel costs account for 70% of administration expenses, and in 2018 we expanded the team in Germany to accommodate the recent increase in the German portfolio and further expansion still to come. Consequently, the administration cost ratio rose to 16.0% (2017: 14.2%), which was well within our KPI target for the year of 16.5%.
The net surplus on revaluation of investment properties of GBP62.8 million (2017: GBP94.2 million) reflected contributions from each country: in local currencies, Germany had the strongest year with a 9.3% rise in values, France rose by 3.8%, and the UK contributed 0.5%.
Our interest in Catena AB, an equity security listed in Stockholm, is carried in the balance sheet at its fair value. Under IFRS 9 Financial Instruments, the movement in its fair value is recognised in the income statement in 2018 for the first time. The Catena share price rose by 39.7% in the year, generating a fair value gain of GBP22.2 million.
The profit on sale of properties of GBP2.3 million (2017: GBP43.7 million) represented a 5.3% excess of net proceeds over book values of the eleven properties sold in the year. The large profit in 2017 was predominantly GBP41.4 million on the disposal of Vauxhall Square.
Finance income of GBP6.1 million (2017: GBP10.0 million) comprised interest income of GBP4.2 million (2017: GBP4.4 million) from our corporate bond portfolio, dividends from Catena of GBP1.7 million (2017: GBP1.4 million), other interest of GBP0.2 million (2017: GBP2.4 million), and foreign exchange variances of GBPnil (2017: GBP1.8 million).
Finance costs of GBP26.5 million (2017: GBP32.4 million) included a loss of GBP3.7 million (2017: GBP9.7 million) on the early redemption of GBP65 million 5.5% unsecured bonds due 2019, 17 months early, which reduced the average cost of borrowing by 21 bps. Excluding this, foreign exchange variances, gains on the fair value movements of derivative financial instruments and capitalised interest, interest costs were GBP24.5 million (2017: GBP26.1 million) reflecting a lower level of borrowings in the year at a lower average cost.
The tax charge of 8.4% was significantly below the weighted average rate of the countries in which we do business (19.5%), primarily due to two factors: first, a fall in the future rate of tax in France which has been applied to the deferred tax on the cumulative revaluation surplus of the French portfolio; and, secondly, the fair value gain of the equity investment in Catena, which was not subject to tax.
The loss from discontinued operations primarily reflected a write down of the net assets of First Camp to the expected proceeds. Of the loss of GBP14.9 million, GBP8.5 million was attributable to the owners of the Company. The disposal of our interest in First Camp has further rationalised the Group and has taken away the distortion which accounting for 100% of the assets, liabilities and income statement line items of a non-core business in which the Group owned 58% had on our corporate metrics, such as interest cover and gearing.
Overall, EPRA earnings were 4.0% higher than last year at GBP53.5 million (2017: GBP51.5 million), and generated EPRA earnings per share of 13.1 pence (2017: 12.6 pence).
EPRA net asset value
At 31 December 2018, EPRA net assets per share were 309.8 pence (2017: 285.6 pence), a rise of 8.5%, or 24.2 pence per share. The main reasons for the increase were EPRA earnings per share of 13.1 pence and the benefit of the uplift in the valuation of the investment property portfolio of 15.6 pence, less dividends of 6.5 pence per share.
Cash flow, net debt and gearing
Net cash flow from operating activities generated GBP48.0 million, of which GBP26.5 million was distributed as dividends. Proceeds after tax from property disposals of GBP40.9 million were redeployed in acquisitions of GBP70.9 million and capital expenditure of GBP15.8 million. Net repayments of debt were GBP45.8 million, and by 31 December 2018, the Group's cash balances had been reduced by GBP40.2 million to GBP100.3 million. These were supplemented by GBP30.3 million of corporate bonds and undrawn bank facilities of GBP63.2 million, of which GBP37.7 million was committed.
Gross debt fell by GBP34.4 million to GBP842.3 million, notwithstanding a rise of GBP4.8 million due to foreign exchange rate movements. GBP158.6 million were repaid in the year and GBP137.7 million of new or replacement loans were taken out. At 31 December 2018, the weighted average unexpired term of the Group's debt was 3.5 years (2017: 3.6 years).
Balance sheet loan-to-value (net debt to property assets) at 31 December 2018 was 36.7% (2017: 36.9%) and the value of properties not secured against debt rose to GBP283.6 million (2017: GBP246.7 million).
The weighted average cost of debt at 31 December 2018 was 2.43%, 8 bps lower than 12 months earlier and the lowest year end rate in the Group's history. The early redemption of the unsecured bonds accounted for 21 bps of that fall, net new bank loans increased the average cost by 4 bps, and margin step-ups and an increase in LIBOR added 9 bps. In 2018, our low cost of debt led to recurring interest cover of 3.8 times (2017: 3.9 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 49 % of the Group's exposure to foreign currency is naturally hedged, and the most efficient use can be made of the Group's assets. An exception is where a portfolio is acquired, such as the Metropolis properties in 2017, and is financed by a single loan. At 31 December 2018, the Group had 50 loans across the portfolio from 26 lenders, plus some secured notes.
To the extent that Group borrowings are not at fixed rates, the Group's exposure to interest rate risk is mitigated by financial derivatives, mainly interest rate swaps. In the recent medium-term low interest rate environment, the Board chose to take advantage of the conditions, fixing most of the medium-term debt taken out during the year. In 2018, the Group financed or refinanced 10 loans to a value of GBP137.7 million for a weighted average duration of 5.8 years and at a weighted average all-in rate of 2.16%, and of these GBP92.0 million were fixed at a weighted average all-in rate of 2.20%. Consequently, at 31 December 2018, 79% of the Group's borrowings were at fixed rates or subject to interest rate swaps, 3% were subject to caps and 18% of debt costs were unhedged; the fixed rate debt had a weighted average maturity of 3.8 years, and the floating rate 2.2 years.
The Group's financial derivatives - predominantly interest rate swaps - are marked to market at each balance sheet date. At 31 December 2018 they represented a net liability of only GBP5.1 million (2017: GBP6.2 million).
Distributions to shareholders
In April 2018, a final dividend for 2017 of 4.3 pence per share was paid totalling GBP17.5 million. In September, an interim dividend for 2018 of 2.2 pence per share was paid at a cost of GBP9.0 million. The final dividend for 2018 is proposed to be 4.7 pence per share, totalling GBP19.1 million. This represents a full year distribution of 6.9 pence per share, an increase of 8.7% over the prior year, and which was covered 1.9 times by EPRA earnings per share.
John Whiteley
Chief Financial Officer
Key Performance Indicators
Measuring the tangible performance of our strategy
Total Shareholder Return - Absolute (%)
Definition
The annual growth in capital in purchasing a share in CLS, assuming dividends are reinvested in the shares when paid.(1)
Why this is important to CLS
This KPI measures the increase in the wealth of a CLS shareholder over the year.
Our target for 2018
In 2018, our target Total Shareholder Return (absolute) was between 12% and 16%.
Progress
In 2018, the Total Shareholder Return of -12.3% reflected the fall in the share price in the year, particularly in the final quarter when the share prices of most of the FTSE 350 Real Estate Super Sector fell, which was reflected in the average of the sector recording a TSR of -14.4%.
1 For the purposes of calculating this KPI for executive remuneration, the market price is calculated as the average closing share price in December, not the closing share price at the end of December, to avoid bonuses being paid based on distorting fluctuations around the year end.
Total Shareholder Return - Relative (%)
Definition
The annual growth in capital in purchasing a share in CLS, assuming dividends are reinvested in the shares when paid, compared to the TSR of the other 25 companies in the FTSE 350 Real Estate Super Sector Index.
Why this is important to CLS
This KPI measures the increase in the wealth of a CLS shareholder over the year, against the increase in the wealth of the shareholders of a peer group of companies.
Our target for 2018
In 2018, our target Total Shareholder Return (relative) was between the median and upper quartile.
Progress
In 2018, the TSR was -12.3%, making CLS the 15th ranked share of the FTSE 350 Real Estate Super Sector Index of 26 companies.
Total accounting return (%)
Definition
The aggregate of the change in EPRA NAV plus dividends paid, as a percentage of the opening EPRA NAV, which is also known as Total Accounting Return.
Why this is important to CLS
This KPI measures the increase in EPRA net assets per share of the Company before the payment of dividends, and so represents the value added to the Company in the year.
Our target for 2018
In, 2018 our target Total Accounting Return was between 6% and 9%.
Progress
In 2018, the Total Accounting Return was 10.8%.
Vacancy Rate (%)
Definition
The ERV of vacant lettable space, divided by the aggregate of the contracted rent of let space and the ERV of vacant lettable space.
Why this is important to CLS
This KPI measures the potential rental income of unlet space and, therefore, the cash flow which the Company would seek to capture .
Our target for 2018
We target a vacancy rate of between 3% and 5%; if the rate exceeds 5%, other than through recent acquisitions, we may be setting our rental aspirations too high above the current market; if it is below 3% we may be letting space too cheaply.
Progress
At 31 December 2018, the vacancy rate was 3.8%, or 4.0% on a like-for-like basis.
Administration Cost Ratio (%)
Definition
The administration costs of the Group, excluding those of the Other Investments segment, divided by the net rental income of the Group, excluding the net income of First Camp.
Why this is important to CLS
This KPI measures the administration cost of running the core property business by reference to the net rental income that it generates, and provides a direct comparative to most of our peer group.
Our target for 2018
In 2018, our target administration cost ratio was between 16.5% and 14.5%.
Progress
In 2018, the administration cost ratio was 16.0% (see note 3).
Other Performance Indicators
In addition to the key performance indicators of the Group, which are all tied to executive remuneration, the Group also has other performance indicators by which it measures its progress, and these include:
-- Cost of debt - we seek to maintain a cost of debt at least 200 bps below the Group's net initial yield. At 31 December 2018, the cost of debt (2.43%) was 307 bps below the net initial yield (5.5%).
-- Sustainability - we seek to minimise our impact on the environment by targeting a 5% reduction in carbon emissions each year in our like-for-like managed portfolio. In 2018, we achieved a 15.9% reduction (2017: 9.3%).
-- Customer retention - through our active asset management we seek to retain more than 50% of our tenants by value. In 2018, 52% of our leasing transactions were lease renewals (2017: 66%).
-- Health & Safety - we work hard to ensure that the health and safety of our employees, customers, advisors, contractors and the general public is not compromised and pride ourselves on remaining below the UK National Accident Frequency rate. For 2018, the national rate was 930 per 100,000 people; CLS's was 124. This rate is calculated by dividing the number of accidents reported in the year by the number of people occupying our buildings.
Principal Risks and Uncertainties
Risks spread through diversity
Change in
risk in
Areas year
Risk of impact (pre-mitigation) Mitigation
----------------------- --------------------- ------------------ ----------------------------------------
Property investment
Underperformance Cash flow Increased Geographically-diversified portfolio
of investment Profitability with 49% of the Group's properties
portfolio Net asset being outside the UK, in two of
due to: value the most stable economies in Europe.
Cyclical downturn Banking covenants
in property
market
----------------------- --------------------- ------------------ ----------------------------------------
Changes in Rental income Increased 43% of UK income is derived from
supply of space Cash flow Government tenants. Minimal exposure
and/or occupier Vacancy rate to the type of tenant who may want
demand Void running to relocate from the UK to elsewhere
costs in Europe. In-house asset management
Property enables management to highlight
values and address tenant needs.
Net asset
value
----------------------- --------------------- ------------------ ----------------------------------------
Downturn in Cash flow Increased Geographically-diversified portfolio
market due Profitability with 49% of the Group's properties
to increase Net asset being outside the UK, in two of
in yields value the most stable economies in Europe.
Banking covenants
----------------------- --------------------- ------------------ ----------------------------------------
Poor asset Rental income Unchanged Asset management is not outsourced,
management Cash flow property teams proactively manage
Vacancy rate customers to ensure changing needs
Void running are met, and review the status
costs of all properties weekly. Written
Property reports are submitted monthly to
values senior management on, inter alia,
Net asset vacancies, lease expiry profiles
value and progress on rent reviews.
----------------------- --------------------- ------------------ ----------------------------------------
Sustainability
Increasing Rental income Unchanged Continual assessment of all properties
building regulation Cash flow against emerging regulatory changes.
and obsolescence Vacancy rate Fit-out and refurbishment projects
Net asset benchmarked against third-party
value schemes.
Profitability
Liquid resources
----------------------- --------------------- ------------------ ----------------------------------------
Increasing Net asset Unchanged Investment in energy efficient
energy costs value plant and building-mounted renewable
and regulation Profitability energy systems
Liquid resources
----------------------- --------------------- ------------------ ----------------------------------------
Funding
Unavailability Cost of borrowing Unchanged The Group has a dedicated treasury
of financing Ability to team and relationships are maintained
at acceptable invest or with some 26 lenders, thus reducing
prices develop credit and liquidity risk. The
exposure on refinancing debt is
mitigated by the lack of concentration
in maturities.
----------------------- --------------------- ------------------ ----------------------------------------
Adverse interest Cost of borrowing Increased 79% of borrowings are at fixed
rate movements Cost of hedging rates and 3% are subject to interest
rate caps.
----------------------- --------------------- ------------------ ----------------------------------------
Breach of borrowing Cost of borrowing Increased Borrowing agreements contain cure
covenants clauses to rectify LTV breaches
through part repayment of the loan
or the depositing of cash.
----------------------- --------------------- ------------------ ----------------------------------------
Foreign currency Net asset Reduced Property investments are partially
exposure value funded in matching currency. The
Profitability difference between the value of
the property and the amount of
financing is generally unhedged
and monitored on an ongoing basis.
----------------------- --------------------- ------------------ ----------------------------------------
Financial counterparty Loss of deposits Increased The Group has a dedicated treasury
credit risk Cost of rearranging team and relationships are maintained
facilities with 26 lenders, thus reducing
Incremental credit and liquidity risk. The
cost of borrowing exposure on refinancing debt is
mitigated by the lack of concentration
in maturities.
----------------------- --------------------- ------------------ ----------------------------------------
Political and
economic
Impact of UK Net asset Increased 43% of rents in the UK are derived
exit value from central government departments.
from the EU Profitability On a macro level, the Group operates
Availability in the three largest and most stable
of funding economies in Europe.
----------------------- --------------------- ------------------ ----------------------------------------
People
Failure to Rental income Increased Staffing levels and recruitment
recruit suitable Cash flow are addressed as part of investment
staff to accommodate Vacancy rate decisions.
investment Void running
expansion costs
Property
values
Net asset
value
----------------------- --------------------- ------------------ ----------------------------------------
Failure to Profitability Unchanged The semi-annual appraisal process
recruit, develop Net asset assesses capabilities and generates
and retain value training plans. Staff turnover
staff and key and engagement is monitored across
executives the Group. Succession planning
with is in place for all senior management
the right roles.
skills
----------------------- --------------------- ------------------ ----------------------------------------
Catastrophic
event
Large scale Profitability Increased Business continuity and crisis
terrorist or Net asset management plans are in place.
cyber attack, value Cyber penetration testing is carried
environmental out periodically.
disaster or
power shortage
Business review: United Kingdom
Repositioning for long-term income growth
Value of investment properties
GBP954.1m
Lettable space
2.6m sq ft
Number of tenants
214
Percentage of Group's property interests
51%
Vacancy rate
4.0%
Government and major corporates
68.3%
Value of investment properties in London
GBP877.2m
UK overview
The UK economic outlook continues to be dominated by uncertainty over Brexit, but the office investment markets have shown resilience. In 2018, the investment market experienced its second largest level of activity in ten years, and occupational markets have been noticeable for their pragmatism, with landlords focusing more on occupancy than rental growth. Any forecasting is very difficult in the current environment for obvious reasons but with the delivery of large infrastructure projects and solid fundamentals for non-prime offices, we believe the current market sentiment, especially in Greater London, will continue to offer an attractive investment case.
Acquisitions
Our UK acquisition activity in 2018 focused on London properties with strong potential. In March, we acquired Harman House, Uxbridge for GBP51.4 million, representing a net initial yield of 6.9%. This 129,060 sq ft (11,990 sqm) multi-let office building, which was extensively refurbished in 2014, is fully-let to 10 tenants on an average unexpired lease term of 7.9 years and has a reversionary rent profile with an estimated yield of 7.8%. In April, we bought 401 King Street, Hammersmith for GBP16.1 million. This 24,566 sq ft (2,282 sqm) office is expected to generate 5.9% when all leases revert to market rents, and significantly more after a refurbishment planned for the third floor.
Disposals
In 2018 we continued to reposition the UK portfolio with the sale of eight properties for an aggregate GBP38.6 million at 5.2% above their values at 31 December 2017. Seven, in Chertsey, Datchet, Plymouth, St Asaph, Birmingham and two in Peterborough, were in line with our policy of disposing of properties which were too small to have a meaningful impact on the Group, and the eighth, Buspace in Notting Hill, which was sold for GBP13.5 million, was low yielding and had limited office potential.
Asset management
The vacancy rate in the UK fell to 4.0% at 31 December 2018 (2017: 5.5%) predominantly because we let or renewed leases on 201,759 sq ft (18,744 sqm) whilst only 171,598 sq ft (15,942 sqm) of space either expired or became vacant. Excluding those arising from contractual indexation uplifts, 56 rent reviews, lease extensions and new leases added GBP5.7 million of rent, at 2.1% above ERVs from 31 December 2017. On a like-for-like basis, ERVs fell marginally in the UK, mainly in London, but the portfolio remained 3.8% net reversionary, including 5.1% in London.
Developments
In the summer, we completed the development of 16 Tinworth Street, SE11, an GBP8.6 million, 7-storey development of 9,181 sq ft (853 sqm) of office and residential accommodation, which now houses the Group's headquarters and nine student apartments.
In January, we secured a resolution to grant planning permission for a new 10-storey residential and office development at Quayside Lodge, Fulham SW6 to replace a 30,000 sq ft office building. The 160,000 sq ft (14,865 sqm) development will provide 11,500 sq ft of office space, 110 residential units, of which 35% will be affordable, 200 cycle spaces and electric car charging points.
Valuation
The UK portfolio was revalued upwards by 0.5% in the year. Like-for-like contracted rents rose by 2.8%, dampened by the Secretary of State renewals in March, whilst like-for like ERVs fell by 0.6%. The yield in the UK was unchanged at 5.6%.
Business review: Germany
Actively looking to invest in larger cities
Value of investment properties
GBP629.4m
Lettable space
3.2m sq ft
Number of tenants
314
Percentage of Group's property interests
33%
Vacancy rate
4.2%
Government and major corporates
40.8%
Germany overview
The growth of the German economy slowed in the second half of 2018 from the impact on German exports of a global slowdown. Notwithstanding the overall economic position, unemployment is expected to remain below 5% and there is a shortage of skilled labour in many industries. The property investment market in Germany recorded its highest ever annual volume of transactions in 2018. Vacancy levels for offices in the big seven cities have been at record low levels, and a limited supply of new offices drove rental growth and capital growth in 2018. The supply of the office market is unlikely to increase materially in the near-term with over half of offices under construction having been pre-let.
Acquisitions
Following the very successful acquisition programme of GBP187.7 million in 2017, we continued actively to pursue further asset purchases in Germany in 2018. We submitted offers on over GBP500 million of investment opportunities, but we were not prepared to compromise our process of due diligence, nor to overpay for investments, and in the event we did not acquire any properties in Germany in the year. The German market, and the German economy, remain attractive to us, we continue to see good value in selective opportunities, and we expect to invest further in Germany in 2019.
Disposals
We continued to apply our disposal criteria to the existing portfolio and sold two properties in Germany in the year, one a fully let building on which the risk/reward was unfavourably balanced, and the other one of two small properties earmarked for sale at the time they were acquired within the Metropolis portfolio in 2017.
Merkurring 33/35 in Hamburg was sold for GBP6.2 million. The property, which comprised 60,321 sq ft (5,604 sqm) of industrial and office space, was peripheral to the Group's activities, and relied too heavily on its main tenant. Within the Metropolis portfolio of 12 properties acquired in 2017, Marler Stern was a 5% interest in a shopping centre, and was sold at its book value of GBP1.3 million.
In December we exchanged contracts to sell the second small property from the Metropolis portfolio, Marktstrasse 2, Witten for GBP3.5 million.
Asset management
The vacancy rate in Germany fell to 4.2% at 31 December 2018 (2017: 7.1%) predominantly because whilst 271,220 sq ft (25,197 sqm) of space either expired or became vacant, we let or renewed leases on 329,199 sq ft (30,584 sqm). Excluding those arising from contractual indexation uplifts, 64 lease extensions and new leases added GBP7.2 million of rent, at 2.3% above ERVs from 31 December 2017. On a like-for-like basis, ERVs rose by 5.0% in the year, and at 31 December 2018, the German portfolio was 5.8% net reversionary.
Developments
In addition to planned capital expenditure of EUR5 million per annum, we are examining the development potential at Vor Dem Lauch 14 in Stuttgart, acquired with the Metropolis portfolio in 2017.
Valuation
The German portfolio rose by a valuation uplift of 9.3% in local currency, driven by a 4.7% increase in like-for-like contracted rent and a 5.0% increase in like-for-like ERVs. Vacancies fell from 7.1% to 4.2%, and the net initial yield was unchanged at 5.4%.
Business review: France
Delivering value from existing assets
Value of investment properties
GBP308.1m
Lettable space
0.9m sq ft
Number of tenants
161
Percentage of Group's property interests
16%
Vacancy rate
2.3%
Government and major corporates
49.4%
France Overview
Whilst the growth prospects of the French economy have suffered from the impact of street protests, consumer spending and political measures announced during 2018 are forecast to have a positive impact on growth in 2019. The office investment market in 2018 has been buoyant, across both Paris and the regions, and property yields outside Paris have fallen. The occupational market has remained strong, with a vacancy rate in the Greater Paris area around 5%, in part reflecting historically low levels of supply and high numbers of pre-lettings for new schemes.
Acquisitions
In December 2018 we exchanged contracts to acquire Les Reflets, 15 Rue Jean Walter in Lille; completion is anticipated early in 2019. This four-year-old multi-let office building comprises 44,756 sq ft (4,158 sqm) of fully-let offices, and its cost of GBP10.2 million reflects a net initial yield of 6.6%. Our other acquisitions in France in 2018 were restricted to enhancing our existing portfolio, acquiring a further floor in a multi-owned building in Lyon and a car park in Paris.
Disposals
In line with our policy of disposing of properties too small to have a meaningful impact on the Group, in December we sold 18 Rue Stephenson in Paris for GBP2.5 million, over 8% above its value at December 2017.
Asset management
The vacancy rate in France fell to 2.3% at 31 December 2018 (2017: 4.4%) mainly because we let or renewed leases on 110,578 sq ft (10,273 sqm), and lost only 69,782 sq ft (6,483 sqm) of space from expiries or new vacancies. Excluding those arising from contractual indexation uplifts, 44 rent reviews, lease extensions and new leases added GBP3.3 million of rent, at an average of 1.9% above ERVs of 31 December 2017. On a like-for-like basis there was no change in ERVs in the French portfolio over the 12 months, and at the end of 2018 the portfolio was broadly rack-rented.
Developments
Ateliers Victoires is a 21,500 sq ft (2,000 sqm) prime office refurbishment in central Paris close to the Louvre. This boutique-style office building has a rooftop garden terrace with panoramic views across the city and we pre-let the entire building to a single tenant prior to practical completion.
Valuation
The French portfolio valuation rose by 3.8% in local currency, of which the completed pre-let development of Ateliers Victoires accounted for two-thirds; of the remainder, contracted rent on a like-for-like basis rose by 2.1%, and the net initial yield was unchanged at 5.2%.
Property Portfolio
Rental data
Net rental Contracted Contracted
Rental income income for Lettable rent at ERV at rent subject Vacancy
for the year the year space year end year end to indexation rate at
GBPm GBPm sqm GBPm GBPm GBPm year end
----------------- -------------- ------------ --------- ----------- ---------- --------------- ----------
United Kingdom 56.7 56.6 240,988 57.3 61.8 16.9 4.0%
Germany 31.1 30.8 300,699 35.3 38.9 19.5 4.2%
France 15.2 15.5 82,984 17.0 17.3 17.0 2.3%
----------------- -------------- ------------ --------- ----------- ---------- --------------- ----------
Total Portfolio 103.0 102.9 624,671 109.6 118.0 53.4 3.8%
----------------- -------------- ------------ --------- ----------- ---------- --------------- ----------
Valuation data
Valuation movement
in the year
------------------------
Market EPRA topped
value Foreign EPRA net up net True
of property Underlying exchange initial initial equivalent
GBPm GBPm GBPm yield yield Reversion Over-rented yield
------------- ------------ ----------- ----------- --------- ------------ ---------- ------------ ------------
United
Kingdom 954.9 4.3 - 5.2% 5.6% 8.3% 4.4% 6.0%
Germany 629.4 52.5 7.8 5.1% 5.4% 9.1% 3.3% 5.7%
France 308.1 11.0 3.8 4.7% 5.3% 2.7% 3.8% 5.2%
------------- ------------ ----------- ----------- --------- ------------ ---------- ------------ ------------
Total
Portfolio 1,892.4 67.8 11.6 5.1% 5.5% 7.7% 4.0%
------------- ------------ ----------- ----------- --------- ------------ ---------- ------------ ------------
Lease data
Average lease Passing rent of leases ERV of leases expiring
length expiring in: in:
----------------- ------------------------------ ------------------------------
Year After Year After
To To Year Year 3 to year Year Year 3 to year
break expiry 1 2 5 5 1 2 5 5
years years GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------- -------- ------ ------ ------ ------ ------ ------ ------ ------
United Kingdom 4.28 5.44 3.1 5.5 12.9 33.0 3.2 5.7 13.4 34.4
Germany 4.81 4.93 5.8 5.4 13.6 10.6 6.3 5.6 14.6 10.9
France 2.55 5.39 1.6 0.7 4.7 10.0 1.6 0.7 4.5 10.0
----------------- ------- -------- ------ ------ ------ ------ ------ ------ ------ ------
Total Portfolio 4.18 5.26 10.5 11.6 31.2 53.6 11.1 12.0 32.5 55.3
----------------- ------- -------- ------ ------ ------ ------ ------ ------ ------ ------
Director's responsibility statement
Directors' responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation, and have elected to prepare the parent company financial statements in accordance with FRS101 of United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period.
In preparing the parent company financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgments and accounting estimates that are reasonable and prudent;
-- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
-- In preparing the Group financial statements, International Accounting Standard 1 requires that Directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
-- provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
-- make an assessment of the Group's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
-- the strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
-- the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
This statement of responsibilities was approved by the Board on 7 March 2019.
On behalf of the Board
David Fuller BA FCIS
Company Secretary
7 March 2019
Group income statement
for the year ended 31 December 2018
Restated
2018 2017
Notes GBPm GBPm
---------------------------------------------------------- ------ -------- ---------
Continuing operations
Group revenue 2 133.0 120.3
---------------------------------------------------------- ------ -------- ---------
Net rental income 2 107.3 100.0
Administration expenses 3 (17.8) (14.6)
Other expenses (13.2) (12.2)
---------------------------------------------------------- ------ -------- ---------
Group revenue less costs 76.3 73.2
Net movements on revaluation of investment properties 10 62.8 94.2
Net movements on revaluation of equity investments 13 22.2 -
Profit on sale of properties 2.3 43.7
Gain on sale of other financial instruments, net
of impairments 1.7 2.5
---------------------------------------------------------- ------ -------- ---------
Operating profit 165.3 213.6
Finance income 5 6.1 10.0
Finance costs 6 (26.5) (32.4)
Share of loss of associates after tax 12 - (0.7)
---------------------------------------------------------- ------ -------- ---------
Profit before tax 144.9 190.5
Taxation 7 (12.1) (33.5)
---------------------------------------------------------- ------ -------- ---------
Profit for the year from continuing operations 4 132.8 157.0
Discontinued operations
(Loss)/profit for the year from discontinued operations 21 (14.9) 0.9
---------------------------------------------------------- ------ -------- ---------
Profit for the year 117.9 157.9
---------------------------------------------------------- ------ -------- ---------
Attributable to:
Owners of the Company 124.3 157.7
Non-controlling interests (6.4) 0.2
---------------------------------------------------------- ------ -------- ---------
117.9 157.9
---------------------------------------------------------- ------ -------- ---------
Earnings per share (expressed in pence per share)
Basic and diluted earnings per share from continuing
operations 32.6 38.5
Basic and diluted (loss)/earnings per share from
discontinued operations (2.1) 0.2
---------------------------------------------------------- ------ -------- ---------
Basic and diluted earnings per share 8 30.5 38.7
---------------------------------------------------------- ------ -------- ---------
2017 has been restated to separate the individual line items of discontinued operations from those of continuing operations, see note 21.
Group statement of comprehensive income
for the year ended 31 December 2018
Restated
2018 2017
Notes GBPm GBPm
-------------------------------------------------- ------ ------- ---------
Profit for the year 117.9 157.9
-------------------------------------------------- ------ ------- ---------
Other comprehensive income
Items that will not be reclassified to profit
or loss
Foreign exchange differences 3.6 7.7
-------------------------------------------------- ------ ------- ---------
Items that may be reclassified to profit or loss
Fair value (loss)/gains on corporate bonds and
other financial investments 13 (7.4) 13.9
Fair value gains taken to gain on sale of other
financial investments, net of impairments (0.4) (0.9)
Revaluation of property, plant and equipment 11 (0.4) (0.9)
Fair value of gains taken to profit on sale of
properties - (3.9)
Deferred tax on net fair value gains 17 0.6 0.5
Discontinued operations 1.5 0.8
-------------------------------------------------- ------ ------- ---------
Total items that may be reclassified to profit
or loss (6.1) 9.5
-------------------------------------------------- ------ ------- ---------
Total comprehensive income for the year 115.4 175.1
-------------------------------------------------- ------ ------- ---------
Total comprehensive income attributable to:
Owners of the Company 121.4 174.4
Non-controlling interests (6.0) 0.7
-------------------------------------------------- ------ ------- ---------
115.4 175.1
-------------------------------------------------- ------ ------- ---------
2017 has been restated to separate items that are attributable to discontinued operations
Group balance sheet
at 31 December 2018
Restated
2018 2017
Notes GBPm GBPm
---------------------------------------------- ------ ----------- ----------
Non-current assets
Investment properties 10 1,888.1 1,753.4
Property, plant and equipment 11 33.7 33.4
Goodwill and intangibles 1.4 1.3
Investments in associates 12 - -
Other financial investments 13 107.8 121.6
Derivative financial instruments 19 - 0.1
Deferred tax 17 3.5 3.3
---------------------------------------------- ------ ----------- ----------
2,034.5 1,913.1
---------------------------------------------- ------ ----------- ----------
Current assets
Trade and other receivables 14 12.3 8.7
Properties held for sale 4.3 17.9
Derivative financial instruments 19 - 0.6
Cash and cash equivalents 15 100.3 146.0
Assets of discontinued operations 21 56.1 71.1
---------------------------------------------- ------ ----------- ----------
173.0 244.3
---------------------------------------------- ------ ----------- ----------
Total assets 2,207.5 2,157.4
---------------------------------------------- ------ ----------- ----------
Current liabilities
Trade and other payables 16 (51.9) (54.4)
Current tax (7.0) (11.5)
Derivative financial instruments 19 (0.5) -
Borrowings 18 (66.3) (96.4)
Liabilities of discontinued operations 21 (44.3) (44.9)
---------------------------------------------- ------ ----------- ----------
(170.0) (207.2)
---------------------------------------------- ------ ----------- ----------
Non-current liabilities
Deferred tax 17 (139.3) (135.1)
Borrowings 18 (770.6) (774.9)
Derivative financial instruments 19 (4.6) (6.9)
---------------------------------------------- ------ ----------- ----------
(914.5) (916.9)
---------------------------------------------- ------ ----------- ----------
Total liabilities (1,084.5) (1,124.1)
---------------------------------------------- ------ ----------- ----------
Net assets 1,123.0 1,033.3
---------------------------------------------- ------ ----------- ----------
Equity
Share capital 22 11.0 11.0
Share premium 24 83.1 83.1
Other reserves 25 123.0 143.0
Retained earnings 905.1 789.4
---------------------------------------------- ------ ----------- ----------
Equity attributable to owners of the Company 1,122.2 1,026.5
---------------------------------------------- ------ ----------- ----------
Non-controlling interests 0.8 6.8
---------------------------------------------- ------ ----------- ----------
Total equity 1,123.0 1,033.3
---------------------------------------------- ------ ----------- ----------
The financial statements of CLS Holdings plc (registered number: 2714781) were approved by the Board of Directors and authorised for issue on 7 March 2019 and were signed on its behalf by:
Mr E H Klotz
Executive Chairman
2017 has been restated to separate the assets and liabilities of discontinued operations from those of continuing operations, see note 21.
Group statement of changes in equity
for the year ended 31 December 2018
Share Share Other
capital premium reserves
GBPm GBPm GBPm Retained Non-controlling Total
Note Note Note earnings Total interest equity
22 24 25 GBPm GBPm GBPm GBPm
---------------------------------- --------- --------- ---------- ---------- -------- ---------------- --------
Arising in 2018:
Total comprehensive income
for the year - - (2.9) 124.3 121.4 (6.0) 115.4
Employee Performance Incentive
Plan charge - - 0.8 - 0.8 - 0.8
Reclassify fair value
movements on equity investments - - (17.9) 17.9 - - -
Dividends to shareholders - - - (26.5) (26.5) - (26.5)
---------------------------------- --------- --------- ---------- ---------- -------- ---------------- --------
Total changes arising
in 2018 - - (20.0) 115.7 95.7 (6.0) 89.7
At 1 January 2018 11.0 83.1 143.0 789.4 1,026.5 6.8 1,033.3
---------------------------------- --------- --------- ---------- ---------- -------- ---------------- --------
At 31 December 2018 11.0 83.1 123.0 905.1 1,122.2 0.8 1,123.0
---------------------------------- --------- --------- ---------- ---------- -------- ---------------- --------
Share Share Other
capital premium reserves
GBPm GBPm GBPm Retained Non-controlling Total
Note Note Note earnings Total interest equity
22 24 25 GBPm GBPm GBPm GBPm
-------------------------------- --------- --------- ---------- ---------- -------- ---------------- --------
Arising in 2017:
Total comprehensive income
for the year - - 16.7 157.7 174.4 0.7 175.1
Employee Performance Incentive
Plan charge - - 0.4 - 0.4 - 0.4
Dividends to shareholders - - - (24.7) (24.7) - (24.7)
-------------------------------- --------- --------- ---------- ---------- -------- ---------------- --------
Total changes arising
in 2017 - - 17.1 133.0 150.1 0.7 150.8
At 1 January 2017 11.0 83.1 125.9 656.4 876.4 6.1 882.5
-------------------------------- --------- --------- ---------- ---------- -------- ---------------- --------
At 31 December 2017 11.0 83.1 143.0 789.4 1,026.5 6.8 1,033.3
-------------------------------- --------- --------- ---------- ---------- -------- ---------------- --------
Group statement of cash flows
for the year ended 31 December 2018
Restated
2018 2017
Notes GBPm GBPm
------------------------------------------------------- ------ -------- ---------
Cash flows from operating activities
Cash generated from operations 26 72.9 73.7
Interest received 4.4 6.8
Interest paid (24.2) (24.1)
Income tax paid on operating activites (5.1) (7.6)
------------------------------------------------------- ------ -------- ---------
Net cash inflow from operating activities 48.0 48.8
------------------------------------------------------- ------ -------- ---------
Cash flows from investing activities
Purchase of investment properties (70.9) (230.8)
Capital expenditure on investment properties (15.8) (24.2)
Proceeds from sale of properties 48.8 241.9
Income tax paid on sale of properties (7.9) (8.5)
Purchases of property, plant and equipment (2.0) (1.1)
Purchase of corporate bonds (39.7) (11.9)
Proceeds from sale of corporate bonds 68.7 12.0
Proceeds from sale of equity investments 1.0 5.6
Dividends received from equity investments 1.7 1.4
Purchase of intangibles (0.1) -
Net cash flow from discontinued operations 1.0 (0.3)
Costs on foreign currency transactions (0.9) (3.8)
------------------------------------------------------- ------ -------- ---------
Net cash outflow from investing activities (16.1) (19.7)
------------------------------------------------------- ------ -------- ---------
Cash flows from financing activities
Dividends paid (26.5) (24.7)
New loans 137.7 211.6
Issue costs of new loans (1.8) (2.5)
Repayment of loans (181.7) (176.4)
------------------------------------------------------- ------ -------- ---------
Net cash (outflow)/inflow from financing activities (72.3) 8.0
------------------------------------------------------- ------ -------- ---------
Cash flow element of net (decrease) /increase
in cash and cash equivalents (40.4) 37.1
Foreign exchange gains 0.2 5.1
------------------------------------------------------- ------ -------- ---------
Net (decrease)/ increase in cash and cash equivalents (40.2) 42.2
Cash and cash equivalents at the beginning of
the year 140.5 98.3
------------------------------------------------------- ------ -------- ---------
Cash and cash equivalents at the end of the year 15 100.3 140.5
------------------------------------------------------- ------ -------- ---------
Income tax paid on the sale of properties has been disclosed within cash flows from investing activities as it is a direct cost associated with property sales. Previously income tax paid on sale of properties was included within income tax paid on operating activities.
Notes to the Group Financial Statements
31 December 2018
1 General information
CLS Holdings plc (the "Company") and its subsidiaries (together "CLS Holdings" or the "Group") is an investment property group which is principally involved in the investment, management and development of commercial properties, and in other investments. The Group's principal operations are carried out in the United Kingdom, Germany and France.
The Company is registered in the UK, registration number 2714781, with its registered address at 16 Tinworth Street, London SE11 5AL. 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 2018 Annual Report and Accounts will be posted to shareholders on 22 March 2019 and will also be available on the Company's website.
The preliminary results for the Company and its subsidiaries (the "Group") for the year ended 31 December 2018 are unaudited. The financial information set out in this announcement does not constitute the Group's financial statements for the year ended 31 December 2018 or 31 December 2017 as defined by Section 434 of the Companies Act 2006.
This financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union, IFRS IC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS and therefore complies with Article 4 of the EU IAS regulations.
The financial information for the year ended 31 December 2017 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors, Deloitte LLP, reported on those accounts and their report was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 (2) or (3) of the Companies Act 2006.
The statutory accounts for the year ended 31 December 2018 will be finalised on the basis of the financial information presented by the Directors in these preliminary results and will be delivered to the Registrar of Companies following the Annual General Meeting of CLS Holdings plc.
The same accounting policies and methods of computation are followed as in the latest published audited accounts for the year ended 31 December 2017, which are available on the Group's website at www.clsholdings.com, except for the application of IFRS 9, listed equity securities are now classified as financial assets at fair value through profit and loss and fair value movements are recognised directly in the income statement.
Going Concern
The Group's business activities, and the factors likely to affect its future development, performance and position are set out in the Strategic Report within the 2018 Annual Report and Accounts. The financial position of the Group, its liquidity position and borrowing facilities are described in the Strategic Report within the 2018 Annual Report and Accounts and in the notes to the accounts.
The Directors regularly stress-test the business model to ensure that the Group has adequate working capital and have reviewed the current and projected financial positions of the Group, taking into account the repayment profile of the Group's loan portfolio, and making reasonable assumptions about future trading performance. The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and, therefore, they continue to adopt the going concern basis in preparing the annual report and accounts.
2 Segment information
The Group has three operating divisions - Investment Property Other Investments and Central Administration. Other Investments comprise the hotel at Spring Mews, corporate bonds, shares in Catena 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 Property: United Kingdom France
Germany Sweden
Other Investments
Central Administration
The Group's results for the year ended 31 December 2018 by operating segment were as follows:
Investment Property
-------------------------------------
United Other Central
Kingdom Germany France Sweden Investments Administration Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- --------- -------- ------- ------- ------------- ----------------- --------
Rental income 56.7 31.1 15.2 - - - 103.0
Other property-related
income 2.0 0.1 0.4 - 4.4 - 6.9
Service charge income 8.2 9.5 5.4 - - - 23.1
--------------------------------- --------- -------- ------- ------- ------------- ----------------- --------
Revenue 66.9 40.7 21.0 - 4.4 - 133.0
Service charges and
similar expenses (10.3) (9.9) (5.5) - - - (25.7)
--------------------------------- --------- -------- ------- ------- ------------- ----------------- --------
Net rental income 56.6 30.8 15.5 - 4.4 - 107.3
Administration expenses (6.7) (3.0) (1.9) - (0.6) (5.6) (17.8)
Other expenses (5.7) (3.5) (1.0) - (3.0) - (13.2)
--------------------------------- --------- -------- ------- ------- ------------- ----------------- --------
Group revenue less
costs 44.2 24.3 12.6 - 0.8 (5.6) 76.3
Net movements on revaluation
of investment properties 4.0 48.0 10.8 - - - 62.8
Gain on revaluation
of equity investments - - - - 22.2 - 22.2
Profit on sale of investment
property 1.9 0.3 0.1 - - - 2.3
Gain on sale of corporate
bonds - - - - 1.7 - 1.7
--------------------------------- --------- -------- ------- ------- ------------- ----------------- --------
Segment operating profit/(loss) 50.1 72.6 23.5 - 24.7 (5.6) 165.3
Finance income - - - - 6.1 - 6.1
Finance costs (18.3) (4.9) (2.7) - (0.6) - (26.5)
--------------------------------- --------- -------- ------- ------- ------------- ----------------- --------
Segment profit/(loss)
before tax 31.8 67.7 20.8 - 30.2 (5.6) 144.9
--------------------------------- --------- -------- ------- ------- ------------- ----------------- --------
The Group's results for the year ended 31 December 2017 by operating segment were as follows:
Investment Property
-------------------------------------
United Other Central
Kingdom Germany France Sweden Investments Administration Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- --------- -------- ------- ------- ------------- ---------------- --------
Rental income 54.1 24.4 15.2 - - - 93.7
Other property-related
income 2.8 0.6 0.5 - 4.4 - 8.3
Service charge income 7.2 5.9 5.2 - - - 18.3
--------------------------------- --------- -------- ------- ------- ------------- ---------------- --------
Revenue 64.1 30.9 20.9 - 4.4 - 120.3
Service charges and
similar expenses (9.1) (5.9) (5.3) - - - (20.3)
--------------------------------- --------- -------- ------- ------- ------------- ---------------- --------
Net rental income 55.0 25.0 15.6 - 4.4 - 100.0
Administration expenses (6.0) (1.8) (1.7) - (0.4) (4.7) (14.6)
Other expenses (6.2) (2.5) (0.7) - (2.8) - (12.2)
--------------------------------- --------- -------- ------- ------- ------------- ---------------- --------
Group revenue less
costs 42.8 20.7 13.2 - 1.2 (4.7) 73.2
Net movements on revaluation
of investment properties 39.9 34.2 20.1 - - - 94.2
Profit/(loss) on sale
of investment property 43.7 (0.1) 0.1 - - - 43.7
Gain on sale of corporate
bonds - - - - 4.5 - 4.5
Permanent impairment
of value of corporate
bonds - - - - (2.0) - (2.0) --------------------------------- --------- -------- ------- ------- ------------- ---------------- -------- Segment operating profit/(loss) 126.4 54.8 33.4 - 3.7 (4.7) 213.6 Finance income - - - 2.2 7.8 - 10.0 Finance costs (23.6) (2.9) (2.3) - (3.6) - (32.4) Share of loss of associates after tax - - - - (0.7) - (0.7) --------------------------------- --------- -------- ------- ------- ------------- ---------------- -------- Segment profit/(loss) before tax 102.8 51.9 31.1 2.2 7.2 (4.7) 190.5 --------------------------------- --------- -------- ------- ------- ------------- ---------------- --------
Other segment information:
Assets Liabilities Capital expenditure
------------------- ------------------- ----------------------
2018 2017 2018 2017 2018 2017
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- --------- -------- --------- -------- ---------- ----------
Investment Property
United Kingdom 981.0 925.4 463.5 510.3 82.0 66.2
Germany 643.4 584.8 347.5 346.3 2.3 190.1
France 315.9 296.1 218.4 201.9 5.7 6.0
Sweden - 10.6 - 8.1 - -
Other Investments 211.1 269.4 10.9 12.6 - 2.3
--------------------- --------- -------- --------- -------- ---------- ----------
2,151.4 2,086.3 1,040.3 1,079.2 90.0 264.6
--------------------- --------- -------- --------- -------- ---------- ----------
3 Administration cost ratio
The administration cost ratio is a key performance indicator of the Group. It represents the cost of running the property portfolio relative to its net income, and is calculated as follows:
2018 2017
GBPm GBPm
------------------------------------------------------ ------ ------
Administration expenses of the Group 17.8 14.6
Less: administration expenses of Other Investments (0.6) (0.4)
------------------------------------------------------ ------ ------
Property-related and central administration expenses
(A) 17.2 14.2
------------------------------------------------------ ------ ------
Net rental income (B) 107.3 100.0
------------------------------------------------------ ------ ------
Administration cost ratio (A divided by B) 16.0% 14.2%
------------------------------------------------------ ------ ------
4 Profit for the year
Profit for the year has been arrived at after charging:
2018 2017
GBPm GBPm
----------------------------------------------------------------- ------ ------
Auditor's remuneration
Fees payable to the Company's auditor for the audit
of the Parent Company and Group accounts 0.3 0.4
Fees payable to the Company's auditor for:
Audit of the Company's subsidiaries pursuant to legislation 0.1 0.1
Other services to the Group (interim review and tax
services) 0.1 0.1
Depreciation of property, plant and equipment (note
11) 1.0 0.8
Employee benefits expense 12.2 10.0
Net foreign exchange loss/(gain) (notes 5 and 6) 0.6 (1.8)
Impairment loss recognised on other financial instruments - 2.0
Provision against trade receivables 0.3 0.6
----------------------------------------------------------------- ------ ------
5 Finance income
2018 2017
GBPm GBPm
---------------------------- ------ ------
Interest income 4.4 6.8
Other finance income 1.7 1.4
Foreign exchange variances - 1.8
---------------------------- ------ ------
6.1 10.0
---------------------------- ------ ------
6 Finance costs
2018 2017
GBPm GBPm
------------------------------------------------------------ ------ ------
Interest expense
Bank loans 17.9 15.7
Debenture loan - 2.4
Secured notes 2.6 2.8
Unsecured bonds 2.0 3.6
Amortisation of loan issue costs 2.0 1.6
------------------------------------------------------------ ------ ------
Total interest costs 24.5 26.1
Less interest capitalised on development projects - (0.5)
------------------------------------------------------------ ------ ------
24.5 25.6
Loss on early redemption of debt 3.7 9.7
Movement in fair value of derivative financial instruments
Interest rate swaps: transactions not qualifying as
hedges (2.3) (2.9)
Foreign exchange variances 0.6 -
------------------------------------------------------------ ------ ------
26.5 32.4
------------------------------------------------------------ ------ ------
7 Taxation
2018 2017
GBPm GBPm
------------------------------- ------ ------
Current tax charge 8.5 17.7
Deferred tax charge (note 17) 3.6 15.8
------------------------------- ------ ------
12.1 33.5
------------------------------- ------ ------
A deferred tax credit of GBP0.6 million (2017: GBP0.5 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:
2018 2017
GBPm GBPm
------------------------------------------------------------- ------ ------
Profit before tax 144.9 190.5
------------------------------------------------------------- ------ ------
Tax calculated at domestic tax rates applicable to profits
in the respective countries 28.3 39.6
Expenses not deductible for tax purposes 0.1 0.2
Tax effect of fair value movements on investments (4.8) (0.1)
Change in tax basis of United Kingdom properties, including
indexation uplift (0.6) (5.6)
Change in tax rate (7.8) -
Non-taxable income (0.7) (1.4)
Deferred tax on losses (rerecognised)/not recognised (0.9) 1.5
Tax liability released on disposals - 1.7
Adjustment in respect of prior periods (1.5) (2.4)
------------------------------------------------------------- ------ ------
Tax charge for the year 12.1 33.5
------------------------------------------------------------- ------ ------
The weighted average applicable tax rate of 19.5% (2017: 20.7%) was derived by applying to their relevant profits and losses the rates in the jurisdictions in which the Group operated.
The tax rate in France fell from 28% to 25% and in Sweden from 22% to 20.6%, the combined effect of which is a GBP7.8m reduction in the tax charge for the year.
8 Earnings per share
Management has chosen to disclose the European Public Real Estate Association (EPRA) measure of earnings per share which has been provided to give relevant information to investors on the long-term performance of the Group's underlying property investment business. The EPRA measure excludes items which are non-recurring in nature such as profits (net of related tax) on sale of investment properties and of other non-current investments, and items which have no impact to earnings over their life, such as the change in fair value of derivative financial instruments and the net movement on revaluation of investment properties, and the related deferred taxation on these items.
2018 2017
Earnings GBPm GBPm
----------------------------------------------------------- -------- -------
Profit for the year attributable to owners of the Company 124.3 157.7
Net movements on revaluation of investment properties (62.8) (94.2)
Movements on revaluation of equity investments, net (21.6) -
of foreign exchange
Loss/(profit) from discontinued operations 8.5 (0.7)
Loss on early redemption of debt, net of tax 3.0 7.9
Loss/(profit) on sale of investment properties, net
of tax 0.1 (30.8)
Gain on sale of corporate bonds, net of tax (1.3) (3.6)
Change in fair value of derivative financial instruments (0.3) (2.9)
Permanent impairment of value of corporate bond, net
of tax - 1.6
Impairment of carrying value of associates - 0.7
Deferred tax relating to the above adjustments 3.6 15.8
----------------------------------------------------------- -------- -------
EPRA earnings 53.5 51.5
----------------------------------------------------------- -------- -------
2018 2017
Weighted average number of ordinary shares Number Number
----------------------------------------------------------- ------------- ------------
Weighted average number of ordinary shares in circulation 407,395,760 407,395,760
----------------------------------------------------------- ------------- ------------
2018 2017
Earnings per Share Pence Pence
-------------------- ------- -------
Basic and diluted 30.5 38.7
-------------------- ------- -------
EPRA 13.1 12.6
-------------------- ------- -------
9 Net assets per share
Management has chosen to disclose the two European Public Real Estate Association (EPRA) measures of net assets per share: EPRA net assets per share and EPRA triple net assets per share. The EPRA net assets per share measure highlights the fair value of equity on a long-term basis, and so excludes items which have no impact on the Group in the long term, such as fair value movements of derivative financial instruments and deferred tax on the fair value of investment properties. The EPRA triple net assets per share measure discloses net assets per share on a true fair value basis: all balance sheet items are included at their fair value in arriving at this measure, including deferred tax, fixed-rate loan liabilities and any other balance sheet items not reported at fair value.
2018 2017
Net assets GBPm GBPm
-------------------------------------------------------- --------- --------
Basic net assets attributable to owners of the Company 1,122.2 1,026.5
Adjustment to increase fixed rate debt to fair value,
net of tax (5.3) (5.9)
Goodwill as a result of deferred tax (1.1) (1.1)
-------------------------------------------------------- --------- --------
EPRA triple net assets 1,115.8 1,019.5
Deferred tax on property and other non-current assets,
net of minority interest 135.8 131.8
Fair value of derivative financial instruments 5.1 6.2
Adjustment to decrease fixed rate debt to book value,
net of tax 5.3 5.9
-------------------------------------------------------- --------- --------
EPRA net assets 1,262.0 1,163.4
-------------------------------------------------------- --------- --------
2018 2017
Number of ordinary shares Number Number
------------------------------------------ ------------ ------------
Number of ordinary shares in circulation 407,395,760 407,395,760
------------------------------------------ ------------ ------------
2018 2017
Net assets per share Pence Pence
---------------------- ------- -------
Basic 275.5 252.0
EPRA 309.8 285.6
EPRA triple net 273.9 250.2
---------------------- ------- -------
10 Investment properties
United
Kingdom Germany France Total
GBPm GBPm GBPm GBPm
------------------------------------------- --------- -------- ------- --------
At 1 January 2018 895.0 568.4 290.0 1,753.4
Acquisitions 67.6 - 2.4 70.0
Capital expenditure 12.4 2.3 3.3 18.0
Disposals (27.2) (1.6) (2.4) (31.2)
Net movement on revaluation of investment
properties 3.9 48.1 10.8 62.8
Rent-free period debtor adjustments 0.4 4.4 0.2 5.0
Exchange rate variances - 7.8 3.8 11.6
Transfer from/(to) properties held for
sale 2.0 (3.5) - (1.5)
------------------------------------------- --------- -------- ------- --------
At 31 December 2018 954.1 625.9 308.1 1,888.1
------------------------------------------- --------- -------- ------- --------
United
Kingdom Germany France Total
GBPm GBPm GBPm GBPm
------------------------------------------- --------- -------- ------- --------
At 1 January 2017 921.3 356.9 258.4 1,536.6
Acquisitions 49.9 187.7 0.9 238.5
Capital expenditure 15.4 2.4 5.1 22.9
Disposals (120.6) (25.5) (7.1) (153.2)
Net movement on revaluation of investment
properties 39.9 34.2 20.1 94.2
Rent-free period debtor adjustments 1.0 1.0 1.5 3.5
Exchange rate variances - 17.7 11.1 28.8
Transfer to properties held for sale (11.9) (6.0) - (17.9)
------------------------------------------- --------- -------- ------- --------
At 31 December 2017 895.0 568.4 290.0 1,753.4
------------------------------------------- --------- -------- ------- --------
The investment properties, properties held for sale and the hotel and landholding detailed in note 11 were revalued at 31 December 2018 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:
United Kingdom: Cushman and Wakefield
Germany: Cushman and Wakefield
France: Jones Lang LaSalle
Property valuations are complex and require a degree of judgement and are based on data which is not publicly available. Consistent with EPRA guidance, we have classified the valuations of our property portfolio as level 3 as defined by IFRS 13 Fair Value Measurement. Inputs into the valuations include equivalent yields and rental income and are 'unobservable' under the definition in IFRS 13. These inputs are analysed by segment in the property portfolio information on the inside front cover. All other factors remaining constant, an increase in rental income would increase valuations, whilst an increase in the true equivalent yield would result in a fall in value, and vice versa.
Key inputs to the valuation
ERV True Equivalent
yield
---------------------- ----------------------
Average Range Average Range
GBP per sq % %
per sq ft
ft
--------- -------- ------------ -------- ------------
UK 30.81 8.50-60.00 5.76% 3.3%-10.75%
Germany 12.07 8.61-17.14 5.30% 4.63%-6.00%
France 23.28 10.50-48.97 5.23% 3.30%-7.75%
--------- -------- ------------ -------- ------------
A decrease in the true equivalent yield by 25 basis points would result in an increase in the fair value of the Group's investment property by GBP101.1 million, whilst a 25 basis point increase would reduce the fair value by GBP101.6 million.
Investment properties included leasehold properties with a carrying amount of GBP73.3 million (2017: GBP73.1 million).
Interest capitalised within capital expenditure in the year amounted to GBPnil (2017: GBP0.5 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.
Around 85% of investment properties (and the hotel detailed in note 11) are secured against debt.
11 Property, plant and equipment
Land Owner- Fixtures
and occupied and
Hotel buildings property fittings Total
GBPm GBPm GBPm GBPm GBPm
----------------------------------------- ------- ----------- ---------- ---------- --------
Cost or valuation
At 1 January 2017 27.1 72.5 5.9 4.9 110.4
Transfer to discontinued operations - (70.3) - (1.0) (71.3)
Restated at 1 January 2017 27.1 2.2 5.9 3.9 39.1
----------------------------------------- ------- ----------- ---------- ---------- --------
Additions - 2.3 - 0.9 3.2
Disposals - - (5.9) - (5.9)
Revaluation 0.5 (1.4) - - (0.9)
Exchange rate variances - 1.5 - - 1.5
----------------------------------------- ------- ----------- ---------- ---------- --------
At 31 December 2017 27.6 4.6 - 4.8 37.0
Additions - - - 2.0 2.0
Disposals - - - (1.1) (1.1)
Revaluation 0.6 (1.0) - - (0.4)
Exchange rate variances - (0.1) - - (0.1)
----------------------------------------- ------- ----------- ---------- ---------- --------
At 31 December 2018 28.2 3.5 - 5.7 37.4
Comprising:
At cost - - - 5.7 5.7
At valuation 31 December 2018 28.2 3.5 - - 31.7
----------------------------------------- ------- ----------- ---------- ---------- --------
28.2 3.5 - 5.7 37.4
----------------------------------------- ------- ----------- ---------- ---------- --------
Accumulated depreciation and impairment
At 1 January 2017 (0.4) (0.8) (0.2) (2.6) (4.0)
Transfer to discontinued operations - 0.8 - 0.2 1.0
Restated at 1 January 2017 (0.4) - (0.2) (2.4) (3.0)
------- ----------- ---------- ---------- --------
Disposals _ _ 0.2 _ 0.2
Depreciation charge (0.2) _ _ (0.6) (0.8)
----------------------------------------- ------- ----------- ---------- ---------- --------
At 31 December 2017 (0.6) - - (3.0) (3.6)
Disposals - - - 0.9 0.9
Depreciation charge (0.2) - - (0.8) (1.0)
----------------------------------------- ------- ----------- ---------- ---------- --------
At 31 December 2018 (0.8) - - (2.9) (3.7)
----------------------------------------- ------- ----------- ---------- ---------- --------
Net book value
At 31 December 2018 27.4 3.5 - 2.8 33.7
----------------------------------------- ------- ----------- ---------- ---------- --------
At 31 December 2017 27.0 4.6 - 1.8 33.4
----------------------------------------- ------- ----------- ---------- ---------- --------
A hotel and a landholding were revalued at each balance sheet date based on the external valuation performed by Cushman and Wakefield and L Fällström AB, respectively.
12 Investments in associates
2018 2017
GBPm GBPm
-------------------------------------------- ------- ------
At 1 January - 0.2
Conversion of convertible loan into shares - 0.5
Impairment - (0.7)
---------------------------------------------- ----- ------
At 31 December - -
---------------------------------------------- ----- ------
A convertible loan to Nyheter 24 Media Network AB was converted into equity on 26 November 2017 at the option of the borrower.
13 Other financial investments
Investment Destination 2018 2017
type of Investment GBPm GBPm
------------------------------- ---------------------- ---------------- ------- ------
Carried at fair value through Listed corporate
other comprehensive income 1 bonds UK 7.1 11.5
Eurozone - 6.3
Other 23.2 47.7
----------------------------------------------------------------------- ------- ------
30.3 65.5
Carried at fair value through Listed equity
profit and loss 1 securities Sweden 77.5 55.9
Unlisted investments Sweden - 0.2
---------------------- ------------------------------------------------ ------- ------
107.8 121.6
----------------------------------------------------------------------- ------- ------
The movement of other financial investments, analysed based on the methods used to measure their fair value, was as follows:
Level Level 2 Level Total
1 Observable 3 GBPm
Quoted market Other
market data valuation
prices GBPm Methods(2)
GBPm GBPm
------------------------------------------- -------- ------------ ------------ --------
At 1 January 2018 55.9 65.5 0.2 121.6
Additions - 39.7 - 39.7
Disposals - (67.8) (0.2) (68.0)
Fair value movements recognised in other
comprehensive income - (7.4) - (7.4)
Fair value movements recognised in profit
before tax 22.2 (0.4) - 21.8
Exchange rate variations (0.6) 0.7 - 0.1
------------------------------------------- -------- ------------ ------------ --------
At 31 December 2018 77.5 30.3 - 107.8
------------------------------------------- -------- ------------ ------------ --------
Level Level 2 Level Total
1 Observable 3 GBPm
Quoted market Other
market data valuation
prices GBPm methods(1)
GBPm GBPm
------------------------------------------- -------- ------------ ------------ -------
At 1 January 2017 50.8 65.1 0.5 116.4
Transfer to discontinued operations - - (0.2) (0.2)
Restated at 1 January 2017 50.8 65.1 0.3 116.2
------------------------------------------- -------- ------------ ------------ -------
Additions - 11.9 - 11.9
Disposals (3.5) (9.6) - (13.1) Fair value movements recognised in other comprehensive income 9.8 4.1 - 13.9 Fair value movements recognised in profit before tax (1.6) (1.3) - (2.9) Exchange rate variations 0.4 (4.7) (0.1) (4.4) ------------------------------------------- -------- ------------ ------------ ------- At 31 December 2017 55.9 65.5 0.2 121.6 ------------------------------------------- -------- ------------ ------------ -------
1 The adoption of IFRS9 from 1 January 2018 has resulted in Other Financial Investments previously disclosed as Available for Sale Financial Assets being reclassified to either carried at fair value through other comprehensive income or carried at fair value through profit and loss.
2 Unlisted equity shares are valued using multiples from comparable listed organisations.
Corporate Bond Portfolio
At 31 December 2018
Travel Telecoms Energy
Sector Banking Insurance and Tourism and IT and Resources Other Total
--------- ------------------ --------------- ------------- ------------ --------------- ------------- ---------
Value GBP11.8m GBP2.3m GBP3.3m GBP7.3m GBP1.4m GBP4.2m GBP30.3m
Running
yield 8.0% 6.9% 7.5% 8.1% 10.1% 4.2% 7.5%
--------- ------------------ --------------- ------------- ------------ --------------- ------------- ---------
Issuers RBS PGH Capital Hertz Dell Transocean Stora
Enso
HSBC Brit Insurance Stena Xerox Yum! Brands
Lloyds Seagate Liberty
Interactive
Barclays Centurylink
Unicredit Telecom
Italia
Standard
Chartered
Credit Agricole
Societe Generale
--------- ------------------ --------------- ------------- ------------ --------------- ------------- ---------
14 Trade and other receivables
2018 2017
GBPm GBPm
------------------- ------ ------
Current
Trade receivables 4.2 2.9
Prepayments 2.0 1.6
Accrued income 2.1 1.5
Other debtors 4.0 2.7
------------------- ------ ------
12.3 8.7
------------------- ------ ------
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 (2017: nil). No trade and other receivables were interest-bearing.
15 Cash and cash equivalents
2018 2017
GBPm GBPm
-------------------------------------- ------- ------
Cash at bank and in hand 100.3 140.5
Cash held on behalf of third parties - 5.5
-------------------------------------- ------- ------
100.3 146.0
-------------------------------------- ------- ------
At 31 December 2018, Group cash at bank and in hand included GBP21.8 million (2017: GBP17.6 million) which was restricted by a third-party charge.
At 31 December 2017 the Group held, on behalf of a third party, cash which was paid to the third party in January 2018. As the Group held no beneficial interest in this cash at 31 December 2017 it was excluded from the group cash flow statement and all other cash and gearing metrics.
16 Trade and other payables
2018 2017
GBPm GBPm
--------------------------------- ------ ------
Current
Trade payables 6.1 2.4
Social security and other taxes 1.8 3.2
Other payables 11.4 16.0
Accruals 17.9 19.5
Deferred income 14.7 13.3
--------------------------------- ------ ------
51.9 54.4
--------------------------------- ------ ------
17 Deferred tax
2018 2017
GBPm GBPm
----------------------------- ------ ------
Deferred tax assets:
- after more than 12 months (3.5) (3.3)
Deferred tax liabilities:
- after more than 12 months 139.3 135.1
----------------------------- ------ ------
135.8 131.8
----------------------------- ------ ------
The movement in deferred tax was as follows:
2018 2017
GBPm GBPm
----------------------------------------- ------ -------
At 1 January 131.8 117.6
Charged in arriving at profit after tax 3.6 15.8
Credited to other comprehensive income (0.6) (0.5)
Transfer to discontinued operations - (4.2)
Exchange rate variances 1.0 3.1
----------------------------------------- ------ -------
At 31 December 135.8 131.8
----------------------------------------- ------ -------
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:
Other Total
Deferred tax assets GBPm GBPm
----------------------------------------- ------ ------
At 1 January 2018 (3.3) (3.3)
Charged in arriving at profit after tax 0.1 0.1
Credited to other comprehensive income (0.3) (0.3)
------------------------------------------ ------ ------
At 31 December 2018 (3.5) (3.5)
------------------------------------------ ------ ------
Other Total
Deferred tax assets GBPm GBPm
------------------------------------------ ------ ------
At 1 January 2017 (3.1) (3.1)
Credited in arriving at profit after tax (1.0) (1.0)
Charged to other comprehensive income 0.8 0.8
------------------------------------------- ------ ------
At 31 December 2017 (3.3) (3.3)
------------------------------------------- ------ ------
Fair value
UK capital adjustments
allowances to properties Other Total
Deferred tax liabilities GBPm GBPm GBPm GBPm
------------------------------------------- ------------ --------------- ------ ------
At 1 January 2018 10.4 122.0 2.7 135.1
Charged/(credited) in arriving at profit
after tax 0.6 3.3 (0.4) 3.5
Charged/(credited) to other comprehensive
income - 0.3 (0.6) (0.3)
Exchange rate variances - 1.0 - 1.0
------------------------------------------- ------------ --------------- ------ ------
At 31 December 2018 11.0 126.6 1.7 139.3
------------------------------------------- ------------ --------------- ------ ------
Fair value
UK capital adjustments
allowances to properties Other Total
Deferred tax liabilities GBPm GBPm GBPm GBPm
------------------------------------------ ------------ --------------- ------ -------
At 1 January 2017 11.1 106.9 2.7 120.7
(Credited)/charged in arriving at profit
after tax (0.7) 16.9 0.6 16.8
Credited to other comprehensive income - (0.6) (0.7) (1.3)
Transfer to discontinued operations - (4.2) - (4.2)
Exchange rate variances - 3.0 0.1 3.1
------------------------------------------ ------------ --------------- ------ -------
At 31 December 2017 10.4 122.0 2.7 135.1
------------------------------------------ ------------ --------------- ------ -------
Deferred tax has been calculated at a weighted average across the Group of 18.2% (2017: 19.6%), and has been based on the rates applicable under legislation substantively enacted at the balance sheet date.
Deferred tax assets are recognised in respect of tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. At 31 December 2018 the Group did not recognise deferred tax assets of GBP1.1 million (2017: GBP8.2 million) in respect of losses amounting to GBP6.0 million (2017: GBP30.4 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.
18 Borrowings
At 31 December 2018 At 31 December 2017
------------------------------------ ------------------------------------
Total Total
Current Non-current borrowings Current Non-current borrowings
GBPm GBPm GBPm GBPm GBPm GBPm
----------------- -------- ------------ ------------ -------- ------------ ------------
Bank loans 62.2 716.0 778.2 92.3 651.2 743.5
Unsecured bonds - - - - 65.0 65.0
Secured notes 4.1 54.6 58.7 4.1 58.7 62.8
----------------- -------- ------------ ------------ -------- ------------ ------------
66.3 770.6 836.9 96.4 774.9 871.3
----------------- -------- ------------ ------------ -------- ------------ ------------
Arrangement fees of GBP5.4 million (2017: GBP5.4 million) have been offset in arriving at the balances in the above tables.
Bank loans
Interest on bank loans is charged at fixed rates ranging between 0.8% and 5.5%, including margin (2017: 0.8% and 5.5%) and at floating rates of typically LIBOR or EURIBOR plus a margin. Floating rate margins range between 1.0% and 2.5% (2017: 0.9% and 2.8%). 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.
Unsecured bonds
The GBP65.0 million unsecured retail bonds, which attracted a fixed rate coupon of 5.5% and were due for repayment in 2019, were redeemed in full in July 2018. The bonds had been listed on the London Stock Exchange's Order book for Retail Bonds.
Secured notes
On 3 December 2013, the Group issued GBP80.0 million secured, partially-amortising notes. The notes attract a fixed-rate coupon of 4.17% on the unamortised principal, the balance of which is repayable in December 2022.
The maturity profile of the carrying amount of the Group's borrowings was as follows:
Bank Unsecured Secured Total
loans bonds notes GBPm
At 31 December 2018 GBPm GBPm GBPm
-------------------------------------------- -------- ---------- -------- --------
Within one year or on demand 64.0 - 4.2 68.2
More than one but not more than two years 132.1 - 4.2 136.3
More than two but not more than five years 443.0 - 50.7 493.7
More than five years 144.1 - - 144.1
-------------------------------------------- -------- ---------- -------- --------
783.2 - 59.1 842.3
Unamortised issue costs (5.0) - (0.4) (5.4)
-------------------------------------------- -------- ---------- -------- --------
Borrowings 778.2 - 58.7 836.9
Less amount due for settlement within 12
months (62.2) - (4.1) (66.3)
-------------------------------------------- -------- ---------- -------- --------
Amounts due for settlement after 12 months 716.0 - 54.6 770.6
-------------------------------------------- -------- ---------- -------- --------
Bank Unsecured Secured
loans bonds notes Total
At 31 December 2017 GBPm GBPm GBPm GBPm
-------------------------------------------- ------- ---------- -------- --------
Within one year or on demand 93.8 - 4.2 98.0
More than one but not more than two years 53.6 65.0 4.2 122.8
More than two but not more than five years 498.2 - 54.9 553.1
More than five years 102.8 - - 102.8
-------------------------------------------- ------- ---------- -------- --------
748.4 65.0 63.3 876.7
Unamortised issue costs (4.9) - (0.5) (5.4)
-------------------------------------------- ------- ---------- -------- --------
Borrowings 743.5 65.0 62.8 871.3
Less amount due for settlement within 12
months (92.3) - (4.1) (96.4)
-------------------------------------------- ------- ---------- -------- --------
Amounts due for settlement after 12 months 651.2 65.0 58.7 774.9
-------------------------------------------- ------- ---------- -------- --------
The interest rate risk profile of the Group's fixed rate borrowings was as follows:
At 31 December 2018 At 31 December
2017
-------------------------- --------------------------
Weighted Weighted Weighted Weighted
average average average average
fixed period fixed period
rate for rate for
of financial which of financial which
liabilities rate liabilities rate
% is fixed % is fixed
Years Years
---------- -------------- ---------- -------------- ----------
Sterling 3.9 3.7 4.5 3.5
Euro 1.5 4.4 1.4 5.1
---------- -------------- ---------- -------------- ----------
The interest rate risk profile of the Group's floating rate borrowings was as follows:
At 31 December 2018 At 31 December 2017
-------------------------------- --------------------------------
% of % of
net Average net Average
floating capped floating capped
rate interest Average rate interest Average
loans rate tenure loans rate tenure
capped % Years capped % Years
---------- ---------- ---------- -------- ---------- ---------- --------
Sterling - - - 6 3.0 0.5
Euro 9 2.4 1.9 14 2.7 1.6
---------- ---------- ---------- -------- ---------- ---------- --------
The carrying amounts of the Group's borrowings are denominated in the following currencies:
At 31 December 2018 At 31 December 2017
------------------------------------- ------------------------------------
Fixed Floating Fixed Floating
rate rate rate rate
financial financial financial financial
liabilities liabilities Total liabilities liabilities Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------- ------------- ------------- ------- ------------- ------------- ------
Sterling 164.4 215.3 379.7 149.5 278.2 427.7
Euro 347.6 109.6 457.2 233.5 210.1 443.6
---------- ------------- ------------- ------- ------------- ------------- ------
512.0 324.9 836.9 383.0 488.3 871.3
---------- ------------- ------------- ------- ------------- ------------- ------
The carrying amounts and fair values of the Group's borrowings are as follows:
Carrying amounts Fair values
------------------- ---------------
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
------------------------ ---------- ------- ------- ------
Current borrowings 66.3 96.4 66.3 66.3
Non-current borrowings 770.6 774.9 777.0 784.6
------------------------ ---------- ------- ------- ------
836.9 871.3 843.3 850.9
------------------------ ---------- ------- ------- ------
The valuation methods used to measure the fair values of the Group's borrowings were derived from inputs which were either observable as prices or derived from prices (Level 2).
Arrangement fees of GBP5.4 million (2017: GBP5.4 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:
2018 2017
GBPm GBPm
---------------------------- ------ ------
Floating rate:
- expiring within one year 7.6 63.1
- expiring after one year 30.0 -
---------------------------- ------ ------
37.6 63.1
---------------------------- ------ ------
19 Derivative financial instruments
2018 2018 2017 2017
Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm
------------------------------------ --------- ------------- -------- -------------
Non-current
Interest rate caps and swaps - (4.6) 0.1 (6.9)
Current
Forward foreign exchange contracts - (0.5) 0.6 -
------------------------------------ --------- ------------- -------- -------------
- (5.1) 0.7 (6.9)
---------------------------------------------- ------------- -------- -------------
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 2018 was GBP154.9 million (2017: GBP158.0 million). The average period to maturity of these interest rate swaps was 2.9 years (2017: 3.9 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 2018 the Group had GBP15.6 million of outstanding net foreign exchange contracts (2017: GBP23.3 million).
20 Financial instruments
Categories of financial instruments
Financial assets of the Group comprise: interest rate caps; foreign currency forward contracts; financial assets at fair value through other comprehensive income or fair value through profit and loss; investments in associates; trade and other receivables; and cash and cash equivalents.
Financial liabilities of the Group comprise: interest rate swaps; forward foreign currency contracts; bank loans; unsecured bonds; secured notes; trade and other payables; and current tax liabilities.
The fair values of financial assets and liabilities are determined as follows:
(a) Interest rate swaps and caps are measured at the present value of future cash flows based on applicable yield curves derived from quoted interest rates.
(b) Foreign currency options and forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts.
(c) The fair values of non-derivative financial assets and liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices. Financial assets in this category include financial assets at fair value through other comprehensive income or fair value through profit and loss such as listed corporate bonds and equity investments.
(d) In more illiquid conditions, non-derivative financial assets are valued using multiple quotes obtained from market makers and from pricing specialists. Where the spread of prices is tightly clustered the consensus price is deemed to be fair value. Where prices become more dispersed or there is a lack of available quoted data, further procedures are undertaken such as evidence from the last non-forced trade.
(e) The fair values of other non-derivative financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis, using prices from observable current market transactions and dealer quotes for similar instruments.
Except for investments in associates and fixed rate loans, the carrying amounts of financial assets and liabilities recorded at amortised cost approximate to their fair value.
Capital risk management
The Group manages its capital to ensure that entities within the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of debt and equity balances. The capital structure of the Group consists of debt, cash and cash equivalents, other investments and equity attributable to the owners of the parent, comprising issued capital, reserves and retained earnings. Management perform "stress tests" of the Group's business model to ensure that the Group's objectives can be met. The objectives have been met in the year.
The Directors review the capital structure on a quarterly basis to ensure that key strategic goals are being achieved. As part of this review they consider the cost of capital and the risks associated with each class of capital.
The gearing ratio at the year end was as follows:
2018 2017
GBPm GBPm
-------------------------- --------- --------
Debt 842.3 876.7
Liquid resources (130.6) (206.0)
-------------------------- --------- --------
Net debt 711.7 670.7
-------------------------- --------- --------
Equity 1,123.0 1,033.3
-------------------------- --------- --------
Net debt to equity ratio 63% 65%
-------------------------- --------- --------
Debt is defined as long-term and short-term borrowings before unamortised issue costs as detailed in note 18. Liquid resources are cash and short-term deposits and listed corporate bonds. Equity includes all capital and reserves of the Group attributable to the owners of the Company.
Externally imposed capital requirement
The Group was subject to externally imposed capital requirements to the extent that debt covenants may require Group companies to maintain ratios such as debt to equity (or similar) below certain levels.
Risk management objectives
The Group's activities expose it to a variety of financial risks, which can be grouped as:
-- market risk
-- credit risk
-- liquidity risk
The Group's overall risk management approach seeks to minimise potential adverse effects on the Group's financial performance whilst maintaining flexibility.
Risk management is carried out by the Group's treasury department in close co-operation with the Group's operating units and with guidance from the Board of Directors. The Board regularly assesses and reviews the financial risks and exposures of the Group.
(a) Market risk
The Group's activities expose it primarily to the financial risks of changes in interest rates and foreign currency exchange rates, and to a lesser extent other price risk. The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk and also uses natural hedging strategies such as matching the duration, interest payments and currency of assets and liabilities.
(i) Interest rate risk
The Group's most significant interest rate risk arises from its long-term variable rate borrowings. Interest rate risk is regularly monitored by the treasury department and by the Board on both a country and a Group basis. The Board's policy is to mitigate variable interest rate exposure whilst maintaining the flexibility to borrow at the best rates and with consideration to potential penalties on termination of fixed rate loans. To manage its exposure the Group uses interest rate swaps, interest rate caps and natural hedging from cash held on deposit.
In assessing risk, a range of scenarios is taken into consideration such as refinancing, renewal of existing positions and alternative financing and hedging. Under these scenarios, the Group calculates the impact on the income statement for a defined movement in the underlying interest rate. The impact of a reasonably likely movement in interest rates, based on historic trends, is set out below:
2018 2017
Income Income
statement statement
Scenario GBPm GBPm
------------------------------------------------------- ----------- -----------
Cash +50 basis points 0.5 0.7
Variable borrowings (including caps) +50 basis points (1.7) (2.4)
Cash -50 basis points (0.5) (0.7)
Variable borrowings (including caps) -50 basis points 1.1 1.4
------------------------------------------------------- ----------- -----------
(ii) Foreign exchange risk
The Group does not have any regular transactional foreign exchange exposure. However, it has operations in Europe which transact business denominated in euros and, to a lesser extent, in Swedish Krona. Consequently, there is currency exposure caused by translating into sterling the local trading performance and net assets for each financial period and balance sheet, respectively.
The policy of the Group is to match the currency of investments with the related borrowing, which largely eliminates foreign exchange risk on property investments. A portion of the remaining operations, equating to the net assets of the foreign property operations, is not hedged except in exceptional circumstances, such as the uncertainty surrounding the euro in late 2011. Where foreign exchange risk arises from future commercial transactions, the Group will hedge the future committed commercial transaction using foreign exchange swaps or forward foreign exchange contracts.
The Group's principal currency exposures are in respect of the euro and the Swedish krona. If the value of sterling were to increase or decrease in strength the Group's net assets and profit for the year would be affected. The impact of reasonably likely movement in exchange rates, based on historic trends, is set out below:
2018 2017
2018 Profit 2017 Profit
Net before Net before
assets tax assets tax
Scenario GBPm GBPm GBPm GBPm
------------------------------------------ -------- -------- -------- --------
1% increase in value of sterling against
the euro (4.5) (0.8) (3.6) (0.8)
1% increase in value of sterling against
the Swedish krona (0.3) - (0.3) -
1% fall in value of sterling against the
euro 4.5 0.8 3.6 0.8
1% fall in value of sterling against the
Swedish krona 0.3 - 0.3 -
------------------------------------------ -------- -------- -------- --------
(iii) Other price risk
The Group is exposed to corporate bond price risk and to equity securities price risk, because of investments held by the Group and classified in the balance sheet as financial assets at fair value through other comprehensive income or fair value through profit and loss.
In order to manage the risk in relation to the holdings of corporate bonds and equity securities the Group holds a diversified portfolio. Diversification of the portfolio is managed in accordance with the limits set by the Group.
The table below shows the effect on other comprehensive income which would result from an increase or decrease of 10% in the market value of corporate bonds and listed equity securities, which is an amount management believes to be reasonable in the current market:
2018 2017
Other Comprehensive Other Comprehensive
Income Income
Scenario: Shift of 10% in valuations GBPm GBPm
-------------------------------------- --------------------- ---------------------
10% fall in value (10.8) (12.1)
10% increase in value 10.8 12.1
-------------------------------------- --------------------- ---------------------
(b) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises from the ability of customers to meet outstanding receivables and future lease commitments, and from financial institutions with which the Group places cash and cash equivalents, and enters into derivative financial instruments. The maximum exposure to credit risk is partly represented by the carrying amounts of the financial assets which are carried in the balance sheet, including derivatives with positive fair values.
For credit exposure other than to occupiers, the Directors believe that counterparty risk is minimised to the fullest extent possible as the Group has policies which limit the amount of credit exposure to any individual financial institution.
The Group has policies in place to ensure that rental contracts are made with customers with an appropriate credit history. Credit risk to customers is assessed by a process of internal and external credit review, and is reduced by obtaining bank guarantees from the customer or its parent, and rental deposits. The overall credit risk in relation to customers is monitored on an ongoing basis. Moreover, a significant proportion of the Group portfolio is let to Government occupiers which can be considered financially secure.
At 31 December 2018 the Group held GBP107.8 million (2017: GBP121.6 million) of financial assets at fair value through other comprehensive income or fair value through profit and loss. Management considers the credit risk associated with individual transactions and monitors the risk on a continuing basis. Information is gathered from external credit rating agencies and other market sources to allow management to react to any perceived change in the underlying credit risk of the instruments in which the Group invests. This allows the Group to minimise its credit exposure to such items and at the same time to maximise returns for shareholders.
The table below shows the external Standard & Poor's credit banding on the financial assets at fair value through other comprehensive income or fair value through profit and loss held by the Group:
2018 2017
S&P Credit rating at balance sheet date GBPm GBPm
----------------------------------------- ------- ------
Investment grade 5.0 6.7
Non-investment grade 24.6 52.7
Not rated 78.2 62.2
----------------------------------------- ------- ------
Total 107.8 121.6
----------------------------------------- ------- ------
(c) Liquidity risk
Liquidity risk management requires maintaining sufficient cash, other liquid assets and the availability of funding to meet short, medium and long-term requirements. The Group maintains adequate levels of liquid assets to fund operations and to allow the Group to react quickly to potential opportunities.
Management monitors rolling forecasts of the Group's liquidity on the basis of expected cash flows so that future requirements can be managed effectively.
The majority of the Group's debt is arranged on an asset-specific, non-recourse basis. This allows the Group a higher degree of flexibility in dealing with potential covenant defaults than if the debt was arranged under a Group-wide borrowing facility.
Loan covenant compliance is closely monitored by the treasury department. Potential covenant breaches can ordinarily be avoided by placing additional security or a cash deposit with the lender, or by partial repayment to cure an event of default.
The table below analyses the Group's contractual undiscounted cash flows payable under financial liabilities and derivative assets and liabilities at the balance sheet date, into relevant maturity groupings based on the period remaining to the contractual maturity date. Amounts due within one year are equivalent to the carrying values in the balance sheet as the impact of discounting is not significant.
Less 1 to 2 to
than 2 5 Over
1 year years years 5 years
At 31 December 2018 GBPm GBPm GBPm GBPm
--------------------------------------- -------- ------- ------- ---------
Non-derivative financial liabilities:
Borrowings 68.2 136.3 493.7 144.1
Interest payments on borrowings(1) 20.5 18.8 22.7 3.8
Trade and other payables 51.9 - - -
--------------------------------------- -------- ------- ------- ---------
Forward foreign exchange contracts:
Cash flow hedges
- Outflow (0.5) - - -
- Inflow 0.5 - - -
--------------------------------------- -------- ------- ------- ---------
Less 1 to 2 to
than 2 5 Over
1 year years years 5 years
At 31 December 2017 GBPm GBPm GBPm GBPm
--------------------------------------- -------- ------- ------- ---------
Non-derivative financial liabilities:
Borrowings 98.0 122.8 553.1 102.8
Interest payments on borrowings(1) 26.9 27.2 24.4 26.3
Trade and other payables 48.9 - - -
--------------------------------------- -------- ------- ------- ---------
Forward foreign exchange contracts:
Cash flow hedges
- Outflow 0.6 - - -
- Inflow 0.6 - - -
--------------------------------------- -------- ------- ------- ---------
1 Interest payments on borrowings are calculated without taking into account future events. Floating rate interest is estimated using a future interest rate curve as at 31 December.
21 Discontinued operations
On 12 November 2018, the Board resolved to dispose of First Camp Svergie Holdings AB and on 19 January 2019 contracts were exchanged with a view to a sale in early 2019. The operations of the First Camp sub-group, therefore, have been classified as a disposal group held for sale in accordance with IFRS 5, Non Current Assets Held for Sale and Discontinued Operations, and presented separately on the Group balance sheet as discontinued operations. The proceeds of disposal are expected to be less than the book value of the related net assets and accordingly an impairment loss has been recognised on the re-classification of these operations as held for sale.
The results of the discontinued operations, which have been included in the Group income statement, were as follows:
2018 2017
GBPm GBPm
--------------------------------------------------------- -------- -------
Revenue 15.8 13.1
Expenses (12.7) (12.2)
--------------------------------------------------------- -------- -------
Profit before tax 3.1 0.9
Loss recognised on measurement to fair value less costs (17.9) -
to sell
Attributable tax expense (0.1) -
--------------------------------------------------------- -------- -------
(Loss)/profit from discontinued operations (14.9) 0.9
--------------------------------------------------------- -------- -------
Attributable to:
Owners of the Company (8.5) 0.7
Non-controlling Interests (6.4) 0.2
--------------------------------------------------------- -------- -------
(14.9) 0.9
--------------------------------------------------------- -------- -------
During the year, First Camp Svergie Holdings AB contributed GBP1.0 million (2017: absorbed GBP0.3 million) to the Group's net operating cash flows.
The major classes of assets and liabilities comprising the operations classified as held for sale are as follows:
2018 2017
GBPm GBPm
---------------------------------------------------------- -------- -------
Property, plant and equipment 54.0 69.5
Cash and cash equivalents 1.1 0.7
Other assets 1.0 0.9
---------------------------------------------------------- -------- -------
Total assets of discontinued operations 56.1 71.1
---------------------------------------------------------- -------- -------
Trade and other payables (5.3) (4.5)
Borrowings (35.6) (37.6)
Deferred income tax liabilities (3.4) (2.8)
---------------------------------------------------------- -------- -------
Total liabilities of discontinued operations (44.3) (44.9)
---------------------------------------------------------- -------- -------
Net assets of discontinued operations classified as held
for sale 11.8 26.2
---------------------------------------------------------- -------- -------
22 Share capital
Number
----------------------------------------
Ordinary Total
Ordinary Total shares in Treasury ordinary
shares in Treasury ordinary circulation shares shares
circulation shares shares GBPm GBPm GBPm
----------------------- ------------- ----------- ------------ ------------- --------- ----------
At 1 January 2018 and
31 December 2018 407,395,760 31,382,020 438,777,780 10.2 0.8 11.0
----------------------- ------------- ----------- ------------ ------------- --------- ----------
Number
----------------------------------------
Ordinary Treasury Total
Ordinary Total shares in shares ordinary
shares in Treasury ordinary circulation GBPm shares
circulation shares shares GBPm GBPm
----------------------- ------------- ----------- ------------ ------------- --------- ----------
At 1 January 2017 40,739,576 3,138,202 43,877,778 10.2 0.8 11.0
Issued on subdivision 366,656,184 28,243,818 394,900,002 - - -
----------------------- ------------- ----------- ------------ ------------- --------- ----------
At 31 December 2017 407,395,760 31,382,020 438,777,780 10.2 0.8 11.0
----------------------- ------------- ----------- ------------ ------------- --------- ----------
On 8 May 2017, each of the existing ordinary shares of 25 pence each was subdivided into ten new ordinary shares of 2.5 pence each.
23 Distributions to shareholders
An interim dividend for 2018 of 2.20 pence (2017: 2.05 pence) per ordinary share of 2.50 pence, or GBP9.0 million (2017: GBP8.4 million), was paid on 28 September 2018. The proposed final dividend of 4.70 pence per ordinary share (2017: 4.30 pence) was recommended by the Board on
6 March 2019 and, subject to approval by shareholders, is payable on 29 April 2019 to shareholders on the register at the close of business on 5 April 2019. The aggregate amount of the 2018 final dividend of GBP19.1 million (2017: GBP17.5 million) has been calculated using the total number of eligible shares outstanding at 31 December 2018. The total dividend for the year would be 6.90 pence (2017: 6.35 pence) per ordinary share of 2.50 pence comprising GBP28.1 million (2017: GBP25.9 million).
24 Share premium
2018 2017
GBPm GBPm
------------------------------ ------ ------
At 1 January and 31 December 83.1 83.1
------------------------------ ------ ------
25 Other reserves
Capital Cumulative Fair Share-based
redemption translation value payment Other
reserve reserve reserve reserve reserves Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------------ ------------- --------- ------------ ---------- -------
At 1 January 2018 22.7 64.7 27.1 0.4 28.1 143.0
Exchange rate variances - 3.9 - - - 3.9
Property, plant and equipment
- net fair value deficits
in the year - - (0.4) - - (0.4)
- deferred tax thereon - - (0.4) - - (0.4)
Other financial investments:
- fair value losses in
the year - - (7.4) - - (7.4)
- realised fair value gains - - (0.4) - - (0.4)
- deferred tax thereon - - 1.0 - - 1.0
Reclassify fair value movements
on equity investments - - (17.9) - - (17.9)
Discontinued operations - - 0.8 - - 0.8
Share-based payment charge - - - 0.8 - 0.8
--------------------------------- ------------ ------------- --------- ------------ ---------- -------
At 31 December 2018 22.7 68.6 2.4 1.2 28.1 123.0
--------------------------------- ------------ ------------- --------- ------------ ---------- -------
Capital Cumulative Fair Share-based
redemption translation value payment Other
reserve reserve reserve reserve reserves Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------ ------------- --------- ------------ ---------- ------
At 1 January 2017 22.7 57.2 17.9 - 28.1 125.9
Exchange rate variances - 7.5 - - - 7.5
Property, plant and equipment
- net fair value deficits
in the year - - (0.9) - - (0.9)
- deferred tax thereon - - 0.1 - - 0.1
- disposals - - (3.9) - - (3.9)
- deferred tax thereon - - 0.5 - - 0.5
Other financial investments:
- fair value gains in the
year - - 13.9 - - 13.9
- realised fair value gains - - (2.9) - - (2.9)
- released on impairment - - 2.0 - - 2.0
- deferred tax thereon - - (0.1) - - (0.1)
Discontinued operations - - 0.5 - - 0.5
Share-based payment charge - - - 0.4 - 0.4
------------------------------- ------------ ------------- --------- ------------ ---------- ------
At 31 December 2017 22.7 64.7 27.1 0.4 28.1 143.0
------------------------------- ------------ ------------- --------- ------------ ---------- ------
As a result of adopting IFRS 9 for the first time, previously recognised fair value movements have been transferred from other reserves to retained earnings in line with the disclosure made in the Half-Yearly Financial Report 2018.
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 financial assets classified as fair value through comprehensive income 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.
26 Notes to the cash flow
2018 2017
Cash generated from operations GBPm GBPm
------------------------------------------------------- ------- -------
Operating profit 165.3 213.6
Adjustments for:
Net movements on revaluation of investment properties (62.8) (94.2)
Net movements on revaluation of equities (22.2) -
Depreciation and amortisation 1.0 0.8
Profit on sale of investment property (2.3) (43.7)
Gain on sale of other financial instruments, net of
impairments (1.7) (2.5)
Non-cash rental income (5.0) (3.5)
Share-based payment expense 0.8 0.4
Changes in working capital:
(Increase)/decrease in receivables (2.6) 3.4
Increase/(decrease) in payables 2.4 (0.6)
------------------------------------------------------- ------- -------
Cash generated from operations 72.9 73.7
------------------------------------------------------- ------- -------
At 31 December 2018 Amortisation
Changes in liabilities 1 January Financing of loan Fair value Foreign 31 December
arising from financing 2018 cash flows issue costs adjustments exchange 2018
activities Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------ ---------- ------------ ------------- ------------- ---------- ------------
Borrowings 18 871.3 (41.9) 1.8 - 5.7 836.9
Interest rate swaps 19 6.9 - - (2.3) - 4.6
Interest rate caps 19 (0.1) 0.1 - - - -
Forward foreign exchange
contracts 19 (0.6) (0.9) - - 2.0 0.5
-------------------------- ------ ---------- ------------ ------------- ------------- ---------- ------------
877.5 (42.7) 1.8 (2.3) 7.7 842.0
-------------------------- ------ ---------- ------------ ------------- ------------- ---------- ------------
At 31 December 2017
Amortisation
Changes in liabilities 1 January Financing of loan Fair value Foreign 31 December
arising from financing 2017 cash flows issue costs adjustments exchange 2017
activities Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------ ---------- ------------ ------------- ------------- ---------- ------------
Borrowings 18 849.9 (41.9) 1.6 - 15.5 908.9
Interest rate swaps 19 9.8 - - (2.9) - 6.9
Interest rate caps 19 - (0.1) - - - (0.1)
Forward foreign exchange
contracts 19 (0.5) (3.7) - - 3.6 (0.6)
-------------------------- ------ ---------- ------------ ------------- ------------- ---------- ------------
859.2 38.1 1.6 (2.9) 19.1 915.1
-------------------------- ------ ---------- ------------ ------------- ------------- ---------- ------------
27 Contingencies
At 31 December 2018 CLS Holdings plc had guaranteed certain liabilities of Group companies. These were primarily in relation to Group borrowings and covered interest and amortisation payments. No cross-guarantees had been given by the Group in relation to the principal amounts of these borrowings.
28 Commitments
At the balance sheet date the Group had contracted with customers for the following minimum lease payments:
2018 2017
Operating lease commitments - where the Group is lessor GBPm GBPm
--------------------------------------------------------- ------- ------
Within one year 104.2 98.5
More than one but not more than five years 307.8 293.7
More than five years 149.4 165.4
--------------------------------------------------------- ------- ------
561.4 557.6
--------------------------------------------------------- ------- ------
Operating leases where the Group is the lessor are typically negotiated on a customer-by-customer basis and include break clauses and indexation provisions.
Other commitments
At 31 December 2018 the Group had contracted capital expenditure of GBP2.9 million (2017: GBP9.1 million). At the balance sheet date, the Group had conditionally exchanged contracts to acquire an investment property for GBP10.0 million (2017: GBPnil). There were no authorised financial commitments which were yet to be contracted with third parties (2017: nil).
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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