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CLS Holdings plc
Annual Report & Accounts
138 Fetter Lane, London EC4
One Elmfield Park, Bromley
CLS Holdings plc
86 Bondway
London
SW8 1SF
Tel: +44 (0)20 7582 7766
Fax: +44 (0)20 7735 2779
email: enquiries@clsholdings.com
www.clsholdings.com
Tangentis, Munich
62 Avenue Foch, Paris
138 Fetter Lane, London EC4
One Elmfield Park, Bromley
CONTENTS
>
Strategic Report
HOW WE PERFORMED IN 2015
Annual Report & Accounts 2015
CLS Holdings plc
2 CLS at a glance
2-37
4 How we operate
6 2015 Business Highlights
7 2015 Financial Highlights
8 Chairman’s Statement
10 Actively Managing our Portfolio
12 Business Review
28 Principal Risks and Uncertainties
30 Corporate, Social & Environmental
Responsibility Report
>
Governance
INFORMATION ABOUT OUR BOARD OF DIRECTORS
AND CORPORATE GOVERNANCE
38-60
38 Directors’ Report
42 Corporate Governance Report
50 Remuneration Committee Report
58 Audit Committee Report
>
Accounts
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015
61 Independent Auditor’s Report to the members
61-102
of CLS Holdings Plc
66 Group Income Statement
66 Group Statement of Comprehensive Income
67 Group Balance Sheet
68 Group Statement of Changes in Equity
69 Group Statement of Cash Flows
70 Notes to the Group Financial Statements
97 Company Balance Sheet
98 Notes to the Company Financial Statements
102 Five Year Financial Summary
>
Other Information
103 Glossary of Terms
104 Directors, Officers and Advisers
103-104
Tangentis, Munich
62 Avenue Foch, Paris
FINANCIAL CALENDAR
Announcement of results
– 8 March 2016
Publication of Annual Report
and Accounts
– 18 March 2016
Annual General Meeting
– 20 April 2016
Trading Update
– 18 May 2016
Announcement of half-year results
– 17 August 2016 (provisional)
Trading Update
– mid November 2016
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SCHEDULE OF GROUP
LONDON
at 31 December 2015
Tenure
Freehold
Freehold
Freehold
EC4
138 Fetter Lane
139 Fetter Lane
SE1
Westminster Tower,
3 Albert Embankment
SW6
Quayside, William Morris Way
SW8
Cap Gemini House,
95 Wandsworth Road &
72/78 Bondway & 22 Miles Street Freehold
Freehold
80/84 Bondway
Freehold
86 Bondway*
Freehold
18/20 Miles Street
Freehold
101/103/107 Wandsworth Road
131/137 Wandsworth Road
Freehold
SE11
35 Albert Embankment
Western House,
Freehold
5 Glasshouse Walk
Gateway House, Milverton Street Freehold
Spring Gardens, Tinworth Street Freehold
Freehold
Spring Mews, Tinworth Street
Freehold
Area
sqm Use
2,742 Offices
428 Residential
PROPERTIES
4,457 Offices
Freehold
3,064 Offices
10,427 Offices/Industrial
1,631 Offices
891 Offices
152 Offices
742 Residential
1,546 Offices
589 Community Centre
1,844 Offices
19,964 Offices
10,997 Student
accommodation/
Offices
527 Leisure
Total London
†
Spring Gardens Court,
79 Vauxhall Walk
92/98 Vauxhall Walk
405 Kennington Road
WC1
214/236 Gray’s Inn Road
W3
Armstrong Road
W10
Buspace Studios,
10 Conlan Street
NW10
Chancel House, Neasden Lane
Bracknell
Reflex Building,
Cain Road, RG12
Brentford
Great West House,
Great West Road, TW8
Bromley
King’s House,
32/40 Widmore Road, BR1
One Elmfield Park, BR1
Unicorn House,
29 Elmfield Road, BR1
Chertsey
Melita House,
124 Bridge Road, KT16
Coulsdon
Sentinel House,
163 Brighton Road, CR5
Datchet
18 Horton Road
Harrow
Hygeia, College Road, HA1
Hayes
The Grange,
501 Uxbridge Road, UB4
†
* Owner-occupied
††
Acquired in 2015
Sold in 2016
†
Leasehold
Freehold
Freehold
115 Residential
415 Offices
1,680 Offices
Freehold
26,295 Offices
Freehold
4,039 Offices
Freehold
3,006 Workshops/Offices
Studios/
Freehold
6,940 Offices
Freehold
9,607 Offices
Freehold
14,197 Offices
Freehold
Freehold
2,244 Offices/Retail
2,238 Offices
Freehold
5,456 Offices
Freehold
1,257 Offices
Freehold
3,411 Offices
Freehold
945 Offices
Freehold
6,757 Offices
Freehold
1,042 Offices
REST OF UK
SOUTH
Basildon
Great Oaks House, SS14
Bridgwater
Hanover House, Northgate, TA6
Cardiff
29 Newport Road, CF24
Chippenham
Cyppa Court,
Avenue La Fleche, SN15
Plymouth
Foliot House
Brooklands Office Campus, PL6
Units 3, 4 & 5 Brooklands Office
Campus, PL6
Southampton
St Cross House,
18 Bernard Street, SO14
Leasehold
5,057 Offices
Freehold
2,007 Offices
Freehold
3,135 Offices
Freehold
1,143 Offices
Freehold
1,160 Offices
Freehold
687 Offices
Freehold
3,993 Offices
Leasehold
Freehold
MIDLANDS
Bedford
Chailey House,
30 Cardington Street, MK42
Birmingham
Aqueous 2, Aston Cross,
Chester Street, B6
Northampton
St Katherine's House,
21/27 St Katherine's Street, NN1 Freehold
Norwich
Blackburn House,
1 Theatre Street, NR2
Peterborough
Clifton House, 84 Broadway &
126/128 Park Road, PE1
Wolverhampton
Temple House,
Temple Street, WV2
Freehold
Freehold
Leasehold
1,534 Offices
3,434 Offices
2,578 Offices
864 Retail
5,344 Offices
2,557 Offices
at 31 December 2015
Tenure
Area
sqm Use
at 31 December 2015
Tenure
Area
sqm Use
at 31 December 2015
Tenure
Area
sqm Use
Hounslow
115/123 Staines Road, TW3
125/135 Staines Road, TW3
New Malden
CI Tower, High Street, KT3
Apex Tower, High Street, KT3
Staines
62 London Road, TW18
Sunbury-on-Thames
Benwell House,
Green Street, TW16
Sutton
Chancery House,
St Nicholas Way, SM1
Wallington
Crosspoint House,
28 Stafford Road, SM6
†
Freehold
Freehold
2,314 Offices
2,340 Offices
Freehold
Freehold
7,597 Offices
10,066 Offices/Retail
Freehold
1,272 Offices
Freehold
2,377 Offices
Freehold
5,132 Offices
Freehold
1,963 Offices
182,406
††
SCOTLAND
Aberdeen
Atholl House,
84/88 Guild Street, AB11
Lord Cullen House,
Causeway End, AB25
Dundee
Lindsay House,
18/30 Ward Road, DD1
Sidlaw House,
4 Explorer Road, DD2
Edinburgh
Ladywell House,
Ladywell Road, EH12
Leasehold 5,058 Offices
Feuhold
2,995 Offices
Freehold
3,605 Offices
Freehold
5,690 Offices
Freehold
4,807 Offices
NORTH
St Asaph
Netcom House,
St Asaph Business Park LL17
Billingham
Theatre Buildings, Kingsway, TS23
Birkenhead
Great Western House,
Woodside Ferry Approach, CH41
Bradford
Centenary Court,
Forster Square, BD1
Phoenix House,
Rushton Avenue, BD3
Chester
Chantry House,
55/59 City Road, CH1
Redcar
Portland House,
West Dyke Road, TS10
Rotherham
Bradmarsh Business Park,
Bow Bridge Close, S60
Salford Quays
Units 1 & 2 Dallas Court,
South Langworthy Road, M50
Leasehold 1,972 Offices
Freehold
675 Offices
Freehold
7,445 Offices
Freehold
9,774 Offices
Freehold
3,498 Offices
Freehold &
leasehold
3,237 Offices
Freehold
892 Offices
Freehold
1,120 Offices
Leasehold 1,491 Offices
Total Rest of UK
85,751
Aberdeen
Dundee
Edinburgh
Billingham
Redcar
Bradford
Birkenhead
Salford Quays
Rotherham
St Asaph
Chester
M1
A1(M)
Harrow
NW10
M40
Hayes
Brentford
W3
W6
Datchet
Hounslow
Bracknell
M4
Staines
WC1
W10
SW8
SW6
EC4
SE1
SE11
Sunbury-on-Thames
New Malden
Bromley
Chertsey
Sutton
Wallington
Wolverhampton
Peterborough
Norwich
Birmingham
M3
Northampton
Bedford
Coulsdon
M2
M25
Chippenham
London
Basildon
Southampton
Cardiff
Bridgwater
Plymouth
Chancery House, Sutton
Kennington Road, London SE11
Reflex Building,
Bracknell
Westminster Tower, London SE1
Armstrong Road, Acton
Aqueous 2, Birmingham
Spring Mews, London SE11
Centenary Court,
Bradford
SCHEDULE OF GROUP
CONTINUED
Rue Pierre Timbaud, Paris
Mission Marchand, Paris
PROPERTIES
FRANCE
at 31 December 2015
Tenure
Area
sqm Use
at 31 December 2015
Tenure
Area
sqm Use
Paris
48 Rue Croix des Petits Champs,
75001
20/22 Rue des Petits Hôtels, 75010
18 Rue Stephenson, 75018
Le Sully, Ilôt 2, Rue Georges Bizet,
78200 Mantes la Jolie
95/97 Bis Rue de Bellevue,
92100 Boulogne
16 Rue de Solférino,
92100 Boulogne
58 Avenue Général Leclerc,
92100 Boulogne
Le Quatuor, 168 Avenue Jean
Jaurès, 92120 Montrouge
2 Rue Pierre Timbaud,
92230 Gennevilliers
23/27 Rue Pierre Valette,
92240 Malakoff
Le Sigma, Place de Belgique,
90 Bld de L’Europe,
92250 la Garenne-Colombes
Le Debussy, 77/81 Boulevard
de la République,
92250 la Garenne-Colombes
62 Avenue Foch,
92250 la Garenne-Colombes
120 Rue Jean Jaurès,
92300 Levallois Perret
56 Boulevard de la Mission
Marchand, 92400 Courbevoie
53/55 Rue du Capitaine Guynemer,
92400 Courbevoie
7 Rue Eugène et Armand Peugeot,
92500 Rueil-Malmaison
††
Sold in 2016
Freehold
Freehold
Freehold
1,800 Offices
2,080 Offices
563 Offices
Freehold
2,798 Offices
Freehold
2,477 Offices
Freehold
1,020 Offices
Freehold
525 Offices
Freehold
2,459 Offices
Freehold
3,118 Offices
Freehold
10,778 Offices
Freehold
6,690 Offices
Freehold
4,198 Offices
Freehold
181 Offices
Freehold
4,029 Offices
Freehold
2,784 Offices
Freehold
2,121 Offices
Freehold
7,308 Offices
Lille
Mantes la Jolie
Paris
Lyon
Antibes
Lyon
Forum, 27/33 Rue Maurice Flandin,
69003
D’Aubigny, 27 Rue de la Villette,
69003
Rhône Alpes, 235 Cours Lafayette,
69006
Park Avenue, 81 Boulevard de
Stalingrad, Villeurbanne, 69100
Front de Parc, 109 Boulevard de
Stalingrad, 69100
Lille
96 Rue Nationale, 59000
La Madeleine, 105 Avenue de la
République, 59110
Antibes
Le Chorus, 2203 Chemin de
St Claude, Nova Antipolis, 06600
††
Luxembourg
16 Rue Eugène Ruppert, L2453
Freehold
6,783 Offices
Leasehold
4,316 Offices
Freehold
3,147 Offices
Freehold
4,249 Offices
Leasehold
5,373 Offices
Freehold
2,599 Offices
Freehold
4,446 Offices
Freehold
4,334 Offices
Freehold
3,698 Offices
93,874
Gennevilliers
A86
La Garenne-Colombes
A14
Courbevoie
Rueil-Malmaison
Levallois-Perret
Boulevard Périférique
PARIS
Boulogne-Billancourt
A13
Malakoff
Montrouge
N118
Rhône Alpes, Lyon
Avenue Général Leclerc, Paris
SCHEDULE OF GROUP
CONTINUED
Silo, Schellerdamm, Hamburg
Lochhamer Schlag, Munich
SWEDEN
at 31 December 2015
Tenure
Area
sqm Use
Vänerparken
Lasarettet No. 2,
6/8, Vänerparken,
Vänersborgs Kommun
††
Offices/
Education/
Freehold
38,909 Residential/
Leisure/
Hospital
38,909
Total Portfolio at 31 December 2015
584,287
Stockholm
Vänerparken
Gothenburg
Maximilian Forum, Munich
Vänerparken, Sweden
PROPERTIES
GERMANY
at 31 December 2015
Tenure
Area
sqm Use
Munich
East Gate, Kapellenstrasse 12,
D-85622 Feldkirchen
Maximilian Forum,
Lochhamer Strasse 11, 13 & 15,
D-82152 Martinsried
Lochhamer Schlag 1
D-82166 Gräfelfing
Rüdesheimer Strasse 9, D-80686
Tangentis, Beta Strasse 5/9a,
D-85774 Unterföhring
†
Hamburg
Harburger Ring 33, D-21073
Freehold
16,460 Offices
Freehold
13,835 Offices
Freehold
Freehold
8,527 Offices
2,588 Offices
Freehold
14,867 Offices
Freehold
3,330 Offices
Fleethaus, Schellerdamm 2, D-21079
Freehold
5,419 Offices
Silo, Schellerdamm 16, D-21079
Freehold
13,233 Offices
Fangdieckstrasse 75, 75a, b, D-22547 Freehold
13,151 Offices
Jarrestrasse 8/10, D-22303
Merkurring 33/35, D-22143
Frohbösestrasse 12, D-22525
Berlin
Adlershofer Tor
Rudower Chausee 12, D-12489
Bismarckstrasse 105 &
Leibnitzstrasse 11/13,
D-10625 Charlottenburg
Freehold
Freehold
Freehold
5,569 Offices
5,605 Offices
1,941 Offices
Freehold
19,991 Retail
Offices/
Freehold
6,045 Offices
Bochum
Hans-Böckler-Strasse 19, D-44787
Freehold
25,007 Offices
Freehold
3,095 Residential
Freehold
7,471 Offices
Freehold
16,054 Offices
Freehold
1,185 Nursing
home
183,373
Düsseldorf
Schanzenstrasse 76, D-40549
Freiburg
Bismarckallee 18/20, D-79098
Landshut
E.On Allee 1, 3 & 5,
Roider-Jackl-Strasse &
Kiem-Pauli-Strasse 2, D-84036
Süderhastedt
Dorfstrasse 14, D-25727
†
††
Acquired in 2015
Sold in 2016
Süderhastedt
Hamburg
Berlin
Bochum
Düsseldorf
Freiburg
Munich
Reflex Building, Bracknell
138 Fetter Lane, London EC4
PROPERTY
RENTAL DATA
Gross rental
income for
the year
£m
Net rental
income for
the year
£m
Lettable
space
sqm
Contracted
rent at
year end
£m
ERV at
year end
£m
Contracted
rent subject
to indexation
£m
Vacancy
rate at
year end
London
Rest of UK
France
Germany
Sweden
PORTFOLIO
35.4
13.2
13.7
16.0
3.2
37.8
13.0
13.8
16.2
4.5
175,403
85,751
88,375
183,376
38,909
Total Portfolio
85.3
81.5
571,814
41.1
12.1
14.5
17.7
3.6
89.0
46.9
9.2
14.3
17.5
3.9
91.8
7.8
6.0
14.5
12.5
3.5
44.3
3.6%
0.7%
3.9%
2.5%
4.8%
3.1%
Frohbösestrasse 12, Hamburg
Cassini Court, Leatherhead
VALUATION DATA
Valuation movement in the year
Market value
of property
£m
Underlying
£m
Foreign
exchange
£m
EPRA net
initial yield
EPRA
topped up net
initial yield
Reversion
Over-rented
London
Rest of UK
France
Germany
Sweden
800.1
100.9
222.9
259.4
42.1
Total Portfolio
1,425.4
63.2
8.8
7.1
19.5
0.7
99.3
–
–
(11.5)
(11.6)
(0.9)
(24.0)
4.7%
11.3%
6.2%
6.1%
8.7%
5.9%
5.3%
11.3%
6.3%
6.2%
8.8%
6.2%
14.2%
1.7%
1.8%
3.2%
5.2%
7.9%
3.7%
26.7%
7.1%
7.1%
1.2%
8.0%
True
equivalent
yield
5.9%
8.3%
6.3%
6.1%
8.7%
LEASE DATA
London
Rest of UK
France
Germany
Sweden
Total Portfolio
Average lease length
Passing rent of leases expiring in:
ERV of leases expiring in:
To break
years
To expiry
years
Year 1
£m
Year 2
£m
5.48
3.51
2.55
6.16
5.18
4.86
6.49
6.42
5.00
6.29
5.18
6.14
6.1
0.8
1.0
3.2
0.4
11.5
2.6
1.2
1.3
0.8
0.0
5.9
Year
3 to 5
£m
7.0
2.0
4.3
6.6
2.0
21.9
After
year 5
£m
25.4
8.1
7.9
7.1
1.2
49.7
Year 1
£m
Year 2
£m
7.0
0.9
0.9
3.0
0.4
12.2
3.3
0.9
1.1
0.9
0.0
6.2
Year
3 to 5
£m
8.2
1.6
4.0
6.5
2.0
22.3
After
year 5
£m
27.0
5.6
7.7
6.7
1.3
48.3
RENT BY LEASE LENGTH
RENT BY SECTOR
Vacant
£2.8m
Up to
5 years
£39.3m
Over 10 years
£13.9m
5 to 10
years
£35.8m
Other
24.8%
Finance
3.1%
IT
6.3%
Manufacturing
7.1%
Government
41.1%
Business
Services
17.6%
Note: Property portfolio data comprises investment properties and properties held for sale; it excludes the hotel, owner-occupied property, landholdings and
First Camp land and buildings
CLS AT A GLANCE
WHO WE ARE
WHAT WE DO
CLS IS A FTSE 250 PROPERTY INVESTMENT
COMPANY WITH A £1.5 BILLION PORTFOLIO
IN THE UK, GERMANY, FRANCE AND SWEDEN
OFFERING GEOGRAPHICAL DIVERSIFICATION
WITH LOCAL PRESENCE AND KNOWLEDGE
>
>
>
>
Our core business is owning and managing high-yielding offices
in good, non-prime locations close to major transportation links
We are an active manager, repositioning properties through lease
restructuring, refurbishments and developments, and working closely
with our customers
We look to achieve long-term capital appreciation with a strong
emphasis on cash generation and an opportunistic approach to
acquisition, development and disposal
We finance our activities through diverse and flexible structures,
multiple sources of finance and active cash management
See pages
>
4-5
HOW WE OPERATE
WHERE WE OPERATE
Sweden
UK
France
Germany
2
Annual Report & Accounts 2015
CLS Holdings plc
Number of properties
The fifteen customers which contribute most rental income to the Group
account for 48.2% of contracted rent, and comprise:
TOP 15 CUSTOMERS
115
Lettable floor space
sqm
572,000
Number of tenants
568
Contracted annual rents
million
£89
Value of property portfolio
billion
£1.5
Annual operating cash flow
million
£49
Total shareholder return
in last 5 years
241%
Profit after tax
million
£132
Customer
Location
Sector
Secretary of State
London and Rest of UK
Government
National Crime Agency
London
Government
London and Rest of UK
Government
Trillium
Cap Gemini
BAE Systems
City of Bochum
BrainLab
London
London
Germany
Germany
Västra Götaland
Sweden
Vänersborg Kommun
Sweden
Major Corporation
Major Corporation
Government
Major Corporation
Government
Government
Honda Motor Europe
London
Major Corporation
E.ON
Kaufland
Veolia
Colt
Germany
Germany
France
France
Major Corporation
Major Corporation
Major Corporation
Major Corporation
Dr. Hönle
Germany
Major Corporation
PROPERTY PORTFOLIO
BY VALUE £1,462.9 MILLION
1
Germany
18%
£259.4m
Rest of UK
7%
£100.9m
Sweden
3%
£47.3m
France
15%
£222.9m
London
57%
£832.4m
1
Investment properties, properties held for sale, hotel, owner-occupied property
and landholding
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HOW WE OPERATE
OUR CORPORATE OBJECTIVE IS TO CREATE SUSTAINABLE LONG-TERM SHAREHOLDER
VALUE THROUGH OWNING AND ACTIVELY MANAGING HIGH-YIELDING OFFICE
PROPERTIES IN KEY EUROPEAN CITIES
Annual Report & Accounts 2015
CLS Holdings plc
Corporate objective KPI
Achievement in 2015
Total shareholder return
p.a.
over the medium term*
+
12%
Total shareholder return
p.a.
in the 5 years to 2015
+
28%
BUSINESS MODEL
STRATEGY
KPIs
ACHIEVEMENTS IN 2015
PLANS FOR 2016
RISKS
(See details on page 28 & 29)
Investments
Invest in high-yielding properties,
predominantly offices, with a focus
on cash returns
Diversify market risk by investing in
geographical areas with differing
characteristics
Customers
Maintain high occupancy rates
We target modern, high quality, well-let properties in good
non-prime locations in key European cities
To achieve a return on equity
of over 12%*
We maintain and add value through an active rolling
refurbishment programme
We create extra value through developments at the
appropriate time in the cycle, after largely mitigating
letting risk and financing risk
To achieve EPRA NAV growth
of over 7.5%*
Return on equity was 19.3%
EPRA NAV growth was 17.4%
6 properties acquired for £57.8 million at an
average net initial yield of 7.3%
8 properties sold for £34.8 million at an average
net initial yield of 2.8%
To continue to reposition the portfolio through
acquisitions and selective disposals
We expect to continue to see the better investment
opportunities to be in the UK and Germany
To progress the development plans on Vauxhall
Square in anticipation of gaining vacant possession
of the main site in late 2016
Property Investment Risks
Development Risk
We invest in the UK, France, Germany and Sweden, and in
sterling, the euro and the Swedish krona
We use in-house local property managers who maintain
close links with occupiers to understand their needs
To maintain an occupancy rate
of 95%*
At 31 December 2015 our occupancy rate
was 96.9%
Sustainability Risk
Political and Economic Risk
We focus on the quality of service and accommodation for
our customers
Maintain a diversified customer
base underpinned by a strong core
income stream
We avoid a heavy reliance on any one customer or
business sector
We have some 568 customers
41% of rental income is derived from
government occupiers, and a further 29%
from major corporations
The weighted average unexpired lease term
is 6.1 years
To maintain a close and regular contact with
customers to proactively understand their needs
To add to the asset management and property
management teams in London and Germany to
reflect the growth in the portfolio
Cost Control
Maintain strict cost control
Finance
Target a low cost of debt
We perform as many back office functions as possible
in-house, and monitor our performance against our
peer group
To maintain an administration
cost ratio of 16%* or below
Our administration cost ratio for 2015 of 15.9%
was one of the lowest in the property sector
To reflect the loss of rental income from properties
under development and refurbishment, the target
administration cost ratio for 2016 has been set
at 17.75%
Taxation Risk
We keep the cost of debt well below the net initial yield of
the properties to enhance the return on equity
We use interest rate caps and hedges to control interest
rate risk
To maintain a cost of debt at
least 200 bps below the net
initial yield
At 31 December 2015 the weighted average cost
of debt was 3.40%
During the year we took out £294m of loans at an
average interest rate of 2.54%
If medium-term interest rates remain low, the
debt refinanced in the year is likely to be
predominantly set at fixed rates
Funding Risk
Other Investment Risk
Utilise diversified sources of finance
to reduce risk
We maintain strong links with banks and other lending
sources across Europe
We own properties in single purpose vehicles, financed by
non-recourse bank debt in the currency used to purchase
the asset
We restrict the exposure of the Group to any one bank
We have 67 loans from a range of lenders,
including 26 banks, 2 public bonds and other
financial institutions; in 2015 two new banks
were added
We have £150m of debt due to expire, which will be
refinanced on a case-by-case basis, except for the
SEK300 million retail bond, which will be repaid on
its maturity in April
85 of our 115 properties are owned by single
purpose vehicles, principal amounts of debt are
non-recourse to the rest of the Group, and all are
in the currency used to purchase the asset
No bank provides over 13% of the Group's debt
Maintain a high level of liquid
resources
We operate an in-house Treasury team which manages
cash and corporate bonds to maximise their returns
At 31 December 2015 we had liquid resources
of £173m, and undrawn bank facilities of £65m
To maintain a high level of liquid resources to ensure
flexibility for the Group’s development programme
4
* Linked to Executive remuneration
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2015 BUSINESS HIGHLIGHTS
OPERATING ENVIRONMENT
A YEAR OF ECONOMIC UNCERTAINTIES WITH THE UK ELECTION, FALLING OIL AND
COMMODITY PRICES, A POTENTIAL GREEK DEBT DEFAULT AND A SLOWDOWN IN
THE CHINESE ECONOMY, BUT PROPERTY REMAINED AN ATTRACTIVE ASSET CLASS,
WITH RENTAL GROWTH IN LONDON, THE REST OF THE UK AND GERMANY, STRONG
INVESTMENT MARKETS AND A LOW INTEREST RATE ENVIRONMENT
ACTIVELY MANAGING OUR BUSINESS IN-HOUSE
>
>
34,261 sqm of new lettings and lease renewals (including all of the
refurbishments and developments completed in 2014) and 49,791 sqm
of expiries
The resulting vacancy rate rose marginally to 3.1% (2014: 3.0%)
REPOSITIONING THE PORTFOLIO THROUGH ACQUISITIONS AND DISPOSALS
of new lettings and lease renewals
sqm
34,261
6 properties acquired for £57.8 million at an average net initial yield of 7.3%
8 properties sold for £34.8 million at an average net initial yield of 2.8%
acquired for £57.8 million
properties
3 further disposals since the year end for £68.0 million and at an average
net initial yield of 6.5%
ENHANCING OUR ASSETS THROUGH DEVELOPMENTS AND ONGOING REFURBISHMENTS
>
Obtained enhanced planning consent on Westminster Tower, SE1 and
Spring Mews, SE11, progressed strategic plans for Vauxhall Square,
and began works on site at 4 significant refurbishments
FINANCING THE BUSINESS PRUDENTLY
10 new loans or refinancings completed with a value of £294 million
and at an average all-in annual rate of 2.54%
of new loans and refinancings
million
>
>
>
>
>
>
Repositioned the loan portfolio to 51% at fixed rates (2014: 32%)
Reduced the weighted average cost of debt to 3.40% (2014: 3.64%)
ACHIEVING WINS IN SUSTAINABILITY
>
>
Group Carbon Emissions reduced by 7.7%
UK Energy Performance Certificate average score improved by 16%
to C rating from D
CONTINUING TO DELIVER TOTAL SHAREHOLDER RETURN
19% TSR in 2015 and 241% since 2011, representing 27.8% per annum
compound over five years
>
6
6
gained enhanced planning consents
schemes
2
£294
in Group Carbon Emissions
reduction
7.7%
in 2015
TSR
19%
Annual Report & Accounts 2015
CLS Holdings plc
2015 FINANCIAL HIGHLIGHTS
1
EPRA NET ASSETS PER SHARE
(pence)
EPRA EARNINGS PER SHARE
(pence)
PROPERTY PORTFOLIO
(£ million)
2,500
2,000
1,500
1,000
500
2011
2012
2013
2014
2015
90
80
70
60
50
2011
2012
2013
2014
2015
1,600
1,400
1,200
1,000
800
600
2011
2012
2013
2014
2015
Increase in EPRA net assets per share
to 2,083.2p
(2014: 1,774.1p)
+
17.4%
1
Increase in portfolio
(2014: £1,335.3m)
value to £1,462.9m
+
7.7%
+
+
Increase in EPRA earnings per share
to 84.7p
(2014: 77.4p)
9.5%
Increase in distributions to shareholders
with a proposed £13.4m tender buy-back
of 1 in 57 at 1,810p per share
20.0%
Weighted average cost of debt lowered
still further
(2014: 3.64%)
3.40%
Interest cover at a comfortable level
(2014: 3.3 times)
times
3.2
Occupancy rate remains well above
KPI target of 95%
(2014: 97.0%)
96.9%
Adjusted gearing continues well under control
(2014: 76.7%)
71.3%
1
Investment property, property held for sale, hotel, owner-occupied property and landholding
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Our development schemes in Vauxhall have progressed
significantly. At Vauxhall Square, we completed the sale of the
car park in Miles Street, SW8, which had planning consent for
a 454 bed, 30 storey student tower, to Urbanest, the specialist
developer and operator of student accommodation; this
provided £24.8 million towards financing the rest of the
scheme, whilst reducing our development risk and our
exposure to further student housing in the Vauxhall area.
We agreed final terms with Cap Gemini to gain vacant
possession of the main site by the end of 2016. In February
2016, we gained an amendment to the overall planning
consent, replacing a four-star hotel with 10,088 sqm
(108,586 sq ft) of Grade A offices, increasing the office
element of the entire scheme to 23,700 sqm (255,000 sq ft).
At Westminster Tower on Albert Embankment, SE1, we gained
an enhancement to the existing planning consent, increasing
the number of private apartments by five to 28, and on a site
adjacent to Spring Mews, SE11, we gained consent to add
three further storeys to the planned four and to change the
use to include offices.
€
During the year, we acquired properties in London and Germany
at an aggregate cost of £57.8 million, comprising principally:
Tangentis, a fully-let, 14,867 sqm (160,000 sq ft), high quality
office building close to Munich, for
24.4 million; the 9,610 sqm
(103,400 sq ft) Reflex building in Bracknell, which is the
European headquarters of Honda Motors, for £21.7 million;
Chancery House, Sutton, an eight-storey, 5,132 sqm
(55,240 sq ft) centrally-located office building for £10.2 million;
One Elmfield Park, Bromley for £4.5 million, a 2,238 sqm
(24,100 sq ft) office building which will be subject to a
significant refurbishment in the summer; and two town houses
on Wandsworth Road, adjacent to our Vauxhall Square site.
£49.4 million of the acquisitions, with an average net initial
yield of 7.74%, were financed at an average rate of 2.31%.
Since the year end we have acquired two buildings in
Leatherhead comprising 2,613 sqm (28,122 sq ft) for
£6.1 million at a net initial yield of 6.0%, with the objective
to modernise them later this year.
Of the £34.8 million of disposals in the year, which were sold
at a weighted average net initial yield of 2.8%, £24.8 million
related to the non-income-producing Miles Street car park.
Six high yielding smaller properties from the Rest of UK
portfolio were sold in September for £7.4 million, and
3.8 million.
Unterschleissheim, Munich was sold for
€
€
Since the end of the year we have disposed of three properties.
After renewing most of the leases in 2015, we sold Vänerparken,
Sweden for SEK 590 million, 12.6% higher than its valuation
at 31 December 2015, taking advantage of the strong Swedish
investment market. We have also disposed of our only
investment in Luxembourg at 16 Rue Eugene Ruppert,
for
for this empty property, and we have exchanged contracts
to sell Atholl House, Aberdeen for £11.0 million.
10.2 million, marginally ahead of the 2015 valuation
CHAIRMAN’S STATEMENT
OVERVIEW The Group has had another successful year, and
has delivered a record EPRA net asset value of 2,083.2 pence
(2014: 1,774.1 pence) and a record EPRA earnings per share
of 84.7 pence (2014: 77.4 pence). Our property portfolio of
£1.46 billion benefited from a revaluation uplift of 7.7%,
and we have maintained low vacancy levels, reduced further
our cost of debt and increased by 20% our distributions
to shareholders.
Across the UK and in Germany we made opportunistic
acquisitions and selective disposals to refine and improve
our investment property portfolio, we fully let two London
developments which had reached practical completion twelve
months ago, and we gained enhanced planning consents
for two other important development schemes in London.
We also entered into ten new bank loans raising around
£300 million at an average all-in cost of 2.54%, reducing our
Group cost of debt to its lowest ever, and we maintained a
low vacancy rate across the Group at 3.1% through our active
in-house asset management.
During the year we acquired investments in Germany and
the UK at an aggregate cost of £57.8 million, generating a
net initial yield of 7.3%. We also took the opportunity to
dispose of six small properties around the UK and one in
Germany, each of which had limited potential for growth,
and we completed the disposal of the student site at
Vauxhall Square for £24.8 million.
The UK investment market remained resilient in 2015.
In London and the south east, the volume of investment
transactions was 25% higher than before the financial crisis
in 2008, and 50% of acquisitions were made by institutions,
with increasing interest beyond the traditional West End and
City locations. In Germany and France the markets were
characterised by low interest rates, a low level of new
completions and improvement in occupier demand. Germany
continued to offer the more attractive opportunities.
The Group places a strong emphasis on cash generation.
Our portfolio produces a net initial yield of 5.9% and is
financed by debt with a weighted average cost of 3.4%.
In 2015 our Group revenue rose 19.4% to £118.9 million
(2014: £99.6 million), including the effect of a full year’s
income from First Camp which became a subsidiary at the
end of 2014. Our net cash flow from operating activities rose
to £48.9 million (2014: £34.5 million) while EPRA earnings
per share rose by 9.5% to 84.7 pence (2014: 77.4 pence).
On the strength of the Group’s cash flow, the Board has
decided to rebase distributions to shareholders, increasing
total distributions for the year by 20% over those of 2014.
PROPERTY PORTFOLIO The increase in EPRA net assets per
share was driven by a rise in values across all of our regions,
notably in the UK and Germany. The Group’s property portfolio,
including assets held for sale and the Spring Mews hotel,
grew by £127.6 million or 9.6% over the period to £1.46 billion,
due predominantly to a revaluation uplift of £106.6 million.
At the year end the contracted rent roll was £89.0 million
(2014: £87.5 million), of which 70% came from governments
and major corporations and 50% was index-linked.
8
Annual Report & Accounts 2015
CLS Holdings plc
RESULTS EPRA net assets per share rose by 17.4% to
2,083.2 pence (2014: 1,774.1 pence), and net assets per share
by 19.0% to 1,810.1 pence (2014: 1,521.1 pence). Profit after tax
was £129.9 million (2014: £194.9 million) and shareholders’
funds rose by 16.8% to £762.8 million, after distributions to
shareholders of £16.1 million. The balance sheet is strong,
with cash and liquid resources of £173.3 million.
Recurring interest cover remained robust at 3.2 times
(2014: 3.3 times), as the Group continued to enjoy a very low
weighted average cost of debt of just 3.40% (2014: 3.64%).
At 31 December 2015 the weighted average loan to value of
our secured debt was 50.0% (2014: 49.7%).
FINANCING The Group continues its strategy of having a wide
variety of financing from banks and other debt providers, and of
ring-fencing debt on individual properties where appropriate.
During the year we secured financing for the 2014 acquisition
Schellerdamm, the 2015 acquisitions of Reflex, Chancery
House and Tangentis, and the newly-developed Spring Mews,
and we refinanced Spring Gardens, Apex Tower, Great West
House, Westminster Tower, Vänerparken and Bochum. In
aggregate, £294.0 million was financed at a weighted average
rate of 2.54%. Diversity of financing is important to reduce
risk and we enjoy active lending relationships with 26 debt
providers. We have taken advantage of the fall in medium-term
interest swap rates in the year by increasing the proportion
of loans at fixed rate to 51% (2014: 32%), with a further 20.7%
protected against rising rates through interest rate caps, and
27.9% of our debt remains unhedged.
The Group’s corporate bond portfolio has continued to play a
valuable part in our cash management strategy. The portfolio
outperformed the bond market during the year, delivering a
total return of £3.4 million, or 5.0% on invested capital. At
the year end the portfolio consisted of 27 bonds valued at
£73.4 million with a running yield of 8.3% on market value,
and a weighted average duration of 14.9 years.
SUSTAINABILITY During the past twelve months we have met
our objective to continue to improve the quality of our portfolio
through carbon reduction programmes, investments in
renewable technology and social engagement within the
communities in which we invest. We achieved a 7.7% reduction
in carbon emissions in our managed buildings, and our
Energy Performance Certificate score improved further.
We installed three more solar photovoltaic arrays and a
combine & heat power plant, and we now generate 2.7%
of electricity consumed by our managed portfolio. In addition,
our staff supported more community events than ever before.
More details of these initiatives are set out in the Corporate
Social Responsibility Report on page 30.
DISTRIBUTIONS TO SHAREHOLDERS In 2015, the Group
distributed through tender offer buy-backs £10.4 million in
April, equivalent to 24.4 pence per share, and £5.7 million in
September, equivalent to 13.5 pence per share. The Board is
proposing to increase the distribution with a tender offer
buy-back of 1 in 57 shares at 1,810 pence per share in April
2016, to distribute £13.4 million to shareholders, equivalent
to 31.8 pence per share. This will bring total distributions for
the year to £19.1 million, an annual increase of 20.0% and
corresponding to an implied yield of 3.1%, based on the
market capitalisation of the Company at 1 March 2016.
A circular setting out the details will be sent to shareholders
with the Annual Report and Accounts.
BOARD CHANGES During the year Jennica Mortstedt
stepped down as a non-executive director and was replaced
by Philip Mortstedt, and I wish to record our thanks for
Jennica’s contribution. In addition, my daughter Anna Seeley
joined the Board as a non-executive director. Effective today,
Henry Klotz becomes Executive Chairman of CLS, and Anna
Seeley becomes Non-Executive Vice Chairman. I remain on
the Board as an executive director.
On a personal note, this is the twenty-second and final
statement that I have the privilege to write as Chairman of
CLS. It is with confidence that I now hand over the helm as
Executive Chairman to Henry Klotz who, in different positions
within the Group, has played a key role in our success over
the last 16 years. I look forward to the future with confidence
and remain fully committed to CLS, both as a shareholder
and as an executive director.
When looking back to my first statement in 1994, when our
property portfolio was merely one-fifth of its current value
and the net assets barely 17% of what they are today, I am
pleased with what we have so far achieved. During the past
22 years our total shareholder return has been 2,052%, during
which time the FTSE All Share index and the FTSE Real Estate
index have returned 373% and 353%, respectively. The journey
however, is far from over and the outlook for future growth
is bright.
OUTLOOK During the recent period of turbulence in the
financial markets our strategy, to invest in attractive,
high-yielding office properties in secondary areas of major
cities, has continued to serve the Group well. Benefiting from
record low borrowing costs and vacancy levels, solid tenant
demand and continued revaluation uplifts of our property
portfolio, we have achieved record profits and property values.
The forthcoming “Brexit” referendum may cause some
temporary political and economic uncertainty in the UK, but
beyond this we expect the UK economy to continue to grow.
In addition, the commercial property market, particularly
outside of the West End and City of London, should perform
well in 2016, reflecting an excess of tenant demand over
commercial office supply.
The economy in the Eurozone continues gradually to recover
and we believe our overseas assets will continue to benefit from
record low interest rates and a pick-up in occupier demand.
With our proven and successful business model, a strong
balance sheet, ample liquid resources and our highly skilled
and committed staff, the Group is well positioned to continue
to deliver value to our shareholders and to benefit from the
challenges and opportunities which lie ahead.
Sten Mortstedt
Executive Chairman
8 March 2016
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ACTIVELY MANAGING
OUR PORTFOLIO
Annual Report & Accounts 2015
CLS Holdings plc
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Westminster Tower, SE1
• Acquired 1987
CI Tower, New Malden
• Acquired in 1988
• Multi-let office building of 4,457 sqm
• Multi-let office building of 7,597 sqm
(48,000 sq ft) over 14 floors
(81,770 sq ft) over 15 floors
• Planning consent in 2014 to convert
• Upgrade of M&E systems and common
predominantly to residential
parts under way
• Enhanced planning consent in 2015
increasing number of apartments
by 5 to 28
• New reception completed
• Investment in refurbishment of
£7.0 million
405 Kennington Road, SE11
• Acquired in 2013
• 1,380 sqm (14,850 sq ft) of office space,
300 sqm (3,230 sq ft) of retail space
and 15 residential flats (sold on
long leaseholds)
• Purchase price £4.0 million
• Office space refurbished at a cost
of £1.5 million under a pre-let to
Health and Care Professionals Council
Vauxhall Square, SW8
• Acquired 1988-2004
• Multi-let office/industrial
• Planning consent for 143,000 sqm
(1.54 million sq ft) mixed-use scheme
of residential, office, hotels, retail and
student accommodation
In 2015:
In 2016:
• Completed sale of Miles Street car park
student accommodation site to Urbanest
for 24.8 million
• Enhanced planning consent to provide an
additional 10,088 sqm (108,586 sq ft) of
Grade A offices in place of a 4-star hotel
• Agreed terms with Cap Gemini to obtain
vacant possession by December 2016
• Increased total scheme to 151,700 sqm
(1.6 million sq ft)
Valuation at 31 December 2015
million
Valuation at 31 December 2015
million
Valuation at 31 December 2015
million
Valuation at 31 December 2015
million
£45.7
£23.4
£12.0
£83.3
10
11
The bedrock of the Group’s rental income is strong,
with 41% being paid by government occupiers and 29%
from major corporations, and 50% of our rents are subject
to indexation. The weighted average lease length at
31 December 2015 was 6.1 years, or 4.9 years to first
break. The portfolio is broadly let in line with current
market rents.
The overall vacancy rate remained very low at just 3.1%
(2014: 3.0%), which is testament to the benefit of active
in-house asset management and property management,
and of maintaining strong links with our customers to
ensure we understand and respond to their needs.
The benefits of the Group’s geographical diversification
remain self-evident: there is good growth in the London
portfolio, at a time when there are good investment
opportunities and readily available debt in Germany.
The Group maintains its strong commitment to sustainability,
which has benefited both occupiers and the Group.
The Corporate, Social and Environmental Responsibility
Statement on page 30 provides more detail.
MOVEMENT IN PROPERTY PORTFOLIO 2015
(£ million)
PPE
Held for sale
Investment properties
1,600
1,500
1,400
1,335.3
106.4
57.8
17.9
-30.5
-24.0
1,462.9
32.3
58.6
1,300
1,200
1,100
1,000
900
800
25.2
1,310.1
A dditions
At 1 January 2015
1,372.0
FX
C apex
At 31 D ece m ber 2015
Disposals
Valuation U plift
BUSINESS REVIEW
The main activity of the Group is the investment in commercial
real estate across five European regions – London, the rest
of the United Kingdom, France, Germany and Sweden –
with a focus on providing well-managed, cost-effective
offices for cost-conscious occupiers in key European cities.
The Group’s total property interests have increased to
£1,522.3 million at 31 December 2015, comprising the
wholly-owned property investment portfolio valued at
£1,366.8 million and properties held for sale of £58.6 million,
a hotel with a value of £26.5 million, other assets of
£11.0 million, vacation sites valued at £22.5 million
(the Group’s share), and a 15.5% interest in Swedish listed
property company Catena AB, valued at £36.9 million.
PROPERTIES
OVERVIEW At 31 December 2015, the directly held investment
property portfolio was independently valued at £1,366.8 million
(31 December 2014: £1,310.1 million). The increase of
£56.7 million primarily comprised new acquisitions of
£57.8 million and other capital expenditure of £17.9 million,
and a £99.3 million valuation uplift; the effect of these were
mitigated by disposals of £30.5 million, and £24.0 million
of negative exchange rate variances, whilst three properties
with a combined value of £58.6 million were transferred to
properties held for sale and a landholding worth £5.2 million
was transferred to property, plant and equipment. In local
currencies, the portfolio rose by 7.3%, after acquisitions and
development expenditure. The drivers were the London and
Rest of UK portfolios, which increased in value by 8.6% and
9.5%, respectively; Germany rose by 8.2%, France by 3.3%
and Sweden by 1.7%.
Of the £57.8 million spent on acquisitions in the year,
£35.5 million related to three properties in London, and
£18.5 million to a multi-let office complex in Munich. A car park
on Miles Street, SW8 was sold with planning consent for a
30 storey tower, and six smaller properties from around the
UK were disposed of, together with a smaller property in
Munich. Contracted rent rose by 1.9% in the twelve months
on a like-for-like basis, which was significantly affected by
over-rented leases expiring in Vänerparken, Sweden, excluding
which contracted rent rose by 4.7%. The annualised rent rose
by 0.2%, or 3.0% excluding Vänerparken. The increase in
capital values was driven by a fall in yields of 40 bps, whilst
rent-free periods given in the year reduced net initial yields by
a further 20 bps; consequently, the EPRA net initial yield of the
overall investment property portfolio (excluding developments)
at 31 December 2015 fell to 5.9% (2014: 6.5%) and the EPRA
topped-up net initial yield to 6.2% (2014: 6.6%). The average
rent across the Group remained very affordable at £161 per sqm
(£15 per sq ft), and the average capital value was also low at
just £2,537 per sqm (£237 per sq ft). This was very close to
replacement cost, meaning that the land element of our
investments in key European cities was minimal. This also
highlights how successful the Group can be in attracting
occupiers with cost-effective rents.
THE BEDROCK OF THE GROUP’S RENTAL INCOME IS
12
STRONG
Chancery House, Sutton
• Acquired in 2015
• 5,132 sqm (55,240 sq ft) of offices
• Purchase price of £10.2 million
• Net initial yield of 7.0%
• A multi-let, 8 storey office block with asset
management opportunities
ACTIVELY MANAGING
OUR PORTFOLIO
Annual Report & Accounts 2015
CLS Holdings plc
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AVERAGE UNEXPIRED LEASE TERM
(Years)
EFFECT OF RENT EXPIRIES
(£ million)
VACANCY RATE HISTORY
(%)
To first break
To end of lease
Rent expiring
ERV of rent expiring
7
6
5
4
3
2
1
0
London
R est of U K
France
G er m any
S w eden
Total Group
16
14
12
10
8
6
4
2
0
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Later
8
7
6
5
4
3
2
1
0
KPI
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
13
CONTINUED
BUSINESS REVIEW
Market during the year:
• GDP growth for 2015 down to 2.2% (2014: 2.9%)
• PMI of business confidence for January 2016 remained above 50
• Unemployment of 5.1% is at its lowest level since 2006
• Interest rates of 0.5% with little likelihood of rising in the short term
• 2015 was a record year for property investment volumes at over £66 billion
• Office rental values in London grew by 10.3%
• Capital growth rate in London was 14.9%, with Mid-Town the highest at 19.5%
Outlook:
The UK’s membership of the EU is likely to dominate the political and
economic landscape. Its uncertainty is impacting investor decisions, and
large swings are likely in sterling. CLS is a member of business group
London First, which is advocating remaining in the EU.
Office rents are likely to continue to rise on the back of strong demand
and a tightening of supply, particularly if, as expected, the Permitted
Development Regulations allowing the conversion of office space to
residential is made permanent.
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Honda Motor Europe
Major Corporation
In 2015 we continued to seek, and deliver, a number of
investment opportunities in and around London. In Bracknell,
we acquired the Reflex building, a 9,607 sqm (103,400 sq ft)
multi-let Grade A office which primarily houses Honda
Motor’s European headquarters, for £21.7 million at a net
initial yield of 8.0%. In Sutton, we bought Chancery House
for £10.2 million at a net initial yield of 7.0%. This multi-let,
5,132 sqm (55,242 sq ft) eight storey office block offered asset
management opportunities in an under-supplied suburban
office market. In Bromley, we bought One Elmfield Park, a
2,238 sqm (24,092 sq ft) office for £4.5 million at a net initial
yield of 7.3%, which we intend to refurbish comprehensively
prior to relaunching in 2017. We also acquired two town houses
adjacent to Vauxhall Square, 109 and 111 Wandsworth Road,
SW8, for £3.3 million in aggregate.
The London occupancy market maintained its strength in
2015, and with a lack of new developments to satisfy this
demand, rental values rose. On average, new lettings were
achieved at 9.3% above their estimated rental values (ervs)
of 31 December 2014. During 2015, ervs of the London
portfolio rose by 6.2%, and at 31 December 2015 the
London portfolio was net reversionary. Those leases
which were reversionary were £5.8 million or 14.2%
under-rented; of the £1.5 million (3.7%) of over-renting in
London, more than £0.6 million was on leases which expire
in 2026. The vacancy rate for London remains low at just
3.6%, excluding development stock (2014: 3.3%). During
2015, 9,215 sqm became vacant and we let or renewed
leases on 8,900 sqm.
Of the two developments in Central London which completed
at the end of 2014, at Spring Mews, Vauxhall SE11, the
378 bed student accommodation building was fully let in
the year, 1,000 sqm of office space were fully let and the
93 bedroom suite hotel traded with an average occupancy
rate of over 90%. Under IFRS, the hotel element of the
scheme is carried in the balance sheet at market value
within Property, Plant and Equipment. As expected, the
entire office element at 138 Fetter Lane, EC4 became
fully occupied during the year, and the eight adjoining
residential apartments at 139 Fetter Lane have been
retained and fully let on annual leases. The rent-free
periods granted at 138 Fetter Lane in the year account for
the majority of the difference between the EPRA net initial
yield and its topped-up equivalent at 31 December 2015.
14
Investment properties
m
£800.1
Percentage of Group’s property interests
53%
No. of properties
43
Lettable space
175,403
No. of tenants
172
1
EPRA net initial yield
sqm
4.7%
1
EPRA topped-up net initial yield
5.3%
Miles Street car park
• Sold in 2015
• Proceeds of £24.8 million
• Acquired by Urbanest, a specialist developer and
operator of student accommodation.
• The site has planning consent for a 30 storey,
454 bed student accommodation tower as part
of our Vauxhall Square scheme
• Urbanest is expected to begin construction in 2016
ACTIVELY MANAGING
OUR PORTFOLIO
Annual Report & Accounts 2015
CLS Holdings plc
Vacancy rate
3.6%
Valuation uplift
8.6%
Rental income from government and
major corporates
65%
Average unexpired lease length
years
6.5
Lease length to first break
years
5.5
Spring Mews Hotel,
m
2% of Group’s property interests
1
£26.5
excluding developments
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At Vauxhall Square, SW8, our 151,700 sqm (1.6 million sq ft)
major development opportunity adjacent to Vauxhall’s
transport hub, we completed the sale of the car park in Miles
Street, which had planning consent for a 454 bed, 30 storey
student tower. The purchaser, specialist developer and
operator of student accommodation, Urbanest, is expected to
begin work on the site in 2016. This sale provided £24.8 million
towards financing the rest of the scheme, whilst reducing our
development risk and our exposure to further student housing
in the Vauxhall area. We agreed final terms with our existing
tenant, Cap Gemini, to gain vacant possession of the main site
of Vauxhall Square by the end of 2016. In February 2016,
we gained an amendment to the overall planning consent,
replacing a four-star hotel with 10,088 sqm (108,586 sq ft) of
Grade A offices, increasing the office element of the entire
scheme to 23,700 sqm (255,000 sq ft). Our current intention
is for the main site to be developed in two phases, the first of
which could start in 2017 with the demolition of some existing
buildings and the construction of a three storey basement,
including 17,500 sqm (188,370 sq ft) of Grade A offices and
a residential tower. We are working towards focusing on
the commercial part of the scheme, in which we have an
established track record, and are considering finding a
specialist partner for the development of the residential
element. The carrying value of the existing property at
31 December 2015 was £83 million before the amendment
to the overall planning consent gained in February 2016.
At Westminster Tower, SE1, on the south side of Lambeth
Bridge, detailed planning consent for conversion of this
14 storey office building into a primarily residential
17 storey tower was enhanced with the addition of five
further private apartments to the original 23. We anticipate
beginning this redevelopment on gaining vacant possession
in the medium term.
On an undeveloped site with planning consent in Tinworth
Street adjacent to Spring Mews, SE11, we gained consent
to add three further floors and a change of use from
student accommodation, to create a 7 storey, mixed-use
office and student building which we intend to develop
in 2016/17.
The London portfolio rose by 8.6% in the year, reflecting
both rental value growth and a 16 bps yield compression.
Since the year end we have continued to invest in the
London area with the acquisition of Cassini Court and
Pascal Place, Randalls Research Park, Leatherhead,
two adjacent office buildings of 2,613 sqm (28,122 sq ft)
in aggregate, for a cost of £6.1 million, representing a net
initial yield of 6.0%. We intend to modernise the buildings
and relet them later this year.
One Elmfield Park, Bromley
• Acquired in 2015
• 2,238 sqm (24,090 sq ft) of offices
• Purchase price of £4.5 million
• Net initial yield of 7.3%
• A comprehensive refurbishment is planned later in 2016
prior to relaunching the property in 2017
ACTIVELY MANAGING
OUR PORTFOLIO
16
Annual Report & Accounts 2015
CLS Holdings plc
Market during the year:
• Capital values grew by 9.3% in 2015
• Rents grew by 4.3%
• Market activity continues to be dominated by the major cities of
Manchester, Birmingham and Leeds
Outlook:
The UK’s membership of the EU is likely to dominate the political and
economic landscape. Its uncertainty is impacting investor decisions,
and large swings are likely in sterling.
Office rents are likely to continue to rise on the back of strong demand;
in recent years there has been relatively little development outside the
south east of England and supply is constrained.
REST OF
UK
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Secretary of State
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Trillium
Government
Government
The Rest of UK portfolio is 100% let to 14 government departments. During
the year we took advantage of the buoyant investment market to sell six
outlying properties which were individually sub-scale and which carried a
disproportionately high letting risk. The proceeds of £7.4 million were 27%
above their 2014 aggregate valuation. Also in 2015, we settled one rent
review at no uplift and agreed one index-linked rent review at 15.6% above
the passing rent, which added £314,000 to the rent roll.
The disposal values of the group of six properties provided evidence to
support an increase in the portfolio which remained. Notwithstanding that
it has a concentration of lease expiries and breaks in March 2018, the
portfolio rose by 9.5%, reflecting a fall in the true equivalent yield of 170 bps.
Since the year end we have exchanged contracts to sell Atholl House,
Aberdeen with vacant possession for £11.0 million.
Investment properties
m
£91.7
Properties held for sale
m
£9.2
Total properties
m
£100.9
Percentage of Group’s
property interests
7%
No. of properties
26
Lettable space
sqm
85,751
No. of tenants
26
EPRA net initial yield
11.3%
EPRA topped-up
net initial yield
11.3%
Vacancy rate
0.7%
Valuation uplift
9.5%
Rental income from government and
major corporates
100%
Average unexpired lease length
years
6.4
Lease length to first break
years
3.5
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CONTINUED
BUSINESS REVIEW
Market during the year:
• GDP rose at 1.1%, implying economic resilience, but inflation is negligible
and unemployment is over 10%
• The investment market in 2015 was strong, recording its second best
performance ever and led by local investors, and yields continued to fall
• In the Greater Paris region the supply of lettable space fell marginally
to 3.9 million sqm
• After a poor first half of the year, the second half saw one of the highest
levels of letting activity in years, resulting in 2.2 million sqm let in the
twelve months
• Most letting deals were of less than 5,000 sqm
€
• There is still a significant gap between vacancy levels in Paris (4.7%)
and its inner suburbs (over 10%)
•
23 billion was invested in commercial real estate in France, and offices
accounted for 72%
€
• Paris / Ile de France attracted 76% of investment; Lyon was the main
regional driver with
1.4 billion
Outlook:
France remains a tenant’s market, with relatively high lease incentives.
Given the level of liquidity in the market, investment volumes are expected
to reach 2015 levels again in 2016. The French macro environment seems
likely to be conducive to an improvement, but only very gradually as GDP is
only expected to rise to 1.2% in 2016 and 1.4% in 2017.
Our in-house French team managed to reduce still further
our vacancy rate in France to only 3.9% (2014: 5.1%); two
years ago 10.6% of the French portfolio was vacant. Of the
9,939 sqm of space subject to expiries or vacancies in the
year, 3,698 sqm was taken into development stock and
6,241 sqm was let. This was achieved at a weighted average
rent of less than 1.4% below ervs at 31 December 2014.
The French portfolio valuation rose by 3.3% in the year in
local currency, but fell by 1.9% in sterling. Contracted rent on
a like-for-like basis grew by 3.0% and, with little movement
in yields, this accounted for most of the rise in the value of
the properties.
€
Since the year end we have disposed of our only property
investment in Luxembourg, at 16 Rue Eugene Ruppert,
for
for this empty property.
10.2 million, marginally ahead of the 2015 valuation
At Petits Champs, in the heart of Paris, planning consent
was gained for a significant refurbishment to create 2,000
sqm of offices behind a new façade. The soft strip-out has
been completed and the main contract is due to complete
by the end of 2017.
FRANCE
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Veolia
Colt
CPAM
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GRT GAZ
Major Corporation
Major Corporation
Government
Government
18
Investment properties
m
£215.6
Properties held for sale
m
£7.3
Total properties
m
£222.9
Percentage of Group’s
property interests
15%
No. of properties
26
Lettable space
sqm
88,375
No. of tenants
191
1
EPRA net initial yield
6.2%
1
EPRA topped-up
net initial yield
6.3%
Vacancy rate
3.9%
48 Rue Croix des Petits Champs, Paris
• Across the road from the Banque de France and
close to the Louvre in the heart of Paris
• In 2015 we gained consent to replace the façade
and significantly upgrade 2,000 sqm (21,500 sq ft)
of offices in a prime location
• £8.2 million refurbishment under way
• Property to be relaunched in late 2017
ACTIVELY MANAGING
OUR PORTFOLIO
Annual Report & Accounts 2015
CLS Holdings plc
Valuation uplift
3.3%
Rental income from government and
major corporates
55%
Average unexpired lease length
years
5.0
Lease length to first break
years
2.6
1
excluding developments
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Market during the year:
• Germany’s GDP growth of 1.7% remained steady and it
is projected to grow gradually, the effect of its otherwise robust
labour market and low oil prices is likely to be offset by global
economic weakness and migration issues
• Germany’s real estate markets remained buoyant; the top seven
property markets recorded the highest level of new lettings since
2007, up 17% on 2014
• The investment market transaction volume was virtually its
highest ever, 39% above that of 2014
• The fall in yields continued, especially in the prime sector, and
now stands at 3.65% in Munich and 4.0% in Berlin and Hamburg
• Yields for secondary properties have also shown strong
compression, and are now between 5.5% and 6.5%
• Take-up increased 23% year-on-year with Berlin achieving
an all-time record of 850,000 sqm, and office vacancy is low
(Berlin 4%; Munich 4%; Hamburg 5.5%)
• Rents in Berlin, Hamburg and Munich experienced a strong Q4,
fuelled by the record take-up; Berlin prime rents were up 9.1% in
the year, the highest in 15 years
Outlook:
German economic growth is a key driver for Europe and is forecast
to rise by 1.8% in 2016. Unemployment has again been decreasing
and is forecast to fall to 6% in 2016 (2015: 6.6%). German political
debate is dominated by the ongoing refugee crisis: the country
received up to 1.1 million refugees in 2015 and a further 1.0 million
are expected in 2016. This will put even more pressure on the
residential market and the supply of commercial properties has
been reduced by conversion of lower grade office properties.
The favourable financing environment, with low interest rates
and increased LTVs, is showing no signs of reversing and this,
in combination with improved market fundamentals, is expected
to keep the investment market strong in 2016.
€
A smaller property, Unterschleissheim, on the outskirts of
Munich, was sold in the year for
below its valuation at December 2014.
3.8 million, marginally
During 2015, 6,186 sqm vacated or expired in the German
portfolio, of which 4,589 sqm relet or renewed and 619 sqm
was sold on the disposal of Unterschleissheim. The resulting
increase in voids was matched by a net decrease in available
space on the acquisition of Tangentis and, consequently,
the vacancy rate remained relatively stable at 2.5%
(2014: 2.6%). New leases and renewals were achieved
at broadly their ervs of December 2014.
The valuation of the German portfolio rose by 8.2% in
local currency, or by 3.2% in sterling. The uplift was driven
by a 13 bps fall in yields, whilst ervs were up 1.3% on a
like-for-like basis in the year.
GERMANY
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City of Bochum
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BrainLab
E.ON
Kaufland
Government
Major Corporation
Major Corporation
Major Corporation
We continue to see good investment value in German
commercial real estate, supported by favourable
financing conditions. In the previous two years we
have bought Bismarckalle 18/20 in Freiburg, and
Schellerdamm 2 and Schellerdamm 16 in the Harburg
district of Hamburg. In 2015, we acquired Tangentis, a
14,867 sqm (160,000 sq ft) multi-let office building near
Munich for £18.5 million, at a net initial yield of 7.9%,
and financed it with a fixed rate loan at 1.44% for seven
years and with a 70% loan-to-value.
20
Investment properties
m
£259.4
Percentage of Group’s
property interests
17%
No. of properties
19
Lettable space
sqm
183,376
Annual Report & Accounts 2015
CLS Holdings plc
No. of tenants
Valuation uplift
152
EPRA net initial yield
6.1%
EPRA topped-up
net initial yield
6.2%
Vacancy rate
2.5%
8.2%
Rental income from government and
major corporates
69%
Average unexpired lease length
years
6.3
Lease length to first break
years
6.2
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Tangentis, Munich
• Acquired in 2015
• 14,867 sqm (160,000 sq ft) of multi-let offices
• Purchase price of £18.5 million
• Net initial yield of 7.9%
• A television-based sub-market to the north of
Munich with tenants such as Sky Deutschland,
Kabel Deutschland and TV1
ACTIVELY MANAGING
OUR PORTFOLIO
CONTINUED
BUSINESS REVIEW
Market during the year:
Annual Report & Accounts 2015
CLS Holdings plc
• Sweden’s economy has continued to show signs of robustness
• Inflation is negligible, unemployment is around 7.5%,
interest rates are below 0% and GDP growth is above 4.0%
and rising
• The total transaction volume of commercial properties
in Q4 of SEK 48 billion was 37% higher than the average
Q4 volume 2003-2014
• The total investment volume for 2015 of SEK 146 billion
was down 7% on 2014; volumes are being held back by lack
of available product
• Yields have continued to fall and prime office yields in
Stockholm are now at 3.75%, in Gothenburg 4.2% and
in Malmö 5%
Outlook:
With a strong investment market, we have sold our main
Swedish asset, Vänerparken, in 2016. Catena is well positioned
to benefit from the market conditions, and First Camp is well
placed to benefit from the Swedish vacation market.
SWEDEN
INVESTMENT PROPERTY
Properties held for sale
m
£42.1
Percentage of Group’s
property interests
3%
No. of properties
1
Lettable space
38,909
sqm
FINANCIAL INVESTMENT
No. of tenants
Valuation uplift
27
EPRA net initial yield
8.7%
EPRA topped-up
net initial yield
8.8%
Vacancy rate
4.8%
1.7%
Rental income from government and
major corporates
98%
Average unexpired lease length
years
5.2
Lease length to first break
years
5.2
Value in Catena
m
£36.9
Percentage of Group’s
property interests
2%
Interest in Catena
15.5%
22
The Group’s interests in Sweden consist of two operating
segments: Investment Properties and Other Investments.
The Other Investments are an equity stake in a financial
investment, a landholding and a subsidiary; both equity stakes
invest in Swedish real estate, and as they operate against the
same economic backdrop, are considered together with the
directly-held Swedish properties in this Business Review.
As reported last year, the majority of the leases at our main
investment property in Sweden, Vänerparken, were renegotiated
in 2015, significantly reducing the over-rented position at the
property. These changes had been foreseen in the valuation at
December 2014 and, as a consequence, the valuation of
Vänerparken at 31 December 2015 was largely unchanged.
The remaining direct holding in Swedish real estate is a plot
of land in Hyllinge, which has been transferred to Property,
Plant and Equipment.
On the disposal of Vänerparken, the Group’s main investment
in Sweden will be a 15.5% (2014: 13.5%) interest in the share
capital of Catena AB, a property company which specialises in
logistics warehouses in Sweden. During the year the Group
acquired 502,000 further shares in Catena, which is listed on
Nasdaq Stockholm and during 2015 its share price rose by
7.8% to SEK 114 per share. Consequently, the sterling
carrying value of the investment rose by 7.4% net of foreign
exchange movements. Catena remains very profitable and we
received a dividend of £0.9 million in the year.
We have chosen to take advantage of the regularisation of
the leases, and of the strong investment market in Sweden,
and we have exchanged contracts to sell the building for
SEK 590 million, some 13.5% above its 2015 valuation.
Completion is due on or before 1 May 2016.
The assets of First Camp Sverige Holding AB, predominantly
vacation sites in Sweden, were valued at £38.8 million
(Group’s share: £22.5 million) at 31 December 2015, and the
Group’s share in the net assets of First Camp at that date was
£8.4 million.
PROPERTY, PLANT & EQUIPMENT
Value of landholding
m
£5.2
Interest in First Camp
58.0%
Value in First Camp
m
£8.4
Percentage of Group’s property interests
1%
Gross value of First Camp’s assets
m
Share of gross value of First Camp’s assets
m
£39.6
£22.5
Catena AB
• A property investment company which specialises
in logistics properties in Sweden (Köpingegården,
in Helsingborg, pictured)
• Listed on Nasdaq Stockholm, CLS owns 15.5%
• In 2015, Catena made a profit after tax of
SEK 571 million
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PROFIT AFTER TAX
(£ million)
225
200
175
150
125
100
75
50
25
154.3
85.7
33.6 36.0
0
E P R A profit after tax
Property valuation
2014
2015
194.9
129.9
7.0 7.5
Other
Profit after tax
MOVEMENT IN RENTAL INCOME
(£ million)
3.1
0.6
0.4
3.3
84.4
-1.1
-0.7
-0.7
85.3
-4.0
95
90
85
80
75
70
65
60
R ental Inco m e 2014
Acquisitions
138 Fetter Lane
Spring M e w s
N et other lettings
Luxe m bourg
P etits C ha m ps
Disposals
FX
R ental Inco m e 2015
24
RESULTS FOR THE YEAR
HEADLINES Profit after tax attributable to the owners of the
Company of £129.9 million (2014: £194.9 million) generated
EPRA earnings per share of 84.7 pence (2014: 77.4 pence), and
basic earnings per share of 305.7 pence (2014: 449.0 pence).
Investment properties at 31 December 2015 were
£1,366.8 million (2014: £1,310.1 million), EPRA net assets
per share were 17.4% higher at 2,083.2 pence (2014:
1,774.1 pence), and basic net assets per share rose by
19.0% to 1,810.1 pence (2014: 1,521.1 pence).
Approximately 65% of the Group’s business is conducted in
the reporting currency of sterling, around 31% in euros, and
the balance is in Swedish kronor. Compared to last year,
sterling strengthened against the euro by 11.0% and against
the krona by 14.1%, reducing profits accordingly. Likewise,
at 31 December 2015 the euro was 5.1% weaker and the
krona 2.2% weaker against sterling than twelve months
previously, reducing the sterling equivalent value of
non-sterling net assets.
EXCHANGE RATES TO THE £
At 31 December 2013
2014 average rate
At 31 December 2014
2015 average rate
At 31 December 2015
EUR
SEK
1.2041
1.2410
1.2876
1.3774
1.3571
10.6562
11.2984
12.1654
12.8889
12.4420
INCOME STATEMENT At £85.3 million, rental income in 2015
was £0.9 million higher than in 2014; acquisitions added
£3.3 million and completed developments contributed
£3.7 million for the first time along with £0.4 million of other
lettings, but these were offset by £1.8 million of income
lost on properties added to the development pipeline, and
£0.7 million from disposals, whilst the strength of the sterling
lowered rents by £4.0 million. A full year of income from First
Camp of £14.0 million (2014: £0.7 million) and £3.5 million
of income from the Spring Mews hotel for the first time,
contributed to a 20.4% increase in net rental income to
£99.0 million (2014: £82.2 million).
We monitor the administration expenses incurred in running
the property portfolio by reference to the income derived from
it, which we call the administration cost ratio, and this is a key
performance indicator of the Group. In 2015, retaining key staff
whilst expanding staff levels for the development programme
and property purchases, drove the increase in administration
expenses of the property segment of the Group to £13.5 million
(2014: £7.2 million). As a proportion of net rental income,
the administration cost ratio increased to 15.9% (2014: 15.7%),
within our KPI target for the year of 16.0%.
The increase in group revenue less costs of the other
investments segment to £4.2 million (2014: loss of
£0.4 million) stemmed from the trading performance of
the Spring Mews hotel and First Camp, and drove the 2.3%
increase in the total Group revenue less costs to £71.7 million
(2014: £70.1 million).
The net surplus on revaluation of investment properties of
£98.0 million was predominantly generated by the London
portfolio, which rose in value by £62.3 million, and Germany’s,
which added £19.5 million.
The disposal of Miles Street car park, Unterschleissheim and
the small Rest of UK portfolio realised a gain of £4.3 million
after costs over their aggregate valuation at 31 December 2014
of £30.5 million.
The majority of finance income of £10.0 million
(2014: £7.7 million) was interest income of £4.9 million
(2014: £6.1 million) from our corporate bond portfolio.
At 31 December 2015, this had a value of £73.4 million,
and remained an important cash management tool of
the Group, earning a return on capital of 5.0% in the year.
Finance costs of £27.5 million (2014: £28.1 million) were
lower than last year. The underlying interest cost, excluding
the fair value movements of derivative financial instruments
and losses on partially redeeming a zero coupon note, rose to
£26.6 million (2014: £24.8 million), after capitalising interest
of £0.4 million (2014: £2.9 million) on developments. Interest
costs before such capitalisation were marginally down on last
year at £27.0 million (2014: £27.7 million), in line with the fall
in our cost of borrowing to 3.40% (31 December 2014: 3.64%).
Once again this year the tax charge of 12.5% was significantly
below the weighted average rate of the countries in which we
do business (21.1%), primarily due to indexation allowances
available on United Kingdom properties and a prospective
change in the United Kingdom tax rate.
Overall, profit attributable to the owners of the Company was
£129.9 million (2014: £194.9 million). EPRA earnings, which
exclude items which are non-recurring in nature, such as
profits on sales of investment properties, or which have no
impact to earnings over their life, such as movements on
the revaluation of investment properties, were £36.0 million
(2014: £33.6 million), and generated EPRA earnings per share
up 9.5% at 84.7 pence (2014: 77.4 pence).
EPRA NET ASSET VALUE At 31 December 2015, EPRA net
assets per share were 2,083.2 pence (2014: 1,774.1 pence), a
rise of 17.4%, or 309.1 pence per share. The main reasons for
the increase were the uplift in the valuation of the investment
property portfolio which added 243.6 pence, and underlying
profit after tax of 102.3 pence. Whilst sundry other items
reduced it by 6.0 pence, the strength of sterling against
the euro and krona reduced EPRA net assets per share by
30.8 pence.
CASH FLOW, NET DEBT AND GEARING Net cash flow from
operations generated £48.9 million, adding over 100 pence
per share to net assets, of which £16.1 million was distributed
to shareholders. £34.8 million was raised from eight property
disposals and a further £62.6 million from net new debt after
costs. The main cash outflows were on the six acquisitions
in the year, which, together with the completion of
Schellerdamm, amounted to £81.4 million in aggregate,
and on capital expenditure in the year of £25.9 million. At
31 December 2015, the Group’s cash balances of £100.7 million
were virtually unchanged from twelve months previously,
and were supplemented by corporate bonds with a value
of £73.4 million and undrawn bank facilities of £65 million.
Annual Report & Accounts 2015
CLS Holdings plc
MOVEMENT IN EPRA NAV 2015
(Pence)
243.6
2,083.2
-6.0
-30.8
2,200
2,100
2,000
1,900
1,800
1,700
1,600
102.3
1,774.1
1,500
Property valuation
At 1 January 2015
U nderlying profit
FX
Other
At 31 D ece m ber 2015
MOVEMENT IN LIQUID RESOURCES 2015
(£ million)
Cash
34.8
Bonds
62.6
-10.7
-81.4
-25.9
250
200
150
100
50
48.9
-16.2
100.2
61.8
100.7
73.4
0
N et dra w do w n of loans
Tender buy-back
At 1 January 2015
Property acquisitions
Sale of properties
C apital expenditure
Fro m operations
At 31 D ece m ber 2015
Other
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CONTINUED
BUSINESS REVIEW
MOVEMENT IN GROSS DEBT 2015
(£ million)
301.6
-166.6
-18.9
800.0
746.0
-47.8 -14.3
1,100
1,000
900
800
700
600
500
N e w loans
At 1 January 2015
FX
A m ortisation
R epaid
N et overdrafts
At 31 D ece m ber 2015
DEBT PROFILE AT 31 DECEMBER 2015
(£ million)
To be repaid
Already refinanced
To be refinanced
Amortisation
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
180
160
140
120
100
80
60
40
20
0
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Gross debt increased by £54.0 million to £800.0 million.
New bank loans of £294.0 million were taken out to finance
acquisitions or to refinance existing loans, £7.6 million was
taken out in the First Camp business, and £12.3 million of
overdrafts were drawn, whilst loans of £185.5 million
were repaid, together with £60.1 million of overdrafts.
At 31 December 2015 the weighted average unexpired term
of the Group’s debt was 4.0 years.
Balance sheet loan-to-value (net debt to gross assets less
cash) fell to 42.5% (2014: 43.4%), and the weighted average
loan-to-value on borrowings secured against properties was a
comfortable 50.0% (2014: 49.7%). Adjusted solidity was 50.4%
(2014: 48.0%).
The weighted average cost of debt at 31 December 2015 was
3.40%, 24 basis points lower than 3.64% of twelve months
earlier. The cost of new bank financing has fallen in the past
few months, particularly in the UK, but notwithstanding low
medium-term rates, refinancing existing debts as they fall
due will probably gradually increase the average cost of debt
of the Group.
In 2015, our low cost of debt led to recurring interest cover
of 3.2 times (2014: 3.3 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 70% of the
Group’s exposure to foreign currency is naturally hedged, and
the most efficient use can be made of the Group’s assets.
Bank debt ordinarily attracts covenants on loan-to-value and
on interest and debt service cover. None of the Group’s debt
was in breach of covenants at 31 December 2015. The Group
had 67 loans across the portfolio from 26 banks, plus a
debenture, a zero-coupon loan, secured notes and two
unsecured bonds.
To the extent that Group borrowings are not at fixed rates,
the Group’s exposure to interest rate risk is mitigated by the
use of financial derivatives, particularly interest rate caps and
swaps. Since 2009, the Board has believed that interest rates
were likely to remain low longer than the forward interest
curve would imply, and, therefore, its policy has been to
allow a majority of debt to remain subject to floating rates.
To mitigate the risk of interest rates increasing more sharply
than the Board expected, the Group entered into interest rate
caps. This policy has served the Group well. As forecast twelve
months ago, during 2015 medium-term interest swap rates
fell close to short-term rates, and the Board chose to take
advantage of these conditions, fixing medium-term debt taken
out during the year predominantly with co-terminus interest
rate swaps. During the year the Group financed or refinanced
10 loans to a value of £294.0 million at a weighted average
all-in rate of 2.54%, and of these £195.1 million was fixed
at a weighted average all-in rate of 2.68%. Consequently,
at 31 December 2015, 51.4% of the Group’s borrowings were
at fixed rates or subject to interest rate swaps, 20.7% were
subject to caps and 27.9% of debt costs were unhedged.
The Group’s financial derivatives – predominantly interest rate
caps and interest rate swaps – are marked to market at each
balance sheet date. At 31 December 2015 they were a net
liability of £5.3 million (2014: £7.3 million).
DISTRIBUTIONS TO SHAREHOLDERS In April 2015,
£10.4 million was distributed to shareholders by means of a
tender offer buy-back of 1 in 80 shares at 1,950 pence per share.
In September, a further £5.7 million was distributed by means
of a tender offer buy-back of 1 in 162 shares at 2,190 pence
per share, and a proposed tender offer buy-back of 1 in
57 shares at 1,810 pence per share to return £13.4 million
will be put to shareholders at the Annual General Meeting
in April 2016. This will bring total distributions for 2015 to
£19.1 million, an uplift of 20% on last year. This uplift will
rebase the distribution, from which we expect to increase it
more modestly in future years. The distribution was rebased
to reflect the strong cash generation of the business and, based
on the market capitalisation of the company at 1 March 2016,
would imply the equivalent of a dividend yield of 3.1%.
SHARE CAPITAL At 1 January 2015, there were
45,827,164 shares in issue, of which 2,903,103 were held
as treasury shares. Shares were cancelled during the year
under the distribution policy of tender offer buy-backs:
in April, 536,738 shares were cancelled in exchange for
£10.4 million distributed to shareholders, and in September,
261,742 shares were cancelled in exchange for a distribution
of £5.7 million. Also during the year, 15,000 shares were
issued from treasury shares to a Director in compensation for
incentives forfeited on cessation of his previous employment.
Consequently, at 31 December 2015, 42,140,581 shares were
listed on the London Stock Exchange, and 2,888,103 shares
remained held in Treasury.
In April 2016, the Directors intend to put to the Annual
General Meeting of the Company a proposal to issue a tender
offer to buy-back 1 in 57 shares at 1,810 pence per share.
If approved by shareholders this could lead to the purchase
and cancellation of 702,343 shares, and a distribution to
shareholders of £13.4 million.
TOTAL RETURNS TO SHAREHOLDERS
In addition to the distributions and share cancellations
associated with the tender offer buy-backs, shareholders
benefited from a rise in the share price in the year from
1,529 pence on 31 December 2014 to 1,820 pence at
31 December 2015. Accordingly, the total shareholder return
in 2015 was 19.0%. In the five years to 31 December 2015,
our total shareholder return of 240.5%, which represented a
compound annual return of 27.8%, was one of the best
performances in the listed real estate sector.
Since the Company listed on the London Stock Exchange,
it has outperformed the FTSE Real Estate and FTSE All Share
indices, as set out in the graph opposite.
KEY PERFORMANCE INDICATORS
Our performance against our key performance indicators is
set out on pages 4 and 5.
Annual Report & Accounts 2015
CLS Holdings plc
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TOTAL RETURNS TO SHAREHOLDERS 1994-2015
(£ million)
CLS Holdings
FTSE Real Estate
FTSE All Share
2,500
2,000
1,500
1,000
500
0
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2015
27
PRINCIPAL RISKS AND UNCERTAINTIES
THERE ARE A NUMBER OF POTENTIAL RISKS AND UNCERTAINTIES which could have
a material impact on the Group’s performance and could cause the results to differ
materially from expected or historical results. The management and mitigation of these
risks are the responsibility of the Board.
Risk
Change in risk in year
Areas of impact
Mitigation
PROPERTY INVESTMENT RISK
Underperformance of investment portfolio
due to:
Cash flow
Profitability
Cyclical downturn in property market
Inappropriate buy/sell/hold decisions
Net asset value
Banking covenants
•
•
•
Changes in supply of space and/or
occupier demand
•
Poor asset management
Rental income
Cash flow
Vacancy rate
Void running costs
Bad debts
Net asset value
Rental income
Cash flow
Vacancy rate
Void running costs
Property values
Net asset value
OTHER INVESTMENT RISK
Corporate bond investments:
Net asset value
•
•
Underperformance of portfolio
Liquid resources
Insolvency of bond issuer
>
Unchanged
>
Reduced
>
Unchanged
Senior management has detailed knowledge
of core markets and experience gained
through many market cycles. This experience
is supplemented by external advisors and
financial models used in capital allocation
decision-making.
The Group’s property portfolio is diversified
across four countries. The weighted-average
unexpired lease term is 6.1 years and the
Group’s largest occupier concentration
is with the Government sector (41.1%).
Property teams proactively manage
customers to ensure changing needs are
met, and review the current status of all
properties weekly. Written reports are
submitted monthly to senior management
on, inter alia, vacancies, lease expiry profiles
and progress on rent reviews.
In assessing potential investments, the
Treasury department undertakes research
on the bond and its issuer, seeks third-party
advice, and receives legal advice on the terms
of the bond, where appropriate. The Treasury
department and Executive Directors receive
updates on bond price movements and
third-party market analysis on a daily basis,
and report on corporate bonds to the full
Board on a monthly basis. The Executive
Directors formally review the corporate
bond strategy monthly.
Increased
>
DEVELOPMENT RISK
Failure to secure planning permission
Contractor solvency and availability
Abortive costs
Reputation
Planning permission is sought only after
engaging in depth with all stakeholders.
>
Unchanged
Reduced
development returns
Cost overruns
Loss of rental revenue
Only leading contractors are engaged.
Prior to appointment, contractors are the
subject of a due diligence check and assessed
for financial viability.
Downturn in investment or occupational
markets
Net asset value
Cash flow
Profitability
Increased construction costs
Net asset value
Reduced
development returns
Cost overruns
Developments are undertaken only after an
appropriate level of pre-lets have been sought.
All development appraisals contain
contingencies, and are subject to sensitivity
analysis. Monthly cost reports are produced
for the Executive Directors to identify and
address potential issues at an early stage.
28
Unchanged
>
Unchanged
>
Reduced
Risk
Areas of impact
Mitigation
Annual Report & Accounts 2015
CLS Holdings plc
Change in risk in year
>
SUSTAINABILITY RISK
Increasing building regulation and
obsolescence
Climate change
Increasing energy costs and regulation
FUNDING RISK
Unavailability of financing at
acceptable prices
Rental income, cash
flow, vacancy rate,
net asset value,
profitability, liquid
resources
Net asset value,
profitability, liquid
resources
Net asset value,
profitability, liquid
resources
Cost of borrowing
Ability to invest or
develop
Adverse interest rate movements
Cost of borrowing
Cost of hedging
Breach of borrowing covenants
Cost of borrowing
Financial counterparty credit risk
Loss of deposits
Cost of rearranging
facilities
Incremental cost
of borrowing
Continual assessment of all properties
against emerging regulatory changes.
Fit-out and refurbishment projects
benchmarked against third party schemes.
Board responsibility for environment.
Dedicated specialist personnel. Increased due
diligence when making acquisitions.
Investment in energy efficient plant and
building mounted renewable energy systems.
Investment in energy efficient plant and
building mounted renewable energy systems.
The Group has a dedicated Treasury
department and relationships are maintained
with some 26 banks, thus reducing credit and
liquidity risk. The exposure on refinancing
debt is mitigated by the lack of concentration
in maturities.
The Group’s exposure to changes in prevailing
market rates is largely hedged on existing
debt through interest rate swaps and caps, or
by borrowing at fixed rates.
Financial covenants are monitored by the
Treasury department and regularly reported
to the Board.
Property investments are partially funded in
matching currency. The difference between
the value of the property and the amount of
the financing is generally unhedged and
monitored on an ongoing basis.
The Group has a dedicated Treasury
department and relationships are maintained
with some 26 banks, thus reducing credit and
liquidity risk. The exposure on refinancing
debt is mitigated by the lack of concentration
in maturities.
Unchanged
>
Unchanged
>
Unchanged
>
Unchanged
>
Unchanged
>
>
Unchanged
Unchanged
>
Unchanged
>
TAXATION RISK
Increases in tax rates or changes to the
basis of taxation
Cash flow
Profitability
Net asset value
The Group monitors legislative proposals and
consults external advisors to understand and
mitigate the effects of any such change.
Unchanged
POLITICAL AND ECONOMIC RISK
Break-up of the Euro
Net asset value
Profitability
Euro-denominated liquid resources are kept
to a minimum. Euro property assets are
largely financed with euro borrowings in the
countries in which they are situated.
UK exit from the EU
Net asset value
Profitability
Over 80% of the Group’s assets are in the UK
and Germany, both of which have economies
resilient enough to accommodate economic
shocks, should they occur.
>
Unchanged
>
Increased
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>
Foreign currency exposure
Net asset value
Profitability
CORPORATE, SOCIAL AND ENVIRONMENTAL RESPONSIBILITY REPORT
THE GROUP IS COMMITTED TO AN ETHOS OF CORPORATE, SOCIAL AND
ENVIRONMENTAL RESPONSIBILITY TOWARDS ALL STAKEHOLDERS. The Board
actively encourages its integration into the business by employees across the Group.
PORTFOLIO SUSTAINABILITY
The Charter underpins our core business strategy through the asset lifecycle.
Annual Report & Accounts 2015
CLS Holdings plc
CHIEF EXECUTIVE OFFICER’S STATEMENT
This year we have seen significant focus on sustainability
and the importance of climate change across the world. In
September, the Global Goals were passed at the UN Sustainable
Development Summit in New York and, in December, a new
climate change agreement was signed at the UN 2015 Paris
Climate Conference.
We have an active and engaged workforce and I am proud
to report that our staff supported more community events
in 2015 than ever before. This year we have been involved
in 20 social and charitable events raising over £40,895
(2014: £26,000). The focus has been on local projects and active
support to charities in the communities in which we invest.
We remain motivated and focussed to continue to improve our
sustainability record in 2016 and to deliver our investment
programme in more sustainable energy systems. We will
also be rolling out smart metering across our Group portfolio
to improve further our understanding of our buildings and
to find more savings both for our customers and for the
wider environment.
Fredrik Widlund
Chief Executive Officer
8 March 2016
A part of the Group’s ethos is its commitment to Sustainability
and Social and Environmental projects and I am proud to report
that in 2015 the Group made good progress in several areas.
During the year we installed a further three solar photovoltaic
arrays and a combine & heat power plant in the UK. As a
result the amount of electricity we generate from renewable
and low-carbon sources has risen to 2.7% (2014: 1.0%) of the
electricity consumed by our managed portfolio.
We also achieved a further 7.7% (2014: 7.2%) reduction in
carbon emissions in our managed buildings as a result of
energy efficiency projects and active property management.
Our Energy Performance Certificate score improved by 16%
from average D to C, well ahead of the introduction of the
MEES UK regulations in 2018, and we will continue actively
to encourage discussions on-site and to work in partnership
with our customers to identify further areas for improvements.
This year the Group has also focussed on our utility
procurement contracts, achieving over £100,000 in reduced
rates and securing cleaner energy across our UK & Germany
portfolios. Combined with our energy reduction projects we
have reduced our annual costs by £200,000.
KEY AREAS OF SUSTAINABILITY
SUSTAINABILITY GREEN CHARTER
The Sustainability Green Charter (the “Charter”) was set up
in 2011 to promote our sustainability aspirations through
improvements which can influence and mitigate our impact
on the environment, the local community, the economy and
key stakeholders. The Group undertakes:
to mitigate our impact on climate change by reducing
our carbon footprint
to be accountable for our performance on climate change
by reporting regularly against measurable indicators
•
•
30
•
•
•
•
to make the most effective use of our duties, powers
and resources to minimise the impact of our actions
on the environment, and to enhance the environment,
community and economy wherever possible
to monitor our progress by carrying out regular
assessments against the key actions of the Charter
to use the Charter to influence the behaviour of our
partners, tenants, suppliers and other stakeholders,
to promote the principles on which it is based
to promote and support social and charitable events to
ensure we contribute in the communities in which we invest
We carry out environmental due
diligence when assessing whether
to invest in a building. We seek to
identify all environmental risk
factors, including physical and
legislative risks, which may affect the
operations of the asset or its value.
We work closely with all our customers to manage our overall impact
on the environment. We offer a range of services which benefit our
customers in different ways, such as improving the energy efficiency
of landlord areas, customer engagement in sustainability projects and
energy reports for each customer. Where we control energy usage
we provide purchasing strategies to mitigate energy price volatility.
As part of our procurement processes, we also seek to ensure that
our contractors consider the environment on all refurbishments and,
where appropriate, we seek to incorporate into our projects industry
recognised standards, such as BREEAM and SKA.
Acquisition
Operations
Refurbishments
Development
Disposal
Through our development and refurbishment programmes, we
set high standards in environmental efficiency to provide better
buildings for the future. We also believe in working with all
stakeholders within our communities to help meet local needs,
addressing urban biodiversity and the wider infrastructure.
On the disposal of an asset, we
help the purchaser understand
how the asset operates so as to
ensure continued environmental
and sustainability performance.
ONLINE CSR REPORT
THE GROUP HAS PRODUCED A CSR REPORT WHICH IS AVAILABLE ONLINE.
The report is designed to provide in more comprehensive detail
sustainability data from across the Group. It will also provide
more facts and figures on our CSR programmes and showcase
the projects achieved in 2015.
To download the report, visit
>
www.clsholdings.com
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CORPORATE, SOCIAL & ENVIRONMENTAL RESPONSIBILITY REPORT
EMPLOYEES
2015 ACHIEVEMENTS
CONTINUED
Corporate
• Achieved Green Star status on the GRESB global platform
• Achieved improved Carbon Disclosure Project and
FTSE4GOOD scores against 2014
• Completed over 10 energy-efficiency projects across the
Group to support the reduction of carbon emissions and
reduce energy costs
• Gained 2 gold and 1 silver awards for refurbishments
using the SKA framework in the UK portfolio
• Enhanced our Energy Performance Certificate score by
16% from D (89) to C (75) well ahead of the introduction
of the MEES UK regulations in 2018
Social
• Raised charitable donations of £18,675, an increase of
£6,315 from 2014
• Raised £22,220 for corporate social community events
• Supported wider community projects such as donating
funds to help restore the Battersea Arts Centre
following a fire
• Sponsored the Vauxhall Bloom project, which provides
apprenticeships to the long-term unemployed with the
aim of helping them to gain skills and experience
necessary to pursue a career in horticulture
• Appointed a Corporate & Social Responsibility Assistant in
the sustainability team to help to deliver the programmes
across the Group
Energy & Environmental
• Reduced our annual energy costs by over £200,000
across the Group, through energy reductions and
procurement policies
• Achieved a carbon emissions reduction across the
Group of 7.7% exceeding a target of a 5% reduction
Culture
Our culture is entrepreneurial, professional, open and friendly.
Our multi-cultural ethnicity fosters a family environment
where integrity and responsibility are at the heart of our
business. We have fewer than 100 employees looking after a
property portfolio of £1.5 billion, so we recognise that they
make CLS what it is and contribute significantly to its success.
Recruitment
Finding the right people is the key to our long-term success.
Having a diverse workforce is also a source of competitive
advantage. Therefore, we have developed appropriate policies
and procedures which underline our commitment to equal
opportunity and diversity in employment. Our recruitment and
interview policy ensures that these objectives are met and
fully understood by those recruiting. It seeks to ensure that
no employee or applicant is treated less favourably on the
grounds of gender, marital status, race, colour, nationality,
ethnic or national origin, religion, disability or sexual
orientation nor is disadvantaged by conditions or requirements,
including age limits, which cannot be justified objectively.
Entry into, and progression within, the Group is solely
determined by the job criteria, personal aptitude and
competence.
We apply best practice in the employment of disabled people,
which is reflected in our recruitment and interview policy.
Full and fair consideration is given to every application for
employment from disabled persons whose aptitude and skills
can be used in the business, and to their training and career
development. This includes, wherever possible, the retraining
and retention of staff who become disabled during their
employment. We are proud that we have been able to attract,
motivate and retain high calibre employees, which, in turn,
has ensured the continued and sustained improvement in the
performance of the Group.
Engagement
We promote all aspects of employee engagement and
promote an “open door” policy, such that we encourage
all employees to share ideas and get involved in developing
our policies and practices. Having a predominantly flat
management structure ensures that all employees are
informed of matters concerning their interests and the
financial and economic factors affecting the business.
In addition to the weekly departmental meetings that are
held across the Group, our Executive Directors present our
annual and half-yearly results to employees which is followed
by a question and answer session, which gives everyone an
understanding of the business and its performance during
the period.
We want to make sure everyone works towards the same
goal. Every 12 months we undertake employee performance
reviews and set their objectives for the forthcoming year.
These individual objectives reflect the Group objectives set
by the Chief Executive Officer, which in turn are based on the
Key Performance Indicators and sustainability targets
contained in this report on page 35. We have a dedicated
Intranet which allows us to promote new policies, procedures,
Group activities and employee events.
32
Every third year we undertake a conference for all employees,
at which we promote the Group’s culture and values, provide
specific presentations on areas of the business and develop
our team working skills with an emphasis on bringing together
our European offices. During 2016 we will undertake a survey
of all staff in order to understand better how employees
perceive CLS, its culture, strategy, management and working
practices. Its results will be fed back to the Board with
proposals where improvements can be made.
1
EMPLOYEE GENDER RATIO
(at 31 December 2015)
Other
Male: 24
Female: 36
Annual Report & Accounts 2015
CLS Holdings plc
Directors
Male: 10
Female: 2
Senior Managers
Male: 17
Female: 7
Excluding First Camp (see note 7 to the group financial statements)
Remuneration
Our overall remuneration and benefits package is designed
to attract, motivate and retain employees. Our remuneration
structure is simple, combining salary and benefits with an
annual discretionary bonus and a long-term retention bonus
based on the Group’s performance over a two year period.
1
Training and Development
All employees are actively encouraged to undertake training
to achieve professional qualifications and to keep up to date
with developments in their specialised areas. We ensure that
those with direct reports undertake management training on
areas such diversity, appraisals and performance. We also
promote non-core training, such as foreign language skills,
which whilst not central to a particular role, will allow an
employee to broaden their skills base. As part of our
knowledge sharing and personal development, we have set up
internal workshops whereby departments will present to other
departments on their specific role within the organisation,
thereby developing employees’ wider business knowledge
and understanding of how the Group’s activities inter-relate.
Falcon House, Hounslow
One of six properties in the UK to have been fitted with
a photovoltaic array. In 2015 it directly generated
18,605 kWh of renewable electricity.
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CORPORATE, SOCIAL & ENVIRONMENTAL RESPONSIBILITY REPORT
HEALTH & SAFETY
CONTINUED
Annual Report & Accounts 2015
CLS Holdings plc
It is a primary concern of the Board that the Group manages
its activities in such a manner as to ensure that the health
and safety of its employees, customers, advisors, contractors
and the general public is not compromised.
As part of this process the Group employs specialist
accredited advisers to advise on all health and safety matters.
The Group also operates a Health and Safety Committee,
which covers issues related to the UK portfolio and its
employees. Chaired by the Company Secretary, the
Committee comprises Facility Managers, Property Managers
and advisors, and is responsible to the Chief Executive Officer.
The Chief Executive Officer also attends Health and Safety
Committee meetings. All regions maintain and follow local
health and safety policies and report issues to the Chief
Executive Officer. This reporting process has worked
effectively throughout the year and has ensured ongoing
compliance with health and safety legislation.
BUSINESS ETHICS
The Board recognises the importance of the Group’s
responsibilities as an ethical employer and views matters in
which the Group interacts with the community both socially
and economically as the responsibility of the whole Board.
Following the enactment of the Bribery Act 2010, the Group
implemented a suitable policy which further demonstrated
its commitment to business ethics.
MODERN SLAVERY ACT 2015
The Modern Slavery Act 2015 came into effect on 29 October
2015 and requires any UK commercial organisation that
supplies goods or services with a turnover of more than
£36 million to prepare a statement setting out the steps that
have been taken during the financial year to ensure that
slavery and human trafficking is not taking place in any of
its supply chains or its own business.
The Group will be required to publish its first statement in
respect of the year ending 31 December 2016.
The Group upholds the highest standards of business ethics
and will be undertaking a review of its supply chain during
2016. The Board is confident that as a result of the Group’s
management and reporting structure, there are no such issues
taking place.
PROMPT PAYMENT CODE
In the UK, the Government launched a voluntary scheme
called the Prompt Payment Code (PPC), which was
introduced to drive a change in payment culture across the
business sector. The PPC requires all signatories to pay 95%
of their undisputed invoices to suppliers within a 60 day period.
Since joining the code in April 2015, the Group has made
significant changes in its payment processes and is currently
paying 100% of all undisputed invoices in the UK within
60 days and exceeding the required terms for the PPC.
With new ways of bettering our service being implemented
on a regular basis, we will endeavour to maintain this level
of efficiency for 2016.
34
RISK ASSESMENT SUMMARY FOR THE UK
Substantial
0.05% (3)
Controlled
98.85% (5,586)
Moderate
1.10% (62)
RENEWABLE ELECTRICITY GENERATION (DIRECT)
Country Site
UK
UK
UK
UK
UK
UK
UK
Buspace Studios
Chancel House
Crosspoint House
Falcon House
Kings House
Spring Mews
Spring Mews
Type of
Source
Total (kWh)
2015
PV
PV
PV
PV
PV
PV
CHP
45,300
380
7,399
18,605
6,120
26,330
30,038
Total direct energy generated
134,172
RENEWABLE ELECTRICITY GENERATION (INDIRECT)
(ALL GENERATED OFF-SITE)
Country Site
Type of
Source
Total (kWh)
2015
UK
UK
Anaerobic Digestion
Waste to Energy
All Sites
All Sites
Total indirect energy generated
6,481
105,824
112,305
OUR TARGETS FOR 2016
KEY PERFORMANCE TARGETS
In order to continue to drive its commitment to sustainability and to the Charter, the Group has set a number of targets:
Corporate
Social
Environmental
• Introduce a Group-wide energy
software platform which will be
available for tenants to use
• Install smart metering across all
majors assets in the Group by the
end of 2016
• Ensure every asset in the UK has an
EPC rating no worse than E-rating
in 2016
• Set long-term sustainability targets
in line with Group strategy and wider
country-level carbon roadmaps
• Promote health and well-being
across our staff and tenants
• Continue to support CSR events in
the community in which we invest
• Carry out an annual Staff Survey to
improve our working environment
• Reduce carbon emissions and water
consumption by 5% year-on-year in
the managed like-for-like portfolio
• Divert 100% of waste from landfill
in the managed like-for-like
portfolio in 2016
• Recycle at least 70% of all UK
waste collected from the managed
like-for-like portfolio in 2016
SUSTAINABILITY PERFORMANCE TABLE FOR 2015
Percentage
(Improvement)/
Fuel 2015 2014 Worsening
UK
France
Electricity (kWh) 4,477,486 4,928,436 (9.15%)
Gas (kWh) 5,446,175 5,858,164 (7.03%)
Energy (kWheq) 9,923,661 10,786,600 (8.00%)
3
Water (m
) 39,238 43,706 (10.22%)
Electricity (kWh) 3,235,349 2,823,697 14.58%
Gas (kWh) 616,984 577,619 6.82%
Energy (kWheq) 3,852,333 3,401,316 13.26%
3
Water (m
) 24,049 18,691 28.67%
Germany
Electricity (kWh) 1,020,862 1,064,211 (4.07%)
Gas (kWh) 4,016,065 3,570,175 12.49%
TOTAL RENEWABLE ELECTRICITY GENERATED IN 2015
Energy (kWheq) 5,036,927 4,634,386 8.69%
3
Waste to Energy
Anaerobic Digestion
Spring Mews (CHP)
Spring Mews
Kings House
Falcon House
Crosspoint House
Chancel House
Buspace Studios
0
20
40
60
80
100
120
(thousand kWh)
Water (m
) 20,855 21,128 (1.29%)
Sweden
Electricity (kWh) 5,430,615 5,409,638 0.39%
Gas (kWh) n/a n/a 0.00%
Energy (kWheq) 5,430,615 5,409,638 0.39%
3
Water (m
) 31,470 31,319 0.48%
CLS Group
Electricity (kWh) 14,164,312 14,225,982 (0.43%)
Gas (kWh) 10,079,224 10,005,958 0.73%
Energy (kWheq) 24,243,536 24,231,940 0.05%
3
Water (m
) 115,612 114,844 0.67%
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CORPORATE, SOCIAL & ENVIRONMENTAL RESPONSIBILITY REPORT
CONTINUED
Annual Report & Accounts 2015
CLS Holdings plc
SUSTAINABILITY PERFORMANCE: LIKE-FOR-LIKE PORTFOLIO
Sustainability Performance Measure
Broad Issue Type
UK HQ
UK
France
Germany
Sweden
EMISSIONS REPORTING AND METHODOLOGY
CLS Holdings plc is a quoted company and so is required to
include greenhouse gas emissions in its Directors’ Report
under the Companies Act 2006 (Strategic Report and Directors’
Reports) Regulations 2013. The reporting period for greenhouse
gas emissions is the year ended 31 December 2015, which is
consistent with previous years’ emissions reporting.
For continuity of data and ease of administration the same
methodology is used for the Directors’ Report. All emissions
for which CLS Holdings plc and its subsidiaries are invoiced and
have operational control over the past 24 months are reported,
including all scope one and scope two emissions for which
the Group is responsible. We align our mandatory reporting
requirement to report carbon emissions by using the EPRA
Best Practice Recommendations for Sustainability Reporting,
and the tables below follow their recommended format.
The Group’s emissions are largely from the multi-let buildings
managed by the Group which have 24 months of usage
from January 2014 to December 2015 to be compared on a
like-for-like basis. We do not report on properties let on
a full repairing and insuring basis or developments.
Each region uses its own agreed calculated measure of floor
areas in order to benchmark its energy and carbon emissions.
Scope one emissions are mostly attributable to space and
water heating using gas; scope two emissions are based on
location-based method as defined under the new scope two
reporting guidelines and are attributable to cooling and
ventilation of office space, water heating, small power
and lighting.
The offices at 86 Bondway (“UK HQ”) have been
reported separately as they are the largest centre of
the Group’s operations.
RENEWABLE FUEL PERFORMANCE FOR 2015
(% change)
UK
France
Germany
Sweden
CLS Group
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
Electricity (kWh)
Gas (kWh)
Energy (kWheq)
Water (m
)
3
TOTAL EMISSIONS: LIKE-FOR-LIKE PORTFOLIO
(CO2e)
S w eden
G er m any
France
U K
2
Gas (Tonnes/CO
2
Electricity (Tonnes/CO
2
Gas (Tonnes/CO
2
Electricity (Tonnes/CO
2
Gas (Tonnes/CO
2
Electricity (Tonnes/CO
2
Gas (Tonnes/CO
2
Electricity (Tonnes/CO
e)
e)
e)
e)
e)
e)
e)
e)
0
500
1,000 1,500 2,000 2,500 3,000
2015
2014
EMISSION PERFORMANCE COMPARISON: LIKE-FOR-LIKE PORTFOLIO
Year on year
(Improvement)/ % Change in
2014 2015 Worsening performance GHG Type
2
Gas (tonnes/CO
Electricity (tonnes/CO
2
CLS total (tonnes/CO
e) 1,851 1,859 8 0.45% Scope 1
e) 3,465 3,048 (417) (12.05)% Scope 2
2
e) 5,316 4,907 (409) (7.70)% Scope 1&2
Energy
Total energy consumption
from electricity [G4-EN3]
Total energy consumption
from district heating and
cooling [G4-EN3]
Total energy consumption
from fuels [G4: EN3]
Greenhouse
gas reporting
Total direct emissions
(Scope 1) [G4-EN15]
Total indirect emissions
(Scope 2) [G4: EN16]
Total water withdrawal by
source [G4: EN8]
Total weight of waste by
disposal route [G4: EN23]
Percentage of waste by
disposal route
Water
Waste
* Estimate.
Units
kWh
kWh
kWh
metric
tonnes CO2e
metric
tonnes CO2e
cubic
metres
metric
tonnes
95,280
4,477,486
3,235,349
1,020,862
5,430,615
n/a
n/a
Under
review
Under
review
Under
review
0
5,446,175
616,984
4,016,065
55
48
1,005
2,240
114
206
741
504
0
0
97
1,189*
39,238
24,049
20,855
31,470
Under
review
Under
review
Under
review
Under
review
8
266
73%
Recycled
16% to
Anaerobic
Digestion
48%
Recycled
8% to
Anaerobic
Digestion
11% Waste
to Energy
44% Waste
to Energy
32
Incineration
(48%)
Proportion by
weight
Recycling
(35%)
Biological
treatment
(14%)
Hazardous
Waste (1%)
SUSTAINABILITY PERFORMANCE: INTENSITY MEASURES
Broad Issue Type
Sustainability Performance Measure
UK HQ
Energy
Greenhouse
gas reporting
Water
Building energy intensity
[G4-CRE3]
Greenhouse gas intensity
from building energy
[G4-CRE3]
Building water intensity
[G4-CRE3]
UK
195
64
France
Germany
Sweden
Intensity
Indicator
2
80
7
52
13
118
kWh/m
/year
2
2
kg CO2e/ m
/year
107
54
1.32
0.770
0.502
0.216
0.684
m
/m
/ year
3
2
2
CLS total (tonnes/CO
e/sqm) 0.0229 0.0203 (0.0025) (11.04)% Scope 1&2/sqm
EMISSIONS IN 2015 BY GEOGRAPHY
(Tons/CO2)
ELECTRICITY IN 2015
(million kWh)
GAS IN 2015
(million kWh)
3
WATER IN 2015
(thousand m
)
EMISSIONS IN 2015
(thousand tons/CO2)
Germany
25%
France
7%
Sweden
2%
UK
66%
6
5
4
3
2
1
0
U K
France
G er m any
S w eden
6
5
4
3
2
1
0
U K
France
G er m any
S w eden
45
40
35
30
25
20
15
10
5
0
U K
France
G er m any
S w eden
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
U K
France
G er m any
S w eden
36
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Related party transactions are set out in note 33 to the group
financial statements.
Non-Executive Directors
for the year ended 31 December 2015
DIRECTORS’ REPORT
DIRECTORS’ REPORT
The Directors present their annual report and the audited
financial statements for the year ended 31 December 2015.
The Chairman’s Statement, Strategic Report and Corporate
Governance Report form part of this report and should be read
in conjunction with it.
REVIEW OF BUSINESS
•
•
•
•
•
•
The group income statement for the year is set out on page 66.
The Group objective, business model, strategy and KPI’s are
set out on pages 4 and 5.
Important events affecting the Company are set out on pages 8
to 27.
The principal risks and uncertainties are set out on pages 28
and 29.
The use of financial instruments are set out on page 26, and
in note 23 to the group financial statements.
The risk management objectives are also detailed in note 23
to the group financial statements.
DIRECTORS
Changes to Board composition during 2015 and subsequently
are set out on pages 45 to 46.
Directors remuneration and interest in shares is set out on
pages 50 to 57.
•
•
•
•
Biographical details of the Executive and Non-Executive
Directors at 31 December 2015 are set out below.
Executive Directors
Sten Mortstedt, aged 76, has been Executive Chairman of the
Company since its incorporation, and on 8 March 2016 he steps
down as Chairman but remains an executive director. He began
his career in 1962 with Svenska Handelsbanken in Stockholm and
within three years had formed a property investment partnership.
In 1968 he was appointed Managing Director of the Mortstedt
family property company, Citadellet AB, which was floated on
the Stock Exchange in Stockholm in 1981. The company was sold
in 1985 for a price five times higher than the introduction price
and was at that time the largest property deal recorded in
Scandinavia. Since 1977 he has been involved in establishing
and running property interests in the UK, Sweden and France.
He established CLS in 1987, and has been Executive Chairman
since he took the Company to a listing on the main market of the
London Stock Exchange in 1994.
In addition to his focus on property, he has been commercially
active in a number of other investment areas. He has seen a
number of the companies in which he has invested through to
successful stock exchange listings or trade sales.
He runs his global interests from his residence in Switzerland.
Henry Klotz, aged 71, was appointed Executive Vice Chairman in
January 2011, having previously been Chief Executive Officer from
May 2008. On 8 March 2016 he becomes Executive Chairman. He
joined the Group in 1999 with responsibility for the management
of the Swedish operation, and was involved in the setting up of the
German division and sourcing new business opportunities for the
Group. He is a qualified engineer and economist.
38
On behalf of CLS he is Non-Executive Chairman of Catena AB,
a Nordic real estate company quoted on Nasdaq Stockholm,
and in which CLS holds an interest in 15.5% of the issued share
capital. He is also Non-Executive Chairman of Bulgarian Land
Development Plc, in which CLS holds an interest in 48.3% of the
issued share capital, and a Non-Executive Director of Note AB,
a technology company quoted on Nasdaq Stockholm, in which
CLS holds an interest in 8.5% of the issued share capital.
Fredrik Widlund, aged 48, is the Chief Executive Officer and
joined the Company in November 2014. His experience includes
senior roles in business leadership, property and finance and
prior to joining CLS he worked for 15 years at GE Capital
including two years as Finance Director and four years as
Managing Director of GE Capital Real Estate (UK), Regional CEO
for GE’s European leasing businesses and finally as Managing
Director and Global Commercial Leader at its trade finance
business, GE Capital International. Prior to his career with GE,
he worked for Shell in London and Sweden. Fredrik has a degree
in Economics from the University of Stockholm.
John Whiteley, aged 57, joined the Company in 2009 as
Chief Financial Officer. He has over 23 years’ experience in the
real estate sector: he was previously Finance Officer at Doughty
Hanson & Co Real Estate, and for ten years was Finance Director
of Great Portland Estates plc, a company listed on the London
Stock Exchange. He spent nine years with Ernst & Young, after
qualifying as an accountant with Spicer & Pegler. He is a member
of the Finance Committee of the British Property Federation and
a Fellow of the Institute of Chartered Accountants.
Malcolm Cooper, aged 56, joined the Board in 2007 and is the
Senior Independent Director, Chairman of the Audit Committee
and a member of the Remuneration Committee. He is Project
Director, Gas Distribution Sales at National Grid plc where he has
worked for various predecessor companies since 1991. Previously
he worked for Andersen Consulting. He has a first in pure
mathematics from Warwick University, is a qualified accountant
and is a member of the Association of Corporate Treasurers.
He is also a non-executive director of Morgan Sindall plc.
Joseph Crawley, aged 56, joined the Board in 2008. He is
Managing Director of Neat Developments Limited, a property
investment and development company active in London and
south-east England, and has over 25 years’ experience of the
central London property market. He was previously employed by
CLS for a number of years and was involved in the development
of the Spring Gardens site.
Elizabeth Edwards, aged 59, joined the Board in 2014 and is a
member of the Audit Committee. She is a qualified Chartered
Surveyor with over 30 years’ experience in the banking industry.
She was most recently Head of UK Property Lending at
Landesbank Berlin, having previously held senior positions
in London with National Australia Bank, Berlin Hyp and
Westdeutsche Immobilienbank. Prior to her banking career,
she worked for PricewaterhouseCoopers as a management
consultant. She is a Trustee of the Salvation Army International
Trust, a Fellow of the Royal Institution of Chartered Surveyors,
a member of the Association or Property Lenders, and a Past
Master of the Worshipful Company of Chartered Surveyors.
Christopher Jarvis, aged 60, joined the Board in 2008 and is
Chairman of the Remuneration Committee and a member of the
Audit Committee. He is a Partner of Jarvis & Partners, a boutique
real estate consultancy which he established in Berlin in 1994.
Previously he was Managing Director of Richard Ellis Germany
where he established the firm’s Frankfurt and Berlin offices.
His firm has acted as development partner for the HRO Group
in Germany.
Thomas Lundqvist, aged 71, joined the Board in November 1990
and was Finance Director of the Company until 1995, when he
became a non-executive director. He was Vice Chairman
from 2009 until 2011. Prior to joining CLS, he worked for the
ASEA-Brown Boveri Group (ABB) and from 1983 for Svenska
Finans International, part of Svenska Handelsbanken Group,
where he was a board member.
Philip Mortstedt, aged 29, is the son of one of the founders
of CLS, Bengt Mortstedt, and was appointed to the Board on
11 May 2015. He established an online media enterprise
focused on motorsport, managing professional events for the
past decade. He is also involved in the family’s hotel and land
developments in the Caribbean as well as in equity investments
and residential property.
Anna Seeley, aged 44, rejoined the Board on 11 May 2015,
and on 8 March 2016 she becomes Non-Executive Vice Chairman.
She is a qualified Chartered Surveyor and has worked in the
property industry for over 20 years. She has held various positions
within the property departments of General Electric and the
BT Group and, from 2001 to 2003, was the Company’s Group
Property Director and Board member. For the last 8 years she
has been a director of Skansen Group Limited, a specialist office
fit-out and refurbishment company. She holds a degree in
property valuation and finance from City University and is the
daughter of Sten Mortstedt.
Lennart Sten, aged 56, joined the Board in 2014 and is a member
of the Remuneration Committee. He has 15 years’ experience in
the international property industry having held senior positions
at GE Capital and GE Real Estate Nordic, most recently Chief
Executive Officer of GE Capital Real Estate Europe, from which he
stepped down in 2014. Prior to his time at GE Capital, he was a
partner at Baker & McKenzie LLP, Stockholm, and an Assistant
Judge in the District Court of Solna. He is a non-executive director
of Victoria Park AB, a company listed on Nasdaq Stockholm, and of
a number or private companies, including Inter IKEA Holding SA.
As explained in the Corporate Governance Report on page 46,
all Directors will be subject to annual re-election at the Annual
General Meeting in accordance with the UK Corporate
Governance Code.
In his role as outgoing Executive Chairman, Sten Mortstedt
recommends the election and re-election of the retiring Directors
at the Annual General Meeting, given their performance and
continued important contribution to the Company. The Senior
Independent Non-Executive Director recommends the re-election
of Mr Mortstedt.
Annual Report & Accounts 2015
CLS Holdings plc
DIVIDENDS
In lieu of paying cash dividends it is the Company’s policy to make
distributions by way of tender offer buy-backs.
The final distribution for 2014 as set out in a Circular dated
13 March 2015 for the purchase of 1 in 80 shares at 1,950 pence
per share was completed on 1 May 2015. It returned £10.4 million
to shareholders, equivalent to 24.4 pence per share.
The interim distribution for 2015 as set out in a Circular dated
21 August 2015 for the purchase of 1 in 162 shares at 2,190 pence
per share was completed on 23 September 2015. It returned
£5.7 million to shareholders, equivalent to 13.5 pence per share.
A final distribution for 2015 will be put to shareholders in
April 2016 for the purchase of 1 in 57 shares at a price of
1,810 pence per share which, if approved, will return a further
£13.4 million to shareholders, equivalent to 31.8 pence per share.
PURCHASE OF THE COMPANY’S SHARES
As described above, and under the relevant authority granted at the
2015 Annual General Meeting, during the year the Company made
two tender offer purchases totalling 798,480 shares at a cost of
£16.1 million. Of these, 536,738 ordinary shares were purchased
on 1 May 2015 at 1,950 pence per share and 261,742 shares were
purchased on 23 September 2015 at 2,190 pence per share.
These shares were subsequently cancelled. There were no further
purchases of the Company’s own shares.
The Directors will continue to keep under review whether to make
tender offer purchases and market purchases of the Company’s
shares if they are in the best interests of shareholders, by reference
to the cash resources of the Company and the discount of the
market price of the Company’s shares to the net asset value.
A resolution will be proposed at the 2016 Annual General Meeting
to give the Company authority to make market purchases of up to
4,214,558 shares along with an additional resolution enabling the
Company to undertake tender offer purchases, subject to set
parameters, thereby reducing the administrative burden on
shareholders of having to hold General Meetings more than once
a year. Any market purchases or tender offer purchases during
the year will not exceed 4,214,558 shares in aggregate.
Following the tender offer purchases that took place during the
year, the aggregated authority for the purchase of shares in the
capital of the Company remained valid at the year end.
SHARE CAPITAL
Changes in share capital are shown in note 24 to the group
financial statements. At 31 December 2015 the Company’s issued
share capital consisted of 45,028,684 ordinary shares of 25 pence
each, of which 2,888,103 shares were held as treasury shares and
all of which ranked pari passu.
At the date of this report, 2,883,103 shares were held in treasury
and the total number of voting rights in CLS Holdings plc was
42,145,581, being the number of shares in issue excluding
treasury shares. The rights (including full details relating to voting),
obligations and any restrictions on transfer relating to the
Company’s shares, and the powers of the Directors in that regard,
are set out in the Company’s Articles of Association.
Details of the Directors’ interests in shares are shown in the
Remuneration Committee Report on page 55.
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CONTINUED
DIRECTORS’ REPORT
for the year ended 31 December 2015
PROPERTY PORTFOLIO
INSURANCE OF DIRECTORS AND INDEMNITIES
DISCLOSURES UNDER LISTING RULE 9.8.4R
Annual Report & Accounts 2015
CLS Holdings plc
A valuation of all the investment properties and properties held
for sale in the Group at 31 December 2015 was carried out by
Cushman and Wakefield for the UK (excluding Vauxhall Square)
and Germany, Knight Frank for Vauxhall Square, Jones Lang
Lasalle for France, and L Fällström AB for Sweden, which
produced an aggregate market value of £1,425.4 million
(2014: £1,310.1 million).
The Company has arranged insurance cover in respect of legal
action against its directors and officers. The Company has
granted indemnities to each of the Directors and other senior
management, uncapped in amount but subject to applicable law,
in relation to certain losses and liabilities which they may incur in
the course of acting as directors or employees of the Company or
one or more of its subsidiaries or associates.
CORPORATE GOVERNANCE
AUDITOR
The Corporate Governance Statement, prepared in accordance
with rule 7.2 of the FCA’s Disclosure and Transparency Rules, is
set out on pages 42 to 49 and forms part of this report.
EMPLOYEES, ENVIRONMENTAL AND SOCIAL ISSUES
The Group’s policies on employment, environmental and social
issues (including the information required by The Companies Act
2006 (Strategic Report and Directors’ Report) Regulations 2013),
including charitable donations, are summarised in the Corporate,
Social and Environmental Responsibility Report on pages 30 to 37.
No political donations to any parties, organisations or candidates,
or political expenditure were made during 2015.
The Group has also published a CSR Report, which is available
on line at www.clsholdings.com
HUMAN RIGHTS
The Board ensures the Group upholds and promotes respect for
human rights in all its current operating locations and aims to
prevent any negative human rights impact. As the Group operates in
the UK, Germany, France and Sweden it is subject to the European
Convention on Human Rights and the UK Human Rights Act 1998.
The Group respects all human rights and in conducting its business
regards those rights relating to non-discrimination and fair
treatment to be the most relevant and to have the greatest
potential impact on its key stakeholders, which are deemed
to be customers, employees and suppliers.
The Group’s policies seek to ensure that employees comply with
the relevant legislation and regulations in place to promote good
practice. The Group’s policies are formulated and kept up to date
and communicated to all employees through the Group Intranet
and, where appropriate, individual presentations. In the year to
31 December 2015, the Group was not aware of any incident in
which the organisation’s activities have resulted in an abuse of
human rights.
A resolution to reappoint Deloitte LLP as auditor to the Company
will be proposed at the forthcoming Annual General Meeting.
2016 ANNUAL GENERAL MEETING
The 2016 Annual General Meeting will be held on Wednesday,
20 April 2016. The notice of meeting including explanatory notes
for the resolutions to be proposed will be posted to shareholders.
DISCLOSURE OF INFORMATION TO THE AUDITOR
Each Director has confirmed at the date of this report that:
•
•
so far as they are aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
they have taken all the steps that they ought to have taken as
a director in order to make themselves aware of any relevant
audit information and to establish that the Company’s auditor
is aware of that information.
This confirmation is given and should be interpreted in accordance
with the provisions of s418 of the Companies Act 2006.
GOING CONCERN
The current macro-economic conditions have created a number
of uncertainties as set out on pages 28 and 29 The Group’s
business activities, and the factors likely to affect its future
development and performance, are set out in the Strategic Report
on pages 2 to 27. The financial position of the Group, its liquidity
position and borrowing facilities are described in the Strategic
Report and in notes 18 and 21 of the group financial statements.
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 and covenants 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.
40
The table below is included to comply with the disclosure requirements under Listing Rule 9.8.4R. The information required by the
Listing Rules can be found in the Annual Report at the location stated below.
Listing Rule
Information Required
Disclosure
9.8.4(1)
9.8.4(2)
9.8.4(4)
9.8.4(5)
9.8.4(6)
9.8.4(7)
9.8.4(8)
9.8.4(9)
9.8.4(10)
9.8.4(11)
9.8.4(12)
9.8.4(13)
9.8.4(14)
Interest capitalised by the Group
Publication of unaudited financial information
Long-term incentive schemes with directors
Director’s waiver of emoluments
Director’s waiver of future emoluments
Non pro rata allotments for cash (issuer)
Non pro rata allotments for cash (major subsidiaries)
Listed company is subsidiary of another company
Contracts of significance with a director
Contracts of significance with controlling shareholder
Dividend waiver
Waiver of future dividends
Relationship Agreement with controlling shareholder
Note 9
None
None
None
None
None
None
None
None
None
Not applicable
Not applicable
Page 48
The following table is included to comply with the additional disclosure requirements under the Listing Rule 9.8.6.
Listing Rule
Information Required
Disclosure
9.8.6(1)
9.8.6(2)
9.8.6(3)
9.8.6(4)(a)
9.8.6(4)(b)
9.8.6(4)(c)
9.8.6(4)(d)
9.8.6(5)
9.8.6(6)(b)
9.8.6(7)
Directors’ (and Connected Persons’) interests in CLS
shares at year end and at not more than one month
prior to the date of the AGM notice
Interests in CLS shares disclosed under DTR5 at year end
and not more than one month prior to the date of AGM notice
The going concern statement
Amount of authority to purchase own shares available at
year end
Off-market purchases of own shares during the year
Off-market purchases of own shares since year end
Non-pro rata sales of treasury shares during the year
Compliance with the Main Principles of the UK Corporate
Governance Code
Details of non-compliance with the UK Corporate
Governance Code
Directors proposed for re-election: the unexpired
term of any director’s service contract and a statement
about directors with no service contracts
Page 55
Page 48
Page 40
The Company had the authority to
purchase 4,293,906 shares at year end.
None
None
None
Page 42
Pages 42 to 49
Pages 38 and 39
On behalf of the Board
David Fuller BA FCIS
Company Secretary
8 March 2016
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CORPORATE GOVERNANCE REPORT
GOVERNANCE IS AN
PART OF THE WAY WE MANAGE OUR BUSINESS
CHAIRMAN’S INTRODUCTION
The Board has overall responsibility for corporate governance and is accountable to the Company’s shareholders for good governance.
We are committed to achieving high standards of corporate governance which best fit the Group. Your Board recognises that
through an effective structure of systems and controls which defines authority and accountability throughout the Group, risks are
appropriately managed and controlled whilst still promoting entrepreneurial behaviour and ensuring a successful business.
INTEGRAL
Corporate Governance is a key driver to the success of a listed company, but no two businesses are the same and no two boards are
the same. Whilst some might say that the Chairman of a listed company should not hold executive powers, and be “independent upon
appointment”, as Executive Chairman and founding shareholder my interests are strongly aligned with all other stakeholders,
which helps to ensure that the Group succeeds in its business strategy and continues to look to the future with optimism.
As part of our commitment to achieving high standards of corporate governance we strengthened the composition of the Audit
and Remuneration committees by the appointment of a third independent non-executive director to each committee, thereby
complying with the Code’s requirements for FTSE 350 companies.
During the year, Anna Seeley was appointed to the Board as a non-executive director and, from 8 March 2016, to Non-Executive
Vice Chairman. As my daughter, she will represent the family’s interest in the Group. She is also a Chartered Surveyor with
considerable property experience and understands CLS well, having worked for the Group from 2001 to 2003. I am confident that
she will make a valuable contribution to Board discussions.
It continues to be my belief that an effective Board should include members who have a detailed knowledge of the Company’s
business and its relationships, so that there can be effective challenge and searching questions asked of the Executive Directors.
We recognise that the composition of our Board is not aligned to the Code’s requirement in this regard. However, from a governance
perspective, I consider the balance between non-executives and “independent” non-executives to have been one of our key strengths
and is underlined by the Group’s performance since listing in 1994. I thank our long-term shareholders for sharing this view.
Sten Mortstedt
Executive Chairman
COMPLIANCE WITH THE CODE
The principal corporate governance rules which applied to the
Company in the year under review were those set out in the UK
Corporate Governance Code published by the Financial Reporting
Council (“FRC”) in September 2014 (the “Code”), the UK
Financial Conduct Authority (“FCA”) Listing Rules and the FCA’s
Disclosure and Transparency Rules. The Board fully supports the
principles of good governance as set out in the Code, which is
publicly available on the FRC’s website (www.frc.org.uk).
The Company became a constituent of the FTSE 350 index on
22 December 2014. The Code contains a number of additional
requirements applicable to FTSE 350 companies on which we are
required to report our compliance for the first time in our 2016
Annual Report. However, in demonstrating its commitment to
good corporate governance the Board has already adopted a
number of these requirements. Save as identified and explained
below, the Board considers that throughout 2015 it complied with
the Main Principles and the supporting principles as set out in
Section 1 of the Code.
42
Annual Report & Accounts 2015
CLS Holdings plc
GOVERNANCE STRUCTURE
THE BOARD
STEN MORTSTEDT (EXECUTIVE CHAIRMAN)
3 other Executive Directors
4 Independent Non-Executive Directors
4 other Non-Executive Directors
Ensuring company growth and shareholder value
AUDIT COMMITTEE
REMUNERATION COMMITTEE
3 Independent Non-Executive Directors
Monitors the arrangements for corporate reporting,
risk management and internal controls
Maintains a direct relationship with the external auditor
3 Independent Non-Executive Directors
Develops the Company’s policies on executive
remuneration and sets the remuneration packages
of individual Executive Directors
EXECUTIVE COMMITTEE
Reviews the daily running of the Group’s business
INVESTMENT COMMITTEE
ASSET MANAGEMENT
COMMITTEES
HEALTH & SAFETY
COMMITTEE
Analyses financial investment opportunities
and reviews investment portfolios
Reviews the Group’s property
investments in each country
Reviews and moderates the Group’s policy
and best practices for Health and Safety
LEADERSHIP
The Board, its composition and responsibilities
The Board has a formal schedule of matters specifically reserved to it for decision. Matters reserved for Board decisions include identifying strategic
long-term objectives, approving the annual Group budget, and approving substantial property transactions and investment decisions over £5 million.
The implementation of Board decisions and the day-to-day operations of the Group are delegated to the Executive Directors.
EXECUTIVE CHAIRMAN
STEN MORTSTEDT
HENRY KLOTZ**
Proposing the overall strategy of the Group and ensuring the effective running
of the Board
EXECUTIVE VICE
CHAIRMAN
HENRY KLOTZ***
Supporting the Executive Chairman with developing Group strategy, and for
overseeing the operation of the Group as a whole
NON-EXECUTIVE
VICE CHAIRMAN
ANNA SEELEY**
Supporting the Executive Chairman with developing Group strategy and managing
the effective running of the Board
CHIEF EXECUTIVE
OFFICER
FREDRIK WIDLUND
Implementing Group strategy and for the day-to-day running of the Group
CHIEF FINANCIAL
OFFICER
JOHN WHITELEY
Implementing Group strategy in relation to and ensuring compliance with all
financial matters
SENIOR
INDEPENDENT
DIRECTOR
NON-EXECUTIVE
DIRECTORS
MALCOLM COOPER*
Providing another channel of communication for shareholders who do not wish to
approach the Executive Chairman, Executive Vice Chairman or Chief Executive Officer
Leads the Non-Executive Directors, and provides feedback to the Executive
Chairman on his performance
Providing independent oversight, objectively challenging the Executive Directors in
Board discussions and decision-making
JOSEPH CRAWLEY
ELIZABETH EDWARDS*
CHRISTOPHER JARVIS*
THOMAS LUNDQVIST
PHILIP MORTSTEDT
ANNA SEELEY
LENNART STEN*
* Determined by the Board to be Independent in accordance with Code provision B.1.1.
** With effect from 8 March 2016
*** Until 8 March 2016
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CORPORATE GOVERNANCE REPORT
CONTINUED
Annual Report & Accounts 2015
CLS Holdings plc
PRINCIPAL ACTIVITIES OF THE BOARD IN 2015
Insurance
Independence
March
May
August
November
Key Agenda Items
Approval of the Year End
Financial Report and
Accounts 2014, April Tender
Offer and Notice of AGM
Approval of the
Trading Update
Approval of the Half-Yearly
Financial Report and
September Tender Offer
Approval of 2016 Budget and
Forecasts for 2017 to 2019
Approval of Going Concern
Statement
Discussion and confirmation
of Board changes
Approval of Going Concern
Statement
Reports from:
Group Policies update
Audit Committee on
Full Year report and
feedback from auditors
Remuneration Committee on
Bonus plans
Keeping the Board updated through presentations
Report from the Audit
Committee on the
Half-Yearly report and
feedback from auditors
Strategy discussion on
Vauxhall Square and
Westminster Tower
Reports from:
Non-Executive Directors’
Committee providing
feedback on Board Evaluation
Audit Committee on the
audit planning process and
audit matters
UK Valuers
Head of Group Treasury on
current borrowing market
and trends
Standing Agenda Items
Group Investment Officer on
corporate bond investments
and strategy
German Valuers
French Valuers
Head of UK Property on
strategy for UK assets
Executive Reports covering markets, investments, portfolio developments, financing and operational matters
Corporate Governance, including monitoring of principal risks and uncertainties, internal controls and risk management, Health
and Safety and Investor Relations
Performance Monitoring
Meetings
b a s i s
k l y
e
e
w
Monitored on a
Cash Flows
Risk
M
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Divisional Asset
Management
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Financial
Forecasts
PERFORMANCE
MONITORING
Man a g e m e
t
n
Liquid
Resources
M
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Budgets
q
u
arterly basis
Conflicts of Interest
The attendance of Directors at Board meetings during the year is
set out below:
Meeting Attendance during the year
Number of meetings
Sten Mortstedt
Henry Klotz
Fredrik Widlund
John Whiteley
Malcolm Cooper
Joseph Crawley
Elizabeth Edwards
Christopher Jarvis
Thomas Lundqvist
(1)
Jennica Mortstedt
(2)
Philip Mortstedt
(2)
Anna Seeley
Lennart Sten
4/4
4/4
4/4
4/4
4/4
4/4
4/4
4/4
4/4
1/1
3/3
3/3
4/4
The Company’s Articles of Association contain procedures to
deal with Directors’ conflicts of interest. The Board considers
that these have operated effectively during the year.
(1) Resigned on 11 May 2015
Appointed on 11 May 2015
(2)
In addition to attending Board meetings, senior management
meet regularly to discuss management issues relating to the
Group both formally and informally.
44
The Company has arranged insurance cover for its Directors and
officers, as set out in the Directors’ Report on page 40.
Division of Responsibilities
The responsibilities of the Executive Chairman, who is
responsible for the overall strategy of the Group, the Executive
Vice Chairman who supports the Executive Chairman, and the
Chief Executive Officer, who is responsible for implementing
the strategy and for the day-to-day running of the Group,
are specifically divided. A written statement of the division of
these responsibilities are reviewed and approved by the Board
each year.
The Company does not comply with provision A.3.1 of the Code,
as the Executive Chairman was not independent on appointment.
There have been no significant changes to the commitments of
the Executive Chairman during the year. From 1 January 2016,
the Executive Vice Chairman continued his responsibilities but
on a part-time basis. On 8 March 2016 the role of Executive Vice
Chairman reverted to a non-executive role and a revised
statement was subsequently approved.
Non-Executive Directors
A formal meeting of the Non-Executives took place during the
year, without the Executive Directors or the Chairman present,
and at which a thorough review of the performance of the
Executive Chairman took place. Several meetings with the
Non-Executive Directors and the Executive Chairman took place
during the year to discuss, amongst other things, the performance
of the Group’s strategy, the performance of the other Executive
Directors and the performance of the Board as a whole.
As highlighted by this year’s board evaluation, the Board was
satisfied with the experience, expertise and performance of each
board member; they continue to add significant value to the
operation of the Company through their combined knowledge
and experience, and exercise objectivity in decision-making and
proper control of the Company’s business.
Guidance to the Code recommends that for FTSE 350 companies
at least half the Board, excluding the Chairman, should comprise
independent non-executive directors.
At the year end, the Board comprised four executive directors,
four independent non-executive directors and four other non-
executive directors. The Company was not compliant, therefore,
with provision B.1.2. However, the Board considers that having a
mix of non-executive directors who are either “independent” as
defined by the Code, or have an in-depth knowledge of the
Company, provides better oversight and governance than having
predominantly independent non-executive directors.
In accordance with provision B.2.3, the Board undertook a
rigorous review as to whether it considered Malcolm Cooper and
Christopher Jarvis to be independent, having served on the Board
for more than six years. Based on Mr Cooper’s current full time
role with National Grid plc, and Mr Jarvis’s full time role with
Jarvis and Partners, together with the amount of time dedicated
to their roles as a non-executive director and their contributions
to the Board in discussions generally, the Board were satisfied
that they maintained the necessary levels of independence in
addition to the Code’s independence criteria.
In May 2016, Mr Cooper will have served on the Board for more
than nine years. In light of provision B.1.1, and for the reasons
set out above, the Board determined that he continued to
remain independent.
Directors Independence
Non-Executive
Independent
33%
Non-Executive
Non-Independent
33%
Executive
33%
EFFECTIVENESS
Tenure of the Board
9+ Years
2
6 – 9 Years
5
The biographies of the Directors
can be found on pages
>
0 – 3 Years
5
38-39
The Board is assisted by the Audit and Remuneration
Committees, the Terms of Reference for which can be obtained
from the Company Secretary or the website.
Appointments to the Board
The Board considered the setting up of a separate Nomination
Committee, as recommended by the Code, but due to the size
and nature of the Company, decided that this function was better
carried out by the Executive Chairman and other directors,
non-executive and executive, as appropriate for each appointment.
Given that there is no formal Nomination Committee, the Company
is not compliant with provision B.2.1 of the Code.
On 11 May 2015, Ms Anna Seeley and Mr Philip Mortstedt were
appointed as Non-Executive Directors and Ms Jennica Mortstedt
resigned as a Non-Executive Director. Mr Mortstedt replaced
Ms Mortstedt as the representative of Mr Bengt Mortstedt,
a founding shareholder who continues to have a major interest
in the Group. No external consultancy or open adverts were
used in the appointments of Ms Seeley or Mr Mortstedt.
As announced on 11 November 2015, from 1 January 2016,
Mr Henry Klotz continued his responsibilities but on a
part-time basis.
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CORPORATE GOVERNANCE REPORT
CONTINUED
On 8 March 2016, Mr Sten Mortstedt stepped down as Executive
Chairman but remained an Executive Director and was replaced
by Mr Klotz. The role of Executive Vice Chairman reverted to a
non-executive role and to which Ms Seeley was appointed.
In addition, the Senior Independent Director discussed with the
Executive Chairman succession planning for non-executive
directors, which specifically included Mr Cooper, who has served
on the Board for more than six years.
Following its annual board evaluation, which took place in
November, and having had regard to stakeholder feedback, the
Board reviewed its balance of skills, knowledge and experience,
and concluded that the composition of the Board had the
necessary balance the Group required.
Diversity
The Board reviews the balance of skills, knowledge and
experience on the Board regularly. In accordance with its policy
on diversity, it will continue to make changes to its composition
irrespective of gender or any other form of discrimination and to
appoint the best candidate to the post. It, therefore, considers that
setting measurable objectives based on diversity would not be in
the best interests of the Group.
The Board notes provision B.6.2 of the Code, requiring an externally
facilitated evaluation for FTSE 350 companies every three years.
This was not undertaken in 2015, as the Company was not a
constituent of the FTSE 350 Index throughout the year prior to the
reporting year. However, the Board notes the Code’s requirement
and will consider when the external evaluation should take place.
Information, Support and Development
Board members are sent Board packs in advance of each Board
and Committee meeting, and senior executives attend Board
meetings to present and discuss their areas of speciality. In making
commercial assessments the Directors review detailed plans
including financial viability reports which, amongst other things,
detail the return on capital, the return on cash and the likely
impact on the income statement, cash flows and gearing.
Directors are able to obtain independent professional advice at the
Company’s expense and have access to the services of the Company
Secretary. They are given appropriate training and assistance on
appointment to the Board and later, if and when required.
Female
17%
Board Gender Diversity
Male
83%
Board Evaluation
During the year, the Board undertook its annual performance
evaluation survey led by the Senior Independent Director, with
assistance from the Company Secretary. The evaluation was
based on a questionnaire which addressed three key areas:
membership of the Board, Board performance and Board
operation. The questionnaire enabled the Directors to score
performance in each of these areas and also provided an
opportunity to raise any other issues. The confidential responses
were compiled into a non-attributable report by the Senior
Independent Director and provided to the Executive Chairman.
Based on the results, the Directors considered that the Board
and its committees were working effectively and that there was
a good mix of personalities, skills and experience. The Board
would keep under review the need for further development
experience. It recognised that the size of the Board, and balance
of independence amongst its non-executives, should be
considered when making any new appointments. The Directors
were pleased with the way in which the Executive Chairman led
the Board and had concluded critical strategic decisions. Since
the previous evaluation, the Board had improved interaction with
those below executive level, and would continue to do more.
The key themes arising from this year’s evaluation, which will
form an action plan for 2016, are: to continue to review
succession planning in respect of employees below Board level;
to continue to improve the Board’s interaction with all employees;
and to continue to hold meetings with only the Non-Executive
Directors and the Executive Chairman present.
46
The Company offers all Directors the opportunity to update their
skills and knowledge, and familiarity with the Company, in order
to fulfil their role on the Board. In addition, meetings with senior
managers within the Company have been arranged to further
familiarise non-executive directors with the Company. As part
of every new Board member’s induction, we encourage them
to meet with the Head of Property in each of the UK, France,
Germany and Sweden so as to understand the portfolio.
Board members also attended site visits to properties.
Re-election
Under the Articles of Association, which can be amended by a
special resolution of the shareholders, the Board has the power
to appoint directors and, where notice is given signed by all the
other Directors, to remove a director from office.
All directors are subject to election by shareholders at the first
Annual General Meeting following their appointment. In accordance
with the Code’s requirements for FTSE 350 companies, all directors
must seek re-election by shareholders annually. Accordingly,
Ms Anna Seeley and Mr Philip Mortstedt will be standing for
election and all other Directors will be seeking re-election at the
forthcoming Annual General Meeting. Their details are contained
in the Directors’ Report on pages 38 and 39.
The terms and conditions of appointment of non-executive
directors are set out in a letter of appointment, which provides
for their removal in certain circumstances, including under s168
Companies Act 2006. Their letters of appointment also set out
what is expected of them and the time expected for them to meet
their commitment. Non-executive directors are expected to serve
two three-year terms, although the Board may invite them to
serve for an additional period, subject to a rigorous review.
The terms of appointment of the Non-Executive Directors can
be obtained on request to the Company Secretary and will be
available for inspection 15 minutes before, and during, the AGM.
Annual Report & Accounts 2015
CLS Holdings plc
ACCOUNTABILITY
The Board is required to present a fair, balanced and
understandable assessment of the Company’s position and
prospects, which are explained in this Annual Report.
The Audit Committee
The Board has established an Audit Committee to monitor the
formal and transparent arrangements for its corporate reporting
and its risk management and internal control principles, and for
maintaining an appropriate relationship with the Company’s Auditor.
Full details of the Committee’s
work are given in the Audit
Committee's Report on page
>
58
Risk Management and Internal Control
The Company has internal control and risk management systems
in place for its financial reporting process and the preparation of
the group accounts. It considers these systems appropriate for
the size, diversity and complexity of the Group’s operations, and
they are monitored, reviewed and recommended by the Audit
Committee in the first instance, and then approved by the Board
as a whole on an annual basis.
It is the Company’s aim to manage risk and to control its business
and financial affairs economically, efficiently and effectively so
as to be able to exploit profitable business opportunities in a
disciplined way, avoid or mitigate risks that can cause loss,
reputational damage or business failure, and enhance resilience
to external events. The Board acknowledges that the Directors
are responsible for the Group’s systems of internal control and
risk management and has established procedures which are
designed to provide reasonable assurance against material
misstatement or loss. These procedures have operated for the
entire financial year and up to the date of signing the Annual
Report and Accounts.
The Directors recognise that such systems can only provide a
reasonable and not absolute assurance that there has been no
material misstatement or loss. The Board regularly reviews the
management structure, HR policies and reward systems so as
to ensure that management is aligned to the Group’s values and
supports the risk management and internal control systems.
The key elements of the process by which the systems of internal
control and risk management are monitored are set out below.
There is an established organisational structure which has clearly
defined lines of reporting and responsibility. The Group has in
place control processes in relation to all aspects of its financial
dealings, such as the authorisation of banking transactions,
capital expenditure and treasury investment decisions.
The Group has a comprehensive system for budgeting and planning
whereby quarterly and annual budgets are prepared, monitored
and reported to the Board at Board meetings. Three-yearly rolling
cash flow forecasts are updated and distributed to the Executive
Directors on a weekly basis to ensure the Group has sufficient
cash resources for the short and medium term.
Set out on pages 8 to 27 is the Strategic Report, describing the
Group’s operations and the strategy which it employs to maximise
returns and minimise risks.
Risks
In line with the most recent audit committee guidance, the risks
which the Group faces are reviewed and monitored in Board
and executive meetings on an ongoing basis throughout the
financial year.
Each business area operates a process to ensure that key risks
are identified, evaluated, managed and reviewed appropriately.
This process is also applied at Board level to major business
decisions such as property acquisitions and disposals, and
significant strategy implementations. Furthermore, a monthly
property activity portfolio update is circulated to the Board which
identifies key business risks, developments and opportunities.
Additional risk management processes, which include health and
safety and sustainability risk management, are employed within the
businesses and updates are reported to the Board at each meeting.
Whilst there were no areas of weakness or failings identified by
the Audit Committee and reported to the Board during their
review of the Group’s risk management and internal controls,
management has set up a rolling programme to review and test
the principal areas of internal control risks throughout the Group.
The results are reported to the Audit Committee and reviewed by
the Board during the year.
In accordance with provision C.2.1, and as supported above, the
Directors confirm that they have carried out a robust assessment
of the principal risks facing the Group, including those which
would threaten its business model, future performance, solvency
or liquidity. The Group’s principal risks and uncertainties, the
areas which they impact and how they are mitigated are
described on pages 28 and 29.
Internal Controls
Viability Statement
The Company has an established framework for internal controls,
which is regularly reviewed and monitored by the executive
management and the Audit Committee, who update the Board
on its effectiveness during the year.
The Board is responsible for the Company’s overall strategy,
for approving budgets and major investment decisions, and for
determining the financial structure of the Group.
The Audit Committee assists the Board in the discharge of its
duties regarding the Group’s financial reports and provides a
direct link between the Board and the Company’s Auditor through
regular meetings. The Board has requested that the Audit
Committee reviews the content of the Annual Report and
Accounts and advises it on whether, taken as a whole, it is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position and
performance, business model and strategy. Following its 2015
review, it recommended the same to the Board.
In accordance with provision C.2.2 of the Code, the Board has
assessed the prospects of the Group over a longer period than the
twelve months that has in practice been the focus of the Going
Concern statement.
The Board concluded that the Viability Statement should
correspond with the way in which the Group models its forecasts.
The Group produces a budget for the current year and forecasts
over a further three years reflecting the Group’s business model,
strategy and risk appetite.
The forecasts provide a comprehensive view of the Group’s entire
operation, covering:
•
•
•
•
•
cash flows
financial resources
long-term funding
capital expenditure commitments
administration costs
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Proxy Voting
SIGNIFICANT AGREEMENTS – CHANGE OF CONTROL
CORPORATE GOVERNANCE REPORT
CONTINUED
Cash flow forecasts are updated weekly and circulated to the
Board. The budget and three year forecasts are set in November
and updated in May and August to take into account foreign
exchange movements, changes to the portfolio, interest rate
expectations and development cost assumptions and the changes
are reviewed by the Board.
As explained in the Audit Committee report, the forecasts are also
stress-tested to reflect our principal risks, ensuring the Group
has sufficient resources in severe cases, such as a steep property
downturn, the loss of key tenants and significant rises
in the costs of medium-term funding.
As a result, the Directors can confirm that they have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period of their
assessment.
REMUNERATION
The Remuneration Committee
The proxy forms for the Annual General Meeting and General
Meetings which were held in 2015 included a “vote withheld” box.
Details of the proxies lodged for these meetings were announced
to the London Stock Exchange and are on the Company’s website
at www.clsholdings.com. Shareholders may also choose to
register their vote by electronic proxy on the Company’s website.
At the 2016 Annual General Meeting, the Company will comply
with the Listing Rules in respect of the voting requirements for
the election and re-election of independent Directors where a
Company has a controlling shareholder.
MAJOR INTERESTS IN THE COMPANY’S SHARES
Other than Mr Sten Mortstedt’s 50.69% interest referred to in the
Directors’ Remuneration Report on page 55, as at 8 March 2016
the Company has been notified of the following interests above
3% in the Company’s issued share capital:
No. of shares
%
The Board has established a Remuneration Committee which
develops the Company’s policies on executive remuneration and
sets the remuneration packages of individual Executive Directors.
Full details of the Committee’s work
are given in the Remuneration
Report on page
FIL Limited
Bengt Mortstedt
F&C Asset Management plc
Schroder Investment
Management Limited
3,441,928
2,785,412
2,124,509
8.16%
6.61%
5.04%
1,796,075
4.26%
There are no shareholders who carry special rights with regard
to control of the Company and there are no restrictions on voting
rights. The Company knows of no agreements between holders
of securities which would result in restrictions on the transfer of
securities or on voting rights.
RELATIONSHIP AGREEMENT
In December 2015, the Company was informed that due to an
internal reorganisation by Mr Sten Mortstedt of those companies
and trusts in which he had a controlling or beneficial interest,
three subsidiaries of Victoria Investment Holdings Limited
(“VIHL”), the investment vehicle for the Sten Mortstedt Family and
Charity Trust, transferred their entire holding in the Company,
to certain companies which were directly held and beneficially
owned by Mr Mortstedt.
As at 31 December 2015, Sten Mortstedt held 50.69% of the
Company’s shares in issue, and was therefore seen as a
controlling shareholder under the Listing Rules.
In order to continue compliance with the Listing Rule provision
9.2.2AR, the relationship agreement between the Company and
VIHL was terminated, and a new agreement was entered into with
Mr Mortstedt, as controlling shareholder.
The relationship agreement shall only be terminated in the event
that Mr Mortstedt ceases to be a controlling shareholder, or if the
Company ceases to be admitted to listing on the premium
segment of the Official List.
Throughout the period under review, the Company has complied
with the mandatory independence provisions and procurement
obligations in the relationship agreement, and as far as the
Company is aware, VIHL and, since 14 December 2015,
Mr Mortstedt has also complied.
>
50
RELATIONS WITH SHAREHOLDERS
The Company values its dialogue with both institutional and
private investors. The Board’s primary contact with institutional
shareholders is through the Chief Executive Officer and the
Chief Financial Officer, along with the Head of Group Property,
who have regular meetings with institutional shareholders.
They also undertake analyst presentations following the Company’s
half-yearly and annual financial results. They are supported by a
financial relations adviser and two corporate brokers, all of whom
are in regular contact with institutional and retail shareholders, and
with analysts. A report of feedback from each institutional investor
meeting is prepared by the broker who organised it, and a report of
unattributed feedback from analysts on analyst presentations is
prepared by the financial relations advisor. All such reports and
coverage of the Company by analysts are circulated to the Board.
Consequently, all Directors develop an understanding of the views
of institutional shareholders and commentators.
Analyst presentations following the announcement of half-yearly
and annual financial results are webcast and available on the
Company’s website.
The Group issues its annual financial report to each of its
shareholders. In accordance with the UK company disclosure
regulations the Group does not distribute its half-yearly financial
report to shareholders but makes it available on its website.
Copies are available on request.
All financial reports and press releases are also included on the
Group’s website at www.clsholdings.com.
All shareholders have at least 20 working days’ notice of the Annual
General Meeting at which all directors who are available to attend
are introduced and are available for questions. All shareholders are
welcome to attend the Company’s Annual General Meeting and to
arrange individual meetings by appointment. The views received at
such meetings are fed back to the Board.
48
Annual Report & Accounts 2015
CLS Holdings plc
A change of control of the Company may cause a number of
agreements to which the Company or its active subsidiaries is
party, such as commercial trading contracts, banking
arrangements, property leases and licence agreements, to take
effect, alter or terminate. In the context of the Group as a whole,
only the banking arrangements are considered to be significant.
There are no agreements between the Company and its directors
or employees providing for compensation for loss of office or
employment that occur because of a change of control.
JOINT VENTURE AND ASSOCIATES
This Corporate Governance report applies to the Company and its
subsidiaries. It does not include associates.
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:
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
8 March 2016.
•
select suitable accounting policies and then apply them
consistently;
On behalf of the Board
David Fuller BA FCIS
Company Secretary
8 March 2016
• 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.
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for the year ended 31 December 2015
REMUNERATION COMMITTEE REPORT
London continues to offer wage growth in excess of the
national average and we need to ensure our remuneration
structures are aligned with our industry in order to attract,
retain and motivate our staff. As a result, the target has been
amended as set out in the “At a glance” section below.
As outlined in the Strategic Report, the Committee determined
that all of the KPIs had been met and that the make-up of the
2015 award accurately reflected the performance of the Group
through an 81% of maximum contribution to Mr Widlund’s 2015
PIP plan account. As set out in last year’s report, meeting the
KPI targets will also trigger the release of a further 5,000 shares
as part of Mr Widlund’s appointment as Group Chief Executive
Officer. There remains 5,000 shares capable of vesting next year,
subject to meeting the revised PIP KPIs.
Mr Klotz became part-time Executive Vice Chairman from
1 January 2016 and Executive Chairman from 8 March 2016.
The Committee agreed that he would cease to be a participant
of the PIP from 1 January 2016 and, therefore, would not
accrue bonuses from that date. The Committee agreed that
Mr Klotz be treated as a Good Leaver and should receive his
2015 Award and the final deferred balance from Cycle 1 of the
PIP in full.
Operation of Remuneration Policy for 2016
The Committee monitors senior executive remuneration to
ensure that it is able to attract, motivate and retain high quality
executives who are able to deliver the Group’s strategy and,
in turn, deliver long-term growth and shareholder return.
The Committee continues to review the possible implementation
of a Long-Term Incentive Plan for the Executive Directors and
senior management, together with an all employee share
scheme, and aims to have decided its position in time for the
next Policy vote.
Executive salaries increased by the Group average rate of
3.0% on 1 January 2016. Following Mr Klotz’s move to part time
duties, Mr Widlund responsibilities in relation to Sweden were
widened and therefore he was awarded a 5% increase.
In conclusion
We have provided an “At a glance” summary of 2015
remuneration and performance immediately after this
statement, which highlights how we have operated our Policy in
the year and also how we propose to operate the Policy in 2016.
Christopher Jarvis
Chairman
Remuneration Committee
ANNUAL STATEMENT
Dear Shareholder,
On behalf of the Board, I am pleased to present the 2015
Remuneration Report.
In accordance with the Large and Medium-sized Companies and
Groups (Accounts and Reports) (Amendment) Regulations 2013,
the Company does not intend to move a resolution to approve
an amended Directors’ Remuneration Policy (the “Policy”)
at the 2016 AGM. Therefore, the Policy Report which was
approved at the AGM held on 16 April 2014 remains operative
and can be found on our website at www.clsholdings.com and
on pages 48 to 56 of our 2013 Annual Report, and has been
omitted from this report.
We have included an “At a glance” page so that readers can
identify the main elements of the application of the
Remuneration Policy.
The annual report on remuneration sets out payments
and awards made to the Directors and the link between
Company performance and remuneration for the 2015 financial
year. The annual report on remuneration together with this
annual statement is subject to an advisory shareholder vote
at the 2016 AGM.
Membership
The Committee welcomes Lennart Sten as a new member.
Mr Sten’s appointment ensures that the Committee is
compliant with the Code’s requirements on Remuneration
Committees for FTSE 350 companies. The Committee met four
times during 2015.
2015 Key decisions
The Committee recognises the expectations of our shareholders
on executive pay and that performance-related pay should
reflect the performance of the Group. Following consultation
and subsequent shareholder approval, we introduced the 2012
Performance Incentive Plan (PIP), which operated in respect of
the financial years 2012, 2013 and 2014, with the final deferred
balance paid in respect of 2015 as the risk of forfeiture lapsed
at the end of this year (“Cycle 1 of the PIP”).
The Committee agreed that the PIP continues to meet the
principle of the Policy and in particular aligns executive
remuneration to Company performance. Therefore, in line with
the Policy the Committee determined to start a new three year
cycle of the PIP, for the financial years 2015, 2016 and 2017,
with the final balance payable in respect of 2018 (“Cycle 2 of
the PIP”).
As a result of the start of Cycle 2 of the PIP, the Committee
undertook its annual review of the appropriateness of the Key
Performance Indicators (KPIs) and their associated targets.
The Committee concluded that the KPIs continued to represent
a broad spectrum of Group performance. However, during
this review, we recognised that the Administration Cost Ratio
(as % of net rental income) target needed to be realigned such
that it remained sufficiently challenging but was attainable.
It is the Committee’s opinion that the current target would
become unattainable given that the Group anticipates wage
growth (below executive director level) to be in excess of inflation
and a reduction in net rental income caused by portfolio sales
and redevelopments. We noted that in the property sector,
50
Annual Report & Accounts 2015
CLS Holdings plc
Committee members attendance during the year ended
31 December 2015
Remuneration Committee regular attendees for part
(by invitation)
Chris Jarvis (Chairman)
Malcolm Cooper
Lennart Sten
(appointed to the Committee 25 November 2015)
4/4
4/4
n/a
Marcus Peaker
PwC
Fredrik Widlund
Chief Executive Officer
David Fuller
Company Secretary and Secretary
to the Remuneration Committee
AT A GLANCE
The Company does not intend to move a resolution to approve an amended Policy at the AGM to be held on 20 April 2016. Therefore,
the Policy which was approved at the AGM held on 16 April 2014 remains operative and can be found on our website at
www.clsholdings.com and on pages 48 to 56 of our 2013 Annual Report.
For ease of reference, in this section we summarise the key components of remuneration, and highlight the performance and
remuneration outcomes for 2015 and how the policy will be implemented for 2016.
Element
Operation and Maximum Potential Value
Annual review, which has resulted in the following salaries for the directors and non-executive directors for 2016:
Base Salary
Fees
Benefits
Performance
Incentive Plan
(“PIP”)
2015 Salary
£358,750
£333,125
£310,000
£256,250
Name
Sten Mortstedt
Henry Klotz
Fredrik Widlund
John Whiteley
Board Fee
Senior Independent Director
Committee Chairman
Committee Membership
No change
No change
2016 Salary to
7 March 2016
2016 Salary from
8 March 2016
£369,600
£99,937
£325,000
£264,000
£300,000
£200,000
£325,000
£264,000
%age Change
-16%
-40%
5%
3%
2015 Salary
2016 Salary
%age Change
£22,500
£5,000
£8,000
£5,000
£27,500
£5,000
£8,000
£5,000
22%
0%
0%
0%
For 2016 the following KPI Targets were reassessed:
Administration cost ratio
KPI
Old Target
New Target
Maximum
forfeiture
Bonus/forfeiture
threshold
On target
performance
Good
performance
Maximum
performance
20%
21.75%
18%
19.75%
16%
17.75%
14%
15.75%
12%
13.75%
All other performance conditions and targets remain the same for 2016
Pension
No change
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51
REMUNERATION COMMITTEE REPORT
for the year ended 31 December 2015
CONTINUED
THE PRINCIPLES OF OUR REMUNERATION POLICY
Competitive
Up to median salaries plus median incentives provide market level remuneration only for superior performance.
Performance linked
A significant part of the Executive Directors’ reward is determined by the Company’s success. Failure to achieve threshold levels of
performance may result in both no bonus under the PIP and partial forfeiture of earned deferred elements from previous years.
Shareholder aligned
A considerable part of the reward is paid in shares that have to be retained until minimum shareholding requirements have been met.
Simple and transparent
Annual Report & Accounts 2015
CLS Holdings plc
The Committee believes that its Policy is in line with the Code (applying for financial years beginning on or after 1 October 2014),
as set out below:
ANNUAL REPORT ON REMUNERATION
Executive Directors’ remuneration
should be designed to promote the
Code Provision
long-term success of the company
Schemes should include provisions
that would enable the Company to
recover sums paid or withhold the
payment of any sum, and specify the
circumstances in which it would be
appropriate to do so
Company Remuneration Policy
The PIP includes a rolling deferral in shares and an ongoing performance-based risk
adjustment. It is the Committee’s view that the PIP provides a holistic approach to ensuring
executive directors are focused on the long-term success of the Company.
For 2016 the PIP includes best practice malus and clawback provisions. The circumstances in
which malus and clawback could apply are as follows:
• discovery of a material misstatement resulting in an adjustment in the audited consolidated
By operating only one executive incentive plan all aspects of the remuneration structure are clear to participants and openly communicable.
accounts of the Company;
HOW WE HAVE PERFORMED AGAINST OUR KEY PERFORMANCE INDICATORS
The performance conditions for the PIP have been set to include all the corporate Key Performance Indicators (‘KPIs’). The following
table sets out the KPI targets set and their level of satisfaction:
Bonus/
Forfeiture
Threshold
On Target
Performance
Good
Performance
Maximum
Performance
2015
Achievement
KPI
1. Total Shareholder Return growth
2. Effective management of balance sheet (ROE)
3. Vacancy rate
4. Administration cost ratio (as % of Net Rental)
5. Personal performance rating
6. EPRA NAV growth
7. NAV growth
8. Core profit over budget
Maximum
Forfeiture
5%
5%
10%
20%
2
0%
0%
-10%
7%
7%
8%
18%
2.5
5%
5%
-5%
12%
12%
5%
16%
4
7.5%
7.5%
0%
14%
16%
4%
14%
4.5
8.75%
8.75%
5%
16%
20%
3%
12%
5
10%
10%
10%
*
Personal performance is a grading of the Executive Director by the Remuneration Committee in a range of 1-5 with 5 being the highest rating
20.7%
19.3%
3.1%
15.9%
n/a*
17.4%
19.0%
–2.5%
CFO
£
51,250
24,726
12,684
50,798
22,038
19,219
19,219
6,376
Performance Breakdown
EVC
£
99,938
32,144
82,282
66,037
46,971
33,313
33,313
13,815
CEO
£
93,000
29,913
76,570
61,453
40,920
31,000
31,000
12,857
407,813
376,713
206,310
122.4%
121.5%
81.6%
81.0%
80.5%
80.5%
• the assessment of any performance target or condition where an award was based on error,
or inaccurate or misleading information;
• the discovery that any information used to determine the number of shares subject to an
award was based on error, or inaccurate or misleading information;
• action or conduct of an award holder which, in the reasonable opinion of the Board,
amounts to employee misbehaviour, fraud or gross misconduct;
• events or behaviour of an award holder which have led to the censure of the Company by a
regulatory authority or have had a significant detrimental impact on the reputation of any
Group company provided that the Board is satisfied that the relevant award holder was
responsible for the censure or reputational damage and that the censure or reputational
damage is attributable to him.
Malus will apply up to the date of the determination of the award and clawback will apply for
3 years from the date of payment and the vesting of awards. The Committee is comfortable
that the rules of the Plan provide sufficient powers to enforce malus and clawback if required.
The Committee introduced a minimum shareholding requirement of 100% of salary for the
CEO and 75% of salary for the CFO. The Committee has stated in this Report that it is
reviewing the appropriateness of introducing a new long-term incentive element of
remuneration for the Executive Directors. Any such element will take into account holding
periods as part its design.
For share-based remuneration, the
Committee should consider requiring
directors to hold a minimum number of
shares and to hold shares for a further
period after vesting or exercise, including
for a period after leaving the Company,
subject to the need to finance any costs of
acquisition and associated tax liabilities
STATEMENT OF IMPLEMENTATION OF REMUNERATION POLICY IN 2015
For the year ended 31 December 2015, the Group’s policy on remuneration was implemented as set out below.
Single Total Figure for Executive Directors’ Remuneration (audited information)
The following table shows an analysis of remuneration in respect of qualifying services for the 2015 financial year for each
Executive Director:
(5)
(4)
Salary
£000
Taxable Benefits
£000
Bonus
£000
LTIP
£000
Pension
£000
Other Fees
£000
Total
£000
KPI
1. Total Shareholder Return growth
2. Effective management of balance sheet (ROE)
3. Vacancy rate
4. Administration cost ratio (as % of Net Rental)
5. Personal performance rating
6. EPRA NAV growth
7. NAV growth
8. Core profit over budget
2015 Total Bonus
Bonus as a % of Salary
Bonus Achieved as a % of Total Available Bonus
52
(5)
(3) Mr Widlund received total pension contributions of £31,000 (2014: £5,166) of which half was paid into his SIPP and half was paid as salary
(4)
The Bonus total includes 50% of the contribution into the Director's Plan Account for Cycle 2 of the PIP (see below for details of calculation) and, for Mr Widlund,
£80,987.50 following the release of 5,000 shares pursuant to his recruitment remuneration (2014: £257,232 following release of 15,000 shares pursuant to
recruitment remuneration), based on the middle market share price on 8 March 2016 of 1,617.75 pence
The LTIP (other than for Mr Widlund) is solely the payment of the final balance of Cycle 1 of the PIP as the risk of forfeiture lapsed at the end of 2015. The value
of the notional shares has been based on the average market value of a share for the 30 day period to 31 December 2015 of 1,810 pence in accordance with the
Regulations. The actual date of payment is 24 March 2016
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
(1)
(2)
Sten Mortstedt
Henry Klotz
Fredrik Widlund
John Whiteley
(3)
359
333
326
256
350
325
52
250
–
12
4
7
–
10
1
7
–
408
269
103
–
217
291
110
–
452
40
243
–
158
–
92
–
3
16
26
–
1
5
25
425
–
–
–
400
–
–
–
784
1,208
656
635
750
711
349
484
(1) Companies associated with Mr Mortstedt provided consultancy services which related to specific advice which was outside the terms of Mr Mortstedt’s contract
of employment. The Committee has reviewed the fees for these services, and is of the opinion that the market rate for the services would have far exceeded the
amount paid
(2) Mr Klotz received additional fees which he retained of £15,517 (2014: £17,702) in respect of his role as Non-Executive Chairman of Catena AB and £7,758
(2014: £8,851) as Non-Executive Director of Note AB
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53
REMUNERATION COMMITTEE REPORT
for the year ended 31 December 2015
CONTINUED
Annual Report & Accounts 2015
CLS Holdings plc
ANNUAL REPORT ON REMUNERATION (CONTINUED)
Single Total Figure for Non-Executive Directors’ Remuneration (audited information)
ADDITIONAL REQUIREMENTS IN RESPECT OF THE SINGLE TOTAL FIGURE TABLE (AUDITED INFORMATION)
2015 PAYMENTS IN RESPECT OF THE PIP
Cycle 1
The following table sets out the calculation of the final payment of the deferred balance from Cycle 1 of the PIP which is disclosed in the
LTIP column of the Single Total Figure of Remuneration as the risk of forfeiture lapsed in respect of 2015 (this qualifies the payment as
an LTIP under the Regulations):
Plan Accounts
John Whiteley Fredrik Widlund
Henry Klotz
Opening balance of Deferred Notional Shares
(1)
24,985
13,435
2,228
Value of opening balance of Deferred Notional Shares at Measurement Date
2015 Payment
£452,303
£(452,303)
£243,214
£(243,214)
£40,333
£(40,333)
Value of closing balance of Deferred Notional Shares
Closing balance of Deferred Notional Shares
–
–
–
–
–
–
(1)
The value of the notional shares has been based on the average market value of a share for the 30 day period to 31 December 2015 of 1,810.3 pence in
accordance with the Regulations. The actual date of payment is 24 March 2016
Cycle 2
The following table sets out the calculation of the first payment under Cycle 2 of the PIP which is disclosed in the Bonus column of the
Single Total Figure of Remuneration as the performance conditions are satisfied in respect of 2015:
Plan Accounts
John Whiteley Fredrik Widlund
Henry Klotz
Opening balance of Deferred Notional Shares
(1)
Value of opening balance of Deferred Notional Shares at Measurement Date
2015 Contribution
2015 Payment
(2)
Value of closing balance of Deferred Notional Shares
(3)
Closing balance of Deferred Notional Shares
–
–
–
–
£407,813
£(407,813)
–
£206,310
£(103,155)
–
£376,713
£(188,356)
–
–
£103,155
£188,357
5,698
10,404
The 2015 bonus performance conditions and their level of satisfaction are set out on page 48 in the “At a glance” section of the Report
(1)
(2) Henry Klotz received his 2015 Award in full as explained on page 50
(3)
The price used at the Measurement Date to calculate the value of shares was the mid-market value of a share for the 30 day period to 31 December 2015,
which was 1,810.3 pence per share
In the context of the operation of the PIP, Deferred Notional Shares are a mechanism that allows the deferred cash element of the
award to be linked to the share price. The Committee confirms that there is no intention of issuing shares, or deferred shares, and
therefore it does not constitute a share-based payment. There are no other members of the PIP other than those set out above.
The following table sets out the 2015 Company contribution for each of the participants:
Salary
Maximum Company Contribution
2015 Company Contribution
Percentage of Maximum Contribution earned
Pension Entitlements
Henry Klotz
John Whiteley Fredrik Widlund
£333,125
£499,688
£407,813
81.6%
£256,250
£256,250
£206,310
80.5%
£310,000
£465,000
£376,713
81.0%
Non-Executive Directors do not participate in any of the Company’s incentive arrangements nor do they receive any benefits.
The following table sets out the fees received for 2015:
Fee
£000
Other Board Fees
£000
Additional Fees
£000
Total
£000
(1)
2015
2014
2015
2014
2015
2014
2015
2014
(2)
(3)
(4)
(5)
Malcolm Cooper
Joseph Crawley
Elizabeth Edwards
Christopher Jarvis
Thomas Lundqvist
(6)
Jennica Mortstedt
Philip Mortstedt
Anna Seeley
Lennart Sten
(6)
(7)
23
23
23
23
23
8
14
14
23
23
23
14
23
23
23
–
–
9
18
–
1
13
–
–
–
–
1
18
–
–
13
–
–
–
–
–
–
–
–
–
6
–
–
–
–
–
–
–
–
13
–
–
–
–
41
23
24
36
29
8
14
14
24
41
23
14
36
36
23
–
–
9
(1) Mr Cooper received the following fees: Board membership £22,500; Senior Independent Director £5,000; Audit Committee Chairmanship £8,000; and
Remuneration Committee membership £5,000
(2) Ms Edwards received the following fees: Board membership £22,500; and pro rata Audit Committee membership £436
(3) Mr Jarvis received the following fees: Board membership £22,500; Remuneration Committee Chairmanship £8,000; and Audit Committee membership £5,000
(4) Mr Lundqvist received £6,375 in respect of certain finance-related matters and, at the Remuneration Committee’s request, liaising with the Sten Mortstedt
family and charity investment company on executive remuneration issues
Left the Board on 11 May 2015
Joined the Board on 11 May 2015
(5)
(6)
(7) Mr Sten received the following fees: Board membership £22,500; and pro rata Remuneration Committee membership £436
Payments to Past Directors
There were no payments to past directors of the Company during the year, whether for loss of office or otherwise.
Directors’ Interests in Shares
The interests of the Directors in the ordinary shares of 25p each of the Company were:
Director
(1)
Sten Mortstedt
Henry Klotz
Fredrik Widlund
John Whiteley
(2)
Malcolm Cooper
Joseph Crawley
Elizabeth Edwards
Christopher Jarvis
Thomas Lundqvist
Philip Mortstedt
Anna Seeley
Lennart Sten
Unconditional
Shares
21,361,193
55,763
16,589
14,000
4,124
236,298
–
4,844
79,251
1,566
–
2,953
Conditional
PIP Deferred
Notional
Shares
–
–
10,404
5,698
–
–
–
–
–
–
–
–
Awards
Total
(3)
–
–
5,000
–
–
–
–
–
–
–
–
–
21,361,193
55,763
31,993
19,698
4,124
236,298
–
4,844
79,251
1,566
–
2,953
Sten Mortstedt’s interest in shares is held in certain companies which are directly held and beneficially owned by Sten Mortstedt
Joseph Crawley’s interest in shares is as a result of his wife being a beneficiary of a trust in which the shares are held
(1)
(2)
(3) Release of second tranche of recruitment remuneration award
The Executive Directors are entitled to participate in a defined contribution pension scheme of which two Directors (Fredrik Widlund
and John Whiteley) were members at the end of the year (2014: two). Participants are required to contribute 5% of basic UK salary
(2014: 5%), which is matched by a contribution from the Company of 10% (2014: 10%). The Company contributed 5% to Mr Widlund’s
Self Invested Pension Plan (SIPP) and the balance of 5% of the Company’s contribution was paid to him as a salary supplement.
Henry Klotz is a deferred member of the scheme. On 1 August 2014, under the auto-enrolment process, Mr Klotz became a member
of the statutory scheme operated by the Company whereby he contributes 1% of basic salary which is matched by an equal contribution
from the Company.
As explained above, the conditional PIP Deferred Notional Shares will be paid in cash upon vesting.
The Committee has implemented a policy of minimum shareholdings for Executive Directors. It is expected that within five years of
becoming an executive director, the Chief Executive Officer should build a holding with a value of at least 100% of salary, and the Chief
Financial Officer at least 75%. This further aligns the interests of Directors to those of shareholders.
At the year end, the Executive Directors’ beneficial shareholdings, excluding Conditional PIP Deferred Notional Shares, represented the
following percentages of salary:
Henry Klotz: 306% (2014: 336%)
Fredrik Widlund: 120% (2014: 0%)
John Whiteley: 100% (2014: 84%)
The Executive Chairman, Sten Mortstedt, has an interest in shares which is substantially in excess of the minimum requirement.
54
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REMUNERATION COMMITTEE REPORT
for the year ended 31 December 2015
CONTINUED
ANNUAL REPORT ON REMUNERATION (CONTINUED)
Share Options
There were no share plans in operation or options outstanding at the year end.
The highest mid-market share price in the year was 2,009.5 pence, the lowest 1,442.5 pence, and the average was 1,791.7 pence.
The closing share price on 31 December 2015 was 1,825.5 pence.
Total Returns to Shareholders 1994-2015
The Company’s TSR performance since it was listed on the London Stock Exchange is set out below, and is compared to the
TSR performance of the FTSE All Share Index and the UK Datastream Real Estate Index over the same period. The Committee believes
that these are the most appropriate as these are the Indices and Sector in which the Company has been included since listing. In
addition, to comply with the Regulations the same information has been provided for the period 2009-2015.
TOTAL RETURNS TO SHAREHOLDERS 1994-2015
(100 = 1994)
TOTAL RETURN TO SHAREHOLDERS 2009-2015
(100 = 2009)
CLS Holdings
FTSE Real Estate
FTSE All Share
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2015
CLS Holdings
UK-DS Real Estate
FTSE All Share
Jan-09
Jan-11
Jan-13
Jan-15
700
600
500
400
300
200
100
0
2,500
2,000
1,500
1,000
500
0
Annual Report & Accounts 2015
CLS Holdings plc
STATEMENT OF IMPLEMENTATION OF REMUNERATION POLICY IN THE FOLLOWING FINANCIAL YEAR
See “At a glance” section set out on page 51.
CONSIDERATION BY THE DIRECTORS OF MATTERS RELATING TO DIRECTORS’ REMUNERATION
As set out in this report, the Remuneration Committee is responsible for recommending to the Board the remuneration policy for
Executive Directors and for setting their remuneration packages. The Committee also has oversight of the remuneration policy and
packages for other senior members of staff.
DIRECTORS’ CONTRACTS
Name
Sten Mortstedt
Henry Klotz
Fredrik Widlund
John Whiteley
Malcolm Cooper
Joseph Crawley
Elizabeth Edwards
Christopher Jarvis
Thomas Lundqvist
Philip Mortstedt
Anna Seeley
Lennart Sten
Jennica Mortstedt
(1)
Contract Date
Notice Period
Executive
Executive
Executive
Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
1 January 2005
10 November 2015
3 November 2014
1 October 2009
15 June 2007
25 November 2008
13 May 2014
25 November 2008
1 October 1995
11 May 2015
11 May 2015
1 August 2014
11 May 2010
12 months
6 months
12 months
6 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
(1) Ms Mortstedt resigned from the Board on 11 May 2015
ADVISORS TO THE REMUNERATION COMMITTEE
During the year, the Committee sought advice from its remuneration consultants, PwC, whom the Committee appointed in relation
to the Performance Incentive Plan and general matters related to remuneration, and from the Company Secretary in relation to peer
group remuneration analysis. PwC is a founding member of the Remuneration Consultants’ Group and has signed up to that group’s
Code of Conduct. The fees for the advice provided by PwC were £40,800 (2014: £10,800). The fees were fixed on the basis of agreed
projects. The Committee reviews the objectivity and independence of the advice it receives from PwC at a private meeting each year.
It is satisfied that PwC is providing independent, robust and professional advice.
Total Remuneration for the Chief Executive Officer
2015
2014
2013
2012
2011
2010
2009
Shareholder Voting
CEO’s total single figure (£000)
Bonus awarded as % of maximum
656
81.0%
349
89.0%
712
86.5%
352
83.5%
417
81.7%
481
100%
452
100%
The following table represents the voting at the 2014 and 2015 Annual General Meetings:
Directors’ Remuneration Policy
(from 16 April 2014 AGM)
Directors Remuneration Report
(from 15 April 2015 AGM)
The Company has not operated an LTIP over this period and therefore no awards were capable of vesting.
Percentage change in remuneration of the Chief Executive Officer
The table below shows how the percentage change in the Chief Executive Officer’s salary, benefits and bonus between 2014 and 2015
compares with the percentage change in the average of each of those components of pay for employees.
Salary
Taxable Benefits
Bonus
2015
£000
310
4,488
2014
£000
Percentage
Increase
310
4,375
5.2%
2.6%
2015
£000
4
162
2014
£000
Percentage
Increase
4
167
nil
(3.1%)
2015
£000
269
1,722
2014
£000
Percentage
Increase
291
1,775
(35.4%)
(3.0%)
(1)
CEO
All Employees
(1)
Annualised in 2014
The Group’s pay review taking effect from 1 January 2015 awarded average percentage increases in wages and salaries of 3.0%. The
nature and level of benefits to employees in the year ended 31 December 2015 was broadly similar to those of the previous year.
Relative importance of spend on pay
Remuneration paid to all employees of the Group
(1)
Distributions to shareholders
Group revenue
2015
£000
9,376
19,115
118,900
2014
£000
8,900
15,912
99,600
% Change
5.3%
20.1%
19.4%
(1) Representative of the Group’s cash-based operations which exclude unrealised fair value movements
56
In Favour
Against
Total votes cast
Votes withheld
Number of votes % of votes cast
Number of votes % of votes cast
32,260,368
6,900,471
39,160,839
194,020
82.4
17.6
31,514,704
3,612,405
35,127,109
41,430
89.7
10.3
The Committee noted that 17.6% of votes were cast against the resolution to approve the Directors’ Remuneration Policy in 2014.
Through feedback and meetings with institutional shareholders the Committee understands that the reasons were primarily due to
the benchmarking of Executive Directors’ salaries, which were increased with a one-off increment so as to bring them in line with the
market, and the maximum share options that could be granted. The Committee noted these comments from 2014. Since then the old
share option schemes have lapsed and executive remuneration increases in 2015 and for 2016 are broadly in line with the wider
employee population.
On behalf of the Board
Christopher Jarvis
Chairman
Remuneration Committee
8 March 2016
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AUDIT COMMITTEE REPORT
REPORT FROM THE CHAIRMAN OF THE AUDIT COMMITTEE
Committee members attendance during the
year ended 31 December 2015
Significant issues considered by the Committee
How they were addressed
Annual Report & Accounts 2015
CLS Holdings plc
Malcolm Cooper (Chairman)
Chris Jarvis
Elizabeth Edwards (appointed to
Audit Committee 25 November 2015)
3/3
3/3
n/a
Property Valuations
Audit Committee regular attendees for part (by invitation)
Accounting for other financial investments
Dear Shareholder
The Audit Committee reviews and reports to the Board on financial
reporting, including the valuation assumptions for the property
portfolio, internal control and risk management. It also reviews
the performance, independence, effectiveness and annual
remuneration of the external auditor.
Committee Membership
The Committee welcomes Elizabeth Edwards as a new member.
Ms Edwards’s appointment ensures that the Committee is
compliant with the Code’s requirements on Audit Committees for
FTSE 350 companies. All members of the Committee are considered
to be independent under the Code Guidance. For the purposes of
the Code, Mr Cooper, Ms Edwards and Mr Jarvis are regarded as
having recent and relevant accounting and financial experience.
The Chief Executive Officer, Chief Financial Officer, certain senior
management and the Company’s auditor are normally invited to
attend the meetings. At each meeting there is a standing agenda
item facilitating the opportunity for the Company’s auditor to
meet without management present. The Company Secretary acts
as secretary to the Committee.
For Board biographies see pages
The Committee’s terms of reference are available on the
Company’s website at www.clsholdings.com
>
38-39
OUR PRINCIPAL ACTIVITIES IN 2015
Mark Beddy
Deloitte LLP, independent
external auditor
Fredrik Widlund
Chief Executive Officer
John Whiteley
Chief Financial Officer
David Fuller
Company Secretary and Secretary
to the Audit Committee
Cushman & Wakefield
Independent external valuers
(UK and Germany)
Knight Frank
Independent external valuers
(Vauxhall Square)
Jones Lang LaSalle
Independent external valuers
(France)
March
August
November
Review of year end results
Review of half-year results
Audit planning meeting
Meeting the UK Valuers
Meeting the German Valuers
Meeting the French Valuers
Review of:
Review of:
• Property valuations
• Property valuations
Review of:
• Principal risks
• Significant accounting, reporting and
judgemental matters including going
concern
• Significant accounting, reporting and
judgemental matters including going
concern
• Principal risks
• Code requirements
• Monitoring of internal controls and
• Principal risks
risk management
• Monitoring of internal controls and
• Reappointment of auditor at AGM
risk management
• Fair, balanced and understandable
Receive Auditor’s Report
Receive Auditor’s Report
• Monitoring of internal controls and
risk management
• KPIs
• Internal audit function
• Committee performance
• Terms of reference
• Whistleblowing
• Non-audit fees
Receive Auditor’s planning report,
review the year end audit scope and
materiality, and agree 2015 audit fee
58
The Committee met with the Group’s UK valuers, Cushman and Wakefield and
Knight Frank, to which it invited the whole Board, and discussed the methodology
used for the bi-annual valuations of the Group’s UK properties and developments.
It received presentations from Colliers International and Jones Lang LaSalle in
respect of Germany and France, respectively, with follow up meetings in August
and November. The Committee was satisfied with the explanations in relation to
the portfolio and its associated key risks, such as specific local market updates,
vacancy levels and rental demand, which management were addressing.
The Committee reviewed how management accounted for its other financial
investments, principally in corporate bonds and in Catena AB. The Committee
agreed with the value of these investments.
The Committee considered the appropriateness of the recognition of tenant
incentives ensuring that these were appropriately spread over the lease term
and of the accounting for material surrender premiums that had been received.
The Committee was satisfied that there was sufficient management oversight
and that revenue had been appropriately accounted for.
The Committee assessed the framework for financial controls to be regularly
reviewed by management and brought to the Committee for review. The external
auditor confirmed to the Committee that there were defined lines of reporting
and control processes in place within the Group.
Revenue Recognition
Management Override of Controls
KEY AREAS DISCUSSED AND REVIEWED BY THE COMMITTEE
External Audit Process
The Committee reviewed the external audit strategy and the findings of the Company’s auditor from its review of the Half-Yearly
Financial Report and from its audit of the Annual Report and Accounts. It reviewed the letters of representation at both the full year
and half year and recommended the same to the Board for signature. Additionally, the Committee met with the Company’s auditor
prior to the final sign-off meeting for this Annual Report and Accounts in order to receive his report on the external audit process.
The Committee is pleased to report that at both the half year and the full year, after reviewing the significant risks identified by the
Company’s auditor and how management had mitigated them, there was no issue of a material nature which needed to be addressed
or brought to the Board’s attention.
The Committee assessed the effectiveness of the full year and half year external audit processes, the performance of the Company’s
auditor and, separately, sought the views of senior management. The Committee concluded that the external audit strategy had been
met, and that key accounting and auditing judgments had been identified by the Company’s auditor. The Committee concluded that
Deloitte LLP had undertaken the external audit in line with the audit plan, and it was agreed to recommend to the Board that Deloitte
LLP be asked to continue as the Company’s auditor at the forthcoming AGM. The Committee discussed with management and
subsequently agreed the statutory audit fee and the scope of the statutory audit.
The external audit was last put out to tender in 2007 when the current auditor, Deloitte LLP, was appointed. The lead audit partner was
changed by rotation in 2012. There are no contractual obligations to restrict the Company’s choice of external auditor. The Committee
notes the wider EU regulatory developments in external audit tendering, and the current consultation from the Department of Business,
Innovation and Skills and the Financial Reporting Council. In compliance with The Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014, the Committee
intends to undertake a competitive tender process for the financial year ending 2017 so as to ensure auditor independence, continued
quality of judgement, and the most efficient use of shareholder funds.
Viability Statement
The Committee discussed how best to assess the Group’s prospects over a term which was considered appropriate. It was decided that
the statement should correspond with the way in which the Group models its forecasts, being the current year plus a further three
years. Further details are contained in the Corporate Governance Report on pages 47 and 48.
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AUDIT COMMITTEE REPORT
CONTINUED
Principal Risks
The Committee introduced a standing discussion item in relation to monitoring and reviewing the Group’s principal business risks,
challenging management on their appropriateness and how they were to be mitigated, details of which can be found on pages 28 and 29.
Internal Control and Risk Management
The Committee introduced a further standing discussion item in relation to monitoring and reviewing the Group’s internal controls and
risk management systems, with a continuous control testing and reporting programme throughout the organisation. Further details are
contained in the Corporate Governance Report on page 47.
Going Concern
Whilst a matter for the whole Board (see page 40), the Committee reviews the Group’s financial forecasts, debt maturity forecasts and
associated sensitivity analysis. With supporting reviews from the external auditor, and a recommendation from management, the
Committee concluded that the going concern risk was low and, following agreement from the Board, it was removed from the list of
principal risks and uncertainties.
Internal Audit
Following its annual review, the Committee recommended to the Board not to establish an internal audit function, due to the existence
of current controls and review systems in place and as the Company was neither of sufficient size nor complexity to warrant it. This line
of reasoning was consistent with other property companies of a similar size. The Committee will continue to review this assumption
annually following the Group’s inclusion in the FTSE 350.
In order to seek assurance that internal controls are rigorously tested, management have set up a rolling programme to review and test
the principal areas of risk, with the results reported to the Committee and subsequently reviewed by the Board. This ongoing review has
not highlighted any matters of concern.
Non-Audit Fees
The Committee is also responsible for monitoring the compliance of the Company’s policy on the provision of non-audit services by the
Company’s auditor, so as to safeguard the auditor’s objectivity and independence.
The Committee noted the recent publication of the EC Audit Regulation which includes new restrictions on the provision of non-audit
services, which it is monitoring closely. These rules come into force in June 2016 and the Committee will review its policy following
clarification from the Department for Business, Innovation & Skills.
The current policy, which is based on the most recent Guidance on Audit Committees and reviewed annually, categorises non-audit
services as either:
•
•
•
excluded; or
permitted, without approval from the Committee, but subject to approval by the Chief Financial Officer of up to 10% of the annual
aggregate Group audit fee; or
permitted with approval from the Committee.
The non-audit services provided by the Company’s auditor during the year were £95,500 (2014: £14,300)
All such fees were approved by the Audit Committee or Chief Financial Officer in accordance with the policy.
As set out above, the Committee considers that it has complied with the provision of The Statutory Audit Services for Large Companies
Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014.
Anti-Bribery and Whistleblowing
The Company has implemented an anti-bribery policy and provided training for all staff. An additional annual compliance check is
undertaken for all staff. The Committee reviewed as being appropriate the Whistleblowing Policy, under which employees may report
suspicion of fraud, financial irregularity or other malpractice. No reports of any such matters were received during the year.
On behalf of the Board
Malcolm Cooper
Chairman
Audit Committee
8 March 2016
60
Annual Report & Accounts 2015
CLS Holdings plc
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF CLS HOLDINGS PLC
Opinion on financial statements
of CLS Holdings plc
In our opinion:
•
the financial statements give a true and fair view of the state of the Group’s and of the
Parent Company’s affairs as at 31 December 2015 and of the Group’s profit for the year
then ended;
•
•
•
the Group financial statements have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European Union;
the Parent Company financial statements have been properly prepared in accordance with
United Kingdom Generally Accepted Accounting Practice, including Financial Reporting
Standard 101 Reduced Disclosure Framework; and
the financial statements have been prepared in accordance with the requirements of
the Companies Act 2006 and, as regards the group financial statements, Article 4 of the
IAS Regulation.
The financial statements comprise the group income statement, the group statement of
comprehensive income, the group balance sheet, the group statement of changes in equity,
the group statement of cash flows, the related notes to the group financial statements 1 to 33,
the parent Company balance sheet and the related notes 1 to 15. The financial reporting
framework that has been applied in the preparation of the group financial statements is
applicable law and IFRSs as adopted by the European Union. The financial reporting
framework that has been applied in the preparation of the Parent Company financial
statements is applicable law and United Kingdom Generally Accepted Accounting Practice,
including Financial Reporting Standard 101 Reduced Disclosure Framework.
Going concern and the Directors’
assessment of the principal risks
that would threaten the solvency
or liquidity of the Group
As required by the Listing Rules we have reviewed the Directors’ statement regarding the
appropriateness of the going concern basis of accounting contained within note 2 to the
financial statements and the Directors’ statement on the longer-term viability of the Group
contained within the Directors’ Report.
We have nothing material to add or draw attention to in relation to:
•
•
•
•
the Directors' confirmation on page 40 that they have carried out a robust assessment of
the principal risks facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity;
the disclosures on pages 28 and 29 that describe those risks and explain how they are
being managed or mitigated;
the Directors’ statement in note 2 to the financial statements about whether they considered
it appropriate to adopt the going concern basis of accounting in preparing them and their
identification of any material uncertainties to the Group’s ability to continue to do so over a
period of at least twelve months from the date of approval of the financial statements;
the Director's explanation on page 40 as to how they have assessed the prospects of the
Group, over what period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
We agreed with the Directors’ adoption of the going concern basis of accounting and we did
not identify any such material uncertainties. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as to the Group’s ability to
continue as a going concern.
Independence
We are required to comply with the Financial Reporting Council’s Ethical Standards for
Auditors and we confirm that we are independent of the Group and we have fulfilled our other
ethical responsibilities in accordance with those standards. We also confirm we have not
provided any of the prohibited non-audit services referred to in those standards.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF CLS HOLDINGS PLC
CONTINUED
Our assessment of risks
of material misstatement
The assessed risks of material misstatement described below are those that had the greatest
effect on our audit strategy, the allocation of resources in the audit and directing the efforts of
the engagement team:
Our application of materiality
Risk
How the scope of our audit responded to the risk
The assessment of the carrying
value of the investment property
portfolio, specifically the process,
Investment properties are held at
assumptions and judgements used
£1,366.8m at 31 December 2015, see
to derive the property valuations.
Note 13 for full disclosure, making
this the most quantitatively material
balance in the financial statements.
Investment properties are held at
market value on the balance sheet.
Market value is by its nature
subjective with significant judgement
applied to the valuation, especially in
regard to properties currently under
development of which the most
significant is Vauxhall Square.
The key judgements made are those
relating to rental values, occupancy
rates, yields and the assessment of
development and completion
milestones.
We assessed management’s process for reviewing the valuations of the property portfolio.
We obtained the external valuation reports and met with the external valuers of the
property portfolio to discuss, understand and challenge the valuation process, performance
of the portfolio, significant assumptions and critical judgement areas, including estimated
rental values, occupancy rates, yields and development milestones. For the judgements
made on the valuation of Vauxhall Square, we engaged a real estate specialist and
chartered surveyor to identify the key judgements and paid particular attention to the costs
of construction and contingencies.
As part of our meeting with the external valuers we assessed their competence,
independence and integrity with an additional focus on assessing the process for the
appointment in the year of Cushman & Wakefield as valuers of the German assets.
We obtained relevant industry data, which was used to benchmark the portfolio
performance and key assumptions used to assess whether the external evidence supported
the assumptions used by the valuers.
Finally, we performed audit procedures to assess the integrity of information provided to
the valuer to ensure that it was consistent with the leases.
Our work on the valuation of the investment property portfolio was led by the Group audit
team, supplemented by specific procedures by component auditors.
At 31 December 2015, the Group held
Accounting for the Group’s
£116.5m (2014 – £96.6m) of listed
other investments.
investments. The listed investments
are traded in an active market and
therefore the focus of the risk is on
the completeness and accuracy of
transactions in those investments and
the risk of impairment
We have obtained and challenged management’s workings for the investments held by the
Group and disclosed in the financial statements.
We tested the acquisitions and disposals of the investments by confirming the details to
transaction agreements on a sample basis.
For listed investments, we agreed the carrying value to third party market data on a sample
basis and challenged whether, in the case of listed bonds, there had been any impairment
by reference to external credit information.
An overview of the scope of our audit
The only change relating to the risks identified above is that last year our risk in relation to
investments also covered material unlisted investments, specifically First Camp and BLD.
As First Camp is now a subsidiary and the investment in BLD is fully impaired there remain
no material balances in relation to unlisted investments and the risk has changed accordingly.
The description of risks above should be read in conjunction with the significant issues
considered by the Audit Committee as set out on page 59 and the critical accounting
judgements as presented in note 3 of these financial statements.
These matters were addressed in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Opinion on other matters prescribed
by the Companies Act 2006
Annual Report & Accounts 2015
CLS Holdings plc
We define materiality as the magnitude of misstatement in the financial statements that
makes it probable that the economic decisions of a reasonably knowledgeable person would
be changed or influenced. We use materiality both in planning the scope of our audit work
and in evaluating the results of our work.
We determined materiality for the Group to be £15.4 million (2014: £13.5 million),
2% (2014: below 2%) of net assets. As an investment property company, the main focus of
management is to generate long-term capital value from the investment property portfolio
and, therefore, we consider net assets to be the most appropriate basis for materiality.
The increase in materiality from the prior year reflects the increase in net assets driven
by the uplift in the valuation of the investment property portfolio, in particular London,
where growth was £63.2 million.
In addition to net assets, we consider EPRA adjusted profit before tax to be a critical
performance measure for the Group and we applied a lower materiality of £2.2 million
(2014: £2.1 million), which is 5% (2014: less than 5%) of EPRA adjusted profit before tax,
for testing of balances impacting that measure, being most balance sheet and income
statement balances with the exception primarily of fair value movements on investment
property, investments and complex financial instruments.
We agreed with the Audit Committee that we would report to the Committee all audit
differences in excess of £307,000 (2014: £269,000), as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds. We also report to the Audit
Committee on disclosure matters that we identified when assessing the overall presentation
of the financial statements.
Our Group audit was scoped by obtaining an understanding of the Group and its environment,
including Group-wide controls, and assessing the risks of material misstatement at the Group
level. Based on that assessment, and consistent with our conclusion on scoping in the prior
year, we focused our Group audit scope primarily on the audit work at each key location, being
the UK, France, Germany and Sweden. All locations continue to be subject to a full audit.
These locations represent the principal business units and account for 100% (2014: 96.7%) of
the Group’s net assets, and 100% (2014: 100%) of revenue and profit before tax. They were also
selected to provide an appropriate basis for undertaking audit work to address the risks of
material misstatement identified above.
Our audit work at each of the four locations has been executed by Deloitte component auditors
at levels of materiality applicable to each individual entity which were lower than Group
materiality and ranged from £10.8 million to £6.1 million (2014: £8.8 million to £5.4 million)
with lower materialities being used for those items impacting EPRA adjusted profit before tax,
consistent with the Group audit approach.
The audit work on the key audit risks above has been led by the Group audit team,
supplemented by specific procedures by the component auditors. The reporting from all
component auditors has been reviewed by the Group team and, where necessary, component
auditors carried out further testing at our request.
At the Group level we tested the consolidation process and carried out analytical procedures
to confirm our conclusion that there were no significant risks of material misstatement of the
aggregated financial information of the remaining components not subject to audit or audit of
specified account balances.
All component audit partners are included in our team briefing where their risk assessment
is discussed and there is frequent two-way communication between the Group and component
teams. This, together with the Group team having responsibility for the significant audit risks,
has meant it has not been necessary for a member of the Group team to visit the component
locations.
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In our opinion:
•
•
the part of the Remuneration Committee Report to be audited has been properly prepared
in accordance with the Companies Act 2006; and
the information given in the Strategic Report and the Directors’ Report for the financial year
for which the financial statements are prepared is consistent with the financial statements.
62
63
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF CLS HOLDINGS PLC
CONTINUED
Adequacy of explanations received
Matters on which we are required
and accounting records
to report by exception
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
•
•
adequate accounting records have not been kept by the Parent Company, or returns
adequate for our audit have not been received from branches not visited by us; or
the Parent Company financial statements are not in agreement with the accounting
records and returns.
We have nothing to report in respect of these matters.
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures
of directors’ remuneration have not been made or the part of the Remuneration Committee
Report to be audited is not in agreement with the accounting records and returns.
We have nothing to report arising from these matters.
Directors’ remuneration
Corporate Governance Statement
Annual Report & Accounts 2015
CLS Holdings plc
Scope of the audit of the
financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial
statements sufficient to give reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This includes an assessment of:
whether the accounting policies are appropriate to the Group’s and the Parent Company’s
circumstances and have been consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the Directors; and the overall presentation of the
financial statements. In addition, we read all the financial and non-financial information in
the annual report to identify material inconsistencies with the audited financial statements
and to identify any information that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of performing the audit. If we
become aware of any apparent material misstatements or inconsistencies we consider the
implications for our report.
Our duty to read other information
in the Annual Report
Under the Listing Rules we are also required to review part of the Corporate Governance
Statement relating to the Company’s compliance with certain provisions of the UK Corporate
Governance Code.
We have nothing to report arising from our review.
Mark Beddy FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
8 March 2016
Under International Standards on Auditing (UK and Ireland), we are required to report to you if,
in our opinion, information in the annual report is:
• materially inconsistent with the information in the audited financial statements; or
•
•
apparently materially incorrect based on, or materially inconsistent with, our knowledge
of the Group acquired in the course of performing our audit; or
otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies
between our knowledge acquired during the audit and the Directors’ statement that they
consider the annual report is fair, balanced and understandable and whether the annual
report appropriately discloses those matters that we communicated to the audit committee
which we consider should have been disclosed. We confirm that we have not identified any
such inconsistencies or misleading statements.
As explained more fully in the Directors’ Responsibilities Statement, the Directors are
responsible for the preparation of the financial statements and for being satisfied that they
give a true and fair view. Our responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and International Standards on Auditing
(UK and Ireland). We also comply with International Standard on Quality Control 1 (UK and
Ireland). Our audit methodology and tools aim to ensure that our quality control procedures
are effective, understood and applied. Our quality controls and systems include our dedicated
professional standards review team and independent partner reviews.
This report is made solely to the Company’s members, as a body, in accordance with Chapter
3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company and the Company’s
members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities
of directors and auditor
64
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65
for the year ended 31 December 2015
GROUP INCOME STATEMENT
at 31 December 2015
GROUP BALANCE SHEET
Notes
2015
£m
2014
£m
Notes
2015
£m
2014
£m
Annual Report & Accounts 2015
CLS Holdings plc
Continuing operations
Group revenue
Net rental income
Administration expenses
Other expenses
Group revenue less costs
Net movements on revaluation of investment properties
Profit on sale of investment properties
Gain on sale of corporate bonds
Fair value gain on reclassification of an associate as a subsidiary
Gain arising from acquisition
Operating profit
Finance income
Finance costs
Share of loss of associates after tax
Profit before tax
Taxation
Profit for the year
Attributable to:
Owners of the Company
Non-controlling interests
4
13
8
9
15
10
6
118.9
99.0
(19.5)
(13.8)
65.7
98.0
4.3
0.7
–
–
168.7
10.0
(27.5)
–
151.2
(19.1)
132.1
129.9
2.2
132.1
99.6
82.2
(13.6)
(4.9)
63.7
186.0
8.7
–
0.2
1.2
259.8
7.7
(28.1)
(2.6)
236.8
(42.0)
194.8
194.9
(0.1)
194.8
Earnings per share from continuing operations (expressed in pence per share)
Basic
11
305.7
449.0
for the year ended 31 December 2015
GROUP STATEMENT OF COMPREHENSIVE INCOME
Notes
Profit for the year
Other comprehensive income
Items that will not be reclassified to profit or loss
Foreign exchange differences
Items that may be reclassified to profit or loss
Fair value (losses)/gains on corporate bonds and other financial investments
Fair value losses taken to net gain on sale of corporate bonds and other financial investments
Revaluation of property, plant and equipment
Deferred tax on net fair value losses/(gains)
16
16
14
20
Total items that may be reclassified to profit or loss
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interests
2015
£m
2014
£m
132.1
194.8
(8.7)
(14.7)
(0.2)
–
2.9
0.5
3.2
3.2
0.2
6.5
(1.3)
8.6
126.6
188.7
126.0
0.6
126.6
187.5
1.2
188.7
Non-current assets
Investment properties
Property, plant and equipment
Goodwill
Investments in associates
Other financial investments
Deferred tax
Current assets
Trade and other receivables
Properties held for sale
Derivative financial instruments
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Current tax
Borrowings
Derivative financial instruments
Non-current liabilities
Deferred tax
Borrowings
Derivative financial instruments
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Equity attributable to owners of the Company
Non-controlling interests
Total equity
13
14
15
16
20
17
22
18
19
21
22
20
21
22
24
26
27
1,366.8
78.9
1.1
1.5
121.0
3.3
1,310.1
60.4
1.1
1.5
99.9
4.8
1,572.6
1,477.8
13.5
58.6
0.5
100.7
173.3
10.8
–
–
100.2
111.0
1,745.9
1,588.8
(54.2)
(7.7)
(220.3)
–
(68.1)
(7.7)
(192.8)
(1.0)
(282.2)
(269.6)
(114.7)
(575.2)
(5.8)
(105.9)
(549.5)
(6.3)
(695.7)
(661.7)
(977.9)
(931.3)
768.0
657.5
11.3
83.0
85.1
583.4
762.8
5.2
768.0
11.5
82.9
88.8
469.7
652.9
4.6
657.5
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The financial statements of CLS Holdings plc (registered number: 2714781) were approved by the Board of Directors and authorised for
issue on 8 March 2016 and were signed on its behalf by:
Mr S A Mortstedt
Director
Mr E H Klotz
Director
The notes on pages 70 to 96 are an integral part of these group financial statements.
The notes on pages 70 to 96 are an integral part of these group financial statements.
66
67
for the year ended 31 December 2015
GROUP STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2015
GROUP STATEMENT OF CASH FLOWS
Arising in 2015:
Total comprehensive income
for the year
Issue of share capital
Purchase of own shares
Expenses thereof
Total changes arising in 2015
At 1 January 2015
At 31 December 2015
Notes
Share
capital
£m
Share
premium
£m
Other
reserves
£m
Retained
earnings
£m
Non-
controlling
interest
£m
Total
£m
24
–
–
(0.2)
–
(0.2)
11.5
11.3
–
0.1
–
–
0.1
82.9
83.0
(3.9)
–
0.2
–
(3.7)
88.8
85.1
129.9
–
(16.1)
(0.1)
113.7
469.7
583.4
126.0
0.1
(16.1)
(0.1)
109.9
652.9
762.8
0.6
–
–
–
0.6
4.6
5.2
Notes
Share
capital
£m
Share
premium
£m
Other
reserves
£m
Retained
earnings
£m
Non-
controlling
interest
£m
Total
£m
Arising in 2014:
Total comprehensive income
for the year
Adjustment arising from change
in non-controlling interest
Purchase of own shares
Expenses thereof
Total changes arising in 2014
At 1 January 2014
At 31 December 2014
24
–
–
(0.2)
–
(0.2)
11.7
11.5
–
–
–
–
–
82.9
82.9
(7.4)
194.9
187.5
–
0.2
–
(7.2)
96.0
88.8
–
(15.4)
(0.1)
179.4
290.3
469.7
–
(15.4)
(0.1)
172.0
480.9
652.9
1.2
3.4
–
–
4.6
–
4.6
The notes on pages 70 to 96 are an integral part of these group financial statements.
Total
equity
£m
126.6
0.1
(16.1)
(0.1)
110.5
657.5
768.0
Total
equity
£m
188.7
3.4
(15.4)
(0.1)
176.6
480.9
657.5
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Income tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Purchase of investment properties
Capital expenditure on investment properties
Proceeds from sale of investment properties
Purchases of property, plant and equipment
Purchase of corporate bonds
Proceeds from sale of corporate bonds
Purchase of equity investments
Proceeds from sale of equity investments
Dividends received from equity investments
Costs on foreign currency transactions
Net cash inflow from business acquisition
Loans to associate undertakings
Distributions received from associate undertakings
Net cash outflow from investing activities
Cash flows from financing activities
Purchase of own shares
New loans
Issue costs of new loans
Repayment of loans
Net cash inflow/(outflow) from financing activities
Cash flow element of net increase/(decrease) in cash and cash equivalents
Foreign exchange loss
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 70 to 96 are an integral part of these group financial statements.
68
Notes
28
18
Annual Report & Accounts 2015
CLS Holdings plc
2015
£m
2014
£m
72.1
6.9
(22.9)
(7.2)
48.9
(81.4)
(16.6)
34.8
(9.3)
(40.9)
28.5
(6.2)
0.5
1.0
(0.1)
–
–
–
(89.7)
(16.2)
301.6
(2.8)
(236.2)
46.4
5.6
(5.1)
0.5
100.2
100.7
53.3
8.1
(24.4)
(2.5)
34.5
(4.2)
(45.2)
37.1
(11.3)
(70.9)
82.9
(5.1)
3.3
0.7
(0.9)
2.9
(1.0)
0.8
(10.9)
(15.5)
32.6
(0.2)
(65.0)
(48.1)
(24.5)
(5.1)
(29.6)
129.8
100.2
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31 December 2015
NOTES TO THE GROUP FINANCIAL STATEMENTS
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, France, Germany and Sweden.
The Company is registered in the UK, registration number 2714781, with its registered address at 86 Bondway, London, SW8 1SF.
The Company is listed on the London Stock Exchange.
2
SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these group financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of preparation
The financial statements have been prepared on a going concern basis as explained in the Directors’ Report on page 40 and
have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European
Union, International Financial Reporting Interpretations Committee (“IFRIC”) interpretations, and the provisions of the
Companies Act 2006 applicable to companies reporting under IFRS.
New standards and interpretations
In the current year, the Group has adopted the following amendment for the first time which has not had a material impact
on the results for the year:
•
Annual improvements to IFRSs: 2011-2013 cycle
At the date of authorisation of these financial statements, the following Standards and Interpretations, which have not been
applied in these financial statements, were in issue but not yet effective. In some cases these standards and guidance have
not been endorsed by the European Union:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
IFRS 9 Financial Instruments (2009, 2010 and 2014)
IFRS 15 Revenue from Contracts with Customers
IFRS 16 Leases
Defined Benefit Plans: Employee Contributions (Amendments to IAS 19)
Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)
Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)
Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)
Equity Method in Separate Financial Statements (Amendments to IAS 27)
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)
Disclosure Initiative (Amendments to IAS 1)
Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28)
Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12)
Disclosure Initiative (Amendments to IAS 7)
Annual Improvements to IFRSs: 2010-2012 Cycle
Annual Improvements to IFRSs: 2012-2014 Cycle
These pronouncements, when applied either will result in changes to presentation and disclosure, or are not expected to have
a material impact on the financial statements, apart from IFRS 15 and IFRS 9. In respect of IFRS 15 the Group is undertaking
an assessment of the impact of this standard. In respect of IFRS 9, it is not practical provide an estimate of the effect of this
standard until it is effective.
70
Annual Report & Accounts 2015
CLS Holdings plc
2.2 Business Combinations
(i) Subsidiary undertakings
Subsidiary undertakings are those entities controlled by the Group. Control is assumed when the Group has the power
to govern the financial and operating policies of an entity or business to benefit from its activities. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group until the date control ceases. All intra-group
transactions, balances, income and expenses are eliminated on consolidation.
(ii) Associates
Associates are those entities over which the Group has significant influence but which are not subsidiary undertakings
or joint ventures. The results and assets and liabilities of associates are incorporated in these financial statements using
the equity method of accounting. Investments in associates are carried in the balance sheet at cost as adjusted by post-
acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual
investments.
(iii) Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair
value of identifiable assets and liabilities of a subsidiary or associate at the date of acquisition. It is initially recognised
as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is
recognised as an asset is reviewed for impairment at least annually.
2.3 Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated into sterling using the exchange rate prevailing at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated
into sterling at the exchange rate ruling at that date, and differences arising on translation are recognised in profit
before tax.
Changes in the fair value of monetary securities classified as available-for-sale and denominated in foreign currencies
are recognised in profit before tax where the translation difference results from changes in the amortised cost of the
security, and are recognised in equity where it results from other changes in the carrying amount of the security.
(ii) Consolidation of foreign entities
The results and financial position of all Group entities which have a functional currency different from sterling are
translated into sterling as follows:
(a) assets and liabilities are translated at the closing rate at the date of the balance sheet;
(b)
income and expenses for each income statement are translated at the average exchange rates; and
(c) all resulting exchange differences are recognised directly in equity in the cumulative translation reserve.
On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of
borrowings and other currency instruments designated as hedges of such investments, are taken to the cumulative
translation reserve. When a foreign operation is sold, such exchange differences are recognised as part of the gain or
loss on sale in profit before tax.
2.4 Investment properties
Investment properties are those properties held for long-term rental yields or for capital appreciation or both. Investment
properties are measured initially at cost, including related transaction costs. Additions to investment properties comprise
costs of a capital nature; in the case of investment properties under development, these include capitalised interest and
certain staff costs directly attributable to the management of the development. Capitalised interest is calculated at the rate
on associated borrowings applied to direct expenditure between the date of gaining planning consent and the date of
practical completion. The acquisition of an investment property is recognised when the risks and rewards of ownership have
been transferred to the Group, typically on unconditional exchange of contracts or when legal title passes.
Investment properties are carried at fair value, based on market value as determined by professional external valuers at the
balance sheet date. Investment properties being redeveloped for continuing use as investment properties, or for which the
market has become less active, continue to be classified as investment properties and measured at fair value. Changes in
fair values are recognised in profit before tax.
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NOTES TO THE GROUP FINANCIAL STATEMENTS
31 December 2015
CONTINUED
2
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
2.5 Property, plant and equipment
Property, plant and equipment is carried at fair value, based on market value as determined by professional external valuers
at the balance sheet date, except for fixtures and fittings which are stated at historical cost less accumulated depreciation
and any recognised impairment loss.
Land is not depreciated. Depreciation on property, plant and equipment is calculated using the straight-line method to
allocate cost less estimated residual values over the estimated useful lives, as follows:
Fixtures and fittings
Freehold property
Hotel
4 – 5 years
6 years
20 years
Holiday cottages and cabins
20 – 30 years
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds
and the carrying amount of the asset and is recognised in profit before tax.
2.6 Financial instruments
(i) Derivative financial instruments
The Group uses derivative financial instruments, including swaps and interest rate caps, to help manage its interest rate
and foreign exchange rate risk. Derivative financial instruments are recorded, and subsequently revalued, at fair value.
Revaluation gains and losses are recognised in profit before tax, except for derivatives which qualify as effective cash
flow hedges, the gains and losses relating to which are recognised in other comprehensive income.
(ii) Available-for-sale investments
Available-for-sale investments are initially measured at cost, and are subsequently revalued to fair value. Revaluation
gains and losses are recognised in other comprehensive income, except for impairment losses and foreign exchange
gains and losses on monetary assets. On disposal, the cumulative gain or loss previously recognised in other
comprehensive income is recycled through profit before tax.
(iii) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits and other short-term highly liquid investments
which are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
(iv) Trade and other receivables and payables
Trade and other receivables are recognised initially at fair value. An impairment provision is created where there is
objective evidence that the Group will not be able to collect the receivable in full. Trade and other payables are stated at
cost, which equates to fair value.
Annual Report & Accounts 2015
CLS Holdings plc
2.8 Profit on sale of investment properties
Profit on sale of an investment property is recognised when the risks and rewards of ownership have been transferred to the
buyer, typically on unconditional exchange of contracts or when legal title passes.
2.9 Income tax
Current tax is based on taxable profit for the year and is calculated using tax rates that have been enacted or substantively
enacted by the balance sheet date.
Deferred tax is provided using the balance sheet liability method on temporary differences between the carrying value of
assets and liabilities for financial reporting purposes and the values used for tax purposes. Temporary differences are not
provided for when they arise from initial recognition of goodwill or from the initial recognition of assets and liabilities in a
transaction that does not affect accounting or taxable profit.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount
of assets and liabilities, and is calculated using rates that are expected to apply in the period when the liability is settled or
the asset is realised, in the tax jurisdiction in which the temporary differences arise. Deferred tax is charged or credited in
arriving at profit after tax, except when it relates to items recognised in other comprehensive income, in which case the
deferred tax is also recognised in other comprehensive income.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against
which the assets can be used. The deferred tax assets and liabilities are only offset if they relate to income taxes levied by the
same taxation authority, there is a legally enforceable right of set-off and the Group intends to settle its current tax assets
and liabilities on a net basis.
3
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in note 2, the Directors are required to make
judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from
other sources. The estimates and associated assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Changes to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future
periods if the revision affects both current and future periods.
The following are the critical estimates and judgements that the Directors have made in the process of applying the Group’s
accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
(i) Fair value of investment properties
The Group uses the valuations performed by its independent external valuers as the fair value of its investment properties.
The valuations are based upon assumptions including future rental income, anticipated maintenance costs, future
development costs and an appropriate discount rate. The valuers also make reference to market evidence of transaction
prices for similar properties.
(v) Borrowings
(ii) Listed corporate bonds
Borrowings are recognised initially at fair value less attributable transaction costs. Subsequently, borrowings are stated
at amortised cost with any difference between the amount initially recognised and the redemption value being
recognised in profit before tax over the period of the borrowings, using the effective interest rate method.
2.7 Revenue
(i) Rental income
Rental income from operating leases is recognised on a straight-line basis over the lease term. The cost of incentives is
recognised over the lease term, on a straight-line basis, as a reduction of rental income.
The best evidence of the fair value of listed corporate bonds is quoted prices in an active market. The bond market is not
always as liquid as conventional equity markets. The Group, therefore, is required to make certain judgements when arriving
at the fair value of bonds which are less liquid in nature. To the extent that bond prices are not available from third party
pricing sources the Group determines their fair value by comparing observable market data and making judgements on
the liquidity of particular bonds from a variety of sources:
(a)
the Group uses a broker to obtain multiple quotes directly from market makers and to make a judgement as to the
liquidity of those bonds, and the Group determines whether the judgments of liquidity are reasonable and whether
the spread of market-maker prices is within an expected range; and
(b)
the Group makes judgements on price and liquidity based on recent market transactions in particular bonds.
(ii) Service charge income
Service charge income is recognised on a gross basis in the accounting period in which the services are rendered.
(iii) Income Taxes
The Group is subject to income taxes in different jurisdictions and estimation is required to determine the worldwide
provision for income taxes. There are some transactions and calculations for which the ultimate tax determination is
uncertain. Where the final tax outcome of these matters is different from the amounts which were initially recorded, such
differences will impact the income tax and deferred tax provisions in the period in which determination is made.
72
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NOTES TO THE GROUP FINANCIAL STATEMENTS
31 December 2015
CONTINUED
4
SEGMENT INFORMATION
The Group has two operating divisions – Investment Property and Other Investments. Other Investments comprise the hotel at
Spring Mews, corporate bonds, shares in Catena AB, Bulgarian Land Development Plc and First Camp Sverige Holding 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 – London
Rest of United Kingdom
France
Germany
Sweden
Other Investments
There are no transactions between the operating segments.
The Group’s results for the year ended 31 December 2015 by operating segment were as follows:
Investment Property
France
£m
Germany
£m
Sweden
£m
Other
Investments
£m
Rest
of UK
£m
13.0
0.2
–
–
13.2
(0.1)
(0.4)
12.7
8.7
1.5
–
13.8
0.1
4.5
(4.7)
13.7
(1.4)
(0.7)
11.6
16.2
–
3.3
(3.5)
16.0
(1.4)
(1.1)
13.5
6.7
19.5
–
–
22.9
18.3
–
(3.2)
19.7
–
(2.3)
16.0
(0.4)
–
32.6
–
(2.5)
30.1
4.5
0.4
0.3
(2.0)
3.2
(0.4)
–
2.8
0.8
–
–
3.6
–
(0.5)
3.1
–
17.5
–
–
17.5
(6.0)
(7.3)
4.2
–
–
0.7
4.9
10.0
(2.0)
12.9
Total
£m
85.3
19.0
14.6
(19.9)
99.0
(13.5)
(13.8)
71.7
98.0
4.3
0.7
174.7
10.0
(27.5)
157.2
(6.0)
151.2
London
£m
37.8
0.8
6.5
(9.7)
35.4
(4.2)
(4.3)
26.9
62.3
3.2
–
92.4
–
(17.0)
75.4
Rental income
Other property-related income
Service charge income
Service charges and similar expenses
Net rental income
Administration expenses
Other expenses
Group revenue less costs
Net movements on revaluation of
investment properties
Profit/(loss) on sale of
investment property
Gain on sale of corporate bonds
Segment operating profit/(loss)
Finance income
Finance costs
Segment profit/(loss) before tax
Central administration expenses
Profit before tax
74
Annual Report & Accounts 2015
CLS Holdings plc
The Group’s results for the year ended 31 December 2014 by operating segment were as follows:
Investment Property
Rental income
Other property-related income
Service charge income
Service charges and similar expenses
Net rental income
Administration expenses
Other expenses
Group revenue less costs
Net movements on revaluation of
investment properties
Profit on sale of investment property
Fair value gain on reclassifying an
associate as a subsidiary
Gain arising from acquisition
London
£m
32.4
1.0
4.9
(6.6)
31.7
(3.2)
(2.0)
26.5
185.1
6.8
–
–
Rest
of UK
£m
13.3
–
0.2
(0.2)
13.3
(0.2)
(0.4)
12.7
(0.4)
–
–
–
Segment operating profit/(loss)
218.4
12.3
–
(10.1)
–
208.3
–
(3.3)
–
9.0
Finance income
Finance costs
Share of loss of associates after tax
Segment profit/(loss) before tax
Central administration expenses
Profit before tax
Other segment information:
France
£m
Germany
£m
Sweden
£m
Other
Investments
£m
17.1
0.3
4.8
(5.2)
17.0
(1.6)
(1.0)
14.4
3.4
1.9
–
–
19.7
–
(3.0)
–
16.7
15.3
–
3.0
(3.4)
14.9
(1.2)
(1.1)
12.6
7.0
–
–
–
19.6
–
(2.4)
–
17.2
6.3
–
0.3
(2.0)
4.6
(0.2)
(0.1)
4.3
(9.1)
–
–
–
(4.8)
–
(0.9)
–
(5.7)
–
0.7
–
–
0.7
(0.8)
(0.3)
(0.4)
–
–
0.2
1.2
1.0
7.7
(8.4)
(2.6)
(2.3)
Total
£m
84.4
2.0
13.2
(17.4)
82.2
(7.2)
(4.9)
70.1
186.0
8.7
0.2
1.2
266.2
7.7
(28.1)
(2.6)
243.2
(6.4)
236.8
Investment Property
London
Rest of UK
France
Germany
Sweden
Other Investments
Assets
Liabilities
Capital expenditure
2015
£m
2014
£m
2015
£m
2014
£m
2015
£m
824.2
102.5
227.1
263.3
50.3
278.5
717.9
100.2
229.8
239.5
49.7
251.7
1,745.9
1,588.8
458.5
79.9
172.7
162.7
35.0
69.1
977.9
402.4
81.8
184.7
160.2
36.6
65.6
931.3
53.7
0.3
2.2
19.1
0.6
12.0
87.9
2014
£m
45.5
–
2.3
29.4
3.0
30.1
110.3
Included within the assets of other investments are investments in associates of £1.5 million (2014: £1.5 million).
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NOTES TO THE GROUP FINANCIAL STATEMENTS
31 December 2015
CONTINUED
5
ADMINISTRATION COST RATIO
8
FINANCE INCOME
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:
2015
£m
2014
£m
Administration expenses of the operating segments
Central administration expenses
Total administration expenses of the Group
Less: administration expenses of Other Investments
Property-related and central administration expenses
Net rental income
Less: net rental income of First Camp
Net rental income of Investment Properties
Administration cost ratio
6
PROFIT FOR THE YEAR
Profit for the year has been arrived at after charging:
Auditor’s remuneration
Fees payable to the Company’s auditor for the audit of the parent company and group accounts
Fees payable to the Company’s auditor for:
Other services to the Group
The audit of the Company’s subsidiaries pursuant to legislation
Depreciation of property, plant and equipment (note 14)
Employee benefits expense (note 7)
7
EMPLOYEE BENEFITS EXPENSE
Wages and salaries
Social security costs
Pension costs – defined contribution plans
Other employee-related expenses
13.5
6.0
19.5
(6.0)
13.5
99.0
(14.0)
85.0
7.2
6.4
13.6
(0.8)
12.8
82.2
(0.7)
81.5
15.9%
15.7%
2015
£m
0.4
0.2
0.1
1.3
12.7
2015
£m
9.6
1.9
0.5
0.7
12.7
2014
£m
0.4
–
0.1
0.3
8.3
2014
£m
6.3
0.9
0.3
0.8
8.3
The Directors are considered to be key management of the Group.
Information on Directors’ emoluments, share options and interests in the Company’s shares is given in the Directors’
Remuneration Report on pages 50 to 57.
The monthly average number of employees of the Group in continuing operations, including Executive Directors, was as follows:
2015
2014
Property
number
Other
operations
number
First
Camp
number
Total
number
Property
number
Other
operations
number
Total
number
43
45
88
1
–
1
45
40
85
89
85
174
39
38
77
1
–
1
40
38
78
Male
Female
76
Interest income
Other finance income
Foreign exchange variances
9
FINANCE COSTS
Interest expense
Bank loans
Debenture loan
Zero coupon note
Secured notes
Unsecured bonds
Amortisation of loan issue costs
Total interest costs
Less interest capitalised on development projects
Loss on partial redemption of zero coupon note
Movement in fair value of derivative financial instruments
Interest rate swaps: transactions not qualifying as hedges
Interest rate caps: transactions not qualifying as hedges
Foreign exchange variances
10 TAXATION
Current tax charge
Deferred tax charge (note 20)
A deferred tax credit of £0.5 million (2014: charge of £1.3 million) was recognised directly in equity (note 20).
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:
2015
£m
2014
£m
Profit before tax
151.2
236.8
Tax calculated at domestic tax rates applicable to profits in the respective countries
Expenses not deductible for tax purposes
Tax effect of fair value movements on investments
Change in tax basis of United Kingdom properties, including indexation uplift
Non-taxable income
Change in tax rate
Deferred tax on losses not recognised
Other deferred tax adjustments
Tax effect of unrecognised losses in associates and joint ventures
Deferred tax liability released on disposals
Gain arising from acquisition
Adjustment in respect of prior periods
Tax charge for the year
31.9
0.1
(0.6)
(6.6)
(0.4)
(5.0)
(0.6)
0.3
–
–
–
–
19.1
52.3
0.6
0.9
(3.5)
(2.8)
–
(3.3)
(0.2)
0.3
(0.8)
(0.3)
(1.2)
42.0
The weighted average applicable tax rate of 21.1% (2014: 22.1%) was derived by applying to their relevant profits and losses the
rates in the jurisdictions in which the Group operated.
Annual Report & Accounts 2015
CLS Holdings plc
2015
£m
7.2
1.0
1.8
10.0
2015
£m
13.3
3.0
1.1
3.1
4.5
2.0
27.0
(0.4)
26.6
1.2
(0.4)
0.1
–
27.5
2015
£m
5.6
13.5
19.1
2014
£m
7.0
0.7
–
7.7
2014
£m
13.3
3.2
1.3
3.2
4.8
1.9
27.7
(2.9)
24.8
1.3
0.5
0.4
1.1
28.1
2014
£m
7.2
34.8
42.0
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NOTES TO THE GROUP FINANCIAL STATEMENTS
31 December 2015
CONTINUED
11 EARNINGS PER SHARE
13 INVESTMENT PROPERTIES
Annual Report & Accounts 2015
CLS Holdings plc
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.
Earnings
Profit for the year
Net movements on revaluation of investment properties
Other gains and losses
Profit on sale of investment properties
Gain on sale of corporate bonds
Change in fair value of derivative financial instruments
Impairment of carrying value of associates
Fair value gain on reclassification of an associate as a subsidiary
Deferred tax relating to the above adjustments
EPRA earnings
Weighted average number of ordinary shares
Weighted average number of ordinary shares in circulation
Earnings per Share
Basic
EPRA
12 NET ASSETS PER SHARE
2015
£m
129.9
(98.0)
(2.9)
(4.3)
(0.7)
(0.3)
–
–
12.3
36.0
2014
£m
194.9
(186.0)
(1.2)
(8.7)
–
0.9
2.2
(0.2)
31.7
33.6
2015
Number
2014
Number
42,494,950 43,410,928
2015
Pence
305.7
84.7
2014
Pence
449.0
77.4
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.
Net Assets
Basic net assets attributable to owners of the Company
Adjustment to increase fixed rate debt to fair value, net of tax
Goodwill as a result of deferred tax
EPRA triple net assets
Deferred tax on property and other non-current assets, net of minority interest
Fair value of derivative financial instruments
Adjustment to decrease fixed rate debt to book value, net of tax
EPRA net assets
Number of ordinary shares
Number of ordinary shares in circulation
Net Assets Per Share
Basic
EPRA
EPRA triple net
78
2015
£m
2014
£m
762.8
(27.7)
(1.1)
734.0
110.9
5.3
27.7
877.9
652.9
(29.2)
(1.1)
622.6
102.4
7.3
29.2
761.5
2015
Number
2014
Number
42,140,581 42,924,061
2015
Pence
2014
Pence
1,810.1
2,083.2
1,741.8
1,521.1
1,774.1
1,450.5
At 1 January 2015
Acquisitions
Capital expenditure
Disposals
Net movement on revaluation of investment
properties
Rent-free period debtor adjustments
Exchange rate variances
Transfer to properties held for sale
Transfer to property, plant and equipment
At 31 December 2015
At 1 January 2014
Acquisitions
Capital expenditure
Disposals
Transfer to property, plant and equipment
Net movement on revaluation of investment
properties
Rent-free period debtor adjustments
Exchange rate variances
At 31 December 2014
London
£m
705.0
39.3
14.2
(21.6)
62.3
0.9
–
–
–
800.1
London
£m
519.9
2.3
42.8
(22.4)
(22.7)
185.1
–
–
705.0
Rest
of UK
£m
97.6
–
0.3
(5.8)
8.7
0.1
–
(9.2)
–
91.7
Rest
of UK
£m
97.9
–
–
–
–
(0.4)
0.1
–
97.6
France
£m
Germany
£m
Sweden
£m
Total
£m
225.1
–
2.2
–
6.7
0.4
(11.5)
(7.3)
–
235.5
18.5
0.6
(3.1)
19.5
–
(11.6)
–
–
46.9
–
0.6
–
0.8
(0.1)
(0.9)
(42.1)
(5.2)
1,310.1
57.8
17.9
(30.5)
98.0
1.3
(24.0)
(58.6)
(5.2)
215.6
259.4
–
1,366.8
France
£m
Germany
£m
Sweden
£m
Total
£m
240.6
–
2.3
(6.2)
–
3.4
0.6
(15.6)
225.1
214.4
27.4
2.0
–
–
7.0
(0.1)
(15.2)
235.5
60.1
1.9
1.1
–
–
(9.1)
(0.1)
(7.0)
1,132.9
31.6
48.2
(28.6)
(22.7)
186.0
0.5
(37.8)
46.9
1,310.1
The investment properties (and the hotel, landholding and owner-occupied property detailed in note 14) were revalued at
31 December 2015 to their fair value. Valuations were based on current prices in an active market for all properties. The property
valuations were carried out by external, professionally qualified valuers as follows:
London: Cushman and Wakefield; Knight Frank (2014: DTZ; Knight Frank)
Rest of UK: Cushman and Wakefield (2014: DTZ)
France: Jones Lang LaSalle
Germany: Cushman and Wakefield (2014: Colliers International)
Sweden: L Fällström AB (2014: CB Richard Ellis)
Property valuations are complex and require a degree of judgements 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.
In addition to note 3(i), inputs into the valuations include equivalent yields and rental income and are described as ‘unobservable’
as per IFRS 13. These inputs are analysed by segment in the property portfolio information on the inside front cover. All other factors
remaining constant, an increase in rental income would increase valuations, whilst an increase in equivalent nominal yield would
result in a fall in value and vice versa.
Investment properties included leasehold properties with a carrying amount of £38.7 million (2014: £49.6 million).
Interest capitalised within capital expenditure in the year amounted to £0.4 million (2014: £2.9 million).
Where the Group leases out its investment property under operating leases the duration is typically three years or more. No contingent
rents have been recognised in either the current or the comparative year.
Substantially all investment properties (and the hotel and owner-occupied property detailed in note 14) are secured against debt.
In 2010 the Group purchased a property in London for £1.8 million. Under the terms of the purchase agreement, should the site
be developed additional consideration may become due to the vendor. The maximum liability in respect of this is estimated to be
£0.5 million. At the balance sheet date the fair value of the liability was £nil (2014: £nil).
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79
NOTES TO THE GROUP FINANCIAL STATEMENTS
31 December 2015
CONTINUED
14 PROPERTY, PLANT AND EQUIPMENT
16 OTHER FINANCIAL INVESTMENTS
Annual Report & Accounts 2015
CLS Holdings plc
Cost or valuation
At 1 January 2014
Additions
Acquired during the year
Transfer from investment properties
Exchange rate variances
Revaluation
At 31 December 2014
Additions
Transfer from investment properties
Exchange rate variances
Revaluation
At 31 December 2015
Comprising:
At cost
At valuation 31 December 2015
Accumulated depreciation and impairment
At 1 January 2014
Depreciation charge
At 31 December 2014
Depreciation charge
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
Land and
buildings
£m
Owner-
occupied
property
£m
Fixtures
and
fittings
£m
Hotel
£m
–
–
–
21.3
–
–
21.3
–
–
–
5.4
26.7
–
26.7
26.7
–
–
–
–
10.9
18.0
–
(1.8)
5.0
32.1
12.0
5.2
(0.5)
(4.4)
44.4
–
44.4
44.4
–
–
–
(0.2)
(0.2)
(0.4)
(0.4)
26.5
44.0
21.3
32.1
2.6
–
–
–
–
1.5
4.1
–
–
–
1.9
6.0
–
6.0
6.0
(0.2)
–
(0.2)
–
(0.2)
5.8
3.9
1.5
0.4
1.2
1.4
–
–
4.5
0.2
–
–
–
4.7
4.7
–
4.7
(1.1)
(0.3)
(1.4)
(0.7)
(2.1)
2.6
3.1
A hotel, an owner-occupied property and a landholding were revalued at 31 December 2015 based on the external valuation
performed by Cushman and Wakefield, Knight Frank and L Fällström AB (2014: DTZ, Knight Frank and CB Richard Ellis),
respectively, as detailed in note 13.
The other land and buildings were revalued based on an external valuation performed by Forum Fastighetsekonomi AB.
15 INVESTMENTS IN ASSOCIATES
At 1 January 2015
Share of loss of associates after tax
Exchange rate differences
At 31 December 2015
At 1 January 2014
Share of loss of associates after tax
Dividends received
Disposal
Exchange rate differences
At 31 December 2014
80
Net assets
£m
Goodwill
£m
Impairment
£m
6.2
(5.2)
(0.4)
0.6
1.3
–
–
1.3
(6.0)
5.2
0.4
(0.4)
Net assets
£m
Goodwill
£m
Impairment
£m
15.6
(0.4)
(0.8)
(6.8)
(1.4)
6.2
1.5
–
–
–
(0.2)
1.3
(8.0)
(2.2)
–
3.5
0.7
(6.0)
Total
£m
4.1
11.3
19.2
22.7
(1.8)
6.5
62.0
12.2
5.2
(0.5)
2.9
81.8
4.7
77.1
81.8
(1.3)
(0.3)
(1.6)
(1.3)
(2.9)
78.9
60.4
Total
£m
1.5
–
–
1.5
Total
£m
9.1
(2.6)
(0.8)
(3.3)
(0.9)
1.5
Available-for-sale financial investments
carried at fair value
Listed corporate bonds
Investment type
Listed equity securities
Unlisted investments
Destination of
Investment
UK
Eurozone
Other
UK
Sweden
Sweden
2015
£m
24.0
4.2
45.2
73.4
0.3
42.8
4.5
121.0
2014
£m
19.1
3.9
38.8
61.8
0.2
34.6
3.3
99.9
The movement of other financial investments, analysed based on the methods used to measure their fair value, was as follows:
At 1 January 2015
Additions
Disposals
Fair value movements recognised in reserves on available-for-sale assets
Exchange rate variations
At 31 December 2015
At 1 January 2014
Acquisitions arising from business combinations
Additions
Disposals
Fair value movements recognised in reserves on available-for-sale assets
Fair value movements recognised in profit before tax on available-for-sale assets
Exchange rate variations
At 31 December 2014
* Unlisted equity shares valued using multiples from comparable listed organisations.
Level 1
Quoted
market
prices
£m
Level 2
Observable
market
data
£m
Level 3
Other
valuation
methods*
£m
34.8
4.4
–
4.6
(0.7)
43.1
61.8
40.9
(25.6)
(4.8)
1.1
73.4
3.3
1.8
(0.5)
–
(0.1)
4.5
Level 1
Quoted
market
prices
£m
Level 2
Observable
market
data
£m
Level 3
Other
valuation
methods*
£m
34.6
–
2.5
(0.6)
2.6
0.1
(4.4)
34.8
69.4
–
70.9
(80.9)
0.6
–
1.8
61.8
0.3
3.0
2.6
(2.7)
–
0.1
–
3.3
Total
£m
99.9
47.1
(26.1)
(0.2)
0.3
121.0
Total
£m
104.3
3.0
76.0
(84.2)
3.2
0.2
(2.6)
99.9
Corporate Bond Portfolio
At 31 December 2015
Sector
Banking
Insurance
Value
Running yield
£30.6m
7.6%
£6.6m
6.8%
Travel and
Tourism
£7.6m
8.2%
Telecoms
and IT
£13.9m
7.8%
Energy and
Resources
Other
Total
£12.9m
11.2%
£1.8m £73.4m
8.3%
6.9%
Old Mutal
PGH Capital
SAS
Stena
Brit Insurance British Airways
Dell
Millicom
T-Mobile
Centurylink
Telecom Italia
Enel
Seadrill
Transocean
ArcelorMittal
Freeport-McMoRan
Stora Enso
Issuers
RBS
HSBC
Lloyds
Investec
Barclays
Unicredit
SNS Bank
Credit Agricole
Bank of Ireland
Deutsche Bank
Societe Generale
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81
NOTES TO THE GROUP FINANCIAL STATEMENTS
31 December 2015
CONTINUED
17 TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Prepayments
Accrued income
Other debtors
2015
£m
5.8
2.3
1.8
3.6
2014
£m
4.6
1.7
1.5
3.0
13.5
10.8
20 DEFERRED TAX
Deferred tax assets:
– after more than 12 months
Deferred tax liabilities:
– after more than 12 months
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 (2014: none). No trade and other
receivables were interest-bearing.
Included within other debtors is £1.0 million (2014: £1.1 million) due after more than one year.
18 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Short-term bank deposits
2015
£m
100.7
–
100.7
2014
£m
95.2
5.0
100.2
At 31 December 2015, Group cash at bank and in hand included £11.0 million (2014: £11.0 million) which was restricted by a
third-party charge.
19 TRADE AND OTHER PAYABLES
Current
Trade payables
Social security and other taxes
Other payables
Accruals
Deferred income
2015
£m
6.4
6.7
10.7
15.8
14.6
54.2
2014
£m
1.6
2.1
34.1
15.3
15.0
68.1
82
Annual Report & Accounts 2015
CLS Holdings plc
2015
£m
2014
£m
(3.3)
(4.8)
114.7
111.4
2015
£m
101.1
13.5
(0.5)
–
(2.7)
111.4
105.9
101.1
2014
£m
68.0
34.8
1.3
1.3
(4.3)
101.1
The movement in deferred tax was as follows:
At 1 January
Charged in arriving at profit after tax
(Credited)/charged to other comprehensive income
Deferred tax on acquisition
Exchange rate variances
At 31 December
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:
Deferred tax assets
Tax losses
£m
Other
£m
Total
£m
At 1 January 2015
Charged in arriving at profit after tax
Credited to other comprehensive income
At 31 December 2015
Deferred tax assets
At 1 January 2014
Charged/(credited) in arriving at profit after tax
Charged to other comprehensive income
Exchange rate variances
At 31 December 2014
Deferred tax liabilities
At 1 January 2015
(Credited)/charged in arriving at profit after tax
Charged to other comprehensive income
Exchange rate variances
At 31 December 2015
Deferred tax liabilities
At 1 January 2014
Charged in arriving at profit after tax
Charged to other comprehensive income
Deferred tax on acquisition
Exchange rate variances
At 31 December 2014
(1.3)
1.2
–
(0.1)
Tax losses
£m
(4.5)
3.1
–
0.1
(1.3)
Fair value
adjustments to
investment
properties
£m
UK capital
allowances
£m
10.6
(0.1)
–
–
10.5
91.8
11.3
0.1
(0.4)
102.8
Fair value
adjustments to
investment
properties
£m
UK capital
allowances
£m
8.0
2.6
–
–
–
10.6
65.5
30.5
–
–
(4.2)
91.8
(3.5)
1.1
(0.8)
(3.2)
Other
£m
(1.9)
(1.7)
0.1
–
(3.5)
Other
£m
3.5
–
0.2
(2.3)
1.4
Other
£m
0.9
0.3
1.2
1.3
(0.2)
3.5
(4.8)
2.3
(0.8)
(3.3)
Total
£m
(6.4)
1.4
0.1
0.1
(4.8)
Total
£m
105.9
11.2
0.3
(2.7)
114.7
Total
£m
74.4
33.4
1.2
1.3
(4.4)
105.9
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NOTES TO THE GROUP FINANCIAL STATEMENTS
31 December 2015
CONTINUED
20 DEFERRED TAX CONTINUED
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 2015 the Group did not recognise deferred tax assets of £5.6 million
(2014: £10.6 million) in respect of losses amounting to £22.7 million (2014: £47.0 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.
21 BORROWINGS
At 31 December 2015
Bank loans
Debenture loans
Zero coupon note
Unsecured bonds
Secured notes
At 31 December 2014
Bank loans
Debenture loans
Zero coupon note
Unsecured bonds
Secured notes
Current Non-current
£m
£m
Total
borrowings
£m
190.5
1.8
–
23.9
4.1
220.3
409.8
25.5
8.4
64.6
66.9
575.2
600.3
27.3
8.4
88.5
71.0
795.5
Current Non-current
£m
£m
Total
borrowings
£m
187.4
1.6
–
(0.3)
4.1
192.8
350.9
27.4
11.2
89.1
70.9
549.5
538.3
29.0
11.2
88.8
75.0
742.3
Annual Report & Accounts 2015
CLS Holdings plc
The maturity profile of the carrying amount of the Group’s borrowings was as follows:
At 31 December 2015
Within one year or on demand
More than one but not more than two years
More than two but not more than five years
More than five years
Unamortised issue costs
Borrowings
Less amount due for settlement within 12 months
Amounts due for settlement after 12 months
Bank loans
£m
191.5
57.1
186.2
168.8
603.6
(3.3)
600.3
(190.5)
409.8
Debenture
loans
£m
Zero coupon
note
£m
1.8
2.0
7.6
15.9
27.3
–
27.3
(1.8)
25.5
–
–
–
8.4
8.4
–
8.4
–
8.4
Unsecured
bonds
£m
Secured
notes
£m
24.1
–
65.0
–
89.1
(0.6)
88.5
(23.9)
64.6
4.2
4.2
12.5
50.7
71.6
(0.6)
71.0
(4.1)
66.9
At 31 December 2014
Within one year or on demand
More than one but not more than two years
More than two but not more than five years
More than five years
Unamortised issue costs
Borrowings
Less amount due for settlement within 12 months
Amounts due for settlement after 12 months
Bank loans
£m
Debenture
loans
£m
Zero coupon
note
£m
Unsecured
bonds
£m
Secured
notes
£m
188.3
158.1
153.4
40.5
540.3
(2.0)
538.3
(187.4)
350.9
1.7
1.8
6.8
18.7
29.0
–
29.0
(1.6)
27.4
–
–
–
11.2
11.2
–
11.2
–
11.2
–
24.7
65.0
–
89.7
(0.9)
88.8
0.3
89.1
4.2
4.2
12.5
54.9
75.8
(0.8)
75.0
(4.1)
70.9
Total
£m
221.6
63.3
271.3
243.8
800.0
(4.5)
795.5
(220.3)
575.2
Total
£m
194.2
188.8
237.7
125.3
746.0
(3.7)
742.3
(192.8)
549.5
Arrangement fees of £4.5 million (2014: £3.7 million) have been offset in arriving at the balances in the above tables.
The interest rate risk profile of the Group’s fixed rate borrowings was as follows:
Bank loans
Interest on bank loans is charged at fixed rates ranging between 1.4% and 6.9%, including margin (2014: 3.1% and 6.9%) and
at floating rates of typically LIBOR, EURIBOR or STIBOR, plus a margin. Floating rate margins range between 0.8% and 3.8%
(2014: 0.8% and 3.8%). All bank loans are secured by legal charges over the respective properties, and in most cases a floating
charge over the remainder of the assets held in the company which owns the property. In addition, the share capital of some of
the subsidiaries within the Group has been charged.
Debenture loans
The debenture loans represent amortising bonds which are repayable in equal quarterly instalments of £1.2 million (2014: £1.2 million)
with final repayment due in January 2025. Each instalment is apportioned between principal and interest on a reducing balance
basis. Interest is charged at an annual fixed rate of 10.8%, including margin. The debentures are secured by a legal charge over a
property and securitisation of its rental income.
Zero coupon note
The zero coupon note accrues interest at an annual rate of 11.2%, including margin. It is unsecured and is redeemable as a balloon
repayment of principal and interest of £21.8 million in aggregate in February 2025. £4.0 million (2014: £3.6 million) of the zero coupon
note was bought back in the year at a cost of £5.2 million (2014: £4.9 million).
Unsecured bonds
On 11 September 2012, the Group issued £65.0 million unsecured retail bonds, which attract a fixed rate coupon of 5.5% and are
due for repayment in 2019. The bonds are listed on the London Stock Exchange’s Order book for Retail Bonds.
On 15 April 2011, the Group issued SEK 300 million unsecured bonds. The bonds attract a floating rate coupon of 3.75% over three
months’ STIBOR and are due for repayment in 2016. The Group has an option to redeem all outstanding bonds subject to an early
repayment premium. The bonds were listed on Nasdaq Stockholm on 5 July 2011.
Secured notes
On 3 December 2013, the Group issued £80.0 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.
84
At 31 December 2015
At 31 December 2014
Weighted
average
fixed rate
Weighted
average
period for
of financial which rate is
fixed
Years
liabilities
%
Weighted
average
fixed rate
Weighted
average
period for
of financial which rate is
fixed
Years
liabilities
%
Sterling
Euro
5.8
1.8
6.2
6.0
6.2
5.0
7.5
0.7
The interest rate risk profile of the Group’s floating rate borrowings was as follows:
Sterling
Euro
At 31 December 2015
At 31 December 2014
% of net
floating rate
loans capped
20
65
Average
capped
interest
rate
%
3.3
3.4
Average
tenure
Years
% of net
floating rate
loans capped
0.7
0.9
68
72
Average
capped
interest
rate
%
3.0
3.2
Average
tenure
Years
1.4
1.2
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NOTES TO THE GROUP FINANCIAL STATEMENTS
31 December 2015
CONTINUED
21 BORROWINGS CONTINUED
22 DERIVATIVE FINANCIAL INSTRUMENTS
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
At 31 December 2015
Sterling
Euro
Swedish Krona
Other
At 31 December 2014
Sterling
Euro
Swedish Krona
Fixed rate Floating rate
financial
liabilities
£m
financial
liabilities
£m
247.2
60.5
–
–
307.7
198.8
207.0
75.0
7.0
487.8
Fixed rate
financial
liabilities
£m
Floating rate
financial
liabilities
£m
205.4
25.3
–
230.7
202.2
228.0
81.4
511.6
The carrying amounts and fair values of the Group’s borrowings are as follows:
Current borrowings
Non-current borrowings
Carrying amounts
Fair values
2015
£m
220.3
575.2
795.5
2014
£m
192.8
549.5
742.3
2015
£m
220.4
609.6
830.0
Total
£m
446.0
267.5
75.0
7.0
795.5
Total
£m
407.6
253.3
81.4
742.3
2014
£m
192.8
586.0
778.8
Arrangement fees of £4.5 million (2014: £3.7 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:
Floating rate:
– expiring within one year
– expiring after one year
2015
£m
39.7
–
39.7
2014
£m
39.0
–
39.0
86
Annual Report & Accounts 2015
CLS Holdings plc
2015
Assets
£m
2015
Liabilities
£m
2014
Assets
£m
2014
Liabilities
£m
–
0.5
0.5
(5.8)
–
(5.8)
–
–
–
(6.3)
(1.0)
(7.3)
Non-current
Interest rate swaps
Current
Forward foreign exchange contracts
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 2015 was £135.7 million (2014: £41.8 million).
The average period to maturity of these interest rate swaps was 6.1 years (2014: 4.1 years).
Forward foreign exchange contracts
The Group uses forward foreign exchange contracts from time to time to add certainty to, and to minimise the impact of foreign
exchange movements on, committed cash flows. At 31 December 2015 the Group had £20.0 million of outstanding net foreign
exchange contracts (2014: £2.6 million).
23 FINANCIAL INSTRUMENTS
Categories of financial instruments
Financial assets of the Group comprise: interest rate caps; foreign currency forward contracts; available-for-sale investments;
investments in associates; trade and other receivables; and cash and cash equivalents.
Financial liabilities of the Group comprise: interest rate swaps; forward foreign currency contracts; bank loans; debenture loans;
zero coupon notes; unsecured bonds; secured notes; trade and other payables; and current tax liabilities.
The fair values of financial assets and liabilities are determined as follows:
(a)
Interest rate swaps and caps are measured at the present value of future cash flows based on applicable yield curves derived
from quoted interest rates.
(b) Foreign currency options and forward contracts are measured using quoted forward exchange rates and yield curves derived
from quoted interest rates matching maturities of the contracts.
(c) The fair values of non-derivative financial assets and liabilities with standard terms and conditions and traded on active liquid
markets are determined with reference to quoted market prices. Financial assets in this category include available-for-sale
instruments such as listed corporate bonds and equity investments.
(d)
In more illiquid conditions, non-derivative financial assets are valued using multiple quotes obtained from market makers and
from pricing specialists. Where the spread of prices is tightly clustered the consensus price is deemed to be fair value. Where
prices become more dispersed or there is a lack of available quoted data, further procedures are undertaken such as evidence
from the last non-forced trade.
(e) The fair values of other non-derivative financial assets and financial liabilities are determined in accordance with generally
accepted pricing models based on discounted cash flow analysis, using prices from observable current market transactions
and dealer quotes for similar instruments.
Except for investments in associates and fixed rate loans, the carrying amounts of financial assets and liabilities recorded at
amortised cost approximate to their fair value.
Capital risk management
The Group manages its capital to ensure that entities within the Group will be able to continue as going concerns while maximising
the return to stakeholders through the optimisation of debt and equity balances. The capital structure of the Group consists of debt,
cash and cash equivalents, other investments and equity attributable to the owners of the parent, comprising issued capital,
reserves and retained earnings. Management perform “stress tests” of the Group’s business model to ensure that the Group’s
objectives can be met. The objectives have been met in the year.
The Directors review the capital structure on a quarterly basis to ensure that key strategic goals are being achieved. As part of this
review they consider the cost of capital and the risks associated with each class of capital.
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NOTES TO THE GROUP FINANCIAL STATEMENTS
31 December 2015
CONTINUED
23 FINANCIAL INSTRUMENTS CONTINUED
The gearing ratio at the year end was as follows:
Debt
Liquid resources
Net debt
Equity
Net debt to equity ratio
Annual Report & Accounts 2015
CLS Holdings plc
2015
£m
2014
£m
800.0
(174.1)
746.0
(162.0)
625.9
768.0
81%
584.0
657.5
89%
(ii) Foreign exchange risk
The Group does not have any regular transactional foreign exchange exposure. However, it has operations in Europe
which transact business denominated in euros and, to a lesser extent, in Swedish kronor. Consequently, there is
currency exposure caused by translating into sterling the local trading performance and net assets for each financial
period and balance sheet, respectively.
The policy of the Group is to match the currency of investments with the related borrowing, which largely eliminates
foreign exchange risk on property investments. A portion of the remaining operations, equating to the net assets of the
foreign property operations, is not hedged except in exceptional circumstances, such as the uncertainty surrounding the
euro in late 2011. Where foreign exchange risk arises from future commercial transactions, the Group will hedge the
future committed commercial transaction using foreign exchange swaps or forward foreign exchange contracts.
Debt is defined as long-term and short-term borrowings before unamortised issue costs as detailed in note 21. Liquid resources
are cash and short-term deposits and listed corporate bonds. Equity includes all capital and reserves of the Group attributable to
the owners of the Company.
Externally imposed capital requirement
At 31 December 2015 the Group was subject to a minimum equity ratio of total equity to total assets of 22.5% imposed by
unsecured bonds of £89.1 million (2014: £89.1 million). The Group was also restricted from making distributions to shareholders
if to do so would reduce net assets below £250 million, imposed by unsecured bonds of £65.0 million (2014: £65.0 million).
Additionally, the Group was subject to externally imposed capital requirements to the extent that debt covenants may require
group companies to maintain ratios such as debt to equity (or similar) below certain levels.
Risk management objectives
The Group’s activities expose it to a variety of financial risks, which can be grouped as:
• market risk
•
•
credit risk
liquidity risk
The Group’s overall risk management approach seeks to minimise potential adverse effects on the Group’s financial performance
whilst maintaining flexibility.
Risk management is carried out by the Group’s treasury department in close co-operation with the Group’s operating units and
with guidance from the Board of Directors. The Board regularly assesses and reviews the financial risks and exposures of the Group.
(a) Market risk
The Group’s activities expose it primarily to the financial risks of changes in interest rates and foreign currency exchange
rates, and to a lesser extent other price risk. The Group enters into a variety of derivative financial instruments to manage its
exposure to interest rate and foreign currency risk and also uses natural hedging strategies such as matching the duration,
interest payments and currency of assets and liabilities.
(i)
Interest rate risk
The Group’s most significant interest rate risk arises from its long-term variable rate borrowings. Interest rate risk is
regularly monitored by the treasury department and by the Board on both a country and a Group basis. The Board’s
policy is to mitigate variable interest rate exposure whilst maintaining the flexibility to borrow at the best rates and with
consideration to potential penalties on termination of fixed rate loans. To manage its exposure the Group uses interest
rate swaps, interest rate caps and natural hedging from cash held on deposit.
In assessing risk, a range of scenarios is taken into consideration such as refinancing, renewal of existing positions and
alternative financing and hedging. Under these scenarios, the Group calculates the impact on the income statement for
a defined movement in the underlying interest rate. The impact of a reasonably likely movement in interest rates is set
out below:
2015
Income
statement
£m
2014
Income
statement
£m
0.5
(2.4)
(0.5)
1.0
0.3
(2.5)
(0.3)
1.8
Scenario
Cash +50 basis points
Variable borrowings (including caps) +50 basis points
Cash -50 basis points
Variable borrowings (including caps) -50 basis points
88
The Group’s principal currency exposures are in respect of the euro and the Swedish krona. If the value of sterling were
to increase or decrease in strength the Group’s net assets and profit for the year would be affected. The impact of a 1%
increase or decrease in the strength of sterling against these currencies is set out below:
Scenario
Net assets
£m
2015
2015
Profit
before tax
£m
2014
Net assets
£m
2014
Profit
before tax
£m
1% increase in value of sterling against the euro
1% increase in value of sterling against the Swedish krona
1% fall in value of sterling against the euro
1% fall in value of sterling against the Swedish krona
(2.2)
(0.3)
2.2
0.3
(0.4)
(0.1)
0.4
0.1
(1.4)
(0.4)
1.4
0.4
(0.2)
–
0.2
–
(iii) Other price risk
The Group is exposed to corporate bond price risk and, to a lesser extent, to equity securities price risk, because of
investments held by the Group and classified in the balance sheet as available-for-sale.
In order to manage the risk in relation to the holdings of corporate bonds and equity securities the Group holds a
diversified portfolio. Diversification of the portfolio is managed in accordance with the limits set by the Group.
The table below shows the effect on other comprehensive income which would result from an increase or decrease of
10% in the market value of corporate bonds and listed equity securities, which is an amount management believes to be
reasonable in the current market:
2015
Other
2014
Other
Comprehensive Comprehensive
Income
£m
Income
£m
(11.7)
11.7
(9.7)
9.7
Scenario: Shift of 10% in valuations
10% fall in value
10% increase in value
(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.
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NOTES TO THE GROUP FINANCIAL STATEMENTS
31 December 2015
CONTINUED
23 FINANCIAL INSTRUMENTS CONTINUED
24 SHARE CAPITAL
Annual Report & Accounts 2015
CLS Holdings plc
At 31 December 2015 the Group held £121.0 million (2014: £99.9 million) of available-for-sale financial assets. Management
considers the credit risk associated with individual transactions and monitors the risk on a continuing basis. Information is
gathered from external credit rating agencies and other market sources to allow management to react to any perceived
change in the underlying credit risk of the instruments in which the Group invests. This allows the Group to minimise its
credit exposure to such items and at the same time to maximise returns for shareholders.
The table below shows the external Standard & Poor’s credit banding on the available-for-sale financial investments held by
the Group:
2015
£m
2014
£m
9.4
56.6
55.0
121.0
5.8
50.7
43.4
99.9
S&P Credit rating at balance sheet date
Investment grade
Non-investment grade
Not rated
Total
(c) Liquidity risk
Liquidity risk management requires maintaining sufficient cash, other liquid assets and the availability of funding to meet
short, medium and long-term requirements. The Group maintains adequate levels of liquid assets to fund operations and to
allow the Group to react quickly to potential opportunities.
Management monitors rolling forecasts of the Group’s liquidity on the basis of expected cash flows so that future
requirements can be managed effectively.
The majority of the Group’s debt is arranged on an asset-specific, non-recourse basis. This allows the Group a higher degree of
flexibility in dealing with potential covenant defaults than if the debt was arranged under a Group-wide borrowing facility.
Loan covenant compliance is closely monitored by the treasury department. Potential covenant breaches can ordinarily be
avoided by placing additional security or a cash deposit with the lender, or by partial repayment to cure an event of default.
The table below analyses the Group’s contractual undiscounted cash flows payable under financial liabilities and derivative
assets and liabilities at the balance sheet date, into relevant maturity groupings based on the period remaining to the
contractual maturity date. Amounts due within one year are equivalent to the carrying values in the balance sheet as the
impact of discounting is not significant.
Less than 1 year
£m
1 to 2 years
£m
2 to 5 years
£m
Over 5 years
£m
At 31 December 2015
Non-derivative financial liabilities:
†
Borrowings
Interest payments on borrowings
Trade and other payables
Forward foreign exchange contracts:
Cash flow hedges
– Outflow
– Inflow
At 31 December 2014
Non-derivative financial liabilities:
†
Borrowings
Interest payments on borrowings
Trade and other payables
Forward foreign exchange contracts:
Cash flow hedges
– Outflow
– Inflow
221.6
27.1
54.2
(20)
20
63.3
27.0
–
–
–
271.3
30.4
–
243.8
33.9
–
–
–
–
–
Less than 1 year
£m
1 to 2 years
£m
2 to 5 years
£m
Over 5 years
£m
194.2
22.0
68.1
188.8
17.5
–
237.7
37.2
–
125.5
16.4
–
(2.6)
2.6
–
–
–
–
–
–
†
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.
90
Number
Ordinary
shares in
circulation
Treasury
shares
Total
ordinary
shares
Ordinary
shares in
circulation
£m
Treasury
shares
£m
Total
ordinary
shares
£m
At 1 January 2015
Issued
Cancelled following tender offers
42,924,061
15,000
(798,480)
2,903,103 45,827,164
–
(798,480)
(15,000)
–
At 31 December 2015
42,140,581
2,888,103 45,028,684
10.8
–
(0.2)
10.6
0.7
–
–
0.7
Number
Ordinary
shares in
circulation
Treasury
shares
Total
ordinary
shares
Ordinary
shares in
circulation
£m
Treasury
shares
£m
At 1 January 2014
Cancelled following tender offers
43,953,790
(1,029,729)
2,903,103
–
46,856,893
(1,029,729)
At 31 December 2014
42,924,061
2,903,103
45,827,164
11.0
(0.2)
10.8
0.7
–
0.7
11.5
–
(0.2)
11.3
Total
ordinary
shares
£m
11.7
(0.2)
11.5
Ordinary shares have a nominal value of 25 pence each.
25 TENDER OFFER BUY-BACKS
A tender offer by way of a Circular dated 13 March 2015 for the purchase of 1 in 80 shares at 1,950 pence per share was completed
in April. It returned £10.4 million to shareholders, equivalent to 24.4 pence per share.
A tender offer by way of a Circular dated 21 August 2015 for the purchase of 1 in 162 shares at 2,190 pence per share was completed
in September. It returned £5.7 million to shareholders, equivalent to 13.5 pence per share.
A further tender offer will be put to shareholders in April 2016 for the purchase of 1 in 57 shares at a price of 1,810 pence per share
which, if approved, will return £13.4 million to shareholders, equivalent to 31.8 pence per share.
26 SHARE PREMIUM
At 1 January
Ordinary shares issued from treasury shares
At 31 December 2015
2015
£m
82.9
0.1
83.0
2014
£m
82.9
–
82.9
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NOTES TO THE GROUP FINANCIAL STATEMENTS
31 December 2015
CONTINUED
27 OTHER RESERVES
30 COMMITMENTS
Annual Report & Accounts 2015
CLS Holdings plc
At 1 January 2015
Purchase of own shares:
– cancellation pursuant to tender offer
Exchange rate variances
Property, plant and equipment
– net fair value gains in the year
– deferred tax thereon
Available-for-sale financial assets:
– net fair value losses in the year
– deferred tax thereon
At 31 December 2015
At 1 January 2014
Purchase of own shares:
– cancellation pursuant to tender offer
Exchange rate variances
Available-for-sale financial assets:
– net fair value gains in the year
– deferred tax thereon
At 31 December 2014
Capital
redemption
reserve
£m
Cumulative
translation
reserve
£m
Fair value
reserve
£m
Other
reserves
£m
22.2
33.2
5.3
28.1
0.2
–
–
–
–
–
–
(8.6)
–
–
–
–
22.4
24.6
–
–
4.7
(0.4)
(0.2)
0.6
10.0
Capital
redemption
reserve
£m
Cumulative
translation
reserve
£m
Fair value
reserve
£m
22.0
47.2
0.2
–
–
–
–
(14.0)
–
–
22.2
33.2
(1.3)
–
(0.3)
7.8
(0.9)
5.3
–
–
–
–
–
–
28.1
Other
reserves
£m
28.1
–
–
–
–
28.1
Total
£m
88.8
0.2
(8.6)
4.7
(0.4)
(0.2)
0.6
85.1
Total
£m
96.0
0.2
(14.3)
7.8
(0.9)
88.8
The cumulative translation reserve comprises the aggregate effect of translating net assets of overseas subsidiaries into sterling
since acquisition.
The fair value reserve comprises the aggregate movement in the value of corporate bonds, other available-for-sale assets and
owner-occupied property since acquisition, net of deferred tax.
The amount classified as other reserves was created prior to listing in 1994 on a Group reconstruction and is considered to be
non-distributable.
28 CASH GENERATED FROM OPERATIONS
Operating profit
Adjustments for:
Net movements on revaluation of investment properties
Depreciation and amortisation
Profit on sale of investment property
Gain on sale of corporate bonds
Non-cash rental income
Share-based payment expense
Other gains and losses
Fair value gain on reclassification of an associate as a subsidiary
Changes in working capital:
(Increase)/decrease in debtors
Increase/(decrease) in creditors
Cash generated from operations
29 CONTINGENCIES
2015
£m
2014
£m
168.7
259.8
(98.0)
1.3
(4.3)
(0.7)
(1.3)
0.2
(2.9)
–
(2.5)
11.6
72.1
(186.0)
0.3
(8.7)
–
(0.5)
–
(1.2)
(0.2)
(2.0)
(8.2)
53.3
At 31 December 2015 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.
92
At the balance sheet date the Group had contracted with customers for the following minimum lease payments:
Operating lease commitments – where the Group is lessor
Within one year
More than one but not more than five years
More than five years
2015
£m
83.2
253.7
202.5
539.4
2014
£m
81.3
248.6
227.8
557.7
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 2015 the Group had contracted capital expenditure of £4.7 million (2014: £1.7 million). At the balance sheet date,
the Group had conditionally exchanged contracts to acquire an investment property for £6.1 million (2014: nil). There were no
authorised financial commitments which were yet to be contracted with third parties (2014: none).
31 SUBSIDIARIES
The group financial statements include the financial statements of CLS Holdings plc and all of its subsidiaries, which are listed
below. All are 100% owned unless otherwise stated:
United Kingdom
Registered Office: 86 Bondway, London SW8 1SF
62 London Road Limited
Apex Tower Limited
Benwell House Limited
Brent House Limited
Brideglen Impex Limited
Buspace Studios Limited
Cassini Pascal Limited
Centenary Court Limited
Central London Securities
Limited
Chancel House Limited
Citadel Finance Limited
Citadel Holdings plc
CI Tower Investments Limited
CLS Bromley Limited
CLS Capital Partners Limited
CLS Chancery House Limited
CLS Cliffords Inn Limited
CLS England and Wales Limited
CLS Gateway House Limited
CLS Germany Limited
CLS Hanover Place Limited
CLS Holdings UK Limited
CLS Horton Road Limited
CLS London Limited
CLS London Properties plc
CLS Northern Properties
Limited
CLS One Limited
CLS Peterborough Limited
CLS Residential Investments
Limited
CLS Spring Gardens Limited
CLS UK Properties Limited
CLSH Management Limited
Coventry House Limited
Crosspoint House Limited
Dukes Road Limited
Elmfield Road Limited
Falcon Quest Limited
United Kingdom
Registered Office: 15 Atholl Crescent, Edinburgh EH3 8HA
CLS Aberdeen Limited
CLS Scotland Limited
Ladywell House Limited
Sidlaw House Limited
Fetter Lane Apartments Limited
Great West House Limited
GWH Birkenhead Limited
Hygeia Harrow Limited
Ingrove Limited
Instant Office Limited
Kennington Road Limited
Larkhall Lane Limited
Melita House Limited
Mirenwest Limited
New Malden House Limited
New Printing House Square
Limited
NYK Investments Limited
One Elmfield Park Limited
One Leicester Square Limited
Quayside Lodge Limited
Rayman Finance Limited
Reflex Bracknell Limited
Rex House Limited
Sentinel House Limited
Shard of Glass Limited
Southern House Limited
Spring Gardens Limited
Spring Gardens II Limited
Spring Gardens III Limited
Spring Mews (Block D) Limited
Spring Mews (Development
Management) Limited
Spring Mews (Hotel) Limited
Spring Mews (Student) Limited
Spring Mews Limited
Three Albert Embankment Limited
Tweedwind (Three) Limited
Vauxhall Corporate Director
Limited
Vauxhall Homes Limited
Vauxhall Square Limited
Vauxhall Square One Limited
Wandsworth Road Limited
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NOTES TO THE GROUP FINANCIAL STATEMENTS
31 December 2015
CONTINUED
Annual Report & Accounts 2015
CLS Holdings plc
31 SUBSIDIARIES CONTINUED
France
Registered Office: Le 6e Sens, 186 Avenue Thiers, 69006 Lyon
120 Jean Jaures Holding Sàrl
120 Jean Jaures Sàrl
Avenue du Park SCI
BV France Sàrl
Capitaine Guynemer Sàrl
Chorus Sàrl
Citadel Services Sàrl
Debussy SCI
De Musset Sàrl
EPP Levallois Sàrl
Euralille 2 Sàrl
Foch SCI
Forum France SCI
Georges Clemençeau Sàrl
HE France Sàrl
Immobilière V SA
Immobilière 6 Sàrl
Immobilière 8 Sàrl
Immobilière 10 Sàrl
Immobilière 12 Sàrl
Germany
Registered Office: Brodschrangen 4, D-20457 Hamburg
CLS Germany Management GmbH
Jarrestrasse Immobilien GmbH
Luxembourg
Registered Office: 55 Avenue de la Gare, L-1611 Luxembourg
Immobilière 13 Sàrl
Le D’Aubigny SCI
Le Quatuor SCI
Le Sigma Sàrl
Leclerc SCI
Mission Marchand Sàrl
Panten Sàrl
Parc SCI
Petits Champs Sàrl
Petits Hotels Sàrl
Rhone Alpes Sàrl
Rue Stephenson Sàrl
Scala Sàrl
SCI Frères Peugeot
SCI Pierre Valette
Sego Sàrl
Solferino SCI
Adlershofer Sàrl
Albertina Sàrl
Cavernet Sàrl
Chronotron Sàrl
CLS Citadel Sàrl
CLS Europe Sàrl
CLS Investments Sàrl
CLS Luxembourg Sàrl
CLS Palisade Sàrl
CLS Sweden Sàrl
CLS Tangentis Sàrl
Freepost Sàrl
Frohbösestrasse Sàrl
Garivet Sàrl
Grossglockner Sàrl
Haydn Sàrl
Hermalux Sàrl
Kapellen Sàrl
Lipizzaner Sàrl
Naropere Sàrl
Prater Sàrl
Salisbury Hill Sàrl
Satimood Sàrl
Schönbrunn Sàrl
St Stephan Sàrl
Valencia Investments Sàrl
Zillertal Sàrl
Netherlands
Registered Office: Burgemeester van Reenensingel 101, 2803 Da Gouda
120 Jean Jaures BV
Capitaine Guynemer BV
Chorus BV
CLS Management BV
Forum d’Aubigny BV
Hamersley International BV
Immobilière 8 BV
Malmros Property BV
Mission Marchand BV
Parc Avenue du Park BV
Petits Champs BV
Petits Hotels BV
Portapert Properties III BV
Portapert Properties UK BV
Rasstaf BV
Rhone Alpes BV
Runton Holdings BV
Sigma BV
Stockport Investments BV
Jersey
Registered Office: PO Box 167, 3rd Floor, 2 Hill Street, St Helier JE4 8RY
Hawkswell Limited
British Virgin Islands
Registered Office: PO Box 71, Craigmuir Chambers, Road Town, Tortola BVI
Pantheon Securities Limited
94
Sweden
Registered Office: Skönabäck 122, 274 91 Skurup
Auriolen AB
Förvaltnings AB Klio
Jarrestrasse Holding AB (94.5%)
Museion Förvaltning AB
Vanerparken Development AB
Vanerparken Investment AB
Vanerparken Property
Development KB
Vanerparken Property
Investments KB
Sweden
Registered Office: Västmannagatan 10, 111 24 Stockholm
Endicott Sweden AB
HolmAcc II Mezzanine AB
Rasstaf Sweden AB
Sweden
Registered Office: Saltmätargatan 9, 2 tr, 113 59 Stockholm
Wyatt Media Group AB (98.872%)
Wyatt Sales AB
Xtraworks AB
Sweden
Registered Office: Box 11132, 404 23 Gothenburg
First Camp Sverige Holding AB (58.02%)
100% subsidiaries of First Camp Sverige Holding AB (unless otherwise stated):
AB Kärradals Camping i Kärra
Brf Gunnarsö (83.45%)
Brf Kolmården (64.28%)
Brf Möllen (62.93%)
Brf Solcamp
Brf Solgläntan (82.90%)
Brf Umeå Stugor
Brf Wermelandia stugor
First Camp Bråviken AB
First Camp Gunnarsö AB
First Camp Holding Karradal AB
First Camp Karlstad AB
First Camp Kungshamn AB
First Camp Luleå AB
First Camp Malmö AB
First Camp Mölle AB
First Camp Sverige AB
First Camp Torekov AB
First Camp Tylösand AB
First Camp Umeå AB
Svalans Stugförmedling AB
Sweden
Registered Office: Västra Trädgårdsgatan 8, 111 53 Stockholm
First Camp Bostadsträtter [number] KB (42 companies numbered 1 to 42)
Solvik Camping och Stugby AB
32 ASSOCIATES
The group financial statements include the Group’s share of the results and net assets of the following associates:
Name
Country of incorporation
Bulgarian Land Development plc
Nyheter 24 AB
Lociloci AB
Isle of Man
Sweden
Sweden
Holding
48.3%
20.0%
24.6%
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NOTES TO THE GROUP FINANCIAL STATEMENTS
31 December 2015
CONTINUED
33 RELATED PARTY TRANSACTIONS
Associates and Joint Ventures
A Group company provided accounting services to Bulgarian Land Development plc, an associate of the Group, for which a charge
of £12,500 was made (2014: £25,000), of which £nil (2014: £6,250) remained outstanding at the balance sheet date.
At 31 December 2015, the Group had a convertible loan of SEK 5.0 million (2014: SEK 5.0 million), due from Nyheter24 Media Network
AB, an associate company. Until 1 May 2015, this loan was interest free, and thereafter attracted Swedish base rate plus 2%. At any
date between 1 May 2016 and 30 June 2016, the Group is permitted to convert the loan into shares in Nyheter24 Media Network AB at
SEK 40.5 each.
Transactions with Directors
Distributions totalling £9,235,402 (2014: £8,813,580) were made through tender offer buy-backs in the year in respect of ordinary
shares held by the Company’s Directors.
During the year, a company owned by Sten Mortstedt rented office space to a Group company, Vänerparken Investment AB
(“Vänerparken”), at a cost of SEK 400,000 (2014: SEK 400,000). At the balance sheet date a Group company, Museion Förvaltning AB,
had signed an agreement to lease the office space until 30 September 2018 at a cost of SEK 400,000 per annum. No balances were
outstanding at the balance sheet date (2014: £nil).
Skansen Group Limited, a company in which Anna Seeley and Thomas Lundqvist are directors, rented office space from a
Group company, Vauxhall Square Limited, at an arm’s length rent of £46,530 per annum (2014: £nil) plus annual service charge
of £21,650 (2014: £23,255). No balances were outstanding at the balance sheet date.
Directors’ Remuneration
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of
the categories specified in IAS 24 Related Party Disclosures. Information about the remuneration of individual directors is provided
in the audited part of the Remuneration Committee Report on pages 46 to 52. Directors fees of £425,000 (2014: £400,000) were paid
to a company owned by Sten Mortstedt.
2015
£000
2014
£000
Annual Report & Accounts 2015
CLS Holdings plc
at 31 December 2015
COMPANY BALANCE SHEET
Fixed assets
Investment in subsidiary undertakings
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Non-current liabilities
Borrowings
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Profit and loss account
Shareholders’ funds
Notes
2015
£m
2014
£m
6
7
8
9
9
10
11
12
12
256.5
185.6
116.1
0.1
372.7
148.3
0.1
334.0
(4.4)
(23.9)
(3.1)
(45.0)
(64.6)
(92.9)
(89.1)
(137.2)
279.8
196.8
11.3
83.0
27.0
158.5
279.8
11.5
82.9
26.8
75.6
196.8
Short-term employee benefits
Post-employment benefits
Other long-term benefits
2,421
45
736
3,202
2,060
35
250
2,345
These financial statements of CLS Holdings plc (registered number: 2714781) were approved by the Board of Directors and authorised
for issue on 8 March 2016 and were signed on its behalf by:
Mr S A Mortstedt
Director
Mr E H Klotz
Director
The notes on pages 98 to 101 are an integral part of these financial statements.
96
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Annual Report & Accounts 2015
CLS Holdings plc
31 December 2015
NOTES TO THE COMPANY FINANCIAL STATEMENTS
1
GENERAL INFORMATION
These separate financial statements are presented as required by the Companies Act 2006 and prepared on the historical cost basis.
The Company has applied UK GAAP Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (“FRS 101”) incorporating
the Amendments to FRS 101 issued by the FRC in July 2015 other than those relating to legal changes and has not applied the
amendments to Company law made by The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 that
are effective for accounting periods beginning on or after 1 January 2016.
CLS Holdings plc is the ultimate parent company of the CLS Holdings group. Its primary activity (which occurs exclusively within
the United Kingdom) is to hold shares in subsidiary companies.
2
BASIS OF ACCOUNTING
The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 issued by the Financial Reporting
Council and, accordingly, in the year ended 31 December 2015 the Company decided to adopt FRS 101 and has undergone the
transition from reporting under UK GAAP. These financial statements, therefore, have been prepared under FRS 101. The transition
is not considered to have a material effect on the financial statements.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation
to capital management, presentation of a cash flow statement, presentation of comparative information in respect of certain
assets, standards not yet effective, impairment of assets and related party transactions.
Where required, equivalent disclosures are given in the consolidated financial statements.
3
SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies are summarised below.
3.1 Going concern
4
PROFIT FOR THE FINANCIAL YEAR
As permitted by s408 Companies Act 2006, the Company’s profit and loss account has not been presented in these financial
statements. The Company’s retained profit for the financial year was £99.1 million (2014: £32.8 million).
Audit fees for the Company were £0.1 million (2014: £0.1 million).
Details of the Directors employed during the year and of their remuneration is included in the Remuneration Committee Report on
pages 50 to 57.
5
TENDER OFFER BUY-BACKS
A tender offer by way of a Circular dated 13 March 2015 for the purchase of 1 in 80 shares at 1,950 pence per share was completed
in April. It returned £10.4 million to shareholders, equivalent to 24.4 pence per share.
A tender offer by way of a Circular dated 21 August 2015 for the purchase of 1 in 162 shares at 2,190 pence per share was
completed in September. It returned £5.7 million to shareholders, equivalent to 13.5 pence per share.
A further tender offer will be put to shareholders in April 2016 for the purchase of 1 in 57 shares at a price of 1,810 pence per share
which, if approved, will return £13.4 million to shareholders, equivalent to 31.8 pence per share.
6
INVESTMENT IN SUBSIDIARY UNDERTAKINGS
At 1 January
Additions
Disposals
Impairment
At 31 December
2015
£m
185.6
83.0
–
(12.1)
256.5
2014
£m
178.3
29.9
(1.7)
(20.9)
185.6
The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence
for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the annual report and
accounts as detailed in the Director’s Report on page 38.
The Directors consider that to give full particulars of all subsidiary undertakings would lead to a statement of excessive length.
To comply with the Companies Act 2006, a full list of subsidiaries will be filed with the Company’s next annual return.
3.2 Investments in subsidiaries
7
TRADE AND OTHER RECEIVABLES
Investments in subsidiaries are accounted for at cost less, where appropriate, provisions for impairment. Dividend income is
recognised when received.
3.3 Pension costs
The Company operates a defined contribution pension scheme for all eligible employees. The pension costs charged
represent the contributions payable. Differences between contributions payable in the year and contributions paid are shown
as either accruals or prepayments in the balance sheet.
3.4 Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from
proceeds, net of tax.
Where a Group company purchases the Company’s equity share capital, the consideration paid, including any directly
attributable incremental costs (net of income taxes), is deducted from equity attributable to the owners of the Company until
the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration
received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in
equity attributable to the owners of the Company.
3.5 Foreign currencies
The financial statements are presented in sterling, which is the currency of the primary economic environment in which
the Company operates, known as its functional currency. Transactions in currencies other than the Company’s functional
currency are recognised at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date,
monetary assets and liabilities that are denominated in other currencies are translated into sterling at the rates prevailing at
that date. Non-monetary items carried at fair value that are denominated in other currencies are translated into sterling at
the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured at historical cost
in a foreign currency are not translated.
98
Current
Amounts owed by subsidiary undertakings
Prepayments and accrued income
Other debtors
8
TRADE AND OTHER PAYABLES
Current
Trade payables
Amounts owed to subsidiary undertakings
Accruals
Arrangement fees
Social security and other taxes
2015
£m
2014
£m
116.0
0.1
–
116.1
147.2
0.2
0.9
148.3
2015
£m
2014
£m
0.2
1.4
2.5
–
0.3
4.4
0.1
–
3.3
(0.3)
–
3.1
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NOTES TO THE COMPANY FINANCIAL STATEMENTS
31 December 2015
CONTINUED
Annual Report & Accounts 2015
CLS Holdings plc
9
BORROWINGS
At 31 December 2015
Unsecured bonds
Arrangement fees
At 31 December 2014
Bank loan
Unsecured bonds
Arrangement fees
Current Non-current
£m
£m
Total
borrowings
£m
24.1
(0.2)
23.9
65.0
(0.4)
64.6
89.1
(0.6)
88.5
Current Non-current
£m
£m
Total
borrowings
£m
45.0
–
–
45.0
–
89.7
(0.6)
89.1
45.0
89.7
(0.6)
134.1
On 11 September 2012, the Group issued £65.0 million unsecured retail bonds, which attract a fixed rate coupon of 5.5% and are
due for repayment in 2019. The bonds are listed on the London Stock Exchange’s Order book for Retail Bonds.
On 15 April 2011, the Group issued SEK 300 million unsecured bonds. The bonds attract a floating rate coupon of 3.75% over three
months’ STIBOR and are due for repayment in 2016. The Group has an option to redeem all outstanding bonds subject to an early
repayment premium. The bonds were listed on Nasdaq Stockholm on 5 July 2011.
12 PROFIT AND LOSS ACCOUNT AND OTHER RESERVES
At 1 January 2015
Purchase of own shares
Expenses thereof
Profit for the year
At 31 December 2015
At 1 January 2014
Purchase of own shares
Expenses thereof
Profit for the year
At 31 December 2014
10 SHARE CAPITAL
Number
13 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
Capital
redemption
reserve
£m
22.2
0.2
–
–
22.4
Capital
redemption
reserve
£m
22.0
0.2
–
–
22.2
Other reserves
Other
£m
4.6
–
–
–
4.6
Other reserves
Other
£m
4.6
–
–
–
4.6
Total
£m
26.8
0.2
–
–
27.0
Total
£m
26.6
0.2
–
–
26.8
2015
£m
196.8
99.1
0.1
(16.2)
279.8
Profit and
loss account
£m
75.6
(16.1)
(0.1)
99.1
158.5
Profit and
loss account
£m
58.3
(15.4)
(0.1)
32.8
75.6
2014
£m
179.5
32.8
–
(15.5)
196.8
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Balance at 1 January
Profit for the year
Issue of share capital
Purchase of own shares
Balance at 31 December
14 CONTINGENCIES
At 31 December 2015 CLS Holdings plc had guaranteed certain liabilities of Group companies, primarily in relation to Group
borrowings and covering interest and amortisation payments. No cross guarantees had been given in relation to the principal
amounts of these borrowings. Since the possibility of payment by the Company under any of these guarantees and warranties is
considered remote, no provisions in relation to these have been made in the Company’s financial statements and no reportable
contingent liability exists.
15 COMMITMENTS
At 31 December 2015, the Company had no contracted capital expenditure (2014: £nil) and no authorised financial commitments
which were yet to be contracted with third parties (2014: £nil).
Ordinary
shares in
circulation
Treasury
shares
Total
ordinary
shares
Ordinary
shares in
circulation
£m
Treasury
shares
£m
Total
ordinary
shares
£m
At 1 January 2015
Issued
Cancelled following tender offers
42,924,061
15,000
(798,480)
2,903,103 45,827,164
–
(798,480)
(15,000)
–
At 31 December 2015
42,140,581
2,888,103 45,028,684
10.8
–
(0.2)
10.6
0.7
–
–
0.7
Number
Ordinary
shares in
circulation
Treasury
shares
Total
ordinary
shares
Ordinary
shares in
circulation
£m
Treasury
shares
£m
At 1 January 2014
Cancelled following tender offers
43,953,790
(1,029,729)
2,903,103
–
46,856,893
(1,029,729)
At 31 December 2014
42,924,061
2,903,103
45,827,164
11.0
(0.2)
10.8
Ordinary shares have a nominal value of 25 pence each.
11 SHARE PREMIUM
At 1 January
Ordinary shares issued from treasury shares
At 31 December
0.7
–
0.7
2015
£m
82.9
0.1
83.0
11.5
–
(0.2)
11.3
Total
ordinary
shares
£m
11.7
(0.2)
11.5
2014
£m
82.9
–
82.9
100
101
31 December 2015
FIVE YEAR FINANCIAL SUMMARY
Group revenue
Net rental income
Income from non-property activities
Administration expenses
Other expenses
Group revenue less costs
Net movements on revaluation of investment properties
Profit on sale of investment properties
Gain/(loss) on sale of corporate bonds and other financial investments
Gain arising from acquisition
Profit on sale of subsidiaries/joint venture/associates
Fair value gain on reclassification of associate
Operating profit
Finance income
Finance costs
Share of (loss)/profit of associates after tax
Profit before tax
Taxation
Profit for the year
2015
£m
118.9
99.0
–
(19.5)
(13.8)
65.7
98.0
4.3
0.7
–
–
–
168.7
10.0
(27.5)
–
151.2
(19.1)
132.1
2014
£m
99.6
82.2
–
(13.6)
(4.9)
63.7
186.0
8.7
–
1.2
–
0.2
259.8
7.7
(28.1)
(2.6)
236.8
(42.0)
194.8
2013
£m
91.2
73.1
–
(12.4)
(3.5)
57.2
(0.2)
4.5
14.1
–
1.8
14.9
92.3
7.6
(23.7)
(4.8)
71.4
(8.2)
63.2
2012
£m
80.2
62.9
–
(10.5)
(2.9)
49.5
16.2
–
(0.4)
–
–
–
65.3
10.6
(25.6)
5.8
56.1
(9.4)
46.7
Share buy-backs paid and proposed
19.1
15.9
15.0
13.2
2011
£m
80.1
63.0
0.8
(12.1)
(2.2)
49.5
18.0
–
0.5
–
2.2
–
70.2
12.2
(47.7)
3.0
37.7
1.1
38.8
12.3
Net Assets Employed
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
1,572.6
173.3
1,745.9
(282.2)
(695.7)
1,477.8
111.0
1,588.8
(269.6)
(661.7)
1,257.0
142.8
1,399.8
(121.3)
(797.6)
1,110.5
115.2
1,225.7
(172.2)
(636.4)
1,037.0
67.3
1,104.3
(182.9)
(553.9)
768.0
657.5
480.9
417.1
367.5
Ratios
2015
2014
2013
2012
2011
Net assets per share (pence)
EPRA net assets per share (pence)
Earnings per share (pence)
EPRA earnings per share (pence)
Net gearing (%)
Adjusted net gearing (%)
Interest cover (times)
1,810.1
2,083.2
305.7
84.7
82.0
71.3
3.19
1,521.1
1,774.1
449.0
77.4
89.4
76.7
3.34
1,094.1
1,268.4
146.9
66.2
125.0
107.8
3.18
963.1
1,154.4
106.0
65.3
111.6
92.7
3.49
817.5
983.1
82.0
64.9
131.9
109.3
2.44
Annual Report & Accounts 2015
CLS Holdings plc
GLOSSARY OF TERMS
ADJUSTED NET ASSETS OR ADJUSTED SHAREHOLDERS’ FUNDS
EPRA NET INITIAL YIELD
Net assets excluding the fair value of financial derivatives, deferred
tax on revaluations, and goodwill arising as a result of deferred tax
ADJUSTED NET GEARING
Annual passing rent less net service charge costs on investment
properties expressed as a percentage of the investment property
valuation after adding purchasers’ costs
Net debt expressed as a percentage of adjusted net assets
ADJUSTED SOLIDITY
Adjusted net assets expressed as a percentage of adjusted
total assets
ADJUSTED TOTAL ASSETS
Total assets excluding deferred tax assets
ADMINISTRATION COST RATIO
Recurring administration expenses of the Investment Property
operating segment expressed as a percentage of net rental income
BALANCE SHEET LOAN TO VALUE
Net debt expressed as a percentage of total assets less cash and
short-term deposits
CONTRACTED RENT
Annual contracted rental income after any rent-free periods
have expired
CORE PROFIT
Profit before tax and before net movements on revaluation of
investment properties, profit on sale of investment properties,
subsidiaries and corporate bonds, impairment of intangible
assets and goodwill, non-recurring costs, change in fair value
of derivatives and foreign exchange variances
DILUTED EARNINGS PER SHARE
Profit after tax divided by the diluted weighted average number
of ordinary shares
DILUTED NET ASSETS
Equity shareholders’ funds increased by the potential proceeds from
issuing those shares issuable under employee share schemes
DILUTED NET ASSETS PER SHARE OR DILUTED NET ASSET VALUE
Diluted net assets divided by the diluted number of ordinary shares
DILUTED NUMBER OF ORDINARY SHARES
Number of ordinary shares in circulation at the balance sheet
date adjusted to include the effect of potential dilutive shares
issuable under employee share schemes
DILUTED WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES
Weighted average number of ordinary shares in issue during the
period adjusted to include the effect of potential weighted average
dilutive shares issuable under employee share schemes
EARNINGS PER SHARE
Profit after tax divided by the weighted average number of
ordinary shares in issue in the period
EPRA
European Public Real Estate Association
EPRA EARNINGS PER SHARE
Profit after tax, but excluding net gains or losses from fair value
adjustments on investment properties, profits or losses on disposal
of investment properties and other non-current investment
interests, impairment of goodwill and intangible assets,
movements in fair value of derivative financial instruments and
their related current and deferred tax
EPRA NET ASSETS
Diluted net assets excluding the fair value of financial derivatives,
deferred tax on revaluations, and goodwill arising as a result of
deferred tax
EPRA NET ASSETS PER SHARE
EPRA net assets divided by the diluted number of ordinary shares
EPRA TOPPED UP NET INITIAL YIELD
Annual net rents on investment properties expressed as a
percentage of the investment property valuation after adding
purchasers’ costs
EPRA TRIPLE NET ASSETS
EPRA net assets adjusted to reflect the fair value of debt and
derivatives and to include the fair value of deferred tax on
property revaluations
EPRA TRIPLE NET ASSETS PER SHARE
EPRA triple net assets divided by the diluted number of
ordinary shares
ESTIMATED RENTAL VALUE (ERV)
The market rental value of lettable space as estimated by the
Group’s valuers
INTEREST COVER
The aggregate of group revenue less costs, divided by the
aggregate of interest expense and amortisation of loan issue
costs, less interest income
LIQUID RESOURCES
Cash and short-term deposits and listed corporate bonds
NET ASSETS PER SHARE OR NET ASSET VALUE (NAV)
Equity shareholders’ funds divided by the number of ordinary
shares in circulation at the balance sheet date
NET DEBT
Total borrowings less liquid resources
NET GEARING
Net debt expressed as a percentage of net assets
NET INITIAL YIELD
Annual net rents on investment properties expressed as a
percentage of the investment property valuation
NET RENT
Contracted rent less net service charge costs
OCCUPANCY RATE
Contracted rent expressed as a percentage of the aggregate of
contracted rent and the ERV of vacant space
OVER-RENTED
The amount by which ERV falls short of the aggregate of
passing rent
PASSING RENT
Contracted rent before any rent-free periods have expired
PROPERTY LOAN TO VALUE
Property borrowings expressed as a percentage of the market
value of the property portfolio
RENT ROLL
Contracted rent
SOLIDITY
Equity shareholders’ funds expressed as a percentage of total assets
TOTAL SHAREHOLDER RETURN
For a given number of shares, the aggregate of the proceeds
from tender offer buy-backs and change in the market value of
the shares during the year adjusted for cancellations occasioned
by such buy-backs, as a percentage of the market value of the
shares at the beginning of the year
TRUE EQUIVALENT YIELD
The capitalisation rate applied to future cash flows to calculate the
gross property value, as determined by the Group’s external valuers
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102
103
DIRECTORS, OFFICERS AND ADVISERS
Clearing Bank
Royal Bank of Scotland Plc
24 Grosvenor Place
London SW1X 7HP
Financial Advisers
Kinmont Limited
5 Clifford Street
London W1S 2LJ
Stockbrokers
Liberum Capital
Ropemaker Place, Level 12
25 Ropemaker Street
London EC2Y 9LY
Panmure Gordon (UK) Limited
One New Change
London EC4M 9AF
Registered Auditor
Deloitte LLP
Chartered Accountants
2 New Street Square
London EC4A 3BZ
Financial and Corporate Public Relations
Smithfield Consultants Limited
10 Aldersgate Street
London EC1A 4HJ
Directors
Sten Mortstedt
Henry Klotz
Fredrik Widlund
John Whiteley
Malcolm Cooper ‡ * †
Joseph Crawley
Elizabeth Edwards †
Christopher Jarvis * †
Thomas Lundqvist
Philip Mortstedt
Anna Seeley
Lennart Sten *
* member of Remuneration Committee
† member of Audit Committee
‡ Senior Independent Director
(Executive Chairman)
(Executive Vice Chairman)
(Chief Executive Officer)
(Chief Financial Officer)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
Company Secretary
David Fuller BA, FCIS
Registered Office
86 Bondway
London SW8 1SF
Registered Number
2714781
Registrars and Transfer Office
Computershare Investor Services Plc
PO Box 82
The Pavilions
Bridgwater Road
Bristol BS99 7NH
Shareholder Helpline: 0870 889 3286
CLS Holdings plc on line:
www.clsholdings.com
email:
enquiries@clsholdings.com
104
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