Active portfolio
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CLS HOLDINGS PLC ANNUAL REPORT AND ACCOUNTS 2019
Introduction
Who we are and
what we believe
Our vision
To be a leading office space
specialist and a supportive,
progressive and sustainably
focused commercial landlord.
Our purpose
Our purpose is to transform office
properties into sustainable, modern
spaces that help businesses to grow.
Our values
Our tenants, our focus.
Agility unlocks opportunity.
Openness creates closeness.
Collaboration gets the job done.
Statutory and alternative performance measures
Throughout the strategic report we use a range of financial and non-financial measures to assess our
performance. The majority of those are European Public Real Estate Association (EPRA) measures.
EPRA is a recognised body in the property industry which is involved in the formulation of accounting
metrics and sustainability reporting, which give the European listed real estate sector greater
transparency and consistency.
These standards also provide visibility and comparability to industry stakeholders in addition to
being appreciated by the investment community. Management uses these measures to monitor the
Group’s financial performance alongside International Financial Reporting Standards (IFRS) measures
because they help illustrate the underlying financial performance and position of the Group. The EPRA
measurements should be considered in addition to measures of financial performance, financial position
or cash flows reported in accordance with IFRS.
Note 5 to the accounts provides a reconciliation of the alternative performance measures used and the
Glossary gives a more complete description of them.
Front cover images:
Spring Mews, London SE11, Prescot Street, London E1 and The Portland Building, Crawley
For more information about us
and our properties see our website
www.clsholdings.com
Our business at a glance
Solid, stable and
diversified portfolio
Property use by rent
Office
Student
Hotel
Retail
2%
4%
5%
Rent by sector
23.4% Government
89%
22.7% Business services
Key statistics
Contracted rent
£109.3m
16.2% Other
No. of tenants
779
Property value
£2.0bn
No. of properties
97
Total floor space
6.6m sq ft
10.7% Manufacturing
7.6% IT
5.0% Finance
4.7% Student lets
3.3% Medical services
& healthcare
2.6% Food retail, leisure
& tourism
1.9% Media & publishing
0.9% Telecomms
0.5% Education
& training
0.5% Charitable
Property portfolio by value
The below charts show the value of the property portfolio which comprises investment property, properties held for sale and hotel.
53%
United Kingdom
£1,059.8m
+ See pages 32-35
14%
France
£285.3m
+ See pages 40-43
Germany
£667.0m
+ See pages 36-39
33%
Rental data1
United Kingdom
Germany
France
Total Portfolio
Rental
income for
the year
£m
59.2
32.4
16.1
107.7
Net rental
income for
the year
£m
58.7
30.8
16.2
105.7
Lettable
space
sqm
203,255
300,687
85,142
589,084
Contracted
rent at year
end
£m
59.2
34.3
15.8
109.3
ERV at year
end
£m
64.8
38.7
16.6
120.1
Contracted
rent
subject to
indexation
£m
13.9
20.7
15.8
50.4
Vacancy
rate at year
end
4.1%
4.3%
3.1%
4.0%
Valuation data1
Valuation movement
in the year
Market
value of
property
£m
1,024.3
663.6
283.5
1,971.4
Underlying
£m
(3.4)
53.6
10.8
61.0
Foreign
exchange
£m
–
(40.0)
(18.1)
(58.1)
EPRA net
initial yield
5.1%
4.8%
4.7%
4.9%
EPRA
topped up
net initial
yield
5.4%
5.0%
5.2%
5.2%
Reversion Over-rented
4.1%
4.0%
4.5%
4.1%
9.2%
12.6%
6.1%
9.8%
True
equivalent
yield
5.6%
4.9%
5.4%
5.3%
United Kingdom
Germany
France
Total Portfolio
Lease data1
Average lease length
Contracted rent of leases expiring in:
United Kingdom
Germany
France
Total Portfolio
To break
years
3.8
4.5
2.4
3.8
To expiry
years
4.8
4.6
4.6
4.8
Year 1
£m
10.2
7.3
1.1
18.6
Year 2
£m
4.3
5.4
0.3
10.0
Years
3 to 5
£m
15.8
11.0
5.5
32.3
After
5 years
£m
28.9
10.6
8.9
48.4
ERV of leases expiring in:
Years
3 to 5
£m
16.6
12.2
5.4
34.2
Year 2
£m
4.8
6.0
0.3
11.1
Year 1
£m
5.6
7.8
1.2
14.6
After
5 years
£m
29.6
11.2
9.2
50.0
1. The above tables comprise data of the investment properties and properties held for sale. They exclude owner occupied, land and hotel.
Highlights
A year of strong
performance
Basic NAV
295.1p
+7.1%
EPRA NAV1
329.2p
+6.3%
Basic eps
33.3p
+9.2%
EPRA eps
12.0p
-8.6%
(2018: 275.5p, see note 12)
(2018: 309.8p, see note 5)
(2018: 30.5p, see note 11)
(2018: 13.1p, see note 5)
Valuation
uplift2
+3.0%
(2018: 3.7%)
Full year’s
dividend 7.4p
+7.2%
(2018: 6.9p, see note 25)
Profit before tax
£159.0m
Cost of debt
lowered further to
+9.7%
(2018: £144.9m)
2.42%
(2018: 2.43%)
Active asset management
■■ 158 asset management deals completed
securing £14.7m of annual rent at 3.3%
above ERV (2018: 176 deals, £16.2m annual
rent at 2.2% above ERV)
Refocusing the portfolio
■■ 13 properties acquired for £257m
■■ 28 properties disposed of for £189m
■■ Sales of our stakes in Catena and Fist Camp,
and remaining corporate bonds for £177.3m
Rental income enhancement
■■ Rental income increased by 4.4% to £107.7m
Financing initiatives
■■ Financed £292.4m at 2.65% pa for 5.2 years
(2018: £103.0m)
Asset enhancement
■■ Total capital expenditure £16.7m
(2018: £15.8m)
High occupancy levels
■■ Vacancy rate stable at 4.0% (2018: 3.8%)
Balance Sheet Loan to value
■■ Fallen to 31.4% (2018: 36.7%)
1. Key Performance Indicator
2.
In local currency – investment properties, properties held for sale, owner occupied and hotel
Reduction in CO2
emissions
3.1%
from prior year (see page 48)
Renewable
energy generation
+31%
from prior year (see page 48)
01
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CLS Holdings plc Annual Report and Accounts 2019
02
Contents
Prescot Street, London E1
Strategic report
Chairman’s statement
6
Our investment proposition
8
10 Chief Executive’s review
14 Business model and strategy
20 Key performance indicators
22 Stakeholders
24 Risk management and principal risks and uncertainties
32 Country business reviews
44 Chief Financial Officer’s review
48 Corporate, social and environmental responsibility report
Corporate governance
58 Chairman’s introduction
60 Board of Directors
62 Board leadership
67 Purpose, values and culture
70 Division of responsibilities
72 Nomination Committee Report
78 Audit Committee Report
82 Remuneration Committee Report
104 Directors’ Remuneration Policy
116 Directors’ Report
CLS Holdings plc Annual Report and Accounts 2019 Financial statements
122 Independent auditor’s report to the members of CLS Holdings plc
130 Group income statement and statement of comprehensive income
131 Group statement of comprehensive income
132 Group balance sheet
133 Group statement of changes in equity
134 Group statement of cash flows
135 Notes to the Group financial statements
164 Company balance sheet
165 Company statement of changes in equity
166 Notes to the Company financial statements
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Lloyds Avenue, London EC3
Westminster Tower, London SE11
Office Connect, Cologne
Additional information
170 Five year financial summary
171 Glossary of terms
172 Directors, officers and advisers
Prescot Street, London E1
CLS Holdings plc Annual Report and Accounts 2019
04
Strategic report
CLS Holdings plc Annual Report and Accounts 2019 Strategic report
Chairman’s statement
6
Our investment proposition
8
10 Chief Executive’s review
14 Business model and strategy
20 Key performance indicators
22 Stakeholders
24 Risk management and principal risks and uncertainties
32 Country business reviews
44 Chief Financial Officer’s review
48 Corporate, social and environmental responsibility report
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CLS Holdings plc Annual Report and Accounts 2019
06
Chairman’s statement
Delivering value for
our stakeholders
of disposals but more importantly from the
increase in value of 3.0% in local currencies
with Germany again delivering an outstanding
performance with an uplift of 8.4%. This
performance demonstrates the benefits of
our diversified property portfolio, which is
now worth over £2.0 billion, of which 53% is
in the UK, 33% in Germany and 14% in France.
Sustainability
In the last year, the importance of
sustainability across business, and especially
in real estate, has gained real traction.
Sustained and high-profile lobbying has led to
governments, cities and industries revisiting
their impacts on climate change. This has
stimulated discussion across the real estate
sector regarding more ambitious targets,
protection against climate risk and our impact
on the communities in which we invest.
For over a decade, CLS has had a long-term
focus on sustainability as a key part of our
strategy and through the active management
of our assets. We have already made
significant progress and at the beginning of the
year, we launched our enhanced sustainability
strategy. The key enhancements were:
a widening of the scope we monitor and target;
and the simplification of our approach towards
a more embedded sustainable culture based
on true values, knowledge and real results.
Our in-house sustainability team monitors
changes in the external landscape and
associated risks, evolving our strategy and
its execution accordingly to continue to drive
the long-term profitability of the business.
Details of our work on sustainability are set
out in the corporate, social and environmental
responsibility section on pages 48-55 and
more detail will be given in our sustainability
report which will be published in spring 2020.
People and culture
We recognise that our people are
fundamental to our success. We take
seriously our responsibilities (which are now
stated in the new UK Corporate Governance
Code) to assess and monitor our culture to
ensure that it aligns with our purpose, values
and strategy. From our property visits with
Reflections on becoming Chairman
This is my first statement as Chairman
of CLS and it is with gratitude and respect
I take on this new challenge and opportunity.
As an independent non-executive director,
I have been part of the company for the last
five years and I am proud of what we as
a Board and a Group have achieved. I look
forward, together with my colleagues, to
continuing to drive the business forward over
the coming years. Our team focus will be on
maximising long-term shareholder value,
whilst recognising our wider responsibilities
and commitments to our stakeholders.
During the last five years, CLS has grown
significantly and whilst the Company of today
is larger it is also in a stronger position from
a financial standpoint, the composition of the
portfolio and with an experienced and proven
management team.
With this background, CLS can use its
unique position to take advantage of any
opportunities that arise from current
economic and political uncertainty.
I have been fortunate to have gained skills
and experience from carrying out leading
roles in real estate across most of Europe
in different companies and across different
asset classes. I look forward to being able to
continue to contribute this experience to the
success of CLS.
CLS has a distinguished heritage as
a property company with a long-term
approach to our investments. Our strategy
remains clear, with a focus on ownership
of non-prime offices in the three largest
economies of Europe; the UK, Germany and
France. We will also stay focused on cash
flow and active asset management.
Performance and our property portfolio
2019 saw another strong year of financial
and operational performance. EPRA NAV
per share increased by 6.3% to 329.2 pence
per share (2018: 309.8 pence) and total
accounting return, including the dividends
paid in the year, was 8.6% (2018: 10.8%).
The value of our property portfolio rose as
a result of £69.8 million of acquisitions net
CLS Holdings plc Annual Report and Accounts 2019 07
operational teams and Board meetings where
we meet employees at all levels, to our social
events that I and members of the Board have
attended, I believe that we have a motivated
and happy workforce that promotes a strong,
open, entrepreneurial culture which is a key
contributing factor to our success.
In response to previous feedback from some
shareholders, we are proposing to introduce
a revised long-term incentive plan as well as
align, where necessary, the policy with the
new Code and shareholder body guidelines.
The new remuneration policy will be put to
a vote at this year’s AGM.
As part of our employee engagement, we
have established a Workforce Advisory Panel
which is chaired by Elizabeth Edwards, one
of our experienced non-executive directors.
I was pleased to see so many employees
wanting to contribute to the Panel, which
comprises employees from across the
business and countries. Feedback from the
Panel has been overwhelmingly positive but,
as with any business, it has highlighted some
areas where we could improve, and we will
take these forward.
The other significant change in the year
was the execution of a workstream around
the purpose, vision and values of CLS.
Essentially this work was codifying how we
already operate as a business. Through the
process, which involved consulting with
all employees, a greater level of support
from the workforce was achieved.
I believe this shows how passionate our
employees are about making CLS into one
of the leading office space specialists and
a supportive, progressive and sustainability
focussed landlord.
Governance and stakeholder engagement
As I have highlighted in the Corporate
Governance section of this report, CLS
believes that good governance is essential
to deliver strong performance. CLS takes
its responsibilities very seriously and has
always been cognisant of promoting the
long-term success of the Company for all
our stakeholders. This year, to ensure that
we are clearly documenting these processes,
we have more formally recorded these
considerations in approving Board decisions.
As highlighted within the Remuneration
section of this report, we have consulted with
shareholders regarding the implementation
of a proposed new incentive plan.
Board changes
John Whiteley retired as Chief Financial
Officer on 30 June 2019 and was succeeded
by Andrew Kirkman from 1 July. John left with
CLS on a firm financial footing and we all wish
him well in his retirement. We are equally
delighted to welcome Andrew to CLS and
the Board is pleased with the strong start
he has made.
As highlighted in Henry Klotz’s statement last
year, the Board was mindful that some non-
executives had served over nine years and
that the composition of the Board should be
refreshed. We initiated an independent search
and, reflecting the strength and reputation
of CLS, we were able to recruit strong
candidates. I am delighted to have welcomed
Denise Jagger and Bill Holland to the Board
as independent non-executive directors.
Denise is a member of both the Remuneration
and Audit Committees and will replace Chris
Jarvis as Remuneration Committee Chairman
immediately after the AGM in April. Chris will
also step down as Audit Committee member
5 March 2020. Given his current experience
and knowledge of the German real estate
market, which we consider will continue to
be beneficial in executing our strategy, he will
remain a non-executive director but will no
longer be considered to be independent by
the Board.
Malcolm Cooper steps down Audit Committee
Chairman on 5 March 2020 and will be
succeeded from 6 March 2020 as Audit
Committee Chair by Bill. Malcolm, who will not
be standing for re-election at the forthcoming
AGM in April, has provided excellent advice
and support during his term and I would
like to thank him for all his hard work and
contribution to the Group.
Finally, I want to thank Henry for his many
years of service to the Group. Henry is an
outstanding real estate professional and
colleague. It is to his credit that, alongside
management, he leaves CLS in such
a favourable position.
Dividend
Reflecting our progressive dividend strategy,
the Board is pleased to propose a final
dividend of 5.05 pence per share resulting
in a total dividend for the year of 7.4 pence
per share. The 2019 dividend is an increase
of 7.2% from last year which compares to
the 2019 increase in EPRA NAV of 6.3%.
The dividend is 1.6 times covered by
EPRA earnings.
Looking to the future
There remains considerable uncertainty
across global markets with continued low
interest rates and, closer to home, the full
extent of Brexit has yet to be clarified and
implemented. However, real estate as an
asset class remains attractive and we
expect that capital allocation weightings
from institutional investors will continue to
increase. CLS is in a strong financial position
with a clear strategy and a long-term
perspective which I believe will allow us
to withstand any challenges but also allow
us to take advantage of the opportunities
this may present.
Thank you
CLS places great emphasis on our
collaborative team approach, our focus on
tenants and our positive, supportive culture
which all contribute to our success. On behalf
of the Board, I want to thank everyone who
has contributed to making 2019 another
successful year.
Lennart Sten
Non-Executive Chairman
5 March 2020
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 08
Our investment proposition
Strong and consistent
long-term shareholder
returns
Clear strategy
Active management
Leading track record
Focus on sustainability
Key investment tenets
Key investment tenets
Diversified approach
This approach is across: Countries (we invest in Europe’s three
largest economies); Tenants (over 750 tenants spread across
most sectors); and Financing (27 different lenders)
Experienced in-house capabilities
In-house asset, property and facilities management teams
result in better cost control, closer asset knowledge and
synergies across the property portfolio
Sole focus on non-prime offices
Long-term investment in high yielding, multi-let, non-prime
offices in London and the South East of the UK and the larger
cities in Germany and France
Selected development schemes
Occasional opportunities arise in the portfolio to carry out
development projects to capture rental and capital growth; the
amount of development is kept below 10% of the portfolio value
at any one time. Opportunities to secure alternative uses are
pursued usually until planning permission is secured and then
the property is sold to a developer
Secure rents and high occupancy
Targeted occupancy levels above 95%, whilst providing
affordable rents and flexible lease terms to meet tenant
demand and so create opportunities to capture above market
rental growth
Interest rate management
Financing facilities, which are arranged in-house, seek to
balance flexibility, diversity and maturity of funding whilst
ensuring a low cost of debt which is targeted to be at least
200 basis points below the Group’s net initial yield
Delivered outcomes
EPRA NAV
(pence)
245.6
208.3
329.2
309.8
285.6
Delivered outcomes
NIY vs Costs of funds
(%)
7
6
5
4
3
2
2015
2016
2017
2018
2019
Net initial yield
Weighted average cost of debt
Key investment tenets
Disciplined approach to investment
Key investment tenets
Responsible profit
Acquisitions are assessed against strict return and strategic
fit criteria but are pursued on an opportunistic basis with no
Across our business model, in everything we do, we seek
to generate responsible profit through employing sustainable
set capital allocation across countries. Low yielding assets with
long-term decisions with the environment in mind
limited potential or where the risk/reward ratio is unfavourable
are sold
Cash-backed progressive dividend
Strong ESG performance
We believe in full transparency and therefore continually submit
our progress to global ESG benchmark schemes in our industry,
CLS is a total return share using cash flow generated to pay
such as GRESB and FTSE4GOOD. This also allows us to monitor
a progressive dividend and also to reinvest in the business to
our progress and gives our stakeholders confidence in our
generate further net asset growth. Around half of annual ERPA
delivery against our commitments
earnings are paid to shareholders as a dividend, which grows
Climate risk mitigation
Our in-house sustainability programme is focused on mitigating
our impact on environmental climate risks and energy security
whilst maximising the benefits we deliver to the communities
in which we are involved
in-line with the business
Financing headroom
Aim to keep at least £100m of liquid resources together with
financing headroom. This approach gives the ability to move
quickly to complete acquisition opportunities as well as the
flexibility to secure the optimal financing solution
Delivered outcomes
Proposed (and paid) distributions
30.1
28.1
25.9
23.5
(£m)
19.1
Delivered outcomes
GRESB (ESG) score/100
61
55
56
70
63
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
To find out more:
Website: clsholdings.com
Sustainability report: 2020 report published in Spring, 2019 report on the website
Analyst coverage: See website for the details of CLS’ equity research analysts
Investor engagement: 2020 details are on the website under investors->financial calendar, 2019 programme is set out on page 66
CLS Holdings plc Annual Report and Accounts 2019
09
Total returns to shareholders
CLS Holdings
FTSE All Share
FTSE 350
FTSE RE SS
700
600
400
200
0
31 Dec
2010
2 0 . 8 % C A G R
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
31 Dec
2017
31 Dec
2018
31 Dec
2019
31 Dec
2020
Leading track record
Focus on sustainability
Key investment tenets
Key investment tenets
Disciplined approach to investment
Acquisitions are assessed against strict return and strategic
fit criteria but are pursued on an opportunistic basis with no
set capital allocation across countries. Low yielding assets with
limited potential or where the risk/reward ratio is unfavourable
are sold
Cash-backed progressive dividend
CLS is a total return share using cash flow generated to pay
a progressive dividend and also to reinvest in the business to
generate further net asset growth. Around half of annual ERPA
earnings are paid to shareholders as a dividend, which grows
in-line with the business
Financing headroom
Aim to keep at least £100m of liquid resources together with
financing headroom. This approach gives the ability to move
quickly to complete acquisition opportunities as well as the
flexibility to secure the optimal financing solution
Delivered outcomes
Proposed (and paid) distributions
(£m)
30.1
28.1
25.9
23.5
19.1
Responsible profit
Across our business model, in everything we do, we seek
to generate responsible profit through employing sustainable
long-term decisions with the environment in mind
Strong ESG performance
We believe in full transparency and therefore continually submit
our progress to global ESG benchmark schemes in our industry,
such as GRESB and FTSE4GOOD. This also allows us to monitor
our progress and gives our stakeholders confidence in our
delivery against our commitments
Climate risk mitigation
Our in-house sustainability programme is focused on mitigating
our impact on environmental climate risks and energy security
whilst maximising the benefits we deliver to the communities
in which we are involved
Delivered outcomes
GRESB (ESG) score/100
61
55
56
70
63
Clear strategy
Key investment tenets
Diversified approach
Active management
Key investment tenets
Experienced in-house capabilities
This approach is across: Countries (we invest in Europe’s three
In-house asset, property and facilities management teams
largest economies); Tenants (over 750 tenants spread across
result in better cost control, closer asset knowledge and
most sectors); and Financing (27 different lenders)
synergies across the property portfolio
Sole focus on non-prime offices
Secure rents and high occupancy
Long-term investment in high yielding, multi-let, non-prime
Targeted occupancy levels above 95%, whilst providing
offices in London and the South East of the UK and the larger
affordable rents and flexible lease terms to meet tenant
cities in Germany and France
Selected development schemes
demand and so create opportunities to capture above market
rental growth
Occasional opportunities arise in the portfolio to carry out
Interest rate management
development projects to capture rental and capital growth; the
Financing facilities, which are arranged in-house, seek to
amount of development is kept below 10% of the portfolio value
balance flexibility, diversity and maturity of funding whilst
at any one time. Opportunities to secure alternative uses are
ensuring a low cost of debt which is targeted to be at least
pursued usually until planning permission is secured and then
200 basis points below the Group’s net initial yield
the property is sold to a developer
Delivered outcomes
EPRA NAV
(pence)
245.6
208.3
329.2
309.8
285.6
Delivered outcomes
NIY vs Costs of funds
(%)
7
6
5
4
3
2
2015
2016
2017
2018
2019
Net initial yield
Weighted average cost of debt
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information
10
Chief Executive’s review
A refocused portfolio from
which to drive long-term
earnings growth
We committed more capital to acquisitions
than in any other year, successfully finding
opportunities in all of our countries. In total,
we spent £257.2 million on 13 acquisitions
(two of which completed at the start of 2020
for £32.8 million and one of which completed
in 2019 for £9.8 million but had exchanged in
2018) with a weighted average net initial yield
of 5.8%. Almost all the acquisitions shared
similar characteristics with the potential for
rental growth from lease re-gears to ERV,
filling vacancy or refurbishment to increase
rental levels. Whilst we are pleased with all
our acquisitions, I thought it worth highlighting
one in each country as a demonstration of our
successful acquisition approach.
In the UK, we have started to see more
acquisition opportunities offering good value
particularly as institutional buyers have been
less active. We exchanged on two buildings
in a single transaction in October, acquiring
Clockwork in Hammersmith and 6 Lloyds
Avenue in the City of London for £66.7 million.
The net initial yield of 6.2% was attractive
and the buildings provide long-term asset
management opportunities. We believe
that the German market is attractive but,
given increased competition, we have had
to be resolute with our pricing discipline.
In April, we exchanged on the acquisition
of Puro in Ismaning, Munich for €32.0 million.
The property is about 20% under-rented and
we have plans for a €3 million refurbishment
to upgrade and expand the building.
The French market has presented fewer
acquisition opportunities for us in recent
years, but we remain positive on the markets
in Paris, Lyon and Lille. In December, we
completed the acquisition of two additional
floors at Park Avenue in Lyon for €3.5 million,
taking our ownership of the building to
86%. Whilst a relatively small transaction,
it remains a strategic goal to own buildings
fully where the economics stack up.
Overview
This year was one of the busiest in CLS’
history with a record level of property
transactions and a heightened focus on
our core activities. This active portfolio
management resulted in £257.2 million of
property acquisitions and £187.2 million of
disposals as well as the disposal of our stakes
in Catena and First Camp, and the remainder
of our corporate bond portfolio. This active
approach delivered a 6.3% increase in EPRA
net asset value, a total accounting return of
8.6% and EPRA earnings of 12.0p, resulting
in the Board proposing a 7.2% increase in
our dividend.
An active year
2019 marked the completion of a two-year
programme of refocusing the Group by selling
non-core activities and those properties which
no longer met our return criteria. We also
continued to invest in all three of our geographic
markets and see good opportunities in these
countries for further growth going forward.
Our refocusing of the Group included the
sales: in September of our 10.5% shareholding
in Catena for £113.1 million after costs; and in
November of our remaining corporate bond
portfolio for £34.5 million, having reduced this
holding over recent years. And, in March, we
completed the sale of our 58% shareholding
in First Camp for £28.7 million. All of these
transactions helped achieve our objective
of refocusing the Group to concentrate on
our core property activities.
CLS Holdings plc Annual Report and Accounts 2019 11
In 2019, we agreed the disposal of 28
properties across all three countries for
£187.2 million, four of which completed at the
start of 2020 for £9.2 million. Our disposal
criteria remained unchanged: assets
which were low yielding with limited asset
management potential; investments for
which the risk/reward ratio was unfavourably
balanced, or the alternative use value is
higher; and properties which were too small
to have a meaningful impact. The most
significant disposal was the sale of our UK
regional portfolio of 19 assets for £65.0 million
in December; executing on our strategy to
focus on London and the South East. A case
study on the total return from this investment
is included later in this report. Excluding this
disposal, the remaining properties were sold
for a profit of £15.3 million, being 18% above
book value, and a weighted average net initial
yield of 3.6%.
We are currently progressing several
significant developments and refurbishments,
two of which have been submitted for
planning permission. The submitted
developments are a 10-floor office of 29,000
sq. ft (2,694 sqm) next to our Spring Mews
property in Vauxhall, UK and in Germany
we are looking to replace an existing office
building in Fasanenhof, Stuttgart, with
a new 141,000 sq. ft (13,099 sqm) office
building over 6 floors. The developments
are working their way through the planning
system and we expect decisions in the first
half of 2020 but recognise the possibility
for delays outside of our control. We will
also submit an application later in 2020 for
a 6-floor office of c.43,000 sq. ft (3,995 sqm)
in Maidenhead, UK. In addition, as part of our
portfolio management, we have identified
opportunities to expand the office capacity
at two properties in Germany, as well as an
ongoing refurbishment programme across
the portfolio to drive further rental growth.
Active asset management
The value that our in-house teams create,
and the closeness and interaction with our
tenants, are some of the most important
foundations for our long-term success.
We have seen investors come and go in
our markets, often motivated by short term
trends or the type of properties that are in
vogue at present. We do not believe in that
approach. Our clear focus on offices, our
tenants and the environment in our buildings
builds long-term relationships that encourage
retention and keep vacancy low. To that
end, in 2019 we strengthened our property
management teams in Germany and the
UK with several new hires to continue to give
the right level of service to our tenants.
At 31 December 2019, the value of the
portfolio had increased by 3.0% in local
currencies as a result of revaluation uplifts.
The performance in Germany was again
particularly strong with an increase of 8.4%
driven by rental growth with ERVs growing
5.1% and hardening of capital rates. In the UK,
like for like values increased by 0.3% driven
by rental growth with ERVs growing 1.3%.
However, when acquisition costs of c.6.8%
on the £155.3 million acquisitions completed
in the year are taken into account, overall UK
values fell by 0.3%. France increased by 3.8%
due to ERV growth of 2.5% while capital rates
stayed relatively flat. In aggregate, the fair
value uplifts of the portfolio added 14.1 pence
per share to EPRA NAV (£57.4 million).
The overall Group vacancy rate in 2019
increased marginally to 4.0% (2018: 3.8%) but
remains below our target of 5%. We believe
this 5% target gives an appropriate balance
between capturing income and cash flow,
as well as giving sufficient opportunity to
capture rental growth through new lettings.
In Germany, the net initial yield fell to 5.0%
(31 December 2018: 5.4%) and the vacancy
rate increased to 4.3% (31 December
2018: 4.2%). In the UK, the net initial yield fell
to 5.4% (31 December 2018: 5.6%) following
the sale of the regional portfolio and the
vacancy rate increased to 4.1% (31 December
2018: 4.0%). In France, the net initial yield
fell to 5.2% (31 December 2018: 5.3%)
while vacancies rose to 3.1% (31 December
2018: 2.3%) due to the sale of the fully let
Atelier Victoires.
Financial results
Profit before tax from continuing operations
of £159.0 million exceeded last year
(2018: £144.9 million) with similar revaluation
gains and profit on disposal of properties at
£66.0 million (2018: £65.1 million). However,
the profit on the disposal of our stake in
Catena and the sale of the bond portfolio
of £40.4 million was higher than the gain
last year (2018: £23.9 million).
EPRA earnings fell in 2019 to 12.0 pence
per share (2018: 13.1 pence) through
a combination of several factors including:
strengthening of sterling; and lower finance
income from a comparatively smaller
bond portfolio.
At EPRA NAV level, the higher profit before
tax was offset by higher exchange variances
of £31.4 million (2018: £4.3 million gain) as
Sterling appreciated 6.3% against the Euro.
At the year-end, we had liquid resources of
£259.4 million (2018: £130.6 million) in addition
to £50.0 million of undrawn credit facilities
to deploy into acquisition opportunities.
Section 172 (1) Statement
A description of how the directors have
had regard to the matters set out in
section 172(1)(a) to (f) when performing
their duty under section 172 can be found
on pages 64-69 and are incorporated into
this statement by reference.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 12
Chief Executive’s review continued
Key statistics
Property value
£2.0bn
Contracted rent
£109.3m
No. of properties
97
No. of tenants
779
Total floor space
6.6m sq ft
In 2019, we generated £48.9 million net cash
from operating activities (2018: £48.0 million)
with EPRA earnings of £48.9 million
(2018: £53.5 million). Of this cash, £28.7 million
(2018: £26.5 million) was paid as a dividend
to shareholders. We balance the use of the
cash generated between dividends and
reinvestment in the business to drive the total
accounting return to shareholders.
Sustainability
During 2019, one of the key areas for our
sustainability activities was focused on
embedding our approach to sustainability
and social engagement across all our
activities. This has resulted in a further
reduction in carbon emissions at a property
level which can be seen in the corporate,
social and environmental responsibility
section on pages 48-55.
At the corporate level, we have focused
on our stakeholder engagement, data
transparency and knowledge sharing to
enhance everyone’s understanding of the
impact they have and how they can make
a difference. This approach was carried out
through internal workshops on key subjects,
such as fit-out standards and embodied
carbon. We also conducted workshop days
with our contractors and supply chain looking
at what they can do to ensure they match
our ambition.
Other improvements in the last year saw
us expand the environmental clauses in our
generic leases to foster better collaboration
and data sharing with our occupiers. We also
improved our sustainability due diligence
checks on all new acquisitions and are
continuing our rollout of smart metering
across our existing assets to give us greater
visibility of our impact on the environment.
We are very pleased to have continued to
increase our sustainability scoring in 2019
under both the CDP and GRESB metrics.
Overall, 2019 has been a year of good
progress but we are even more excited
for 2020 as we are implementing some
significant projects to increase our
sustainability performance including targeting
to achieve BREEAM certifications on all
managed assets. We will be setting out more
detail about our results and plans with the
publication of our 5th Sustainability Report
in spring 2020.
Vision and values
CLS takes pride in our workforce, our
culture, and our overall way of engaging
with our employees and our other
stakeholders. Our employee surveys have
shown consistently high scores and we
will be carrying out another survey this
year to ensure that we remain close to our
employees. The introduction of the Workforce
Advisory Panel is another welcome forum
to ensure a greater level of engagement.
As highlighted throughout this report,
we carried out a significant piece of work
to codify and clarify our Purpose, Vision
and Values. Whilst much of what we have
described has been inherent in the way we
have conducted business, the engagement
with all the employees throughout this work
has been valuable to increase everyone’s
alignment with CLS’ ambitions.
Outlook
This year was the end of a period of
repositioning the property portfolio and
increasing the focus of the business.
This transactional activity has built the
foundations for long-term sustainable
earnings growth and reflects our ethos
as a long-term responsible investor with
a successful and consistent track-record.
We finished the year in a strong financial
position with significant liquid resources
albeit we expect lower earnings growth in
the short term as we now invest these funds
into new, high yielding property acquisitions.
Overall, we have a much stronger platform
for long-term future growth.
CLS Holdings plc Annual Report and Accounts 2019 13
We remain committed to the three countries
in which we are invested and see good
potential for further opportunities and growth.
The UK portfolio is now concentrated on
London and the surrounding commuter towns
in the South East. This area remains a strong,
liquid and long-term property market.
The German market continues to present
opportunities with its resilient economy,
positive property fundamentals and a greater
diversification of major cities. In France,
we believe that the limited supply of offices
particularly in Paris and Lyon will drive falling
vacancy and rental growth.
The Group is well positioned and we are
seeing attractive acquisition opportunities,
particularly as the UK political situation has
somewhat stabilised. I look forward to 2020
with confidence and to continuing our focus
on delivering long-term, responsible growth
and value for all our stakeholders.
Fredrik Widlund
Chief Executive Officer
5 March 2020
Westminster Tower, London SE11
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 14
Business model and strategy
Realising value and
reinvesting for the future
Growth through reinvestment
Our corporate objective
is to create sustainable,
long-term value through
owning and actively
managing high-yielding
office properties in key
European cities
We acquire
the right properties
We secure
the right finance
We acquire the right properties
■■ We invest in commercial real estate in
the UK, Germany and France. 89% of our
properties are offices (by contracted rent).
■■ We look to acquire properties in high
quality, non-prime locations with good
transport links and located in key
European cities.
■■ Most of our properties are multi-let to
a wide variety of occupiers, giving us the
opportunity to add value whilst spreading
our risk.
■■ The cost of buying investment properties
is met partly from the Group’s liquid
resources and partly from external
financing. Liquid resources are
supplemented by disposal proceeds
from selling assets which present limited
further opportunities to add value.
■■ We have the ability to move quickly due
to our strong balance sheet.
■■ Our in-house sustainability programme
is focused on mitigating our impact on
climate change and continually improving
our properties.
We secure the right finance
■■ Most of our properties are held in their
own SPVs, and are financed with bank
loans borrowed by the SPV on a non-
recourse basis to the rest of the Group.
■■ We have the flexibility to borrow at
fixed or floating rates of interest and by
borrowing against each asset, we are able
to use a level of gearing suitable to the
specific property.
■■ Where properties are more suited to
being financed together, such as on
the acquisition of a larger portfolio, we
finance them under one loan, often with
the flexibility to withdraw properties
from charge and to substitute others.
■■ Our bank borrowing is typically for five
or seven years, and as most of our debt
is obtained from local banks, we have
active relationships with 27 lenders
around Europe, which spreads our risk.
■■ In everything we do to secure the right
finance, we always generate responsible
profit through creating sustainable long-
term decisions with the environment
in mind.
CLS Holdings plc Annual Report and Accounts 2019 Growth through reinvestment
15
We deliver value through
active management
and cost control
We continually assess
whether to hold or
sell properties
We reward
shareholders, customers,
and employees
We deliver value through active
management and cost control
■■ The key to active management is
to perform it in-house, because, by
using our own employees, we harness
greater motivation, response times and
attention to detail than if tasks were to
be outsourced.
■■ In-house management includes asset
management (leasing), property
management (refurbishments), facilities
management (day-to-day maintenance),
development management, tenant billing
and debt collection, and purchase ledger
and service charge management.
■■ By performing all of these functions
in-house we control costs through
efficient working, and we maintain
our revenue stream through providing
a first-rate service to our customers.
■■ This approach allows us to develop and
embed environmental behaviours across
our managed landscape. This supports
our impact on climate change and gives
our shareholders confidence in our day-
to-day management.
We continually assess whether to hold
or sell properties
■■ Our active management is also applied
at a portfolio level, continually assessing
whether properties meet return criteria
and/or we can continue to add value.
■■ We have an asset management plan
for each asset which we flex depending
upon tenant requirements and leasing
activity. Refurbishments are undertaken
to maintain the portfolio and capture
rental growth.
■■ Our portfolio approach also includes
assessing whether greater value can
be captured through a change of use, for
example, a residential conversion. In such
cases, after planning permission has
been obtained, the property will usually
be sold to a developer.
■■ At the appropriate time, we will also
dispose of properties which are too small
or too low yielding or for which the risk/
reward balance is unfavourable.
■■ One of our decision criteria is the
sustainability rating of the property
and the cost to make enhancements.
Rewarding shareholders, customers,
and employees
■■ Approximately half of our EPRA earnings
are distributed to shareholders.
This represents £30.1 million of the
£48.9 million of EPRA earnings in 2019.
The balance is reinvested in the business,
increasing the size of the Group. In this
way shareholders can be rewarded
partly in cash and partly in the capital
appreciation of their shares. As we are
not a REIT, we are not restricted in the
amount we are required to distribute to
shareholders, which benefits the business
in the longer term.
■■ Our tenants are our customers.
They benefit from a landlord who
understands their needs and who
provides cost-effective accommodation
through investing its profits back into
its business.
■■ We reward employees for their work and
their loyalty, through bonus schemes
which reflect the success of the business,
which aligns their interests with our
shareholders and our customers.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 16
Strategy at a glance
Creating sustainable,
long-term value
Link to business model
Strategy
Strategy implementation
We acquire the
right properties
Invest in high-yielding
properties, predominantly
offices, with a focus on
cash returns
Diversify market risk by
investing in geographical areas
with differing characteristics
Target a low cost of debt
We target modern, high quality properties with good
asset management opportunities in non-prime locations
in larger European cities.
KPIs
TSR – Absolute
TSR – Relative
We invest in the UK, Germany and France and in sterling
and euros.
Total Accounting
Return
We keep the cost of debt well below the net initial yield
of the properties to enhance the return on equity.
Cost of debt
We use interest rate caps and hedges to control interest
rate risk.
We secure the
right finance
Utilise diversified sources
of finance to reduce risk
We maintain strong links with banks and other lending
sources across Europe.
We restrict the exposure of the Group to any one bank.
We usually own properties in single purpose vehicles,
financed by non-recourse bank debt in the currency
used to purchase the asset.
Maintain high level
of liquid resources
We operate an in-house treasury team which manages
cash to maximise returns.
Maintain high
occupancy rates
We use in-house local property managers who maintain
close links with occupiers to understand their needs.
We deliver value
through active
management
and cost control
Maintain a diversified
customer base underpinned by
a strong core income stream
Maintain strict cost control
Focus on holding those
properties with the potential
to add value through active
asset management
Sell those properties which
are low yielding or where
the risk/reward ratio is
unfavourably balanced
We continually
assess whether
to hold or
sell properties
We focus on the quality of service and accommodation
for our customers.
We avoid heavy reliance on any one customer or
business sector.
We perform as many back office functions as possible
in-house, and monitor our performance against our
peer group.
We have an asset management plan for each property
which we flex to capture rental and capital growth via
leasing and refurbishment activity.
We seek to optimise the timing of sales depending on
market conditions, the characteristics of the property
and the overall portfolio composition.
Vacancy rate
Administration
cost ratio
(2018: 96.2%).
■■ We have 779 tenants.
■■ At 31 December 2019 our occupancy rate was 96.0%
■■ We will prioritise letting the vacancies generated
Sustainability risk
■■ 23% of our income is derived from government
occupiers, and a further 25% from major corporations.
■■ We will maintain close and regular contact with
■■ The weighted unexpired lease term is
4.7 years.
■■ Our administration cost ratio for 2019 was 17.7%.
by refurbishments.
■■ We also expect to buy more vacancies in the year
which will receive immediate attention.
customers, particularly those in the UK during the
transition out of the EU.
■■ We will maintain strict financial control on the cost
of running the business as it continues to expand.
TSR – Absolute
TSR – Relative
Total
Accounting Return
■■ Our TSR in 2019 was 47.1%; we came 10th out of 27
■■ We will continue to leverage the CLS in-house
in the FTSE 350 Real Estate Super Sector Index.
management model to maintain customer
■■ Return on equity was 9.7%.
■■ Total Accounting Return was 8.6%.
relationships and underlying value
■■ We will continue to provide affordable rents and
flexible lease terms to meet tenant demand and
so create opportunities to capture above market
rental growth.
limited potential.
■■ We shall continue to dispose of properties with
Political and
economic risk
For more
information
see pages 27 & 29
Business
interruption risk
People risk
For more
information
see pages 27 & 29
Our performance in 2019
Priorities for 2020
Link to principal risks
■■ Our TSR in 2019 was 47.1%; we came 10th out of 27
■■ We shall continue to reinvest disposal proceeds and
Property risk
in the FTSE 350 Real Estate Super Sector Index.
other liquid resources in better prospects.
■■ Return on equity was 9.7%.
■■ Total Accounting Return was 8.6%.
■■ 13 properties acquired for £257.2m at 5.8% NIY.
■■ 28 properties sold for £187.2m at 5.4% NIY (NIY of 3.6%
excluding UK regional portfolio).
■■ We expect those opportunities will include properties
with an element of vacancies for us to address and
add value.
■■ We expect better investment opportunities will arise
in the UK and Germany.
For more
information
see pages 26
■■ Weighted average cost of debt slightly reduced
■■ With 77% of the Group’s debt already at fixed rates,
Financing risk
to 2.42% (2018: 2.43%), the lowest level it has been.
we have the versatility to chose whether to take out
■■ During the year we took out 8 loans for £292.4m at
new loans at fixed or floating rates.
an average interest rate of 2.65%, of which £177.0m
■■ The £134.0m of loans expiring in 2020 will be
was at fixed rates which averaged 2.50%.
refinanced on a case-by-case basis.
For more
information
see pages 28
■■ We intend to maintain at least £100m of
liquid resources to provide the Group with
financing flexibility.
■■ We have 49 loans from 27 lenders.
■■ No bank provides more than 12.6% of
our borrowings.
■■ 80 of our 97 properties are owned by special 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.
■■ At 31 December 2019, we had liquid resources
of £259.4m and undrawn bank facilities of £50.0m.
CLS Holdings plc Annual Report and Accounts 2019
17
Link to business model
Strategy
Strategy implementation
KPIs
Our performance in 2019
Priorities for 2020
Link to principal risks
Invest in high-yielding
properties, predominantly
offices, with a focus on
cash returns
We target modern, high quality properties with good
TSR – Absolute
asset management opportunities in non-prime locations
TSR – Relative
in larger European cities.
We acquire the
right properties
Diversify market risk by
We invest in the UK, Germany and France and in sterling
Total Accounting
investing in geographical areas
and euros.
with differing characteristics
Return
Target a low cost of debt
We keep the cost of debt well below the net initial yield
Cost of debt
We secure the
right finance
Utilise diversified sources
of finance to reduce risk
We maintain strong links with banks and other lending
sources across Europe.
of the properties to enhance the return on equity.
We use interest rate caps and hedges to control interest
rate risk.
We restrict the exposure of the Group to any one bank.
We usually own properties in single purpose vehicles,
financed by non-recourse bank debt in the currency
used to purchase the asset.
Maintain high level
of liquid resources
We operate an in-house treasury team which manages
cash to maximise returns.
Maintain high
occupancy rates
close links with occupiers to understand their needs.
We focus on the quality of service and accommodation
Administration
cost ratio
for our customers.
We deliver value
through active
management
and cost control
Maintain a diversified
We avoid heavy reliance on any one customer or
customer base underpinned by
business sector.
a strong core income stream
Maintain strict cost control
We perform as many back office functions as possible
Focus on holding those
properties with the potential
to add value through active
asset management
Sell those properties which
are low yielding or where
the risk/reward ratio is
unfavourably balanced
We continually
assess whether
to hold or
sell properties
in-house, and monitor our performance against our
peer group.
We have an asset management plan for each property
which we flex to capture rental and capital growth via
leasing and refurbishment activity.
We seek to optimise the timing of sales depending on
market conditions, the characteristics of the property
and the overall portfolio composition.
■■ We shall continue to reinvest disposal proceeds and
Property risk
other liquid resources in better prospects.
■■ We expect those opportunities will include properties
with an element of vacancies for us to address and
add value.
■■ We expect better investment opportunities will arise
in the UK and Germany.
■■ With 77% of the Group’s debt already at fixed rates,
we have the versatility to chose whether to take out
new loans at fixed or floating rates.
■■ The £134.0m of loans expiring in 2020 will be
refinanced on a case-by-case basis.
■■ We intend to maintain at least £100m of
liquid resources to provide the Group with
financing flexibility.
For more
information
see pages 26
Financing risk
For more
information
see pages 28
■■ Our TSR in 2019 was 47.1%; we came 10th out of 27
in the FTSE 350 Real Estate Super Sector Index.
■■ Return on equity was 9.7%.
■■ Total Accounting Return was 8.6%.
■■ 13 properties acquired for £257.2m at 5.8% NIY.
■■ 28 properties sold for £187.2m at 5.4% NIY (NIY of 3.6%
excluding UK regional portfolio).
■■ Weighted average cost of debt slightly reduced
to 2.42% (2018: 2.43%), the lowest level it has been.
■■ During the year we took out 8 loans for £292.4m at
an average interest rate of 2.65%, of which £177.0m
was at fixed rates which averaged 2.50%.
■■ We have 49 loans from 27 lenders.
■■ No bank provides more than 12.6% of
our borrowings.
■■ 80 of our 97 properties are owned by special 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.
■■ At 31 December 2019, we had liquid resources
of £259.4m and undrawn bank facilities of £50.0m.
We use in-house local property managers who maintain
Vacancy rate
■■ At 31 December 2019 our occupancy rate was 96.0%
■■ We will prioritise letting the vacancies generated
Sustainability risk
(2018: 96.2%).
■■ We have 779 tenants.
■■ 23% of our income is derived from government
by refurbishments.
■■ We also expect to buy more vacancies in the year
which will receive immediate attention.
occupiers, and a further 25% from major corporations.
■■ We will maintain close and regular contact with
■■ The weighted unexpired lease term is
4.7 years.
■■ Our administration cost ratio for 2019 was 17.7%.
customers, particularly those in the UK during the
transition out of the EU.
■■ We will maintain strict financial control on the cost
of running the business as it continues to expand.
TSR – Absolute
TSR – Relative
Total
Accounting Return
■■ Our TSR in 2019 was 47.1%; we came 10th out of 27
in the FTSE 350 Real Estate Super Sector Index.
■■ Return on equity was 9.7%.
■■ Total Accounting Return was 8.6%.
■■ We will continue to leverage the CLS in-house
management model to maintain customer
relationships and underlying value
■■ We will continue to provide affordable rents and
flexible lease terms to meet tenant demand and
so create opportunities to capture above market
rental growth.
■■ We shall continue to dispose of properties with
limited potential.
Political and
economic risk
For more
information
see pages 27 & 29
Business
interruption risk
People risk
For more
information
see pages 27 & 29
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information
18
Strategy in action
UK regional portfolio sale:
Executing our complete
strategy
This transaction is a significant step in
implementing our strategy of focusing our
UK portfolio on London and the South East”
We acquire the right
properties
In 2013, we acquired
a portfolio of 34
UK properties for
£118.6m plus costs.
Of this portfolio, one
was located in London
and 31 properties were
regional UK assets
valued at £103.3m
and a net initial yield
of 12.2%.
We secure the right
finance
An £80m, 9 year
portfolio financing was
secured with property
substitution rights.
This arrangement
has provided us with
flexibility to dispose of
properties throughout
the ownership period
whilst meeting
loan covenants.
We deliver value
through active
management and
cost control
During 2017, our
in-house asset
management team
completed lease
renewals with the
Secretary of State for
Communities and Local
Government on 14
properties extending
the weighted average
unexpired lease term to
first break to 6.8 years.
This re-gear added
c.£10m in valuation
gains across the
regional portfolio.
We continually assess
whether to hold or sell
properties
By 2019, 11 assets had
been sold and following
the lease renewals,
there was limited asset
management potential
for the remaining
assets. The sale of 19
assets for £65.0 million
in December 2019
facilitated the refocusing
of the UK portfolio
on London and the
South East.
We reward
shareholders
Throughout the period of
ownership the regional
assets have generated
£66m in rental income
and £50m in net cash
inflows. The portfolio
held its initial value
whilst giving a strong
running yield. Overall the
transaction has delivered
an internal rate of return
of over 20% after tax
which has contributed
to rising dividends and
further investment
across the portfolio.
CLS Holdings plc Annual Report and Accounts 2019 19
32 properties acquired
£103.3m
(£36.2m Equity)
(31 regional, 1 London)
Net Cash Flow
Received
£50.5m
Gross proceeds received
£113.2m
(£67.3m Net of debt)
(27 regional & 1 London sold,
4 assets in process of disposal)
Post Tax Internal
Rate of Return
Over 20%
Lord Cullen House, Aberdeen
Great Oaks House, Basildon
Sidlaw House, Dundee
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 20
Key performance indicators
Measuring the tangible
performance of our strategy
Total Shareholder Return –
Absolute (%)
Total Shareholder Return –
Relative (%)
Total accounting return
(%)
Vacancy Rate
(%)
Administration Cost Ratio
(%)
67.1
47.1
19.0
(16.0)
(12.3)
40
20
0
-20
CLS FTSE RE SS
17.4
16.3
18.8
10.8
8.5
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Definition
Definition
Definition
Definition
Definition
The annual growth in capital in purchasing
a share in CLS, assuming dividends are
reinvested in the shares when paid.1
The annual growth in capital in purchasing
a share in CLS, assuming dividends
are reinvested in the shares when paid,
compared to the TSR of the other 26
companies in the FTSE 350 Real Estate
Super Sector Index.
The aggregate of the change in EPRA NAV
plus dividends paid, as a percentage of the
opening EPRA NAV, which is also known
as Total Accounting Return.
The ERV of vacant lettable space, divided
The administration costs of the Group,
by the aggregate of the contracted
rent of let space and the ERV of vacant
excluding those of the Other Investments
segment, divided by the net rental income
lettable space.
of the Group.
Why this is important to CLS
Why this is important to CLS
Why this is important to CLS
Why this is important to CLS
Why this is important to CLS
This KPI measures the increase in the
wealth of a CLS shareholder over the year.
This KPI measures the increase in the
wealth of a CLS shareholder over the
year, against the increase in the wealth
of the shareholders of a peer group
of companies.
This KPI measures the increase in EPRA
net assets per share of the Company
before the payment of dividends, and
so represents the value added to the
Company in the year.
This KPI measures the potential rental
This KPI measures the administration
income of unlet space and, therefore, the
cost of running the core property business
cash flow which the Company would seek
by reference to the net rental income
to capture.
that it generates, and provides a direct
comparative to most of our peer group.
Our target for 2019
Our target for 2019
Our target for 2019
Our target for 2019
Our target for 2019
In 2019, our target Total Shareholder
Return (absolute) was between 12%
and 16%.
In 2019, our target Total Shareholder
Return (relative) was between the median
and upper quartile.
In 2019, our target Total Accounting Return
was between 6% and 9%.
We target a vacancy rate of between 3%
In 2019, our target administration cost ratio
and 5%; if the rate exceeds 5%, other than
was between 15% and 17%.
Progress
Progress
Progress
In 2019, the Total Shareholder Return of
47.1% reflected the rise in the share price
in the year, which was an outperformance
compared with the median of the sector
which recorded a TSR of 38.5%.
In 2019, the TSR was 47.1%, making
CLS the 10th ranked share of the FTSE
350 Real Estate Super Sector Index
of 27 companies.
In 2019, the Total Accounting Return was
8.6%.
through recent acquisitions, we may be
setting our rental aspirations too high
above the current market; if it is below 3%
we may be letting space too cheaply.
Progress
was 4.0%.
Progress
17.7% (see note 5).
At 31 December 2019, the vacancy rate
In 2019, the administration cost ratio was
CLS Holdings plc Annual Report and Accounts 2019 Business Model and Strategy
We acquire the
right properties
We secure the
right finance
We deliver value through
active management and
cost control
We continually assess
whether to hold or sell
properties
For more information on our Business Model and Strategy see pages 14-17
Total Shareholder Return –
Total Shareholder Return –
Total accounting return
Absolute (%)
Relative (%)
(%)
Vacancy Rate
(%)
Administration Cost Ratio
(%)
5.8
3.8
4.0
15.9
14.9
14.2
17.7
16.0
3.1
2.9
Definition
Definition
Definition
Definition
Definition
The annual growth in capital in purchasing
The annual growth in capital in purchasing
The aggregate of the change in EPRA NAV
a share in CLS, assuming dividends are
a share in CLS, assuming dividends
plus dividends paid, as a percentage of the
reinvested in the shares when paid.1
are reinvested in the shares when paid,
opening EPRA NAV, which is also known
as Total Accounting Return.
The ERV of vacant lettable space, divided
by the aggregate of the contracted
rent of let space and the ERV of vacant
lettable space.
The administration costs of the Group,
excluding those of the Other Investments
segment, divided by the net rental income
of the Group.
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Why this is important to CLS
Why this is important to CLS
Why this is important to CLS
Why this is important to CLS
This KPI measures the potential rental
income of unlet space and, therefore, the
cash flow which the Company would seek
to capture.
This KPI measures the administration
cost of running the core property business
by reference to the net rental income
that it generates, and provides a direct
comparative to most of our peer group.
Our target for 2019
Our target for 2019
We target a vacancy rate of between 3%
and 5%; if the rate exceeds 5%, other than
through recent acquisitions, we may be
setting our rental aspirations too high
above the current market; if it is below 3%
we may be letting space too cheaply.
In 2019, our target administration cost ratio
was between 15% and 17%.
Progress
Progress
Progress
Progress
Progress
In 2019, the Total Shareholder Return of
In 2019, the TSR was 47.1%, making
In 2019, the Total Accounting Return was
47.1% reflected the rise in the share price
CLS the 10th ranked share of the FTSE
8.6%.
in the year, which was an outperformance
350 Real Estate Super Sector Index
compared with the median of the sector
of 27 companies.
which recorded a TSR of 38.5%.
At 31 December 2019, the vacancy rate
was 4.0%.
In 2019, the administration cost ratio was
17.7% (see note 5).
compared to the TSR of the other 26
companies in the FTSE 350 Real Estate
Super Sector Index.
Why this is important to CLS
This KPI measures the increase in the
This KPI measures the increase in the
This KPI measures the increase in EPRA
wealth of a CLS shareholder over the year.
wealth of a CLS shareholder over the
Our target for 2019
In 2019, our target Total Shareholder
Return (absolute) was between 12%
and 16%.
year, against the increase in the wealth
of the shareholders of a peer group
of companies.
Our target for 2019
net assets per share of the Company
before the payment of dividends, and
so represents the value added to the
Company in the year.
Our target for 2019
In 2019, our target Total Shareholder
In 2019, our target Total Accounting Return
Return (relative) was between the median
was between 6% and 9%.
and upper quartile.
21
Other Performance Indicators
In addition to the key performance
indicators of the Group, which are all tied
to executive remuneration, the Group
also has other performance indicators
by which it measures its progress, and
these include:
■■ Cost of debt – we seek to maintain
a cost of debt at least 200 bps below the
Group’s net initial yield. At 31 December
2019, the cost of debt (2.42%) was 251
bps below the net initial yield (4.93%).
■■ Sustainability – we seek to minimise our
impact on the environment by targeting
a reduction in carbon emissions of
25% in the managed portfolio by
2025 (baseline 31 December 2018).
In 2019, we achieved a 3.1% reduction
(2018: 15.9%).
■■ Customer retention – through our
active asset management we seek to
retain more than 50% of our tenants
by value. In 2019, 57.2% of our leasing
transactions were lease renewals
(2018: 52%).
■■ Health & Safety – we work hard to
ensure that the health and safety of
our employees, customers, advisors,
contractors and the general public is
not compromised and pride ourselves
on remaining below the UK National
Accident Frequency rate. For 2019,
the national rate was 930 per 100,000
people; CLS’ was 105. This rate is
calculated by dividing the number
of accidents reported in the year
by the number of people occupying
our buildings.
Link to remuneration
All of the Group’s Key Performance
Indicators are linked to executive
remuneration, see pages 92–103
1. For the purposes of calculating this KPI for
executive remuneration, the market price is
calculated as the average closing share price in
December, not the closing share price at the end
of December, to avoid bonuses being paid based
on distorting fluctuations around the year end.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 22
Stakeholders
Engaging our
stakeholders
Our corporate objective
is to create sustainable,
long-term value through
owning and actively
managing high-yielding
office properties in key
European cities
Our Stakeholders
Why are they important?
We think that engaging with our key
stakeholders is fundamental to our ability
to make well informed decisions which
ultimately have a positive impact on the
business, in the communities in which
we invest and the people with whom
we do business.
Positive engagement and collaboration
with our stakeholders supports the
implementation of our long-term strategy
for growth.
We engage with our stakeholders through
a variety of channels throughout the
year. We have seen a positive impact
on the decisions we have taken during
the year as a result of the input from
stakeholder engagement.
Our vision and values, which can be found
on page 68, reflect how our stakeholders
perceive us and, in turn, how we conduct
ourselves in our interactions with them.
Tenants
How we listened to our stakeholders
■■ Tenant surveys
■■ Tenant meetings
What key topics were raised?
■■ Improvements to communal areas
■■ Input into tenants’ refurbishments
■■ Involvement in sustainability initiatives
■■ Appreciation of in-house teams and fast response
to issues
How did we respond?
■■ Programme of refurbishments
■■ Active asset, property and facilities management
to deal with issues quickly
■■ Enhancing communications through on-line portals
Employees
How we listened to our stakeholders
■■ Employee surveys
■■ Open door policy for raising issues
■■ Our Workforce Advisory Panel
What key topics were raised?
■■ Improvements to workplace policies and practices
■■ Levels of staffing to match growth in portfolio
■■ Increased workforce interaction from Non-Executive
Directors
How did we respond?
■■ Reviewed workplace policies, practices and benefits
■■ Increase number of operational employees
■■ Programme for Non-Executive Director involvement
CLS Holdings plc Annual Report and Accounts 2019 23
Financial institutions
How we listened to our stakeholders
■■ Frequent meetings with all lenders
■■ Presentations from institutions
What key topics were raised?
■■ Changes in legislation
■■ Economic and market research and trends
■■ Ongoing compliance with loan covenants
How did we respond?
■■ Communication of Group strategy at individual
meetings
■■ Regular updates on portfolio changes
■■ Ensuring best practice in compliance reporting
Investors
How we listened to our stakeholders
■■ Q&A session at analyst presentations
■■ Regular meetings with investors
■■ Feedback through our key advisors
What key topics were raised?
■■ Impact of Brexit
■■ Long-term growth strategy
■■ Importance of Group wide sustainability initiatives
How did we respond?
■■ Brexit impact risk assessment
■■ Presentation on long-term growth strategy
to investors and analysts
■■ Refinement of sustainability strategy
The Board
Communities
Suppliers
How we listened to our stakeholders
■■ Supporting local organisations in the areas in which
we invest
■■ Working closely with communities and councils on
refurbishment and development projects
What key topics were raised?
■■ Improvements to public realms
■■ Financial and in-kind support for local charities
and other organisations
How did we respond?
■■ Increase in funding for local charities and
organisations
■■ Increase in the number of volunteering days
■■ Adapted refurbishments/redevelopments in light
of feedback
How we listened to our stakeholders
■■ Quarterly review meetings with principal suppliers
■■ Fair tendering process to ensure we work in
partnership with suppliers
What key topics were raised?
■■ Recognition of the Group’s prompt payment of invoices
■■ Working towards sustainable practices
■■ Support for continual feedback
How did we respond?
■■ Commitment to ensure new contracts pay the London
Living Wage/Living Wage
■■ Ensure communication of Group objectives to enable
collaborative approach
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 24
Risk management
Our approach to risk
Our risk management structure is
illustrated below:
Board
■■ Overall responsibility for risk
management and internal controls
■■ Monitors the long term viability
of the business
■■ Sets strategic objectives
and considers risk as part
of this process
■■ Determines the level of
risk appetite
■■ Sets Executive Committee
delegated authority limits
Audit Committee
■■ Key oversight and assurance
function on risk management,
internal controls and viability
■■ Reports to the Board on
the effectiveness of risk
management processes
Executive Committee
■■ Day to day operational oversight
of risk management
■■ Consideration of business wide
decisions and their impact on
risk appetite
Senior Operations Board
■■ Oversight function of business
activities and risk considerations
■■ Identifies strategic objectives
and assesses risk
Overview
For CLS, effective risk management is key
to creating sustainable, long term value in
a responsible manner. Whilst the ultimate
responsibility for risk management sits
with the Board, the effective day-to-day
operational management of risk lies with
the Executive Committee.
This operational risk management is essential
to: enable the business 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.
Risk Management Framework
The risks, being both principal and emerging,
which the Group faces are reviewed and
monitored in Senior Operations Board
meetings throughout the year and presented
to the Board and Audit Committee at least
every six months for further discussion and
oversight. The Senior Operations Board
comprises the CEO and CFO, a representative
from each regional business as well as core
Group functions such as HR and IT.
In addition, major business wide decisions
such as property acquisitions, disposals and
significant strategy changes are discussed
at the Executive Committee Meetings and
reviewed by the Board before implementation,
subject to authorisation limits. The Executive
Committee meets weekly and comprises the
CEO, CFO and Head of Group Property.
Risk management processes, which also
include health and safety, human resources
and sustainability risk management, are
employed within the business and updates
are reported to the Board at each meeting.
Each business area operates a process to
ensure that key risks are identified, evaluated,
managed and reviewed appropriately.
For example:
■■ a monthly asset management portfolio
review is prepared and circulated to the
Board which outlines key business risks,
developments and opportunities; and
■■ the development team convenes risk
and opportunity workshops with the
design team at the feasibility stage of
development projects. Regular reviews
are then part of the design development
to ensure the continuous identification
and management of risks throughout
the development process.
An update on risks and the control
environment is presented at each Audit
Committee meeting, including the results
of internal control review procedures
undertaken in the period.
The potential risks associated with loss
of life or injury to members of the public,
customers, contractors or employees
arising from operational activities are
continually monitored. Competency checks
are undertaken for the consultants and
contractors we engage and regular safety
tours of our assets are undertaken by the
property management team.
In addition, the wellbeing of our employees
is a key value for the Group and various
activities are supported by the Board
including the delivery of annual mental
health workshops and company-funded
employee contributions to promote healthy
lifestyle initiatives such as gym memberships.
In this way some of the people risks are
somewhat mitigated.
CLS Holdings plc Annual Report and Accounts 2019 25
Risk appetite
The Board recognises its overall responsibility for undertaking a robust risk assessment and for establishing the extent to which it is willing
to accept some level of risk to deliver its strategic priorities.
Our risk appetite is reviewed at least annually and assessed with reference to changes both that have occurred, or trends that are beginning
in the external environment, and changes in the Principal risks and their mitigation. These will guide the actions we take in executing our strategy.
Whilst our appetite to risk will vary over time, in general we maintain a balanced approach to risk. The Group allocates its risk appetite into
five categories:
Very Low:
Low:
Medium:
High:
Very High:
Avoid risk and uncertainty
Keep risk as low as reasonably practical with very limited, if any, reward
Consider options and accept a mix of low and medium risk options with moderate rewards
Accept a mix of medium and high risk options with better rewards
Choose high risk options with potential for high returns
The Board has assessed its risk appetite and current status for each of the Group’s Principal Risks as follows:
Property
Sustainability
Business
Interruption
Financing
Board Risk Appetite
Principal Risk Status
Medium
Medium
Medium
Medium
Low
Medium
Low
Low
Political &
Economic
Medium
High
People
Medium
Medium
The Board’s risk appetite in relation to the Group’s principal risks is broadly aligned. As shown in the table above, there is divergence of risk
appetite and risk status in relation to business interruption and political and economic principal risks. The Board accepts there are factors in
relation to these principal risks that are outside of the Group’s control and are likely to change over time. Mitigating actions have been put in place
to ensure these risks are adequately managed and monitored to reduce the potential impact on the Group. The Board also recognises that not all
risk can be fully mitigated and that they need to be balanced alongside commercial considerations.
Our risk assessment
Risk heatmap
The risk heatmap illustrates the relative
positioning of the potential impact and
probability of the Principal Risks on the
Group’s strategic objectives, financial
position or reputation after mitigation.
Internal or external forces, or a combination
of both, will continuously have the potential
to alter this positioning and hence these
risks are closely monitored within our
risk management framework throughout
the year.
Key
1 Property
2 Sustainability
3 Business Interruption
4 Financing
5 Political & Economic
6 People
i
h
g
H
y
r
e
V
t
c
a
p
m
I
w
o
L
3
4
1
5
2
6
Low
Probability
Very High
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information
26
Principal risks and uncertainties
Principal risks
We do not consider there has been any material change to the nature of the Group’s Principal Risks over the last 12 months however
several risks have had a change in risk profile as a result of internal or external forces, or a combination of both. The principal risks,
the Board’s appetite for risk in these areas in the context of executing our strategy and the focus of our risk mitigation actions are
set out below.
Property risk
Market fundamentals and/or internal behaviours lead to adverse changes to capital
values of the property portfolio or ability to sustain and improve income generation from
these assets.
Risk assessment:
Medium
Change in risk profile in year:
No change
Key Risk Indicators
KPI Link
Business
Model Link
Risk Mitigation in Action
Risk Mitigation Priorities for 2020
■■ Cyclical downturn
■■ TSR(A)
■■ TSR(R)
■■ TAR
■■ VR
■■ ACR
in property
market which
may be indicated
by an increase
in yields
■■ Changes in
supply of space
and/or occupier
demand
■■ Poor property/
facilities
management
■■ Inadequate due
diligence and/or
poor commercial
assessment of
acquisitions
Continue to target properties with asset
management opportunities in good
non-prime locations.
Continue to leverage the CLS in-house
management model to maintain close links
with our customers in order to understand
their needs and to provide timely insights
into potential occupier/property issues and
facilitate resolution, thereby maintaining
relationships and underlying value.
Continue to focus on disposing of properties
with limited potential and reinvest the
proceeds in locations and properties with
the opportunity to add value through active
asset management.
In the UK, 20 regional properties were
disposed of as a portfolio during the
year which has increased the focus
of the UK portfolio to London and
the South East which we believe has
stronger long-term fundamentals.
Disposals of a further eight
properties across the business
were agreed in 2019; being assets
which were low yielding with limited
asset management potential or
where the risk/reward ratio was
unfavourably balanced.
As part of our diversified approach,
acquisitions continue to be made
in the UK, Germany and France in
line with the strategic objective to
grow both rental income and capital
returns through filling vacancies
and refurbishment. However,
given some increased competition,
we have continued to be resolute
with our pricing discipline in
assessing opportunities.
Focused review of the strength of the
tenant covenant when assessing new
lease opportunities.
Business Model and Strategy
Key Performance Indicators (KPIs)
We acquire the
right properties
We secure the
right finance
We deliver value
through active
management and
cost control
We continually
assess whether
to hold or sell
properties
TSR(A) Total Shareholder Return (Absolute)
TSR(R)
Total Shareholder Return (Relative)
TAR
VR
ACR
Total Accounting Return
Vacancy Rate
Administration Cost Ratio
For more information on our Business Model and Strategy
see pages 14-17
For more information on our key performance indicators
see pages 20-21
CLS Holdings plc Annual Report and Accounts 2019 27
Sustainability risk
As a result of a failure to plan properly for, and act upon, the potential environmental and
social impact of our activities, changing societal attitudes, and/or breach of any legislation,
this could lead to damage to our reputation and customer relationships, loss of income
and/or property value, and erosion of shareholder confidence in the Group.
Risk assessment:
Medium
Change in risk profile in year:
No change
Key Risk Indicators
KPI Link
Business
Model Link
Risk Mitigation in Action
Risk Mitigation Priorities for 2020
■■ TSR(A)
■■ TSR(R)
■■ TAR
■■ VR
■■ ACR
Transition risks:
■■ These include
regulatory
changes,
economic shifts,
obsolescence
and the changing
availability
and price of
resources.
Physical risks:
■■ These are
climate-related
events that affect
the buildings’
physical nature;
they include
extreme weather
events, pollution
and changing
weather patterns.
All transition risks for new
acquisitions were reviewed through
an improved Group risk register.
Ongoing risk review of environmental
legislation for upcoming changes.
CLS is working with our supply chain
to encourage the signing of our
Sustainable Partnership pledge
CLS reviews all physical climate-
related risks through operational
risk management procedures; each
building is reviewed annually
Asset-level environmental due
diligence reviews were conducted
on all new acquisitions
Increased monitoring of all carbon-related
activities, both directly and indirectly, is
a priority for 2020 given an increase in
government policies around reporting the
carbon impact on supply chain and direct use.
Continue to maintain our active energy
reduction programme on existing assets
while also identifying potential climate-
related physical risks on new acquisitions.
Sustainability assessment will continue to be
a key focus of asset management decision-
making across the business in each region.
Business interruption risk
Data loss or disruption to corporate or building management systems or catastrophic
external attack or disaster may limit the ability of the business to operate resulting in negative
reputational, financial and regulatory implications for long term shareholder value.
Risk assessment:
Medium
Change in risk profile in year:
No change
Key Risk Indicators
KPI Link
Business
Model Link
Risk Mitigation in Action
Risk Mitigation Priorities for 2020
■■ Cyber threat
■■ Large scale
terrorist attack
■■ Environmental
disaster, power
shortage or
pandemic
■■ TSR(A)
■■ TSR(R)
■■ TAR
■■ VR
■■ ACR
A periodic independent review of
the Group’s cybersecurity (including
penetration testing) was carried
out during the year. Highlighted risk
areas have been addressed, including
mandatory cybersecurity training
for staff.
Implementation of market-leading
cloud based IT solutions and
increased use of portable technology
by employees has streamlined data
back-up and significantly reduced the
reliance on a physical office premises
to ensure business continuity.
Annual review of each property
specific emergency plan which
considers a range of different
physical, utility and catastrophic risks.
Review and update the Group’s business
continuity plan.
Re-run independent cybersecurity review,
implement multi-factor authentication on
user access, and obtain ‘Cyber Essentials’
certification.
Continue to assess, and revise where
relevant, the Group’s insurance coverage.
In light of recent, heightened risks around
pandemics, we are reviewing staff safety
measures and remote working practices.
A focus for remote working is to ensure that
there is the necessary system infrastructure
to cope with a potential increase in the
volume of remote access as well the ability
to carry out key operational procedures such
as payment authorisations.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 28
Principal risks and uncertainties continued
Financing risk
The risk of not being able to source funding in cost effective forms will negatively impact
the ability of the Group to meet its business plans or satisfy its financial obligations.
Risk assessment:
Low
Change in risk profile in year:
Decreased
Key Risk Indicators
KPI Link
Business
Model Link
Risk Mitigation in Action
Risk Mitigation Priorities for 2020
■■ TSR(A)
■■ TSR(R)
■■ TAR
■■ Inability to
refinance debt at
maturity due to
lack of funding
sources, market
liquidity etc.
■■ Unavailability
of financing
at acceptable
debt terms
■■ Risk of rising
interest rates on
floating rate debt
■■ Risk of breach
of loan covenants
■■ Foreign currency
risk
■■ Financial
counterparty risk
■■ Risk of not having
sufficient liquid
resources to
meet payment
obligations when
they fall due
The Group continues to maintain a
wide number of banking relationships
to diversify funding sources.
During the year the Group raised
new debt, or refinanced existing debt,
totalling £292.4 million via 8 separate
loan facilities and 8 separate lenders.
Debt maturity profile improved with
refinancing of largest single asset of
the Group extending debt maturity on
this property from 2021 to 2024.
During the year, 61% of new debt
drawn in 2019 was fixed at an average
rate of 2.50%, which significantly
mitigated the risk associated
with fluctuations in interest rates.
The Group’s weighted average cost of
debt at 31 December 2019 was 2.42%.
The Group’s exposures to the Swedish
krona and US dollar were significantly
reduced in the year with the disposal
of equity interests in First Camp and
Catena and the liquidation of the
corporate bond portfolio, which also
contributed to a significant increase in
liquid resources for the Group.
The Group currently has facilities with
27 lenders and will continue to maintain its
existing relationships and develop new ones,
whilst also exploring the feasibility of other
funding sources in 2020 to further diversify
funding sources and achieve longer tenor
of debt.
The Group will continue to focus on its core
financing risk mitigation strategies including:
■■ Obtaining bids from multiple
counterparties to compete for new lending;
■■ Fixing a high proportion of new debt, in
particular in France and Germany due to
the negative interest rate environment;
■■ Ensuring that new debt facilities have
appropriate covenants and provisions to
allow borrower cure of covenant breaches;
■■ Matching foreign currency liabilities with
foreign currency assets by borrowing in
the local markets to create natural hedge
relationships;
■■ Monitor lender exposure and ensure that
no one lender represents more than 20%
of total Group debt; and
■■ Manage cash balances with the aim of
maintaining a minimum of £100m of
liquid resources on average to mitigate
refinancing and liquidity risk.
Business Model and Strategy
Key Performance Indicators (KPIs)
We acquire the
right properties
We secure the
right finance
We deliver value
through active
management and
cost control
We continually
assess whether
to hold or sell
properties
TSR(A) Total Shareholder Return (Absolute)
TSR(R)
Total Shareholder Return (Relative)
TAR
VR
ACR
Total Accounting Return
Vacancy Rate
Administration Cost Ratio
For more information on our Business Model and Strategy
see pages 14-17
For more information on our key performance indicators
see pages 20-21
CLS Holdings plc Annual Report and Accounts 2019 29
Political and economic risk
Significant events or changes in the Global and/or European political and/or economic
landscape may increase the reluctance of investors and customers to make timely decisions
and thereby impact the ability of the Group to plan and deliver its strategic priorities in
accordance with its core business model.
Risk assessment:
High
Change in risk profile in year:
Increased
Key Risk Indicators
KPI Link
Business
Model Link
Risk Mitigation in Action
Risk Mitigation Priorities for 2020
■■ Transition of the
UK exit from the
EU
■■ Global
geopolitical
and trade
environments
■■ TSR(A)
■■ TSR(R)
■■ TAR
■■ VR
■■ ACR
A range of scenarios were modelled
to determine how various changes to
property values, rental income and
interest cost may impact the business
model and funding. This review
also provided a key input into the
conclusions formed in the Viability
Statement on page 31.
Continue to maintain geographical, customer
and financing diversification of the business
model and continue to monitor potential
implications of the UK’s transition out of
the EU.
Where appropriate, we will continue
to engage in relevant industry forums
to discuss and contribute to policy and
regulatory changes that may have a direct
or indirect impact on the property sector
and our business.
People risk
The failure to attract, develop and retain the right people with the required skills, and in an
environment where employees can thrive, will inhibit the ability of the Group to deliver its
business plans in order to create long term sustainable value.
Risk assessment:
Medium
Change in risk profile in year:
No change
Key Risk Indicators
KPI Link
Business
Model Link
Risk Mitigation in Action
Risk Mitigation Priorities for 2020
■■ TSR(A)
■■ TSR(R)
■■ TAR
■■ VR
■■ ACR
■■ Failure to
recruit senior
management and
key executives
with the right
skills
■■ Staff turnover
levels
■■ Lack of
succession
planning
■■ Poor employee
engagement
levels
We will be undertaking the next staff survey
in 2020 to receive feedback on the actions
completed since the last survey and to
identify any improvements.
Continue workforce engagement through the
Workforce Advisory Panel, Group training
activities and events.
Continue to ensure remuneration and
benefits are at market levels.
Annual review of succession planning at all
levels to be presented to the Board.
Continuation of our health and
wellbeing programme.
Ensure we have appropriate systems in place
to allow employees to perform at their best,
in line with our vision and values.
Our succession plans were
implemented during the year as
a new independent chairman was
appointed as well as two new non-
executive directors. In addition, a new
CFO joined the Group following the
retirement of John Whiteley in June.
Establishment of Workforce Advisory
Panel to improve workplace practices
and policies. The Panel is chaired
by a Non-Executive Director and
comprises members of staff from
each region.
Annual review of salary and benefits
for each employee to ensure they are
at appropriate levels.
Annual appraisal process focussing
on future development opportunities
Continued high levels of training
and development.
Ensuring we have a modern
workplace and work practices,
including effective IT systems.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 30
Principal risks and uncertainties continued
Emerging risks
We define emerging risks to be those that may either materialise or impact over a longer timeframe. They may be a new risk, a changing risk
or a combination of risks for which the broad impacts, likelihoods and costs are not yet well understood, and which could have a material effect
on CLS’ business strategy.
Emerging risks may also be superseded by other risks or cease to be relevant as the internal and external environment in which we operate
evolves. The Senior Operations Board, which has representatives from each area of the business, is tasked with identifying emerging risks for
the business and discussing what impact these risks may have on the business and what steps we should be taking to mitigate these risks.
The Board reviews these assessments on an annual basis.
A non-exhaustive list of some of the current emerging risks relevant to the Group and time when they may have a material effect on the business
are set out below:
Risk
Potential Impact
Mitigation
Time Horizon
Short
< 2yrs
Medium
2-5 yrs
Long
> 5 yrs
Regulation/
compliance
Increased capital cost of
maintaining property portfolio
Increasing
energy costs
Changes
in technology
Increased cost base of
operating properties will
reduce attractiveness of
tenancies to existing and
potential customers
The challenge to adapt office
facilities to changing work
practices/environment
expectations of customers
Changes in office
occupation trends
Workforce
Climate change
Changes in social attitudes to
agile working practices may
reduce demand for space
compared to historic trends
Failure to adapt to evolving
expectations of an
intergenerational working
population may reduce
attractiveness as an employer
in the market
Continue with ongoing assessment of all
properties against emerging regulatory
changes and benchmarking of fit-out
and refurbishment projects against
third-party schemes.
Ongoing consideration of, and investment
in, energy efficient plant and building-
mounted renewable energy systems.
Each region updates the Senior Operations
Board on trends, including technology,
through the business. The in-house
management model also gives valuable
insights into tenants’ ongoing needs
and potential trend changes that can
be incorporated into future fit-out
of properties.
In-house asset management model
provides the means for the property team
to: proactively manage customers; and
gain real-time insight and transparency
on changes in needs and trends.
The establishment of the Workforce
Advisory Panel and the staff survey
process provide forums for employees
to communicate views on the working
environment. The Group also interacts
with recruitment agents to keep abreast
of trends in the employment marketplace.
Increased risk of weather
related damage to property
portfolio and reputational
impact of not evolving
sustainability goals in line with
global benchmarks and/or
public expectations.
Our sustainability strategy continues
to evolve and has been developed in
alignment with Global Real Estate
Sustainability Benchmarks (GRESB),
consideration of the UN Sustainable
Development Goals (SDGs) and climate
risk modelling.
CLS Holdings plc Annual Report and Accounts 2019 31
Going concern
The current macro-economic conditions have
created a number of uncertainties as set out
on the previous pages. The Group’s business
activities, and the factors likely to affect its
future development and performance, are
set out in this Strategic Report. The financial
position of the Group, its liquidity position
and borrowing facilities are described in the
Strategic Report and in notes 17 and 20 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 further details of this
analysis are set out in the Viability Statement
on this page. Therefore, the Directors continue
to adopt the going concern basis in preparing
the annual report and accounts.
Viability Statement
In accordance with Provision 31 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, including
the potential impact of Brexit. The Board
considers this period to be the most
appropriate as it provides a detailed and
realistic forecast. The forecast is built up
from a tenant level and considers the Group’s
weighted average lease length of 4.7 years
(2018: 5.3 years) and the maturity profile of
the Group’s debt of 3.5 years (2018: 3.5 years).
The forecasts provide a comprehensive view
of the Group’s entire operation, covering:
■■ cash flows;
■■ financial resources;
■■ long-term funding;
■■ capital expenditure commitments; and
■■ administration costs;
Cash flow forecasts are updated weekly
and reviewed by the executive directors.
The budget and three year forecasts are set
in November and updated in May and August
to take into account changes to assumptions
and 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.
The Committee remained of the view that
the statement should correspond with the
way in which the Group models its forecasts,
being the current year plus a further three
years. The way in which the model was stress
tested for changes in the Group’s operating
environment were considered appropriate
and clearly supported the statement.
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.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 32
Business review: United Kingdom
Refocusing for
long-term growth
UK properties
London
South East
Birmingham
Aberdeen
Salford Quays
Norwich
33
8
1
1
1
1
451
Reading
Maidenhead
Uxbridge
Bracknell
Staines
Harrow
Teddington
Central
London
New Malden
Wallington
Sidcup
Bromley
Leatherhead
Coulsdon
Reigate
Crawley
Value of investment
properties
Percentage of Group’s
property interests
£1,059.8m
53%
Number
of properties
45
Number
of tenants
253
Vacancy
rate
4.1%
Lettable
space
2.2m sq ft
Government and
major corporates
Weighted average lease
length to end
57.0%
4.8 years
1. As at the year-end three properties were exchanged to be sold and completed in the first two months of 2020. The disposals were Norwich and Salford Quays, and Sidcup in London.
CLS Holdings plc Annual Report and Accounts 2019 33
Acquired/Refurbishment started
2010/2019
Office building
96,000 sq ft
Location
7 High Street
The office space, comprising ground to 15th floor, is wholly
let to BAE Systems. New arrangements have been agreed with
the tenant to allow CLS to refurbish c.50% of the building to
a Grade A standard. The refurbishment includes the conversion
of one office floor into our new flexible workspace brand
“Base Offices” as well as providing an enhanced reception
and well-being facilities, whilst retaining the tenant in the
remaining half of the building.
Developments and refurbishments
In 2019, a planning permission application
was submitted for a new 29,000 sq. ft (2,694
sqm) 10-floor, office development at Vauxhall
Walk next to our Spring Mews property and
we expect a decision in the first half of 2020.
During 2020 we will submit an application
for a 6-floor (43,000 sq. ft (3,995 sqm)) office
development in Maidenhead.
A number of refurbishments to capture
rental increases are ongoing with the most
significant: at Apex Tower, as highlighted
above; and about to start at Prescot Street.
Smaller schemes are taking place at CI Tower
and Great West House as well as a rolling
programme at Chancery House.
Valuation
The UK portfolio was valued at £1,059.8 million
at the year end, which reflects a 0.3% year
on year valuation decrease. The like for like
valuation increase was 0.3% but the valuation
fell after taking acquisition costs into account.
The yield fell to 5.4% (2018: 5.6%) reflecting
the sale of the UK regional portfolio. Like for
like contracted rents rose by 1.3% whilst ERVs
increased by 1.3%.
Disposals
In 2019, we exchanged on the disposal of
23 properties for £94.1 million with three of
these properties, for £8.4 million, completing
at the start of 2020. As set out on pages 18-19,
the most significant transaction was the
disposal of the UK regional portfolio of 19
properties for £65.0 million. Following major
lease re-gears, the properties had less active
asset management potential and the sale
of the portfolio is in line with our strategy of
actively recycling our capital and focusing the
UK portfolio on London and the South East.
The average net initial yield of all the disposals
was 6.9% but this is distorted by the strategic
decision to exit the regions with the net initial
yield on the other disposals being 2.9%.
Asset management
The vacancy rate in the UK slightly increased
to 4.1% at 31 December 2019 (2018: 4.0%)
largely driven by the acquisition of some
vacancy and the disposal of the fully-let UK
regional portfolio. In 2019, we let or renewed
leases on 261,133 sq. ft (24,260 sqm) and lost
303,327 sq. ft (28,180 sqm) of space from
expiries or new vacancies. Excluding those
arising from contractual indexation uplifts,
67 rent reviews, lease extensions and new
leases added £6.8 million of rent at an
average of 2.2% above 31 December 2018
ERVs. The portfolio was 9.2% reversionary
at the year end.
Apex Tower, New Malden
Market overview
The UK economy held up well in 2019, with
GDP growth of 1.4%. For much of the year the
property market was influenced by Brexit and
other economic uncertainty which led to less
movement of tenants and significantly lower
investment volumes (2019: c.£55 billion, 2018:
c.£65 billion). However, CLS outperformed
this trend with greater letting activity than
in 2018 and also found more acquisition
opportunities as a result of less active
institutional buyers. Going forward we see
further opportunities with London and
the South East remaining attractive given
supportive long-term fundamentals.
Acquisitions
As highlighted, the UK market remains
attractive with CLS exchanging on
9 acquisitions in and around London for
£188.1 million at an average net initial
yield of 5.8%. Two of the acquisitions for
£32.8 million completed at the start of 2020.
On the whole, the acquisitions presented
active asset management opportunities in
terms of lease re-gears, vacancy reduction
and/or refurbishment to capture higher rents.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 34
Strategy in action: United Kingdom
Acquisition of Prescot Street,
London
Located on the fringe of the City we can
utilise our asset management expertise
to deliver value over the long term”
We acquire the right properties
This acquisition is a clear demonstration of our
ability to undertake transactions on an opportunistic
basis where we can utilise our asset management
expertise to deliver value over the long-term in line
with our strategy. The property’s excellent location
and attractive potential make this an exciting
opportunity for CLS.
Location
Prescot Street is located on the fringe of the City of London in the
Aldgate area, which continues to undergo significant regeneration,
including the new Chinese Embassy at the former Royal Mint site,
and is close to multiple key transport links including Fenchurch
Street, Tower Hill, Aldgate East and Shadwell stations.
Property
The freehold property comprises 96,948 sq ft (9,007 sqm) of
multi-let office space over seven floors and is 100% let to four
tenants with a weighted average unexpired lease term of 2 years
to breaks. The Lower Ground to 3rd floor is currently occupied by
a single tenant with a lease that is due to expire in 2021, the area
has not been refurbished for a number of years and provides CLS
with an opportunity to undertake a substantial refurbishment of
this space and to capture significant reversionary rental upside
upon completion.
Opportunity
The property, which was acquired at a capital value of £555 per
sq. ft and a net initial yield of 4.5%, has significant reversionary
rental upside to deliver an estimated yield approaching 8% through
active asset management. Current contracted rental income
of £2.56 million equates to £26.41 per sq ft and CLS intends to
undertake a substantial refurbishment to deliver high-quality
space in an improving area with limited supply.
CLS Holdings plc Annual Report and Accounts 2019
35
Number of tenants
4
Over 7 floors
Weighted average unexpired lease term
to breaks
2 years
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 36
Business review: Germany
Actively looking to
invest in larger cities
Germany properties
Hamburg
Munich
Hamburg
Munich
Stuttgart
Berlin
Düsseldorf
Dortmund
Cologne
Freiburg
Wiesbaden
Bochum
10
7
3
2
2
2
1
1
1
1
30
Bahrenfeld
Stellingen
Altona
Hamburg
Airport
Barmbek
Wandsbek
St Pauli
City Sud
Hafencity
Munich
Airport
Ismaning
Unterföhring
Sendling-
Westpark
Locham
Germering
Altstadt
Martinsried
Neuperlach
Harburg
Value of investment
properties
£667.0m
Percentage of Group’s
property interests
33%
Number
of properties
30
Number
of tenants
349
Vacancy
rate
4.3%
Lettable
space
3.2m sq ft
Government and
major corporates
Weighted average lease
length to end
30.7%
4.6 years
CLS Holdings plc Annual Report and Accounts 2019 37
Sold
July 2019
Office building
184,321 sq ft
Location
Kapellenstrasse 12, Feldkirchen
The property, previously the headquarters of a medical
technology company, was vacated in January 2017. The offices,
which had been purchased for €29 million, were transformed
following an €8 million refurbishment into a multi-let, high tech
hub which was over 90% let before sale. It was sold in July 2019
for €45.3m achieving a profit before costs of €2.5m or 6.4% above
December 2018 book value.
East Gate, Munich
Market overview
The German economy, which is heavily
export-led, slowed somewhat in 2019 but still
grew by 0.6% given robust consumer and
service sectors. Despite some manufacturing
job losses, overall employment stood at
record levels. In the office market, vacancy
levels were at record lows and investment
volumes were at record highs (2019:
c.€70 billion, 2018: c.€60 billion). These two
factors drove growth in capital values and
rents. Market sentiment for 2020 remains
positive with investors viewing Germany as
a “safe-haven” given its diversified economy,
which is forecast to grow in 2020, and low
interest rates. Whilst the supply pipeline
has increased, more than half of the supply
under construction is pre-let. The continued
demographic shift to the larger cities also
reinforces our strategic focus in Germany.
Acquisitions
In 2019, despite strong competition,
we acquired two well-located, multi-let
offices in Germany for a combined total of
€62.5 million. PURO in Munich, comprising
140,717 sq. ft (13,073 sqm), was acquired for
a net initial yield of 5.1% and a reversionary
yield of c.6.4%. Office Connect in Cologne,
comprising 140,491 sq. ft (13,052 sqm), was
also acquired for a net initial yield of 5.1%
with a reversionary yield estimated to be
over 6%. Further details are given on the
following pages. In total, we submitted offers
for properties worth over €1 billion but we
were not willing to comprise on price and/or
due diligence. We will maintain this discipline
going forward but continue to look for
acquisition opportunities, particularly those
with reversionary potential or the ability to
increase the lettable space.
Disposals
We continued, on a selective basis, to sell
properties where we have driven value
through active asset management but which
now have a less favourable long-term risk/
return profile. In July, we exchanged on two
disposals, for a combined €57.2 million at
a net initial yield of 4.1%, which completed
before the end of September. As highlighted
above, East Gate in Munich was sold for
€45.3m. The property, which was refurbished
and then re-let, achieved a profit on sale
of €2.5m. Schanzenstrasse in Düsseldorf
was sold for €11.9 million, 76% above the
31 December 2018 valuation. The office
property, which was close to obsolescence,
was sold to a local residential developer.
Asset management
The vacancy rate in Germany increased
to 4.3% (2018: 4.2%) due to letting activity.
We let or renewed leases on 316,468 sq.
ft (29,401 sqm) and lost 340,255 sq. ft
(31,611 sqm) of space from expiries or new
vacancies. Excluding those arising from
contractual indexation uplifts, 60 rent reviews,
lease extensions and new leases added
€7.0 million of rent at an average of 6.6%
above 31 December 2018 ERVs. On a like-for-
like basis, ERVs rose by 5.1% in the year and
at the end of 2019 the portfolio was 12.6% net
reversionary. As a result of increasing local
ERVs, we expect further rental growth to be
captured in 2020 through letting vacant or
existing space.
Developments and refurbishments
Our existing portfolio offers a number
of development and refurbishment
opportunities. The most significant
development, which we are currently
pursuing, is for our Vor dem Lauch building
in Stuttgart. Planning for a new office
development with c.141,000 sq. ft (13,099
sqm) lettable space, over 50% larger than
the current building, was submitted in August
2019 with a planning decision expected in
spring 2020. In addition, we are progressing
extension opportunities for: c.2,000 sqm
at Bochum for our existing tenant with
a planning decision expected in spring 2020;
and c.3,500 sqm at Adlershofer Tor in Berlin
with a planning application submission
expected in the first quarter of 2020.
Valuation
The German portfolio was valued at
€785.9 million at the year end, which reflects
an 8.4% year on year valuation increase in
local currency and a net initial yield of 5.0%
(2018: 5.4%). The main drivers have been
the increase in ERVs especially in Berlin and
Munich plus the ongoing yield compression in
all markets in which CLS is invested. Like-for-
like ERVs increased by 5.1% and like-for-like
contracted rent by 1.2% as we have actively
sought to capture rental growth.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 38
Strategy in action: Germany
Acquisition and
financing of Office
Connect, Cologne
This acquisition gives us an
opportunity to utilise our in-house
asset and property management
teams to deliver value to our
investors over the long-term”
Cologne has been an area of interest for CLS for several years and this transaction allows
us to enter the market at an exciting time.
We acquire the right properties
Office Connect is one of the most prominent properties in the Airport
Business Park in Cologne, a well-connected and growing destination in
the south of Cologne between the city centre and Cologne-Bonn Airport.
The property is located adjacent to the S-Bahn station, Köln Frankfurter
Strasse. The building is a well maintained and modern office building,
with a strong tenant mix and a popular restaurant on the ground floor.
The property consists of an 11-storey tower and five-storey lower
main building. It is easily sub-dividable, making it both flexible and
easy to re-let.
We secure the right finance
The building was financed with a new lender, a local savings bank
in Cologne. The financing arrangement provides a 65% loan-to-value
facility for 7 years at an all-in fixed rate of 0.92%. This arrangement
provides further diversification of our debt portfolio and establishes
a local presence in Cologne.
CLS Holdings plc Annual Report and Accounts 2019
39
Acquired September 2019 for
€25.1m
Net Initial Yield
5.1%
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 40
Business review: France
Delivering value from
existing assets
France properties
Paris
Paris
Lyon
Lille
14
5
3
221
La Garenne-
Colombes
Gennevilliers
6th Arr.
Lyon
Villeurbanne
Courbevoie
La Défense
Rueil-Malmaison
Levallois-
Perret
9th Arr.
PARIS
Brotteaux
Gare de Lyon
Part-Dieu
Boulogne-Billancourt
La Part-Dieu
Montrouge
3rd Arr.
Value of investment
properties
£285.3m
Percentage of Group’s
property interests
14%
Number
of properties
22 1
Number
of tenants
177
Vacancy
rate
3.1%
Lettable
space
0.9m sq ft
Government and
major corporates
54.5%
Weighted average
lease length to end
5.0 years
1. As at the year-end one property, 62 Avenue Foch in Paris, had exchanged to be sold and completed in January 2020.
CLS Holdings plc Annual Report and Accounts 2019 41
Acquired
March 2019
Office building
44,756 sq ft
Location
1 Rue Jean Walter
A four-year-old multi-let office building located in the south
of Lille, fully let to five tenants with a WAULT of 3.5 years.
The property has an annual net rent of €0.7 million, reflecting
a net initial yield of 6.6% giving a high quality, high-yielding
office property with scope for strong returns. Lille is the third
largest office market in France with vacancy level of only 4%.
The city is experiencing widespread regeneration and has fast
transport links to Paris and London.
Developments and refurbishments
Due to the strategic location of CLS’ Quatuor
building in Montrouge in front of the future
Grand Paris train station, we have appraised
an outline scheme design for a 10,000 sqm
new office building. Further work will be
performed in 2020 around land assembly
option agreements as well as progressing
a planning permit. In addition, a series of
refurbishments will take place in 2020 to
upgrade our buildings, in particular enhancing
their environmental sustainability.
Valuation
The French portfolio was valued at
€337.3 million at the year end, which reflects
a 3.8% year on year valuation increase in
local currency and a net initial yield of 5.2%
(2018: 5.2%). The property valuation increase
was in addition to the €6.9 million profit on
the disposal of Atelier Victoires, which sale
also resulted in the slight increase in net
initial yield.
Disposals
In July 2019, CLS sold Ateliers Victoires
in Paris, comprising 21,500 sq. ft (2,028
sqm), for €42.0 million. The disposal price
reflected a net initial yield of 3.03% and
a net profit of €6.9 million. A case study
highlighting the substantial refurbishment
and successful letting of the building before
its eventual sale is detailed over the following
pages. Continuing our policy of disposing of
properties too small to have a meaningful
impact on the group, in December we
unconditionally exchanged on the sale of
Foch in la Garenne-Colombes in Paris.
The 1,948 sq. ft (181 sqm) building was sold
for €0.9 million at a net initial yield of 5.5%.
The sale completed in February 2020.
Asset management
The vacancy rate in France increased to
3.1% (2018: 2.3%) mainly because of the
sale of the fully let Atelier Victoires. In 2019,
we let or renewed leases on 71,475 sq. ft
(6,647 sqm) and lost 88,722 sq. ft (8,251 sqm)
of space from expiries or new vacancies.
Excluding those arising from contractual
indexation uplifts, 31 rent reviews, lease
extensions and new leases added €1.7 million
of rent at 31 December 2018 ERVs. On a like-
for-like basis, ERVs rose 2.5%, and at the end
of 2019 the portfolio was broadly rack-rented.
Les Reflets, Lille
Market overview
The French economy proved resilient in
2019 with GDP growing by 1.2%. Whilst,
growth forecasts have been downgraded
across much of the world due to uncertainty,
trade wars and a perceived global
slowdown, France’s economic performance
offered a degree of stability which was
viewed positively by property investors.
Property investment volumes in France in
2019 were substantially higher in 2019 at
c.€36 billion (2018: c.€33 billion) as a result
of this economic stability and a lack of
new supply.
Acquisitions
In March 2019 we completed the acquisition
of Les Reflets in Lille, which had exchanged in
December 2018, for €11.4 million reflecting a
net initial yield of 6.6%. Les Reflets is a 44,756
sq. ft (4,158 sqm) multi-let office building with
annual rent of €0.7 million. In December 2019,
in-line with our strategy to control fully our
co-owned offices, we acquired two additional
floors at Park Avenue in Lyon-Villeurbanne.
The acquisition for €3.5 million was of 12,486
sq. ft (1,160 sqm) of offices which are single
let on a long-term lease with a net initial yield
of 6.2%. As a result of this purchase, we now
own 86% of the building.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 42
Strategy in action: France
The active life cycle of
Ateliers Victoires, Paris
Through our active in-house development
and asset management teams we secured
a significant value uplift”
CLS acquired Ateliers Victoires in 1998 for €8.9 million. The property is located in the heart
of Paris, facing the historic headquarters of Banque de France and close to the Louvre
Museum. Banque de France let the 1,800 sqm building from 1988 until September 2014.
We deliver value through active management
Development project
Prior to the property being handed back to CLS with vacant possession,
our in-house development team assessed the viability of several different
options for this property including change of use to high-end residential
or a hotel. It was decided to keep the building as an office but complete
a full redevelopment including a new façade and roof terrace. A firm of
architects were appointed and the initial planning permit was obtained
during 2015. After development, this 2,028 sqm (21,829 sq ft) asset is
composed of a glazed façade with external thermal insulation and high
quality internal specification which benefit from BBC Effinergie & HQE
excellent accreditations.
Asset management
Prior to the development completing, the marketing of the newly redeveloped
office space was launched in 2017. With a very active market in the centre of
Paris (vacancy rate of only 2.3%), there were a significant number of potential
tenants interested and multiple site visits were completed. Our in-house
asset management team considered the possibility of a multi-let office but
determined that a single let option would capture the uplift in Paris rents
more effectively. The location, size & independency of this building as well
as the terrace on the 7th floor with panoramic views of Paris would make
it a perfect headquarters. It was fully let to Epoka, a B2B communication
agency, under a firm 7/9 year lease.
We continually assess whether to hold or sell properties
Realising the value added
Following the new letting, the CLS board made the strategic decision to
sell Atelier Victoires and capture the value our in-house teams had added
achieving a sale price €7.4 million above valuation when it was sold in
June 2019.
CLS Holdings plc Annual Report and Accounts 2019
43
Sold for
€42m
in June 2019
Net Initial Yield on sale
3%
Sale price was 21.4% above 31 December
2018 valuation
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 44
Chief Financial Officer’s review
Continued strong
performance underpinned
by low cost financing
(2018: 30.5 pence) and EPRA earnings
per share of 12.0 pence (2018: 13.1 pence).
CLS uses a number of Alternative
Performance Measures (“APMs”) alongside
statutory figures. We believe that these assist
in providing stakeholders with additional
useful information on the underlying trends,
performance and position of the Group.
Note 5 to the Financial Statements gives
a full description and reconciliation of
our APMs.
Exchange Rates
Approximately 53% of the Group’s business
is conducted in the reporting currency of
sterling and 47% in euros. Compared to
last year, relative movements of sterling
against the euro had a notable impact on the
translation of our balance sheet and monetary
assets recognised in the income statement:
sterling’s average rate strengthened against
the euro by just 0.9% but at 31 December 2019
sterling was 6.3% stronger against the euro
than twelve months previously.
Exchange rates to the £
At 31 December 2017
2018 average rate
At 31 December 2018
2019 average rate
At 31 December 2019
EUR
1.1260
1.1304
1.1122
1.1406
1.1825
I am pleased to present my first financial
review as the CFO of CLS. I’m delighted
to have joined a company with such a clear
strategy, experienced management and
a fantastic track-record, and which has
delivered an excellent performance
in 2019.
Summary
EPRA net assets per share rose by 6.3% to
329.2 pence (2018: 309.8 pence) and basic
net assets per share by 7.1% to 295.1 pence
(2018: 275.5 pence). Profit after tax from
continuing operations of £135.2 million
(2018: £132.8 million) generated basic
earnings per share of 33.3 pence
A. Rental income
0.9
(1.3)
5.4
103.0
(1.8)
1.1
(0.4)
107.7
0.7
31 December
2018
Acquisitions
Developments Disposals
Lease
regears
Indexation
Net other
lettings
FX
31 December
2019
CLS Holdings plc Annual Report and Accounts 2019
45
Income statement
Rental income in 2019 of £107.7 million, as set
out in graph A, was £4.7 million higher than in
2018. Acquisitions and developments added
£6.3 million whilst disposals led to a reduction
of £1.3 million. Other lettings activity was flat
with foreign exchange movements leading to
a £0.4 million reduction.
Other property income of £6.8 million
(2018: £6.9 million) included hotel revenue
from Spring Mews of £4.7 million
(2018: £4.4 million) and dilapidations,
surrender premiums and other one-off
receipts of £2.0 million (2018: £2.5 million).
In aggregate net rental income rose by
3.1% to £110.6 million (2018: £107.3 million).
We monitor the costs of running the business
closely and the administration cost ratio
(administration costs as a percentage of net
rental income) is a Group key performance
indicator. In 2019, the administration cost ratio
was expected to increase, as personnel costs
comprise the majority of these costs and
there were a notable number of personnel
changes across the business, including the
Board. The administration cost ratio therefore
rose to 17.7% (2018: 16.0%).
The net surplus on revaluation of investment
properties of £57.4 million (2018: £62.8 million)
demonstrated the benefit of our diversified
approach with Germany again the strongest
with an 8.4% rise in values and France rose
by 3.8% (both in local currencies) whilst the
UK fell by 0.3%.
We completed the disposal of twenty-four
properties in the year for £178.1 million
(a further four were exchanged for
£9.2 million and completed in 2020) resulting
in a profit of £8.6 million after costs and
before tax (2018: £2.3 million).
At the start of September, CLS sold its entire
10.5% shareholding in Catena realising a profit
on sale of £38.7 million (2018: £22.2 million
fair value gain). During November, CLS sold
its entire bond portfolio realising proceeds
of £34.5 million and a profit on sale of
£1.7 million. These disposals helped deliver
our strategy of increasing the focus of the
Group and provided resources to continue
to capture opportunities in our core markets.
Finance income of £5.0 million
(2018: £6.1 million) comprised: interest
income of £2.1 million (2018: £4.2 million)
from our comparatively smaller corporate
bond portfolio; dividends from Catena of
£2.2 million (2018: £1.7 million); and other
interest of £0.7 million (2018: £0.2 million).
Finance costs of £29.4 million
(2018: £26.5 million) included foreign
exchange variances of £3.6 million
(2018: £0.6 million) and fair value
movements of derivative financial
instruments of £0.5 million (2018: income
£2.3 million), whilst 2018 was impacted by
the loss on the early redemption of debt
(£3.7 million). On a like for like basis, excluding:
this loss; foreign exchange variances; and
fair value movements of derivative financial
instruments, finance costs were £25.3 million
(2018: £24.5 million) reflecting slightly
increased interest costs as a result of the
timing of acquisitions and disposals during
the year.
The tax charge of 14.9% was below the
weighted average rate of the countries in
which we operate (19.8%), primarily due to
the profit on disposal of our shareholding
in Catena, which was not subject to tax.
Of the loss from discontinued operations of
£0.5 million (2018: £14.9 million), £0.3 million
profit (2018: £8.5 million loss) is attributable
to the owners of the Company. This related to
the disposal of First Camp for the period until
sale on 7 March 2019.
Overall, as set out in graph B, EPRA
earnings were 8.6% lower than last year
at £48.9 million (2018: £53.5 million) and
generated EPRA earnings per share of
12.0 pence (2018: 13.1 pence). The decline
was primarily due to foreign exchange losses
due to the strengthening of sterling and lower
interest income.
B. EPRA EPS movement
0.8
(0.6)
13.1
(0.3)
0.3
(1.3)
12.0
31 December
2018
Net rental
income
Expenses
Finance
income
Tax and
finance
expense
FX
31
December
2019
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information
46
Chief Financial Officer’s review continued
Cash flow and net debt
As at 31 December 2019, the Group’s cash
balance had increased to £259.4 million
(2018: £100.3 million cash and £30.3 million
bonds as well as £77.5 million Catena
shareholding). As set out in graph C, net cash
flow from operating activities generated
£48.9 million, of which £28.7 million was
distributed as dividends. Acquisitions of
£237.2 million and capital expenditure of
£16.7 million were partly funded by proceeds
after tax from property disposals of
£165.0 million. Moreover, the cash position
increased as a result of the net drawdown of
loans for £79.3 million, the sale of the Group’s
shareholding in Catena for £113.1 million
and the disposal of the bond portfolio for
£34.5 million.
Gross debt increased by £54.9 million to
£897.2 million (2018: £842.3 million) due to
the net drawdown of loans and movements
in issue costs totalling £82.7 million offset by
a fall of £27.8 million due to foreign exchange
rate movements. Loans of £209.5 million
were repaid in the year and £292.4 million
of new or replacement loans were taken
out. Year-end net debt fell to £632.3 million
(2018: £706.3 million). In addition, CLS had
undrawn bank facilities of £50.0 million,
of which £30.0 million was committed.
At 31 December 2019, the weighted average
unexpired term of the Group’s debt was 3.5
years (2018: 3.5 years) as shown in graph D.
The weighted average cost of debt at
31 December 2019 was 2.42%, 1 basis point
(“bps”) lower than 12 months earlier and
a new all-time low for CLS, as shown in graph
E. The repayment of more expensive debt
accounted for a fall of 11 bps but this was
partly offset by: a greater amount of more
expensive sterling refinancing compared to
a lower amount of cheaper euro refinancing
accounting for an increase of 7 bps; and the
weakening of the euro reduced the weighted
average contribution of euro denominated
debt albeit there was some benefit from lower
interest rates resulting in a net 3 bps increase.
In 2019, interest cover remained at a healthy
level of 3.4 times (2018: 3.8 times).
C. Movement in liquid resources (£m)
(79.3)
252.8
(165.0)
(113.1)
259.4
(75.3)
26.6
28.7
(34.5)
77.5
30.3
100.3
31
December
2018
From
operations
Interest/
Tax/
Other
Dividends
Sale of
properties
Net
drawdown
of loans
Property
acquisitions
& capex
Sale of
bonds
Catena
sale
31
December
2019
Cash
Corporate bonds
Shareholding in Catena
D. Debt maturity (£m)
144.7
70.8
55.0
79.0
46.4
46.4
2020
2021
2022
GBP
EUR
53.9
202.6
63.1
4.3
2023
41.3
44.1
2024
2025
45.9
2026
EPRA net asset value and gearing
At 31 December 2019, EPRA net assets per
share were 329.2 pence (2018: 309.8 pence),
a rise of 6.3%, or 19.4 pence per share. As set
out in graph F, the main reasons for the
increase were investment property valuation
gains of 14.1 pence per share, EPRA earnings
per share of 12.0 pence, the profit realised
on the sale of our stake in Catena of 8.8
pence per share, less dividends of 7.1 pence
per share, foreign exchange movements of
7.7 pence per share and other movements
of 0.7 pence per share.
Balance sheet loan-to-value (net debt to
property assets) at 31 December 2019 was
31.4% (2018: 36.7%) and the loan-to-value of
secured loans by reference to the value of
properties secured against them was 48.0%
(2018: 51.0%). The value of properties not
secured against debt fell to £143.6 million
(2018: £283.6 million).
CLS Holdings plc Annual Report and Accounts 2019
47
E. History of average cost of debt (%)
3.40
F. EPRA NAV
8.8
(0.7)
(7.7)
2.91
2.51
2.43
2.42
14.1
329.2
12.0
309.8
(7.1)
2015
2016
2017
2018
2019
1
January
2019
Dividends
EPRA
earnings
Property
valuation
Catena
disposal
Bonds/
Discontinued/
Other
FX
31
December
2019
Financing strategy
The Group’s financing strategy remains to
hold a significant proportion of its investment
properties in single-purpose vehicles (“SPVs”)
financed primarily by non-recourse bank debt
in the currency used to purchase the asset.
In this way: credit and liquidity risk can be
managed easily; around 47% of the Group’s
exposure to foreign currency is naturally
hedged; and an efficient use can be made of
the Group’s assets. In addition, the Group has
a number of portfolio loans or secured notes
which have tended to arise where a portfolio
is acquired, such as the German properties
in 2017, and each is financed by a single loan.
The advantage of these portfolio loans is that
they can be structured to afford the Group
greater flexibility such that properties, with
the appropriate attributes, can be substituted
into and out of such portfolios. Currently all
of the Group’s borrowing is on a secured
basis. However, we are going to explore the
use of more portfolio lending on a secured or
unsecured basis to give the Group increased
flexibility, more diverse sources of financing
and/or longer maturity. Hence, a number of
recent acquisitions in the UK have not yet
been encumbered. At 31 December 2019,
the Group had 49 loans (40 SPVs, 7 portfolios
and 2 facilities) from 27 banks.
To the extent that Group borrowings are not
at fixed rates, the Group’s exposure to interest
rate risk is mitigated by financial derivatives,
mainly interest rate swaps. In the recent
medium-term low interest rate environment,
the Group chose to take advantage of the
conditions, fixing most of the medium-term
debt taken out during the year. In 2019, the
Group financed or refinanced 9 loans to a
value of £292.4 million at a weighted average
duration of 5.2 years and at a weighted
average all-in rate of 2.65%, and of these
£177.9 million were fixed at a weighted
average all-in rate of 2.50%. Consequently,
at 31 December 2019, 77% of the Group’s
borrowings were at fixed rates or subject
to interest rate swaps, 1% were subject to
caps and 22% of debt costs were unhedged;
the fixed rate debt had a weighted average
maturity of 3.6 years, and the floating rate
3.0 years.
The Group’s financial derivatives,
predominantly interest rate swaps, are
marked to market at each balance sheet date.
At 31 December 2019 they represented a net
liability of only £4.1 million (2018: £5.1 million).
Distributions and total return
to shareholders
In April 2019, a final dividend for 2018
of 4.7 pence per share (£19.1 million) was
paid. In September, an interim dividend for
2019 of 2.35 pence per share (£9.6 million)
was paid. The proposed final dividend for
2019 is 5.05 pence per share (£20.6 million).
This represents a full year distribution of
7.4 pence per share (£30.1 million) which
was covered 1.6 times by EPRA earnings
per share.
The 2019 dividend is an increase of 7.2%
over the prior year and the total accounting
return to shareholders, being the increase in
EPRA NAV plus the dividends paid in the year,
was 8.6% (2018: 10.8%).
Andrew Kirkman
Chief Financial Officer
5 March 2020
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information
48
Corporate, social and environmental responsibility
Focus on
sustainability
Highlights
Reduction in
carbon emissions
Water
intensity reduction
Renewable and
low carbon generation
3.1%
now 23.43kg CO2e/
m2(NLA)/year
4.5%
now 0.354 m3/
m2(NLA)/year
718,750kWh
up 31%
from 2018
Solar PV
capacity
349kWp
enough to power
92 homes off grid
Recycling
73%
proportion of recycling
across all UK
managed assets
CDP rating
GRESB rating
CSR Events
B-
up from a C last year
70
up 7 points from
last year
43
investing in our
communities
and employees
Context on our results
We have seen another year of
improvement across all our sustainability
targets and metrics. In the past 12 months,
we have further widened our monitoring of
the challenges we face on climate change
but have also focused our efforts on key
metrics that support our progress towards
a more sustainable business.
Recognition and leadership
CLS adopts, submits and reports to
several different schemes across the
industry to promote transparency and
benchmark our progress. More details
on these results can be found on
our website.
CLS Holdings plc Annual Report and Accounts 2019
49
Smarter buildings
92% Completed
Location
German portfolio
In 2018, we set out an ambition to smart meter the German
property portfolio in line with our sustainability objectives.
Following a tender process, we selected Naturstom to be out
metering partner. They, together with out in-house property
management team, implemented a rollout programme to be
carried out in 2019. By the end of the year 92% of our electricity
meters had been converted to smart meters. This allows us to
monitor and analyse our managed portfolio on a real-time basis,
which helps us to reduce carbon emissions and provides energy
savings to our tenants.
Schellerdam 16, Hamburg
Our Approach
CLS operates in some of the most densely
populated office urban landscapes in Western
Europe. Faced with the challenges of growing
urban populations and climate change, the
case for improving the sustainability and
resilience of our assets is clear.
Our approach over the last 10 years has
seen our strategy evolve. Our strategy has
been developed in accordance with our
own business model as well as to align with
Global Real Estate Sustainability Benchmarks
(GRESB), taking account of the UN Sustainable
Development Goals (SDGs) and climate risk
profiling across Western European region.
We strive to create a better environment and
better opportunities for all our stakeholders.
By actively managing our properties in-house
we cultivate strong relationships with our
tenants enabling us to influence and effect
the positive changes that are vital in delivering
a sustainable future.
Our approach is underpinned by our four
pillars concept: People, Property, Planet and
Profit. Each pillar is vital to our sustainable
future. We adopt closed-loop management
of each pillar through our commit-measure-
do-review process that is detailed in our
sustainability report which is available on
our website.
UN Sustainable Development Goals
To ensure we are acting on our wider
responsibility as a successful business, we
have aligned our sustainability strategy to the
UN SDGs. This allows us to link directly every
activity within the business to a single pledge
and to report to the Board on our progress.
Our UN SDGs focus
Link to our strategic pillars
Planet
Property
People
Profit
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information
50
Corporate, social and environmental responsibility continued
Our climate risk
The purpose of the climate risk modelling we
adopt is to identify potential climate risk within
the regions we operate within, where CLS
has transitional or physical risks from all our
business activities.
This process gives us material information
to make better investment decisions across
short, medium and long-term thinking. It also
gives our strategy the resilience to deliver
on our wider ambitions of tackling climate
change in the right way.
In order to understand our business risks,
we monitor three key levels of risk.
■■ Climate change risks at city level These are all
the major associated risks linked to the cities we
operate within. For example, London has major
risks about flooding and clean water.
■■ Climate change risks at corporate level These
are risks directly or indirectly linked to our core
corporate business model and focus mainly
around transitional and decision-making
■■ Climate change risks at property level These are
risks which cover all the aspects of our physical
properties. We split these risks into two main types:
– Risks resulting from our business operations
that are directly within our control (CLS
Business-driven Risks) and;
– Risks that are not directly within our control
but are dependent on the occupiers’ activities
and actions within our owned assets (Occupier-
driven risks).
Digital transformation
The Group is digitally transforming to
improve its business agility – enabling faster
strategic responses to changes in business
priorities and technology advancements.
Guided by industry best-practice, our
approach to digital transformation can be
defined as leveraging technology across
four pillars: engaging customers; optimising
operations; empowering employees; and
transforming products.
This holistic model is underpinned by:
a group-wide data analytics platform that
will interconnect the four elements of the
model and provide data insights to drive
faster and more informed decision making;
and a cybersecurity fabric designed to protect
our IT systems from malicious attackers and
restore systems back to a safe operational
state if they are compromised.
Now into its second year, the transformation
programme is focused on digitalising the
property portfolio with smart sensors,
improved connectivity and digital amenities.
This will drive a range of business benefits
including stronger customer relationships,
energy savings, and predictive maintenance
of mechanical and electrical systems.
Our climate risk
We undertake annual reviews of the climate risk to our business.
These risks and their expected level of impact are shown below:
City level
River flooding
Clean water
Heatwaves
Sea-level rise
Severe rain
Snow cover
Power supply
Corporate level
1
2
3
4
5
6
7
8
Increase in building
regulation and obsolescence
Increasing energy costs
9
10 Energy security
11 Poor performance in investor
focused industry behaviours
12 Impact of climate change on
our portfolios
13 Lack of knowledge in our
contractor workforce on
sustainability matters
14 Socio-economic change
to real estate
Property level
15 Electricity capacity
16 Gas security
17 Use of building materials
18 Emissions from leaks
19 Flood from major rain fall
20 Contaminated land
21 Environmental regulation
updates at building level
5
9
7
h
g
H
i
4
k
s
i
r
f
o
d
o
o
h
i
l
e
k
L
i
i
m
u
d
e
M
3
2
1
w
o
L
0
0
11
18
13
14
5
8
21
4 12
3
6 19
2
1 10 15
16 17 20
1
Short term
2
3
Medium term
Timescale (years)
4
5
Long term
Digital Transformation
Cybersecurity Fabric
Data Insights
Engage
Customers
Strengthen
tenant acquisition
and loyalty using
smart platforms
that enable new
personalised
experiences
Optimise
Operations
Accelerate
business agility,
improve service
levels, and
reduce costs
with intelligent,
digitised
processes
and integrated
support systems
Empower
Employees
Boost
productivity,
collaboration
and happiness
with technology
by designing
a workplace
that’s connected,
intelligent,
flexible,
and secure
Transform
Products
Differentiate and
capture emerging
opportunities
by delivering
innovative
products
and evolving
business models
CLS Holdings plc Annual Report and Accounts 2019
51
EPRA emissions
The figures in the table below have been calculated in accordance with EPRA guidance. In 2019 the carbon managed portfolio grew by 12.5% and
this is reflected in our absolute energy increases. However, the carbon intensity of the portfolio has decreased by 3.1% when compared to our
2018 baseline. This was mainly due to the decarbonisation of the national grids. Our water intensity has also reduced across the portfolio by 4.5%
this year.
Impact Area
EPRA Sustainability Performance Measures (Environment)
Total portfolio
EPRA Code
Units of measure
Indicator
Absolute performance (Abs)
2018
2019
% change
Energy
Elec-Abs
kWh
Electricity
for landlord shared services
15,485,567
16,911,565
9.2%
DH&C-Abs
District heating
and cooling
(DH&C)
(sub)metered exclusively to tenants
8,849,285
10,205,895
15.3%
Total landlord-obtained electricity
24,334,852
27,117,460
11.4%
Proportion of landlord obtained electricity
from renewable sources
96%
94%
2%
for landlord shared services
8,189,782
13,618,450
66.3%
(sub)metered exclusively to tenants
–
–
–
Total landlord-obtained district heating
and cooling
Proportion of landlord obtained DH&C from
renewable sources
8,189,782
13,618,450
66.3%
0.0%
0.0%
–
Fuels-Abs
Fuels
for landlord shared services
17,851,471
20,791,303
16.5%
(sub)metered exclusively to tenants
46,567
36,584
-21.4%
Total landlord-obtained fuels
17,898,038
20,827,887
16.4%
Proportion of landlord obtained fuel from
renewable sources
0.0%
0.0%
–
–
12.5%
95
81
3,770
17.6%
5241
2,896
7.0%
7.6%
95
72
3,206
4898
2,691
Energy-Int
kWh/m2/year
Energy Intensity
Landlord-obtained energy
No of applicable properties
Energy and associated GHG
disclosure coverage
GHG-Dir-Abs
tonnes of CO2e
Direct
Indirect
Indirect
Scope 1
Scope 2
Scope 3
Greenhouse
gas
emissions
GHG-Indir-Abs
GHG-Dir-Abs,
GHG-Indir-Abs
GHG Emissions
Total emissions
10,795
11,908
10.3%
GHG-Int
kg CO2e/m2/year
GHG emissions
intensity
Scope 1&2&3 emissions
Water
Water-Int
m3/m2/year
Water Intensity
Total building water intensity
24.18
0.371
23.43
-3.1%
0.354
-4.5%
Positive change
Negative change Note: The majority of negative change is due to an increase in portfolio size.
Cumulative carbon saved tCO2e (over 5 years)
Solar PV generation (kWh)
2019
2018
2017
2016
Total
Group
2015
409
1,569
1,124
3,213
2,999
Total
Group
2019
2018
2017
2016
2015
99,957
90,393
60,491
241,346
137,460
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 52
Corporate, social and environmental responsibility continued
Diversity
and inclusion
CLS has offices in four different countries and
so understanding and respecting each others’
cultures is key to our success. Our population
of employees is diverse having nationalities
from 20 countries and 16 ethnicities.
Our gender diversity is approximately equal
and we are spread across the ages of 21
to 80. See page 76 for more information on
our diversity.
Our employees, through their shared talent,
skills and knowledge enable us to create long
term value for our stakeholders. CLS creates
an engaging and supporting environment
where people want to work, develop and
succeed. Central to this is being a responsible
employer that respects individuals’ values,
promotes diversity and inclusion, and
recognises the contribution of its workforce.
Employee engagement
We seek the views of our employees through
staff satisfaction surveys, conducted
through a third party advisor so as to ensure
anonymity. On completion of our purpose,
vision and values project during 2019 (see
page 67-69), the outcomes from our previous
staff survey have all been addressed. A new
staff survey will take place in early 2020.
The survey will cover a range of topics
including: effectiveness; engagement;
remuneration; development opportunities;
respect and recognition; and confidence
in leaders.
In 2019, the new workforce advisory panel,
chaired by Non-Executive Director Elizabeth
Edwards (see page 60) was established.
The panel meets quarterly to discuss
workforce related issues. See page 64 for
more detail on the Workforce Advisory Panel.
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. In addition, the Group has a share
incentive plan, which has been open to all
UK employees since 2017. During 2019, we
extended this scheme to our employees
in Germany and Luxembourg. The scheme
matches employee contributions in the ratio
of 1:1. Take-up amongst UK employees is over
50%, which is above the average for this type
of scheme and testament to its success.
In the UK, we are committed to providing both
our employees and our contractors with the
Real Living Wage and in London, with the
London Living Wage. All new contracts with
suppliers, including facility management
contracts, when renewed, must commit to
paying the London living wage as a minimum.
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 an anti-bribery policy which
further demonstrated its commitment
to business ethics. To ensure continued
compliance with the Bribery Act 2010, training
is given to new employees, and an annual
online compliance check is completed by
all employees.
Prompt Payment Code
CLS is a signatory to the Prompt Payment
Code (“PPC”), a voluntary scheme backed by
the UK Government to set standards of best
practice for payment of suppliers. The PPC
requires all signatories to pay 95% of their
undisputed invoices to suppliers within
a 60 day period.
For the year ended 31 December 2019 CLS
settled 96% of all undisputed invoices in the
UK within 60 days, and 81% within 30 days,
thus complying with the PPC. In addition,
we report on the Group’s UK companies’
payment practices twice yearly in accordance
with The Reporting on Payment Practices
and Performance Regulations 2017.
The Modern Slavery Act 2015
The Modern Slavery Act 2015 requires
any UK commercial organisation with
a turnover of more than £36 million to prepare
a statement setting out the steps taken during
the financial year to ensure that slavery and
human trafficking is not taking place in its
business or in its supply chain. The Group’s
statement can be found on our website.
The Group upholds the highest standards of
business ethics and undertook a review of its
supply chain in 2019. The Board is confident
that as a result of the Group’s management
and reporting structure, the Company is in
compliance with this law.
Gender diversity
Board
Senior Operations Board
Group wide employees
For more information
see our website
www.clsholdings.com
Male Female
27%
73%
18%
82%
51%
49%
CLS Holdings plc Annual Report and Accounts 2019 53
Health & Safety
It is a primary focus of the Board that the Group manages its activities so that the health and safety of its employees, customers, advisors
and contractors and of the general public is not compromised. As part of this process the Group employs specialist accredited advisors
to advise on all health and safety matters in each country in which we operate. The Group also operates a Health and Safety Committee,
which covers issues related to the portfolio and its employees. Chaired by the Company Secretary, the committee comprises Facilities
Managers, Property Managers, employees and advisors, and is responsible to the Chief Executive Officer. The Chief Executive Officer
also attends Health and Safety Committee meetings. As shown below, 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.
UK
The Group sets health and safety
objectives covering our workforce and
portfolio and is monitored by the Health
and Safety Committee. Each managed
or occupied property within the UK
portfolio undergoes an annual risk
assessment against which our targets
can be measured. Our targets address
three key areas: Risk Management &
Control; Document Compliance; and
Incidents. These areas are reviewed
each quarter through the Health and
Safety Committee and reported to
the Board.
As at the date of this report, the
percentage of risks which were
under control were: 99.6% for Risk
Management & Control; and 96.8% for
Document Compliance. Our Accident
Frequency Rate in 2019 was 105
accidents per 100,000 people (National
Accident Frequency Rate: 930/100,000).
Germany
All CLS buildings must comply with
building permits and are regularly
reviewed by local authorities to
ensure compliance with building
law. Facilities governed by special
regulations are reviewed more
frequently by an appropriate
certified specialist.
Facilities (such as fire safety, electricity
supply, ventilation, lifts, heating)
are reviewed as required by law or
business standard and at least once
a year by authorised personnel.
Reports and protocols are reviewed
by the operational team. We ensure
that all scheduled reviews are
conducted in accordance with local
laws. Facilities managers provide
comprehensive reports on a monthly
basis to the operational team.
As at the date of this report, 95% of all
identified risks were under control
France
All CLS buildings have to comply
with the Code du travail (Labour Code),
which defines our responsibilities.
Each tenant is in charge of its
own security on its own premises
in accordance with the security
obligations of the building.
The building facilities (such as the
electricity supply, and building and
mechanical safety checks) are
reviewed once or twice a year by
a statutory controller. The reports of
the statutory controller are reviewed
by our operational team. This process
is audited externally twice a year.
During 2019 we launched a campaign
to establish risk prevention plans at all
our sites. The accountability remains
with CLS France.
As at the date of this report, 100%
of regulatory audit reports have
been processed.
Our
Sustainability
History
2011
2012
2013
2014
The Start
Dedicated in-house
Sustainability
department UK Only
1st Pledge
CLS announced
6 pledges to tackle
Climate Change
1st Solar PV array
We installed our first
solar PV array at
Buspace Studios
1st External
Reporting
CLS submitted our
first external report
to GRESB (Investors)
Group wider
function
The team is given
full responsibility
for Group activities
around Sustainability
2015
2016
2018
Group Alignment
Started the data
management
alignment
across regions
1st Sustainability
Report
Published our
first external
Sustainability report
to the market
10th Solar PV array
We installed our
10th solar PV array
at INSIDE, France
Awarded
International Green
Apple
CLS recognised
for its recycling
campaign in the UK
2019
Enhanced
Sustainability
Strategy
4 pillars and
alignment with
UN SDGs and
corporate strategy
Net-Zero Carbon
future Pathway
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 54
Corporate, social and environmental responsibility continued
Our people
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. Each employee
is allocated a personal training budget which they can use for
their professional development. We ensure that those with
direct reports undertake management training on areas such
as diversity, appraisals and performance. We also promote
non-core training, such as mental health, first aid and foreign
language skills, which, whilst not central to a particular role,
allow employees to broaden their skills base and opens
communication across the Group.
As part of our knowledge sharing and personal development
policy, we have set up internal workshops in which teams
present on their specific role within the organisation, thereby
developing employees’ wider business knowledge and
understanding of how the Group’s activities inter-relate.
We also encourage all members of staff to consider areas of
wider professional development that may be of interest to other
teams, such as changes to planning laws or data protection
legislation, and we organise seminars with the assistance
of our network of external advisers.
Recruitment
Finding the right people is important to our long-term success.
We believe having a diverse workforce is one of our key
strengths and gives us a competitive advantage which allows us
collaborate across departments and markets, contributing ideas
and creating new initiatives to drive us forward. Our policies
and procedures ensure our commitment to equal opportunity
and diversity in employment. Our recruitment and interview
policy follows this commitment and we ensure that it is fully
understood by all those in the recruiting process. No employee
or applicant is treated less favourably on the grounds of
gender, marital status, race, colour, nationality, ethnicity,
religion, disability or sexual orientation, nor is disadvantaged
by conditions or requirements, including age limits, which
cannot be justified objectively. Entry and progression within the
Group is solely determined by the job criteria, personal aptitude
and competence.
Our recruitment and interview policy follows best practice
in the employment of people with disabilities. Full and fair
consideration is given to every application for employment from
people with disabilities 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 are able to attract, motivate and retain
high calibre employees, which, in turn, has benefited the
performance of the Group.
CLS Holdings plc Annual Report and Accounts 2019 55
Our 2019 strategic report, from page 4 to 55, has been reviewed and approved by the Board of Directors on 5 March 2020.
David Fuller BA FCIS
Company Secretary
Culture
Everyone has visibility and a voice. Our culture is professional,
inclusive and friendly reflecting our vision and values (see
page 68). Our open-door policy encourages everyone to share
opinions, creating greater transparency, honesty and trust.
We have employees from 20 countries, which helps to foster
a diverse, collaborative, cosmopolitan environment. We have
fewer than 100 employees looking after a property portfolio of
£2.0 billion so we recognise how vital they are to our success.
We foster an environment of openness and feedback by
consulting regularly with our employees and other stakeholders
through various channels, including our employee intranet
and tenant surveys, to understand their needs and ensure
our culture evolves with the business and modern working
practices. We pride ourselves in the way we build relationships
and our agile approach allows us to see potential and
opportunities in ways that others don’t. We act with agility and
speed to make the most of possibilities as they arise.
Engagement
We promote all aspects of employee engagement; we
encourage all employees to share ideas and to get involved
in challenging and developing our policies and practices.
With a predominantly flat management structure we are
able to ensure that all employees are informed of matters
concerning their interests and the financial and economic
factors affecting the business. Weekly team meetings are
held across the Group and our Executive Directors present
our annual and half-yearly results to all employees, which is
followed by a question and answer session. This is designed
to give everyone an understanding of the business, and how
their work contributes to the Group’s performance.
We believe having shared goals facilitates high performance.
Every 12 months we undertake a performance review of each
employee, setting their objectives for the forthcoming year
and this is followed up by a six-monthly review. The individual
objectives reflect the Group objectives set by the Chief
Executive Officer, which in turn are based on the Group’s Key
Performance Indicators.
We have a dedicated Intranet which allows us to promote new
policies, procedures, Group activities and employee events.
Engagement is also about understanding the needs of
our employees. This enables us to create a better working
environment which, in turn, drives performance, loyalty and
success. We recognise it is important to celebrate success
and so ensure managers arrange appropriate events following
completion of projects.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 56
Corporate
governance
CLS Holdings plc Annual Report and Accounts 2019 In this section:
58 Chairman’s introduction
60 Board of Directors
62 Board leadership
67 Purpose, values and culture
70 Division of responsibilities
72 Nomination Committee Report
78 Audit Committee Report
82 Remuneration Committee Report
104 Directors’ Remuneration Policy
116 Directors’ Report
57
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CLS Holdings plc Annual Report and Accounts 2019
58
Chairman’s introduction
Driving
performance
through culture
Q. As the Chairman, what is your view
Q. Have there been any changes to the
on the role of governance?
A. I believe governance has a fundamental
influence on long term value creation.
Governance sets the benchmark
for standards which in turn drives
improvements, efficiencies and behaviour
across the business.
Q. How would you describe the purpose
of the business?
A. Our purpose is clear: To transform office
properties into sustainable, modern
spaces that help businesses to grow.
Our investments are based on a long-
term vision, and we are continuously
modernising our portfolio so that each
building remains viable, future-focused
and sustainable.
We apply the same approach to our
tenants – we want to understand their own
business ambition. If we provide the right
environment and share our expert insight,
we can help them make more informed
choices and grow their businesses in
a more responsible, considered way.
Board during the year?
A. We have continued to build on the changes
we made last year, largely in response to
investor feedback to more closely align
our Board structure with the Code.
We saw the retirement of Henry Klotz as
Executive Chairman, whom I replaced as
independent Non-Executive Chairman.
We have appointed two new independent
Non-Executive Directors, Denise Jagger
and Bill Holland who will succeed Malcolm
Cooper and Chris Jarvis, both having
served on the Board for over nine years.
Chris will remain on the Board, but will
not be considered to be independent and
will not sit on any Committees post AGM.
John Whiteley also retired from the Board
and Andrew Kirkman was appointed as
our new Chief Financial Officer.
Q. What engagement with stakeholders
has the Board had during the year?
A. Our first step was to clearly identify and
articulate our key stakeholders and you
can find them on page 22-23 of this report.
We have continued with a very successful
programme of property tours in the UK
and France. This allowed Board members
to understand our portfolio better,
its challenges and opportunities, and meet
both tenants and staff.
We established the Workforce Advisory
Panel, which is chaired by Elizabeth Edwards.
The Panel is a key part of our stakeholder
engagement framework and reports back
to the Board after each meeting. The Panel
discusses workforce practices and
processes, and how they can be improved.
I am very pleased how popular it is and
to see the positive impact it is having.
We also consulted with our top 15
shareholders covering 86% of the
share register in relation to our New
Remuneration Policy. Further details can
be found on page 85.
Q. How does the Board maintain and
monitor the culture of the business?
A. We understand the importance of having
the right culture within the organisation
to create and enhance a successful and
motivated workforce. Our organisational
structure and open door policy further
encourages employees to provide regular
constructive feedback, directly through
reporting lines.
The formation of our Workforce Advisory
Panel adds a two-way feedback mechanism
for employees and the Board, allowing
us to monitor and maintain our culture
more closely. More information on pg 64.
By “getting out there” and meeting our
employees during our property tours
means we each better understand our
people and culture.
Q. What is the Board’s role from a
sustainability governance perspective?
A. We all have a part to play in managing
our impact on the environment and our
stakeholders. It is clear that we must do
as much as we can to deliver our vision
in the most sustainable way. The Board is
committed to ensuring we are responsible
in all that we do, even if it comes at
a justifiable financial cost.
Q. What are your future priorities?
A. Embedding our Purpose, Vision and Values
within the organisation. Developing and
implementing our sustainability strategy
and overseeing the induction of our
new Directors.
Lennart Sten
Non-Executive Chairman
5 March 2020
CLS Holdings plc Annual Report and Accounts 2019 59
UK Corporate Governance Code – Principles and how the Company addresses them
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 April 2018 (the “Code”), the UK Financial Conduct Authority (“FCA”)
Listing Rules and the FCA’s Disclosure Guidance and Transparency Rules.
The Board fully supports the principles of good governance as set out in the Code, which is available on the FRC’s website (www.frc.org.uk),
and its application of the Main Principles are set out on pages 60 to 119. Save as identified and explained in this report,
the Board considers that throughout 2019 it complied with the provisions of the Code.
Requirement
Information
Where to find further information
Board leadership
and Company purpose
Our Board of Directors are responsible for setting the
Group’s strategy and ultimately ensuring the success
of the Group. We hold 5 board meetings a year, including
a strategy day.
Board of Directors
Board Activities
Approach to S.172(1)
Our purpose is to transform office properties into
sustainable, modern spaces, that help businesses to grow.
Strategy, Purpose, Vision
and Values
see pages 60-69
Division of responsibilities
This year we have updated our division of responsibilities
to reflect the changes in our Board.
Governance Framework
see pages 70-71
We have set out a clear division of responsibilities between
the Chairman and the Chief Executive Officer. We have also
addressed the responsibilities of our Non-Executive Vice
Chairman and our Senior Independent Director.
Composition, succession
and evaluation
Our Board Consists of an Independent Non-Executive
Chairman, 3 Executive Directors and 5 other independent
Non-Executive Directors and 2 Non-Executive Directors.
Nomination Committee Report/
Chairman’s Statement
see pages 6-7 and 72-77
Succession planning is reviewed periodically by the
Nomination Committee.
The evaluation of the Board and Committee’s performance
is overseen by our Chairman.
The Audit Committee review the effectiveness of our risk
management and internal controls system and the need
for an internal audit function annually.
Audit, risk and
internal control
Audit Committee Report
see pages 78-81
Going Concern basis
see page 31
Viability Statement
see page 31
Assessment of the principal risks
facing the Group
see pages 26-31
Annual review of systems of risk
management and internal control
see pages 24-31
Fair, balanced and understandable
see page 79
Remuneration
This year we reviewed our remuneration policies
to ensure they align with the Group’s strategy.
Remuneration Committee Report
see pages 82-115
The Remuneration Committee consulted with the
Company’s top 15 shareholders and developed the
new Remuneration Policy for 2020.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 60
Board of Directors
The right skills and experience
to deliver our strategy
Appointment as a Director:
1 August 2014
Nationality:
Swedish
Tenure: 5 years 4 months
Former roles: CEO, GE Capital Real Estate Europe.
President, GE Real Estate Nordic. CEO Fabege AB.
General Counsel, GE Capital Equipment Finances
AB. Partner, Baker & McKenzie, Stockholm
Qualifications: Degree in Law,
Stockholm University
Experience: International property industry.
Founder and CEO of Svenska Handelsfastigheter.
Board member, Interogo Holding AG. Chairman,
Swedish Property Federation and Klara Bo
Sverige AB
Appointment as a Director:
3 November 2014
Nationality:
Swedish
Tenure: 5 years 1 month
Former roles: Global Commercial Leader, GE
Capital International. Regional CEO, GE’s European
Leasing businesses. Managing Director, GE Capital
Real Estate. CFO, GE Capital Equipment Finance.
Various positions with Royal Dutch Shell
Qualifications: Degree in Business Administration,
Stockholm University
Experience: Business leadership, property
and finance experience in global organisations.
Trustee of Morden College
Appointment as a Director:
14 March 1994
Nationality:
Swedish
Tenure: 25 years 9 months
Former roles: Executive Chairman (to March 2016)
Qualifications: Entrepreneur
Experience: Founded CLS in 1987; listing on
London Stock Exchange main market, 1994. MD,
Citadellet AB (listed on Stockholm Stock Exchange,
1981). Banker, Svenska Handelsbanken, Stockholm.
Chairman of the investment vehicle for the Sten
and Karin Mortstedt Family and Charity Trust
Appointment as a Director:
11 May 2015
Nationality:
Swedish
Tenure: 4 years 7 months
Former roles: European Property Surveyor,
General Electric Corporate and BT Group.
Group Property Director, CLS Holdings plc.
Chartered Surveyor, Chestertons
Qualifications: Degree in Property Valuation, City
University and Chartered Surveyor
Experience: 20+ years of property industry and
business experience
Appointment as a Director:
1 July 2019
Nationality:
British
Tenure: 6 months
Former roles: Finance Director, Harworth plc.
Finance Director, Viridor. Chief Finance Officer,
Balfour Beatty Capital. Global Head of Corporate
Finance, Bovis Lend Lease.
Qualifications: Degree in Politics, Philosophy and
Economics, Oxford University. Fellow, Institute
of Chartered Accountants
Experience: Extensive plc, property, finance and
operational experience
Appointment as a Director:
13 May 2014
Nationality:
British
Tenure: 5 years 7 months
Former roles: Head, Property Lending,
Landesbank Berlin. Senior positions with National
Australia Bank, Berlin Hyp and Westdeutsche
Immobilienban. Management Consultant, PwC
Qualifications: Chartered Surveyor, Degree in
Estate Management, South Bank University. Fellow,
Royal Institution of Chartered Surveyors
Experience: Banking (primarily property-
related). Trustee, Salvation Army International
Trust. Trustee, Refuge. Member, Association of
Property Lenders. Past Master, the Worshipful
Company of Chartered Surveyors.
Anna
Seeley
Non-Executive
Director and
Deputy Chairman
Andrew
Kirkman
Chief Financial
Officer
Elizabeth
Edwards
Non-Executive
Director
Lennart
Sten
Independent
Non-Executive
Chairman
Fredrik
Widlund
Chief Executive
Officer
Sten
Mortstedt
Executive
Director
Appointment as a Director:
Nationality:
25 November 2008
British
Tenure: 11 years 1 month
Former roles: Owner, Jarvis & Partners real estate
consultancy. Partner, HRO Group. MD, Richard
Ellis Germany
Qualifications: Chartered Surveyor. Masters in
Land Economy, Cambridge University
Experience: Advising on all property-related
matters, from debt financing to asset acquisitions,
primarily in the German market
Appointment as a Director:
Nationality:
7 March 2017
Swedish
Tenure: 2 years 9 months
Former roles: Director, CLS Holdings plc
(1992–2010). Former Junior District Court Judge
in Sweden
University
Qualifications: Degree in Law, Stockholm
Experience: European property market and Group
business. Developed and runs hotels in St Vincent
& Grenadines, West Indies
Christopher
Jarvis
Non-Executive
Director
Bengt
Mortstedt
Non-Executive
Director
Appointment as a Director:
Nationality:
22 May 2007
British
Tenure: 12 years 7 months
Former roles: Project Director then Group Tax
and Treasury Director, National Grid plc. Director,
Corporate Finance, Lattice Group plc. Financial roles
with BG Group plc. Arthur Andersen Consulting
Qualifications: Degree in Pure Mathematics,
Warwick University. Fellow, Chartered Institute
of Certified Accountants. Fellow, Association of
Corporate Treasurers
Experience: Corporate finance, accounting and
tax with global corporates. Independent NED and
Audit Committee Chair, Morgan Sindall plc. SID,
MORHomes plc. Member of Audit Committee of
Local Pensions Partnership Ltd
Appointment as a Director:
Nationality:
British
1 August 2019
Tenure: 5 months
Former roles: Solicitor, Slaughter and May, Director
Asda Stores, Company Secretary and General
Counsel Asda Group plc/Asda Wal Mart, Partner
Eversheds Sutherland LLP
Qualifications: Law degree, Warwick University,
Certificate in EU Studies Universite de Nice,
Hon Doctorate of Law, Leeds Beckett University
Experience: Legal advisory (corporate finance,
M&A, regulatory, compliance and governance).
Retail and property sector specialism.
Independent NED and SID Bellway plc; NED and
Remuneration and Nominations Committee
Chair, Pool Reinsurance; Chair and Pro Chancellor
University of York; Chair St Giles Trust
Appointment as a Director:
Nationality:
British
20 November 2019
Tenure: 2 months
audit practice
Former roles: Senior Partner, KPMG real estate
Qualifications: Fellow, Institute of Chartered
Accountants. Degree in Economics
Experience: Real estate, finance and audit
experience. Non-Executive Director, Urban&Civic
plc and Ground Rents Income Fund plc. Governor,
Winchester College.
Malcolm
Cooper
Senior
Independent
Director
Denise
Jagger
Non-Executive
Director
Bill Holland
Non-Executive
Director
CLS Holdings plc Annual Report and Accounts 2019 61
Lennart
Sten
Independent
Non-Executive
Chairman
Fredrik
Widlund
Chief Executive
Officer
Appointment as a Director:
Nationality:
1 August 2014
Swedish
Tenure: 5 years 4 months
Former roles: CEO, GE Capital Real Estate Europe.
President, GE Real Estate Nordic. CEO Fabege AB.
General Counsel, GE Capital Equipment Finances
AB. Partner, Baker & McKenzie, Stockholm
Qualifications: Degree in Law,
Stockholm University
Experience: International property industry.
Founder and CEO of Svenska Handelsfastigheter.
Board member, Interogo Holding AG. Chairman,
Swedish Property Federation and Klara Bo
Sverige AB
Appointment as a Director:
Nationality:
3 November 2014
Swedish
Tenure: 5 years 1 month
Former roles: Global Commercial Leader, GE
Capital International. Regional CEO, GE’s European
Leasing businesses. Managing Director, GE Capital
Real Estate. CFO, GE Capital Equipment Finance.
Various positions with Royal Dutch Shell
Qualifications: Degree in Business Administration,
Stockholm University
Experience: Business leadership, property
and finance experience in global organisations.
Trustee of Morden College
Appointment as a Director:
Nationality:
14 March 1994
Swedish
Tenure: 25 years 9 months
Former roles: Executive Chairman (to March 2016)
Qualifications: Entrepreneur
Experience: Founded CLS in 1987; listing on
London Stock Exchange main market, 1994. MD,
Citadellet AB (listed on Stockholm Stock Exchange,
1981). Banker, Svenska Handelsbanken, Stockholm.
Chairman of the investment vehicle for the Sten
and Karin Mortstedt Family and Charity Trust
Appointment as a Director:
Nationality:
11 May 2015
Swedish
Tenure: 4 years 7 months
Former roles: European Property Surveyor,
General Electric Corporate and BT Group.
Group Property Director, CLS Holdings plc.
Chartered Surveyor, Chestertons
Qualifications: Degree in Property Valuation, City
University and Chartered Surveyor
Experience: 20+ years of property industry and
business experience
Anna
Seeley
Non-Executive
Director and
Deputy Chairman
Appointment as a Director:
Nationality:
British
1 July 2019
Tenure: 6 months
Former roles: Finance Director, Harworth plc.
Finance Director, Viridor. Chief Finance Officer,
Balfour Beatty Capital. Global Head of Corporate
Finance, Bovis Lend Lease.
Qualifications: Degree in Politics, Philosophy and
Economics, Oxford University. Fellow, Institute
of Chartered Accountants
Experience: Extensive plc, property, finance and
Andrew
Kirkman
Officer
Chief Financial
operational experience
Appointment as a Director:
Nationality:
13 May 2014
British
Tenure: 5 years 7 months
Former roles: Head, Property Lending,
Landesbank Berlin. Senior positions with National
Australia Bank, Berlin Hyp and Westdeutsche
Immobilienban. Management Consultant, PwC
Qualifications: Chartered Surveyor, Degree in
Estate Management, South Bank University. Fellow,
Royal Institution of Chartered Surveyors
Experience: Banking (primarily property-
related). Trustee, Salvation Army International
Trust. Trustee, Refuge. Member, Association of
Property Lenders. Past Master, the Worshipful
Company of Chartered Surveyors.
Sten
Mortstedt
Executive
Director
Elizabeth
Edwards
Non-Executive
Director
Appointment as a Director:
22 May 2007
Nationality:
British
Tenure: 12 years 7 months
Former roles: Project Director then Group Tax
and Treasury Director, National Grid plc. Director,
Corporate Finance, Lattice Group plc. Financial roles
with BG Group plc. Arthur Andersen Consulting
Qualifications: Degree in Pure Mathematics,
Warwick University. Fellow, Chartered Institute
of Certified Accountants. Fellow, Association of
Corporate Treasurers
Experience: Corporate finance, accounting and
tax with global corporates. Independent NED and
Audit Committee Chair, Morgan Sindall plc. SID,
MORHomes plc. Member of Audit Committee of
Local Pensions Partnership Ltd
Appointment as a Director:
1 August 2019
Nationality:
British
Tenure: 5 months
Former roles: Solicitor, Slaughter and May, Director
Asda Stores, Company Secretary and General
Counsel Asda Group plc/Asda Wal Mart, Partner
Eversheds Sutherland LLP
Qualifications: Law degree, Warwick University,
Certificate in EU Studies Universite de Nice,
Hon Doctorate of Law, Leeds Beckett University
Experience: Legal advisory (corporate finance,
M&A, regulatory, compliance and governance).
Retail and property sector specialism.
Independent NED and SID Bellway plc; NED and
Remuneration and Nominations Committee
Chair, Pool Reinsurance; Chair and Pro Chancellor
University of York; Chair St Giles Trust
Appointment as a Director:
20 November 2019
Nationality:
British
Tenure: 2 months
Former roles: Senior Partner, KPMG real estate
audit practice
Qualifications: Fellow, Institute of Chartered
Accountants. Degree in Economics
Experience: Real estate, finance and audit
experience. Non-Executive Director, Urban&Civic
plc and Ground Rents Income Fund plc. Governor,
Winchester College.
Christopher
Jarvis
Non-Executive
Director
Bengt
Mortstedt
Non-Executive
Director
Attendance Table
Lennart Sten
Anna Seeley
Fredrik Widlund
Andrew Kirkman1
Sten Mortstedt
Elizabeth Edwards
Malcolm Cooper
Christopher Jarvis
Denise Jagger2
Bengt Mortstedt
Henry Klotz3
John Whiteley4
Bill Holland5
Malcolm
Cooper
Senior
Independent
Director
Denise
Jagger
Non-Executive
Director
Bill Holland
Non-Executive
Director
Appointment as a Director:
25 November 2008
Nationality:
British
Tenure: 11 years 1 month
Former roles: Owner, Jarvis & Partners real estate
consultancy. Partner, HRO Group. MD, Richard
Ellis Germany
Qualifications: Chartered Surveyor. Masters in
Land Economy, Cambridge University
Experience: Advising on all property-related
matters, from debt financing to asset acquisitions,
primarily in the German market
Appointment as a Director:
7 March 2017
Nationality:
Swedish
Tenure: 2 years 9 months
Former roles: Director, CLS Holdings plc
(1992–2010). Former Junior District Court Judge
in Sweden
Qualifications: Degree in Law, Stockholm
University
Experience: European property market and Group
business. Developed and runs hotels in St Vincent
& Grenadines, West Indies
Board
attendance
Audit
Committee
attendance
Remuneration
Committee
attendance
Nomination
Committee
attendance
5/5
5/5
5/5
3/3
5/5
5/5
5/5
5/5
3/3
5/5
3/3
2/2
–
x
x
x
x
x
3/3
3/3
3/3
2/2
x
x
x
–
5/5
x
x
x
x
x
5/5
5/5
1/1
x
x
x
–
3/3
3/3
x
x
1/3
3/3
x
x
x
x
x
x
–
1. Appointed 01.07.2019
2. Appointed on 01.08.2019
3. Retired on 14.08.2019
4. Retired on 30.06.2019
5. Appointed on 20.11.2019
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 62
Board leadership and Company purpose
Board activity
The Board met five times during the year.
Key strategic and operational items were
discussed at each meeting, and it received
presentations from various external parties
and senior managers within the business
during the year.
The Board had a strategy meeting to review
and monitor progress against our strategy
and the wider risk environment affecting
the Group.
The Board recognises the importance of seeing
first hand the challenges and opportunities
faced by its teams across the portfolio. The day
prior to its meetings in May and August, the
Board went on a portfolio tour in Lyon, France
and London, UK respectively.
During these tours, the Board were able
to meet and speak to our customers and
employees to understand their views on our
product and our working environment.
This feedback provided invaluable insight
which the Board were able to consider when
discussing strategic and cultural matters
affecting the Group. The feedback from our
customers and employees on the Board’s
visibility were very positive.
In addition to their discussions at Board
meetings, directors undertake additional
activities and professional development
as summarised on page 75.
Board meeting activity breakdown
15%
4%
33%
Strategic
Property &
Operations
Financial
Governance
People & Culture
23%
25%
March
Approvals
– Approval of the 2018 Annual
Report and Accounts and
associated responsibility
statements
– Approval of the going concern
and viability statements
– Approval of Full Year Dividend
Key agenda items
– Report from Audit Committee on
the 2018 Audit, principal risks and
uncertainties and internal controls
– Report from Remuneration Committee
on the KPI review and targets for 2019
Presentations
– UK valuation presentation from
Cushman & Wakefield
May
Key agenda items
– Report from the
Nomination Committee
– Portfolio acquisitions and
disposal proposals
– Meeting of the Non-Executive Directors
Presentations
– Lyon property tour and
tenant engagement
– Presentation from the Head of France
Portfolio visit in Lyon
The Board took part in a property tour
of the Group’s key properties in Lyon.
During the tour the Board were able
to see first hand the challenges and
opportunities faced by the team in Lyon
and gain an understanding of the local
property market.
The Board were also able to meet with
local tenants and interact with members
of our French team.
CLS Holdings plc Annual Report and Accounts 2019 63
Portfolio visit in London
The Board took part in a property tour of
some of the Group’s key properties in the
London portfolio.
The tour was focussed around
properties that had been recently
refurbished in order to highlight our
sustainability initiatives.
The Board also visited local sub-markets
where our in-house teams highlighted the
potential for growth.
October
Approvals
– Updated Group Strategy and
Forecast document
– Vision and Values Project
Key agenda items
– Report on geopolitical and
macro-economic conditions
– Financing Strategy Review
– Sustainability Strategy
Presentations
– CEO presentation on updated
growth strategy and key targets
Forum, Lyon
August
Approvals
– Approval of the Half-Yearly
Financial Report
– Interim dividend recommendation
– Approval of the going concern statement
Key agenda items
– Reports from the Audit, Remuneration
and Nomination Committees
– Report from the Workforce
Advisory Panel
– Half-Yearly Financial Report
– IT Strategy update
Presentations
– French valuation presentation
from Cushman and Wakefield
– German valuation presentation
from Cushman and Wakefield
Park Avenue, Lyon
November
Approvals
– Approval of the 2020 Budgets
and Forecasts
– Review of Internal Controls and
Risk Management
Key agenda items
– Reports from Audit, Remuneration and
Nomination Committees
– 2020 Budget and 2021–2023 Forecasts
– Board Evaluation Report
– Principal Business Risks Review &
Internal Controls and Risk Management
– Independence review of Mr Cooper and
Mr Jarvis
– Meeting of the Non-Executive Directors
to review performance of the Chairman
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 64
Board leadership and Company purpose
Understanding the views of stakeholders
Our approach to Section 172 (1)
The Board recognises the importance of
the views of key stakeholders in its decision
making process. It believes this to be crucial
in maintaining a reputation for high standards
of business conduct, and a Group that people
want to work for and to do business with.
During the year, the Board received
guidance from the Company Secretary on
the new regulatory requirements and how
the Group would ensure its governance
processes would enable better visibility
over the impact their decisions have on
key stakeholder groups.
Whilst the Board had always had regard to its
responsibilities under section 172, to support
the recording and reporting of our obligations
we changed the way in which Board papers
were written so that they included a specific
section detailing the impact the decision they
were being asked to make would affect key
stakeholders. In some circumstances it has
led to decisions being amended to reduce
the impact on certain stakeholder groups.
Meeting tenants and employees (including
those below senior management level)
through our property tours, together with
individual meetings with members of staff
and external advisors on specific topics
provides an excellent platform to understand
the views of our key stakeholder groups.
The Board also receives regular reports
and feedback from meetings with investors
and analysts, which provide further insight
and discussion on the views of investors.
Our key stakeholders are set out on pages
22 to 23 and illustrate how the Group
has engaged and consulted with them.
This approach is reflected in the Board’s
decision making process and examples
of key decisions are set out below.
Employees
Workforce Advisory Panel
The Board considered how to implement the changes to
the UK Corporate Governance Code in relation to workforce
engagement. The Board discussed the importance of our
employees as one of our key stakeholders and how it could
best gather and present their views in a way that encapsulated
our values surrounding collaborative and openness.
It concluded that the Workforce Advisory Panel be established,
chaired by Elizabeth Edwards, and it held its first meeting on
6 September 2019.
The Board agreed that to ascertain a wide range of views, the
Panel should consist of 8 employees from the UK, France,
Germany and Luxembourg. Employees were asked to
volunteer and as there were so many volunteers, each panel
member was selected following an interview process with the
Panel’s Chair. Membership will be refreshed periodically.
Outcomes
The discussions from the Panel, which
are fed back to the Board, resulted in the
decision to increase operational headcount
to ensure we continued to meet the needs
of tenants as the portfolio grows.
Going forward, the Panel will meet once
every quarter, and the Board will be
updated on the discussions at the following
Board meeting to ensure the voice of our
workforce is present in the Boardroom.
Tenants
Tenant Surveys
The Board wanted to understand the views of tenants better
in order to improve the service and product that we provide.
Tenant surveys were implemented across the Group which
highlighted areas for improvement.
The Board received and discussed the results of the tenant
survey during the year.
Outcomes
The survey resulted in a reallocation of the
overall capital expenditure to ensure each
property within the portfolio met the needs
of tenants and how improvements could
benefit the wider community.
Long-term
strategy
Disposal of the UK regional portfolio
Outcomes
As part of its annual strategic review, the Board discussed
the refocusing of the geographical locations of its UK
property investments.
It considered that the Group’s expertise was focussed in and
around London and the South East. 19 properties were identified
as having less active asset management potential in the long
term. The Board considered that whilst the average net initial yield
of the identified properties was above the portfolio average, the
long-term outlook in these locations was less favourable.
It was concluded that the 19 properties
should be sold and the capital recycled
into properties in London and the
South East. This would underpin the
long term success of the portfolio.
A sale was completed on 30 December
2019. Further details can be found
on pages 18-19.
Investors
Capital Allocation
Dividend
The Board recognises meeting shareholder dividend expectations
final dividend to shareholders at the
is a key factor in investors supporting our growth strategy.
AGM. Further details on capital allocation
The Group’s progressive dividend policy supports the long-term
strategic plan, while meeting our obligations to reinvest and grow
the portfolio to ensure we realise our vision to be a leading office
space specialist and a supportive, progressive and sustainably
focused commercial landlord.
Disposal of Catena Shares
on its core business.
The Board considered the feedback from shareholders to focus
As part of its annual strategic review, the Board discussed the
sale of non-core property investments.
Outcomes
The Board decided to recommend our
and dividend policy can be found on
page 7.
Outcomes
It was concluded to sell CLS’ entire
holding in Catena and reinvest the
proceeds to support the creation
of long-term value in line with our
strategy of direct investments in
commercial property.
CLS Holdings plc Annual Report and Accounts 2019 65
Key – Section 172 criteria
employees
any decision in the long term
the likely consequences of
the interests of the Company’s
the need to foster the Company’s
business relationships with suppliers,
customers and others
members of the company
the need to act fairly between
the impact of the Company’s
the desirability of the Company
maintaining a reputation for high
standards of business conduct
operations on the community and
the environment
Employees
Workforce Advisory Panel
Outcomes
The Board considered how to implement the changes to
The discussions from the Panel, which
the UK Corporate Governance Code in relation to workforce
are fed back to the Board, resulted in the
engagement. The Board discussed the importance of our
decision to increase operational headcount
employees as one of our key stakeholders and how it could
to ensure we continued to meet the needs
best gather and present their views in a way that encapsulated
of tenants as the portfolio grows.
our values surrounding collaborative and openness.
It concluded that the Workforce Advisory Panel be established,
chaired by Elizabeth Edwards, and it held its first meeting on
6 September 2019.
Going forward, the Panel will meet once
every quarter, and the Board will be
updated on the discussions at the following
The Board agreed that to ascertain a wide range of views, the
Board meeting to ensure the voice of our
Panel should consist of 8 employees from the UK, France,
workforce is present in the Boardroom.
Germany and Luxembourg. Employees were asked to
volunteer and as there were so many volunteers, each panel
member was selected following an interview process with the
Panel’s Chair. Membership will be refreshed periodically.
The Board wanted to understand the views of tenants better
The survey resulted in a reallocation of the
in order to improve the service and product that we provide.
overall capital expenditure to ensure each
Tenant surveys were implemented across the Group which
highlighted areas for improvement.
The Board received and discussed the results of the tenant
survey during the year.
property within the portfolio met the needs
of tenants and how improvements could
benefit the wider community.
Long-term
strategy
Disposal of the UK regional portfolio
As part of its annual strategic review, the Board discussed
the refocusing of the geographical locations of its UK
property investments.
It considered that the Group’s expertise was focussed in and
around London and the South East. 19 properties were identified
as having less active asset management potential in the long
term. The Board considered that whilst the average net initial yield
of the identified properties was above the portfolio average, the
long-term outlook in these locations was less favourable.
Outcomes
It was concluded that the 19 properties
should be sold and the capital recycled
into properties in London and the
South East. This would underpin the
long term success of the portfolio.
A sale was completed on 30 December
2019. Further details can be found
on pages 18-19.
Tenants
Tenant Surveys
Outcomes
Investors
Capital Allocation
Dividend
The Board recognises meeting shareholder dividend expectations
is a key factor in investors supporting our growth strategy.
The Group’s progressive dividend policy supports the long-term
strategic plan, while meeting our obligations to reinvest and grow
the portfolio to ensure we realise our vision to be a leading office
space specialist and a supportive, progressive and sustainably
focused commercial landlord.
Disposal of Catena Shares
The Board considered the feedback from shareholders to focus
on its core business.
As part of its annual strategic review, the Board discussed the
sale of non-core property investments.
Outcomes
The Board decided to recommend our
final dividend to shareholders at the
AGM. Further details on capital allocation
and dividend policy can be found on
page 7.
Outcomes
It was concluded to sell CLS’ entire
holding in Catena and reinvest the
proceeds to support the creation
of long-term value in line with our
strategy of direct investments in
commercial property.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information At the 2020 Annual General Meeting, the
Company will comply with the Listing Rules
in respect of the voting requirements for the
re-election of independent Directors where
a Company has a controlling shareholder.
66
Board leadership and Company purpose
Relationship with shareholders
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 Committee Chairs attend the
Annual General Meeting. 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.
Proxy voting
The proxy forms for the Annual General
Meeting which was held in 2019 included
a “vote withheld” box.
Details of the proxies lodged for this meeting
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.
The Company values its dialogue with both
institutional and private investors.
The Board’s primary contact with existing
and prospective 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.
Committee Chairs seek regular engagement
with shareholders on significant matters as
they arise. Further detail can be found in each
Committee report.
Key Shareholder Events
March
36
April
7
August
22
Institutional
investor meetings
Institutional
investor meetings
Institutional
investor meetings
September
18
Institutional
investor meetings
Analyst
presentation
Annual General
Meeting
Analyst
presentation
UK Investor Day
Capital Markets Day
CLS Holdings plc Annual Report and Accounts 2019 Board leadership and Company purpose
Purpose, values and culture
67
Defining purpose
The Board is clear that the Group’s purpose goes beyond just profit, ensuring it has a long-term sustainable vision.
This year we considered how best to articulate our purpose, vision and values such that it encapsulated the views of all employees and key
stakeholders in a way that was engaging and ownable.
Defining our purpose, vision and values
CLS has a unique culture, developed over many years ever
since Sten Mortstedt founded the Company over 30 years ago.
This culture has been the cornerstone of our success.
Given the growth of the Group in recent years, and with many new
employees, the Board decided that we should codify our purpose,
vision and values in order to ensure we maintain and develop the
key factors that resulted in our success.
In 2019, we undertook a project to define our purpose, vision
and values with the help of our entire workforce, as well as key
external stakeholders.
During the process we spoke to over 20 key stakeholders to identify
external views and invited all employees to workshops to debate
and synthesise their opinions on our values and what we stand for.
This was then debated and presented to all employees,
following which a final document was provided to the Board
with 4 key values, a clear vision and purpose that they
endorsed wholeheartedly.
Insight generation
Existing intelligence
Competitor analysis
Stakeholder interviews
Jean-Jaures, Paris
Outcomes
Vision
Purpose
Values
Board approval
Employee workshops
London
Germany
PVV
stimulus
France
Luxembourg
2020 strategy
A communications strategy to imbed the Purpose, Vision and Values within the workforce has been established.
This focuses on internal and external communications together with employee engagement initiatives.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information
68
Board leadership and Company purpose
Purpose, values and culture continued
How our vision, purpose
and values link to our strategy
Our Values
Our vision To be a leading office
space specialist and
a supportive, progressive
and sustainably focused
commercial landlord.
We will achieve this by aligning
our strategic vision to our tenants’
business ambition, reinforcing our
diversification in our key markets
and elevating the importance of
sustainability across all aspects of our
business. Doing this will not only drive
our business forward, it will help to
enhance our profile within the sector.
Our purpose
Our purpose is to
transform office properties
into sustainable, modern
spaces that help businesses to grow.
Our investments are based on long-
term vision, continuously modernising
our portfolio into viable, future-
focused and sustainable properties.
We apply the same approach to our
tenants, understanding their own
business ambitions. By providing the
right environment and sharing our
expert insight, we help them make
more informed choices and grow their
businesses in a more responsible,
considered way.
Our tenants, our focus.
We pride ourselves in the way we build
relationships with our tenants. We get to
know them and understand their business
needs, so they feel listened to and valued. We are
responsive and flexible, ensuring they stay with us for
the long term.
Agility unlocks opportunity.
Our agile approach allows us to see potential
and opportunities in ways others can’t.
It means we can respond to changing market
conditions and make decisions quickly. We act with
flexibility and speed to make the most of possibilities
the moment they arise.
Openness creates closeness.
We treasure our inclusive, close-knit and
open culture. Everyone has visibility and
a voice. Our open-door policy encourages
everyone to share opinions, creating greater
transparency, honesty and trust.
How we are ensuring that the
business is sustainable
Sustainability is an integral aspect
and focus of the Company’s purpose.
Our sustainability strategy is designed
to create and inbed an understanding
of, and to set the benchmark for, how
we put sustainability initiatives into
practice throughout the Group.
Collaboration gets the job done.
We confidently take ownership of projects
from beginning to end, making the critical
decisions that get the job done. We get
involved and collaborate across departments and
markets, contributing ideas and creating new initiatives
to drive us forward.
CLS Holdings plc Annual Report and Accounts 2019 Maintaining a healthy culture
We continue to promote an open, collaborative culture within our workforce, with an efficient decision-making structure which facilitates
ownership and enables a hands-on operating process.
69
Ensuring the right culture
CLS’ culture and the role of the Board
We engage with our employees where appropriate to ensure the
voice of the workforce is prominent in our decision-making process;
in 2019, we established the Workforce Advisory Panel.
The Board recognises the need to establish the correct culture,
values and ethics to ensure good standards of behaviour are
maintained throughout the Group.
In order to understand how the culture of the Group evolves,
feedback mechanisms have traditionally been through informal
groups or workshops.
In its discussions this year, and in light of the new UK Corporate
Governance Code, we have formalised our procedures to ensure
we receive direct feedback via our Workforce Advisory Panel.
We have also undertaken a wider project on our Purpose, Vision
and Values, with the workforce, which has helped the Board to
ensure it has the right framework that underpins the culture
of the organisation. Further details can be found on pages 67
and 68.
How the Board monitors culture
KPIs
A healthy culture results in good staff
retention, on which we receive regular
updates. We monitor this through
someone’s employment, from the annual
appraisal process that highlights individual
performance to exit interviews, where
we seek feedback on our culture.
We will undertake an employee
engagement survey during 2020.
Strategy
We have a clear link between our culture,
strategy and KPIs. Our vision is clear and
supports our long term objective, which
in turn links to our Total Shareholder
Return KPI.
We are focussed on providing our tenants
with space that meets their needs which
is supported by our KPI on Vacancy Rates.
Risk management
Our approach to risk governance can
be found on page 25 This allows us to
be methodical in our approach but agile
enough to take advantages of opportunities
as they arise. This reflects our four key
values that form part of our overall
approach to the product and service that
we provide our tenants.
see page 20-21
see pages 14-19
see pages 24-25
Remuneration
We ensure our reward structure reflects
achievements and contribution to
the business.
Our benefits package underlines the
importance we place on wellbeing and
setting the right culture for people to thrive
and deliver their best.
Stakeholder engagement
We have undertaken a number of
stakeholder engagements during the year.
As part of our culture of openness and
collaboration, we work with all of our
stakeholders to make a positive impact
on our business and our environment.
Ethics, whistleblowing,
fraud and anti-bribery
We have an open, close culture, where
everyone is encouraged to speak up.
We have a thorough induction process that
reinforces our core beliefs and is backed
up by regular training.
see page 50
see pages 64-65
see page 50
Our measures
Tenant surveys undertaken in all countries, employee engagement surveys to seek the views of the workforce, employee turnover
statistics reported to the Board, and training and development policies to assist in upskilling our employees.
see pages 54-55
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 70
Division of responsibilities
The Board’s role
The Board has ultimate responsibility for setting the Group’s strategic direction, leading and overseeing culture, delivering value sustainably,
understanding the risks the Group faces and ensuring that we uphold the highest standards of corporate governance.
Board and Committee structure
The Board is supported by the Audit, Remuneration, Nomination and Disclosure Committees who update Board members at each meeting.
The Board discuss issues arising from Committee meetings which allow them to gain a wider understanding of the operation of the Group.
Board and committee structure
The Board
Lennart Sten (independent Non-Executive Chairman)
3 Executive Directors
6 independent Non-Executive Directors
2 other Non-Executive Directors
Ensuring the Company’s growth and shareholder value
Audit Committee
Remuneration Committee
Nomination Committee
5 independent Non-
Executive Directors
Monitors the arrangements for
corporate reporting, risk management
and internal controls. Maintains the
relationship with the Auditor
For more information
see pages 78-81
5 independent Non-
Executive Directors
Develops the Company’s policies on
executive and senior management
remuneration and sets the
remuneration packages of individual
Executive Directors and other
senior management
For more information
see pages 82-115
2 independent Non-
Executive Directors
1 Executive Director
1 Non-Executive Director
Monitors and evaluates the Board’s
skills and experience to ensure full
Board discussion
For more information
see pages 72-77
Executive Committee
Reviews the daily running of the Group’s business
Disclosure Committee
Monitors inside information and close periods
Financial Investment Committee
Analyses financial investment
opportunities and reviews
investment portfolios
Asset Management Committee
Reviews the Group’s property
investments in each country
Health & Safety Committee
Reviews and moderates the Group’s
policy and best practices for Health
and Safety
Chair leadership and effectiveness
The Group’s first independent Non-Executive
Chairman, Lennart Sten, was appointed on
15 August 2019 when Henry Klotz, who was
previously Executive Chairman, retired.
Lennart leads the Board in promoting
a culture of openness and debate to ensure
the Board operates effectively. Lennart and
the Board lead by example and the culture
of openness and collaboration resonates
through the Group, which was evident in
the project undertaken during the year on
Purpose, Vision and Values.
identifying strategic long-term objectives,
approving the annual Group budget, and
approving substantial property transactions
and investment decisions over £5 million.
Roles and responsibilities of the Directors
The Board’s composition and responsibilities
are set out in a formal schedule of matters
specifically reserved to it for decisions.
Matters reserved for Board decisions include
The implementation of Board decisions and
the day-to-day operations of the Group are
delegated to the Executive Directors.
CLS Holdings plc Annual Report and Accounts 2019 71
Role
Independent Non-
Executive Chairman
Board member
Lennart Sten
Non-Executive Vice Chairman
Anna Seeley
Chief Executive Officer
Fredrik Widlund
Chief Financial Officer
Andrew Kirkman
Responsibility
Proposing the overall strategy of the Group and ensuring the effective
running of the Board
Supporting the Chairman with developing Group strategy and
managing the effective running of the Board
Implementing Group strategy and the day-to-day running of
the Group
Implementing Group strategy in relation to and ensuring compliance
with all financial matters
Executive Director
Sten Mortstedt
Supporting the Chairman with proposing the overall Group strategy
Senior Independent Director
Malcolm Cooper1
Non-Executive Directors
Elizabeth Edwards1
Christopher Jarvis1
Lennart Sten1
Bengt Mortstedt
Denise Jagger1
Bill Holland1
Providing a channel of communication for shareholders who do
not wish to approach the Chairman, Executive Vice Chairman or
Chief Executive Officer
Leading the Non-Executive Directors, and providing feedback to the
Chairman on his performance
Providing independent oversight, objectively challenging the
Executive Directors in Board discussions and decision making
1. Determined by the Board to be independent in accordance with Code Provision 10.
Division of responsibilities
The responsibilities of the Chairman, who
is responsible for the overall strategy of the
Group, the Non-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 clearly divided.
A written statement of the division of these
responsibilities is reviewed and approved by
the Board each year.
Conflicts of interest
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.
Non-executive directors
A formal meeting of the Non-Executives
Directors took place during the year, without
the Executive Directors or the Chairman
present, at which a thorough review of the
performance of the Chairman took place.
It was considered that the way in which the
Board operated had improved, led by changes
to the agendas and structure of meetings
made by the Chairman.
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.
Independence
Provision 11 of the Code recommends that at
least half the Board, excluding the chairman,
should be non-executive directors who the
board considers to be independent.
At the year end, the Board comprised three
Executive Directors, five Non-Executive
Directors who the Board consider
to be independent and two other
Non-Executive Directors.
The Company was therefore not compliant
with Provision 11. However, the Board
considers that having a mix of Non-Executive
Directors, excluding the Chairman, 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.
Of the independent Non-Executive directors,
Mr Cooper and Mr Jarvis have served on the
Board for more than nine years. In light of
Provision 10 the Board undertook a rigorous
review as to whether it considered them to
remain independent. The discussion focused
on Mr Cooper’s current non-executive
directorships, one of which as Chairman of
the Audit Committee of a FTSE small-cap
company, and Mr Jarvis’s full time role with
Jarvis and Partners, together with the amount
of time dedicated to their roles as non-
executive directors and their contributions
to the Board in discussions generally.
The Board was satisfied that they maintained
the necessary levels of independence in
addition to the Code’s independence criteria
and they continued to remain independent.
External directorships
Current external directorships for all directors
can be found on pages 60-61. All additional
directorships must be approved by the
Chairman, taking into account potential
conflicts of interest and time commitment.
It is our policy that full time executive
directors should not take on more than
one non-executive directorship in a FTSE
company or other significant appointment.
Information, support and development
All directors are sent Board packs in advance
of each Board and Committee meeting.
Directors can obtain independent professional
advice at the Company’s expense and access
to the advice and support of the company
secretary on all governance matters,
A schedule of appropriate training and
development courses, seminars and briefings
is circulated to Board members at each
meeting, which they are encouraged to
attend. To further their development and
knowledge we organise for directors to meet
key employees and undertake site visits.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 72
Composition, succession and evaluation
Nomination Committee Report
Driving performance
through culture
Dear Shareholder,
On behalf of the Nomination Committee,
I am pleased to present my report as
Chairman of the Committee for the year
ended 31 December 2019. This report is
intended to provide an insight into the work
of the Committee during the year.
Role of the Committee
The Nomination Committee is responsible for
ensuring that the Board consists of members
who reflect the relevant skills, experience
and knowledge in order to set and enable the
executive to deliver the Company’s strategy.
The Committee makes recommendations
to the Board with regard to the nomination,
selection and succession of directors and
senior executives.
The Committee’s main role and responsibility
is to ensure that there is appropriate
succession planning in place, having regard
to the provisions of the UK Corporate
Governance Code.
The Committee regularly evaluates the
Board’s performance and effectiveness
both as a group and as individual directors.
There is also a regular review of induction
processes, training and the continued
development of the Company employees
as well as non-executive directors which
is carried out by the Committee.
Main activities during the year
During 2019, the main activities have been:
■■ the appointment of a new Chief
Financial Officer;
■■ a review of Board composition
and structure concluding in the
appointment of a new independent
Non-Executive Chairman;
■■ the appointment of two new independent
Non-Executive Directors; and
■■ reviews of the Diversity and Inclusion
Policy as well as succession planning
including the pipeline of internal talent.
We have made important
appointments to the Board to
ensure it has the depth and
breadth of experience to oversee
our strategic plan
Anna Seeley
Chairman, Nomination Committee
CLS Holdings plc Annual Report and Accounts 2019 73
Membership and attendance
The Committee met three times during 2019
and held frequent discussions outside of formal
meetings. Other than becoming Chairman
during the year, the Committee’s composition
remains unchanged and comprises one
executive director and three non-executive
directors, two of whom are independent.
The composition of the Committee is not
compliant with Provision 17 but the Board
considers that because the Group has
a Controlling Shareholder its composition
reflects the need for independent oversight
whilst recognising the shareholder base.
The Company Secretary acts as Secretary
to the Committee and its Terms of Reference
are available on the Company’s website.
Committee members’ attendance during
the year ended 31 December 2019
Lennart Sten
Anna Seeley
Sten Mortstedt
Elizabeth Edwards
3/3
3/3
1/3
3/3
Induction and ongoing development
It is important for all the directors, both
executive and non-executive, when joining
the Company that they are provided with
and given an insight into the Company’s
operations, culture and values.
The induction program has been set-up to
involve a full overview of the Company and
how it operates. The process starts with
individual meetings with the non-executive
Chairman, Chief Executive Officer and the
Chief Financial Officer.
Following this a programme of meetings
with senior managers across the Group
and facilitated tours of the Group’s portfolio
and offices in the UK, France and Germany
are organised.
Additionally, the Board aims to hold one Board
meeting a year either in France or Germany
so that it can gain first hand knowledge into
the activities, challenges and opportunities
across the portfolio.
Our individual portfolio tours and overseas
Board meetings allow directors to engage
directly with a range of employees below
Board level, which we believe is important in
relationship building, understanding our talent
pipeline, people and culture.
Meetings are also arranged with key advisors
such as external audit partners, valuers and
brokers on an on-going basis both at Board
level and individually.
Ongoing training and development beyond
the induction process is encouraged, with
updated schedules of events produced at
each Board meeting. Directors have the ability
to obtain independent advice at the Company’s
expense as well as having full access to the
Company Secretary as required.
Appointments to the Board
As recommended by the UK Corporate
Governance Code, the Committee leads
the process for Board appointments and
makes its recommendations to the Board for
final approval.
During 2019 the Committee has made four
recommendations to the Board all of which
were approved. These recommendations
were for the appointment of a new
independent Non-Executive Chairman,
a new Chief Financial Officer following
the retirement of John Whiteley and the
appointment of two new independent Non-
Executive Directors.
Malcolm Copper will step down as Chairman
of the Audit Committee and Member of the
Remuneration Committee on 5 March 2020
and will not stand for re-election at the
2020 AGM. From 6 March 2020, Bill Holland
Focus for the year ahead
■■ Annual review of our succession
plans and talent pipeline
■■ Monitoring of new Director inductions
■■ Undertake External Board
Evaluation process
■■ Develop and implement a broader
Diversity and Inclusion Policy
becomes our new Audit Committee Chairman.
I would like to thank Malcolm for his valued
contribution to the Group.
In light of his specific knowledge and
experience of the German market,
Chris Jarvis will remain on the Board
but will step down as member of the
Audit Committee on 5 March 2020 and
will hand over the Chairmanship of the
Remuneration Committee to Denise
Jagger following the conclusion of AGM at
which a new Remuneration Policy will be
put to shareholders.
We note the votes against the re-election
of Chris Jarvis, which exceeded the 20%
threshold and, as required, we lodged
a response which can be found on the
Investment Association’s Register. In light of
shareholder feedback, from this financial year
he will no longer be considered by the Board
to be independent.
Anna Seeley
Chairman, Nomination Committee
Search and recruitment process for Andrew Kirkman, Denise Jagger and Bill Holland
External search consultancy
appointed to assist with search
Search process
Selection
Objective
Interviews
Appointment
Induction
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 74
Composition, succession and evaluation
Nomination Committee Report continued
Induction in action:
Andrew Kirkman and Denise Jagger
Denise Jagger
Non-Executive Director
I joined in August 2019 and received a tailored induction
programme that had been put together by our Chairman and
Company Secretary.
As part of my induction, I have had meetings with the Chairman,
Deputy Chairman and other Committee Chairs, CEO and CFO,
so as to understand and discuss Board strategy.
I have met with our external auditors and with our external
remuneration consultants and internally with heads of function
in the UK all of which has provided an insight into our operations
and corporate culture.
Upon joining I attended a board site visit in London and separately
I undertook a tour of several of our properties in Paris where
I met with team members. A similar trip to meet colleagues
and visit sites in Germany is planned in the near future. I believe
this is important not only to understand some of the challenges
and opportunities faced by our teams on the ground, but also
to give better visibility and promote the work of the Board within
the Group.
Andrew Kirkman
Chief Financial Officer
I joined in July 2019 and received a tailored induction programme
that had been put together by our Chief Executive Officer and
Company Secretary.
My induction included meetings with the Chairman, Chief
Executive Officer and other members of the Board, including the
Chairman of the Audit Committee. This gave me an opportunity to
understand fully the Group’s strategy and how we are prioritising
our resources to meet our annual targets.
To appreciate fully the workings of the business I have also had
one-to-one meetings with other heads of functions and countries
including visiting properties in each of our three countries with
our asset management teams.
Over time, the programme included meetings with our key
advisers, which gave me understanding of how we are perceived
in the market.
CLS Holdings plc Annual Report and Accounts 2019 75
Succession planning
While identifying and developing talent across
the Group remains primarily the responsibility
of management, we have a duty to secure the
long-term success of the Group.
The Committee received updates from
the Chief Executive Officer in relation to
succession planning, both at Board and senior
executive level to ensure there is a good
quality pipeline in place and to challenge the
executive management team’s actions to
enhance the pipeline.
Following the announcement that John
Whiteley would retire in 2019, the Committee
underwent a process to recruit a new Chief
Financial Officer.
Following the appointment of an independent
external executive search consultancy,
a long list was reviewed by the Chief
Executive Officer, which produced a
shortlist of candidates for a three stage
interview process. The final candidates were
interviewed by the Committee, together
with the Chief Executive Officer and Andrew
Kirkman was recommended to the Board
to be appointed as Chief Financial Officer.
Board composition and skills
This year the Committee focused on
Board composition, its balance of skills
and experience.
First, we discussed and agreed with the
Board to move to a more conventional FTSE
structure, and, in August, we appointed
Lennart as our new independent Non-
Executive Chairman. Second, following
feedback from shareholders on the tenure
of two of our directors; Malcolm Cooper and
Chris Jarvis, both of whom have served for
more than 9 years, the Committee sought to
find suitable candidates to replace them.
Independent external executive search
consultancies were appointed and, following
a thorough interview process, Denise Jagger
and Bill Holland were recommended to be
appointed as new independent non-executive
directors. Their biographies can be found
on page 61.
Neither independent external executive
search firm had any connection with the
company or individual directors.
At the 2020 AGM, Malcolm will not stand for
re-election. Malcolm will step down from
the Audit Committee and Bill will become its
new Chairman. At the same time, Malcolm
will also step down as a member of the
Remuneration Committee.
Following the conclusion of the AGM, Chris will
step down as Chairman of the Remuneration
Committee and be succeeded by Denise.
At the same time as Malcolm, Chris will
also step down from the Audit Committee.
In response to institutional shareholder
feedback, the Board will no longer consider
Chris to be independent.
At the year end, the Board consisted of
3 Executive Directors, 6 independent Non-
Executive Directors and 2 non-independent
Non-Executive Directors. From the conclusion
of the 2020 AGM, there will be 4 independent
Non-Executive Directors and 3 non-
independent Non-Executive Directors.
Whilst the Committee notes that it has not
complied with Provision 11 of the Code during
the year, it believes that this best reflects
the needs of the Group that will support the
delivery of its strategy.
Diversity
The Board’s policy is that the selection of new
Board members should be based on the best
individual for the role and that the Board’s
composition should have an appropriate
balance of skills and diversity to meet the
requirements of the business.
The Nomination Committee continues not to
set specific representation targets for women
at Board level (currently 27%). However, on
recruitment, our policy is that we expect our
search consultants to ensure, where possible,
there is a diverse selection of candidates.
We consider this to mean more than just
gender, but also ethnically diverse candidates;
a policy that we encourage throughout
the Group when recruiting. To this end, we
ask our search firms for all recruitment
levels across the Group to aim for a long
list of at least 50% women and appropriate
diversity representation.
We recognise that there are significant
benefits of diversity, including age, gender,
core skills, experience and educational and
professional background, which we continue
to consider whenever changes to the Board’s
composition are considered.
The Board recognises that there is some work
to be done in relation to diversity, especially at
senior management level.
We believe this will be a gradual process as
the workplace evolves and policies, especially
in the area of parental leave, are aligned to
offer equal benefits.
Our Diversity and Inclusion Policy underlines
our commitment to attracting, promoting and
developing talent no matter who they are.
Training and
information
sessions
Professional
development
at a glance
Site visits,
Board dinners
and breakfast
meetings
Briefing
material on
Board portal
Management
and one-to-one
meetings on
key topics
Deep dives
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 76
Composition, succession and evaluation
Nomination Committee Report continued
Snapshot of Board skills & diversity
Composition of the Board
Board skills and experience
27%
18%
Executive
Independent
Non-Independent
55%
Skills & Experience
Property – wide ranging experience
of the property sector including our
European markets
Governance – significant listed
company governance experience and
understanding of investor requirements
International Markets – experience and
in-depth knowledge of dealing in, and
the operation of, international markets
Risk Management – in-depth insight and
experience of risk management within
the property sector
Financial Management – substantial
background of financial experience from
wide ranging industries and markets
Human Resource – knowledge of HR
operations, setting and monitoring
culture, and diversity and inclusion
Length of tenure
Fredrik Widlund
Andrew Kirkman
0.5
Sten Mortstedt
Malcolm Cooper
Denise Jagger
Elizabeth Edwards
Lennart Sten
Chris Jarvis
Bengt Mortstedt
Anna Seeley
Bill Holland
0.33
0.16
Gender diversity
Board
73%
27%
Male
Female
Gender diversity
Group wide
49
Male
Female
51
5.0
5.0
5.0
2.0
4.0
11.0
25.0
12.0
Gender diversity
Executive Committee
Gender diversity
Senior Operations Board
100%
Male
Female
18%
82%
Male
Female
Average age
Group wide
2% 4%
3% 14%
7%
10%
16%
21-25
26-30
31-45
36-40
41-45
46-50
51-55
56-60
61-65
66-80
15%
16%
Nationality of all
employees
11%
4%
47%
1% 1%
Australasian
Latin American
British
European
(non-British)
Not-disclosed
African
13%
36%
CLS Holdings plc Annual Report and Accounts 2019 77
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■■ Increased the time spent on discussing
organisational culture and receiving
feedback from the workforce through
the Workforce Advisory Panel.
■■ Set aside more time to discuss how best
the non-executive directors and executive
directors can add value to the business.
Performance evaluation
The Board undertakes a formal review of its
performance and that of its Committees each
financial year, and is required to conduct an
external evaluation once every three years.
In accordance with Provision 21 of the Code,
the Board undertook its first externally
facilitated board performance evaluation in
November 2017 and will undertake its next
externally facilitated evaluation in 2020.
The 2019 internal evaluation was based
on a questionnaire which addressed the
following key areas: strategy, leadership and
accountability, effectiveness of the board,
board culture, information flows to the board
and risk management. Each Committee also
undertakes a review of its performance,
effectiveness and accountability.
The performance of individual directors is
carried out through individual meetings with
the Chairman during the year. The findings
and outcomes of the evaluation are set
out below.
The Board reviewed the 2018 outcomes that
it focussed on in 2019. It concluded they had
largely been achieved:
■■ Reviewed the succession planning process.
■■ Extended the programme of site visits
in order that the Board members spent
more time in the business and with key
stakeholders. Presentations were arranged
to provide more in-depth information on
topical issues.
Board Committee and Directors’ performance evaluation cycle (2019 year 3)
Year 1
Externally facilitated questionnaire
using Independent Audit’s Thinking
Board software
Years 2
Internal questionnaire and
follow up on results of previous
performance evaluations
Year 3
Internal questionnaire and
follow up on results of previous
performance evaluations
The process was divided into four stages:
Stage 1
Design and scope of
questionnaire to address core
areas and key themes, and
facilitate the ability to provide
confidential written responses
to where improvements could
be made
Stage 2
Completion of the
questionnaire by the Board
and Committee members
Stage 3
Review of the results of
the questionnaire and
benchmark findings against
2018 outcomes
Stage 4
Presentation of report to the
Board for discussion and to
prepare a plan for achieving
desired outcomes
Findings
Outcomes
Recognised that significant structural changes have been made
to the Board, but that more improvements could be made.
Continue to formally discuss succession planning, at least once
a year. Assist in the induction of new directors.
Greater discussion on assessing and discussing cybersecurity and
organisational risks.
Continue to provide regular updates around cybersecurity and
organisational risks.
Further and more regular engagement with employees at senior
management level and below.
Continue to develop relationship with employees, including those
below senior management level.
Further work on how the Board can add value to the organisation.
Increase interaction between Board members, especially between
Committees, and between the Committees and the Board.
CLS Holdings plc Annual Report and Accounts 2019
78
Audit, risk and internal control
Audit Committee Report
Ensuring integrity, oversight
and risk management
Focus for the year ahead
■■ Successful handover to
Bill Holland as the new Chair of
the Audit Committee
■■ Ensure valuations and assumptions
surrounding the valuations are
appropriate at the full and half year
■■ Monitor principal and emerging risks
to ensure they remain appropriate
■■ Review and monitor internal controls
and receive regular updates on
internal controls testing
■■ Maintain the relationship with the
Auditor with a focus on the key
issues outlined in each audit report
during the year
■■ Monitor the impact of changes to
accounting and governance laws
and regulations.
Dear Shareholder,
On behalf of the Audit Committee, I am
pleased to present what will be my last report
as Chairman of the Committee for the year
ended 31 December 2019. This report is
intended to provide an insight into the work
of the Committee during the year. I would
like to thank my fellow Board and Committee
members for their support during my tenure
as Chairman of the Committee.
At the same time, Chris Jarvis will also step
down as a member of the Committee.
Bill’s experience, which can be found on page
61, means he has recent and relevant financial
experience. All committee members have
significant experience of the real estate sector.
The Committee met three times during 2019.
Committee members’ attendance during
the year ended 31 December 2019
Malcolm Cooper
Elizabeth Edwards
Bill Holland
Denise Jagger
Christopher Jarvis
3/3
3/3
N/A
2/2
3/3
The role of the Committee
The Committee’s main roles and
responsibilities are set out below and
reflect the Code provisions. The Committee
has Terms of Reference, which are
reviewed annually and available on the
Company’s website.
Membership and attendance
During the year we have welcomed two new
Committee members, Denise Jagger and
Bill Holland, both of whom are independent
Non-Executive Directors. When I step down
from the Committee on 5 March 2020, Bill
will take over as Chairman of the Committee.
CLS Holdings plc Annual Report and Accounts 2019 Audit, risk and internal control
The Audit Committee
Main activities during the year
Principal responsibilities of the Committee
Areas of Responsibility
Key areas discussed and reviewed by the Committee during the year in discharging its responsibilities
79
Monitoring the integrity of the
financial statements and any formal
announcements relating to financial
performance, and reviewing significant
financial reporting judgements contained
in them
Providing advice on whether the annual
report and accounts, taken as a whole,
is fair, balanced and understandable,
and providing the information necessary
for shareholders to assess CLS’ position
and performance, business model
and strategy
Reviewing our internal financial
controls and internal control and risk
management systems
At our meetings in March and August we reviewed the full-year and half-year results.
This was in conjunction with the presentation of supporting external audit reports from
Deloitte, our External Auditor, on those financial statements. Our discussions focussed on
the significant financial judgements which are explained in the next table. In November we
supported the Board in its review of the Trading Update to ensure it was a reflective of the
Group’s financial performance during the period.
We reviewed the annual report and accounts at our Committee meeting in March and
reported our conclusions to the Board that they contained sufficient information for
shareholders to assess the Group’s performance and strategic operations.
Additionally, having considered how the report was formulated, reviewed internally and by
the external auditor, we considered that the annual report and accounts meets the criteria
set out in Provision 25 of the Code and recommended them to the Board. The Board’s
statement is set out on page 119.
The Committee assists the Board in undertaking a robust assessment of the Group’s
emerging and principal risks. It receives reports at its meetings which identify movements
in principal risks, which it then reviews and reports to the Board on its findings, for wider
discussion and approval.
The way in which the Group’s principal and emerging risks are identified and addressed are
set out on pages 24 to 31.
During the year, in addition to the established framework for internal controls and risk
management systems, the Committee received and discussed reports from management
on the programme of internal controls testing, which incorporated both financial and non-
financial controls covering areas such as authorisation processes, payroll and covenant
reporting. No deficiencies were found, and we remain of the view that these controls are
sufficiently robust to minimise risk to the organisation, which we reported to the Board.
The testing also highlighted ways in which we could streamline our processes to avoid
duplication but maintain a robust process.
A programme for reviewing processes and controls for 2020 was received at our meeting
in February 2020.
Monitoring and reviewing annually
whether there is a need for an
internal audit function and making
a recommendation to the board
In light of the size and complexity of the organisation, and the regular updates the Committee
receives on internal controls testing, the Committee is confident that there remains no
requirement for an Internal Audit function. This view was supported by the external auditor.
How assurance on internal auditing is achieved is set out on page 81.
Conducting the tender process and making
recommendations to the board, about the
appointment, reappointment and removal
of the external auditor, and approving the
remuneration and terms of engagement
of the external auditor
Reviewing and monitoring the external
auditor’s independence and objectivity
Deloitte have been the Group’s external auditors since 2007. The lead audit partner
responsible for the external audit rotates every 5 years.
The last time the external audit was tendered was in 2016, at which point Deloitte had served
10 years as the external auditor. Following the tender process, Deloitte was appointed and
can serve for a further 10 years, however, the Committee undertook to review whether to
undertake another audit tender after 5 years, being 2021.
The Committee recommended the reappointment, remuneration and terms of engagement
of the external auditor to the Board, which was approved.
The Committee receives a report twice yearly from the external auditor on their continued
independence. Following consideration, the Committee believe Deloitte remains independent
and objective in its external audit of the Group.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 80
Audit, risk and internal control
The Audit Committee continued
Areas of Responsibility
Key areas discussed and reviewed by the Committee during the year in discharging its responsibilities
Reviewing the effectiveness of the
external audit process, taking into
consideration relevant UK professional
and regulatory requirements
Developing and implementing a policy on
the engagement of the external auditor to
supply non-audit services, ensuring there
is prior approval of non-audit services,
considering the impact this may have on
independence, taking into account the
relevant regulations and ethical guidance
in this regard, and reporting to the board
on any improvement or action required
We reviewed the external audit strategy and findings from the review of the half yearly
financial report and from the audit of the annual report and accounts. We found them to be
comprehensive and sufficiently detailed and focussed.
We also met with the auditor prior to the Board’s final approval of those financial statements
in order to receive reports on the external audit process. The Committee is pleased to
report that there were no issues of a material nature that needed to be brought to the
Board’s attention.
After the external audit process has taken place the Committee meets with internal
stakeholders to review the effectiveness of the external audit process. This is fed back to our
external audit partner. We continue to consider that Deloitte provides an effective audit and
that key accounting and auditing judgements had been identified in line with regulatory and
professional requirements. This allowed us to recommend their reappointment to the Board.
The Committee have developed a policy on the supply of non-audit services to safeguard
auditor independence and objectivity. The policy reflects the requirements of the FRC’s
ethical standard. The Committee expects further changes to the FRC’s ethical standards
which it will address when they are published.
During the year non-audit services undertaken by Deloitte amounted to £37,000
(2018: £52,000) and related to the external auditor’s work on the Interim Review.
The Committee concluded that the external auditor’s independence was not impacted.
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.
Financial reporting and significant financial judgements
Significant issues considered by the Committee relating
to the Financial Statements
How these issues were addressed by the Committee
Property Valuations
Significant Transactions
The Committee met with the Group’s valuers, Cushman & Wakefield, to which it invited the
whole Board. During the meeting we discussed the methodology used for the six monthly
valuations of the Group’s properties and received in depth reports on the local markets in
which the properties were located.
Independently, the Auditor also met with the Group’s valuers using real estate specialists and
provided the Committee with a summary of their review contained within their report at the
half-year and year end.
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 was addressing.
The Committee also focused on the management’s accounting treatment for significant
transactions during the year, such as the disposal of the Group’s holding in Catena in
September 2019 and the completion of the £28.7 million sale of First Camp to a Norwegian
campsite operator in March 2019.
Key financial judgements that were considered related to the classification of the First Camp
investment as a discontinued operation and its remeasurement to fair value less cost to sell
which resulted in a loss being recognised. The treatments were discussed with the Auditor
and the Committee agreed with the accounting treatment.
CLS Holdings plc Annual Report and Accounts 2019 Significant issues considered by the Committee relating
to the Financial Statements
How these issues were addressed by the Committee
81
The Committee continued to look at the impact of Brexit on the principal risks and
uncertainties and provided the full Board with the Committee’s views in their wider
discussion as set out in the Strategic Review.
The Committee assessed the framework for financial controls to be regularly reviewed
by management and brought to the Committee for review. The Auditor confirmed to the
Committee that there were defined lines of reporting and control processes in place
within the Group such that the Auditor and Committee were satisfied that the risk was
adequately mitigated.
Effectiveness of internal audit
In the absence of an internal audit function,
the Committee seeks assurance through
a programme of internal control testing,
overseen by the Group Financial Controller.
Going Concern and Viability Statements
In accordance with Provisions 30 and 31 of
the UK Corporate Governance Code, our going
concern and viability statements can be found
on page 31.
Malcolm Cooper
Chairman, Audit Committee
The 2019 programme of controls testing
focussed on the following areas of process:
■■ Purchase Ledger: Authorisation of
purchases; authorisation of payments;
and recovery through service charges.
■■ Sales Ledger: Recording on tenant
database; fullness of sales invoicing;
and debt collection.
■■ Borrowings: Compliance with covenant
reporting and reconciliation of Treasury
system to books and records.
■■ Payroll: Authorisation of monthly payroll;
and payments to tax authorities.
The results, which are presented to the
Committee with the external auditor present,
confirmed no issues had arisen but it had
assisted in ensuring the processes were
sufficiently robust.
Joint venture and associates
This Corporate Governance report applies
to the Company and its subsidiaries. It does
not include associates. The Group has no
joint ventures.
Brexit
Management override of controls
Establishment and review of
effectiveness of Internal controls
The Board recognises that it is responsible
for maintaining and monitoring the Group’s
system of internal controls and reviewing its
effectiveness. In order to do so, it is supported
by the work of the Committee.
During the year, the Committee undertook
a review of the Group’s internal control systems,
which sets out all control and authorisation
parameters and highlighted changes that had
happened in between meetings.
Following its discussion, the Committee then
reported its findings to the Board for further
discussion and subsequent approval.
Key features of our system of internal
control include:
■■ a comprehensive system of financial
reporting and business planning;
■■ a defined schedule of matters for decision
by the Board, revisited by the Board at
least annually;
■■ an organisational structure with clearly
defined levels of authority and division
of responsibilities;
■■ formal documentation and
approval procedures;
■■ the close involvement of the Senior
Leadership Team in all aspects of day-to-
day operations, including regular meetings
with line managers to review all operational
aspects of the business and risk
management systems;
■■ annual Board review of Group strategy
including forecasts of the Group’s future
performance and progress against
strategy; and
■■ formal sign-off on the Group’s
Whistleblowing, Securities Dealing and Anti
Bribery policies by all employees annually.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 82
Remuneration
Remuneration Committee Report
Annual Statement
from the Remuneration
Committee Chairman
Role of the Remuneration Committee
The Committee’s main purpose is to assist the
Board in discharging its responsibilities for:
■■ reviewing the broad policy for the
senior management;
■■ recommending and monitoring the
level and structure of remuneration
for senior management;
■■ governing all share schemes; and
■■ reviewing any major changes in employee
compensation and benefit structures
throughout the Company or Group.
The Committee's terms of reference are
available on our website.
Membership and attendance
The Committee’s membership has changed
compared to last year with the addition of
two independent non-executive directors
and now comprises 5 independent
non-executive directors.
During 2019, the Committee met 5 times
and held a number of informal discussions
with the executive directors, the Sten and
Karin Mortstedt Family and Charity Trust
and institutional shareholders. We believe
it is important that the Committee keeps
up-to-date during the year to enable timely
discussions where business decisions may
affect remuneration.
Committee members’ attendance during the
year ended 31 December 2019
Christopher Jarvis
Malcolm Cooper
Bill Holland1
Denise Jagger2
Lennart Sten
5/5
5/5
N/A
2/2
5/5
1. Appointed to the Board on 20 November 2019
2. Appointed to the Board on 1 August 2019
Dear Shareholder,
As the Chairman of the Remuneration
Committee, I am pleased to present the
Directors’ Remuneration Report for the year
ended 31 December 2019. This will be my
last report as Chairman of the Committee
as I will be stepping down and handing over
the chairmanship to Denise Jagger from the
conclusion of the 2020 AGM. I would like to
thank my fellow Committee members for
their help and support during my time as
Chairman of the Committee.
This report sets out the implementation
of the Company’s current Directors’
Remuneration Policy (“Policy”) for the year
ended December 2019 and the proposed new
Policy ("New Policy") which will operate for
the three years from 23 April 2020 subject
to shareholder approval at the 2020 AGM.
We also set out how we intend to implement
the New Policy for the financial year ending
31 December 2020.
In this report we set out:
1. The Annual Statement from the
Chairman of the Remuneration Committee.
2. The Annual Report on Remuneration
which explains how we have paid our
Directors under the current Policy this year
and how our framework aligns with our
wider strategy and corporate governance
best practice, as well as how we consider
remuneration of the wider workforce in
relation to Executive Pay.
3. The proposed New Policy, which we are
asking shareholders to approve at the
2020 AGM.
As in previous years, the Annual Report on
Remuneration and this Annual Statement are
subject to an advisory shareholder vote at the
2020 AGM.
CLS Holdings plc Annual Report and Accounts 2019 83
2019 Company performance and
remuneration outcomes
As set out in the Chairman’s Statement,
the Company has performed well during
2019 despite the political and economic
uncertainties which have impacted the
property investment market.
The Company continued to execute its
strategy with the objective to increase
earnings, cash flow and dividends for the
long term. In 2019, the Group produced solid
underlying earnings and valuation gains
leading to a growth in NAV.
In 2019, EPRA NAV increased by 6.3% to 329.2
pence per share mainly through revaluation
uplifts and EPRA earnings. The Absolute
TSR was 47.1% in 2019 with Relative TSR
performance at 10th out of 27 constituents
in the peer group FTSE 350 Real Estate Super
Sector Index.
The key remuneration outcomes resulting
from this underlying performance in the year
are given below.
Performance assessment of incentives
Under the current Policy, both Element A and
Element B of the Performance Incentive Plan
(the “PIP”) are assessed against the same
annual performance conditions and criteria.
As set out in more detail on page 94, and as
a result of the strong financial and operational
performance in the year, the Committee
and Auditors determined that five of the
six Key Performance Indicators (‘KPIs’)
consisting of absolute TSR, relative TSR,
personal performance, vacancy rate, and total
accounting return exceeded the benchmark
targets. The administration cost ratio was
marginally below target, due in part to higher
personnel costs, but above the level at which
risk adjustment would operate.
Base Salary and Non-Executive
Directors’ Fee Changes
During the year, the Remuneration
Committee and the Board determined that
it was appropriate to review director base
salaries and fees. There have been some
significant changes to the Board in 2019
with the decision to appoint Lennart Sten as
Non-Executive Chairman replacing Henry
Klotz who held the role of full time Executive
Chairman. This meant redistributing some of
the full-time executive responsibilities of the
Executive Chairman to the Deputy Chairman
and the CEO. In addition, it was determined to
bring the responsibilities and remuneration
of the Founder Shareholder, Sten Mortstedt,
into a structure more in keeping with
governance guidelines. The responsibilities
of the CEO have also changed as a result of
the above changes and his remuneration was
reviewed accordingly.
As a result, Elements A and B of the PIP paid
out at 87.3% for the CEO and 87.1% for the CFO
of the maximum opportunity, noting that 2019
was the 2nd year of Cycle 3 of the PIP Element
A award granted in 2018.
It is also noted that the first awards granted
in 2017 under Element B of the PIP will vest
on 26 April 2020. The number of shares to
be vested for the CEO and former CFO are
126,860 and 80,850 shares respectively.
In line with our commitment to link
executive remuneration to annual
corporate performance and long-term
shareholder returns, the strong performance
demonstrated in the year resulted in higher
pay outcomes in 2019.
Discretion
The PIP was applied without any adjustment
or exercise of discretion in respect of
2019 as the awards were deemed by the
Remuneration Committee to have been
a fair and accurate reflection of business
performance and replicate remuneration
outcomes throughout the wider
employee workforce.
The overall restructuring of responsibilities within the Board of these four positions has led to
a reduction in total remuneration for the four positions of Chairman, Deputy Chairman, CEO and
Founder compared to 2018. The Remuneration Committee wrote to our 15 largest shareholders
representing 86% of the Company's issued share capital on 6 November 2019 to inform them
of the changes made to salaries and fees in 2019 which are as follows:
2018
2019
2019 (after changes)
Difference
* Assuming 2019 remuneration would be similar to 2018
Salary/Fees (£000)
Chair
Deputy Chair
Founder
£447
£459
£220
-£239
£35
£55
£120
+£65
£767
£767*
£500
-£267
CEO
£344
£354
£450
+£96
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 84
Remuneration
Remuneration Committee Report continued
The changes resulted in an overall reduction
in remuneration of £345,000.
Full details of the changes in light of the
changing responsibilities, which were
communicated to our top 15 shareholders
in 2019, is provided on page 83.
New Remuneration Policy
The Company’s current Policy was
approved by shareholders at the 2017 AGM
which included a new Element B to the
PIP. The Committee noted feedback from
a number of the Company’s shareholders
since the implementation of Element B of the
PIP, which indicated that they did not consider
awards based on a prior year’s performance
to be a long-term incentive arrangement,
despite having a three-year vesting period
and two-year holding period.
After undertaking a remuneration review,
the Committee determined to put forward
a new incentive structure which will form
the main change of substance from the 2017
Policy; other than changes made to bring the
Company’s remuneration in to line with the
2018 UK Corporate Governance Code (the
“Code”) and current best practice.
Key Features of the New Policy
The key features/changes proposed for the
New Policy are set out as follows:
■■ Element A of the PIP:
– Structurally will continue to operate
unchanged. There will be a revision to
the performance conditions to simplify
the scorecard of measures by removing
the personal performance element,
administrative cost ratio, and absolute
TSR. Therefore, the performance
conditions applying will be:
20% on Vacancy rate;
40% on relative Total Shareholder
Return; and
40% on Total Accounting Return.
■■ New Long-Term Incentive Plan introduced
to replace Element B of the PIP, which will
be a market standard long-term incentive
plan. After our shareholder consultation
ended, EPRA made changes to the EPRA
NAV measurement by splitting it into sub-
measurements. After consulting widely
within the Company and external advisors
as to the appropriate metric, the Committee
decided to adopt EPRA Net Replacement
Value (EPRA NRV) as the most appropriate
and similar performance measure. The LTIP
will therefore operate on the following basis:
– Annual grants of share awards which
vest over 3 years subject to the following
performance conditions:
50% EPRA NRV growth per share; and
50% Total Shareholder Return (Relative).
Both measured relative to the
FTSE 350 Real Estate Super Sector
constituent companies.
– Any awards which vest will be subject to a
further 2 year holding period.
– The maximum opportunity under the LTIP
will be increased to 150% of salary for
the CEO (maximum under Element B was
100%, previous year’s grant level 80% of
salary), and to 120% of salary for the CFO
(previous year’s grant level 65% of salary
under Element B). The increase in award
level between Element B and the new
LTIP reflects:
The unwinding of the discount from
a performance on grant award (Element
B) to the LTIP. The Committee felt that the
discount from an LTIP to a performance
on grant award was approximately 1/3rd
and therefore when moving from Element
B to the new LTIP the maximum award
level should therefore be increased from
100% to 150% of salary. The intention is
that the economic value of Element B and
the LTIP remain the same.
More stringent conditions, recognising
shareholder feedback, reflecting
market evidence that full payout is
very exceptional.
In addition, the Committee was satisfied
that the LTIP maximum award level was
in line with the FTSE 250 and sector
peer companies (albeit the Company’s
total remuneration remains relatively
conservative as illustrated by the chart
on page 110).
Both incentive elements will be subject
to robust malus and clawback provisions
and the Committee will have overriding
discretion to adjust formulaic outcomes
(both upwards and downwards) if these
produce payments which are out of line
with the underlying performance of
the Company.
■■ Shareholding requirement:
– 250% of salary for the CEO (no change)
and 200% of salary for the CFO
(increased from 150%).
■■ Post-employment shareholding
requirement introduced:
– The minimum shareholding requirement
set out above to be retained for two years
post cessation.
– The Company will establish a Trust or
nominee accounts to ensure that it can
enforce shareholding requirements.
■■ Pension
– 10% of salary for the CEO and CFO.
This is in line with the maximum
Company contribution level available
to the majority of employees.
– For new Executive Directors, the pension
benefit will be aligned to the staged
percentages applicable to the wider UK
workforce, currently 5% of salary upon
joining, rising to 7.5% of salary after three
years and 10% of salary after 5 years.
CLS Holdings plc Annual Report and Accounts 2019 85
The New Policy has been designed to support
the Company in its next phase of development
as it aims to grow the property portfolio
significantly over the next five years in order
to generate substantial long-term returns to
shareholders. In order to support the strategy,
the Committee believes that the New Policy
should retain, motivate and reward executives
to deliver this strategic objective and facilitate
the recruitment of key talent. This breaks
down into the following:
– In order to ensure the achievement of
the Company’s key strategic objectives,
executives need to be motivated and
rewarded for the successful delivery
of key annual objectives, hence the
retention of Element A.
– Given the state of maturity of the Company
following previous periods of instability, the
Company is better placed to set longer-
term strategic growth targets, and this is
reflected in the introduction of the new LTIP.
– The new structure ensures the alignment
of the interests of Executive Directors and
senior management with shareholders.
This is achieved through the majority of
incentives earned being in the form of
shares, and a significant proportion of
which must be held by the Participant
for a material period. This is reinforced
through a minimum shareholding
requirement of 250% of salary for the
CEO and 200% for the CFO.
– The new structure ensures the total
compensation levels are competitive
in the industry in which the Company
competes for talent.
Engagement with shareholders
The Committee takes the views of the
shareholders seriously and these views were
taken into account when shaping the New
Policy. The Committee consulted with its 15
largest shareholders, representing 86% of
the Company's issued share capital, by way
of a letter on 27 November 2019, and the
consultation also included the main shareholder
representative bodies (IA, ISS, Glass Lewis)
on the proposed New Policy. The Committee
is grateful for the time that shareholders
have taken to consider proposals and provide
feedback. At the end of the consultation the
majority of shareholders consulted indicated
they were supportive of the proposals.
The following table sets out comments received from some shareholders, any corresponding change to the proposed New Policy and the
Committee’s rationale:
Comments
Response
Why did the Committee
increase the maximum
award level under the
proposed LTIP from
Element B?
Why did the Committee
retain Element A rather
than move to a more
standard bonus plan?
As stated above it is the Committee’s view after taking advice from PwC that the maximum Element B award and
maximum LTIP award have the same economic value. The change in maximum is simply the result of reversing
the discount applied when moving from an LTIP to a performance on grant model.
The Committee’s rationale for making no change is:
■■ Element A has operated since 2012 and is a well understood and successful long standing part of the
Company’s remuneration;
■■ Element A allows the smoothing of bonus payments over a number of years which is helpful to ensure motivation
and retention of Executives in an inherently cyclical industry – it helps mitigate the “boom” or “bust” remuneration
which can otherwise occur;
■■ The ability for the Committee to reduce banked payments for a worsening in performance provides all
stakeholders with a protection greater than simply malus and clawback.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 86
Remuneration
Remuneration Committee Report continued
Leadership Changes
Departing CFO
Mr John Whiteley, the former Chief
Financial Officer, retired on 30 June 2019.
The Remuneration Committee reviewed his
performance and agreed that pursuant to
the rules of the PIP, Mr Whiteley should be
treated as a Good Leaver. As a result, and in
accordance with the PIP rules and the current
Policy, Mr Whiteley received the following
elements of remuneration:
Incoming CFO
Mr Andrew Kirkman joined as Chief Financial
Officer on 1 July 2019. Mr Kirkman’s
remuneration in respect of 2019 is set out
below and is in accordance with the current
Policy approved by shareholders. All amounts
will be prorated for 2019.
■■ Annual Salary: £275,000.
■■ PIP maximum opportunity:
– Element A: 100% of salary;
– Element B: 65% of salary.
PIP Element A
■■ Financial Year 2018 Deferred Bonus Pool:
■■ Benefits: In line with current Policy.
■■ Pension: 10% of salary Company
The Deferred Bonus Pool, based on 40,594
notional shares as at 1 January 2019, was
paid in cash based on the 30-day average
share price in June, being £2.177, on
1 July 2019.
■■ Financial Year 2019 Bonus Pool: This has
been pro-rated to 50% of the maximum
available bonus to reflect the termination
date of 30 June 2019. This Bonus Pool will
be paid by 31 March 2020, based on the
achievement of the 2019 performance
targets which was 87.8% of maximum.
■■ There will be no further payments under
Element A.
PIP Element B
■■ As a Good Leaver there was no forfeiture
of any subsisting or accrued awards, nor
has there been any early vesting.
■■ In respect of the 2019 Financial Year, the
relevant Award to be made in March 2020
will be pro-rated to 50% of the maximum
available award to reflect the termination
date of 30 June 2019 and will vest three
years later (March 2023). The award will
be granted based on the achievement of
the 2019 performance targets, which was
87.8% of maximum.
■■ The vesting periods and holding periods on
Element B share awards will continue post
the revised termination date.
contribution, in line with the maximum
employee opportunity.
In addition, the Company also made
a relocation payment to Mr Kirkman of
£60,000, which is subject to a scaled
repayment clawback over a three-year
period, as well as buy-out awards in respect
of incentives foregone at his previous
employer. All payments are in accordance
with our current Policy. Further details on
the payments can be found in on page 92.
Wider Employee Pay
As part of our commitment to fairness across
the business, and in line with requirements
under the Corporate Governance Code, we
have set out in this report information on
the pay conditions of the wider workforce
and comparisons with Executives, as well
as our diversity policies and statistics. We are
committed to transparency internally and
externally in relation to developments on
these important issues and will continue
to consider how our disclosures can be
enhanced going forward.
Pay structures across the Group
In making decisions on executive pay, the
Committee considers wider workforce
remuneration and conditions. We recognise
the central importance of all our teams in
delivering success.
We aim to provide a remuneration package
for our employees which is aligned to our
values and remuneration principles across
the Group. Our remuneration for employees
is market competitive and operates the same
core structure as for Executive Directors.
This includes employee share and variable
pay plans, with pension provision for all
Directors and employees.
Each year, prior to reviewing the
remuneration outcomes, the Committee
considers a report covering key information
such as base pay levels, pension and share
scheme participation.
Employee engagement
We regularly communicate with our
employees on a range of issues, including
executive pay. In 2019 our Workforce
Advisory Panel met for the first time, chaired
by Elizabeth Edwards, who was appointed
as the Designated NED. Further details on
the outcomes of this meeting and how we
engaged with employees in the year is set out
on page 22. The Committee will continue to
use the voice of employees as valuable insight
when making wider remuneration decisions.
Diversity and inclusion
The Board recognises the value of the gender
pay gap reporting requirements and the
opportunity this brings to focus even more
on gender diversity. We provide detail on our
progress in this area on page 52. The Board
and leadership team recognise that inclusion
and diversity in all its forms are vital in
achieving diversity of thought, experience
and skills within the Group. The Board is
committed to promoting diversity throughout
the business and is continuing to find effective
ways of doing this.
CLS Holdings plc Annual Report and Accounts 2019 87
Focus for the year ahead
■■ Successful handover to Denise
Jagger as the new Chairman of the
Remuneration Committee, following
the 2020 AGM
■■ Subject to approval at the 2020 AGM,
embed the New Policy
■■ Continue to ensure consistency
of approach and fair pay conditions
across the Group.
■■ Ensure high quality remuneration
advice and information to
inform decisions.
■■ Ensure Company performance
is appropriately reflected in any
performance-related pay element
of remuneration.
■■ Review the PIP and LTIP KPIs
and corresponding targets, on an
annual basis.
■■ Receive updates from Head of
HR in relation to developments in
employee benefit structures.
■■ Continue to ensure compliance with
the Code.
Corporate Governance
We have taken the following steps to ensure
alignment with the Code as well as prevailing
shareholder guidance.
■■ Review of our New Policy to ensure
alignment of our structures with corporate
governance best practice and long-term
value creation for shareholders
■■ Reviewed our terms of reference to ensure
it has appropriate oversight of the Directors
and senior management pay as well as
the operation of reward arrangements
throughout the organisation.
■■ Reviewed pension levels for Executive
Directors to ensure alignment with the
wider workforce.
■■ Implemented post-employment
shareholding requirement such that the
minimum shareholding requirement to
be retained for two years post cessation,
with a robust mechanism in place to
enforce this.
■■ Assess workforce pay policies and
practices to ensure they are aligned to our
wider culture and remain an effective driver
of Group success.
The Committee continues to regularly review
and monitor governance developments
and market context in order to ensure the
appropriateness of the New Policy.
Performance of the Committee
The Remuneration Committee undertakes
a review of its performance each year.
During 2019 the Committee undertook an
internal review of its performance and
found that the Committee continued to
perform effectively.
Advisers to the Remuneration Committee
To ensure that the Company’s remuneration
practices are in line with best practice, the
Committee has appointed independent
external remuneration advisers,
PricewaterhouseCoopers LLP (‘PwC’).
PwC attends meetings of the Committee
by invitation.
During the year, the Committee sought advice
from PwC in relation to the New Policy, the
Performance Incentive Plan and general
matters related to remuneration, and from
the Company Secretary in relation to peer
group remuneration analysis. On occasion,
the following persons were invited to parts
of Remuneration Committee meetings to
respond to questions from the Committee: the
CEO and Head of Group HR. Such attendances
specifically excluded any matter concerning
their own remuneration. The Company
Secretary acts as secretary to the Committee.
PwC is one of the founding members of
the Remuneration Consultants Group Code
of Conduct and adheres to this Code in its
dealings with the Committee. 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.
The fees for the advice provided by PwC in
2019 were £79,140 (2018: £60,025). The fees
were fixed on the basis of agreed projects.
Concluding Remarks
The Remuneration Committee believes that
the proposed approach to Executive Director
pay aligns with the Company's strategies
of growing profitability and delivering
appropriate returns in-line with expectations.
The Remuneration Committee has structured
an approach that is in-line with the market to
retain and attract talented individuals and is
aligned with shareholders’ interests.
We trust that this report will answer any
questions you may have in respect of
remuneration, and we would be glad to
receive your support at the 2020 AGM in
respect of the binding vote on the New Policy
and the advisory vote on the Annual Report
on Remuneration.
Christopher Jarvis
Chairman, Remuneration Committee
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 88
Remuneration
Remuneration Committee Report continued
Remuneration at a glance
2019 Single figure outcomes
1,483
1,336
23%
10%
21%
44%
40%
1,049
20%
38%
1,078
3%
25%
31%
438
100%
42%
33%
30%
41%
369
16%
25%
58%
215
100%
442
20%
31%
49%
476
7%
19%
29%
45%
Minimum
On-target
Maximum
Actual
(2019)
Maximum
(with 50%
share price
growth)
Minimum
On-target
Maximum
Maximum
(with 50%
share price
growth)
353*
22%
17%
61%
Actual
(2019)
326
19%
30%
51%
165
100%
402
23%
36%
41%
Minimum
On-target
Maximum
438
8%
21%
33%
38%
Maximum
(with 50%
share price
growth)
373
22%
34%
44%
Actual
(2019)
CEO – Fredrik Widlund
CFO – Andrew Kirkman
CFO – John Whiteley
Fixed
Element A
Element B
Equity growth on LTIP * Excluding Other fees
CEO – Fredrik Widlund
2019 bonus
Maximum bonus 150%
CFO – Andrew Kirkman
2019 bonus
Maximum bonus 50%
CFO
87.1%
CFO
87.8%
CFO – John Whiteley
2019 bonus
Maximum bonus 50%
CEO
87.3%
Total Executive remuneration
Henry Klotz1
Fredrik Widlund
John Whiteley2
Andrew Kirkman3
Sten Mortstedt
Executive Chairman
CEO
CFO
CFO
Executive Director
1. Retired during 2019
2. Retired on 30 June 2019
3. Joined July 2019
1,062
1,117
1,078
828
656
706
732
635
566
1,208
373
JW
742
AK
431
448
377
29%
225
2019
£’000
448
1,078
373
742
500
2018
£’000
431
1,117
732
–
767
958
784
763
767
500
CEO
CFO
Executive Chairman
Executive Director
JW – John Whiteley AK – Andrew Kirkman
2015
2016
2017
2018
2019 (£000)
CLS Holdings plc Annual Report and Accounts 2019
89
CEO pay compared to employees
The graph below shows the comparison of the CEO’s base salary to the average base salary for employees. To see further comparatives and for
more detail see page 99.
2017
2018
2019
CEO pay ratio
CEO
Employee at
25th percentile
Employee at
50th percentile
Employee at
75th percentile
44
45
49
368
378
391
391
Average employee salary (£000)
CEO salary (£000)
Base salary (£000)
Total pay and benefits (£000)
1,078
52
56
56 19:1
73
15:1
84
140
8:1
New Remuneration Policy at a glance
The Company’s New Policy remains to attract, retain and motivate its leaders and to ensure they are focused on delivering business priorities
within a framework designed to promote long-term success, aligned with shareholder interests. The diagram below illustrates the balance of pay
and time period of each element of the Policy for Executive Directors. Our New Policy can be found on pages 104-115, and its link to our strategy
and how it aligns with the provisions of the UK Corporate Governance Code on pages 90-91.
Year 1
Year 2
Year 3
Year 4
Year 5
Fixed Pay
PIP
LTIP
Salary, Pension and
Benefits.
50% of PIP Account.
Deferral of remaining Account balance into notional shares which pay
out over remainder of 4-year cycle.
New PIP cycle granted in year 4.
3-year performance period.
2-year post-vesting holding period.
Key points to note
■■ Base salary and benefits policy remain unchanged as existing policy considered appropriate
■■ No change to the policy on non executive director fees
■■ Pension policy amended for new joiners only to align company contributions with those of the wider UK workforce
■■ Bonus element A will be retained
■■ The number of KPIs for Element A has been reduced from 6 to 3 to facilitate simplicity and objectivity
■■ Bonus element B will be replaced with a market standard long-term incentive plan
■■ Increased shareholding requirement for the CFO
■■ Introduction of a post employment shareholding requirement for executive directors
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 90
Remuneration
Remuneration Committee Report continued
Linking our New Remuneration Policy to our Strategy
Company strategy
We acquire the
right properties
■■ Invest in high-yielding
properties, predominantly
offices, with a focus on
cash returns
■■ Diversify market
risk by investing in
geographical areas with
differing characteristics
We secure
the right finance
■■ Target a low cost of debt
■■ Utilise diversified sources
of finance to reduce risk
■■ Maintain high level of
liquid resources
We deliver value
through active
management and
cost control
■■ Maintain high occupancy
rates
■■ Maintain a diversified
customer base
underpinned by a strong
core income stream
■■ Maintain strict cost control
We continually
assess whether to
hold or sell properties
■■ Focus on holding
those properties with
the potential to add
value through active
asset management
■■ Sell those properties
which are low yielding or
where the risk/reward
ratio is unfavourably
balanced
Our Group strategy informs our Remuneration principles and our structure supports these objectives
Competitive
■■ Total remuneration should be
competitive when compared
with companies of similar
size and scale, i.e. peers in the
FTSE 350 real estate sector.
■■ Introduction of LTIP with
an increased opportunity
versus PIP Element B
ensures more competitive
market positioning,
provided that the executive
team delivers long-term
sustainable performance.
Link to Code Provision 40
factors:
■■ Alignment to culture.
■■ Proportionality.
Performance linked
■■ A significant part of the
Executive Directors’ reward is
determined by the Company’s
success in delivering strategy.
■■ Failure to achieve threshold
levels of annual and long-
term performance may result
in both no bonus under the
PIP and partial forfeiture of
earned deferred elements
from previous years, and/or
no vesting of the LTIP.
■■ The fixed element of the New
Policy remains conservative
against industry and cross-
sector peers.
■■ The Committee retains
discretion to adjust pay
outcomes if they do not reflect
wider business performance.
Link to Code Provision 40
factors:
■■ Predictability.
■■ Alignment to culture.
Shareholder aligned
■■ LTIP supports build up and
retention of meaningful
shareholdings by the
executive directors.
■■ PIP deferral into notional
shares provides alignment.
■■ LTIP provides lock in for
5 years from grant.
■■ A considerable part of the
reward is paid in shares
that must be retained until
minimum shareholding
requirements have been met.
■■ Introduction of post-
employment shareholding
requirement increases lock-in
over longer term.
Link to Code Provision 40
factors:
■■ Risk.
■■ Alignment to culture.
■■ Clarity.
Simple and transparent
■■ All aspects of the
remuneration structure are
clear to participants and
openly communicable.
■■ PIP Element A well
understood by management
and LTIP is market
standard structure.
■■ The framework is
therefore aligned with
good governance.
Link to Code Provision 40
factors:
■■ Simplicity.
■■ Clarity.
Our chosen incentive plan measures clearly support the Company strategy
PIP Element A matrix
Total Shareholder Return (40%)
Total Accounting Return (40%)
Vacancy rate (20%)
Total Shareholder Return (50%)
EPRA NRV growth per share (50%)
LTIP
CLS Holdings plc Annual Report and Accounts 2019 91
Aligning new policy with Provision 40 of the 2018 Corporate Governance Code
The Code requires the Committee to determine the Policy and practices for Executive Directors in line with a number of factors set out in
Provision 40. The following table sets out how the Remuneration Committee’s proposed new Policy aligns with Provision 40 of the Code, the
objective of which is to ensure the remuneration operated by the Company is aligned to all stakeholder interests including those of shareholders.
Provision 40 factor
How the Policy aligns with the factor
Clarity – remuneration arrangements
should be transparent and promote
effective engagement with shareholders
and the workforce.
■■ The Company’s performance-based remuneration is based on supporting the implementation
of the Company’s strategy as measured through its core KPIs. There is transparency over
the performance metrics in place for both PIP Element A and the LTIP and there is a clear
link between long term value creation and the provision of reward to Executive Directors and
senior management.
■■ The operation of the structures and in particular the value outstanding in respect of awards
at a given time is made clear in the Directors’ Remuneration Report.
Simplicity – remuneration structures
should avoid complexity and their
rationale and operation should be easy
to understand.
■■ Element A of the PIP has been in place for a number of years so participants and shareholders
will have a good understanding of how it operates.
■■ The reduction of performance metrics in Element A from six to three removes some
duplication and complexities associated with this Element.
■■ The new LTIP is a market standard structure which will be familiar to participants and
Risk – remuneration arrangements should
ensure reputational and other risks from
excessive rewards, and behavioural risks
that can arise from target-based incentive
plans, are identified and mitigated.
Predictability – the range of possible
values of rewards to individual directors
and any other limits or discretions should
be identified and explained at the time of
approving the policy.
Proportionality – the link between
individual awards, the delivery of strategy
and the long-term performance of the
company should be clear. Outcomes should
not reward poor performance.
Alignment to culture – incentive schemes
should drive behaviours consistent with
company purpose, values and strategy.
shareholders alike.
■■ The Policy includes:
– setting defined limits on the maximum awards which can be earned;
– requiring the deferral of a substantial proportion of the incentives in shares for a material
period of time;
– aligning the performance conditions with the strategy of the Company;
– ensuring a focus on long-term sustainable performance through the LTIP;
– forfeiture thresholds;
– ensuring there is sufficient flexibility to adjust payments through malus and clawback and
an overriding discretion to depart from formulaic outcomes.
■■ These elements mitigate against the risk of target-based incentives by:
– limiting the maximum value that can be earned;
– deferring the value in shares for the long-term which helps ensure that the performance
earning the award was sustainable and thereby discouraging short term behaviours;
– aligning any reward to the agreed strategy of the Company;
– ensuring that the use of an LTIP supports a focus on the sustainability of the performance
over the longer term;
– reducing the awards or cancelling them if the behaviours giving rise to the awards
are inappropriate;
– reducing the awards or cancelling them, if it appears that the criteria on which the award
was based do not reflect the underlying performance of the Company.
■■ The Remuneration Committee has good line of sight and control over the potential
performance outcomes, and the actual and perceived value of the incentives.
■■ The Policy sets out the potential remuneration available in a number of performance scenarios.
■■ One of the key strengths of the proposed approach of the Company to remuneration is the
direct link between the Company strategy and the value received by Executives.
■■ The Company has clearly articulated the potential reward to the Executives compared to the
value that has to be delivered to shareholders for that reward to be earned.
■■ The new LTIP rewards long-term sustainable performance in an inherently cyclical market.
■■ This focus on long-term sustainable value is a key tenet of the Company’s strategy and its
culture and values.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 92
Remuneration
Remuneration Committee Report continued
Annual Report
on Remuneration
Single Total Figure for Executive Directors’ Remuneration (Audited)
The following table shows an analysis of remuneration in respect of qualifying services for the 2019 financial year for each Executive Director:
Deferred
shares
LTIP5
£000
Pension
£000
Other fees7
£000
2019
Executive Director
Henry Klotz
Fredrik Widlund1
Andrew Kirkman2
John Whiteley3
Sten Mortstedt
2018
Executive Director
Henry Klotz
Fredrik Widlund
Andrew Kirkman
John Whiteley
Sten Mortstedt
Salary
£000
Taxable
Benefits6
£000
406
430
147
158
500
34
8
63
7
–
Salary
£000
Taxable
Benefits
£000
400
378
–
307
317
24
7
–
13
–
Bonus (PIP)4 £000
Cash
–
256
60
126
–
–
272
78
82
–
Bonus (PIP) £000
Cash
–
162
–
87
–
Deferred
shares
–
172
–
113
–
–
112
–
–
–
LTIP
£000
–
398
–
212
–
8
–
5
–
–
–
–
389
–
–
Pension
£000
Other fees
£000
7
–
–
–
–
–
–
–
–
450
Total
Rem
£000
448
1,078
742
373
500
Total
Rem
£000
431
1,117
–
732
767
Total8
Fixed
£000
Total9
Variable
£000
448
438
215
165
500
Total
Fixed
£000
431
385
–
320
317
–
640
527
208
–
Total
Variable
£000
–
732
–
412
450
1. Mr Widlund would have received total pension contributions of £39,062 (2018: £34,398). In accordance with the Policy, the entire amount was paid as a salary supplement
(this element of salary is not bonusable or pensionable). £30,929 of Mr Widlund’s LTIP was attributed to share price appreciation.
2. Andrew Kirkman joined the Company as the new Chief Financial Officer and Director of the Company, with effect from 1 July 2019. He would have received total pension
contributions of £13,750 (2018: £n/a). In accordance with the Policy, £8,750 was paid as salary supplement and £5,000 was paid to his SIPP (this element of salary is not bonusable
or pensionable). His taxable benefit figure for 2019 includes a £60,000 relocation package, including £8,000 HMRC relocation allowance, which is subject to a scaled repayment
clawback over a three-year period.
3. Mr Whiteley served as the Chief Financial Officer and Director of the Company until 30 June 2019. He received total pension contributions of £14,368 (2018: £27,899). In accordance
with the Policy, the entire amount the entire amount (2018: £27,899) was paid as salary supplement (this element of salary is not bonusable or pensionable).
4. The Bonus total under the current Policy comprises 50% of the Element A 2019 contribution into the Director’s Plan Account and the award made of deferred shares in respect of
Element B of the PIP (see below for details of calculations). The reason that only 50% of Element A is disclosed as Bonus is because the balance is deferred and at risk of forfeiture
in respect of future years’ performance and therefore under the Regulations is required to be disclosed on vesting. The award of deferred shares under Element B does not vest
until three years after the date of grant and cannot be sold for a further 2 years. However, in accordance with the Regulations the value of these shares is shown in the Bonus
column on the date of grant as there are no further performance conditions which have to be satisfied for the shares to vest. The value of the Element B award disclosed in the table
has been calculated using the average market value of a share for the 30-day period to 31 December 2019 of £2.95 in accordance with the rules of the PIP. The figures shown for
Andrew Kirkman and John Whiteley take account of pro-rating of their PIP Element A and B awards as a result of service provided during 2019.
5. The LTIP column value is equal to 50% of the value of the Opening balance of deferred notional shares under PIP A Account. This approach reflects the fact that this value is subject
to forfeiture over the remaining life of the PIP cycle. Please see page 87 for detail on how we have reconciled the PIP payments to the single figure table. The value of the notional
shares under Element A has been based on the average market value of a share for the 30-day period to 31 December 2019 of £2.95 in accordance with the rules of the PIP.
6. Taxable Benefits relate to the provision of private medical insurance.
7. This includes the value of restricted shares awarded to Mr Kirkman in lieu of incentives foregone at his previous employer on joining the Company. This figure also includes an
estimate of the value of the cash bonus foregone at his previous employer on joining the Company that relates to their performance which, as at the date of this report, has not been
published. Please see section on Recruitment of Andrew Kirkman on page 94 for more details.
8. Total Fixed column is the total of Salary, Pension and Benefits.
9. Total Variable column is the total of Cash, Deferred Shares, LTIP and Other Fees.
CLS Holdings plc Annual Report and Accounts 2019 93
emoluments) effective from the start of 2019
in order to bring his remuneration structure
more in line with corporate governance
guidelines. This meant that the remuneration
of Sten Mortstedt will reduce by £267,000
compared to 2018 and £458,000 compared
to 2017.
Deputy Chair (Anna Seeley)
The Deputy Chair has taken over the
liaison with the majority shareholder,
the Sten and Karin Mortstedt Family and
Charity Trust (the "Trust"), and has been
instrumental in arranging the continuing
improvement in corporate governance by
moving from an Executive Chair to a Non-
Executive Chair. She will continue to lead the
improvement in the corporate governance
area together with the support of the rest
of the Board. In addition, she is Chair of the
Nomination Committee. For these additional
responsibilities her remuneration will
increase from £55,000 in 2019 (£45,000
NED fee plus £10,000 Chair of Nomination
Committee fee) to £120,000 per annum
reflecting the additional responsibilities
outlined above.
CEO (Fredrik Widlund)
Following the restructuring of the full
time Executive Chairman role to the Non-
Executive Chairman role, the CEO took over
responsibility for dealing with the activities
and investments in Sweden together with the
Chairmanship of the investment committee,
and liaison with the Trust (the majority
shareholder) through the Deputy Chair.
In addition, the Remuneration Committee
reviewed the general level of remuneration
of the CEO and concluded that although CLS is
around median at 10th out of 27 constituents
of the comparator index the FTSE 350 Real
Estate Super index in terms of assets under
management with investments in three
countries, the CEO salary remuneration
at £354,000 in 2019 was below the lower
quartile at £412,000. After considerable
review by the Remuneration Committee, and
in the interests of fair treatment, retention and
the good performance of Mr Widlund, it was
determined appropriate to increase the CEO’s
salary to £450,000 p.a at 15 August 2019
when the new responsibilities were taken
over by the CEO from the former Executive
Chair, Henry Klotz.
In summary the base salary/sees applying
and changes are as follows:
2018
2019
2019 (after changes)
Difference
Annual Salary/Fees (£000)
Chair Deputy Chair
Founder
£447
£459
£220
-£239
£35
£55
£120
+£65
£767
£767*
£500
-£267
CEO
£344
£354
£450
+£96
CFO
n/a
n/a
£275**
n/a
* Assuming 2019 remuneration would be similar to 2018.
** Salary effective 1 July 2019 being the date Andrew Kirkman became CFO.
Additional requirements
in relation to the single total
figure table
Base salary and Non-Executive
Directors’ fees
Executive Chairman (Henry Klotz) change
to Non-Executive Chairman (Lennart Sten)
In 2018 for the full-time role of Executive
Chairman, Henry Klotz received a total
remuneration (including his Catena AB
directorship fee) of £446,953 and this was
estimated to increased to a rate of £458,953
for 2019 (which assumed 3% basic salary
increase but no increase in Catena fees or
taxable benefits). Mr Klotz’s responsibilities
for dealing with the activities and investments
in Sweden have been transferred to the
CEO together with the Chairmanship of the
investment committee and liaison with the
Trust (the majority shareholder) through the
Deputy Chairman.
The Remuneration Committee determined
that for Lennart Sten, the new role of
Non-Executive Chair, warranted an annual
remuneration of £220,000 per annum after
having regard to the responsibilities and
comparable remuneration of the peer group,
the FTSE 350 Real Estate Super Sector.
The remuneration of the Non-executive
Chairman represents a reduction of £226,953
on the 2018 remuneration of the Executive
Chairman and a reduction of £238,953 on the
2019 remuneration rate.
Founder and Executive Director
(Sten Mortstedt)
For many years, the Founder shareholder,
Sten Mortstedt has received a base salary
with further remuneration for additional
consultancy services beyond his contractual
obligation. During the last two years this
remuneration was £767,000 in 2018 (salary
£317,000 plus consultancy fees of £450,000)
and £958,000 in 2017 (salary £308,000 plus
consultancy fees of £650,000). It was decided
to restructure Mr Mortstedt’s remuneration
to a salary of £500,000 (with no further
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 94
Remuneration
Remuneration Committee Report continued
Recruitment of Andrew Kirkman
As disclosed on our website on 2 July 2019, the Company agreed to certain payments to Andrew Kirkman on his recruitment in line with current
Policy and they are included in the single figure table on page 92. These payments are summarised below:
■■ A £60,000 relocation package, which is subject to a scaled repayment clawback over a three-year period (included in the taxable
benefit column).
■■ A pro-rated 2019 bonus in relation to the period of time served during 2019 at the previous employer (for the avoidance of doubt based on the
salary payable by the previous employer in respect of this period and the maximum bonus potential for this period). The payment will be made
at the same time as it would have been made by the previous employer. The calculation of this bonus will be based on the level of satisfaction
of the performance conditions disclosed in the Harworth Group plc 2019 Directors’ Remuneration Report which, as at the date of this report,
has not been published, and any personal performance element will be calculated by reference to “on-target” performance. An estimate of
£82,803 is included in the Other fees column.
■■ In lieu of Mr Kirkman’s lapsed 2017 and 2018 LTIP awards with his previous employer (which would have vested on 5 April 2020 and 5 April
2021, respectively), on 2 July 2019 the Company granted awards with an equivalent fair value under PIP Element B that are restricted until
5 April 2020 (68,523 shares) and 5 April 2021 (56,305 shares). On the date of grant these awards were valued at £306,453 and this figure is
included in the Other fees column.
2019 PIP outcomes
Summary of PIP matrix outcomes in the year
The Remuneration Committee determined the 2019 PIP contribution and forfeiture outcomes during 2019. A summary of the 2019 KPIs and their
achievement is as follows:
KPI
Total Shareholder Return (absolute)
Total Shareholder Return (relative)
Vacancy Rate
Administration Cost Ratio
(as % of Net Rental)
Personal Performance
Total Accounting Return
Maximum
Forfeiture
Forfeiture
Threshold
On-Target
Performance
Good
Performance
Maximum
Performance
2019 actual
Achievement
1%
Lower
Quartile
10%
19%
2
0%
3%
12%
14%
(Linear)
8%
Median
5%
(Linear)
4%
16%
Upper
Quartile
3%
47.1%
10/27
4.00%
18%
2.5
3%
17%
4
6%
16%
4.5
7.5%
15%
5
9%
17.72%
See below
8.54%
The following table sets out the weighting and outcomes for both Elements A and B of the PIP for 2019 award for the CEO and CFO expressed as
a percentage:
KPI
Absolute Total Shareholder Return
Relative Total Shareholder Return
Vacancy Rate
Administration Cost ratio (as % of Net Rental)
Personal Performance (see pages 95 and 96 for details)
Total Accounting Return
Overall achievement
CEO
CFO (Andrew Kirkman)
CFO (John Whiteley)
Weighting
Achievement
(% of max)
Weighting
Achievement
(% of max)
Weighting
Achievement
(% of max)
37.5%
22.5%
22.5%
22.5%
15.0%
30.0%
150%
100%
65.4%
88.9%
77.8%
85.0%
94.9%
87.3%
25%
15%
10%
20%
10%
20%
100%
100%
65.4%
85.0%
86.4%
75.0%
94.9%
87.1%
25%
15%
10%
20%
10%
20%
100%
100%
65.4%
85.0%
86.4%
82.6%
94.9%
87.8%
Element A in 2019
The schematic below illustrates the ongoing operation of PIP Element A, noting that the new CFO has joined the plan in the same year and cycle
as the CEO and former CFO:
Year
Cycle 2
Cycle 3
2016
2017
2018
2019
2020
2021
2nd year
3rd year
4th year
1st year
2nd year
3rd year
4th year
With reference to the schematic above, Cycle 2 of the PIP Element A award was completed in 2018 and a new Cycle 3 award was granted in the
same financial year.
For 2019, Element A of the PIP represented the 2nd year of the Cycle 3 award.
CLS Holdings plc Annual Report and Accounts 2019 95
The table below sets out the annual opportunity and resulting contribution to the PIP Element A account for the Executive Directors.
Maximum Element A award (% salary) in 2019
Maximum Element A award (£) in 2019
KPIs achievement as % of maximum
Contribution to Account based on achievement above
Bonus as a % of 2019 Salary
CFO
(Andrew Kirkman)
CFO
(John Whiteley)
CEO
150%
£585,930
87.3%
£511,444
130.9%
50%*
£275,000
87.1%
£119,706
87.1%
50%*
£287,365
87.8%
£126,181
87.8%
* Maximum annual award of 100% salary – Andrew Kirkman received a prorated opportunity for 2019 having joined 1 July 2019, half way through the performance period.
John Whiteley received a prorated opportunity for 2019 up to the date of retirement on 30 June 2019.
The following table sets out the breakdown of the performance calculation of the second award under Cycle 3:
KPI
Absolute Total Shareholder Return
Relative Total Shareholder Return
Vacancy Rate
Administration Cost ratio (as % of Net Rental)
Personal Performance (see below for details)
Total Accounting Return
2019 Total Bonus
Performance Breakdown (£)
CFO
(Andrew Kirkman)
CFO
(John Whiteley)
CEO
146,483
57,466
78,124
68,400
49,804
111,167
511,444
34,375
13,486
11,688
23,758
10,313
26,088
35,921
14,092
12,213
24,826
11,868
27,261
119,708
126,181
Personal performance
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.
They undertake an appraisal process and are assessed and scored against each of the following areas: annual objectives, quality and knowledge
of their work, innovation, teamwork, staff development and communication. Performance ratings for Fredrik Widlund, Andrew Kirkman and
John Whiteley were 4.25, 3.75 and 4.13, respectively.
Personal measure
Performance criteria
Outcome
Fredrik Widlund, CEO
Implementation of Group Strategy
Implementation of business plan to
review and grow portfolio
Lead Sustainability agenda
Drive vacancy levels whilst
maintaining ERV
Target agreed ROI for
new investments
Achieved at or above ROI criteria
Deliver £175m of new acquisitions
Delivered £257m of acquisitions
Reduce carbon emissions in
managed portfolio by 25% by 2025
(baseline 31 December 2018)
3.1% annual reduction in carbon
emissions in managed portfolio,
on target.
Generate 3.5% of Group electricity
from on site renewables
On site generation target achieved
at 3.6%.
70% recycling across UK
managed assets
73% recycling target achieved.
Target below 5% vacancy
Vacancy level 4%
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 96
Remuneration
Remuneration Committee Report continued
Personal measure
Performance criteria
Outcome
Andrew Kirkman, CFO
(joined 1 July 2019)
Ensure continuation of budget and
cost control
Target Administration Cost Ratio
at 17%
Marginally below target at 17.72%
Deliver high quality reporting
Delivery of Half year and full year
reports and investor material
Review Group financial strategy
Delivery of proposal to the Board
for approval
Ensure creation of good internal
and external working relationships
John Whiteley, CFO
(retired 30 June 2019)
Meet agreed budget and
cost control
Delivery through team and
individual meetings, networking
with external advisors and investor
road shows
Target Administration Cost Ratio
at 17%
Successful delivery of Half year
and full year reports, audit and
investor material
Recommended appropriate
financing strategy for remainder
of 2019 and into 2020
Induction programme completed
successfully. Met with all external
advisors and key investors
Marginally below target at 17.72%
Drive high quality accounting
processes and practices
Successful delivery of 2018 year
end accounting process and audit
2018 year end audit and reporting
process completed successfully
Ensure succession planning
within team
Delivery of succession planning
strategy for team
Successful handover and
resourcing for succession planning
The following table sets out for Cycle 3 the PIP Element A Accounts for the participants and shows the value of the closing balance and the
number of deferred notional shares which will form the opening balance in respect of 2020:
PIP Plan Element A Accounts (Cycle 3)
Number of Deferred Notional Shares in Account at the end of Year 2
Value of Deferred Notional Shares at the end of Year 21
2019 Bonus (contribution into the Account)
Cumulative Account following contribution
Less: 2019 Payment out of the Account
Value of Deferred Notional Shares carried forward into Year 3
Number of Deferred Notional Shares carried forward into Year 31
CFO
(Andrew Kirkman)
CFO
(John Whiteley)
CEO
75,713
£223,505
£511,444
£734,949
(£367,474)
£367,475
124,483
–
–
£119,706
£119,706
(£59,853)
£59,853
20,275
–
–
£126,181
£126,181
£126,181
–
–
1. The price used to calculate the value of shares was the mid-market value of a share for the 30-day period to 31 December 2019, which was £2.95 per share.
In the context of the operation of the PIP Element A, the Deferred Notional Shares is 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 to issue actual shares.
Element B in 2019
Maximum Element B award (% of salary) for 2019
Maximum Element B award (£) for 2019
KPIs achievement as % of maximum
Face value of Element B awards to be granted
Number of shares to be awarded
CFO
(Andrew Kirkman)
CFO
(John Whiteley)
CEO
80%
£312,496
87.3%
£272,770
92,401
32.5%*
£89,375
87.1%
£77,809
26,358
32.5%*
£93,394
87.8%
£82,018
27,783
* Maximum annual award of 65% salary – Andrew Kirkman received a prorated opportunity for 2019 having joined 1 July 2019, half way through the performance period. John Whiteley
received a prorated opportunity for 2019 up to the date of retirement on 30 June 2019.
Shares earned under Element B are subject to a three-year vesting period during which the participant must remain employed by the Company
and cannot be sold for five years from the date of award, irrespective of employment status. There are no further performance conditions.
The number of shares to be awarded under Element B has been based on the average market value of a share for the 30-day period to
31 December 2019 of £2.95 in accordance with the rules of the PIP.
CLS Holdings plc Annual Report and Accounts 2019 97
Reconciliation of PIP Element A and Element B with single figure table
Annual Bonus – Cash
50% of 2019 contribution into the PIP Element A Account1
Annual bonus – deferred shares
Face value of Element B awards to be granted
LTIP
50% of opening balance of PIP Element A Account2
Value of LTIP due to share price increase
CFO
(Andrew Kirkman)
CFO
(John Whiteley)
CEO
£255,722
£59,853
–
£272,770
£77,809
£82,018
£80,824
£30,929
–
–
–
–
1. The reason that only 50% of Element A 2019 Company Contribution is disclosed as Bonus is because the balance is deferred and is at risk of forfeiture in respect of future years’
performance and therefore under the Regulations is required to be disclosed on vesting.
2. Comprising 50% of value of opening balance of Deferred Notional Shares.
3. Andrew Kirkman joined during 2019 and therefore there was no prior year deferral.
4. John Whiteley retired during 2019 and was treated as a "Good Leaver". His PIP Element A Account was paid in full on retirement and therefore there was no prior year deferral.
Total pension entitlements
The Executive Directors are entitled to participate in a defined contribution pension scheme. No directors were participants of the scheme as at
31 December 2019 (2018: none). As a result of the Lifetime Allowance Limit, Fredrik Widlund received the full 10% as a salary supplement and
Andrew Kirkman received part of his contributions as a salary supplement and the rest as a contribution to his Self Invested Personal Pension
Plan (see Note 2, Single Total Figure for Executive Directors’ Remuneration (Audited)).
The maximum Company contribution for all UK employees is 10% (2018: 10%). In accordance with the Policy, the CEO and CFO received 10% as
a salary supplement. On 1 August 2014, under the auto-enrolment process, Mr Klotz became a member of the statutory scheme operated by
the Company whereby he contributed 5% of basic salary and the Company contributes 3%. This arrangement ceased on his retirement from
the Company.
External appointments
Mr Klotz received additional fees which he retained of £17,396 (2018: £15,935) in respect of his role as non-executive director of Catena AB.
Mr Widlund was appointed as a non-executive director of Morden College on 31 August 2018, for which no remuneration is paid. There were no
other executive directors who served as non-executive directors of other companies during the year ended 31 December 2019.
Single total figure for Non-Executive Directors’ remuneration (audited)
Non-executive directors do not participate in any of the Company’s incentive arrangements nor do they receive any benefits other than
reimbursement for reasonable travel expenses for attending Board meetings.
The following table sets out the fees received for 2019:
Malcolm Cooper
Elizabeth Edwards
Christopher Jarvis
Bengt Mortstedt
Anna Seeley
Lennart Sten
Denise Jagger
Bill Holland
Base Membership Fee
£000
Other Committee Fees
£000
Additional Fees
£000
Taxable Benefits
£000
Total
2019
45
45
45
45
74
112
19
5
2018
2019
2018
2019
2018
2019
2018
30
30
30
30
30
30
–
–
25
10
15
–
6
6
4
1
18
10
13
–
5
10
–
–
–
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
7
29
–
–
–
–
–
–
5
24
1
8
–
–
2019
70
59
67
74
80
118
23
6
2018
48
40
48
54
36
48
–
–
1. Mr Cooper received the following annual fees: Board membership £45,000; Senior Independent Director £10,000; Audit Committee Chairmanship £10,000; and Remuneration
Committee membership £5,000.
2. Ms Edwards received the following annual fees: Board membership £45,000; Audit Committee membership £5,000; Nomination Committee Membership £5,000; and Workforce
Advisory Panel £2,625.
3. Mr Jarvis received the annual following fees: Board membership £45,000; Remuneration Committee Chairmanship £10,000; and Audit Committee membership £5,000.
4. Ms Seeley received the annual following fees: up to 5 March 2019, a Nomination Committee membership fee of £5,000 and then a chairmanship fee of £10,000; up to 14 August 2019
a Board membership fee £45,000; and then a Non-Executive Vice-Chairman fee of £120,000 (inclusive of all Committee fees). The figures shown in the table above are prorated.
5. Mr Sten received the following annual fees: Up to 14 August 2019 a Board membership fee £45,000; a Remuneration Committee membership £5,000; and Nomination Committee
Membership £5,000. From 15 August 2019, he received a Non-Executive Chairman fee of £220,000 (inclusive of all Committee fees). The figures shown in the table above
are prorated.
6. Ms Jagger received the following annual fees: Board membership £45,000; a Remuneration Committee membership £5,000; and Audit Committee Membership £5,000. The figures
shown in the table above are prorated.
7. Mr Holland received the following fees: Board membership £45,000; a Remuneration Committee membership £5,000; and Audit Committee Membership £5,000. The figures shown
8.
in the table above are prorated.
In accordance with the Company’s expenses policy, non-executive directors receive reimbursement for their reasonable expenses for attending Board meetings. In instances
where those costs are treated by HMRC as taxable benefits, the Company also meets the associated tax cost to the non-executive directors through PAYE.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 98
Remuneration
Remuneration Committee Report continued
Payments to past directors
Mr Klotz retired from the Board on 14 August 2019 at which point he ceased to be a director. He continued to be an employee of the company
up until the end of his agreed notice period, being 28 December 2019, and received his salary and benefits up until this date.
Payments for loss of office
As described above John Whiteley retired from the role of CFO on 30 June 2019. The Remuneration Committee have agreed that pursuant to
the rules of the 2017 PIP, Mr Whiteley has been treated as a Good Leaver. As a result, and in accordance with the PIP and the current Policy,
Mr Whiteley has received the following elements of remuneration in 2019:
PIP Element A
Financial Year 2018 Deferred Bonus Pool:
In line with the PIP rules, the Deferred Bonus Pool, based on 40,594 notional shares as at 1 January 2019 was paid in cash based on the 30 day
average share price in June (leading to his retirement), being £2.177, on 8 July 2019.
Financial Year 2019 Bonus Pool:
This has been pro-rated to 50% of the maximum available bonus (i.e. 50% of salary) to reflect the termination date of 30 June 2019. Against the
financial elements (which were assessed against the same targets and weighting as presented for the current CFO on page 94), and the personal
performance described on page 95, this resulted in a bonus of 87.8% of maximum being payable.
Based on the overall outcome and the prorated opportunity, this resulted in a bonus of £126,181 which will be paid as cash in line with the
PIP rules.
There are no further payments under Element A in future years.
PIP Element B
As a Good Leaver there was no forfeiture of any subsisting or accrued awards, nor has there been any early vesting. In respect of 2019 Financial
Year, the award to be made in March 2020 is pro-rated to 50% of the maximum available award (i.e. 32.5% salary) to reflect the termination
date of 30 June 2019 and will vest three years later (March 2023). The award in respect of the 2019 Financial Year will be granted based on the
achievement of the 2019 performance targets, which was 87.8% of maximum, as set out above and on page 96, and vest on 4 March 2023.
The vesting periods on Element B share awards will continue post the revised termination date (80,850 shares vest 25 April 2020; 70,388 share
vest 6 March 2021; 52,773 shares vest 6 March 2022). Each award has a post vesting date holding period of two years.
Directors’ interests in shares
The Executive Directors’ interests against the shareholding requirement under the current Policy is provided below, with an indication of whether
the current shareholding requirement has been met. Under the current Policy the Committee has implemented minimum shareholdings for the
Executive Directors, which requires that within five years of becoming an executive director the Chief Executive Officer should build a holding with
a value of at least 250% of salary and the Chief Financial Officer at least 150%. At 31 December 2019, the interests of the Directors in the ordinary
shares of 2.5 pence each of the Company were:
Director
Sten Mortstedt1
Henry Klotz
Fredrik Widlund2
Andrew Kirkman3
John Whiteley4
Malcolm Cooper
Elizabeth Edwards
Christopher Jarvis
Bengt Mortstedt
Denise Jagger
Bill Holland
Anna Seeley
Lennart Sten
Unconditional
Shares
209,348,740
–
227,490
100,000
–
40,500
4,527
48,440
26,072,550
–
–
–
28,500
Conditional
PIP Element A
Shares
Conditional
PIP Element B
Shares
SIP Shares
(Partnership)
SIP Shares
(Matching)
Total
interests 5
Shareholding
(% salary)5
Shareholding
requirement
met?
–
–
75,713
–
–
–
–
–
–
–
–
–
–
–
–
315,340
124,828
204,011
–
–
–
–
–
–
–
–
–
–
2,061
302
–
–
–
–
–
–
–
–
–
–
–
2,061
302
–
–
–
–
–
–
–
–
–
209,348,740
–
546,952
225,432
204,011
40,500
4,527
48,440
26,072,550
–
–
–
28,500
125,693
n/a
309
242
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Y
Y
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1. Mr S Mortstedt’s interest in shares is held in certain companies which are held in trust (see controlling shareholder note on page 117).
2. As at the date of this report: the SIP balance for Mr Widlund consists of: 2,167 Partnership Shares and 2,167 Matching Shares. As set out on page 96 a closing balance of 124,483
Conditional PIP Element A notional shares and 92,401 Conditional PIP Element B shares, will be awarded on 5 March 2020. On 22 January 2020, a Person Closely Associated to
Mr Widlund sold 126,000 unconditional shares.
3. As at the date of this report: the SIP balance for Mr Kirkman consists of: 408 Partnership Shares and 408 Matching Shares. As set out on page 96 a closing balance of 20,275
Conditional PIP Element A notional shares and 26,358 Conditional PIP Element B shares will be awarded on 5 March 2020.
4. Mr Whiteley retired as a director on 30 June 2019. As set out on page 98, all notional shares awarded under PIP Element A vested upon retirement. 27,783 Conditional PIP Element B
shares will be awarded on 5 March 2020.
5. Shares counting towards total interests and therefore shareholding requirement include beneficially owned, pre-tax number of Element B, all SIP but excludes the notional shares
awarded under PIP Element A. Shareholding values based on 30-day average share price up to 31 December 2019, £2.95.
Otherwise than as set out in the notes above, there have been no movements in interests held by directors between 31 December 2019 and the
date of this report.
CLS Holdings plc Annual Report and Accounts 2019 99
Overall link to remuneration and equity of the Executive Directors
As a Committee, we want to incentivise Executive Directors to take a long-term, sustainable view of the performance of the Company. Therefore,
when we look at the remuneration paid in the year, we also look at the total equity they hold, and its value based on the performance of the
Company. The table sets out the number of shares beneficially owned by the CEO at the beginning and end of the financial year, and the impact
on the value of these shares taking the opening and closing price for the year. PIP Conditional Element A notional shares are excluded from
the calculations.
2019 Single
figure
Shares held at
start of year
Shares held at
end of year
Value of
shares at
start of year
(£’000s)
Value of
shares at
end of year
(£’000s)
Difference
(£’000s)
CEO
1,078
464,688
546,952
994
1,613
619
Starting share price £2.14 (one-month average share price to 31 December 2018). End share price £2.95 (one-month average to
31 December 2019).
Total returns to shareholders 2010–2019 (unaudited)
To comply with the Regulations, the Company’s TSR performance is compared to the TSR performance of the FTSE 350 and the FTSE 350 Real
Estate Super sector 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.
Total returns to shareholders
CLS Holdings
FTSE All Share
FTSE 350
FTSE RE SS
700
600
400
200
0
31 Dec
2010
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
31 Dec
2017
31 Dec
2018
31 Dec
2019
31 Dec
2020
Historical CEO remuneration
The table below sets out total CEO remuneration for 2019 and prior years, together with the percentage of maximum PIP (both element A and B)
awarded in that year.
CEO total remuneration (£000)
Element A of PIP –
% of maximum
Element B of PIP –
% of maximum
2010
481
–
–
2011
417
–
–
2012
352
2013
721
2014
349
2015
656
2016
828
2017
1,062
2018
1,117
2019
1,078
83.5%
86.6%
89.0%
81.0%
76.0%
93.3%
62.7%
87.3%
–
–
–
–
76.0%
93.3%
62.7%
87.3%
(-) The Company did not operate an incentive plan (PIP Element A or B) over this period.
Percentage change in CEO and employee remuneration
The table below shows how the percentage change in the Chief Executive Officer’s salary, benefits and bonus between 2018 and 2019 compares
with the percentage change in each of those components of pay for employees.
CEO
Employees
Salary
Taxable benefits
Bonus
2019
£000
391
4,691
2018
£000
Percentage
increase
378
4,489
3.2%
4.5%
2019
£000
8
252
2018
£000
7
209
Percentage
Increase
10.2%
20.7%
2019
£000
256
1,634
2018
£000
Percentage
Increase
162
1,807
58%
(9.6)%
The Group’s pay review, taking effect from 1 January 2020, awarded a percentage increase in wages and salaries of 3% to UK and German
employees, 2.6% to French employees and 2.8% to its Swedish employee, subject to role-specific industry benchmarks.
The nature and level of benefits to employees in the year ended 31 December 2019 was broadly similar to those of the previous year.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information
100
Remuneration
Remuneration Committee Report continued
CEO pay ratio
The table below sets out the ratios of the CEO single total figure of remuneration to the equivalent pay for the lower quartile, median and upper
quartile of UK employees.
Year
2019
Method
Option A
25th
19:1
Pay ratio
50th
15:1
75th
8:1
The CEO remuneration figure is as shown in the Single total figure for Executive Directors’ Remuneration table on page 92. The remuneration
figures for the employee at each quartile were determined as at 31 December 2019. Each employee’s pay and benefits were calculated using
each element of employee remuneration, consistent with the CEO, on a full-time equivalent basis. No adjustments (other than to achieve full-time
equivalent rates) were made and no components of pay have been omitted. The salary and total pay and benefits for employees at each of the
percentile are as shown in the table below.
Pay data
CEO
Employee at 25th percentile
Employee at 50th percentile
Employee at 75th percentile
Base salary
(£000)
Total pay and
benefits (£000)
391
52
56
84
1,078
56
73
140
We have chosen methodology option A for the calculation, which takes into consideration the full-time equivalent basis of all UK employees and
provides a representative result of employee pay conditions across the Company.
These ratios are used as part of the Committee remuneration decision-making process with regards to broader employee pay policies as well
as remuneration policies for the Executive Directors.
The ratios reflect the difference in remuneration arrangements as responsibility increases for more senior roles within the Company. There may
therefore be significant volatility in this ratio, caused by the following:
■■ Our CEO pay is made up of a higher proportion of incentive pay than that of our employees, in line with the expectations of our Shareholders,
which introduces a higher degree of variability in his pay each year versus that of our employees;
■■ A significant proportion of our CEO’s pay is provided in shares, and their value reflects the movement in share price over the three years prior
to vesting. This can add significant volatility to the CEO’s pay and this is reflected in the ratio.
The ratio is driven by the different structure of the pay of our CEO versus that of our employees, as well as the make-up of our workforce.
This ratio will therefore vary between businesses even in the same sector. What is important from our perspective is that this ratio is influenced
only by the differences in structure within our business, and not by divergence in fixed pay between the CEO and wider workforce.
Relative importance of the spend on pay
Remuneration paid to employees of the Group
Distributions to shareholders
Group revenue
2019
£000
10,376
28,721
138,248
2018
£000
Percentage
change
9,701
26,481
133,026
7.0%
8.5%
3.9%
Wider workforce considerations
Cascade of pay through the organisation
The Group aims to provide a remuneration package for all employees which is market competitive and operates the same core structure as for
Executive Directors, with the exception the PIP and LTIP, which is replaced by a time-based, company growth related loyalty bonus.
It is the Company’s intention that the LTIP will extend to Senior Management within the Company, with the number of employees eligible to
participate being approximately 11. The Company’s remuneration philosophy for all management from the Executive Directors downwards
is that all employees should have a significant annual element of performance-based pay with part provided in deferred shares to ensure
a focus on long-term sustainable value creation and to align their experience with those of shareholders. For all employees, the Group operates
a performance-based discretionary bonus scheme and a loyalty bonus scheme based on employment longevity. The Company also has a Share
Incentive Plan (SIP) in order to increase levels of share-ownership throughout the Company and allow employees to share in the success of the
Company in a tax-efficient manner.
Additionally, the Group’s pension contributions to an employee’s pension scheme are determined by their length of service from a minimum
of 5% up to a maximum of 10%.
CLS Holdings plc Annual Report and Accounts 2019 101
The table below summarises the cascade of pay elements through the organisation below Executive Directors.
Executive Committee
Senior management
Wider Workforce
Fixed
Remuneration
(including
pension)
Number of
employees
Annual bonus /
loyalty scheme
4
11
81
Y
Y
Y
Y
Y
Y
LTIP
Y
Restricted share
plan / Bonus
deferral
Share Incentive
Plan
Shareholding
guideline
Y
Y
Y
Y
Y
Y
In order for the Committee to review the wider workforce pay, policies and incentives, reports are regularly considered at the Remuneration
Committee meetings, setting out key details of remuneration throughout the Company. The Committee is satisfied that the approach to
remuneration across the Company is consistent with the Company’s principles of remuneration. In the Committee’s opinion the approach to
executive remuneration aligns with wider Company pay policy and there are no anomalies specific to the Executive Directors.
The results of these discussions and key decisions made in respect of Executive / senior management pay as a result are communicated to
employees via one of several channels used by the Company, as described below.
Employee engagement
We regularly communicate with our employees on a range of issues, including executive pay. This year, Elizabeth Edwards has been designated
the Non-Executive Director responsible for overseeing employee engagement. Elizabeth chairs the Workforce Advisory Panel, which meets
quarterly. This Panel provides the opportunity for an open discussion between employees and the Board. Elizabeth has engaged with c.30% of the
workforce this year and we also use employee surveys as an effective means of gathering wider views.
The main discussion at the first meeting in 2019 meeting was around employee benefits. Following feedback received at the Panel, we undertook
a robust internal review and external benchmarking exercise. We then communicated the results of this back to employees.
The Committee will continue to use the voice of employees as valuable insight when making wider remuneration decisions. This engagement
is critical in ensuring we offer a reward package across the business that continues to attract and retain the talent necessary to achieve our
Group objectives.
Fairness and diversity
The Company is committed to an active equal opportunities policy from recruitment and selection, through training and development, to
performance reviews and promotion. All decisions relating to employment practices are objective, free from bias and based solely upon work
criteria and individual merit. The Company is responsive to the needs of its employees, customers and the community at large. We are an
organisation which uses everyone’s talents and abilities, where diversity is valued. The Company remains supportive of the employment and
advancement of disabled persons and ensures its promotion and recruitment practices are fair and objective. The Company encourages the
continuous development and training of its employees and the provision of equal opportunities for the training and career development of
all employees.
Gender pay reporting
The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 requires companies with over 250 UK employees to disclose their gender
pay gap annually. CLS Holdings plc has 62 employees as at 31 December 2019 and is therefore not required to disclose the Gender Pay Gap
information under the regulations. The Committee notes that any results calculated based on a small sample of employees would not be
meaningful and therefore has decided not to disclose the Company gender pay gap this year.
However, the Committee acknowledges the importance of paying employees fairly regardless of gender, ethnicity, degree of physical ability or
background. The Committee is committed to promote equality and diversity in the workforce as well as eliminating any form of discrimination.
We review the Company pay conditions regularly to ensure that our remuneration policies and practices are fair and transparent and that they
continue to promote retention of talented and motivated individuals across the Company.
Overall the Committee feels assured that the quality of processes behind individual pay decision making are effective in delivering an equal pay
environment (like pay for like work) for the wider workforce.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 102
Remuneration
Remuneration Committee Report continued
Statement of implementation of policy in following financial year
Subject to shareholder approval at the Company's AGM in April 2020, it is intended that the New Policy will operate in the following financial year.
The New Policy is set out on pages 104-115 and the table below sets out an overview of the key elements of the New Policy (referencing any
changes to the current Policy where relevant), together with details of how the Committee intends to implement the New Policy in 2020.
Overview of New Policy
(noting changes from current Policy)
Implementation in 2020
Executive Directors
Base salary
No change to Policy. Any increases will be in line with wider workforce
unless there is a significant change to the role and responsibilities.
As at 1 January 2020
■■ CEO: £463,500 (2019: £450,000)
■■ CFO: £283,250 (2019: £275,000)
■■ Founder shareholder: £515,000 (2019: £500,000)
An identical 3% increase was applied to the
UK workforce.
The Founder Shareholder no longer receives
consultancy fees. For completeness the founder
shareholder is not entitled to any elements other
than base salary.
Benefits
Pensions
Performance
Incentive
Plan
(the ‘PIP’)
The key benefits provided to the Executive Directors include private
medical insurance, life insurance, income protection, gym contribution
and staff lunch provision. The Founder Shareholder does not receive
any benefits.
No change.
CEO and CFO receive 10% of salary Company contribution in line with
maximum employee opportunity. For new joiners, the pension benefit
will be aligned to the staged percentages applicable to the wider
UK workforce, currently 5% of salary upon joining, rising to 7.5% of
salary after three years and 10% of salary after 5 years. The Founder
Shareholder does not receive any pension contributions.
No change for current Executive Directors.
Only Element A will be retained for the new Policy. Element B of the PIP
will be replaced by the LTIP. Maximum annual PIP opportunity of 150%
of salary.
At threshold 25% of the maximum is payable. For "on target" performance
50% of the maximum is payable.
50% of the value of a Participant’s Plan Account will be paid out annually
for three years with 100% of the residual value paid out at the end of
year four.
2020 performance measures will be:
■■ Vacancy rate (20%);
■■ Relative Total Shareholder Return (40%); and
■■ Total Accounting Return (40%).
Maximum opportunity in 2020 will be 150% of salary
for the CEO and 100% salary for the CFO.
See below for the PIP matrix which will apply in 2020.
Malus and clawback provisions will apply.
The Founder Shareholder does not participate in the PIP.
Long-Term
Incentive
Plan (‘LTIP’)
New element of the Policy to be introduced from 2020.
Maximum annual LTIP opportunity of 150% of salary. 25% of awards
vest for threshold performance.
Awards to be granted at 150% of salary for the
CEO and 120% for the CFO.
The 2020 LTIP grant will be based on:
Performance will be measured over three years and vested awards
will be subject to a further two-year holding period post vesting.
■■ Total Shareholder Return (50%); and
■■ EPRA NRV growth per share (50%)
Malus and clawback provisions will operate over the full 5-year lock
in period.
Both measured relative to the FTSE 350 Real Estate
Super Sector constituent companies.
The Founder Shareholder does not participate in the LTIP.
Shareholding
Requirement
CEO shareholding requirement of 250% of salary, and CFO shareholding
requirement of 200%. Post cessation of employment shareholding
requirement requiring the minimum shareholding requirement to be
retained for two years.
There is no shareholding requirement for the Founder Shareholder.
See below for detail of the LTIP awards which will be
made in 2020.
CFO shareholding requirement increased from 150%
to 200% of salary and introduction of post cessation
of employment requirement.
Non-Executive Directors (including Non-Executive Chairman and Non-Executive Vice Chairman)
Fees
No change.
See below for fees which will apply in 2020.
Non-Executive Directors are paid a base fee and are eligible to receive
Committee chairmanship and membership fees, a SID fee and Workforce
Advisory Panel daily fee. Non-Executive Directors do not participate in any
variable remuneration.
CLS Holdings plc Annual Report and Accounts 2019 Chairman and Non-Executive Directors’ fees (audited)
The current fee levels, and those for the future financial year, are set out in the table below.
(£’000)
Chairman fees
Non-Executive Vice Chairman
NED Base Membership fee
Senior Independent Director
Audit Committee Chairmanship
Remuneration Committee Chairmanship
Committee membership
Workforce Advisory Panel
*Post increase during 2019.
103
Fees 2020
Fees 2019
Change
220
120
45
10
10
10
5
£750 p/d
220*
120*
45
10
10
10
5
£750 p/d
0%
0%
0%
0%
0%
0%
0%
0%
See page 97 for total fees received by each of the Non-Executive Directors based on their respective responsibilities.
PIP Element A matrix for 2020
The following table sets out the targets for 2020 in respect of each KPI, as well as the maximum bonus which can be earned in respect of each
KPI for 2020, expressed as a percentage of salary:
KPI
Maximum
Forfeiture
Forfeiture
Threshold
On-Target
Performance
Good
Performance
Maximum
Performance
Relative Total Shareholder Return
Total Accounting Return (absolute)
Vacancy Rate
Lower Quartile
0.0%
10%
(linear)
3.0%
8%
Median
6.0%
5%
(linear) Upper Quartile
9%
3%
7.5%
4%
Total
Performance breakdown
(% salary)
CEO
(max bonus
target)
CFO
(max bonus
target)
60
60
30
40
40
20
150%
100%
Long Term Incentive Awards to be granted in 2020
The table below describes how the LTIP will be implemented in 2020. The CEO’s award will be 150% of salary and the CFO’s award will be 120%
of salary.
Award vesting for performance (% maximum)
Total Shareholder Return relative to FTSE 350 Real Estate Super Sector constituents (50%)
EPRA NRV growth per share relative to FTSE 350 Real Estate Super Sector constituents (50%)
Straight line interpolation between points.
Consideration by the Committee of matters relating to directors remuneration for 2019
The consideration of matters relating to directors’ remuneration for 2019 is on pages 82-87.
Threshold
Maximum
25%
100%
Median Upper Quartile
Median Upper Quartile
Shareholder voting
The following table represents the voting at the 2019 Annual General Meeting. The current Policy was approved at the 2017 Annual General
Meeting. Further information on the actions the Committee has taken to address the views of shareholders can be found on page 85:
For
Against
Total votes cast
Votes withheld
Directors Remuneration Report
(2019 AGM)
Directors Remuneration Policy
(2017 AGM)
Number of votes % of votes cast Number of votes
% of votes cast
330,054,396
17,201,087
347,255,483
20,631
95.01
4.95
27,785,622
4,633,023
32,418,645
13,488
85.71
14.29
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 104
Remuneration
Remuneration Committee Report continued
Directors’
Remuneration
Policy
The principles of our Remuneration Policy
Competitive
Total remuneration should be competitive when compared with industry peers and companies of similar size and scale.
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 or no vesting under the LTIP and in addition partial forfeiture of earned deferred elements from
previous years PIP contributions. The fixed element of the Policy remains conservative against industry and cross-sector peers.
Shareholder alignment
A considerable part of the reward is paid in shares that have to be retained until minimum shareholding requirements have been met and in the
case of the LTIP for 5 years from grant.
Simple and transparent
The PIP structure is clear to participants and openly communicable; the LTIP is aligned to standard market practice and will be simple for
participants and shareholders alike to understand.
New Remuneration Policy
In accordance with the regulations, the New Policy (the "Policy") as set out below will operate from 1 January 2020 and be put to a binding
shareholders' vote and become formally effective if approved at the 2020 Annual General Meeting on 23 April 2020. The current Policy, which was
approved on 26 April 2017, remains operative until this time and can be found on our website at www.clsholdings.com and on pages 51 to 60 of
our 2016 Annual Report.
The Committee uses the following comparators for executive remuneration:
■■ FTSE 350 Real Estate Supersector
■■ U + I plc, Helical Bar plc, Workspace Group plc, St Modwens plc, Londonmetric plc, Grainger plc, Shaftsbury plc, Great Portland Estates plc,
Derwent London plc. These companies are of a similar size and/or complexity to the Group, but the comparator group is kept under review
as different companies enter the market or change their size or the main characteristics of their business; and
■■ FTSE 250
– changing practice in the international market where the Company competes for talent;
– pay conditions elsewhere in the Group;
– changing views of institutional shareholders and their representative bodies; and
– the recruitment market.
CLS Holdings plc Annual Report and Accounts 2019 Policy table
Element/Purpose and Link to Strategy
Operation
Opportunity
Performance Measures
105
Executive Directors
Base salary
Provides a base level of
remuneration to support
recruitment and retention of
Directors with the necessary
experience and expertise to deliver
the Group’s strategy.
Key element of core
fixed remuneration.
Benefits
To provide a competitive level
of benefits and encourage the
well-being and engagement
of employees.
Pension
Provide retirement planning and
protection to employees and their
family during their working life.
Provides a standard UK market
level of retirement funding to
enable the Company to recruit
and retain Directors with the
experience and expertise to deliver
the Group’s strategy.
None, although individual’s
performance and
contribution are taken
into account.
Reviewed annually and usually fixed for
12 months commencing 1st January.
Competitive in the range for the
Company’s comparator groups.
Factors taken into account include:
■■ remuneration practices within the Group;
■■ the general performance of the Group;
■■ experience and individual performance;
■■ changes in the scale, scope
or responsibilities;
■■ salaries within the ranges paid by the
companies in the comparator groups
used for remuneration benchmarking
(when the Committee determines a
benchmarking exercise is appropriate);
and
■■ the economic environment.
The key benefits provided to the Executive
Directors include private medical insurance,
life insurance, income protection, gym
contribution and staff lunch provision.
The Committee recognises the need
to maintain suitable flexibility in the
determination of benefits that ensure it is
able to support the objective of attracting
and retaining personnel. Accordingly, the
Committee would expect to be able to adopt
benefits such as relocation expenses, tax
equalisation and support in meeting specific
costs incurred by Executive Directors to
ensure the Company and the individuals
comply with their obligations in the
reporting of remuneration.
Where the Company offers a flexible
benefits approach (where the value of one
benefit may be exchanged for another) to
employees generally an Executive Director
would have the option to participate.
Other benefits (in line with those received
by the general workforce) may be offered
at the discretion of the Committee, such
as long service awards or recognition of
life events.
Employer retirement funding is determined
as a percentage of gross basic salary, up
to a maximum limit of 10%. Where this
exceeds the maximum annual pension
contribution that can benefit from tax
relief, any excess may be provided in the
form of a salary supplement, which would
not itself be pensionable or form part of
salary for the purposes of determining the
extent of participation in the Company’s
incentive arrangements.
The Committee intends to review the list
of companies each year and may add or
remove companies from the groups as
it considers appropriate. Any changes
to the comparator groups will be
disclosed in the part of the report setting
out the operation of the policy for the
future year.
In general salary rises to Executive
Directors will be in line with the rise to
UK based employees.
Maximum increase of 5% of salary per
annum unless there is a significant
change to the role and responsibilities.
Market level in the range for the
Company’s comparator groups.
The maximum will be set at the cost
of providing the benefits described.
None.
The maximum Company contribution is
10% for current directors.
None.
For new joiners, the pension benefit will
be aligned to the staged percentages
applicable to the wider UK workforce,
currently 5% of salary upon joining,
rising to 7.5% of salary after three years
and 10% of salary after 5 years.
The maximum employee contribution
is 5%.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 106
Remuneration
Remuneration Committee Report continued
Element/Purpose and Link to Strategy
Operation
Opportunity
Performance Measures
All employee share plan
The Company’s Share Incentive
Plan (“SIP”) allows all employees,
including Executive Directors, to
share in the potential value created
by the Company.
Increase share ownership
throughout the organisation.
Performance Incentive Plan
(the ‘PIP’) – Element A
The PIP provides a significant
incentive to the Executive Directors
linked to achievement of delivering
annual goals that are closely
aligned with the Company’s
strategy and the creation of value
for shareholders. In particular,
the PIP supports the Company’s
objectives by:
■■ allowing the setting of annual
targets based on the business'
strategic objectives at that time,
meaning that performance
metrics can be used that are
relevant and suitably stretching
whilst also providing sufficient
incentive linked to potential to
be achievable;
■■ providing substantial deferral
and ongoing adjustment by
requiring a threshold level of
performance to be achieved
during the deferral period.
Amounts deferred are also
forfeitable on an Executive
Director’s voluntary cessation
of employment which provides
an effective lock-in; and
■■ enables the Company to recruit
top executive talent in a highly
competitive market.
In line with the legislation for this type
of plan.
The maximum opportunity will be in line
with the limits set by HMRC.
None.
The maximum PIP opportunity is 150%
of salary for Executive Directors.
At threshold 25% of the maximum
is payable.
At on target 50% of the maximum
is payable.
The PIP consists of an annual element
which is paid partially in cash and partially
is deferred into notional shares.
Contributions will be earned annually for
the first 3 years based on the satisfaction
of Corporate KPIs. 50% of the value of
a Participant’s Plan Account will be paid
out annually for three years with 100%
of the residual value paid out at the end
of year four.
50% of the unpaid balance of a Participant’s
Plan account will be at risk of annual
forfeiture assessed against a forfeiture
threshold. This holistic assessment will
take account of strategic, financial and
operational performance.
Malus and clawback provisions apply to
the PIP.
The Committee has discretion to provide
dividend equivalents on PIP shares.
The Committee will have overriding
discretion to change formulaic outcomes
(both upwards and downwards) if the
outcomes are out of line with the underlying
performance of the Company.
The performance
measures for the PIP are
set individually by the
Committee and are based on
a combination of measures,
based on the Company’s
KPIs (the performance
conditions for the 2019
financial year will be detailed
in the Annual Remuneration
Report as will the conditions
for 2020 in the section
on how the policy will be
operated for the future year).
The PIP is measured over
a period of one financial year.
In order for the Company
to be successful, the
Committee believes
Executive Directors should
be focused on the delivery of
the Company’s strategic and
operational KPIs which is the
basis on which performance
conditions are selected for
the PIP.
The Committee retains
discretion in exceptional
circumstances to change
performance measures
and targets for each
element and the weightings
attached to performance
measures part- way through
a performance year if
there is a significant and
material event which causes
the Committee to believe
the original measures,
weightings and targets are
no longer appropriate.
CLS Holdings plc Annual Report and Accounts 2019 Element/Purpose and Link to Strategy
Operation
Opportunity
Performance Measures
107
Long-term Incentive Plan (LTIP)
Incentivises long-term shareholder
value creation.
LTIP Awards will be granted on an annual
basis and may be granted as nil-cost
options or conditional awards.
The maximum LTIP opportunity
is capped at 150% salary for
Executive Directors.
For threshold performance 25% of the
maximum award will vest, with straight
line vesting between Threshold and
Maximum performance.
The performance
measures for the LTIP
are set individually by the
Committee and are based on
a combination of measures,
based on the Company’s
KPIs (the performance
conditions for the 2020 LTIP
will be detailed in the Annual
Remuneration Report in the
section on how the policy will
be operated for the future
year). The LTIP is measured
over a period of three
financial years.
The Committee retains
discretion in exceptional
circumstances to change
performance measures
and targets for each
element and the weightings
attached to performance
measures part- way through
a performance year if
there is a significant and
material event which causes
the Committee to believe
the original measures,
weightings and targets are
no longer appropriate.
None.
None.
Drives and rewards achievement of
key long- term Company objectives
aligned with shareholder interests.
Contributes towards building
a meaningful shareholding aligning
interests with wider shareholders.
Minimum shareholding
requirement
Encourages long- term
commitment and alignment with
shareholder interests.
Awards under the LTIP will vest subject to
a three-year performance period whereby
specified performance conditions are
satisfied, and the Participant must remain
employed by the Company.
A two-year post-vest holding period will
apply to all vested LTIP awards.
Malus and clawback provisions will operate
over the full 5-year lock in period.
The Committee will have overriding
discretion to change formulaic outcomes
(both upwards and downwards) if the
outcomes are out of line with the underlying
performance of the Company.
The Committee has discretion to provide
dividend equivalents on shares awarded
under the LTIP.
Executive Directors are expected to build
up and retain a significant shareholding.
The CEO is required to hold and maintain
a shareholding of 250% of salary and
the CFO is required to hold and maintain
a shareholding of 200% of salary.
Any shares beneficially owned, the post-tax
value of any vested but unexercised LTIP
awards and the post-tax value of in-flight
PIP Element B awards will count towards
the requirement.
Post-employment requirement
Post-employment, an Executive Director
shall continue to hold shares equivalent to
the minimum of their actual shareholding
on cessation of employment and their in-
employment shareholding requirement for
a period of two years following termination
of their employment.
The Company will establish a Trust or
nominee accounts to ensure that it can
enforce shareholding requirements.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information
108
Remuneration
Remuneration Committee Report continued
Element/Purpose and Link to Strategy
Operation
Opportunity
Performance Measures
Non-Executive Directors (including Non-Executive Chairman and Non-Executive Vice Chairman)
Fees
Provide a level of fees to support
recruitment and retention of
Non-Executive Directors with the
necessary experience to advise
and assist with establishing
and monitoring the Group’s
strategic objectives.
Fees are reviewed annually and fixed
for 12 months commencing 1 January.
The fees are based on equivalent roles
in the comparator groups used to review
salaries paid to the Executive Directors.
Fees are set at a competitive level to the
comparator groups.
The Committee is responsible for setting
the Chairman’s fee.
The Board as a whole is responsible for
setting the remuneration of the Non-
Executive Directors.
Non-Executive Directors are paid a base
fee and additional fees for chairmanship
and membership of committees and other
specific work outside their role as a Non-
Executive Director, including a per day fee
for chairmanship of the Workforce Advisory
Panel. The Senior Independent Director also
receives an additional fee.
Competitive in the range for the
Company’s comparator groups.
None.
Non-Executive Directors do not
participate in any variable remuneration.
In general, the level of fee increase
for the Non-Executive Directors will
be set taking account of any change
in responsibility and the general rise
in salaries across employees.
The Company will pay reasonable
expenses incurred by the Non-
Executive Directors and may settle
any tax incurred in relation to
these. Other benefits include travel,
accommodation and membership
subscriptions related to the
Company’s business.
CLS Holdings plc Annual Report and Accounts 2019 109
Approach to recruitment remuneration
The Committee’s approach to recruitment remuneration is to pay no more than is necessary to attract candidates of the appropriate calibre
and experience needed for the role. The remuneration package for any new recruit would be assessed following the same principles as for the
current Executive Directors. The Committee is mindful that it wishes to avoid paying more than it considers necessary to secure the preferred
candidate and is aware of guidelines and shareholder sentiment regarding one-off or enhanced short or long-term incentive payments made
on recruitment and the appropriateness of any performance conditions associated with an award.
Where an existing employee is promoted to the Board, the Policy would apply from the date of promotion but there would be no retrospective
application of the Policy in relation to subsisting incentive awards or remuneration arrangements. Accordingly, prevailing elements of the
remuneration package for an existing employee would be honoured and form part of the ongoing remuneration of the employee. These would
be disclosed to shareholders in the following year’s Annual Report on Remuneration.
The Company’s detailed policy when setting remuneration for the appointment of a new director is summarised in the table below:
Remuneration element
Recruitment policy
Base salary and benefits
Pension
PIP Element A
LTIP
The salary level will be set taking into account the responsibilities of the individual, experience and the
salaries paid to similar roles in comparable companies. The Committee will apply the Policy set out on
salaries for the current Executive Directors in the Policy table. The Executive Director shall be eligible to
receive benefits in line with the Company’s benefits policy as set out in the Policy table.
The Executive Director will be entitled to receive contributions into a pension plan or alternatively to receive
a supplement in lieu of pension contributions in line with Company’s pension policy as set out in the Policy
table i.e. in line with the wider workforce employer contribution scale that increases with service provided.
The Executive Director will be eligible to participate in the PIP as set out in the Policy table. The maximum
potential opportunity under this Plan is 150% of salary.
The Executive Director will be eligible to participate in the LTIP as set out in the Policy table. The maximum
potential opportunity under this Plan is 150% of salary.
“Buy Out” of incentives forfeited
on cessation of employment
The Company’s policy is not to provide buy-outs as a matter of course. However, should the Committee
determine that the individual circumstances of recruitment justify the provision of a buy-out, the equivalent
value of any incentives to be forfeited on cessation of a previous employment will be calculated taking into
account the following:
Relocation Policies
■■ the proportion of the performance period completed on the date of the Executive Director’s cessation
of employment;
■■ the performance conditions attached to the vesting of these incentives and the likelihood of them being
satisfied; and
■■ any other terms and condition having a material effect on their value (“lapsed value”).
The Committee may then grant up to the equivalent value as the lapsed value, where possible, under the
PIP and/or the LTIP. To the extent that it was not possible or practical to provide the buy-out within the terms
of the Company’s PIP and LTIP, a bespoke arrangement would be used.
Where the new Executive Director is required to relocate from one work-base to another, the Company may
provide one-off/ongoing compensation as part of the Director’s relocation benefits to reflect the cost of
relocation for the Executive Director in cases where they are expected to spend significant time away from
their country of domicile.
The level of the relocation package will be assessed on a case by case basis but will take into consideration
any cost of living differences/housing allowance and schooling.
The maximum period for which an allowance will be provided is 2 years from the point of recruitment.
The Company’s Policy when setting fees for the appointment of new Non-Executive Directors is to apply the Policy which applies to current
Non-Executive Directors.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 110
Remuneration
Remuneration Committee Report continued
Directors’ service contracts
Each of the Executive Directors has a service contract of no fixed term. There is no provision in the contracts of Mr Mortstedt, Mr Widlund or
Mr Kirkman for contractual termination payments, save for those payments normally due under employment law.
Each non-executive director has a letter of appointment but, in accordance with best practice, none has a service contract. All of the non-
executive directors are appointed until such time as they are not re-elected. In compliance with the Code, all Company Directors will face annual
re-election at the Company’s AGM. If a director fails to be re-elected the terms of their appointment will cease. It is the Company’s policy not to
offer notice periods of more than 12 months exercisable by either party.
Details of the service contracts or letters of appointment of those who served as Directors during the year are as follows:
Name
Henry Klotz1
Fredrik Widlund
Andrew Kirkman
John Whiteley1
Sten Mortstedt
Malcolm Cooper
Elizabeth Edwards
Christopher Jarvis
Bengt Mortstedt
Anna Seeley
Lennart Sten
Denise Jagger
Bill Holland
Executive
Executive
Executive
Executive
Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Contract Date
10 November 2015
3 November 2014
30 March 2019
1 October 2009
1 January 2005
15 June 2007
13 May 2014
25 November 2008
7 March 2017
11 May 2015
1 August 2014
1 August 2019
20 November 2019
Notice Period
6 months
12 months
12 months
6 months
12 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
1. Stepped down from the Board during 2019.
Executive Directors are not permitted to hold external directorships or offices without the prior approval of the Board. If approved, they may each
retain the fees payable.
Illustration of application of Remuneration Policy (£000)
2,351
22%
29%
1,845
37%
37%
29%
27%
21%
312
100%
1,238
33%
27%
40%
495
100%
657
28%
29%
43%
935
32%
39%
29%
Minimum
On-target
Maximum
Minimum
On-target
Maximum
Maximum
(with 50%
share price
growth)
1,175
20%
25%
31%
23%
Maximum
(with 50%
share price
growth)
515
100%
515
100%
515
100%
515
100%
Minimum
On-target
Maximum
Maximum
(with 50%
LTIP share
price
growth)
CEO – Fredrik Widlund
CFO – Andrew Kirkman
Founder shareholder – Sten Mortstedt
Fixed
PIP Element A
LTIP
Equity growth on LTIP and Deferred PIP A notional shares
CLS Holdings plc Annual Report and Accounts 2019
111
Element
Fixed
Minimum
On Target
Maximum
Maximum (with 50% share price growth)
2020 Base Salary
2020 Base Salary
2020 Base Salary
2020 Base Salary
Pension is 10% of Base
Salary for CEO and CFO.
Pension is 10% of
Base Salary.
Pension is 10% of
Base Salary.
Pension is 10% of Base Salary.
PIP
No payout under the PIP.
50% of maximum payout
under the PIP.
100% of maximum payout
under the PIP.
100% of maximum payout under
the PIP.
+ 50% assumed share price
growth on 50% of maximum
award i.e. deferred proportion.
LTIP
No vesting under the LTIP.
50% of the maximum
vesting under the LTIP.
100% of maximum payout
under the LTIP.
100% of maximum payout under
the LTIP
+ 50% assumed share price
growth on LTIP awards three-
year LTIP performance period.
In accordance with the Policy, the Founder Shareholder does not participate in the PIP and the LTIP arrangements.
Policy on malus and clawbacks
Malus provisions apply to the PIP and the LTIP. Malus is the adjustment of PIP contributions or the balance in Participant’s Plan Account or
unvested LTIP awards because of the occurrence of one or more circumstances. The adjustment may result in the value being reduced to nil.
Clawback is the recovery of payments made under the PIP or vested LTIP awards as a result of the occurrence of one or more circumstances.
Clawback may apply to all or part of a participant’s payment under the PIP or LTIP awards and may be achieved, among other means, by requiring
the transfer of Shares, payment of cash or reduction of awards or bonuses.
The circumstances in which malus and clawback could apply are as follows:
■■ discovery of a material misstatement resulting in an adjustment in the audited accounts of the Group or any Group company;
■■ the assessment of any performance condition or condition in respect of a payment or award under the PIP or LTIP was based on error, or
inaccurate or misleading information;
■■ the discovery that any information used to determine the PIP or the LTIP award was based on error, or inaccurate or misleading information;
■■ action or conduct of a participant which amounts to fraud or gross misconduct;
■■ events or the behaviour of a participant have led to the censure of a Group 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 participant was responsible
for the censure or reputational damage and that the censure or reputational damage is attributable to the participant;
■■ a material failure or risk management; and
■■ corporate failure (to the extent the Group company believes such a trigger would be broader than those already in use).
The following table sets out the periods during which malus and clawback may be applied:
Malus
Clawback
PIP
LTIP
Up to the date of a Payment.
Any time prior to vesting.
Three years post the date of any Payment.
Two years from the date of vesting.
The Committee believes it has the necessary powers under the rules of the Plans to enforce malus and clawback provisions.
Policy on payment for loss of office
When determining any loss of office payment for a departing Director the Committee will always seek to minimise the cost to the Company whilst
complying with the contractual terms and seeking to reflect the circumstances in place at the time. The Committee reserves the right to make
additional payments where such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach
of such an obligation); or by way of settlement or compromise of any claim arising in connection with the termination of an Executive Director’s
office or employment.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information
112
Remuneration
Remuneration Committee Report continued
Remuneration element
Approach
Application of Committee discretion
Salary
and benefits
In the event of termination by the Company, there will
be no compensation for loss of office due to misconduct
or normal resignation.
The Company has discretion to make a lump sum payment
in lieu.
Pension
PIP
In other circumstances, Executive Directors may be
entitled to receive compensation for loss of office which
will be a maximum of twelve months salary.
Such payments will be equivalent to the monthly
salary and benefits that the Executive Director
would have received if still in employment with the
Company. These will be paid over the notice period.
Executive Directors will be expected to mitigate their
loss within a twelve-month period of their departure
from the Company.
Pension contributions or payments in lieu of pension
contribution will be made during the notice period.
The Company has discretion to make a lump sum payment
in lieu.
For the Year of Cessation
Good leavers: Performance conditions will be measured
at the normal measurement date. The Company bonus
contribution will normally be pro-rated for the period
worked during the financial year.
Other leavers: No Company bonus contribution payable
for year of cessation.
Deferred Balances in Participant’s Plan Account
Good leavers: The balance in the Participant’s Plan
account will be payable on cessation of employment.
Other leavers: The balance in the Participants’ Plan
Account will be forfeited on cessation of employment.
For the Year of Cessation
Discretion: the Committee has the following elements
of discretion:
■■ to determine that an Executive is a good leaver. It is
the Committee’s intention to only use this discretion in
circumstances where there is an appropriate business case
which will be explained in full to shareholders; and
■■ to determine whether to pro-rate the Company bonus
contribution to time. The Committee’s normal policy is that
it will pro-rate for time. It is the Committee’s intention to use
discretion to not pro-rate in circumstances where there is
an appropriate business case which will be explained in full
to shareholders.
Deferred Balances in Participant’s Plan Account
Discretion: The Committee has the following elements
of discretion:
■■ to determine that an Executive is a good leaver. It is
the Committee’s intention to only use this discretion in
circumstances where there is an appropriate business
case which will be explained in full to shareholders;
■■ to determine whether the payment of the balance of the
Participant’s Plan Account should be in cash or shares
or a combination of both; and
■■ to determine whether to pro-rate the balance of the
Participant’s Plan account payable on cessation.
The Committee’s normal policy is that it will not pro-rate.
The Committee will determine whether to pro-rate based
on the circumstances of the Executive Directors’ departure.
CLS Holdings plc Annual Report and Accounts 2019
113
Remuneration element
Approach
Application of Committee discretion
LTIP
Good leavers: Unvested awards will vest on the normal
vesting date subject to:
Discretion: The Committee has the following elements
of discretion:
■■ the extent any applicable performance targets have
been satisfied at the end of the normal performance
period; and
■■ prorating to reflect the period of time between grant
and cessation of employment as a proportion of the
vesting period that has elapsed.
Other leavers: Other leavers will forfeit all
unvested awards.
■■ to determine that an Executive is a good leaver. It is
the Committee’s intention to only use this discretion in
circumstances where there is an appropriate business case
which will be explained in full to shareholders;
■■ to determine whether to pro-rate the award to time.
The Remuneration Committee’s normal policy is that it
will pro-rate for time. It is the Committee’s intention to use
discretion to not pro-rate in circumstances where there is
an appropriate business case which will be explained in full
to shareholders;
■■ to determine whether the LTIP award will vest on the date
of cessation or the original vesting date. The Committee will
make its determination based amongst other factors on the
reason for the cessation of employment; and
■■ to determine whether the Holding Period will apply in full
or in part. The Committee will make its determination
based amongst other factors on the reason for the
cessation of employment.
Other contractual
obligations
There are no other contractual provisions other than
those set out above that could impact the quantum
of the payment.
None.
A good leaver is a person whose cessation of employment is for one of the following reasons:
■■ death;
■■ ill-health;
■■ injury or disability;
■■ redundancy;
■■ retirement with the agreement of the employing Group Company;
■■ employing company ceasing to be a Group company;
■■ transfer of employment to a company which is not a Group company; and
■■ where the person is designated a good leaver at the discretion of the Committee (as described above).
A person who ceases employment in circumstances other than those set out above is designated an other leaver.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 114
Remuneration
Remuneration Committee Report continued
Change of control
Remuneration element
Approach
PIP
For the Year of the Change of Control
Performance conditions will be measured at the date of
the change of control. The Company bonus contribution will
normally be pro-rated to the date of the change of control.
Deferred Balances in Participant’s Plan Account
The balance in the Participant’s Plan account will be payable
on the change of control.
Application of Committee discretion
For the Year of the Change of Control
Discretion: The Committee has the following element
of discretion:
■■ to determine whether to pro-rate the Company bonus
contribution to time. The Committee’s normal policy is
that it will pro-rate for time. It is the Committee’s intention
to use discretion to not pro-rate in circumstances where
there is an appropriate business case which will be
explained in full to shareholders.
Deferred Balances in Participant’s Plan Account
Discretion: The Committee has the following elements
of discretion:
■■ to determine whether the payment of the balance of the
Participant’s Plan Account should be in cash or shares
or a combination of both; and
■■ to determine whether to pro-rate the balance of the
Participant’s Plan account payable on change of control.
The Committee’s normal policy is that it will not pro-rate.
The Committee will determine whether to pro-rate based
on the circumstances of change of control.
LTIP
The awards will vest on the date of the change of control
and the Holding Period will fall away.
Discretion: The Committee has the following element
of discretion:
Performance conditions will be measured at the date of the
change of control. The award will normally be pro-rated to
the date of the change of control.
The Committee will determine the level of vesting taking
into account:
■■ the extent that any applicable performance targets have
been satisfied at that time;
■■ the bid consideration received; and
■■ the portion of the vesting period that has then elapsed.
■■ to determine whether the satisfaction of LTIP awards
should be in cash or shares or a combination of both;
■■ to determine whether to pro-rate the LTIP award to time.
The Committee’s normal policy is that it will pro-rate
for time. It is the Committee’s intention to use discretion
to not pro-rate in circumstances where there is an
appropriate business case which will be explained in full
to shareholders; and
■■ in the event of an internal corporate reorganisation,
the Committee may decide to replace unvested
awards with equivalent new awards over shares in the
acquiring company.
CLS Holdings plc Annual Report and Accounts 2019 115
Employee engagement
We regularly communicate with our
employees on a range of issues, including
executive pay. In 2019 our Workforce Advisory
Panel met for the first time, chaired by
Elizabeth Edwards, who was appointed as
the Designated NED. The Committee will
continue to use the voice of employees
as valuable insight when making wider
remuneration decisions.
Consideration of shareholder views
The Committee consulted with our top 15
shareholders, representing 86% of the
Company's issued share capital, including
the main shareholder representative bodies
(IA, ISS, Glass Lewis) in respect of the 2020
Remuneration Policy. The Remuneration
Committee Chairman attends the Annual
General Meeting and is available to answer
questions from shareholders.
Diversity and inclusion
The Board recognises the value of the gender
pay gap reporting requirements and the
opportunity this brings to focus even more on
gender diversity. The Board and leadership
team recognise that inclusion and diversity
in all its forms are vital in achieving diversity
of thought, experience and skills within the
Group. The Board is committed to promoting
diversity throughout the business and is
continuing to find effective ways of doing this.
Consideration of employment conditions
elsewhere in the Company
As part of our commitment to fairness across
the business, and in line with requirements
under the UK Corporate Governance Code,
we have set out in this report information on
the pay conditions of the wider workforce
and comparisons with Executives, as well
as our diversity policies and statistics. We are
committed to transparency internally and
externally in relation to developments on
these important issues and will continue
to consider how our disclosures can be
enhanced going forward.
Pay structures across the Group
In making decisions on executive pay, the
Committee considers wider workforce
remuneration and conditions. We recognise
the central importance of all our teams in
delivering success.
We aim to provide a remuneration package
for our employees which is aligned to our
values and remuneration principles across
the Group. Our remuneration for employees
is market competitive and operates the same
core structure as for Executive Directors.
This includes employee share and variable
pay plans, with pension provision for all
Directors and employees.
Each year, prior to reviewing the
remuneration outcomes, the Committee
considers a report covering key information
such as base pay levels, pension and share
scheme participation.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 116
Directors’ Report
The Directors present their annual report and the audited financial statements for the year ended 31 December 2019.
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 130.
■■ The Group objective, business model and strategy are set out on pages 14 and 15. KPIs are set out on pages 20 and 21.
■■ Important events (including post balance sheet events) affecting the Company are set out on pages 6-55.
■■ The principal and emerging risks and uncertainties are set out on pages 26-30.
■■ The use of financial instruments are set out on page 44-47, and in note 22 to the Group financial statements.
■■ The risk management objectives are detailed in note 22 to the Group financial statements. See also pages 24 and 25.
■■ The Group’s likely future developments are set out on pages 7 and 12-13.
Directors
Biographical details of the current Directors of the Company are set out on pages 60-61.
All Directors will be subject to annual re-election at the 2020 Annual General Meeting in accordance with the UK Corporate Governance Code.
In his role as independent Non-Executive Chairman, Lennart Sten recommends the election and re-election of the retiring Directors at the 2020
Annual General Meeting, given their experience, performance and continued important contribution to the long-term success of the Company.
The Senior Independent Non-Executive Director recommends the re-election of Mr Sten.
Directors remuneration and interests in shares is set out on pages 82-115.
Related party transactions are set out in note 34 to the Group financial statements.
Dividends
An interim dividend of 2.35 pence per share was paid on 27 September 2019. The Directors are proposing a final dividend of 5.05 pence per
share making a total dividend for the year ended 31 December 2019 of 7.40 pence per share. The final dividend will be paid on 29 April 2020
to shareholders who are on the register of members on 3 April 2020.
Purchase of the Company’s shares
There were no purchases of the Company’s own shares during the year. A resolution will be proposed at the 2020 Annual General Meeting
to give the Company authority to make market purchases of up to 40,739,576 shares, being 10% of the current issued share capital.
Share capital
Changes in share capital are shown in note 24 to the Group financial statements. At 31 December 2019, and at the date of this report, the
Company’s issued share capital consisted of 438,777,780 ordinary shares of 2.5 pence each, of which 407,395,760 held voting rights and
31,382,020 shares were held as treasury shares, and all of which ranked pari passu. 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.
Major interests in the company’s shares
As at 5 March 2020 the Company’s top 10 shareholders, including those who have notified the Company of their interests above 3% in the
Company’s issued share capital, are:
No. of shares
%
The Sten and Karin Mortstedt Family and Charity Trust
Fidelity Worldwide Investments
Bengt Mortstedt
Invesco
Bank of Montreal
Schroders
AXA SA
Janus Henderson Group plc
BlackRock Inc
JP Morgan Chase & Co
209,348,740
40,447,108
26,072,550
20,133,023
18,993,400
10,103,979
6,532,145
5,610,839
3,930,927
3,690,730
51.39%
9.93%
6.39%
4.94%
4.66%
2.48%
1.60%
1.38%
0.96%
0.91%
Details of the Directors’ interests in shares are shown in the Remuneration Committee Report on page 98. 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.
Significant agreements – change of control
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 alter or terminate or provisions in those
agreements to take effect. 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.
CLS Holdings plc Annual Report and Accounts 2019 117
Relationship agreement – controlling shareholder
As at 31 December 2019, Creative Value Investment Group Limited (“CVIG”), the investment vehicle for the Sten and Karin Mortstedt Family
and Charity Trust, held through its wholly owned subsidiaries 51.39% of the Company’s shares in issue and was therefore seen as a controlling
shareholder under the Listing Rules.
Pursuant to Listing Rule 9.8.4, the Company has entered into a relationship agreement which shall only be terminated in the event that
CVIG 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, CVIG has also complied.
Property portfolio
A valuation of all the investment properties and properties held for sale in the Group at 31 December 2019 was carried out by Cushman and
Wakefield for the UK, Germany and France, which produced an aggregate market value of £1,971.4 million (2018: £1,892.4 million).
Corporate governance
The Corporate Governance Statement, prepared in accordance with rule 7.2 of the FCA’s Disclosure Guidance and Transparency Rules, is set
out on pages 58 to 115 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 48 to 55. No political donations to any parties, organisations or candidates, or political expenditure were made
during 2019. The Group has also published a CSER Report, which is available on line at www.clsholdings.com.
Charitable donations during the year totalled £39,379 (2018: £28,859). As part of the Group’s sustainability strategy, it sponsors charitable
events and organisations relating to the real estate industry and, more specifically, assists charities and organisations with donations and staff
involvement initiatives in the areas where our properties are located. Further details can be found in our Sustainability Report, available on the
Company’s website www.clsholdings.com
Engagement with suppliers, customers and others in a business relationship with the Company
The statement in respect of the Company’s engagement with suppliers, customers and others throughout the year is set out in the stakeholder
engagement section on page 22-23 and 64-66 and our Prompt Payment Code is detailed in the sustainability section on page 52.
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 and France 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 Board has also noted its moral and legal obligations under the Modern Slavery
Act 2015. The Board has a zero tolerance approach towards modern slavery, and throughout the year the Company has contacted its first
tier contractors and suppliers to ensure their compliance with the Act. Our full statement on Modern Slavery can be found on our website at
www.clsholdings.com. 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 2019, the Group was not aware of any incident in which the
organisation’s activities have resulted in an abuse of human rights.
Insurance of directors and indemnities
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.
Auditor
A resolution to reappoint Deloitte LLP as auditor to the Company will be proposed at the forthcoming Annual General Meeting.
2020 Annual General Meeting
The 2020 Annual General Meeting will be held on Thursday, 23 April 2020. 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.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 118
Directors’ Report continued
Going concern
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 further details of this analysis are set out together with the Viability Statement on page 31. Therefore, the Directors
continue to adopt the going concern basis in preparing the annual report and accounts.
Disclosures under listing rule 9.8.4R
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
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
Disclosure
Not applicable
Pages 99 and 170
Pages 82-115
None
None
None
None
None
None
None
Not applicable
Not applicable
Page 117
The following table is included to comply with the additional disclosure requirements under the Listing Rule 9.8.6
Listing Rule
Information Required
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
Disclosure
Page 98
Page 116
Page 118
The Company had the authority to purchase
40,739,576 shares at the 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
None
None
None
Page 59
Pages 58-115
Pages 60, 61, 110 and 116
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)
Approved and authorised on behalf of the Board
David Fuller BA FCIS
Company Secretary
5 March 2020
CLS Holdings plc Annual Report and Accounts 2019 Directors’ responsibility statement
119
Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare
the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and
Article 4 of the IAS Regulation, and have elected to prepare the parent company financial statements in accordance with FRS101 of United
Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors
must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or
loss of the Group for that period.
In preparing the parent company financial statements, the Directors are required to:
■■ select suitable accounting policies and then apply them consistently;
■■ make judgements and accounting estimates that are reasonable and prudent;
■■ state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the
financial statements; and
■■ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
In preparing the Group financial statements, International Accounting Standard 1 requires that Directors:
■■ properly select and apply accounting policies;
■■ present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
■■ provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and
■■ make an assessment of the Group’s ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation
in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
■■ the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
■■ the strategic report includes a fair review of the development and performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face;
and
■■ the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary
for shareholders to assess the Company’s position and performance, business model and strategy.
This statement of responsibilities was approved by the Board on 4 March 2020.
Approved and authorised on behalf of the Board
David Fuller BA FCIS
Company Secretary
5 March 2020
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 120
Financial
statements
Pacific House, Reading
CLS Holdings plc Annual Report and Accounts 2019 121
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In this section:
122 Independent auditor’s report to the members of CLS Holdings plc
130 Group income statement and statement of comprehensive income
131 Group statement of comprehensive income
132 Group balance sheet
133 Group statement of changes in equity
134 Group statement of cash flows
135 Notes to the Group financial statements
164 Company balance sheet
165 Company statement of changes in equity
166 Notes to the Company financial statements
CLS Holdings plc Annual Report and Accounts 2019
122
Independent auditor’s report
To the members of CLS Holdings plc
Report on the audit of the financial statements
1. Opinion
In our opinion:
■■ the financial statements of CLS Holdings plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of the state of the
group’s and of the parent company’s affairs as at 31 December 2019 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.
We have audited the financial statements which comprise:
■■ the Group income statement;
■■ the Group statement of comprehensive income;
■■ the Group and Company balance sheets;
■■ the Group and Company statements of changes in equity;
■■ the Group statement of cash flows;
■■ the related notes 1 to 34 to the Group financial statements and 1 to 14 to the Company financial statements.
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 Accounting Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom
Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited
by the FRC’s Ethical Standard were not provided to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters
The key audit matter that we identified in the current year was:
■■ Valuation of the investment property portfolio.
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
Scoping
The materiality that we used for the group financial statements was £23.9m which was determined on the basis of 2%
of net assets. For testing of balances that impacted EPRA adjusted earnings, a lower materiality of £2.2m was used
based on 5% of the draft measure.
We subject all locations in which CLS operates to full scope audit, this accounts for 100% of the group’s net assets,
revenue and profit before tax.
Significant changes
in our approach
There have been no significant transactions identified in the year and as a result the key audit matter pertaining to this
risk reported in the prior year has been removed.
CLS Holdings plc Annual Report and Accounts 2019 123
Going concern is the basis of
preparation of the financial statements
that assumes an entity will remain
in operation for a period of at least
12 months from the date of approval
of the financial statements.
We confirm that we have nothing
material to report, add or draw attention
to in respect of these matters.
Viability means the ability of the
group to continue over the time
horizon considered appropriate
by the directors.
We confirm that we have nothing
material to report, add or draw attention
to in respect of these matters.
4. Conclusions relating to going concern, principal risks and viability statement
4.1. Going concern
We have reviewed the directors’ statement in note 2.1 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 and company’s ability
to continue to do so over a period of at least twelve months from the date of approval of the
financial statements.
We considered as part of our risk assessment the nature of the group, its business model and
related risks including where relevant the impact of Brexit, the requirements of the applicable
financial reporting framework and the system of internal control. We evaluated the directors’
assessment of the group’s ability to continue as a going concern, including challenging the
underlying data and key assumptions used to make the assessment, and evaluated the directors’
plans for future actions in relation to their going concern assessment.
We are required to state whether we have anything material to add or draw attention to in relation
to that statement required by Listing Rule 9.8.6R(3) and report if the statement is materially
inconsistent with our knowledge obtained in the audit.
4.2. Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were consistent
with the knowledge we obtained in the course of the audit, including the knowledge obtained in
the evaluation of the directors’ assessment of the group’s and the company’s ability to continue
as a going concern, we are required to state whether we have anything material to add or draw
attention to in relation to:
■■ the disclosures on pages 24-30 that describe the principal risks, procedures to identify
emerging risks, and an explanation of how these are being managed or mitigated;
■■ the directors’ confirmation on page 79 that they have carried out a robust assessment of the
principal and emerging risks facing the group, including those that would threaten its business
model, future performance, solvency or liquidity; or
■■ the directors’ explanation on page 31 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 are also required to report whether the directors’ statement relating to the prospects of the
group required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained
in the audit.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information
124
Independent auditor’s report continued
To the members of CLS Holdings plc
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing
the efforts of the engagement team.
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.
5.1 Valuation of the investment property portfolio
Key audit
matter description
The assessment of the carrying value of the investment property portfolio, specifically the process, assumptions
and judgements used to derive the property valuations.
The Group’s investment properties in the UK, Germany, and France are held at £1,961.0m at 31 December 2019
(31 December 2018: £1,888.1m), see note 13 for full disclosure, making this the most quantitatively material balance
in the financial statements.
The valuation of the portfolio is a significant judgement area that is underpinned by a number of assumptions including
capitalisation yields and future lease income. Our key audit matter in relation to the valuation of the investment property
portfolio is pinpointed to the assumptions applied in the determination of the valuation, including property yields and
estimated future rental income, where these fall outside of a range which we would expect to be applied.
We also consider the inputs used in the data supplied to the Group’s valuers for the valuation process and the accuracy
and completeness of this information in the context of the risk of potential manipulation of this by management in
order to fraudulently misstate the valuation. Refer to the audit committee report on page 80 where this is included as
a significant issue. The relevant accounting policy for the Group is presented in note 2.5 on page 136 and further details
in note 13 to the financial statements on page 147.
How the scope of our
audit responded to
the key audit matter
We obtained an understanding of the relevant controls in respect of this business process.
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 understand
and challenge the valuation process, to discuss performance of the portfolio, and for a sample of properties discuss
significant assumptions and critical judgement areas, including estimated rental values, yields and occupancy rates.
We utilised the expertise of a real estate specialist, a chartered surveyor, for our challenge of the investment property
valuations, in particular to analyse those assumptions applied in the valuation performed by the Group’s valuers as well
as the inputs used in the data supplied to the Group’s valuers for the valuation process.
As part of our meeting with the external valuers we assessed their competence, independence and integrity.
Our real estate specialist provided relevant industry data for the UK and drew on local expertise in the European markets
in which CLS operates. This 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 assessed, on a sample basis, the integrity of information provided to the valuer, relating to rental income,
to evaluate whether it was consistent with the relevant leases.
Key observations
We concluded that the assumptions applied in arriving at the fair value of the Group’s property portfolio were
appropriate, as well as the inputs to the valuation.
CLS Holdings plc Annual Report and Accounts 2019 125
6. Our application of materiality
6.1. Materiality
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.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
£23.9m (2018: £22.5m) for balance sheet items
£10.9m (2018: £9.2m)
Group financial statements
Parent company financial statements
Basis for
determining materiality
£2.2m (2018: £3.5m) for income statement items
We have determined materiality for the Group based on:
■■ 2% (2018: 2%) of net assets for testing of balance sheet items.
■■ 5% (2018: 5%) of draft EPRA adjusted earnings for testing of balances that impact the measure.
We have determined materiality for the Parent Company based on 2% (2018: 2%) of total assets for testing
of balance sheet items.
Rationale for the
benchmark applied
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 to be applied for testing of Group balance sheet items. The increase in materiality from the prior year
reflects the increase in net assets driven primarily by the uplift in the valuation of the investment property portfolio.
Total assets is an appropriate basis for the Parent Company as it holds investments in underlying subsidiary
undertakings. It does not hold external debt and has no direct property holdings.
We continue to consider EPRA adjusted earnings to be a critical performance measure for the Group and we
therefore calculated and applied a lower materiality to testing of those items impacting EPRA adjusted earnings.
The decrease in materiality from the prior year reflects lower EPRA earnings as a result of increased costs and
tax charges.
Net assets
£1,202m
Net assets
Group materiality
Group materiality
£23.9m
Component materiality range
£12.5m to £8.3m
Audit Committee reporting threshold
£1.2m
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information
126
Independent auditor’s report continued
To the members of CLS Holdings plc
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole. Group performance materiality was set at 70% of group materiality
for the 2019 audit (2018: 70%). In determining performance materiality, we considered the following factors:
(a) our risk assessment, including our understanding of the Group’s overall control environment which we consider appropriate for the size and
nature of the Group;
(b) changes in management and directors during the year, including appointment of a new CFO;
(c) our past experience of the audit, which has indicated a low number of uncorrected misstatements identified in prior periods.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £1.2m (2018: £1.1m), 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.
7. An overview of the scope of our audit
7.1. Identification and scoping of components
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing
the risk 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 on the audit work at each of the Group’s principal business units, being the UK, France and
Germany. These locations represent the principal business units of the group and are considered by us to be the significant components.
These components, together with the audit work performed directly by the Group audit team, account for 100% (2018: 100%) of the Group’s net
assets, revenue and profit before tax. All business units were subject to specific audit procedures. This approach provides an appropriate basis
for undertaking audit work to address the risks of material misstatement identified above.
7.2. Working with other auditors
Our audit work at each of the three business units has been executed by Deloitte component auditors at levels of materiality applicable to
each individual business unit which were lower than Group materiality and ranged from £8.3m to £12.5m (2018: £6.7m to £16.8m) with lower
materialities being used for those items impacting EPRA adjusted earnings ranging from £0.9m to £1.1m (2018: £0.7m to £2.6m), consistent with
the Group audit approach.
The audit work on the key audit matters has been led by the Group audit team, supplemented by specific procedures by the component auditors
to gain assurance over the information provided to the valuers only. The component auditors’ work has been reviewed by the Group team on site
for the French component and remotely for the German component in the current year and, where necessary, component auditors carried out
further testing at our request. The UK component is audited directly by the Group audit team.
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.
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. In the year, we visited our component team in France to perform our file review
and attend the local close meeting, and we attended the German close meeting via a teleconference call.
CLS Holdings plc Annual Report and Accounts 2019 127
8. Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report, other than the financial statements and our auditor’s report thereon.
We have nothing to report
in respect of these matters.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial statements or
our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
■■ Fair, balanced and understandable – the statement given by the directors that they consider the annual
report and financial statements taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the group’s position and performance, business model
and strategy, is materially inconsistent with our knowledge obtained in the audit; or
■■ Audit committee reporting – the section describing the work of the audit committee does not appropriately
address matters communicated by us to the audit committee; or
■■ Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the directors’
statement required under the Listing Rules relating to the company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the auditor in accordance with Listing
Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate
Governance Code.
9. Responsibilities of directors
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, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as
a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud and non-compliance with laws and
regulations are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 128
Independent auditor’s report continued
To the members of CLS Holdings plc
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and
perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis
for our opinion.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
■■ the nature of the industry and sector, control environment and business performance including the design of the group’s remuneration policies,
key drivers for directors’ remuneration, bonus levels and performance targets;
■■ results of our enquiries of management and the audit committee about their own identification and assessment of the risks of irregularities;
■■ any matters we identified having obtained and reviewed the group’s documentation of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
■■ the matters discussed among the audit engagement team including significant component audit teams and involving relevant internal
specialists, including tax, real estate and financial instruments specialists regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified
the greatest potential for fraud in the information sent to the valuers for use in valuing the group’s investment property portfolio. In common with
all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the group operates in, focusing on provisions of those laws
and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and
regulations we considered in this context included the UK Companies Act, Listing Rules, and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance
with which may be fundamental to the group’s ability to operate or to avoid a material penalty. The key laws and regulation we considered in this
context included the Landlord and Tenant Act, Employment Laws and Health and Safety Act.
11.2. Audit response to risks identified
As a result of performing the above, we identified the valuation of the investment property portfolio as a key audit matter related to the potential
risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the specific procedures we
performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
■■ reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws
and regulations described as having a direct effect on the financial statements;
■■ enquiring of management, the audit committee and in-house legal counsel concerning actual and potential litigation and claims;
■■ performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due
to fraud;
■■ reading minutes of meetings of those charged with governance and reviewing correspondence with HMRC; and
■■ in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments;
assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business
rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal
specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
CLS Holdings plc Annual Report and Accounts 2019 129
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies
Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
■■ 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; and
■■ the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit,
we have not identified any material misstatements in the strategic report or the directors’ report.
13. Matters on which we are required to report by exception
13.1. Adequacy of explanations received and accounting records
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.
13.2. Directors’ remuneration
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 directors’ remuneration report to be audited is not in
agreement with the accounting records and returns.
We have nothing to report
in respect of these matters.
We have nothing to report
in respect of these matters.
14. Other matters
14.1. Auditor tenure
Following the recommendation of the audit committee, we were appointed by The Board of CLS Holdings plc on 23 May 2007 to audit the
financial statements for the year ending 31 December 2007 and subsequent financial periods. Following a competitive tender process, we were
reappointed as auditor for the period ending 31 December 2017 and subsequent financial periods. The period of total uninterrupted engagement
including previous renewals and reappointments of the firm is thirteen years, covering the years ending 31 December 2007 to 31 December 2019.
14.2. Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).
15. Use of our report
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.
Georgina Robb FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
5 March 2020
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 130
Group income statement
for the year ended 31 December 2019
Continuing operations
Group revenue
Net rental income
Administration expenses
Other expenses
Group revenue less costs
Net movements on revaluation of investment properties
Gain on sale of other financial investments, net of impairments
Net movements on revaluation of equity investments
Net profit on sale of properties
Operating profit
Finance income
Finance costs
Share of result of associates after tax
Profit before tax
Taxation
Profit for the year from continuing operations
Discontinued operations
Loss for the year from discontinued operations
Profit for the year
Attributable to:
Owners of the Company
Non-controlling interests
Earnings per share (expressed in pence per share)
Basic and diluted earnings per share from continuing operations
Basic and diluted earnings/(loss) per share from discontinued operations
Basic and diluted earnings per share
The notes on pages 135 to 163 are an integral part of these Group financial statements.
Notes
2019
£m
2018
£m
4
4
5
13
15
8
9
10
6
23
11
138.3
110.6
(19.9)
(13.7)
77.0
57.4
40.4
–
8.6
183.4
5.0
(29.4)
–
159.0
(23.8)
135.2
(0.5)
134.7
135.5
(0.8)
134.7
33.2
0.1
33.3
133.0
107.3
(17.8)
(13.2)
76.3
62.8
1.7
22.2
2.3
165.3
6.1
(26.5)
–
144.9
(12.1)
132.8
(14.9)
117.9
124.3
(6.4)
117.9
32.6
(2.1)
30.5
CLS Holdings plc Annual Report and Accounts 2019
Group statement of comprehensive income
for the year ended 31 December 2019
131
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 (loss) on corporate bonds and other financial investments
Fair value loss/(gain) taken to gain on sale of other financial investments, net of impairments
Revaluation of property, plant and equipment
Deferred tax on net fair value gains
Discontinued operations
Total items that may be reclassified to profit or loss
Total other comprehensive income
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interests
The notes on pages 135 to 163 are an integral part of these Group financial statements.
Notes
2019
£m
2018
£m
134.7
117.9
15
14
19
(28.8)
3.6
–
2.5
(0.1)
(0.3)
(0.9)
1.2
(27.6)
107.1
107.9
(0.8)
107.1
(7.4)
(0.4)
(0.4)
0.6
1.5
(6.1)
(2.5)
115.4
121.4
(6.0)
115.4
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 132
Group balance sheet
at 31 December 2019
Non-current assets
Investment properties
Property, plant and equipment
Goodwill and intangibles
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
Assets of discontinued operations
Total assets
Current liabilities
Trade and other payables
Current tax
Derivative financial instruments
Borrowings
Liabilities of discontinued operations
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
Notes
2019
£m
2018
£m
13
14
33
15
19
16
21
17
23
18
21
20
23
19
20
21
24
26
27
1,961.0
43.1
1.4
–
–
4.7
1,888.1
33.7
1.4
–
107.8
3.5
2,010.2
2,034.5
25.3
10.4
0.3
259.4
–
295.4
12.3
4.3
–
100.3
56.1
173.0
2,305.6
2,207.5
(54.7)
(11.9)
–
(132.3)
–
(198.9)
(140.8)
(759.4)
(4.1)
(904.3)
(51.9)
(7.0)
(0.5)
(66.3)
(44.3)
(170.0)
(139.3)
(770.6)
(4.6)
(914.5)
(1,103.2)
(1,084.5)
1,202.4
1,123.0
11.0
83.1
96.4
1,011.9
1,202.4
–
1,202.4
11.0
83.1
123.0
905.1
1,122.2
0.8
1,123.0
The financial statements of CLS Holdings plc (registered number: 02714781) were approved by the Board of Directors and authorised for issue on
5 March 2020 and were signed on its behalf by:
Mr F Widlund
Chief Executive Officer
Mr A Kirkman
Chief Financial Officer
The notes on pages 135 to 163 are an integral part of these Group financial statements.
CLS Holdings plc Annual Report and Accounts 2019
Group statement of changes in equity
for the year ended 31 December 2019
133
Arising in 2019:
Total comprehensive income for the year
Employee Performance Incentive
Plan charge
Dividends to shareholders
Total changes arising in 2019
At 1 January 2019
At 31 December 2019
Arising in 2018:
Total comprehensive income for the year
Employee Performance Incentive
Plan charge
Reclassify fair value movements on equity
investments (implementation of IFRS 9)
Dividends to shareholders
Total changes arising in 2018
At 1 January 2018
At 31 December 2018
Share
capital
£m
Note 24
Share
premium
£m
Note 26
Other
reserves
£m
Note 27
Retained
earnings
£m
Non-
controlling
interest
£m
Total
£m
Total
equity
£m
–
–
–
–
11.0
11.0
–
–
–
–
83.1
83.1
(27.6)
135.5
107.9
(0.8)
107.1
1.0
–
(26.6)
123.0
–
(28.7)
106.8
905.1
1.0
(28.7)
80.2
1,122.2
–
–
1.0
(28.7)
(0.8)
0.8
79.4
1,123.0
96.4
1,011.9
1,202.4
–
1,202.4
Share
capital
£m
Note 24
Share
premium
£m
Note 26
Other
reserves
£m
Note 27
Retained
earnings
£m
Non-
controlling
interest
£m
Total
£m
Total
equity
£m
–
–
–
–
–
11.0
11.0
–
–
–
–
–
83.1
83.1
(2.9)
124.3
121.4
(6.0)
115.4
0.8
–
0.8
(17.9)
–
(20.0)
143.0
123.0
17.9
(26.5)
115.7
789.4
905.1
–
(26.5)
95.7
1,026.5
1,122.2
–
–
–
0.8
–
(26.5)
(6.0)
6.8
0.8
89.7
1,033.3
1,123.0
The notes on pages 135 to 163 are an integral part of these Group financial statements.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 134
Group statement of cash flows
for the year ended 31 December 2019
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Income tax paid on operating activities
Net cash inflow from operating activities
Cash flows from investing activities
Purchase of investment properties
Capital expenditure on investment properties
Proceeds from sale of properties
Income tax paid on sale of properties
Purchases of property, plant and equipment
Purchase of corporate bonds
Proceeds from sale of corporate bonds
Proceeds from sale of equity investments
Dividends received from equity investments
Proceeds from sale of subsidiaries
Purchase of intangibles
Net cash flow from discontinued operations
Costs on foreign currency transactions
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Dividends paid
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)/gain
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 135 to 163 are an integral part of these Group financial statements.
Notes
29
18
2019
£m
75.3
2.8
(22.8)
(6.4)
48.9
(237.2)
(16.7)
171.6
(6.6)
(0.5)
–
34.5
113.1
2.2
4.5
–
–
(1.2)
63.7
(28.7)
292.4
(3.6)
(209.5)
50.6
163.2
(4.1)
159.1
100.3
259.4
2018
£m
72.9
4.4
(24.2)
(5.1)
48.0
(70.9)
(15.8)
48.8
(7.9)
(2.0)
(39.7)
68.7
1.0
1.7
–
(0.1)
1.0
(0.9)
(16.1)
(26.5)
137.7
(1.8)
(181.7)
(72.3)
(40.4)
0.2
(40.2)
140.5
100.3
CLS Holdings plc Annual Report and Accounts 2019
Notes to the Group financial statements
31 December 2019
135
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. The Group’s principal operations are carried
out in the United Kingdom, Germany and France.
The Company is registered and incorporated in the UK, registration number 02714781, with its registered address at 16 Tinworth Street,
London SE11 5AL. 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 118 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.
The financial statements have been prepared on the historical cost basis, except for the revaluation of certain properties and financial
instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies
below. Historical cost is generally based on fair value of the consideration given in exchange for goods and services. Fair value is the price that
would be received to sell the asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,
regardless of whether that price is directly observable or estimated using another valuation technique.
The consolidated financial statements, including the results and financial position, are presented in sterling, which is the functional and
presentation currency of the Group.
New standards and interpretations
In the current year, the Group has applied a number of new standards and amendments to IFRSs issued by the International Accounting
Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2019. Their adoption has not
had any material impact on the disclosures or on the amounts reported in these financial statements. These new standards and amendments
are listed below:
■■ IFRS 16 Leases
■■ IFRS 9 (amendments) Prepayment features with negative compensation
■■ IAS 28 (amendments) Long-term interests in associates and joint ventures
■■ Annual Improvements to IFRSs: 2015-2017 Cycle
■■ IFRIC 23 Uncertainty over income tax treatments
In relation to IFRS 16, as the Group is predominantly a lessor, this standard has not had a material impact on adoption. Where the Group is
currently a lessee, this relates to immaterial contracts.
At the date of authorisation of these financial statements, The Group has not applied the following new and revised IFRSs that have been issued
but are not yet effective and in some cases had not yet been adopted by the EU:
■■ IFRS 17 Insurance contracts
■■ IFRS 10 and IAS 28 (amendments) Sale or contribution of assets between an investor and its associate or joint venture
■■ IFRS 3 (amendments) Definition of a business
■■ IAS 1 and IAS 8 (amendments) Definition of material
■■ Conceptual framework amendments to references to the conceptual framework in IFRS standards
■■ IFRS 9, IAS 39 and IFRS 7 (amendments) Interest rate benchmark reform
The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Group
in future periods.
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.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 136
2. Significant accounting policies continued
(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 Non current assets held for sale
Non current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.
Non current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather
than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available
for sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed
sale within one year from the date of classification.
When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as
held for sale when the criteria above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after sale.
2.4 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.
In relation to financial assets measured at fair value through other comprehensive income, exchange differences on the amortised cost of the
financial assets are recognised in profit or loss in the ‘finance costs or finance income’ line item. Other exchange differences are recognised in
other comprehensive income in the fair value reserve. For financial assets measured at fair value through profit and loss, exchange differences
are recognised in profit or loss in the ‘finance costs or finance income’ line item.
(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.
2.5 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. 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.
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.
2.6 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 and head office fit-out which are stated at historical cost less accumulated depreciation and any recognised
impairment loss.
Any increase arising on the revaluation of land and buildings held as property, plant and equipment is credited to the fair value reserve, except to
the extent that it reverses a revaluation decrease for the same asset previously recognised as an expense, in which case the increase in value is
credited to the profit or loss to the extent the decrease was previously expensed.
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
Head Office fit-out
Hotel
4–5 years
6 years
10 years
20 years
CLS Holdings plc Annual Report and Accounts 2019Notes to the Group financial statements continued31 December 2019 137
2. Significant accounting policies continued
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the
continued use of the asset. 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.
2.7 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 risks. Derivative financial instruments are recorded, and subsequently revalued, at fair value. Revaluation gains and losses are recognised
in finance income or finance cost in the income statement, except for derivatives which qualify as effective cash flow hedges, the gains and losses
relating to which are recognised in other comprehensive income.
(II) Financial assets classified as fair value through other comprehensive income (‘FVTOCI’)
Financial assets classified as at FVTOCI 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 which
are recognised in the income statement. On disposal, the cumulative gain or loss previously recognised in other comprehensive income is
recycled through profit before tax.
The Group’s corporate bond portfolio was held with the dual objective of holding those bonds to earn interest and selling those bonds before their
maturity in order to generate cash for investment or liquidity purposes.
(III) Financial assets at fair value through profit and loss (‘FVTPL’)
Financial assets at FVTPL are revalued to fair value. Revaluation gains and losses are recognised in profit or loss.
(IV) 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.
(V) Trade and other receivables and payables
Trade and other receivables are recognised initially at fair value. Subsequently they are measured at amortised cost with a recognised loss
allowance for expected credit losses which is measured at an amount equal to the lifetime expected credit loss. Trade and other payables are
stated at cost, which equates to fair value.
(VI) Borrowings
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.
2.8 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.
(II) Service charge income
Service charge income is recognised on a gross basis in the accounting period in which the services are rendered.
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.
Current and deferred tax are recognised in profit or loss except when they relate to items that are recognised in other comprehensive income
or directly in equity, in which case the current and deferred tax are also recognised in other comprehensive income or equity respectively.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 138
3. Critical accounting judgements and key sources of estimation uncertainty
Critical accounting judgements
In accordance with IAS 1, the Directors have considered the judgements that have been made in the process of applying the Group’s accounting
policies, which are described in note 2, and which of those judgements have the most significant effect on amounts recognised in the
financial statements.
In the opinion of the Directors, for the year ended 31 December 2019 there are no accounting judgements that are material to the
financial statements.
Key sources of estimation uncertainty
The Group uses the valuations performed by its independent external valuers as the fair value of its investment properties and those properties
held at valuation and classified as property, plant and equipment. The valuations are based upon assumptions including future rental income,
anticipated maintenance costs, future development costs and an appropriate discount rate (see note 13 for more detail). The valuers also make
reference to market evidence of transaction prices for similar properties.
4. Segment information
The Group has two operating divisions – Investment Property and Other Investments. Other Investments comprise the hotel at Spring Mews and
other small corporate investments. The Group manages the Investment Property division on a geographical basis due to its size and geographical
diversity. Consequently, the Group’s principal operating segments are:
Investment Property:
United Kingdom
Germany
France
Other Investments
The Group’s results for the year ended 31 December 2019 by operating segment were as follows:
Rental income
Other property-related income
Service charge income
Revenue
Service charges and similar expenses
Net rental income
Administration expenses
Other expenses
Group revenue less costs
Net movements on revaluation of investment properties
(Loss)/profit on sale of investment property
Gain on sale of other financial investments
Segment operating profit/(loss)
Finance income
Finance costs
Segment profit/(loss) before tax
Investment Property
United
Kingdom
£m
Germany
£m
France
£m
Other
Investments
£m
Central
Administration
£m
59.2
1.1
9.2
69.5
(10.8)
58.7
(7.5)
(6.2)
45.0
(3.4)
(4.4)
–
37.2
–
(17.8)
19.4
32.4
0.6
9.1
42.1
(11.3)
30.8
(2.8)
(3.6)
24.4
50.7
6.9
–
82.0
–
(4.9)
77.1
16.1
0.2
5.5
21.8
(5.6)
16.2
(2.0)
(0.9)
13.3
10.1
6.1
–
29.5
–
(2.8)
26.7
–
4.9
–
4.9
–
4.9
(0.3)
(3.0)
1.6
–
–
40.4
42.0
5.0
(3.9)
43.1
–
–
–
–
–
–
(7.3)
–
(7.3)
–
–
–
(7.3)
–
–
(7.3)
Total
£m
107.7
6.8
23.8
138.3
(27.7)
110.6
(19.9)
(13.7)
77.0
57.4
8.6
40.4
183.4
5.0
(29.4)
159.0
CLS Holdings plc Annual Report and Accounts 2019Notes to the Group financial statements continued31 December 2019 139
4. Segment information continued
The Group’s results for the year ended 31 December 2018 by operating segment were as follows:
Rental income
Other property-related income
Service charge income
Revenue
Service charges and similar expenses
Net rental income
Administration expenses
Other expenses
Group revenue less costs
Net movements on revaluation of investment properties
Gain on revaluation of equity investments
Profit on sale of investment property
Gain on sale of other financial investments
Segment operating profit/(loss)
Finance income
Finance costs
Segment profit/(loss) before tax
Other segment information
Investment Property
United Kingdom
Germany
France
Other Investments
Investment Property
United
Kingdom
£m
Germany
£m
France
£m
Other
Investments
£m
Central
Administration
£m
56.7
2.0
8.2
66.9
(10.3)
56.6
(6.7)
(5.7)
44.2
4.0
–
1.9
–
50.1
–
(18.3)
31.8
31.1
0.1
9.5
40.7
(9.9)
30.8
(3.0)
(3.5)
24.3
48.0
–
0.3
–
72.6
–
(4.9)
67.7
15.2
0.4
5.4
21.0
(5.5)
15.5
(1.9)
(1.0)
12.6
10.8
–
0.1
–
23.5
–
(2.7)
20.8
–
4.4
–
4.4
–
4.4
(0.6)
(3.0)
0.8
–
22.2
–
1.7
24.7
6.1
(0.6)
30.2
–
–
–
–
–
–
(5.6)
–
(5.6)
–
–
–
–
(5.6)
–
–
(5.6)
Total
£m
103.0
6.9
23.1
133.0
(25.7)
107.3
(17.8)
(13.2)
76.3
62.8
22.2
2.3
1.7
165.3
6.1
(26.5)
144.9
Assets
Liabilities
Capital expenditure
2019
£m
2018
£m
2019
£m
2018
£m
2019
£m
2018
£m
1,064.7
679.1
290.7
271.1
981.0
643.4
315.9
211.1
532.4
357.1
205.2
8.5
463.5
347.5
218.4
10.9
5.9
7.4
1.6
0.1
2,305.6
2,151.4
1,103.2
1,040.3
15.0
82.0
2.3
5.7
–
90.0
5. Alternative Performance Measures (“APMs”)
APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements.
Introduction
The Group has applied the October 2015 European Securities and Markets Authority (“ESMA”) guidelines on APMs and the November 2017
Financial Reporting Council (“FRC”) corporate thematic review of APMs in these results, whilst noting ESMA’s December 2019 report on the use
of APMs. An APM is a financial measure of historical or future financial performance, position or cash flows of the Group which is not a measure
defined or specified in IFRS.
Overview of our use of APMs
The Directors believe that APMs assist in providing additional useful information on the underlying trends, performance and position of the Group.
APMs assist our stakeholder users of the accounts, particularly equity and debt investors, through the comparability of information. APMs are
used by the Directors and management, both internally and externally, for performance analysis, strategic planning, reporting and incentive-
setting purposes.
APMs are not defined by IFRS and therefore may not be directly comparable with other companies’ APMs, including peers in the real
estate industry.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 140
5. Alternative Performance Measures (“APMs”) continued
There are essentially two sets of APMs which we utilise, and which are reconciled where possible to statutory measures below:
1. Existing EPRA APMs and similar CLS APMs
CLS monitors the Group’s financial performance using APMs which are European Public Real Estate Association (“EPRA”) measures as these are
a set of standard disclosures for the property industry and thus aid comparability for our stakeholder users. The two key APMs for CLS, which
are in accordance with the November 2016 EPRA guidelines, are:
■■ EPRA Net Asset Value which excludes certain items not expected to crystallise in a long-term investment property business model, such as
CLS’; and
■■ EPRA Earnings which gives relevant information to investors on the long-term performance of the Group’s underlying property investment
business and an indication of the extent to which current dividend payments are supported by earnings.
Whilst CLS primarily uses these two measures, we have also disclosed other EPRA metrics as well as disclosing the measures that CLS prefers
for certain categories.
New EPRA Net Asset Value metrics were published by EPRA in October 2019 which come into force from 1 January 2020, at which point CLS will
start using them. From 2020 CLS will start utilising EPRA Net Replacement Value (“NRV”) instead of EPRA NAV as a key APM as we believe that
this will continue to reflect the long-term nature of our property investments most accurately.
2. Other APMs
CLS uses a number of other APMs, many of which are commonly used by other industry peers, for example Loan to Value, and these APMs are
reconciled below.
Changes to APMs
There have been no changes to the Group’s APMs in the year with the same APMs utilised by the business being defined, calculated and used
on a consistent basis.
Reconciliation of APMs
Set out below is a reconciliation of the APMs used in these results to the statutory measures.
1. Existing EPRA APMs and similar CLS APMs
i) Earnings – EPRA Earnings
Profit/(loss) for the year
(Loss)/Profit from discontinued operations
Net (uplift)/deficit on revaluation of investment properties
Net (uplift)/deficit on revaluation of equities
FX on equities
(Profit)/loss from sale of investment properties
Current tax on disposals
Gain/(loss) from sale of corporate bonds and equities
Tax thereon
Finance costs – exceptional
Tax thereon
Change in FV of interest derivatives
Change in FV of FX derivatives
Deferred taxation thereon
EPRA Earnings
Notes
23
13
15
9
9
19
2019
£m
135.5
(0.3)
(57.4)
–
–
(8.6)
13.4
(40.4)
0.1
–
–
0.5
0.4
5.7
48.9
2018
£m
124.3
8.5
(62.8)
(22.2)
0.6
(2.3)
2.4
(1.7)
0.4
3.7
(0.7)
(2.3)
2.0
3.6
53.5
EPRA Earnings Per Share (pence)
12.0p
13.1p
CLS Holdings plc Annual Report and Accounts 2019Notes to the Group financial statements continued31 December 2019 5. Alternative Performance Measures (“APMs”) continued
ii) Net asset value – EPRA NAV and EPRA NNNAV
Net assets
Goodwill as a result of deferred tax on acquisitions
Fair value of debt adjustment
Fair value of debt adjustment – tax thereon
EPRA NNNAV
Deferred tax
FV of financial instruments
Fair value of debt adjustment
Fair value of debt adjustment – tax thereon
EPRA NAV
ERPA NNNAV Per Share (pence)
EPRA NAV Per Share (pence)
141
Notes
19
21
2019
£m
1,202.4
(1.1)
(9.9)
1.9
1,193.3
136.1
3.8
9.9
(1.9)
2018
£m
1,122.2
(1.1)
(6.4)
1.1
1,115.8
135.8
5.1
6.4
(1.1)
1,341.2
1,262.0
292.9p
329.2p
273.9p
309.8p
iii) Yield
EPRA Net Initial Yield (“NIY”)
EPRA NIY is calculated as the annualised rental income based on the cash rents passing at the balance sheet date less non-recoverable property
operating expenses, divided by the gross market value of the property (excluding those that are under development, held as PPE or occupied
by CLS).
2019
2018
Rent passing
Adjusted for development stock
Forecast non recoverable service
charge
Annualised net rents (A)
Property portfolio
Adjusted for development stock
Purchasers’ costs at 6.8%
Property portfolio valuation
including purchasers’ costs (B)
EPRA NIY (A/B)
United
Kingdom
£m
Germany
£m
56.7
(1.4)
(2.2)
53.1
1,024.3
(52.4)
66.1
1,038.0
5.1%
32.8
–
–
32.8
663.6
(8.2)
44.5
699.9
4.8%
France
£m
14.1
–
–
14.1
283.4
–
19.3
302.7
4.7%
Total
£m
103.6
(1.4)
(2.2)
100.0
1,971.3
(60.6)
129.9
2,040.6
4.9%
United
Kingdom
£m
Germany
£m
52.4
(1.4)
(2.6)
48.3
954.9
(61.6)
60.7
954.0
5.1%
33.5
–
–
33.5
629.4
(9.8)
42.1
661.7
5.1%
France
£m
15.2
–
Total
£m
101.1
(1.4)
–
(2.7)
15.2
308.1
(2.2)
20.8
326.7
4.7%
97.0
1,892.4
(73.6)
123.6
1,942.4
5.0%
EPRA “Topped-up” NIY
EPRA “topped-up” NIY is calculated by making an adjustment to EPRA NIY in respect of the expiration of rent-free periods (or other unexpired
lease incentives such as discounted rent periods and step rents).
2019
2018
Contracted rent
Adjusted for development stock
Forecast non recoverable service
charge
“Topped Up” annualised net
rents (A)
Property portfolio
Adjusted for development stock
Purchasers’ costs (6.8%)
Property portfolio valuation
including purchasers’ costs (B)
EPRA “Topped Up” NIY (A/B)
United
Kingdom
£m
Germany
£m
59.2
(1.5)
(2.2)
55.5
1,024.3
(52.4)
66.1
1,038.0
5.4%
34.3
–
–
34.3
663.6
(8.2)
44.5
699.9
5.0%
France
£m
15.8
–
Total
£m
109.3
(1.5)
–
(2.2)
15.8
283.5
–
19.3
302.7
5.2%
105.6
1,971.4
(60.6)
129.9
2,040.6
5.2%
United
Kingdom
£m
Germany
£m
57.2
(1.5)
(2.6)
53.1
954.9
(61.6)
60.7
954.0
5.6%
35.3
–
–
35.3
629.4
(9.8)
42.1
661.7
5.3%
France
£m
17.1
–
Total
£m
109.6
(1.5)
–
(2.6)
17.1
308.1
(2.2)
20.8
326.7
5.3%
105.5
1,892.4
(73.6)
123.6
1,942.4
5.4%
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 142
5. Alternative Performance Measures (“APMs”) continued
iv) Vacancy
CLS Vacancy
CLS has historically opted to use our own KPI regarding vacancy as we believe that this provide a more accurate reflection of occupancy levels
in our portfolio and provides a more prudent KPI as a large proportion of our portfolio is under rented.
ERV of vacant space (A)
Contracted rent
ERV of vacant space plus contracted rent (B)
CLS vacancy rate (A/B)
Notes
2019
£m
4.6
109.3
113.9
4.0%
2018
£m
4.4
109.6
114.0
3.8%
v) Cost ratios
CLS Administration Cost Ratio
CLS’ administration cost ratio represents the cost of running the property portfolio relative to its net income. CLS uses this measure to monitor
the efficiency of the business as it focuses on the administrative cost of active asset management across three countries.
Administration expenses
Less: Investment segment and First Camp
Underlying admin costs (A)
Net rental income from investment property (B)
Admin cost ratio (A/B)
2. Other APMs
i) Total Accounting Return
EPRA closing net assets
Distribution – prior year final
Distribution – current year interim
Less: EPRA opening net assets (A)
Return before dividends (B)
Total Accounting Return (B/A)
ii) Net borrowings and gearing
Borrowings short-term
Borrowings long-term
add back: unamortised issue costs
Gross debt
Cash
Net borrowings
Net assets
Net gearing (before corporate bonds)
Net borrowings
Corporate bonds
Net borrowings after corporate bonds
Net gearing (after corporate bonds)
Notes
4
4
4
4
Notes
5
25
25
5
Notes
20
20
20
20
17
2019
£m
19.9
(0.3)
19.6
2018
£m
17.8
(0.6)
17.2
110.6
107.3
17.7%
16.0%
2019
£m
1,341.2
19.1
9.6
(1,262.0)
107.9
8.6%
2018
£m
1,262.0
17.5
9.0
(1,163.4)
125.1
10.8%
2019
£m
132.3
759.4
5.5
897.2
(259.4)
637.8
2018
£m
66.3
770.6
5.4
842.3
(100.3)
742.0
1,202.4
1,122.2
53.0%
66.1%
637.8
–
637.8
742.0
(30.3)
711.7
53.0%
63.4%
CLS Holdings plc Annual Report and Accounts 2019Notes to the Group financial statements continued31 December 2019 5. Alternative Performance Measures (“APMs”) continued
iii) Balance sheet loan to value
Borrowings short-term
Borrowings long-term
Less: cash
Less: corporate bonds
Investment properties
Properties in PPE
Held for sale
Total property portfolio
Balance sheet loan to value
iv) Dividend cover
ERPA EPS (A)
Interim dividend
Final dividend
Total dividend (B)
Dividend cover (A/B)
iv) Interest cover
Net rental income
Administration expenses
Other expenses
Group revenue less costs (A)
Finance income (excluding dividend income)
Finance costs (excluding FX, derivatives and exceptionals)
Net interest (B)
Interest cover (-B/A)
143
Notes
Notes
5
25
25
Notes
4
4
4
4
9
2019
£m
132.3
759.4
(259.4)
–
632.3
2018
£m
66.3
770.6
(100.3)
(30.3)
706.3
1,961.0
40.8
10.4
1,888.1
30.9
4.3
2,012.2
1,923.3
31.4%
36.7%
2019
£m
48.9
9.6
20.5
30.1
1.62
2019
£m
110.6
(19.9)
(13.7)
77.0
2.8
(25.3)
(22.5)
3.42
2018
£m
53.5
9.0
19.1
28.1
1.90
2018
£m
107.3
(17.8)
(13.2)
76.3
4.4
(24.5)
(20.1)
3.80
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 144
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:
Audit of the Company’s subsidiaries pursuant to legislation
Other services to the Group (interim review and tax services)
Depreciation of property, plant and equipment (note 14)
Employee benefits expense (note 7)
Net foreign exchange loss (note 9)
Provision against trade receivables
2019
£m
2018
£m
0.4
0.1
–
0.9
14.1
3.6
0.3
0.3
0.1
0.1
1.0
12.2
0.6
0.3
Other services provided to the Group by the Company’s auditor consisted of the 2019 interim review of £37k (2018: £32k) and tax services of £nil
(2018: £20k).
7. Employee benefits expense
Wages and salaries
Social security costs
Pension costs – defined contribution plans
Performance incentive plan
Other employee-related expenses
2019
£m
9.3
1.2
0.4
1.1
2.1
2018
£m
8.9
0.9
0.5
0.8
1.1
14.1
12.2
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 82 to 115.
The monthly average number of employees of the Group in continuing operations, including Executive Directors, was as follows:
2019
Property
number
Hotel
number
Other
operations
number
Total
number
Property
number
Hotel
number
46
49
95
8
9
17
1
–
1
55
58
113
50
48
98
8
10
18
Male
Female
8. Finance income
Interest income
Financial instruments carried at amortised cost
Financial instruments carried at fair value through other comprehensive income
Other finance income
2018
Other
operations
number
1
–
1
2019
£m
0.7
2.1
2.2
5.0
Total
number
59
58
117
2018
£m
0.2
4.2
1.7
6.1
CLS Holdings plc Annual Report and Accounts 2019Notes to the Group financial statements continued31 December 2019
9. Finance costs
Interest expense
Bank loans
Secured notes
Unsecured bonds
Amortisation of loan issue costs
Total interest costs
Less interest capitalised on development projects
Loss on early redemption of debt
Movement in fair value of derivative financial instruments
Interest rate swaps: transactions not qualifying as hedges
Foreign exchange variances
10. Taxation
Corporation income tax
Current tax
Current year charge
Adjustments in respect of prior years
Deferred tax (note 19)
Origination and reversal of temporary differences
Effect of changes in tax rates
145
2019
£m
2018
£m
20.6
2.4
–
2.3
25.3
–
25.3
–
0.5
3.6
29.4
17.9
2.6
2.0
2.0
24.5
–
24.5
3.7
(2.3)
0.6
26.5
2019
£m
2018
£m
20.5
(2.4)
18.1
5.7
–
5.7
23.8
10.0
(1.5)
8.5
11.4
(7.8)
3.6
12.1
A deferred tax charge of £0.4 million (2018: credit £0.6 million) was recognised directly in equity (note 19).
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:
Profit before tax
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
Change in tax rate
Non-taxable income
Deferred tax on losses not recognised/(recognised)
Non-taxable gain on sale of investments
Adjustment in respect of prior periods
Tax charge for the year
2019
£m
159.0
2018
£m
144.9
31.4
2.4
–
0.3
–
(0.5)
0.4
(7.8)
(2.4)
23.8
28.3
0.1
(4.8)
(0.6)
(7.8)
(0.7)
(0.9)
–
(1.5)
12.1
The weighted average applicable tax rate of 19.8% (2018: 19.5%) was derived by applying to their relevant profits and losses the rates in the
jurisdictions in which the Group operated.
The standard UK rate of corporation tax applied to profits is 19.0% (2018: 19.0%).
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information
146
11. Earnings per share
Earnings
Profit for the year attributable to owners of the Company
Weighted average number of ordinary shares
Weighted average number of ordinary shares in circulation
Earnings per share
Basic and diluted
12. Net assets per share
Net assets
Basic net assets attributable to owners of the Company
Number of ordinary shares
Number of ordinary shares in circulation
Net assets per share
Basic
2019
£m
135.5
2019
Number
2018
£m
124.3
2018
Number
407,395,760
407,395,760
2019
Pence
33.3
2018
Pence
30.5
2019
£m
2018
£m
1,202.4
1,122.2
2019
Number
2018
Number
407,395,760
407,395,760
2019
Pence
295.1
2018
Pence
275.5
CLS Holdings plc Annual Report and Accounts 2019Notes to the Group financial statements continued31 December 2019
13. Investment properties
At 1 January 2019
Acquisitions
Capital expenditure
Disposals
Reclassification to owner-occupied property
Net movement on revaluation of investment properties
Lease incentive debtor adjustments
Exchange rate variances
Transfer to properties held for sale
At 31 December 2019
At 1 January 2018
Acquisitions
Capital expenditure
Disposals
Net movement on revaluation of investment properties
Lease incentive debtor adjustments
Exchange rate variances
Transfer from/(to) properties held for sale
At 31 December 2018
147
United
Kingdom
£m
Germany
£m
954.1
161.3
5.9
(86.1)
(7.5)
(3.4)
–
–
(9.6)
1,014.7
United
Kingdom
£m
895.0
67.6
12.4
(27.2)
3.9
0.4
–
2.0
954.1
625.9
58.3
9.1
(42.3)
(1.0)
50.7
2.9
(40.0)
–
663.6
Germany
£m
568.4
–
2.3
(1.6)
48.1
4.4
7.8
(3.5)
625.9
France
£m
308.1
13.3
1.6
(30.4)
(1.8)
10.1
0.8
(18.2)
(0.8)
Total
£m
1,888.1
232.9
16.6
(158.8)
(10.3)
57.4
3.7
(58.2)
(10.4)
282.7
1,961.0
France
£m
290.0
2.4
3.3
(2.4)
10.8
0.2
3.8
–
Total
£m
1,753.4
70.0
18.0
(31.2)
62.8
5.0
11.6
(1.5)
308.1
1,888.1
The investment properties, properties held for sale and the hotel and landholding detailed in note 14 were revalued at 31 December 2019 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
independent, professionally qualified valuers, Cushman and Wakefield. The total fees, including the fees for this assignment, earned by Cushman
and Wakefield from the Group is less than 5% of their total revenues in each jurisdiction.
Property valuations are complex and require a degree of judgement and are based on data which is not publicly available. We have classified
the valuations of our property portfolio as level 3 as defined by IFRS 13 Fair Value Measurement. Inputs into the valuations include equivalent
yields and rental income and are ‘unobservable’ under the definition in IFRS 13. These inputs are analysed by segment in the property portfolio
information on the inside front cover. All other factors remaining constant, an increase in rental income would increase valuations, whilst an
increase in the true equivalent yield would result in a fall in value, and vice versa.
Key inputs to the valuation
UK
Germany
France
ERV
True equivalent yield
Average £
per sq ft
29.53
14.30
22.34
Range
per sq ft
Average
%
Range
%
10.00-66.43
7.16-22.81
12.59-43.57
5.58%
4.93%
5.43%
2.36%-10.75%
4.00%-5.88%
4.50%-6.75%
A decrease in the true equivalent yield by 25 basis points would result in an increase in the fair value of the Group’s investment property
by £99.3 million whilst a 25 basis point increase would reduce the fair value by £109.2 million. A decrease in the ERV by 5% would result in
a decrease in the fair value of the Group’s investment property by £84.4 million whilst an increase in the ERV by 5% would result in an increase
in the fair value of the Group’s investment property by £65.1 million.
Investment properties included leasehold properties with a carrying amount of £29.8 million (2018: £73.3 million).
Interest capitalised within capital expenditure in the year amounted to £nil (2018: £nil).
Where the Group leases out its investment property under operating leases the duration is typically three years or more. No contingent rents
have been recognised in either the current or the comparative year.
Around 92% of investment properties (and the hotel detailed in note 14) are secured against debt.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 148
14. Property, plant and equipment
Cost or valuation
At 1 January 2018
Additions
Disposals
Revaluation
Exchange rate variances
At 31 December 2018
Additions
Disposals
Reclassification from investment property
Revaluation
Exchange rate variances
At 31 December 2019
Comprising:
At cost
At valuation
Accumulated depreciation and impairment
At 1 January 2018
Disposals
Depreciation charge
At 31 December 2018
Disposals
Depreciation charge
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
Land and
buildings
£m
Owner-
occupied
property
£m
Fixtures
and fittings
£m
Total
£m
4.6
–
–
(1.0)
(0.1)
3.5
–
–
–
(0.8)
(0.3)
2.4
–
2.4
2.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10.3
–
–
10.3
–
10.3
10.3
–
–
–
–
–
–
–
4.8
37.0
2.0
(1.1)
–
–
5.7
0.4
(0.1)
–
–
–
6.0
6.0
–
6.0
(3.0)
0.9
(0.8)
(2.9)
–
(0.7)
(3.6)
2.0
(1.1)
(0.4)
(0.1)
37.4
0.5
(0.1)
10.3
(0.1)
(0.3)
47.7
6.0
41.7
47.7
(3.6)
0.9
(1.0)
(3.7)
–
(0.9)
(4.6)
Hotel
£m
27.6
–
–
0.6
–
28.2
0.1
–
–
0.7
–
29.0
–
29.0
29.0
(0.6)
–
(0.2)
(0.8)
–
(0.2)
(1.0)
28.0
27.4
2.4
3.5
10.3
–
2.4
2.8
43.1
33.7
The hotel and a landholding were revalued at each balance sheet date based on the external valuation performed by Cushman and Wakefield and
L Fällström AB, respectively.
CLS Holdings plc Annual Report and Accounts 2019Notes to the Group financial statements continued31 December 2019 15. Other financial investments
Carried at fair value through other comprehensive income1
Listed corporate bonds
Investment type
Destination
of investment
UK
Other
Carried at fair value through profit and loss1
Listed equity securities
Sweden
2019
£m
–
–
–
–
–
The movement of other financial investments, analysed based on the methods used to measure their fair value, was as follows:
At 1 January 2019
Additions
Disposals
Fair value movements recognised in other comprehensive income
Fair value movements recognised in profit before tax
Exchange rate variations
At 31 December 2019
At 1 January 2018
Additions
Disposals
Fair value movements recognised in other comprehensive income
Fair value movements recognised in profit before tax
Exchange rate variations
At 31 December 2018
Level 1
Quoted
market
prices
£m
Level 2
Observable
market
data
£m
Level 3
Other
valuation
methods
£m
77.5
–
(77.5)
–
–
–
–
30.3
–
(30.3)
–
–
–
–
Level 1
Quoted
market
prices
£m
Level 2
Observable
market
data
£m
55.9
–
–
–
22.2
(0.6)
77.5
65.5
39.7
(67.8)
(7.4)
(0.4)
0.7
30.3
–
–
–
–
–
–
–
Level 3
Other
valuation
methods
£m
0.2
–
(0.2)
–
–
–
–
149
2018
£m
7.1
23.2
30.3
77.5
107.8
Total
£m
107.8
–
(107.8)
–
–
–
–
Total
£m
121.6
39.7
(68.0)
(7.4)
21.8
0.1
107.8
1. The adoption of IFRS9 from 1 January 2018 resulted in Other Financial Investments previously disclosed as Available for Sale Financial Assets being reclassified to either carried
at fair value through other comprehensive income or carried at fair value through profit and loss.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 150
16. Trade and other receivables
Current
Trade receivables
Prepayments
Accrued income
Other debtors
2019
£m
2018
£m
5.6
2.5
1.7
15.5
25.3
4.2
2.0
2.1
4.0
12.3
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 (2018: nil). No trade and other receivables were
interest-bearing.
Management have concluded that there is no material difference between the expected credit loss model as prescribed by IFRS 9 and the
previously used provisioning method based on past evidence of default.
17. Cash and cash equivalents
Cash at bank and in hand
2019
£m
259.4
259.4
2018
£m
100.3
100.3
At 31 December 2019, Group cash at bank and in hand included £12.9 million (2018: £21.8 million) which was restricted by a third-party charge.
18. Trade and other payables
Current
Trade payables
Social security and other taxes
Other payables
Accruals
Deferred income
19. Deferred tax
Deferred tax assets:
– after more than 12 months
Deferred tax liabilities:
– after more than 12 months
2019
£m
2018
£m
2.5
2.3
13.9
18.4
17.6
54.7
6.1
1.8
11.4
17.9
14.7
51.9
2019
£m
2018
£m
(4.7)
(3.5)
140.8
136.1
139.3
135.8
CLS Holdings plc Annual Report and Accounts 2019Notes to the Group financial statements continued31 December 2019 19. Deferred tax continued
The movement in deferred tax was as follows:
At 1 January
Charged in arriving at profit after tax
Charged/(credited) to other comprehensive income
Exchange rate variances
At 31 December
151
2019
£m
135.8
5.7
0.3
(5.7)
136.1
2018
£m
131.8
3.6
(0.6)
1.0
135.8
The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same
tax jurisdiction, was as follows:
Deferred tax assets
At 1 January 2019
Charged in arriving at profit after tax
Credited to other comprehensive income
At 31 December 2019
Deferred tax assets
At 1 January 2018
Charged in arriving at profit after tax
Credited to other comprehensive income
At 31 December 2018
Deferred tax liabilities
At 1 January 2019
Charged/(credited) in arriving at profit after tax
(Credited) to other comprehensive income
Exchange rate variances
At 31 December 2019
Deferred tax liabilities
At 1 January 2018
Charged/(credited) in arriving at profit after tax
Charged/(credited) to other comprehensive income
Exchange rate variances
At 31 December 2018
Other
£m
(3.5)
(1.6)
0.4
(4.7)
Other
£m
(3.3)
0.1
(0.3)
(3.5)
Other
£m
1.7
(0.2)
–
(0.1)
1.4
Other
£m
2.7
(0.4)
(0.6)
–
1.7
Total
£m
(3.5)
(1.6)
0.4
(4.7)
Total
£m
(3.3)
0.1
(0.3)
(3.5)
Total
£m
139.3
7.3
(0.1)
(5.7)
140.8
Total
£m
135.1
3.5
(0.3)
1.0
139.3
UK capital
allowances
£m
Fair value
adjustments
to properties
£m
11.0
0.2
–
–
11.2
126.6
7.3
(0.1)
(5.6)
128.2
UK capital
allowances
£m
Fair value
adjustments
to properties
£m
10.4
0.6
–
–
11.0
122.0
3.3
0.3
1.0
126.6
Deferred tax has been calculated at a weighted average across the Group of 16.5% (2018: 18.2%), and has been based on the rates applicable
under legislation substantively enacted at the balance sheet date.
Deferred tax assets are recognised in respect of tax losses carried forward to the extent that the realisation of the related tax benefit through
future taxable profits is probable. At 31 December 2019 the Group did not recognise deferred tax assets of £1.4 million (2018: £1.1 million) in
respect of losses amounting to £8.3 million (2018: £6.0 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 in 2018
to corporate bonds carried at below cost. Losses recognised as deferred tax assets can be carried forward without restriction.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 152
20. Borrowings
Bank loans
Secured notes
At 31 December 2019
At 31 December 2018
Current
£m
Non-current
£m
Total
borrowings
£m
128.2
4.1
132.3
708.9
50.5
759.4
837.1
54.6
891.7
Current
£m
Non-current
£m
62.2
4.1
66.3
716.0
54.6
770.6
Total
borrowings
£m
778.2
58.7
836.9
Arrangement fees of £5.5 million (2018: £5.4 million) have been offset in arriving at the balances in the above tables.
Bank loans
Interest on bank loans is charged at fixed rates ranging between 0.8% and 5.5% including margin (2018: 0.8% and 5.5%) and at floating rates of
typically LIBOR or EURIBOR plus a margin. Floating rate margins range between 1.0% and 2.5% (2018: 1.0% and 2.5%). 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.
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.
The maturity profile of the carrying amount of the Group’s borrowings was as follows:
At 31 December 2019
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
At 31 December 2018
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
129.8
88.5
492.8
131.2
842.3
(5.2)
837.1
(128.2)
708.9
Bank
loans
£m
64.0
132.1
443.0
144.1
783.2
(5.0)
778.2
(62.2)
716.0
Secured
notes
£m
4.2
4.2
46.5
–
54.9
(0.3)
54.6
(4.1)
50.5
Secured
notes
£m
4.2
4.2
50.7
–
59.1
(0.4)
58.7
(4.1)
54.6
Total
£m
134.0
92.7
539.3
131.2
897.2
(5.5)
891.7
(132.3)
759.4
Total
£m
68.2
136.3
493.7
144.1
842.3
(5.4)
836.9
(66.3)
770.6
CLS Holdings plc Annual Report and Accounts 2019Notes to the Group financial statements continued31 December 2019 153
20. Borrowings continued
The interest rate risk profile of the Group’s fixed rate borrowings was as follows:
Sterling
Euro
The interest rate risk profile of the Group’s floating rate borrowings was as follows:
At 31 December 2019
At 31 December 2018
Weighted
average
fixed rate
of financial
liabilities
%
Weighted
average
period for
which rate
is fixed
Years
Weighted
average
fixed rate
of financial
liabilities
%
Weighted
average
period for
which rate
is fixed
Years
3.6
1.6
2.7
4.2
3.9
1.5
3.7
4.4
Sterling
Euro
At 31 December 2019
At 31 December 2018
% of net
floating rate
loans
capped
Average
capped
interest rate
%
Average
tenure
Years
% of net
floating rate
loans
capped
Average
capped
interest rate
%
–
25
–
0.75
–
1.8
–
9
–
2.4
Average
tenure
Years
–
1.9
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
Fixed rate financial liabilities
Floating rate financial liabilities – hedged
Floating rate financial liabilities – capped
Floating rate financial liabilities – unhedged
Unamortised issue costs
Borrowings
At 31 December 2019
At 31 December 2018
Sterling
£m
168.7
123.8
292.5
–
154.5
154.5
447.0
(3.0)
440.0
Euro
£m
382.1
18.1
400.2
11.4
38.6
50.0
450.2
(2.5)
447.7
Total
£m
Sterling
£m
550.8
141.9
692.7
11.4
193.1
204.5
897.2
(5.5)
891.7
173.2
113.8
287.0
–
94.9
94.9
381.9
(2.2)
379.7
Euro
£m
89.1
289.0
378.1
25.5
56.8
82.3
460.4
(3.2)
Total
£m
262.3
402.8
665.1
25.5
151.7
177.2
842.3
(5.4)
457.2
836.9
Of the Group’s total borrowings, 77% (2018: 79%) are considered fixed rate borrowings.
The carrying amounts and fair values of the Group’s borrowings are as follows:
Current borrowings
Non-current borrowings
Carrying amounts
Fair values
2019
£m
132.3
759.4
891.7
2018
£m
66.3
770.6
836.9
2019
£m
132.3
769.3
901.6
2018
£m
66.3
777.0
843.3
The valuation methods used to measure the fair values of the Group’s borrowings were derived from inputs which were either observable as
prices or derived from prices (Level 2).
Arrangement fees of £5.5 million (2018: £5.4 million) have been offset in arriving at the balances in the above table.
The fair value of non-current borrowings represents the amount at which a financial instrument could be exchanged in an arm’s length
transaction between informed and willing parties, discounted at the prevailing market rate, and excludes accrued interest.
The Group had the following undrawn committed facilities available at 31 December:
Floating rate:
– expiring within one year
– expiring after one year
2019
£m
30.0
–
30.0
2018
£m
7.6
30.0
37.6
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 154
21. Derivative financial instruments
Non-current
Interest rate caps and swaps
Current
Forward foreign exchange contracts
2019
Assets
£m
2019
Liabilities
£m
2018
Assets
£m
2018
Liabilities
£m
–
0.3
0.3
(4.1)
–
(4.1)
–
–
–
(4.6)
(0.5)
(5.1)
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 2019 was £163.4 million (2018: £154.9 million). The average
period to maturity of these interest rate swaps was 3.2 years (2018: 2.9 years).
Forward foreign exchange contracts
The Group uses forward foreign exchange contracts from time to time to add certainty to, and to minimise the impact of foreign exchange
movements on, committed cash flows. At 31 December 2019 the Group had £26.4 million of outstanding net foreign exchange contracts
(2018: £15.6 million).
22. Financial instruments
Categories of financial instruments
Financial assets of the Group comprise: interest rate caps; foreign currency forward contracts; financial assets at fair value through
other comprehensive income or fair value through profit and loss; investments in associates; trade and other receivables; and cash and
cash equivalents.
Financial liabilities of the Group comprise: interest rate swaps; forward foreign currency contracts; bank loans; unsecured bonds; secured notes;
trade and other payables; and current tax liabilities.
The fair values of financial assets and liabilities are determined as follows:
(a) Interest rate swaps and caps are measured at the present value of future cash flows based on applicable yield curves derived from quoted
interest rates;
(b) Foreign currency options and forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted
interest rates matching maturities of the contracts;
(c) The fair values of non-derivative financial assets and liabilities with standard terms and conditions and traded on active liquid markets are
determined with reference to quoted market prices. Financial assets in this category include financial assets at fair value through other
comprehensive income or fair value through profit and loss such as listed corporate bonds and equity investments;
(d) In more illiquid conditions, non-derivative financial assets are valued using multiple quotes obtained from market makers and from pricing
specialists. Where the spread of prices is tightly clustered the consensus price is deemed to be fair value. Where prices become more
dispersed or there is a lack of available quoted data, further procedures are undertaken such as evidence from the last non-forced trade; and
(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.
CLS Holdings plc Annual Report and Accounts 2019Notes to the Group financial statements continued31 December 2019 155
22. Financial instruments continued
The Directors review the capital structure on a quarterly basis to ensure that key strategic goals are being achieved. As part of this review they
consider the cost of capital and the risks associated with each class of capital.
The gearing ratio at the year end was as follows:
Debt
Liquid resources
Net debt
Equity
Net debt to equity ratio
2019
£m
897.2
(259.4)
637.8
2018
£m
842.3
(130.6)
711.7
1,202.4
1,123.0
53%
63%
Debt is defined as long-term and short-term borrowings before unamortised issue costs as detailed in note 20. Liquid resources are cash and
short-term deposits and listed corporate bonds. Equity includes all capital and reserves of the Group attributable to the owners of the Company.
Externally imposed capital requirement
The Group was subject to externally imposed capital requirements to the extent that debt covenants may require Group companies to maintain
ratios such as debt to equity (or similar) below certain levels.
Risk management objectives
The Group’s activities expose it to a variety of financial risks, which can be grouped as:
■■ market risk
■■ credit risk
■■ liquidity risk
The Group’s overall risk management approach seeks to minimise potential adverse effects on the Group’s financial performance whilst
maintaining flexibility.
Risk management is carried out by the Group’s treasury department in close co-operation with the Group’s operating units and with guidance
from the Board of Directors. The Board regularly assesses and reviews the financial risks and exposures of the Group.
(a) Market risk
The Group’s activities expose it primarily to the financial risks of changes in interest rates and foreign currency exchange rates, and to a lesser
extent other price risk. The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign
currency risk and also uses natural hedging strategies such as matching the duration, interest payments and currency of assets and liabilities.
There has been no change to the Group’s exposure to market risks or the manner in which these risks are managed and measured.
(I) Interest rate risk
The Group’s most significant interest rate risk arises from its long-term variable rate borrowings. Interest rate risk is regularly monitored by
the treasury department and by the Board on both a country and a Group basis. The Board’s policy is to mitigate variable interest rate exposure
whilst maintaining the flexibility to borrow at the best rates and with consideration to potential penalties on termination of fixed rate loans.
To manage its exposure the Group uses interest rate swaps, interest rate caps and natural hedging from cash held on deposit.
In assessing risk, a range of scenarios is taken into consideration such as refinancing, renewal of existing positions and alternative financing and
hedging. Under these scenarios, the Group calculates the impact on the income statement for a defined movement in the underlying interest rate.
The impact of a reasonably likely movement in interest rates, based on historic trends, is set out below:
Scenario
Cash +50 basis points
Variable borrowings (including caps) +50 basis points
Cash -50 basis points
Variable borrowings (including caps) -50 basis points
2019
Income
statement
£m
2018
Income
statement
£m
1.3
(1.9)
(1.3)
1.4
0.5
(1.7)
(0.5)
1.1
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 156
22. Financial instruments continued
(II) Foreign exchange risk
The Group does not have any regular transactional foreign exchange exposure. However, it has operations in Europe which transact business
denominated in euros and, to a lesser extent, in Swedish krona. Consequently, there is currency exposure caused by translating into sterling the
local trading performance and net assets for each financial period and balance sheet, respectively.
The policy of the Group is to match the currency of investments with the related borrowing, which reduces 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. Where foreign exchange risk arises from future commercial transactions, the Group will hedge the future committed
commercial transaction using foreign exchange swaps or forward foreign exchange contracts.
The Group’s principal currency exposures are in respect of the euro and the Swedish krona. If the value of sterling were to increase or decrease
in strength the Group’s net assets and profit for the year would be affected. The impact of a reasonably likely movement in exchange rates, based
on historic trends, is set out below:
Scenario
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
2019
Net
assets
£m
2019
Profit
before tax
£m
2018
Net
assets
£m
2018
Profit
before tax
£m
(5.0)
(0.1)
5.1
0.1
(0.8)
–
0.8
–
(4.5)
(0.3)
4.5
0.3
(0.8)
–
0.8
–
(b) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk
arises from the ability of customers to meet outstanding receivables and future lease commitments, and from financial institutions with which
the Group places cash and cash equivalents, and enters into derivative financial instruments. The maximum exposure to credit risk is partly
represented by the carrying amounts of the financial assets which are carried in the balance sheet, including derivatives with positive fair values.
For credit exposure other than to occupiers, the Directors believe that counterparty risk is minimised to the fullest extent possible as the Group
has policies which limit the amount of credit exposure to any individual financial institution.
The Group has policies in place to ensure that rental contracts are made with customers with an appropriate credit history. Credit risk to
customers is assessed by a process of internal and external credit review, and is reduced by obtaining bank guarantees from the customer or
its parent, and rental deposits. The overall credit risk in relation to customers is monitored on an ongoing basis. Moreover, a significant proportion
of the Group portfolio is let to Government occupiers which can be considered financially secure.
At 31 December 2019 the Group held £0.3 million (2018: £107.8 million) of financial assets at fair value through other comprehensive income
or fair value through profit and loss. Management considers the credit risk associated with individual transactions and monitors the risk on
a continuing basis. Information is gathered from external credit rating agencies and other market sources to allow management to react to any
perceived change in the underlying credit risk of the instruments in which the Group invests. This allows the Group to minimise its credit exposure
to such items and at the same time to maximise returns for shareholders.
CLS Holdings plc Annual Report and Accounts 2019Notes to the Group financial statements continued31 December 2019 157
22. Financial instruments continued
The table below shows the external Standard & Poor’s credit banding on the financial assets at fair value through other comprehensive income
or fair value through profit and loss held by the Group:
S&P credit rating at balance sheet date
Investment grade
Non-investment grade
Not rated
Total
2019
£m
–
–
–
–
2018
£m
5.0
24.6
78.2
107.8
(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.
At 31 December 2019
Non-derivative financial liabilities:
Borrowings
Interest payments on borrowings1
Trade and other payables
Forward foreign exchange contracts:
– Outflow
– Inflow
At 31 December 2018
Non-derivative financial liabilities:
Borrowings
Interest payments on borrowings1
Trade and other payables
Forward foreign exchange contracts:
– Outflow
– Inflow
Less than
1 year
£m
134.0
16.8
37.1
–
0.3
Less than
1 year
£m
68.2
20.5
37.2
(0.5)
–
1 to 2
years
£m
92.7
14.1
–
–
–
1 to 2
years
£m
136.3
18.8
–
–
–
2 to 5
years
£m
Over
5 years
£m
539.3
25.9
–
–
–
131.2
1.3
–
–
–
2 to 5
years
£m
Over
5 years
£m
493.7
22.7
–
–
–
144.1
3.8
–
–
–
1.
Interest payments on borrowings are calculated without taking into account future events. Floating rate interest is estimated using a future interest rate curve as at 31 December.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 158
23. Discontinued operations
On 12 November 2018, the Board resolved to dispose of First Camp Sverige Holdings AB. As at 31 December 2018 the First Camp sub-group was
therefore classified as a disposal group held for sale in accordance with IFRS 5, Non Current Assets Held for Sale and Discontinued Operations, and
presented separately on the Group balance sheet as discontinued operations. On 19 January 2019 contracts were exchanged and completion
occurred on 7 March 2019.
The results of discontinued operations, which have been included in the Group income statement, were as follows:
Revenue
Expenses
(Loss)/profit before tax
Measurement to fair value less costs to sell
Attributable tax expense
Loss from discontinued operations
Attributable to:
Owners of the Company
Non-controlling interests
During the year, First Camp Sverige Holdings AB contributed £nil (2018: £1.0 million) to the Group’s net operating cash flows.
The major classes of assets and liabilities comprising the operations classified as held for sale are as follows:
Property, plant and equipment
Cash and cash equivalents
Other assets
Total assets of discontinued operations
Trade and other payables
Borrowings
Deferred income tax liabilities
Total liabilities of discontinued operations
Net assets of discontinued operations classified as held for sale
2019
£m
0.6
(2.4)
(1.8)
1.3
–
(0.5)
0.3
(0.8)
(0.5)
2019
£m
–
–
–
–
–
–
–
–
–
2018
£m
15.8
(12.7)
3.1
(17.9)
(0.1)
(14.9)
(8.5)
(6.4)
(14.9)
2018
£m
54.0
1.1
1.0
56.1
(5.3)
(35.6)
(3.4)
(44.3)
11.8
24. Share capital
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 2019 and 31 December 2019
407,395,760
31,382,020
438,777,780
10.2
0.8
11.0
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 2018 and 31 December 2018
407,395,760
31,382,020
438,777,780
10.2
0.8
11.0
Shares issued and authorised are as set out in the table above. The Board is authorised, by shareholder resolution, to allot shares or grant such
subscription rights (as are contemplated by sections 551(1) (a) and (b) respectively of the Companies Act 2006) up to a maximum aggregate
nominal value of £3,394,964 representing one-third of the issued share capital of the Company excluding treasury shares.
CLS Holdings plc Annual Report and Accounts 2019Notes to the Group financial statements continued31 December 2019 159
25. Distributions to shareholders
An interim dividend for 2019 of 2.35 pence (2018: 2.20 pence) per ordinary share of 2.50 pence, or £9.6 million (2018: £9.0 million), was paid on
27 September 2019. The proposed final dividend of 5.05 pence per ordinary share (2018: 4.70 pence) was recommended by the Board on 4 March
2020 and, subject to approval by shareholders, is payable on 29 April 2020 to shareholders on the register at the close of business on 3 April
2020. The aggregate amount of the 2019 final dividend of £20.6 million (2018: £19.1 million) has been calculated using the total number of eligible
shares outstanding at 31 December 2019. The total dividend for the year would be 7.40 pence (2018: 6.90 pence) per ordinary share of 2.50 pence
comprising £30.2 million (2018: £28.1 million).
26. Share premium
At 1 January and 31 December
27. Other reserves
At 1 January 2019
Exchange rate variances
Property, plant and equipment
– net fair value deficits in the year
– deferred tax thereon
Other financial investments:
– realised fair value gains
– deferred tax thereon
Discontinued operations
Share-based payment charge
At 31 December 2019
At 1 January 2018
Exchange rate variances
Property, plant and equipment
– net fair value deficits in the year
– deferred tax thereon
Other financial investments:
– fair value losses in the year
– realised fair value gains
– deferred tax thereon
Reclassify fair value movements on equity investments
Discontinued operations
Share-based payment charge
2019
£m
83.1
2018
£m
83.1
Other
reserves
£m
28.1
–
–
–
–
–
–
–
Total
£m
123.0
(28.8)
(0.1)
0.1
2.5
(0.4)
(0.9)
1.0
28.1
96.4
Other
reserves
£m
28.1
–
–
–
–
–
–
–
–
–
Total
£m
143.0
3.9
(0.4)
(0.4)
(7.4)
(0.4)
1.0
(17.9)
0.8
0.8
Capital
redemption
reserve
£m
Cumulative
translation
reserve
£m
Fair value
reserve
£m
Share-
based
payment
reserve
£m
22.7
–
68.6
(28.8)
–
–
–
–
–
–
–
–
–
–
–
–
22.7
39.8
2.4
–
(0.1)
0.1
2.5
(0.4)
(0.9)
–
3.6
1.2
–
–
–
–
–
–
1.0
2.2
Capital
redemption
reserve
£m
Cumulative
translation
reserve
£m
Fair value
reserve
£m
Share-based
payment
reserve
£m
22.7
–
64.7
3.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
27.1
–
(0.4)
(0.4)
(7.4)
(0.4)
1.0
(17.9)
0.8
–
2.4
0.4
–
–
–
–
–
–
–
–
0.8
At 31 December 2018
22.7
68.6
1.2
28.1
123.0
The cumulative translation reserve comprises the aggregate effect of translating net assets of overseas subsidiaries into sterling
since acquisition.
The fair value reserve comprises the aggregate movement in the value of financial assets classified as fair value through comprehensive income
and owner-occupied property since acquisition, net of deferred tax.
The amount classified as other reserves was created prior to listing in 1994 on a Group reconstruction and is considered to be non-distributable.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 160
28. Notes to the cash flow
Cash generated from operations
Operating profit
Adjustments for:
Net movements on revaluation of investment properties
Net movements on revaluation of equities
Depreciation and amortisation
Profit on sale of investment property
Gain on sale of other financial investments, net of impairments
Non-cash rental income
Share-based payment expense
Changes in working capital:
Increase in receivables
Increase in payables
Cash generated from operations
At 31 December 2019
Changes in liabilities arising from financing activities
Borrowings
Interest rate swaps
Forward foreign exchange contracts
2019
£m
183.4
(57.4)
–
1.0
(8.6)
(40.4)
(3.7)
1.0
(3.4)
3.4
75.3
2018
£m
165.3
(62.8)
(22.2)
1.0
(2.3)
(1.7)
(5.0)
0.8
(2.6)
2.4
72.9
31
December
2019
£m
891.7
4.1
(0.3)
895.5
31
December
2018
£m
836.9
4.6
–
0.5
842.0
Notes
20
21
21
1 January
2019
£m
Financing
cash flows
£m
Amortisation
of loan
issue costs
£m
Fair value
adjustments
£m
Foreign
exchange
£m
836.9
4.6
0.5
842.0
80.3
(1.0)
(1.2)
78.1
2.3
–
–
2.3
–
0.5
–
0.5
(27.8)
–
0.4
(27.4)
At 31 December 2018
Changes in liabilities arising from financing activities
Notes
1 January
2018
£m
Financing
cash flows
£m
Amortisation
of loan
issue costs
£m
Fair value
adjustments
£m
Foreign
exchange
£m
Borrowings
Interest rate swaps
Interest rate caps
Forward foreign exchange contracts
20
21
21
21
871.3
6.9
(0.1)
(0.6)
877.5
(41.9)
–
0.1
(0.9)
(42.7)
1.8
–
–
–
1.8
–
(2.3)
–
–
(2.3)
5.7
–
–
2.0
7.7
29. Contingencies
At 31 December 2019 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.
30. Commitments
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
2019
£m
100.2
274.8
115.0
490.0
2018
£m
104.2
307.8
149.4
561.4
Operating leases where the Group is the lessor are typically negotiated on a customer-by-customer basis and include break clauses and
indexation provisions.
Other commitments
At 31 December 2019 the Group had contracted capital expenditure of £5.3 million (2018: £2.9 million). At the balance sheet date, the Group had
exchanged contracts to acquire investment properties for £32.8 million (2018: £10.0 million). There were no authorised financial commitments
which were yet to be contracted with third parties (2018: nil).
31. Post balance sheet events
There were no material events after the 31 December 2019 which have a bearing on the understanding of the financial statements and
require disclosure.
CLS Holdings plc Annual Report and Accounts 2019Notes to the Group financial statements continued31 December 2019 32. 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.
161
United Kingdom
Registered Office: 16 Tinworth Street, London SE11 5AL
16 Tinworth Street (Residential)
Limited
401 King Street Limited
Apex Tower Limited
Brent House 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 Capital Partners Limited
CLS Chancery House Limited
CLS Cliffords Inn Limited
CLS Clockwork Limited
CLS Crawley Limited
CLS England and Wales Limited
CLS Gateway House Limited
CLS Germany Limited
CLS Gresham Limited
CLS Holdings UK Limited
CLS London Limited
CLS London Properties Limited
CLS Lloyds Avenue Limited
CLS Northern Properties Limited
CLS One Limited
CLS Pacific House Limited
CLS Harrow Limited
CLS Prescot Limited
CLS Residential Investments
Limited
CLS South London Limited
CLS Spring Gardens Limited
CLS UK Properties plc
CLSH Management Limited
Columbia Bracknell Limited
Coventry House Limited
Crosspoint House Limited
Dukes Road Limited
Elmfield Road Limited
Falcon Quest Limited
Fetter Lane Apartments Limited
Fetter Lane Leasehold Limited
United Kingdom
Registered Office: 15 Atholl Crescent, Edinburgh EH3 8HA
CLS Aberdeen Limited
CLS Scotland Limited
Ladywell House Limited
Sidlaw House Limited
France
Registered Office: 36 Rue Jules Verne, 92300 Levallois-Perret, Paris
120 Jean Jaures Sàrl
Avenue du Park SCI
BV France Sàrl
Capitaine Guynemer Sàrl
Chorus Sàrl
CLS Management Sàrl
CLS France Sàrl
Debussy SCI
De Musset Sàrl
Forum France SCI
Foch SCI
Georges Clemençeau Sàrl
Immobilière V SA
Immobilière 6 Sàrl
Immobilière 8 Sàrl
Immobilière 10 Sàrl
Germany
Registered Office: Nagelsweg 37, 20097 Hamburg
CLS Germany GmbH
Jarrestrasse Immobilien GmbH
CLS Green Energy GmbH
Spring Gardens III Limited
Spring Mews (Block D) Limited
Spring Mews (Hotel) Limited
Spring Mews (Student) Limited
Spring Mews Limited
Three Albert Embankment Limited
Vauxhall Square Limited
Vauxhall Square (Nominee 2)
Limited
Vauxhall Square (Nominee 3)
Limited
Vauxhall Square One Limited
Vauxhall Square (Student) Limited
Vauxhall Square (Wandsworth
Road) Limited
Wandsworth Road Limited
Great West House Limited
GWH Birkenhead Limited
Harman House Limited
Hygeia Harrow Limited
Ingrove Limited
Instant Office Limited
Kennington Road Limited
Larkhall Lane Limited
Maidenhead Cloud Gate Limited
Mirenwest Limited
New Printing House Square
Limited
NYK Investments Limited
One Elmfield Park Limited
Prescot Street Leasco Limited
Quayside Lodge Limited
Rayman Finance Limited
Reflex Bracknell Limited
Sentinel House Limited
Shard of Glass Limited
Southern House Limited
Immobilière 12 Sàrl
Jean Walters 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
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 162
32. Subsidiaries continued
Luxembourg
Registered Office: 55 Avenue de la Gare, L-1611 Luxembourg
Adlershofer Sàrl
Albertina Sàrl
Cavernet Sàrl
Chronotron Sàrl
CLS Immobilien Stuttgart Sàrl
CLS Investments Sàrl
CLS Investments 2 Sàrl
CLS Luxembourg Sàrl
CLS Metropolis Sàrl
CLS Palisade Sàrl
CLS Tangentis Sàrl
Freepost Sàrl
Frohbösestrasse Sàrl
Garivet Sàrl
Gotic Haus Sàrl
Grossglockner Sàrl
Hermalux Sàrl
Kapellen Sàrl
Landstrasse Sàrl
Naropere Sàrl
Network Perlach Sàrl
Prater Sàrl
Rock Harman House Sàrl
Salisbury Hill Sàrl
Satimood Sàrl
Schönbrunn Sàrl
Zillertal Sàrl
Netherlands
Registered Office: Burgemeester van Reenensingel 101, 2803 DA Gouda
Chorus BV
CLS Management BV
Hamersley International BV
Malmros Property BV
Petits Champs BV
Portapert Properties III BV
Portapert Properties UK BV
Rasstaf BV
Jersey
Registered Office: PO Box 167, 3rd Floor, 2 Hill Street, St Helier JE4 8RY
Hawkswell Limited
Hawkswell One Limited
Hawkswell Two Limited
Sweden
Registered Office: Skönabäck 122, SE-274 91 Skurup
Jarrestrasse Holding AB
Museion Förvaltning AB
Endicott Sweden AB
Rasstaf Sweden AB
Wyatt Media Group AB (98.87%)
Wyatt Sales AB
Xtraworks AB
CLS Holdings plc Annual Report and Accounts 2019Notes to the Group financial statements continued31 December 2019 163
33. Associates
The Group financial statements include the Group’s share of the results and net assets of the following associates:
Name
24 Media Network AB
Lociloci AB
Registered office
Skeppargatan 65, SE- 114 59 Stockholm, Sweden
Hasselbacken 1, SE- 139 33 Värmdö, Sweden
Country of
incorporation
Sweden
Sweden
Holding
24.2%
24.6%
These were fully impaired in 2017.
34. Related party transactions
Transactions with directors
Distributions totalling £16,685,205 (2018: £15,866,671) were made through dividend payments in the year in respect of ordinary shares held by
the Directors.
During the year the following transactions occurred with companies associated to Sten Mortstedt:
■■ a Group company, Museion Forvaltning AB, has an agreement with Skonaback Forvaltnings AB to lease office space. The current lease
commenced 1 October 2018 and the total cost for the year was SEK 120,000 (2018: SEK 330,000). No balances were outstanding at the balance
sheet date (2018: SEK nil).
■■ the Group charged a management fee in relation to providing property management and administration services. A Group company, CLSH
Management Limited, invoiced fees totalling £12,894 (2018: £21,457). At the balance sheet date £12,112 was outstanding (2018: £21,457).
■■ the Group recharged salary costs in relation to providing administration services. CLS Holdings plc, invoiced costs totalling £60,429
(2018: £68,673). At the balance sheet date £60,429 was outstanding (2018: £31,036).
■■ the Group provided periodic use of a company-owned flat. A Group company, CLSH Management Limited, invoiced costs totalling £nil
(2018: £200). No balances were outstanding at the balance sheet date (2018: £nil).
■■ CLS Holdings plc was charged £nil in relation to administration costs during the year (2018: £4,566). No balances were outstanding at the
balance sheet date (2018: £nil).
During the year, the Group recharged costs to Catena AB, a company with a common Director, in relation to costs incurred by the Group.
CLS Holdings plc, invoiced costs totalling £833 (2018: £4,447). At the balance sheet date £421 was outstanding (2018: £1,118).
During the year, the Group invoiced rental related charges of £38,479 (2018: £nil) to IKEA Limited, a company in a group of companies with
a common Director. At the balance sheet date £nil was outstanding (2018: £nil).
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 82 to 115.
Short-term employee benefits
Post-employment benefits
Other long-term benefits
2019
£000
3,016
13
112
3,141
2018
£000
2,430
7
610
3,047
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 164
Company balance sheet
at 31 December 2019
Non-current assets
Investment in subsidiary undertakings
Intangible assets
Current assets
Trade and other receivables
Total assets
Current liabilities
Trade and other payables
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Profit and loss account
Shareholders’ funds
Notes
2019
£m
2018
£m
6
7
8
9
10
11
11
441.0
0.4
106.1
547.5
(190.9)
(190.9)
356.6
11.0
83.1
28.7
233.8
356.6
461.1
0.3
2.4
463.8
(171.3)
(171.3)
292.5
11.0
83.1
28.1
170.3
292.5
The Company reported a profit for the financial year ended 31 December 2019 of £92.2 million (2018: £42.8 million).
The notes on pages 166 to 169 are an integral part of these financial statements.
These financial statements of CLS Holdings plc (registered number: 02714781) were approved by the Board of Directors and authorised for issue
on 5 March 2020 and were signed on its behalf by:
Mr F Widlund
Chief Executive Officer
Mr A Kirkman
Chief Financial Officer
CLS Holdings plc Annual Report and Accounts 2019
Company statement of changes in equity
for the year ended 31 December 2019
165
Arising in 2019:
Profit for the year
Employee Performance Incentive Plan charge
Dividends
Total changes arising in 2019
At 1 January 2019
At 31 December 2019
Arising in 2018:
Profit for the year
Employee Performance Incentive Plan charge
Dividends
Total changes arising in 2018
At 1 January 2018
At 31 December 2018
Notes
12
12
12
Notes
12
12
12
Share
capital
£m
Share
premium
£m
Other
reserves
£m
Retained
earnings
£m
–
–
–
–
11.0
11.0
–
–
–
–
83.1
83.1
–
0.6
–
0.6
28.1
28.7
92.2
–
(28.7)
63.5
170.3
233.8
Share
capital
£m
Share
premium
£m
Other
reserves
£m
Retained
earnings
£m
–
–
–
–
11.0
11.0
–
–
–
–
83.1
83.1
–
0.4
–
0.4
27.7
28.1
42.8
–
(26.5)
16.3
154.0
170.3
Total
£m
92.2
0.6
(28.7)
64.1
292.5
356.6
Total
£m
42.8
0.4
(26.5)
16.7
275.8
292.5
The notes on pages 166 to 169 are an integral part of these financial statements.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information
166
Notes to the Company financial statements
31 December 2019
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 registered and incorporated in the United Kingdom under Companies
Act 2006. Its primary activity (which occurs exclusively within the United Kingdom) is to hold shares in subsidiary companies.
2. Basis of accounting
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. The Company is not a financial institution and is therefore able to take advantage
of exemption from all requirements of IFRS 7 ‘Financial Instruments: Disclosures’ and from the disclosure requirement of IFRS 13 ‘Fair
Value Measurements’
Where required, equivalent disclosures are given in the Group financial statements.
3. Significant accounting policies
The principal accounting policies are summarised below.
3.1 Going concern
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 118.
3.2 Investments in subsidiaries
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.
CLS Holdings plc Annual Report and Accounts 2019 167
4. Profit for 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 profit for the financial year was £92.2 million (2018: £42.8 million).
Audit fees for the Company were £0.1 million (2018: £0.1 million).
Details of the Directors employed during the year and of their remuneration is included in the Remuneration Committee Report on pages
82 to 115.
5. Distributions to shareholders
An interim dividend for 2019 of 2.35 pence (2018: 2.20 pence) per ordinary share of 2.50 pence, or £9.6 million (2018: £9.0 million), was paid on
27 September 2019. The proposed final dividend of 5.05 pence per ordinary share (2018: 4.70 pence) was recommended by the Board on 4 March
2020 and, subject to approval by shareholders, is payable on 29 April 2020 to shareholders on the register at the close of business on 3 April
2020. The aggregate amount of the 2019 final dividend of £20.6 million (2018: £19.1 million) has been calculated using the total number of eligible
shares outstanding at 31 December 2019. The total dividend for the year would be 7.40 pence (2018: 6.90 pence) per ordinary share of 2.50 pence
comprising £30.2 million (2018: £28.1 million).
6. Investment in subsidiary undertakings
At 1 January
Additions
Disposals
(Provision for)/reversal of impairment
At 31 December
7. Trade and other receivables
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
2019
£m
461.1
50.0
(20.3)
(49.8)
441.0
2018
£m
361.1
99.0
–
1.0
461.1
2019
£m
2018
£m
102.1
1.6
2.4
106.1
0.1
0.3
2.0
2.4
2019
£m
2018
£m
–
188.7
2.2
190.9
0.1
169.4
1.8
171.3
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 168 Notes to the Company financial statements continued
31 December 2019
9. Share capital
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 2019 and 31 December 2019
407,395,760
31,382,020
438,777,780
10.2
0.8
11.0
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 2018 and 31 December 2018
407,395,760
31,382,020
438,777,780
10.2
0.8
11.0
Shares issued and authorised are as set out in the tables above. The Board is authorised, by shareholder resolution, to allot shares or grant
such subscription rights (as are contemplated by sections 551(1) (a) and (b) respectively of the Companies Act 2006) up to a maximum aggregate
nominal value of £3,394,964 representing one-third of the issued share capital of the Company excluding treasury shares.
10. Share premium
At 1 January and 31 December
11. Profit and loss account and other reserves
At 1 January 2019
Share-based payment charge
Profit for the year
Dividends to shareholders
At 31 December 2019
At 1 January 2018
Share-based payment charge
Profit for the year
Dividends to shareholders
At 31 December 2018
2019
£m
83.1
2018
£m
83.1
Profit
and loss
account
£m
170.3
–
92.2
(28.7)
233.8
Profit
and loss
account
£m
154.0
–
42.8
(26.5)
170.3
Total
£m
28.1
0.6
–
–
28.7
Total
£m
27.7
0.4
–
–
28.1
Other reserves
Capital
redemption
reserve
£m
Share-
based
payment
reserve
£m
22.7
–
–
–
22.7
0.8
0.6
–
–
1.4
Other
£m
4.6
–
–
–
4.6
Other reserves
Capital
redemption
reserve
£m
Share-based
payment
reserve
£m
22.7
–
–
–
22.7
0.4
0.4
–
–
0.8
Other
£m
4.6
–
–
–
4.6
CLS Holdings plc Annual Report and Accounts 2019 12. Reconciliation of movements in shareholders’ funds
At 1 January
Profit for the year
Dividends to shareholders
Share-based payment charge
At 31 December
169
2019
£m
292.5
92.2
(28.7)
0.6
356.6
2018
£m
275.8
42.8
(26.5)
0.4
292.5
13. Contingencies
At 31 December 2019 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.
14. Commitments
At 31 December 2019, the Company had no contracted capital expenditure (2018: £nil) and no authorised financial commitments which were yet
to be contracted with third parties (2018: £nil).
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information 170
Five year financial summary (unaudited)
31 December 2019
Continuing Operations
Group revenue
Net rental income
Administration expenses
Other expenses
Group revenue less costs
Net movements on revaluation of investment properties
Net profit on sale of properties
Gain on sale of other financial investments, net of impairments
Net movement on revaluation of equity investments
2019
£m
2018
£m
Restated
2017
£m
2016
£m
2015
£m
138.3
110.6
(19.9)
(13.7)
77.0
57.4
8.6
40.4
–
133.0
107.3
(17.8)
(13.2)
76.3
62.8
2.3
1.7
22.2
120.3
100.0
(14.6)
(12.2)
73.2
94.2
43.7
2.5
–
128.5
107.1
(21.3)
(14.0)
71.8
36.1
9.1
3.2
–
118.9
99.0
(19.5)
(13.8)
65.7
98.0
4.3
0.7
–
Operating profit
183.4
165.3
213.6
120.2
168.7
Finance income
Finance costs
Share of loss of associates after tax
Profit before tax
Taxation
Profit for the year from continuing operations
Discontinued Operations
(Loss)/profit for the year from discontinued operations
Profit for the year
Distributions paid and proposed
Net Assets Employed
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Ratios
Net assets per share (pence)
EPRA net assets per share (pence)
Earnings per share (pence)
EPRA earnings per share (pence)
Net gearing (%)
Balance sheet loan-to-value (%)
Interest cover (times)
5.0
(29.4)
–
159.0
(23.8)
135.2
(0.5)
134.7
6.1
(26.5)
–
10.0
(32.4)
(0.7)
13.6
(32.7)
(1.0)
10.0
(27.5)
–
144.9
190.5
100.1
151.2
(12.1)
132.8
(14.9)
117.9
(33.5)
157.0
0.9
157.9
25.9
(1.8)
98.3
–
98.3
23.5
(19.1)
132.1
–
132.1
19.1
30.2
28.1
2,010.2
295.4
2,305.6
(198.9)
(904.3)
2,034.5
173.0
2,207.5
(170.0)
(914.5)
1,913.1
174.7
2,157.4
(177.5)
(946.6)
1,763.9
159.4
1,923.3
(186.2)
(854.6)
1,572.6
173.3
1,745.9
(282.2)
(695.7)
1,202.4
1,123.0
1,033.3
882.5
768.0
2019
295.1
329.2
33.3
12.0
52.9
31.4
3.42
2018
275.5
309.8
30.5
13.1
63.4
36.7
3.80
2017
252.0
285.6
38.7
12.6
65.2
36.9
3.89
2016
215.1
245.6
23.6
12.3
78.8
43.7
3.37
2015
181.0
208.3
30.6
8.5
82.0
42.6
3.19
2017 was restated to separate the individual line items in the profit and loss account that related to the operations of First Camp Sverige
Holdings AB which was classified as discontinued as at 31 December 2018, as disclosed in note 23 to the financial statements. Accordingly,
the assets and liabilities were disclosed in current assets and current liabilities on the Group balance sheet as the First Camp sub-group was
classified as a disposal group held for sale. On 7 March 2019, the disposal of the First Camp sub-group completed and accordingly the assets and
liabilities of the sub-group were de-recognised from the Group balance sheet. The 2015-2016 comparative periods were not restated to reflect
this reclassification.
CLS Holdings plc Annual Report and Accounts 2019 Glossary of terms
171
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 property assets
CDP
CDP, formerly known as the Carbon
Disclosure Project, assesses the ESG
performance of all major companies
worldwide and aids comparability between
organisations to allow the investor community
to assess the carbon and climate change risk
of each company.
Contracted rent
Annual contracted rental income after any
rent-free periods have expired
Diluted earnings per share
Profit for the year attributable to the owners
of the Company divided by the diluted
weighted average 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 for the year attributable to the owners
of the Company 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 for the year attributable to the owners
of the Company, but excluding net gains
or losses from fair value adjustments
on investment properties and on equity
investments, profits or losses on disposal
of investment properties and other non-
current investment interests, profits or losses
of discontinued operations, profits or losses
on early redemption of debt, impairment of
goodwill and intangible assets, movements
in fair value of derivative financial instruments
and their related current and deferred tax
EPRA net assets
Net assets attributable to the owners of the
Company 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 or EPRA NAV
EPRA net assets divided by the diluted
number of ordinary shares
EPRA net initial yield
Passing rent less net service charge costs on
investment properties and properties held
for sale, expressed as a percentage of the
valuation of those properties after adding
purchasers’ costs
EPRA net reinstatement value (EPRA NRV)
Net assets attributable to the owners of the
Company excluding the fair value of financial
derivatives, deferred tax on revaluations and
goodwill arising as a result of deferred tax
and including real estate transfer tax
EPRA topped up net initial yield
Contracted rent less net service charge costs
on investment properties and properties
held for sale, expressed as a percentage of
the valuation of those properties 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
GRESB
GRESB assesses and benchmarks the
Environmental, Social and Governance
(ESG) performance of real assets, providing
standardized and validated data to the
capital markets.
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 attributable to the owners of the
Company divided by the diluted number
of ordinary shares
Net debt
Total borrowings less liquid resources
Net gearing
Net debt expressed as a percentage
of net assets attributable to the owners
of the Company
Net initial yield
Net rent on investment properties and
properties held for sale expressed
as a percentage of the valuation of
those properties
Net rent
Passing 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 contracted rent
Passing rent
Contracted rent before any rent-free periods
have expired
Property loan to value
Property borrowings expressed as
a percentage of the market value of the
property portfolio
Rent roll
Contracted rent
Return on equity
The aggregate of the change in equity
attributable to the owners of the Company
plus the amounts paid to the shareholders
dividends and the purchase of shares in
the market, divided by the opening equity
attributable to the owners of the Company
Reversionary
The amount by which ERV exceeds
contracted rent
Total accounting return
The change in EPRA NAV before the payment
of dividends
Total shareholder return
The growth in capital from purchasing
a share, assuming that dividends are
reinvested every time they are received
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
Vacancy rate
The ERV of vacant lettable space, divided by
the aggregate of the contracted rent of let
space and the ERV of vacant lettable space.
CLS Holdings plc Annual Report and Accounts 2019Strategic reportCorporate governanceFinancial statementsAdditional information Clearing bank
Royal Bank of Scotland Plc
24 Grosvenor Place
London SW1X 7HP
Financial Advisers
Elm Square Advisers Limited
10 Queen’s Elm Square
London SW3 6ED
Corporate brokers
Liberum Capital
Ropemaker Place, Level 12
25 Ropemaker Street
London EC2Y 9LY
Whitman Howard
First floor, Connaught House
Davies Street
London W1K 3NB
Registered Auditor
Deloitte LLP
Chartered Accountants
Hill House, 1 Little New Street
London EC4A 3TR
Financial and corporate public relations
Smithfield Consultants Limited
Southside
105 Victoria Street
London SW1E 6QT
172
Directors, officers and advisers
Directors
Lennart Sten*◊
Anna Seeley◊
Fredrik Widlund
Andrew Kirkman
Sten Mortstedt◊
Malcolm Cooper‡*†
Elizabeth Edwards†◊
Bill Holland *†
Denise Jagger *†
Christopher Jarvis*†
Bengt Mortstedt
(Non-Executive Chairman)
(Non-Executive Vice Chairman)
(Chief Executive Officer)
(Chief Financial Officer)
(Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
‡ Senior Independent Director
* Member of Remuneration Committee
† Member of Audit Committee
◊ Member of Nomination Committee
Company Secretary
David Fuller BA, FCIS
Registered office
16 Tinworth Street, London, SE11 5AL
Registered number
02714781
CLS Holdings plc online
www.clsholdings.com
Email
enquiries@clsholdings.com
Telephone
+44 (0)20 7582 7766
Registrars and transfer office
Computershare Investor Services Plc
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Shareholder Helpline: 0870 889 3286
Germany
CLS Germany Management GmbH
Nagelsweg 37
20097 Hamburg
Tel: +49 (0)40 29 81 39 0
Fax: +44 (0)40 29 81 39 29
Email: enquiries@clsholdings.com
France
CLS France Services Sarl
36 rue Jules Verne
92300 Levallois-Perret
Tel: +33 (0)1 86 26 48 50
Fax: +33 (0)1 86 26 48 64
CLS Holdings plc Annual Report and Accounts 2019 Consultancy, design and production
www.luminous.co.uk
Design and production
www.luminous.co.uk
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WWW.CLSHOLDINGS.COM
CLS HOLDINGS PLC
16 Tinworth Street
London
SE11 5AL
Tel: +44 (0)20 7582 7766
Fax: +44 (0)20 7735 2779
email: enquiries@clsholdings.com