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INTERIM MANAGEMENT REPORT |
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INTRODUCTION
With our strategy of selling properties largely completed at 31 December 2008, the first half of 2009 has been one of consolidation of the existing business and concentration on the core elements of good property management and cash collection.
We are pleased to report that our adjusted net asset value per share has risen by 11.1 per cent to 719.2 pence per share, against the backdrop of a continuing depressed property market. This is partly a reflection of some of our properties being re-valued upwards in the UK, particularly those with long government leases.
With transaction volumes remaining low, open market values continue to be difficult to establish with a reasonable level of accuracy, as we previously commented on in the 2008 Chairman’s statement. Subjectivity in valuation reports is therefore still evident but is reduced in severity from year end as stability appears to be returning to some areas of the real estate market.
We are also pleased to report a profit before tax of £13.2 million. In particular, we have worked hard to maximise the return on our cash resources which remain at over £100 million at the period end. In order to secure an acceptable return on surplus cash, the Company has also invested in corporate bonds, details about which are set out on page 7.
Real estate investment markets remain suppressed, but encouragingly they are most active in the smaller lot sizes under £35 million or €40 million, where funding is becoming more readily available; this is the market which has always been important for CLS, and within which most of our properties by number reside. We have yet to see the introduction to the market of distress or fire-sale assets, but with tentative signs of stabilisation in areas of the market, we expect that opportunities will become more widespread in the first half of 2010.
Although downward pressure on rents is evident, letting negotiations across all our areas of operation remain active, and leases over notable floor areas of the portfolio have been reviewed, extended or renewed in the first half of 2009. We remain committed to very active management of the portfolio to encourage new lettings, retain our existing tenant base and ensure cash collection is robust and timely.
Negotiations with our funding providers to agree terms going forwards are now largely complete, and we are pleased to confirm that, at the date of this report, all significant potential breaches of loan to value (LTV) covenant have been rectified. In one case the LTV covenant has been removed altogether until expiry of the loan. The total cash placed on deposit or repaid in connection with these agreements was less than £15.0 million, a small proportion of the Group’s available cash reserves. Although some re-pricing has been agreed, we continue to benefit from low interest rates across all the markets we operate in, contributing to underlying profit.
The cost-cutting process which began in 2008 has been very successful and our focus on this area is continuing. The total overheads for the first half of 2009 are £3.6 million lower (38.1 per cent) than the comparable period for 2008, and those relating to the core property business amount to £2.3 million of this saving.
During these very difficult times, almost all of our peers have returned to the market to raise additional funds from shareholders to rectify working capital shortfalls. Due to the strategic management of our business, we are pleased that the Company has not had to call on shareholders for capital, and we do not expect to have to do so for the foreseeable future.
BUSINESS OVERVIEW
UK
The investment market in central London doubled in Q2 compared with Q1 2009 with a transaction level of £1.6 billion, the main increase being in the City and the majority of transactions coming from overseas buyers. This increase in demand coupled with lack of supply has meant that yields are starting to harden and agents are now expecting an improvement in activity in Q4 09, continuing into 2010.
Take-up levels also improved in Q2 compared to Q1, some 158,000sq.m (1.7 million sq.ft) being let in the quarter. Overall vacancy rates have increased to 7.7 per cent in central London, equating to 2.0 million sq.m (21.1 million sq.ft). Landlords have to be more inventive to secure tenants, and careful asset management and good tenant relationships are proving key to retaining the existing customer base.
At 30 June the CLS UK investment property portfolio comprised 27 properties valued at £344.7 million. This reflects an increase in the value of properties of 6.6 per cent (£20.8 million) after taking account of refurbishment expenditure, primarily driven by decreasing yields on our government-let stock.
Although this might initially appear surprising, given that the IPD index has fallen 13.2 per cent over the first six months of the year, it reflects the view of our year end valuers that we had probably seen the bottom of the market for government-let, long-lease properties, which represent over 50 per cent by value of the Company’s UK portfolio. The definition of what constitutes a ‘prime property’ in the real estate market has shifted from one of location to surety of income, the reported ‘flight to quality’.
The largest falls in value across the wider office market have been driven by less well managed properties with significant vacancies. The vacant space for the CLS portfolio however is relatively minor. In addition, the values of our properties located in the West End and Southbank have increased, caused by prime yields falling by 30 basis points in these areas in Q2, reflecting growing investor interest.
As reported at the year end, we believed that open market values were proving difficult to establish with a reasonable level of accuracy given the low transactional volumes. These conditions continue to persist with more willing buyers but few willing sellers in the market at present. However we also reported in December that we anticipated our UK property values would prove resilient compared to the wider market, and it is pleasing to show that this has been borne out.
The Company changed its valuers during the period for the majority of the UK portfolio from Allsops to Lambert Smith Hampton, a national firm of surveyors. Allsops had been the valuers for the UK portfolio since flotation in 1994 and we believe that it is good practice to rotate valuers periodically.
Subsequent to the period end the sale of 2 Deanery Street was completed on 5 August at a sales value of £2.2 million, a 17.4 per cent premium to the December year end value. This property is shown in the 30 June 2009 accounts at its sales value.
Letting progress has been steady with £4.0 million of rental income being subject to review, indexation, renewal or extension during the period, resulting in an overall increase in those rents of 5 per cent.
Cash collection also remains extremely strong, with over 99 per cent of rents for Q1 and Q2 2009 collected within 3 weeks of the quarter date.
Vacant space by rental income at 30 June was 5.0 per cent compared with 4.4 per cent at the end of 2008.
FRANCE
Investment markets continue to be slow in France with only £2.1 billion (€2.3 billion) transacted in the first half of 2009 compared with £6.3 billion (€7.1 billion) in the equivalent period of 2008. Lending conditions appear to be improving for smaller lot sizes (>£35 million (€40 million)) but remain difficult for larger single assets.
The letting market has also shrunk considerably with only 0.4 million sq.m (4.3 million sq.ft) being taken up in Q2, the total for the first half year being some 27 per cent down on 2008. The market for smaller lets of between 500 and 1,000 sq.m (5,500 to 10,500 sq.ft) appears more active than for lettings above this size.
Overall vacancy rates in the Paris region are 6.1 per cent, but of this some 80 per cent are from units of 1,000 sq.m or more. Supply of new office space continues to rise, but the rate of supply is falling as building activity has been decreasing for some time.
At 30 June the CLS French portfolio comprised 25 properties with a value of £193.0 million (€226.8 million), reflecting a fall in value of 3.6 per cent (£7.5 million) during the first six months of 2009 allowing for capital additions of £1.3 million and negative currency movements of £24.2 million.
The vacancy rate has increased to 6.1 per cent by rental income from 4.2 per cent at the year end, but letting activity has also been steady in France with 17 new leases being transacted so far this year covering 5,553 sq.m (59,300 sq.ft), and a further 3,673 sq.m (39,200 sq.ft) subject to lease renewal or extension. The leases transacted were at a reduction from the passing rent, which have been subject to indexation, but were over the existing ERV for those properties.
Rental indexation grew in the first half with annualised increases of 0.4 per cent in the first quarter and 5.1 per cent in the second quarter.
GERMANY
Investment activity in Germany in the first half of 2009 is still low but in line with the 10 year average for the market. Transaction volumes were 70 per cent down on the first half of 2008 at £3.3 billion (€3.7 billion) and as in France, funding is really only available to lot sizes of under £35 million or €40 million and the market appearing to be most active is the native, private investor group.
At 30 June the CLS German portfolio comprised 17 properties with a value of £184.1 million (€216.3 million) reflecting a fall in value of 3.8 per cent (£7.1 million) compared to £201.4 million (€210.7 million) at 31 December 2008 allowing for capital additions of £12.1 million and negative currency movements of £22.3 million. On a like-for like basis, excluding the uplifts on the recently completed developments, the value fall was 3.9 per cent.
The development of the two new buildings that will form part of our existing property in Landshut, Munich were all completed and handed over during the period, on time and on budget. The Landshut buildings are on ten year leases to E.ON Bayern AG with no breaks. The re-development of the Rathaus Centre in the city of Bochum will be finally completed by the end of 2009. Most of the premises have been handed over to the City and the lease has already commenced. The Bochum property is let on a 30 year indexed lease.
The vacancy rate by rental income at 30 June is 4.3 per cent compared with 3.2 per cent at December 2008 largely as a result of one tenant vacating their space early but with payment of a break premium which covers the period until expiry.
SWEDEN
In common with Germany, the Swedish investment market in the first half of 2009 was primarily driven by local investors in smaller lot sizes. Rents have stagnated and are starting to fall in the major cities largely as a result of very low rental demand.
The Swedish portfolio remains unchanged with four properties comprising the Vänerparken portfolio in Vänersborg near Gothenburg. The value of £45.3 million (SEK576 million) is 3.0 per cent lower than its valuation at 31 December 2008 allowing for capital additions and currency movements.
The vacancy rate by rental income at 30 June is 8.3 per cent compared with 8.2 per cent at December 2008. We have just concluded a further lease agreement with the City of Vänersborg over 4,135 sq.m (44,510 sq.ft) on a 10 year lease with an option to extend by a further 10 years, with a penalty to be received if the lease is not extended. Concurrently we have extended the lease over 6,431 sq.m (69,225 sq.ft) by one year. At the date of this report the lease has been signed but is subject to ratification by the City Council. Final negotiations are in progress over the letting of a further 2,400 sq.m (25,834 sq.ft), which would reduce the vacancy rate to below 2.5 per cent.
WYATT MEDIA GROUP
Following the significant re-structuring, re-branding and focus on cutting operational costs during 2008, the Wyatt group posted positive EBITDA for the first half of 2009 and reported higher levels of income and traffic. For the full year, we expect the business will continue to be self-sufficient in terms of its working capital requirements.
CORPORATE BOND PORTFOLIO
As short-term interest rates have reached record lows, the return from traditional money market investments such as bank deposits, commercial paper or money market funds is close to nil. Starting at the end of 2008, the Group has invested some of its available cash resources in corporate bonds, which offer a higher return on the Group’s surplus cash with a manageable element of additional risk. The portfolio of bond investments held is offering a return in excess of 10 per cent (coupon yield), and the bond market is liquid so that these instruments can be sold at short notice at their then market price.
CLS has purchased a variety of bonds issued by reputable blue-chip corporates in the financial, insurance and industrial sectors Since the beginning of 2009, whilst the price of corporate bonds remain below their pre-credit crunch levels, the corporate bond market has experienced a strong revival, as investors have regained some confidence in the economy. The result is that the group’s initial cash investment in bonds of £26.8 million has shown an increase in value of £5.7 million in the period to 30 June 2009, which has been recognised in reserves. At the balance sheet date, the carrying value of these investments, which equates to their market value, is £31.0 million.
ASSOCIATES
Our share in Catena, a Swedish listed property group, has not changed during the period and the company itself showed good increases in rental income, property valuations and retained profit during the 6 months to 30 June 2009. CLS booked £0.9 million of net income from Catena for the period (30 June 2008: £0.5 million), and in addition the Company paid a dividend during the period of which CLS’s share was £1.5 million (30 June 2008: £1.5 million). The share price of Catena has increased by 35 per cent from 60 SEK per share at 31 December 2008 to 81 SEK per share at 30 June 2009. This is a reflection of market confidence returning and particular investor confidence in the structural and funding improvements made by the Company towards the end of 2008 and the early part of 2009. The carrying value of this investment at 30 June 2009 is £22.4 million (31 December 2008: £25.1 million).
We have increased our holding in Bulgarian Land Developments (BLD) to 47.7 per cent (£13.6 million) in the period, from 35.8 per cent at 31 December 2008 (£14.1 million), representing a further cash investment of £1.2 million. As the price paid for the shares purchased was substantially below the underlying NAV, the Group has recorded negative goodwill of £2.8 million on acquisition, which is shown as a credit to the Income Statement.
Although the Group’s share of BLD’s result for the period was a loss of £3.3 million (30 June 2008: loss of £0.6 million), the majority of this loss was driven by foreign exchange falls on the Company’s development portfolio. We have confidence in the management of BLD, their strong local presence and excellent contacts within the Bulgarian property market. CLS is investing for the longer term and anticipates recovery of the valuations and increased sales activity, once the global economy begins to stabilise, bringing confidence back to the residential market. The developments are well situated in historically prime holiday locations.
GOING CONCERN
As detailed in note 2 to the condensed accounts below, the Directors have concluded that it remains appropriate to treat the business as a going concern.
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FINANCIAL REVIEW |
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INCOME STATEMENT (NON-STATUTORY FORMAT) |
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Results by location
6 months to June 2008 |
Total
£m |
UK
£m |
France
£m |
Germany
£m |
Sweden
£m |
Wyatt
Group
£m |
Other
£m |
June
2008
£m |
 |
| Net rental income |
27.8 |
11.6 |
7.6 |
6.6 |
2.0 |
- |
- |
34.2 |
| Other income/(expense) |
2.0 |
(0.7) |
0.2 |
0.3 |
0.1 |
1.9 |
0.2 |
2.5 |
| Operating expenses |
(7.6) |
(2.6) |
(1.0) |
(1.3) |
(0.4) |
(2.0) |
(0.3) |
(11.0) |
| Net finance costs |
(9.9) |
(6.8) |
(2.2) |
(3.2) |
(0.7) |
- |
3.0 |
(19.6) |
| Fair value gains/(losses) on financial instruments |
5.4 |
6.1 |
(0.1) |
(0.6) |
- |
- |
- |
6.2 |
| Share of (loss)/profit of associates |
(2.4) |
- |
- |
- |
0.9 |
- |
(3.3) |
(0.1) |
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| Underlying profit* |
15.3 |
7.6 |
4.5 |
1.8 |
1.9 |
(0.1) |
(0.4) |
12.2 |
| Fair value gain/(loss) on investment properties |
5.1 |
20.8 |
(7.5) |
(6.6) |
(1.6) |
- |
- |
(26.6) |
| Foreign exchange (losses)/gains |
(10.0) |
(5.6) |
(2.6) |
- |
- |
- |
(1.8) |
1.4 |
| Negative goodwill on acquisition of associates |
2.8 |
- |
- |
- |
- |
- |
2.8 |
- |
| Gain on sale of investment properties, subsidiaries and joint venture |
- |
- |
- |
- |
- |
- |
- |
0.5 |
| Non-recurring finance costs on sales |
- |
- |
- |
- |
- |
- |
- |
(0.3) |
| Non-recurring costs |
- |
- |
- |
- |
- |
- |
- |
(1.8) |
| Impairment of intangibles |
- |
- |
- |
- |
- |
- |
- |
(10.0) |
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| Profit/(loss) before tax |
13.2 |
22.8 |
(5.6) |
(4.8) |
0.3 |
(0.1) |
0.6 |
(24.6) |
| Tax – current |
(2.5) |
(0.3) |
(1.6) |
- |
(0.3) |
(0.3) |
- |
(2.0) |
| Tax – deferred |
(0.3) |
(3.4) |
1.0 |
0.3 |
1.8 |
- |
- |
27.7 |
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| Profit/(loss) for the period |
10.4 |
19.1 |
(6.2) |
(4.5) |
1.8 |
(0.4) |
0.6 |
1.1 |
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Underlying profit
Underlying profit for the six months to 30 June is £15.3 million compared to £12.2 million for the six months to 30 June 2008, an increase of £3.1 million. Net rent has decreased in the period by £6.4 million as a result of disposals made during 2008, mostly in France which has reduced by £4.1 million. Net finance costs are down by £9.7 million, or nearly 50 per cent due to two main factors; lower average loan balances in the current period following the disposals during 2008 resulted in a reduction of around £4.6 million, coupled with the write-off of unexpired arrangement fees in 2008 of £1.5 million. In addition, the collapse of interest rates across Europe towards the end of 2008 when the credit crunch took hold has meant that on average our floating rate loans were 350 basis points lower than the equivalent period last year, resulting in a further reduction in interest expense of around £3.6 million.
The gain on derivatives of £5.4 million (30 June 2008: £6.2 million), used to hedge the Groups exposure to variable interest rates, arising during the first half of 2009 was as a result of 15-year interest rates increasing significantly, especially at the shorter end of the yield curve, a consequence of the financial markets turmoil.
The current tax charge for the period relates to taxable profits earned in France, whilst the deferred tax charge is mostly derived from the valuation increases in the UK property portfolio, offset by falls elsewhere across the European portfolio and losses agreed during the period.
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BALANCE SHEET (NON-STATUTORY FORMAT) |
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| June 2009 |
Total
£m |
UK
£m |
France
£m |
Germany
£m |
Sweden
£m |
Wyatt
Group
£m |
Other*
£m |
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| Investment properties |
767.1 |
344.7 |
193.0 |
184.1 |
45.3 |
- |
- |
| Property-related debt |
(544.5) |
(261.9) |
(114.9) |
(141.1) |
(26.6) |
- |
- |
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| Equity in property assets |
222.6 |
82.8 |
78.1 |
43.0 |
18.7 |
- |
- |
| Equity in Property as % of Valuation |
29% |
24% |
40% |
23% |
41% |
- |
- |
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| Cash |
105.2 |
73.6 |
16.6 |
6.4 |
8.9 |
0.1 |
(0.4) |
| Corporate bonds |
31.0 |
- |
- |
- |
- |
- |
31.0 |
| Other assets (including associates) |
55.0 |
5.6 |
4.4 |
2.4 |
1.2 |
1.0 |
40.4 |
| Other Liabilities |
(68.4) |
(21.4) |
(9.2) |
(8.3) |
(6.9) |
(1.2) |
(21.4) |
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| Adjusted net assets/(liabilities) |
345.4 |
140.6 |
89.9 |
43.5 |
21.9 |
(0.1) |
49.6 |
| Deferred tax liabilities |
(55.7) |
(11.8) |
(42.0) |
(0.1) |
(1.8) |
- |
- |
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| Statutory net assets/liabilities) |
289.7 |
128.8 |
47.9 |
43.4 |
20.1 |
(0.1) |
49.6 |
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*‘Other’ comprises non-property investments including investment in associates, corporate bonds and equity investments. Debt of £17.6 million on these investments is included in other liabilities.
Investment Property
The value of our portfolio at 30 June 2009 is £767.1 million compared to £798.8 million at 31 December 2008. The analysis of the net decrease is shown below: |
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Group
£m |
UK
£m |
France
£m |
Germany
£m |
Sweden
£m |
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| Opening assets |
798.8 |
323.2 |
223.4 |
201.4 |
50.8 |
| Redevelopment |
15.2 |
0.7 |
1.3 |
12.1 |
1.1 |
| Revaluation movements |
5.1 |
20.8 |
(7.5) |
(6.6) |
(1.6) |
| Rent free period adjustment |
(0.4) |
- |
- |
(0.5) |
0.1 |
| Foreign exchange movements |
(51.6) |
- |
(24.2) |
(22.3) |
(5.1) |
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| Closing assets |
767.1 |
344.7 |
193.0 |
184.1 |
45.3 |
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100% |
45% |
25% |
24% |
6% |
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The majority of redevelopment costs were incurred in Germany in respect of the Bochum and Landshut developments, both of which have been completed on time and on budget. Costs in the UK, France and Sweden were fit out costs for new tenants.
Debt Structure
Net debt amounted to £456.9 million (31 December 2008: £406.3 million) comprising: |
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June 2009
£m |
Dec 2008
£m |
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| Fixed rate debt |
297.3 |
346.3 |
| Floating rate debt |
264.8 |
255.3 |
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562.1 |
601.6 |
| Cash |
(105.2) |
(195.3) |
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| Net debt |
456.9 |
406.3 |
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The debt maturity is set out below: |
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June 2009
£m |
Dec 2008
£m |
|
| Under 1 year |
74.6 |
73.3 |
| 1 to 5 years |
283.2 |
261.8 |
| Over 5 years |
207.2 |
270.1 |
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| Gross interest-bearing debt |
565.0 |
605.2 |
| Arrangement fees |
(2.9) |
(3.6) |
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| Total |
562.1 |
601.6 |
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The strengthening of GBP against the Euro and SEK during the period resulted in a £36.7 million reduction in the GBP value of our foreign denominated debt. Amortisations and scheduled repayments reduced debt by a further £15.4 million and a further £2.0 million was repaid in relation to agreed potential LTV covenant breaches. New loans drawn down to finance our development programme in Bochum and Landshut in Germany amounted to £14.0 million.
Cash and cash equivalents are £105.2 million compared with £195.3 million at 31 December 2008, reflecting the January tender offer buy-back of £48.0 million, loan repayments as detailed above of £17.4 million, and net corporate bond purchases of £17.2 million. Foreign exchange translation losses on our Euro and SEK denominated cash balances further reduced the Sterling equivalent by £11.0 million, reversing the substantial gains made to December 2008. The Group remains cash positive at the operating level.
Interest-bearing debt amounted to £565.0 million at 30 June 2009 (31 December 2008: £605.2 million).
We regard the corporate bonds, purchased primarily to increase investment returns on deposits, as relatively liquid and readily tradeable on the relevant bond markets. The carrying value of these investments, which is also the market value, is £31.0 million, and if these were taken into account for the purposes of calculating net debt and adjusted gearing, we would be showing figures of £425.9 million and 124.2 per cent respectively. Statutory gearing would show 148.0 per cent, a 10.7 percentage point decrease on the announced figure.
Purchase of own shares
At the 2009 Annual General Meeting, the Company was authorised to make market purchases of up to 4,802,425 ordinary shares. The Company did not purchase any of its own shares during the period, other than those previously reported in our Annual Report and Accounts for the year ended 31 December 2008. The tender offer buy-back made by way of a Circular dated 1 December 2008, for the purchase of every 2 in 9 shares at 350 pence per share was completed in January 2009, and 13,721,215 ordinary shares were purchased by the Company, all of which were subsequently cancelled. The total amount distributed was £48,024,253.
At 30 June 2009 there were 48,024,256 ordinary shares in circulation (31 December 2008: 61,745,471) and 5,000,000 held as treasury shares (31 December 2008: 5,000,000). There were no options outstanding at 30 June 2009 (31 December 2008: nil).
Due to the tender offer buy-back completed in January 2009, and in order to retain the positive cash position of the Company, there is no current intention to make further distributions by way of Tender Offer buy-backs during the current financial year.
Related party transactions
No related party transactions have taken place in the first half of 2009 that have materially affected the financial position or the performance of the Group during the period.
Risks and Uncertainties
There are a number of potential risks and uncertainties which could have a material impact on the Group’s performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. Management and mitigation of these risks is the responsibility of the Board. |
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| Risk |
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Mitigation |
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| Property investment risks |
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Underperformance of investment portfolio impacting on financial performance due to:
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cyclical downturn in property market and/or inappropriate buy/sell/hold decisions |
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The senior management team has detailed knowledge of core markets and experience gained through many market cycles. This experience is supplemented by external advisors and financial models used in the capital allocation decision. |
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changes in supply and/or tenant demand affecting rents and vacancies |
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The Group’s property portfolio is diversified across four countries. Average time remaining on current leases is 8.5 years (31 Dec 08: 8.1 years), and the Group’s largest tenant concentration is with the Government sector, comprising 38.6 per cent (31 Dec 08: 39.8 per cent). The largest single non-government tenant represents 5.3 per cent (31 Dec 08: 3.1 per cent) of gross rent and is a major international bank. |
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| – poor asset management |
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Property teams review the current status of all properties bi-weekly and provide a written report to senior management on KPIs including vacancies, lease expiry profiles and progress on rent reviews which are actively managed to mitigate risk. |
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| Funding risks |
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| The risk that financing or re-financing will not be obtained at an acceptable price |
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The Group has a dedicated Treasury department and relationships are maintained with approximately 20 banks across the countries in which we operate, reducing credit risk and increasing opportunities to obtain the best deal. The Group’s exposure to changes in prevailing market rates is largely hedged on existing debt, but there is an exposure on re-financing of existing debt, mitigated by the lack of concentration in maturities. For new property acquisitions the current and expected future cost of debt is considered in the initial decision to buy. |
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| Foreign currency exposure |
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Property investments are financed in matching currency. The difference between the value of the property and the amount of the financing is generally un-hedged, but is monitored on an ongoing basis. |
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| Taxation risks |
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| The risk that there will be increases in tax rates and changes to the basis of taxation including corporation tax, VAT and stamp duty land tax. |
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The Group monitors legislative proposals and both retains and consults external advisors as required to understand and if possible mitigate the effects of any such changes. |
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BOARD CHANGES
It was announced in our Annual Report and Accounts for the year ended 31 December 2008 that the Board would seek to appoint a further independent Non-Executive Director. The Board continues its search for such a suitable candidate.
CONCLUSION
We consider that the value of our London properties have now bottomed out and that the cash flow from these will remain stable. In France and Germany values could continue to fall in the second half of 2009, but we believe that the strong cash flow in those countries will again prove resilient to market conditions. In Sweden, the new lettings should stabilise the valuations and cash flow will be substantially improved.
There are also encouraging signs that Wyatt Media Group will continue to increase revenues and its contribution to the Group’s profitability.
With regard to our bond portfolio, the evidence to date suggests that none of the companies within which we have invested will default on either coupon payments or principal sums. Although most of the short-term value appreciation has probably now been realised, we are hopeful that further increases in value will be evident over the medium term. Regardless of capital appreciation, these investments generate a very attractive return on the cash invested.
As we have seen over the course of the last 12 months, it remains difficult to predict the future with any certainty, but with careful management, focus on the fundamental business principles of tight cash management and careful control of costs, allied to the ability to move quickly when good opportunities present themselves, the risks and uncertainties can be mitigated to a large extent. However, until real stabilisation of the global economy is evident, the outlook can change rapidly and in ways that are difficult to foresee. |
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Sten Mortstedt
Executive Chairman
25 August 2009 |
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