.
25 August 2009
CLS Holdings plc
(`CLS', the `Company' or the `Group')
Half Yearly Financial Report 2009
For the six month period ended 30 June 2009
HIGHLIGHTS
* Adjusted Net Asset Value per share* 719.2 pence, up 11.1 per cent from
647.2 pence at 31 December 2008 (Statutory NAV per share 603.2 pence, up
10.0 per cent from 548.4 pence at 31 December 2008).
* Property portfolio valued at £767.1 million, down 4.0 per cent from £798.8
million at December after taking into account a revaluation uplift of £5.1
million, redevelopment expenditure of £15.2 million and negative foreign
exchange movements of £51.6 million.
* Borrowings £562.1 million down by 6.6 per cent from £601.6 million at 31
December 2008 following amortisations and repayments of £17.4 million,
foreign exchange gains of £36.7 million and new loans drawn down of £14.0
million.
* Foreign currency net translation losses of £16.4 million (31 December 2008:
net gains of £40.5 million) recognised in reserves.
* Period end cash £105.2 million down by 46.1 per cent from £195.3 million at
31 December 2008 after returning £48.0 million to shareholders in January
by way of tender offer buy-back, loan repayments, purchase of corporate
bonds and negative foreign exchange movements.
* Available for sale assets £34.6 million including corporate bonds valued at
£31.0 million and other assets of £3.6 million (31 December 2008: £14.3
million including corporate bonds £10.8 million and other assets £3.5
million).
* Adjusted gearing* 133.1 per cent compared to 102.6 per cent at 31 December
2008 (Statutory gearing was 158.7 per cent compared to 121.1 per cent at
year end).
* Net rental income £27.8 million, down 18.7 per cent from £34.2 million for
six months to 30 June 2008, following disposals made in the first half of
2008.
* Overheads £5.8 million, down 38.1 per cent from £9.4 millionfor the six
months ended 30 June 2008 following extensive cost-cutting programme and
reduced headcount.
* Underlying profit* £15.3 million up 25.4 per cent from £12.2 million for
the six months ended 30 June 2008.
* Profitbefore tax£13.2million,(six months to 30 June 2008: loss £24.6
million).
* Profitafter tax attributable to equity shareholders £10.4million (six
months to 30 June 2008: £1.0 million).
* Interest cover (including foreign exchange losses) 1.4 times down from 1.7
times at 30 June 2008.
* Interest cover (excluding foreign exchange losses) 2.8 times up from 1.5
times at 30 June 2008
* see glossary of terms on page 20
Results at a glance
30 Jun 30 Jun Up /
09 08 (Down)
6 months 6 months
£m £m
INCOME STATEMENT (NON STATUTORY FORMAT)
Net rental income 27.8 34.2 (18.7%)
Other income 2.0 2.5 (20.0%)
Operating expenses (7.6) (11.0) (30.9%)
Net finance costs (9.9) (19.6) (49.5%)
Fair value gains on financial instruments 5.4 6.2 (12.9%)
Share of loss of associates (2.4) (0.1) -
Underlying profit * 15.3 12.2 25.4%
Fair value gain/(loss) on investment 5.1 (26.6) -
properties
Foreign exchange (losses)/gains (10.0) 1.4 -
Negative goodwill on acquisitions of 2.8 - -
associates
Gains on sale of investment properties and - 0.5 -
subsidiaries
Non-recurring finance costs incurred on sales - (0.3) -
Non-recurring costs - (1.8) -
Impairment of intangibles - (10.0) -
Profit/(loss) before tax 13.2 (24.6) -
Tax - current (2.5) (2.0) 25.0%
Tax - deferred (0.3) 27.7 -
Profit for the period 10.4 1.1 845.5%
Minority interest - (0.1) -
Profit for the period attributable to equity 10.4 1.0 -
holders
Adjusted earnings per share* 11.4 p 0.0 p
Earnings per share * 21.5 p 1.6 p
Interest cover * (including foreign exchange 1.4 1.7
losses) times times
Interest cover * (excluding foreign exchange 2.8 1.5
losses) times times
30 Jun 31 Dec Up /
09 08
£m £m (Down)
BALANCE SHEET (NON STATUTORY FORMAT)
Investment properties 767.1 798.8 (4.0%)
Borrowings (562.1) (601.6) (6.6%)
Cash 105.2 195.3 (46.1%)
Corporate bonds 31.0 10.8 187.0%
Other net assets (including associates) 4.2 (3.7) 213.5%
Adjusted net assets 345.4 399.6 (13.6%)
Deferred tax (55.7) (61.0) (8.7%)
Statutory net assets 289.7 338.6 (14.4%)
Share capital 13.3 16.7 (20.4%)
Reserves 276.4 321.9 (14.1%)
Shareholders' funds 289.7 338.6 (14.4%)
Adjusted NAV per share * 719.2 p 647.2 p 11.1%
Statutory NAV per share * 603.2 p 548.4 p 10.0%
Adjusted gearing * 133.1% 102.6% 30.5%
Statutory gearing * 158.7% 121.1% 37.6%
Adjusted solidity * 36.0% 37.6% (1.6%)
Statutory solidity * 29.8% 31.5% (1.7%)
Shares in issue (000's) - excl. treasury 48,024 61,745 (22.2%)
shares
Weighted average shares in issue (000's) 48,482 67,265 (27.9%)
* see glossary of terms on page 20.
Interim management report
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.
Financial review
Income Statement (non-statutory format)
Results by location Total UK France Germany Sweden Wyatt Other June
Group
2008
6 months to June 2009 £m £m £m £m £m £m £m £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) 5.4 6.1 (0.1) (0.6) - - - 6.2
on financial instruments
Share of (loss)/profit of (2.4) - - - 0.9 - (3.3) (0.1)
associates
Underlying profit * 15.3 7.6 4.5 1.8 1.9 (0.1) (0.4) 12.2
Fair value gain/(loss) on 5.1 20.8 (7.5) (6.6) (1.6) - -
investment properties (26.6)
Foreign exchange (losses) (10.0) (5.6) (2.6) - - - (1.8) 1.4
/gains
Negative goodwill on 2.8 - - - - - 2.8 -
acquisition of associates
Gain on sale of - - - - - - - 0.5
investment properties,
subsidiaries and joint
venture
Non-recurring finance - - - - - - - (0.3)
costs on sales
Non-recurring costs - - - - - - - (1.8)
Impairment of intangibles - - - - - - - (10.0)
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
Profit/(loss) for the 10.4 19.1 (6.2) (4.5) 1.8 (0.4) 0.6 1.1
period
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.
Balance Sheet (non-statutory format)
Total UK France Germany Sweden Wyatt Other*
Group
June 2009 £m £m £m £m £m £m £m
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) - -
Equity in property 222.6 82.8 78.1 43.0 18.7 - -
assets
Equity in Property as 29% 24% 40% 23% 41% - -
% of Valuation
Cash 105.2 73.6 16.6 6.4 8.9 0.1 (0.4)
Corporate bonds 31.0 - - - - - 31.0
Other assets 55.0 5.6 4.4 2.4 1.2 1.0 40.4
(including
associates)
Other liabilities (68.4) (21.4) (9.2) (8.3) (6.9) (1.2) (21.4)
Adjusted net assets/ 345.4 140.6 89.9 43.5 21.9 (0.1) 49.6
(liabilities)
Deferred tax (55.7) (11.8) (42.0) (0.1) (1.8) - -
liabilities
Statutory net assets/ 289.7 128.8 47.9 43.4 20.1 (0.1) 49.6
liabilities)
*'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:
Group UK France Germany Sweden
£m £m £m £m £m
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 (0.4) - - (0.5) 0.1
adjustment
Foreign exchange (51.6) - (24.2) (22.3) (5.1)
movements
Closing assets 767.1 100% 344.7 45% 193.0 25% 184.1 24% 45.3 6%
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:
June Dec
2009 2008
£m £m
Fixed rate debt 297.3 346.3
Floating rate debt 264.8 255.3
562.1 601.6
Cash (105.2) (195.3)
Net debt 456.9 406.3
The debt maturity is set out below:
June Dec
2009 2008
£m £m
Under 1 year 74.6 73.3
1 to 5 years 283.2 261.8
Over 5 years 207.2 270.1
Gross interest-bearing debt 565.0 605.2
Arrangement fees (2.9) (3.6)
Total 562.1 601.6
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.
Risk: Mitigation:
Property investment risks
Underperformance of investment The senior management team has detailed
portfolio impacting on financial knowledge of core markets and experience
performance due to: gained through many market cycles. This
experience is supplemented by external
* cyclical downturn in advisors and financial models used in the
property market capital allocation decision.
and/or inappropriate buy/sell/
hold decisions
* changes in supply and/or The Group's property portfolio is
tenant demand affecting diversified across four countries.
rents and vacancies 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.
* poor asset management 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.
Funding risks
The risk that financing or The Group has a dedicated Treasury
re-financing will not be department and relationships are
obtained at an acceptable price 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.
Foreign currency exposure 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.
Taxation risks
The risk that there will be The Group monitors legislative proposals
increases in tax rates and and both retains and consults external
changes to the basis of taxation advisors as required to understand and if
including corporation tax, VAT possible mitigate the effects of any such
and stamp duty land tax. changes.
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.
Sten Mortstedt
Executive Chairman
25 August 2009
Responsibility statement
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared in accordance
with IAS 34 `Interim Financial Reporting';
(b) the interim management report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the first six
months and description of principal risks and uncertainties for the remaining
six months of the year); and
(c) the interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related party transactions and changes
therein).
On behalf of the Board
Sten Mortstedt Henry Klotz
Executive Chairman Chief Executive Officer
Condensed consolidated income statement 6 months 6 months Year
ended ended ended
Six months ended 30 June 2009 30-Jun-09 30-Jun-08 31-Dec-08
£000 £000 £000
(un-audited) (un-audited) (audited)
Continuing operations :
Revenue 35,219 43,034 77,994
Rental and similar revenue 29,067 35,235 63,062
Service charge and similar revenue 4,286 6,105 11,291
Service charge expense and similar charges (5,525) (7,171) (13,055)
Net rental income 27,828 34,169 61,298
Net income from non-property activities 1,866 1,694 3,641
Other operating income/(expense) 117 836 (1,026)
Administrative expenses (5,834) (9,432) (16,066)
Net property expenses (1,846) (1,639) (3,649)
Operating profit before revaluation movements 22,131 25,628 44,198
on investment properties, impairment of
intangibles and goodwill and (loss)/profit on
disposal of subsidiaries and investment
properties
Net movements from fair value adjustment on 5,158 (26,618) (103,393)
investment property
Impairment of intangible fixed assets and - (10,000) (21,985)
goodwill
Loss on disposal of subsidiaries (21) (5,923) (16,161)
Profit from sale of investment properties - 6,399 7,009
Operating profit/(loss) 27,268 (514) (90,332)
Finance income 3,012 5,413 20,572
Finance costs (17,513) (17,602) (63,636)
Other non-recurring costs - (1,800) (1,288)
Share of profit/(loss) of associates after 425 (57) (7,470)
tax
Profit/(loss) before tax 13,192 (24,560) (142,154)
Taxation - current (2,517) (2,021) (3,610)
Taxation - deferred (296) 27,658 67,717
Tax (charge)/credit (2,813) 25,637 64,107
Profit/(loss)for the period 10,379 1,077 (78,047)
Attributable to equity holders of the parent 10,379 1,147 (78,175)
Attributable to minority interests - (70) 128
10,379 1,077 (78,047)
Earnings per share for profit attributable to
the equity holders of the Company during the
period (expressed in pence per share)
Basic 21.4p 1.6p (120.7)p
Diluted 21.4p 1.6p (120.7)p
There were no discontinued operations in any of the periods shown above.
Condensed consolidated statement of comprehensive income
Six months ended 30 June 2009
6 months 6 months Year
ended ended ended
30-Jun-09 30-Jun-08 31-Dec-08
£000 £000 £000
(un-audited) (un-audited) (audited)
Profit/(loss) for the period 10,379 1,077 (78,047)
Foreign exchange translation differences (16,356) 15,190 40,501
Fair value gains /(losses) on corporate 6,028 (2,024) (3,299)
bonds and other investments
Fair value (losses )/gains on cash-flow (14) 84 (74)
hedges
Net (loss)/gain recognised directly in (10,342) 13,250 37,128
equity
Total comprehensive income/(loss) for the 37 14,327 (40,919)
period
Attributable to :
Equity shareholders 37 14,397 (41,047)
Minority interests - (70) 128
Total comprehensive income/(loss) for the 37 14,327 (40,919)
period
Condensed consolidated balance sheet 30-Jun-09 30-Jun-08 31-Dec-08
as at 30 June 2009 £000 £000 £000
(un-audited) (un-audited) (audited)
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