2005 CLS HOLDINGS PLC INTRODUCTION The business has continued to - PDF document

Interim Report 2005 CLS HOLDINGS PLC

INTRODUCTION The business has continued to generate profitable growth showing a healthy increase in the value of its property assets in each of its markets comprising the UK, Sweden and Continental Europe. This is the first time that the results of CLS have been reported under International Financial Reporting Standards (“IFRS”). Although this has resulted in a change in the presentation of the Group’s results, its underlying strategy, direction and resultant cash flows remain unchanged. The primary focus of our attention and resources is on the efficient management of and investment in property assets in order to enhance value. We continue to believe that the primary indicator of our performance is net asset value per share as adjusted to exclude the provision for deferred taxation. We consider it very unlikely that the maximum deferred tax liability that we are obliged to report under IFRS will ever crystallise as the provision takes no account of the way in which the Group would intend to sell its properties and does not allow for the deduction of indexation relief which is available on the disposal of UK properties. .03 Chairman’s Statement Unaudited Consolidated Income Statement .14 Unaudited Consolidated Balance Sheet .15 .16 Unaudited Consolidated Statement of Changes in Equity .17 Unaudited Consolidated Cash Flow Statement .18 Independent Review Report to CLS Holdings plc Notes to the Interim Financial Report .19 Directors, Officers and Advisers .32

FINANCIAL HIGHLIGHTS • Adjusted NAV per share* of 551.2 pence, up 5.7 per cent (Statutory NAV per share of 403.8 pence, up 4.9 per cent) – adverse foreign exchange translation impact on adjusted NAV per share was 22.0 pence. • Profit before tax (including property valuation uplift) £38.8 million, up 110.9 per cent. • Intended distribution for the interim period to 30 June 2005 of £7.0 million by way of tender offer buy-back on the basis of 1 for 60 at 510 pence per share, representing a distribution of 8.5 pence per share, an increase of 13.3 per cent. • Property portfolio (including share of JVs) valued at £1.05 billion, up 2.6 per cent. • Net rental income £34.0 million, up 5.6 per cent. • Annualised added value to shareholders 16.0 per cent, up 7.2 per cent, based on increase in adjusted NAV per share and distributions in the year (15.8 per cent added value based on statutory NAV up 7.2 per cent). • Cash £54.2 million, down 5.6 per cent on year end position. BUSINESS HIGHLIGHTS • Successful completion of our major refurbishment of Fräsaren 12 at Solna and the occupation by ICA Maxi supermarket in May 2005 and ICA headquarter offices in August 2005, in all 24,000 sq.m (259,400 sq.ft). • An additional property , Yrket 3, bought at Solna Business Park, Stockholm for £5.3 million (SEK 70.0 million) giving a return on equity of 18.4 per cent after financing. • Office property purchased at 23 rue Raspail, Ivry-sur-Seine, Paris for £8.1 million ( c 11.6 million) giving a return on equity of 40.7 per cent. • Planning permission granted for an extensive £11.5 million refurbishment at Great West House, Brentford. • Further letting success in the UK, at Solna in Sweden and in France. .01

KEY STATISTICS AND OTHER FINANCIAL INFORMATION 30 June 30 June 2005 2004 INCOME STATEMENT Adjusted earnings per share* † 8.2p 9.7p Down 15.5% Earnings per share 15.7p Up 115.3% 33.8p Net rental income £34.0m £32.2m Up 5.6% Operating profit (excluding fair value gains on investment property) £24.6m Up 6.1% £26.1m Fair value gains on investment property £31.5m £10.4m Up 202.9% Net interest payable £16.6m Up 12.0% £18.6m Underlying profit before tax (excluding fair value gains on investment property) £8.0m Down 8.8% £7.3m Profit before taxation £38.8m £18.4m Up 110.9% Profit for the period £13.7m Up 105.8% £28.2m 30 June 31 Dec 2005 2004 BALANCE SHEET Adjusted NAV per share* 521.3p Up 5.7% 551.2p Statutory NAV per share 403.8p 385.1p Up 4.9% Distribution per share from tender offer buy-backs 7.5p Up 13.3% 8.5p Property portfolio £1,048.9m £1,022.5m Up 2.6% Net asset value £323.0m Up 2.3% £330.4m Cash £54.2m £57.4m Down 5.6% Adjusted gearing* 134.1% Up 0.3% 134.4% Statutory gearing 183.5% 181.5% Up 2.0% Adjusted solidity* 39.0% Up 0.2% 39.2% Statutory solidity (net assets as a ratio of gross assets) 28.3% 28.4% Down 0.1% Shares in issue (000’s) – excluding treasury shares 83,853 Down 2.4% 81,822 IAS 32 fair value on fixed loans adjustment after tax 33.1p 27.8p Up 19.1% * IAS12 requires that a deferred tax provision be made in respect of the potential gain that would arise if properties were to be sold at valuation and for the potential clawback of UK capital allowances to the extent that these amounts are not covered by available tax losses. The calculation of this deferred tax liability has been carried out on the basis that the revaluation gains on the properties will be realised through receipt of net rents for the properties owned. As such the amount provided represents the maximum potential tax liability. Your Board considers it unlikely that this theoretical liability will ever crystallise because it takes no account of the way in which the Group would realise these gains. In particular as further explained in the note on page 6 the deferred tax provision takes no account of the way in which properties are expected to be sold, of the indexation allowance available when calculating a taxable capital gain in the UK or of elections available to ensure that deductions claimed previously for capital allowances are not reversed. The Board has complied with pronouncements from the APB and the UK Listing Authority in showing NAV and Earnings per share including the IAS 12 provision with equal prominence as the adjusted figures. The effect of IAS 12 has been excluded from those statistics that are indicated by an asterisk. At 30 June 2005 the IAS 12 deferred tax charge included in the income statement was £10.2 million and the cumulative reduction to net assets was £120.6 million (31 December 2004: charge to tax of £16.0 million and £114.1 million respectively). The accounting policies of the Group are as set out in the Group’s IFRS Transition Report for the year ended 31 December 2004 with the exception of the application of IAS32 and IAS39. † In line with UK property industry practice adjusted earnings per share does not include gains on revaluations and deferred taxation. .02

CHAIRMAN’S STATEMENT The Group has again produced a solid performance with adjusted NAV per share of 551.2 pence, up 29.9 pence since 31 December 2004 (Statutory NAV per share 403.8 pence, up 18.7 pence per share). The net assets include the effect of notional adverse foreign exchange translation losses of 22.0 pence per share arising on the consolidation of the equity in our Swedish and Continental European operations based in local currency. The property portfolio has shown a further increase in value in each of our three main markets amounting to £31.5 million in the six months to 30 June 2005. For the first time this year, under IFRS, the gain in property valuation has been included within Profit before tax which has amounted to £38.8 million, showing an increase over the corresponding period last year of 110.9 per cent, mainly due to the increase in fair value of properties. In order to better understand the underlying elements of the Group’s performance the movement in its net assets are set out in the table below: £m OPENING ASSETS Net assets at 31 December 2004 (UK GAAP) 426.4 Additional IFRS deferred tax provision (107.4) Other IFRS adjustments 4.0 Net assets as restated for IFRS at 31 December 2004 323.0 Adjustment for IAS 39 – fair value financial instruments 8.1 Net assets as restated for IFRS at 1 January 2005 331.1 PROFIT Property trading profit before tax 8.2 Fair value gains on investment properties 31.5 Losses in respect of cable companies (2.4) Gain on sale of equity investment 1.5 Profit before tax 38.8 Current tax (0.5) Deferred tax (10.2) Profit after tax 28.1 OTHER EQUITY MOVEMENTS Tender offer buy-back and market purchases and share issues (10.0) Foreign exchange translation deficit (12.2) Fair value adjustment in respect of non-property assets (6.6) CLOSING ASSETS 30 JUNE 2005 330.4 The annualised return on market capitalisation of the Company (£348.4 million at 31 December 2004) was 14.9 per cent (30 June 2004: 13.9 per cent) based on the aggregation of the May 2005 distribution to shareholders, retained profits less adverse foreign exchange translation movements. Our shares are currently trading at a discount to adjusted NAV per share of 14.9 per cent, based on a share price of 469 pence. In November we intend to make a further distribution to shareholders of £7.0 million under a proposed tender offer buy-back equivalent in cash terms to an interim net dividend of 8.5 pence per share, an increase of 13.3 per cent over the previous interim distribution. There has been growth in value across the portfolio in the UK, Sweden and Continental Europe, the total value of which is £1.05 billion including our interests in joint ventures at London Bridge Tower and New London Bridge House. .03