CLS Holdings Regulatory News (CLI)

CLS Holdings plc

("CLS", the "Company" or the "Group")

announces its Half-Yearly Financial Report

for the 6 months to 30 June 2018

Delivering robust and disciplined growth

CLS is a FTSE 250 property investment company with a £1.9bn portfolio in the UK, Germany and France offering geographical diversification with local presence and knowledge.

FINANCIAL HIGHLIGHTS

· EPRA net asset value: up 3.0% to 294.7 pence (31 December 2017: 286.0 pence)

· Basic net asset value: up 3.3% to 260.2 pence (31 December 2017: 252.0 pence)

· EPRA earnings per share up 15.1% to 6.1 pence (30 June 2017: 5.3 pence)

· Basic earnings per share of 14.9 pence (30 June 2017: 24.5 pence including Vauxhall Square sale)

· Profit before tax down to £64.9 million (30 June 2017: £119.4m including Vauxhall Square sale)

· Contracted rents rose by 2.2% to £106.1 million (31 December 2017: £103.8 million)

· Interim dividend of 2.20 pence per share to be paid on 28 September 2018, an uplift of 7.3% (30 June 2017: 2.05 pence per share)

OPERATIONAL HIGHLIGHTS

Investment Property Portfolio:

· Net rental income increased by 8.7% to £55.0 million (30 June 2017: £50.6 million)

· Valuation gains across all regions up 1.6% (1.7% in local currency)

· Proceeds of £26.2 million on disposal of 4 properties in the UK and 1 in Germany

· Acquired properties for £69.3 million in the UK and France with an average net initial yield of 5.8%

· Completed 85 lease events securing rental income of £7.1 million

· Vacancy rate reduced to 5.7% (31 December 2017: 5.8%)

Financing:

· Further reduced the weighted average cost of debt at 31 July 2018 to 2.42% with the early redemption of a retail bond (31 December 2017: 2.51%)

· Financed or refinanced £111.6 million of debt including £91.6m fixed at 2.20%

· The loan portfolio as at 31 July 2018 had 79% at fixed rates (31 December 2017: 74%)

Henry Klotz, Executive Chairman of CLS, commented:

"The first six months of 2018 has seen CLS deliver a strong set of results underpinned by robust and disciplined growth. We have delivered on our strategy of refocusing our portfolio with acquisitions at attractive yields and the disposal of properties which no longer meet our return targets.

The strength of our results for the first six months of 2018 underlines the benefits of our geographical diversification across Europe's three largest economies: the UK, Germany and France. Over the period, the Group has produced underlying earnings and valuation gains across all regions in which we operate, which has resulted in solid growth in NAV.

We have locally established management teams and are well positioned to enhance and grow our business. With our proven strategy of owning and managing high-yielding office properties across our three core markets, and our progressive dividend policy, I am confident we will continue to deliver value for our shareholders."

Interim Dividend Timetable

-ends-

CLS will be presenting to analysts at 9.00am on Wednesday, 15 August 2018, at Liberum Capital, Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY

Conference call dial in numbers as follows:

Participant telephone number +44 (0)330 336 9127

Confirmation code 7669957

Please dial in at least 5 minutes prior to the start of the meeting and quote the above confirmation code when prompted.

For further information, please contact:

CLS Holdings plc

(LEI: 213800A357TKB2TD9U78)

www.clsholdings.com

Fredrik Widlund, Chief Executive Officer

John Whiteley, Chief Financial Officer

+44 (0)20 7582 7766

Liberum Capital Limited

Richard Crawley

Jamie Richards

+44 (0)20 3100 2222

Whitman Howard

Hugh Rich

+44 (0)20 7659 1261

Elm Square Advisers Limited

Jonathan Gray

+44 (0)20 7823 3695

Smithfield Consultants (Financial PR)Alex Simmons

+44 (0)20 3047 2476

Forward-looking statements

This document may contain certain 'forward-looking statements'. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from those expressed or implied by such forward-looking statements. Any forward-looking statements made by or on behalf of CLS speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. Except as required by its legal or statutory obligations, the Company does not undertake to update forward-looking statements to reflect any changes in its expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. Information contained in this document relating to the Company or its share price, or the yield on its shares, should not be relied upon as an indicator of future performance.

Chairman's statement

Continuing to refocus the business

Overview

With 32% of our property assets in Germany and 16% in France, the Group continues to be one of the few real estate companies listed in London with a significant exposure to these countries, two of Europe's largest economies, and the strength of the results for the first six months of 2018 underlines the benefits of this geographical diversification. In the first half of 2018 the Group produced solid underlying earnings and valuation gains across all of our regions, leading to a growth in NAV. We continued to refocus our portfolio, with selective, strategic acquisitions at attractive yields and the disposal of assets with limited upside. We further reduced our average cost of debt with the early redemption of a retail bond. Together these initiatives will translate into higher future core income and solid earnings growth.

Over the six months, EPRA NAV increased by 3.0% to 294.7 pence per share (31 December 2017: 286.0 pence) mainly through EPRA earnings and revaluation uplifts. We delivered 168,664 sq ft (15,669 sqm) of lettings, £69.3 million of acquisitions, £26.2 million of disposals, and the financing or refinancing of £111.6 million of bank loans. Total Property Return for the six months was 4.9% (2017: 6.5%), and total accounting return was 4.5% (2017: 11.0%).

Our business strategy is to invest in well-located office properties. The investment property portfolio is well-diversified with over 700 occupiers across three markets generating rental income well in excess of the Group's cost of debt. Approximately 28% of rents are paid by governments and 28% by major corporations, and 39% of rents are subject to indexation. In the UK, 42% of the rent roll is derived from central government departments. The balance sheet is strong, with significant levels of cash and liquid resources, and the Group is funded by 25 lenders across Europe.

Results and Financing

Profit after tax for the six months to 30 June 2018 was £60.8 million (2017: £100.0 million), corresponding to earnings per share of 14.9 pence (2017: 24.5 pence), including a revaluation uplift of the property portfolioof £31.2 million (2017: £48.7 million) and profits on disposals. Excluding these, EPRA earnings per share were 6.1 pence (2017: 5.3 pence), 15.1% ahead of last year.

Shareholders' funds rose in the six months by 3.3% to £1,060.1 million, net of dividends of £17.5 million paid to shareholders in April.

Interest cover remained high at 3.5 times (2017: 3.7 times), reflecting the Group's ability to generate cash. We financed 8 loans with a total principal amount of £111.6 million. On 31 July we redeemed our £65 million 5.5% unsecured retail bond, reducing our weighted average cost of debt to 2.42% (31 December 2017: 2.51%), the lowest yet recorded by the Group. At 30 June 2018, net debt (after liquid resources) as a proportion of property assets was 38.4% (31 December 2017: 36.9%).

Net debt rose to £765.1 million (31 December 2017: £706.2 million), reflecting net acquisitions in the period. Our liquid resources, comprising £183.5 million of cash and corporate bonds, demonstrate the strength of the balance sheet and our capacity to invest in the future.

Property Portfolio

By 30 June 2018, the value of the property portfolio of £1,885.2 million was £82.3 million higher than six months earlier. This was driven by net additions and capital expenditure of £53.2 million and the valuation uplift of £32.5 million, less a small foreign exchange movement.

We have continued our strategy to refocus our portfolio with the objective to increase income and earnings. We were close to acquiring a pan-German portfolio of five assets with a value of around £80 million but were unwilling to compromise on the rigour of our due diligence. In the UK we acquired two assets: in March we completed the acquisition of Harman House, Uxbridge for £51.3 million, and in April we bought 401 King Street, Hammersmith for £16.1 million.

Since the start of the year we have sold, or exchanged contracts to sell, eight peripheral assets, five in the six months to 30 June 2018 for £26.2 million and three on which we have subsequently exchanged contracts or completed for £20.6 million.

The changing nature of office occupation and the need for employers to offer attractive and flexible work space is accelerating and we have incorporated a more contemporary and co-working design in our recent refurbishments. This has been well received by our customers.

In the six months to June, the value of the investment property portfolio rose by 1.6% in sterling and by 1.7% in local currencies, principally driven by Germany. At 30 June 2018, the net initial yield of the portfolio was 5.25% (31 December 2017: 5.21%), almost 300 bps above the Group's cost of debt, underpinning the Group's ability to generate cash.

Overall, the vacancy rate at 30 June 2018 was 5.7%, marginally down on six months earlier (31 December 2017: 5.8%), with the rate in France falling to 3.5% (31 December 2017: 4.4%) and the rest of the portfolio unchanged despite significant volumes of transactions.

Both of our developments, Spring Mews Phase 2, Vauxhall and Ateliers Victoires, Paris, will reach practical completion in the third quarter.

Dividends

In April the Group paid a final dividend for 2017 of 4.30 pence per share and, in September, will pay an interim for 2018 of 2.20 pence per share, an increase over 2017 of 7.3%.

Outlook

We continue to seek well-located properties with good asset management opportunities, particularly in Germany and the South East of the UK, where we believe the better opportunities lie. This reinvestment of funds into properties yielding well in excess of our cost of debt will enhance earnings and the prospects for dividend growth, and it supports the Group's ability to generate cash.

The performance of the UK market is likely to be somewhat subdued in the period leading up to at least Spring 2019 as businesses take a "wait and see" approach to the impact of Brexit, and we continue to keep a close eye on any market changes. Increased trade tensions remain a threat to global growth, but the German and French property markets benefit from strong domestic demand and a limited supply of new offices.

We have local, well-established management teams and a strong balance sheet and, therefore, we are well positioned to enhance and grow our business by investing in the right properties and markets. With a strategy of geographical diversification in the UK, Germany and France, I am confident we will continue to deliver value for our shareholders.

Henry Klotz

Executive Chairman

15 August 2018

Business review

United Kingdom

Repositioning for long-term income growth

The valuation of the UK portfolio rose by 0.1%, which is a blend of the effect of the very different characteristics of our portfolios in London and the rest of the UK. In London, values rose by 0.5% when the effect of developments and acquisitions is excluded, which was a reflection of a marginal increase in like-for-like contracted rent; yields rose a little as rent frees expired. In the rest of the UK, the effect of the 14 lease agreements with the Secretary of State which took effect on 1 April was the main driver in the reduction of like-for-like contracted rent, but was compensated by a hardening of yields, and the overall net effect on valuation was a fall of 2.2% at 30 June 2018. Overall in the UK, like-for-like contracted rent fell by 0.2%, whilst the weighted average UK yields were broadly unchanged.

We have been successful in acquiring two investments in London with strong potential. In March, we bought Harman House, a 129,000 sq ft office building adjacent to Uxbridge underground station, for £51.3 million, representing a net initial yield of 6.9%, and with a potential to raise to 7.1% as we capture market rentsat rent review. 401 King Street, Hammersmith was acquired in April for £16.1 million including costs. This 24,566 sq ft office is expected to generate 5.9% when all leases revert to market rents, and significantly more after a refurbishment planned for the third floor.

We have continued to reposition the portfolio, selling assets which were either low yielding with limited potential, or provided an unfavourable balance of risks to rewards, or were too small to have a meaningful impact on the Group. Four UK properties were sold in the six months to 30 June 2018, in Peterborough, St Asaph, Datchet and Birmingham, generating proceeds of £20.1 million, and since 1 July we have exchanged contracts to sell a further two, in Chertsey and Notting Hill, for £18.2 million.

The first half of 2018 was a busy period of asset management in which 62,129 sq ft (5,772 sqm) of space expired in the UK and 59,234 sq ft (5,503 sqm) was let, and the vacancy rate in the UK remained unchanged in the six months at 5.3%, based on rental values. On average, new lettings and rent reviews (excluding indexation uplifts) were achieved at 6.3% above ervs of 31 December 2017. Occupational demand within the London investment portfolio has remained encouraging overall, albeit there are localised examples of space not being taken up as quickly as a year ago.

Phase 2 of Spring Mews, SE11, an £8.6 million, 7-storey development of 9,181 sq ft (853 sqm) of offices plus student accommodation will reach practical completion in August, ready for the new student year.

Germany

Actively looking to invest in major cities

The value of the German portfolio increased by £25.9 million or 4.6% in local currency, driven by a 1.5% increase in like-for-like contracted rent, and a 9 basis point hardening of yields, whilst ervs on a like-for-like basis rose by 1.3% in the six months.

We continue to see good value in selective opportunities in Germany, but the competition in the investment market continues to strengthen, and despite coming close on a couple of potential acquisitions we did not buy any new investments in the first half of the year. In March, we sold a mixed industrial/office asset at Merkurring, near Hamburg, for £6.1 million on which the risk/reward was unfavourably balanced.

There were more lettings in Germany in the six months than expiries, and they were achieved at an average of 8.3% above ervs of 31 December 2017. Whilst 81,235 sq ft (7,547 sqm) of space expired or vacated, 88,904 sq ft (8,259 sqm) renewed or was let. Had the fully let property at Merkurring not been sold, the vacancy rate in Germany would, therefore, have fallen to 7.0%, but lower vacancies in a smaller portfolio meant that it remained unchanged at 7.1%.

France

Delivering value from existing assets

The value of the French portfolio increased by £6.2 million or 2.1% in local currency. Excluding the uplift in the value of the development at Ateliers Victoires, the portfolio rose by 1.0%, primarily from an increase in like-for-like contracted rent of 1.5% as vacancies fell, whilst yields rose on the expiry on rent-free periods.

To consolidate our part ownership in Park Avenue in Lyon, we bought a further floor in the building for £1.1 million. This 7,244 sq ft (673 sqm) was unoccupied (we then let it) and 7,180 sq ft (667 sqm) of space expired in the six months to June. In total, 20,527 sq ft (1,907 sqm) was leased in the period, at an average of 3.8% above December 2017 ervs, and the vacancy rate consequently fell to 3.5% (31 December 2017: 4.4%).

In July we unconditionally exchanged contracts on the sale of a small property, 18 Rue Stephenson in Paris, for £2.5 million.

The development of Ateliers Victoires, our 21,500 sq ft (2,000 sqm) prime office scheme in central Paris close to the Louvre, will reach practical completion in August and terms have been agreed on a pre-letting of the entire building on a 7/9 year lease to a business services company.

Other investments

Generating returns from liquid resources

Other investments

The Group owns a 10.6% shareholding in Catena AB, a Stockholm-listed logistics real estate company. In the six months to 30 June 2018, we received from Catena a dividend of £1.6 million, and its share price rose by 12.4%, increasing the market value of the Group's stake to £58.8 million (31 December 2017: £55.9 million). In July the share price rose by a further 7.7%.

Strategically, we maintain liquid resources of over £100 million, and as part of our cash management strategy we invest part of the cash with banks and part in corporate bonds. The corporate bond portfolio was valued at £46.5 million at the end of June (31 December 2017: £65.5 million) and produced a negative return on investment of -1.2% in the six months to June, in line with the relevant benchmark indices.

Financial review

Results for the period

Headlines

Profit after tax attributable to the owners of the Company of £60.8 million (2017: £100.0 million) generated basic earnings per share of 14.9 pence (2017: 24.5 pence), and EPRA earnings per share of 6.1 pence (2017: 5.3 pence). Gross property assets at 30 June 2018 including those in property, plant and equipment and those held for sale, increased to £1,885.2 million (31 December 2017: £1,803.4 million) through net acquisitions and revaluation uplifts, net assets per share rose by 3.3% to 260.2 pence (31 December 2017: 252.0 pence) and EPRA net assets per share by 3.0% to 294.7 pence (31 December 2017: 286.0 pence). Total accounting return was 4.5% (2017: 11.0%).

Statement of Comprehensive Income

Rental income for the six months to 30 June 2018 of £49.9 million (2017: £45.3 million) was higher than last year by a net £4.6 million, or 10.2%, mainly because acquisitions, which added £6.8 million, far exceeded disposals, which lost only £2.7 million.

Operating profit of £76.3 million (2017: £125.7 million) included a net uplift on the revaluation of investment properties of £31.2 million (2017: £48.7 million), and a net £1.7 million (2017: £41.7 million) profit on sale of properties - last year included a large gain on the disposal of Vauxhall Square.

The fall in interest income to £4.6 million (2017: £5.6 million) reflected a lower average balance of corporate bond investments than in 2017. Finance costs of £16.0 million (2017: £11.2 million) contained £4.4 million of negative foreign exchange variances from translating monetary assets into sterling at the balance sheet date (2017: positive £0.2 million).

The tax charge of £4.6 million (2017: 20.4 million), which represents an effective rate of 7.1% (2017: 17.1%) is distorted by a fall in the rate of tax in France which has been applied to the deferred tax on the cumulative revaluation surplus of the French portfolio. Without this, the estimated weighted average tax rate of the Group for the period would have been 19.1%.

EPRA Net Assets Per Share

EPRA net assets per share rose from 286.0 pence to 294.7 pence in the six months to 30 June 2018, an increase of 8.7 pence per share, or 3.0%. The increase comprised 6.1 pence of EPRA earnings, from which a dividend of 4.3 pence was paid, a revaluation uplift of 7.4 pence, and a fall of 0.5 pence from other items.

Cash Flow, Net Debt and Gearing

Net cash flow from operating activities was £16.8 million (2017: £20.8 million). £33.5 million was raised from new loans, net of repayments, net proceeds from the sale of corporate bonds generated £14.2 million, and £26.2 million was received from property disposals. £76.9 million was spent on acquisitions and capital expenditure, £17.5 million was distributed to shareholders, and at 30 June 2018 the cash balance was less than £5 million different from its position six months earlier.

In the six months to 30 June 2018, gross borrowings rose by £33.2 million to £942.1 million (31 December 2017: £908.9 million), principally through financing the acquisition of Harman House. In total, £111.6 million of new debt was taken out at an average rate of interest of 2.08% and for an average of 5.9 years, and the Group's balance sheet loan to value at 30 June 2018 was 38.4% (31 December 2017: 36.9%). Interest cover for the six months to 30 June 2018 was 3.5 times (2017: 3.7 times).

On 31 July 2018, we redeemed 17 months early our £65.0 million 5.5% unsecured bonds due 2019 for £68.4 million plus accrued interest. This had been the most expensive debt left in the Group, and its redemption reduced the weighted average cost of debt from 2.65%, at the end of June 2018, to 2.42%, the lowest in the Group's history.

Debt profile at 31 July 2018

Sustainability

We are pleased to report a reduction of over 20% in CO2 emissions across our managed like-for-like assets in the first half of 2018. 6% of the reduction was through energy efficiency initiatives, on-site renewable installations and refurbishment projects delivering sustainable solutions. The rest of the fall was attributable to the decarbonisation of the UK grid where two thirds of our energy is consumed. Our water usage has fallen by 8%, and we have exceeded our target of 70% recycling across all our UK assets, with a ban on any waste going to landfill.

In the second half the year we shall be installing electric charging points at key assets and introducing smart energy reporting which will enable us to engage with our customers to help them identify savings in their own businesses.

Principal 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 the results for the year to differ materially from expected or historical results. The Directors considered that the principal risks and uncertainties which affected the Group at the time of the publication of the annual report for the year ended 31 December 2017 were those set out below. A detailed explanation of these risks and uncertainties can be found on pages 20 and 21 of the 2017 Annual Report, which is available at www.clsholdings.com:

· Underperformance of property investment portfolio due to:

- Cyclical downturn in property market

- Changes in supply of space and/or occupier demand

- Poor asset management

· Underperformance of corporate bond portfolio

· Increasing building regulation and obsolescence

· Increasing energy costs and regulation

· Unavailability of financing at acceptable prices

· Adverse interest rate movements

· Breach of borrowing covenants

· Foreign currency exposure

· Financial counterparty credit risk

· Impact of UK exit from the EU

· Failure to recruit suitable staff to accommodate investment expansion

· Failure to recruit, develop and retain staff and key executives with the right skills

· Large scale terrorist or cyber attack, environmental disaster or power shortage

Going concern

As stated in note 2 to the condensed group financial statements, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, being a period of not less than 12 months from the date of this Half-Yearly Financial Report. Accordingly, they continue to adopt the going concern basis in preparing the condensed group financial statements.

Responsibility statement

We confirm that to the best of our knowledge:

(a) the condensed set of financial statements, which has been prepared in accordance with IAS 34 'Interim Financial Reporting', gives a true and fair view of the assets, liabilities, financial position and profit of the Group, as required by DTR 4.2.4R;

(b) the Chairman's statement and business review include 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 Chairman's statement and business review include 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

Henry Klotz

Executive Chairman

15 August 2018

Independent review report to CLS Holdings plc

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprise the condensed group income statement, the condensed group statement of comprehensive income, the condensed group balance sheet, the condensed group statement of changes in equity, the condensed group statement of cash flows and related notes 1 to 15. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review 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, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Statutory Auditor

London, United Kingdom

15 August 2018

Financial statements

Condensed group income statement

for the six months ended 30 June 2018

Condensed group statement of comprehensive income

for the six months ended 30 June 2018

Condensed group balance sheet

at 30 June 2018

Condensed group statement of changes in equity

for the six months ended 30 June 2018

1  As a result of adopting IFRS 9 for the first time, previously recognised fair value movements have been transferred from other reserves to retained earnings in line with the disclosure made at the year end

Condensed group statement of cash flows

for the six months ended 30 June 2018

1 At 31 December 2017, the Group held, on behalf of a third party, cash of £5.5 million which was paid to the third party in January 2018. As the Group held no beneficial interest in this cash at the year end it has been excluded from the group statement of cash flows.

Notes to the condensed group financial statements

30 June 2018

1 Basis of preparation

The financial information contained in this Half-Yearly Financial Report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The results disclosed for the year ended 31 December 2017 are an abridged version of the full accounts for that year, which received an unqualified report from the Auditor, did not contain a statement under section 498(2) or (3) of the Companies Act 2006 or include a reference to any matter to which the Auditor drew attention by way of emphasis without qualifying the Auditor's report, and have been filed with the Registrar of Companies. The annual financial statements of CLS Holdings plc are prepared in accordance with IFRSs as adopted by the European Union. The condensed financial statements included in this Half-Yearly Financial Report have been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union.

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the latest audited annual financial statements, apart from a number of new standards and amendments to IFRSs which became effective for the financial year beginning on 1 January 2018. These new standards and amendments are listed below:

· IFRS 2 (amendments), Classification and measurement of share-based payment transactions

· IFRS 9 Financial Instruments

· IFRS 15 Revenue from Contracts with Customers

· IAS 40 (amendments) Transfers of Investment Property

· IFRIC 22 Foreign Currency Transactions and advance consideration

For the reasons set out on pages 94 and 95 of the latest audited annual financial statements, the adoption of these new standards and amendments to IFRSs did not materially impact the condensed set of financial statements for the six months ended 30 June 2018 except for a reclassification arising as a result of IFRS 9.

Listed equity securities (see note 11) are treated as available for sale assets and held at market value on the balance sheet. Under IAS 39, movements in fair value were recognised directly in equity through other comprehensive income. On derecognition or impairment of these assets, any gains previously recognised in equity were recycled to the income statement. Under IFRS 9, this accounting treatment has changed, and fair value movements are now recognised directly in the income statement. On transition to IFRS 9 this resulted in a material reclassification of the available for sale reserve to retained earnings. The amount reclassified on transition was £17.9 million.

2 Going concern

The directors regularly stress-test the business model to ensure that the Group has adequate working capital. They have reviewed the current and projected financial position of the Group, taking into account the repayment profile of the Group's loan portfolio, and making reasonable assumptions about future trading performance. In particular, the directors are confident that loans expiring within the next 12 months will be refinanced, and, therefore, they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and, therefore, they continue to adopt the going concern basis in preparing the Half-Yearly Financial Report.

3 Segment information

The Group has two operating divisions - Investment Property and Other Investments. Other Investments comprise Spring Mews hotel, corporate bonds, shares in Catena AB and First Camp Sverige Holding AB, and other small corporate investments. The Group manages the Investment Property division on a geographical basis due to its size and geographical diversity. Consequently, the Group's principal operating segments are:

Investment Property: United Kingdom

Germany

France

Sweden

Other Investments

All transactions between the operating segments have been eliminated on consolidation.

The Group's results for the six months ended 30 June 2018 by operating segment were as follows:

The Group's results for the six months ended 30 June 2017 by operating segment were as follows:

The Group's results for the year ended 31 December 2017 were as follows:

Segment assets and liabilities

Segment capital expenditure

4 Finance income

5 Finance costs

6 Taxation

Tax for the six month period has been charged at 7.1% (six months ended 30 June 2017: 17.1%; year ended 31 December 2017: 20.7%), representing the best estimate of the average annual effective tax rate expected for the full year adjusted for the tax effect of one-off items, applied to the pre-tax income of the six month period. The Effective Tax Rate for the period of 7.1% is lower than the Weighted Average Tax Rate of 19.1%. This is predominantly a result of a deferred tax credit arising from a future decrease in the French Corporate Income Tax rate from 28% to 25% by 2022.

7 Earnings per share

Management has chosen to disclose the European Public Real Estate Association (EPRA) measure of earnings per share, which has been provided to give relevant information to investors on the long-term performance of the Group's underlying business. The EPRA measure excludes items which are non-recurring in nature such as profits (net of related tax) on sale of investment properties and of other non-current investments, and items which have no impact to earnings over their life, such as the change in fair value of derivative financial instruments, the net movement on revaluation of equity investments net of foreign exchange, and the net movement on revaluation of investment properties, and the related deferred taxation on these items.

* On 8 May 2017, the Company subdivided each of its ordinary shares of 25 pence into ten new ordinary shares of 2.5 pence each. In accordance with IAS 33 Earnings per Share, the weighted average number of ordinary shares in circulation and earnings per share have been restated as if the subdivision were effective from 1 January 2017.

8 Net assets per share

Management has chosen to disclose the two European Public Real Estate Association (EPRA) measures of net assets per share: EPRA net assets per share; and EPRA triple net assets per share. The EPRA net assets per share measure highlights the fair value of equity on a long-term basis, and so excludes items which have no impact on the Group in the long term, such as fair value movements of derivative financial instruments and deferred tax on the fair value of investment properties. The EPRA triple net assets per share measure discloses net assets per share on a true fair value basis: all balance sheet items are included at their fair value in arriving at this measure, including deferred tax, fixed rate loan liabilities and any other balance sheet items not reported at fair value.

9 Investment properties

The movement in investment properties since the last reported balance sheet was as follows:

The investment properties (and the hotel and landholding detailed in note 10) were revalued at 30 June 2018 to their fair value. Valuations were based on current prices in an active market for all properties. The property valuations were carried out by external, professionally qualified valuers as follows:

United Kingdom: Cushman and Wakefield

Germany: Cushman and Wakefield

France: Jones Lang LaSalle

Sweden: L Fällström AB

Investment properties include leasehold properties with a carrying value of £74.1 million (30 June 2017: £37.9 million; 31 December 2017: £73.1 million).

Where the Group leases out its investment property under operating leases the duration is typically three years or more. No contingent rents have been recognised in the current or comparative years.

Substantially all investment properties (and the hotel detailed in note 10) are provided as security against debt.

Property valuations are complex and require a degree of judgement and are based on data which is not publicly available. Consistent with EPRA guidance, we have classified the valuations of our property portfolio as level 3 as defined by IFRS 13. Inputs into the valuations include equivalent yields and rental income and are described as 'unobservable' as per IFRS 13. These inputs are analysed by segment in the portfolio statistics on page 3 of the Half Yearly Financial Report 2018. All other factors remaining constant, an increase in rental income would increase valuations, whilst an increase in equivalent nominal yield would result in a fall in value and vice versa.

10 Property, plant and equipment

The movement in property, plant and equipment since the last reported balance sheet was as follows:

11 Other financial investments

The movement of other financial investments since the last reported balance sheet, based on the methods used to measure their fair value, is given below:

* Unlisted equity shares have been valued using multiples from comparable listed organisations.

Corporate Bond Portfolio

At 30 June 2018

12 Borrowings

Maturity profile