CLS Holdings Regulatory News (CLI)

PRESS RELEASE

Release date: 14 August 2019

Embargoed until: 07:00

CLS HOLDINGS PLC

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

ANNOUNCES ITS HALF-YEARLY FINANCIAL REPORT

FOR THE 6 MONTHS TO 30 JUNE 2019

Further growth through disciplined capital utilisation

CLS is a FTSE 250 property investment company with a £2.1 billion portfolio in the UK, Germany and France offering geographical diversification with local presence and knowledge. For the half year ended 30 June 2019, the Group has delivered the following results:

Notes: 1 Restated to exclude discontinued operations of First Camp

FINANCIAL HIGHLIGHTS

·; EPRA NAV up 5.0% primarily through portfolio valuation gains of £36.9 million (30 June 2018: £31.2 million) and the increase in the value of our shareholding in Catena of £21.0 million after foreign exchange variations (30 June 2018: £2.9 million)

·; Profit before tax up 28.2% due to portfolio valuation gains, the increase in the value of Catena and increased rental income from acquisitions, new lettings and indexation

·; Basic EPS up 12.0% from the above valuation increases and operational performance increases while EPRA EPS was down 4.8% as profitability increases from net rental income were offset by lower interest income from our reduced corporate bond portfolio and higher tax costs

·; Interim dividend up 6.8% to 2.35 pence per share (30 June 2018: 2.20 pence per share) to be paid on 27 September 2019

OPERATIONAL HIGHLIGHTS

Investment Property Portfolio:

·; Net rental income increased by 5.9% to £53.8 million (30 June 2018: £50.8 million)

·; Portfolio valuation uplift of 1.9% (1.9% in local currency) driven by Germany and France

·; Acquired six properties for £111.7 million in the UK, Germany and France (5.6% Net Initial Yield) with an Estimated Rental Yield of 5.7%

·; Disposed of two properties in Germany and the UK for £4.3 million. The previously announced disposal of our 58% stake in First Camp for £28.7 million completed on 7th March

·; Completed 78 lease events securing £6.9 million of annual rent at 4.3% above 31 December 2018 Estimated Rental Value

·; Vacancy rate increased slightly to 4.2% (31 December 2018: 3.8%)

·; Since period end exchanged on one acquisition in Germany for £27.3 million (5.1% Net Initial Yield) with an Estimated Rental Yield of 6.0% and agreed five disposals in Germany, France and the UK for £110.8 million (3.7% Net Initial Yield)

Financing:

·; Weighted average cost of debt at 30 June 2019 of 2.49% (31 December 2018: 2.43%)

·; Financed or refinanced £188.9 million of debt including £74.4 million fixed at 2.66%

·; The loan portfolio as at 30 June 2019 had 76% at fixed rates (31 December 2018: 79%)

·; Balance sheet Loan to Value at 39.3% (31 December 2018: 36.7%)

Governance:

·; Lennart Sten to become independent Non-Executive Chairman

·; Appointment of Denise Jagger as independent Non-Executive Director

Henry Klotz, Executive Chairman of CLS, commented:

"In the first six months of 2019, CLS delivered further growth through the disciplined use of our capital. We have continued to refine our portfolio by making acquisitions at attractive yields and the disposal of properties which no longer meet our return targets including First Camp in Sweden.

"These are my last results as Chairman of CLS. It has been an honour to have worked for, and led, CLS through a sustained period of growth. It is also pleasing to leave the company in such a strong position both financially and operationally.

"With a 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. I wish all of my colleagues and our shareholders every success in the future."

Interim Dividend Timetable

Further to this announcement, in which the Board recommended an interim dividend of 2.35 pence per ordinary share, the Company confirmed its dividend timetable as follows:

-ends-

CLS will be presenting to analysts at 9.00am on Wednesday, 14 August 2019, at Liberum Capital, Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY

Participant1. In the 10 minutes prior to call start time, call the appropriate Participant Dial-In Number listed in the Conference Dial-In Number section below.

2. Provide the Operator with the Conference ID Number.

Conference ID 3083829

For further information, please contact:

CLS Holdings plc 

(LEI: 213800A357TKB2TD9U78)

www.clsholdings.com

Fredrik Widlund, Chief Executive Officer

Andrew Kirkman, 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

Rob Yates

+44 (0)20 3047 2546

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

Well positioned for the future

We have continued our strategy to refocus our portfolio with the objective to increase income, earnings and dividends for the long term.

OVERVIEW

The benefits of being a pan-European business operating in the UK, Germany and France, three of Europe's largest economies, are again evident in our results for the first six months of 2019. The Group produced solid underlying earnings and valuation gains leading to a growth in NAV. We continued to refocus our portfolio, with selective, strategic acquisitions at attractive yields and have exchanged contracts on the disposal of assets with low yields and limited upside for CLS.

Over the six months, EPRA NAV increased by 5.0% to 325.3p per share (31 December 2018: 309.8p) mainly through EPRA earnings and revaluation uplifts. We delivered 245,105 sqft (22,771sqm) of lettings, £117.1 million of acquisitions, £4.3 million of disposals and the financing or refinancing of £188.9 million of bank loans. Total accounting return for the six months was 6.5% (2018: 4.5%).

Our business strategy is to invest in well-located office properties. The investment property portfolio has over 700 occupiers across three markets generating rental income well in excess of the Group's cost of debt. Approximately 26.9% of rents are paid by governments and 25.4% by major corporations with 47.8% of rents subject to indexation. In the UK, 40.5% 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 28 lenders across Europe.

RESULTS AND FINANCING

Profit after tax from continuing operations for the six months to 30 June 2019 was £68.5 million (2018: £61.4 million), corresponding to earnings per share of 16.8p (2018: 15.0p). Earnings included a revaluation uplift of the property portfolio of £36.9million (2018: £31.2 million). EPRA earnings per share was 6.0p (2018: 6.3p), 4.8% down on last year.

Shareholders' funds rose in the six months by 4.4% to £1,172.3 million, net of dividends of £19.1 million paid to shareholders in April.

Interest cover remained high at 3.6 times (2018: 3.8 times), reflecting the Group's ability to generate cash. We financed or refinanced £188.9 million of loans and our weighted average cost of debt rose slightly to 2.49% (31 December 2018: 2.43%), reflecting a larger proportion of financing in the UK. Net debt rose to £857.7 million (31 December 2018: £742.0 million), reflecting net acquisitions in the period. Our liquid resources, comprising £141.4 million of cash and corporate bonds, demonstrate the strength of the balance sheet and our capacity to invest in the future. At 30 June 2019, net debt (after liquid resources) as a proportion of property assets was 39.3% (31 December 2018: 36.7%).

PROPERTY PORTFOLIO

At 30 June 2019, the value of the property portfolio, including properties held for sale, was £2,080.4 million, £157.1million higher than six months earlier, driven by net additions and capital expenditure of £123.2 million and the valuation uplift of £39.7 million (including rent-free debtor) less a small foreign exchange movement.

We have continued our strategy to refocus our portfolio with the objective to increase income, earnings and dividends for the long term. In the UK we acquired four assets: 9 Prescot Street, E1 for £53.9 million; The Portland Building and Gresham House, adjacent properties in the centre of Crawley, for an aggregate of £16.5 million; and 92/98 Vauxhall Walk, SE11 for £2.5 million, adjacent to our existing Spring Mews asset which now enables further development.

In Germany, we bought Puro in the Munich suburb of Ismaning for £28.6 million and in France, we purchased Les Reflets in Lille for £10.2 million. In addition, since the half year we have exchanged contracts on the acquisition of Connect, an office in Cologne for £27.3 million, which is due to complete shortly.

In June, we exchanged contracts to sell Ateliers Victoires, our recently-completed and fully let development in central Paris for £37.6 million at a net initial yield of 3.0%. In Germany, we completed on the sale of Witten for £3.5 million in March and in July we exchanged contracts on the sale of East Gate in Munich, for £40.6 million at a net initial yield of 4.3% and Schanzenstrasse 76 in Düsseldorf for £10.7 million at a net initial yield of 3.3%. In the UK we sold a small property in Plymouth for £0.8 million, and in July we exchanged contracts for the sale of a property in Hayes for £2.9 million and Quayside Lodge in Fulham for £19.0 million.

All properties were sold at or above their 31 December 2018 valuations and the exchanged sales, which are due to complete in the second half of the year, were classified in the balance sheet at 30 June 2019 as held for sale and were valued at their disposal values.

In the six months to June, the value of the property portfolio rose by 1.9%, principally driven by Germany. At 30 June 2019, the net initial yield of the portfolio was 5.0% (31 December 2018: 5.1%), some 251 basis points above the Group's cost of debt, underpinning the Group's ability to generate cash.

Overall, the vacancy rate at 30 June 2019 was 4.2%, marginally up on six months earlier (31 December 2018: 3.8%), but comfortably below our target of 5.0%.

DIVIDENDS

In April the Group paid a final dividend for 2018 of 4.70 pence per share and, in September, will pay an interim dividend for 2019 of 2.35 pence per share, an increase over 2018 of 6.8%.

BOARD OF DIRECTORS

As previously announced, John Whiteley, Chief Financial Officer, retired from the Board on 30 June and was replaced by Andrew Kirkman on 1 July, and I warmly welcome Andrew to the Board.

I am also pleased to welcome Denise Jagger as a new independent Non-Executive Director. Her breadth of experience across a number of sectors, including real estate, means that she will strengthen the knowledge base and add significant value to the Board. As previously announced, I have decided to retire from CLS and Lennart Sten, who has been an independent Non-Executive Director for just over five years, will become independent Non-Executive Chairman from tomorrow, 15 August 2019.

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 has proven resilient while facing uncertainties 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.

With our professional organisation in all our markets, strong balance sheet, significant level of cash and liquid resources, focus on cash flow, long term asset management and ambitious investment strategy, I am very confident we are well positioned for the future.

I have had the pleasure to be part of the Group's Senior Management team for a large part of my career and it has been a fantastic journey with many great memories. The Group is in good shape and I am confident that the Board, led by Lennart Sten, will continue to take it to the next level.

I wish all my colleagues well for the future and I would like to sincerely thank you for the period I have had the honour to serve as your Executive Chairman.

Henry Klotz

Executive Chairman14 August 2019

Business review

United Kingdom

Repositioning for long-term income growth

Value of properties

£1,058.6m

Lettable space

2.8m sq ft

Number of tenants

231

Percentage of Group's property interests

51%

Vacancy rate

4.1%

Government and major corporates

65.0%

The value of the UK portfolio decreased by £3.5 million or 0.3% with ERV growth of 1.1% and a yield softening of 13 basis points. This is a blend of the different characteristics between London and the Rest of UK.

In our London portfolio, values rose by £1.8 million or 0.2% driven by ERV growth of 1.2% which compensated for a softening in yields by 3 basis points. In the Rest of the UK portfolio, values fell by £5.3 million or 6.5%. This movement was driven by a shortening of the lease terms for many of our regional

assets and softening in yields. Excluding the impact of rent free burn-offs for Cardiff and Bradford yields softened by 64 basis points as the market for non-prime regional locations weakened.

In the period, we successfully acquired four assets with attractive asset management opportunities. We bought 9 Prescot Street, E1, 96,948 sqft (9,007 sqm), for £53.9 million excluding costs, with a net initial yield of 4.5% and the potential to raise the yield above 7.0% through active asset management. We also completed two adjacent acquisitions in Crawley for an aggregate of £16.5 million excluding costs; The Portland Building comprises 41,690 sqft (3,873 sqm) of offices, with 18% vacancy and a net initial yield of 6.0%, which is expected to rise to 7.5% when fully let. Gresham House is entirely let to the UK Government with a net initial yield of 6.7%.

Earlier in the year, we sold a small property in Plymouth for £0.8 million and, since the start of July, we have exchanged on the disposal of two properties. Quayside Lodge in Fulham was a four-storey office building on which we had gained planning consent for a residential development and which was sold for £19.0 million. The Grange in Hayes was a small property which was sold for £2.9 million. Finally, we have acquired 92/98 Vauxhall Walk for £2.5 million, which completes the jigsaw for an office development adjacent to our Spring Mews mixed-use scheme in Vauxhall.

In the first half of 2019, 56,930 sqft (5,289 sqm) of space expired and 74,690 sqft (6,939 sqm) was let. The vacancy rate rose marginally in the first six months to 4.1% based on rental values (31 December 2018: 4.0%). On average, new lettings and rent reviews (excluding indexation uplifts) were achieved at 5.0% above 31 December 2018 ERVs. Occupational demand within the London investment portfolio has remained encouraging overall.

Germany

Actively looking to invest in larger cities

Value of properties

£689.9m

Lettable space

3.3m sqft

Number of tenants

314

Percentage of Group's property interests

33%

Vacancy rate

4.7%

Government and major corporates

27.6%

The value of the German portfolio increased by £27.9 million or 4.5% in local currency. Excluding two assets held for sale that have exchanged, East Gate (Munich) and Schanzenstrasse (Dusseldorf), the portfolio increased by 3.2%. The 4.5% increase was driven by ERV growth of 4.3% and a 21 basis point hardening of yields in the first six months.

We continue to see good value in selective opportunities in Germany. In May, we acquired Puro, a 140,717 sqft (13,073 sqm) multi-let office building in Munich for £28.6 million excluding costs with a net initial yield of 5.3% and with an Estimated Rental Value (ERV) of 6.4%. Since the start of July, we have exchanged contracts to purchase Connect a 140,491 sqft (13,052 sqm) office building in Cologne for £27.3 million excluding costs with a net initial yield of 5.1% and with an ERV of 6.1%.

We have also made disposals of properties with limited further asset management opportunities and completed the sale of Witten for £3.5 million. We have also exchanged contracts on two disposals since the start of July, the 90% occupied East Gate in Feldkirchen near Munich for £40.5 million, which was empty and valued at £14.9 million in 2015 when the previous tenant vacated; and Schanzenstrasse 76 in Düsseldorf for £10.7 million.

Whilst 120,405 sqft (11,186 sqm) was renewed or let at an average of 5.3% above 31 December 2018 ERVs, 139,014 sqft (12,915 sqm) of space expired or vacated and vacancy therefore rose to 4.7% by the end of June (31 December 2018: 4.2%). We expect this to improve again given the positive fundamentals in the German letting market. For while the German economy is slowing down, with the large export sector affected by trade disputes and lower global demand, the low vacancy and limited supply of new offices in the larger cities is driving demand and rental growth. 

France

Delivering value from existing assets

Value of properties

£331.9m

Lettable space

0.9m sqft

Number of tenants

166

Percentage of Group's property interests

16%

Vacancy rate

3.1%

Government and major corporates

59.0%

The value of the French portfolio increased by £13.7 million or 4.5% in local currency. Excluding the uplift in the value of the development at Ateliers Victoires, the portfolio increased by 2.7%. The 4.5% increase was primarily driven by a 37 basis point yield improvement, with strong performance from the Lyon properties, compared to December 2018 values and by ERV growth of 0.2% in the first six months.

The Paris and Lyon investment markets continued to offer few opportunities for value-add investments. In March, we acquired Les Reflets in the South of Lille for £10.2 million excluding costs. This 44,756 sqft (4,157 sqm) multi-let office building had a 6.6% net initial yield and complements our two other properties in Lille. In June, we exchanged contracts on the sale of Ateliers Victoires in Paris for £37.6 million. This recently completed development, which was fully pre-let, was sold at a net initial yield of 3.0%.

There were fewer lettings in France in the first six months than expiries, and they were achieved at an

average of 0.6% below 31 December 2018 ERVs, reflecting our strategy to prioritise occupancy.

As 56,263 sqft (5,227 sqm) of space expired or vacated and 50,009 sqft (4,646 sqm) was renewed or let, the vacancy rose to 3.1% by the end of June (31 December 2018: 2.3%).

The French economic indicators have gradually been improving with positive unemployment and consumer confidence indicators. The occupational market in Paris is impacted by low levels of new office supply and we expect a fairly stable environment with our focus being on maximising value from existing assets.

Our investor proposition

Cash and capital returns

A pan-European strategy

PAN-EUROPEAN FOCUSED

We are a pan-European property company which offers geographical diversity. We have a history of delivering strong financial and operational results, and a well-regarded strategy that continues to deliver sustainable returns to shareholders.

DIVIDEND POLICY

The Company expects to generate sufficient cash flow to be able to meet the growth requirements of the business, maintain an appropriate level of debt and provide cash returns to shareholders via a dividend.

It is our policy to pay a progressive dividend fully covered by EPRA earnings. Approximately one-third of the annual dividend is paid as an interim in September, with the balance paid as a final dividend in April.

ANALYST COVERAGE

We are covered by four brokers which publish regular analyst research: Liberum Capital, Whitman Howard, Peel Hunt and Berenberg. Contact details can be found on our website www.clsholdings.com.

2019 INVESTOR ENGAGEMENT

March 2019

Annual Results presentation;

Annual Results roadshows (London and Edinburgh)

April 2019

Annual General Meeting;

Capital Markets Day (Hamburg)

August 2019

Half-Year Results presentation

August/September 2019

Half-Year Results roadshows (London and Edinburgh)

November 2019

CLS Trading Update

Financial review

RESULTS FOR THE PERIOD

RESTATEMENT OF COMPARATIVES

On 7 March 2019, we disposed of the Group's 58.02% interest in First Camp Sverige Holding AB. The results of First Camp have been disclosed as a discontinued operation and accordingly relevant comparatives have been restated.

HEADLINES

Profit after tax from continuing operations and attributable to the owners of the Company of £68.5 million (2018: £61.4 million) generated basic earnings per share of 16.8 pence (2018: 15.0 pence) and EPRA earnings per share of 6.0 pence (2018: 6.3 pence), which was down 4.8% as profitability increases from net rental income were more than offset by lower interest income from our reduced corporate bond portfolio and higher tax costs. Gross property assets at 30 June 2019, including those in property, plant and equipment and those held for sale, increased to £2,080.4 million (31 December 2018: £1,923.3 million) through net acquisitions and revaluation uplifts. Net assets per share rose by 4.5% to 287.8 pence (31 December 2018: 275.5 pence) and EPRA net assets per share by 5.0% to 325.3 pence (31 December 2018: 309.8 pence).

STATEMENT OF COMPREHENSIVE INCOME

Rental income for the six months to 30 June 2019 of £52.5 million (2018: £49.9 million) was higher than last year by a net £2.6 million, or 5.2%, in part because acquisitions, which added £1.6 million, far exceeded disposals, which reduced rent by only £0.8 million.

Operating profit of £97.8 million (2018: £76.8 million) included a net uplift on the revaluation of investment properties of £36.9 million (2018: £31.2 million), a net £0.3 million loss (2018: £1.7 million profit) on sale of properties from selling costs and an uplift in the value of our shareholding in Catena of £23.6 million (2018: £6.6 million).

The fall in interest income to £3.3 million (2018: £4.7 million) reflected a lower average balance of corporate bond investments than in 2018. Finance costs of £16.5 million (2018: £15.5 million) contained £3.4 million (2018: £4.4 million) of negative foreign exchange variances from translating monetary assets into sterling at the balance sheet date.

The tax charge of £16.1 million (2018: £4.6 million), which represented an effective rate of 19.0% (2018: 7.1%) was distorted in 2018 by a fall in the rate of tax in France which had 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 in 2018 would have been 19.1%.

EPRA NET ASSETS PER SHARE

EPRA net assets per share rose from 309.8p to 325.3p in the six months to 30 June 2019, an increase of 15.5p per share or 5.0%. On a per share basis, the increase comprised EPRA earnings of 6.0p, from which a dividend of 4.7p was paid, a property revaluation uplift of 9.1p and an increase of 5.1p (net of foreign exchange) from our shareholding in Catena with other items netting each other out.

CASH FLOW, NET DEBT AND GEARING

Net cash flow from operating activities was £21.4 million (2018: £21.2 million). During the period, £123.6 million was paid for property acquisitions and capital expenditure. Net proceeds from new financing was £135.7 million and £12.9 million of loans were repaid.

In the period, £19.1 million was distributed to shareholders, being the final 2018 dividend.

In the six months to 30 June 2019, borrowings rose by £122.4 million to £959.3 million (31 December 2018: £836.9 million), principally through the funding of new acquisitions, and the Group's balance sheet loan to value at 30 June 2019 was 39.3% (31 December 2018: 36.7%).

The cost of debt fell in each of our three countries but our weighted average cost of debt increased to 2.49% (31 December 2018: 2.43%) as our proportion of debt in the UK increased.

OTHER INVESTMENTS

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 £33.8 million at the end of June (31 December 2018: £30.3 million) and produced a return on investment of 11.6% in the period, outperforming the relevant benchmark indices.

The Group owns a 10.6% shareholding in Catena AB, a Stockholm-listed logistics real estate company. In the six months to 30 June 2019, we received from Catena a dividend of £1.9 million and its share price rose by 32.4%, increasing the market value of the Group's stake to £98.5 million (31 December 2018: £77.5 million).

SUSTAINABILITY

We are pleased to report a reduction of over 3.5% in CO2 emissions across the managed like-for-like assets in the first half of 2019. This goes towards CLS's long-term target to reduce CO2 emissions by 25% before the end of 2025. We have also exceeded the recycling target of 70% across all managed UK assets and are consistently achieving above 75%.

In the second half of the year there will be more electric car charging points and solar photovoltaic installations across key assets in conjunction with our ongoing energy efficiency programme.

In March, we launched our improved Sustainability strategy which enhances the original approach and aligns with the Global Real Estate Sustainability Benchmark (GRESB) and the UN Sustainable Development Goals (SDGs). By 2020 this will also align with the Task Force on Climate-related Financial Disclosures (TCFD). If you want to find out more, please see our 2018 Sustainability report.

PRINCIPAL RISKS AND UNCERTAINTIES

A detailed explanation of the principal risks and uncertainties affecting the Group, and the steps it takes to mitigate these risks, can be found on pages 18 and 19 of the Annual Report and Financial Statements for the year ended 31 December 2018, which is available at www.clsholdings.com/investors.

The Group's principal risks and uncertainties are grouped into six categories: property investment; sustainability; funding; political and economic; people; and catastrophic event. These risks and uncertainties are expected to remain relevant for the remaining six months of the financial year.

As negotiations continue for the United Kingdom's withdrawal from the European Union, the Board expects that the Group will continue to operate in an uncertain economic and political climate in the short to medium term. Whilst the Group is not immune to that uncertainty, it is mitigated by operating in the three largest and most stable economies in Europe, and by having a diverse range of high-quality tenants.

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

14 August 2019

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 2019 which comprises 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 16. 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 2019 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

14 August 2019

Financial Statements

Condensed group income statement

for the six months ended 30 June 2019

June 2018 has been restated to separate the individual line items of discontinued operations from those of continuing operations.

Condensed group statement of comprehensive income

for the six months ended 30 June 2019

June 2018 has been restated to separate items that are attributable to discontinued operations.

Condensed group balance sheet

at 30 June 2019

June 2018 has been restated to separate the assets and liabilities of discontinued operations from those of continuing operations.

Condensed group statement of changes in equity

for the six months ended 30 June 2019

Condensed group statement of changes in equity (continued)

1 As a result of adopting IFRS 9 for the first time in the year ended 31 December 2018, previously recognised fair value movements were transferred from other reserves to retained earnings.

Condensed group statement of cash flowsfor the six months ended 30 June 2019

Notes to the condensed group financial statements

30 June 2019

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 2018 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. A number of new standards and amendments to IFRSs have become effective for the financial year beginning on 1 January 2019. These new standards and amendments are listed below:

- IFRS 16 Leases

- Amendments to IFRS 9 - Prepayment Features with Negative Compensation

- Amendments to IAS 28 - Long term Interests in Associates and Joint Ventures

- Amendments to IAS 19 - Plan Amendment, Curtailment or Settlement

- IFRIC 23 Uncertainty over Income Tax Treatments

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 2019.

2 GOING CONCERN

The Directors regularly stress-test the business model by flexing assumptions 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 repaid or 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 the hotel at Spring Mews, corporate bonds, shares in Catena 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:

3 SEGMENT INFORMATION (continued)

The Group's results for the six months ended 30 June 2019 by operating segment were as follows:

3 SEGMENT INFORMATION (continued)

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

3 SEGMENT INFORMATION (continued)

The Group's results for the year ended 31 December 2018 were as follows:

SEGMENT ASSETS AND LIABILITIES

3 SEGMENT INFORMATION (continued)

SEGMENT CAPITAL EXPENDITURE

4 FINANCE INCOME

5 FINANCE COSTS

6 TAXATION

Tax for the six months ended 30 June 2019 has been charged at an effective rate of 19.0% (six months ended 30 June 2018: 7.1%; year ended 31 December 2018: 8.4%), 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 19.0% is lower than the weighted average tax rate of 21.1%

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.

7 EARNINGS PER SHARE (continued)

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 2019 to their fair value. Valuations were based on current prices in an active market for all properties. The property valuations were carried out by external, professionally qualified valuers, Cushman & Wakefield.

Investment properties include leasehold properties with a carrying value of £74.6 million (30 June 2018: £74.1 million; 31 December 2018: £73.3 million). Property occupied by the Group during the period was reclassified from investment properties to property, plant and equipment.

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 2019. 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 INSTRUMENTS

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 2019