CLS Holdings plc Half-Yearly Financial Report...

CLS Holdings plcHalf-Yearly Financial Report

2017

01-09 > BUSINESS REVIEW

01 Who We Are01 What We Do02 Highlights03 Other Key Data04 Chairman’s Statement06 Business Review

10-32 > ACCOUNTS

10 Responsibility Statement11 Independent Review Report to CLS Holdings plc12 Condensed Group Income Statement13 Condensed Group Statement of Comprehensive Income14 Condensed Group Balance Sheet15 Condensed Group Statement of Changes in Equity16 Condensed Group Statement of Cash Flows17 Notes to the Condensed Group Financial Statements31 Glossary of Terms32 Directors, Officers and Advisers

CONTENTS

Jean Jaurès, France

Reflex Building, Bracknell

01


Germany24%

France18%

United Kingdom58%

£275m

£912m

£379m

WHAT WE DO > Our core business is owning and managing high-yielding officesin good, non-prime locations close to major transportation links

> We are an active manager, repositioning properties through leaserestructuring, refurbishments and developments, and working closelywith our customers

> We look to achieve long-term capital appreciation with a strongemphasis on cash generation and an opportunistic approach toacquisition, development and disposal

> We finance our activities through diverse and flexible structures,multiple sources of finance and active cash management

WHO WE ARE

CLS IS A FTSE 250 PROPERTY INVESTMENT COMPANY WITH A £1.6 BILLION PORTFOLIO IN THE UK, GERMANY AND FRANCE OFFERING GEOGRAPHICAL DIVERSIFICATION WITH LOCALPRESENCE AND KNOWLEDGE

1 Investment properties, hotel, landholding and properties held for sale

PROPERTY PORTFOLIO1 BY VALUE £1,566 MILLION

02

HOW WEOPERATE

HIGHLIGHTS

> EPRA net assets per share: up 9.3% to 268.5 pence (31 December 2016: 245.6 pence1)

> EPRA earnings per share: 5.3 pence (2016: 8.1 pence1)

> Investment property valuation: up 4.7% in sterling, 3.4% in local currencies

> Acquisitions of £210 million and disposals of £179 million since 1 January 2017

> Interim dividend: up 6.6%2 to 2.05 pence per share

1 Restated for ten for one subdivision of shares (see note 13)2 Based on one-third of total distributions for 2016

PORTFOLIO STATISTICS3 6 month Weighted ERV of Pro forma6 revaluation Net average Contracted contracted Contracted contracted Pro forma6 in local initial Vacancy unexpired rent per rent rent rent Valuation4 valuation currency yield5 by rent lease term let sq ftAt 30 June 2017 (£m) (£m) (£m) (£m) (£m) (years) (£)

United Kingdom 56.4 54.1 54.1 911.8 911.8 2.5% 5.4% 3.4% 5.8 21.53Germany 22.6 21.9 33.2 378.4 543.4 4.4% 5.3% 8.0% 5.6 10.94France 15.3 15.6 15.6 275.4 275.4 4.8% 5.1% 3.6% 5.6 18.31

Total portfolio 94.3 91.6 102.9 1,565.6 1,730.6 3.4% 5.4% 4.6% 5.7 17.07

3 Data relates to investment properties and properties held for sale unless otherwise stated4 Includes hotel5 Excludes developments6 Includes the effect of the 13 German property acquisitions exchanged at 30 June 2017 but not yet completed

OUR CORPORATE OBJECTIVE IS TO CREATE SUSTAINABLE LONG-TERMSHAREHOLDER VALUE THROUGH OWNING AND ACTIVELY MANAGINGHIGH-YIELDING OFFICE PROPERTIES IN KEY EUROPEAN CITIES


138 Fetter Lane, London EC4

Acquired in 1986•

29,528 sq ft (2,742 sqm) of office•space and 4,610 sq ft (428 sqm)of residential flats

Refurbishment completed in 2014,•including a new stone façade andthe addition of eight new flats

The property is fully let•

OTHER KEY DATA

> Net assets per share: 236.9 pence (31 December 2016: 215.1 pence1)

> Profit after tax2: £100.0 million (2016: £29.7 million)

> Earnings per share: 24.5 pence (2016: 7.1 pence1)

> Total return: 12.0% (2016: 7.1%)

> Interest cover: 3.7 times (2016: 3.6 times)

> Average cost of debt: 2.94% (31 December 2016: 2.91%)

> Portfolio value3: £1,565.6 million (31 December 2016: £1,574.7 million)

> Occupancy rate: 95.4% (31 December 2016: 97.1%)

> Loan to value of property loans: 48.8% (31 December 2016: 49.8%)

1 Restated for ten for one subdivision of shares (see note 13)2 Attributable to owners of the Company3 Including properties held for sale and operational assets

OUR MOST NOTABLE ACHIEVEMENT WAS THE SALE OFVAUXHALL SQUARE AT A PREMIUM OF 39% TO BOOK VALUE

04

CHAIRMAN’SSTATEMENT

Overview The Group continues to pursue its strategy ofgeographical diversification, operating in both the UK and thetwo strongest Eurozone markets. The first half of 2017 was anaccomplished period for the Group with strong earnings, includingvaluation gains across all of our regions, and opportunistic assetmanagement initiatives leading to a record EPRA NAV. The periodsaw a number of significant acquisitions at attractive yields whichtogether with disposals, including Vauxhall Square, and selectiverefinancing of debt at low interest rates will translate into higherfuture core income and solid earnings growth.

Over the six months, EPRA NAV increased by 9.3% to 268.5 penceper share (31 December 2016: 245.6 pence) as a result largelyof underlying earnings, profits on property disposals andrevaluation uplifts. Our most notable achievement was thesale of Vauxhall Square at a premium of 39% to book value.We recorded 21,469 sqm of lettings, £209.6 million of acquisitions,£179.3 million of disposals, and the successful financing orrefinancing of some £93.2 million of bank loans.

The key elements of our business strategy remain sound.The business is geographically well-diversified, with 58% ofits properties in the UK, 24% in Germany and 18% in France.On completion of the acquisition of £165 million of propertiesin Germany, the UK will represent 53% and Germany 31%. The investment property portfolio contains a broad base of530 occupiers across the three markets generating rental incomewell in excess of the Group’s cost of debt. Approximately 35% ofrents are paid by governments and 21% by major corporations,and around half of rents are subject to indexation. In the UK, 51%of the rent roll is derived from central government departments.The balance sheet is strong, with significant levels of cash andliquid resources, and the Group is funded by a broad spread of22 banks across Europe, and by other capital market sources.

Results and Financing On 8 May 2017, the Company subdividedeach of its existing ordinary shares of 25 pence each into ten newordinary shares of 2.5 pence each. Consequently, all metricsin this report which are given per share are based on thenew number of shares in issue, and comparatives have beenrestated accordingly.

Profit after tax for the six months to 30 June 2017 was £100.0 million(2016: £29.7 million), corresponding to earnings per share of24.5 pence (2016: 7.1 pence), including profits on propertydisposals of £41.7 million before tax and a revaluation uplift ofthe investment property portfolio of £48.7 million. Excludingprofits from sales and revaluation gains, EPRA earnings pershare were 5.3 pence (2016: 8.1 pence), which, save for foreignexchange gains made in 2016 on translating net monetary assets,were broadly in line with last year.

Shareholders’ funds rose by 10.1% to £965.3 million, net ofdividends of £16.3 million paid to shareholders in April.

Interest cover remained high at 3.7 times (2016: 3.6 times),reflecting the Group’s ability to generate cash. We have refinancedfive loans with a total principal amount of £76.6 million at anaverage rate of 2.0%. Since 1 July, we have refinanced a furthertwo loans for £16.6 million and at a rate of 2.1%. During theperiod the weighted average cost of debt was broadly unchangedat 2.94% (31 December 2016: 2.91%), which remains well belowthe net initial yield of the investment property portfolio of 5.4%.At 30 June 2017, net debt (excluding that of First Camp) as aproportion of property assets was 34.6% (31 December 2016:43.7%). On completion of the acquisition of £161 million ofproperties in Germany on which we have exchanged contracts,this measure of gearing will rise to 40.7%.

Net debt fell to £585.1 million (31 December 2016: £690.4 million),reflecting net disposal proceeds in the period. Our liquidresources, comprising £238 million of cash and corporate bonds,demonstrate the strength of the balance sheet and our capacityto invest in the future.

THE FIRST HALF OF 2017 WAS ANACCOMPLISHED PERIOD FOR THE GROUPWITH STRONG EARNINGS AND A RECORDEPRA NAV

05


Property Portfolio By 30 June 2017, the value of the propertyportfolio of £1,565.6 million was around the same level as sixmonths earlier; additions, capital expenditure, the valuation upliftand foreign exchange gains of £129 million in aggregate werebroadly matched by disposals with a book value of £137 million.

In January we completed the acquisition of a UK portfolio of fiveproperties for £31.4 million, which generated a net initial yieldof 8%. We have continued to see good investment opportunitiesin Germany, exchanging on €203.1 million of acquisitions, ofwhich €15.3 million completed in the period and the majorityof the balance are due to complete in the third quarter of 2017.In aggregate, we will have acquired £209.6 million of propertiesat a net initial yield of 6.6%, and with the prospect of furtherrental income as vacancies are let.

In May, we disposed of Vauxhall Square for £144.1 million, 39%above its book value at the end of December. The site, which wassold with full planning consent, had not been income-producingsince the end of 2016. We continued to dispose of peripheralassets which lacked notable asset management opportunities,selling one property in each of the UK, Germany and France.Over the six months we disposed of a total of £179.3 million ofproperties at a weighted average net initial yield of 2.1%, andproducing a profit on sale of £41.7 million. We will continue ourstrategy to refocus our portfolio with the objective of increasingincome and earnings, and at the end of June, we had identifiedproperties for disposal with a combined value of £34.4 millionwhich are held for sale.

In the six months to June, the value of the investment propertyportfolio rose by 4.7% in sterling and by 3.4% in local currencies.The French portfolio rose by 4.8% in local currency and theGerman portfolio by 4.4%. The UK portfolio grew by 2.5%,excluding profits on disposals, reflecting a resilience, particularlyin London and the South East. In March 2018, 14 leases with theDepartment of Work and Pensions have breaks or expiries whichbecome due; we expect the majority to be relet to the existingtenants, leading to a commensurate uplift in values at that time.At 30 June 2017, the net initial yield of the portfolio of 5.4%(31 December 2016: 5.6%) was over 240 bps above the Group’scost of debt, underpinning the Group’s ability to generate cash.Overall, the vacancy rate at 30 June 2017 had risen to 4.6%(31 December 2016: 2.9%), with one property having lost itssingle tenant recently. The remainder of the portfolio had avacancy rate of 3.1%.

With the successful sale of Vauxhall Square our current focusis on continued investment in and improvement of our propertyportfolio. We have a small amount of ongoing development whichwe anticipate finishing in early 2018. Most notable of these isSpring Mews phase 2, an £8.6 million, 7-storey development of9,181 sq ft (853 sqm) of offices, plus student accommodation,which is expected to reach practical completion in late 2017.Our 21,500 sq ft (2,000 sqm) prime office refurbishment atAteliers Victoires in central Paris is expected to complete earlyin 2018 to be launched into a buoyant letting market.

Dividends Following a change in distribution method, in Aprilthe Group paid a final dividend for 2016 of 40 pence per share,being the equivalent of 4.0 pence per share following the sharesubdivision, and are proposing to pay an interim dividend for2017 in September of 2.05 pence per share, an increase over2016 of 6.6%.

Board Changes On 16 May, Joe Crawley stepped down asa Non-Executive Director after nine years on the Board, andI extend my thanks to him for his commitment and contributionto the Company during that time.

Outlook We have begun to reinvest the proceeds from the disposalof Vauxhall Square and other non-core assets, into well-locatedproperties with good asset management opportunities, and weexpect this process to continue, particularly in Germany and theSouth East of the UK, where we believe the better opportunities lie.This reinvestment of funds into properties yielding well in excessof our cost of debt will enhance earnings and the prospects fordividend growth, and supports the Group’s ability to generate cash.

With a strategy of geographical diversification, and a strongbalance sheet, we are well placed to take advantage of thechallenges and opportunities presented by a changingeconomic environment.

Henry KlotzExecutive Chairman

16 August 2017

06

BUSINESSREVIEW

INVESTMENT PROPERTY

United Kingdom (58% of the Group’s portfolio) The valuation ofthe UK portfolio rose by £21.3 million, or 2.5%, reflecting rentalgrowth and a marginal tightening of yields.

The most significant transaction in the first half of the year wasthe disposal of Vauxhall Square, SW8 for £144 million before costs,39% above the aggregate of its valuation at 31 December 2016and subsequent capital expenditure prior to sale. In additionto creating 7 pence per share of net asset value, the disposalremoved from the balance sheet any potential obligation toconstruct 1.6 million sq ft (151,700 sqm) of mixed-use development,including two 52 storey residential towers, at a likely cost inexcess of £700 million.

Now is a good time to dispose of smaller, non-core assetsaround the UK with a view to recycling the proceeds acrossthe Group. In the period, we sold Chailey House, Bedford for£1.9 million, 8.6% above its valuation at the end of December,and at 30 June 2017 six other UK properties with an aggregatevalue of £34.1 million were held for sale, of which four wereunder offer.

In January we completed the acquisition of a portfolio of fiveproperties comprising 107,000 sq ft (9,940 sqm) of officesin Reigate, Teddington, Sidcup, Maidenhead and Birminghamfor £31.4 million generating a net initial yield of 8.0% fromten tenants, and providing short to medium-term assetmanagement opportunities.

On average, new lettings and rent reviews were achieved at5.8% above ervs of 31 December 2016, with notable successesat Spring Gardens, SW8. In the six months to 30 June 2017,ervs across the UK portfolio rose by 1.1%. Of the 300,400 sq ft(27,908 sqm) of space which became vacant in the UK inthe first half of 2017, 104,500 sq ft (9,709 sqm) was sold withVauxhall Square, 38,373 sq ft (3,565 sqm) was taken intodevelopment stock and 125,367 sq ft (11,647 sqm) was let.Consequently, the vacancy rate in the UK remained virtuallyunchanged in the six months at 3.4% (31 December 2016: 3.3%).

Occupational demand within the London investment portfoliohas remained encouraging overall, albeit there have appearedlocalised examples of space not being taken up as quickly asa year ago.

£7.3 million of the UK rent roll from Central Governmentdepartments is subject to expiry or break in March 2018.Discussions are well advanced with the tenants’ advisers andwe expect most tenants to renew.

The development of phase 2 of Spring Mews, SE11, an £8.6 million,7-storey development of 9,181 sq ft (853 sqm) of offices plusstudent accommodation is expected to reach practical completiontowards the end of the year. Phase 1 of Spring Mews reachedpractical completion in late 2014 and comprised 378 studentrooms, which have been fully let since completion, a 93 roomhotel which has recorded over 92% occupancy since opening,and 11,952 sq ft (1,110 sqm) of fully let offices.

Germany (24% of the Group’s portfolio) The vacancy rate in ourGerman portfolio has increased to 8.0% (31 December 2016: 1.7%).The single tenant at East Gate, Feldkirchen, vacated at the end ofits lease in early January, and whilst we have since let 47,092 sq ft(4,375 sqm) of the building, 135,464 sq ft (12,585 sqm) remainvacant. We also acquired 11,453 sq ft (1,064 sqm) of vacant spaceon the purchase of Network Perlach. Without these two events,the German portfolio would be only 1.6% vacant. In the six monthsto 30 June 2017, 59,675 sq ft (5,544 sqm) of space was let orrenewed and 187,787 sq ft (17,446 sqm) made vacant. Rentswere achieved on new lettings and lease extensions at 8.0%above ervs at 31 December 2016.

The value of the German portfolio increased by £26.6 million or7.7% in sterling, but in local currency it rose by 4.4%, driven byrental growth; ervs in Germany rose by 5.4% in the six months.

We continue to see good value in selective opportunities inGermany and low debt costs. In the first half of the year, weexchanged on €203 million of acquisitions, of which €15.3 millioncompleted in the period with the purchase of Network Perlachin Munich. This comprised 101,708 sq ft (9,449 sqm) with anoccupancy rate of 88% and a net initial yield of 5.1%, whichshould rise to 6.2% when fully let.

In May, we disposed of our single-let property in Landshut,to the north of Munich, for £26.0 million in line with its valuationat 31 December 2016.

The German market continues to be characterised by the lowcost of debt. During the six months to 30 June 2017, the Groupfinanced £41.7 million of loans in Germany at an average interestcost of 1.64%.

NOW IS A GOOD TIME TO DISPOSE OFSMALLER, NON-CORE ASSETS AROUNDTHE UK WITH A VIEW TO RECYCLING THEPROCEEDS ACROSS THE GROUP

07


France (18% of the Group’s portfolio) In total, 48,373 sq ft(4,494 sqm) expired in the six months to June, and only46,048 sq ft (4,278 sqm) was leased, increasing the vacancyrate to 3.6% (31 December 2016: 2.9%). Rents were achievedon new lettings and lease extensions at 4.3 below ervs at31 December 2016.

The value of the French portfolio increased by £20.4 million or8.0% in sterling, but in local currency it rose by 4.8%, and wasdriven by a tightening of yields.

We have sought to continue to take advantage of opportunitiesto trim the French portfolio of its outlying investments and inJune we sold Le Sully, Mantes la Jolie to the west of Paris for€8.2 million.

OTHER INVESTMENTS

Strategically, we maintain liquid resources of over £100 million,but to hold them all in cash would produce an unsatisfactoryreturn. Accordingly, we maintain a portfolio of corporate bondsas a cash management tool, and at the end of June these werevalued at £66.0 million (31 December 2016: £65.1 million), andproduced a return of 5.0% in the period.

The Group owns an 11.2% shareholding in Stockholm-listedCatena AB, and received from Catena a dividend of £1.3 millionin the period. Catena’s share price rose by 5.4% in the six monthsto June, and, after foreign exchange gains, the market value ofthe Group’s stake had risen to £49.1 million (31 December 2016:£45.3 million).

First Camp Sverige Holding AB, an owner and operator ofSwedish vacation sites and in which the Group owns a 58.0%interest, is a seasonal business which is at its most active in thethird quarter. Consequently, it made a small loss in the first halfof 2017 and we expect a positive contribution in the second half.

Ateliers Victoires, Paris

Lochhamer Schlag, Munich

Great West House, Brentford

08

BUSINESSREVIEWCONTINUED

RESULTS FOR THE PERIOD

On 8 May 2017, the Company subdivided each of its existingordinary shares of 25 pence each into ten new ordinary shares of2.5 pence each. Consequently, all metrics in this report which aregiven per share are based on the new number of shares in issue,and comparatives have been restated accordingly.

Headlines Profit after tax attributable to the owners of theCompany of £100.0 million (2016: £29.7 million) generated basicearnings per share of 24.5 pence (2016: 7.1 pence), and EPRAearnings per share of 5.3 pence (2016: 8.1 pence). Gross propertyassets at 30 June 2017 including those in property, plant andequipment and those held for sale, were largely unchanged,following significant acquisitions, disposals and revaluationuplifts, at £1,637.8 million (31 December 2016: £1,643.0 million),net assets per share increased by 10.1% to 236.9 pence(31 December 2016: 215.1 pence) and EPRA net assets pershare by 9.3% to 268.5 pence (31 December 2016: 245.6 pence).

Statement of Comprehensive Income Rental income for thesix months to 30 June 2017 of £45.3 million (2016: £44.4 million)was higher than last year by a net £0.9 million, or 2.0%, because£3.6 million from acquisitions, £1.9 million generated from rentalindexation and £0.7 million from rent reviews, more thancompensated for the rent lost from disposals and lease expiries.

Operating profit of £125.7 million (2016: £41.4 million) included anet £41.7 million (2016: £4.4 million) profit on sale of properties,and a net uplift on the revaluation of investment properties of£48.7 million (2016: £2.4 million).

Finance income of £5.6 million (2016: £11.6 million) included afar smaller foreign exchange gain than last year of £0.2 million(2016: £6.9 million) on translating overseas monetary assets intosterling at the end of June. Interest costs of £13.4 million werethe same as in 2016, but the favourable movement in the fairvalue of interest rate swaps of £1.7 million was £8.5 millionbetter than the year before, and consequently finance costs of£11.2 million (2016: £19.9 million) were lower than last year.Such fair value movements are excluded in calculating EPRAearnings per share.

The gain on property disposals and uplift in property revaluationsaccounted for the significant rise in the tax charge to £20.4 million(2016: £3.6 million) and represented an estimated weightedaverage tax rate of the Group for the year of 17.1%.

EPRA Net Assets Per Share EPRA net assets per share rosefrom 245.6 pence to 268.5 pence in the six months to 30 June2017, an increase of 22.9 pence per share, or 9.3%. The increasecomprised 5.3 pence of EPRA earnings, from which a dividendof 4.0 pence was paid, a profit on disposals of 7.1 pence, arevaluation uplift of 11.7 pence, and 2.8 pence from other items,including foreign exchange gains.

Cash Flow, Net Debt and Gearing Net cash flow fromoperating activities was £20.8 million (2016: £22.2 million),£16.3 million of which was distributed to shareholders.Proceeds from the sale of properties of £168.9 million exceededacquisitions of properties and capital expenditure by £99.6 million.A net £42.9 million of loans were repaid and at 30 June 2017 cashbalances were £73.0 million higher than six months earlier.

In the six months to 30 June 2017, gross borrowings fell by£31.3 million to £823.2 million (31 December 2016: £854.5 million),principally through the natural amortisation of loans. The Group’sweighted average property loan to value was 48.8% (31 December2016: 49.8%) and balance sheet loan to value (net debt to grossassets less cash) fell to 33.3% (31 December 2016: 41.4%) due tothe cash received in the disposal of Vauxhall Square.

Share Capital Following the share sub-division on 8 May 2017,there are 407,395,760 shares in issue and 31,382,020 TreasuryShares held by the Company.

SUSTAINABILITY

Since the beginning of the year our sustainability team hasrenegotiated all electricity and gas supplies across the Group,and now all UK and German electricity supplies are from 100%renewable backed supplies.

In Bromley, we have installed the Group’s seventh photovoltaicarray system; we now have 514 photovoltaic panels installed andwe intend to install a further 524 panels in 2017.

In the six months to 30 June 2017, our reduction in CO2 emissionsof 9% has exceeded our target reduction by 5% on our managedlike-for-like assets. Our energy efficiency initiatives andrefurbishment projects have delivered on target and we haveadded more renewable on-site solar photovoltaic panels; thesenow provide 3% of our managed consumption.

In the same period, water usage has reduced by 4.5% againsta target reduction of 5%, and we have achieved a recyclingpercentage of 53%, against a target of 70%.

09


PRINCIPAL RISKS AND UNCERTAINTIES

There are a number of potential risks and uncertainties whichcould have a material impact on the Group’s performance overthe remaining six months of the financial year and could causethe results for the year to differ materially from expected orhistorical results. The Directors considered that the principalrisks and uncertainties which affected the Group at the timeof the publication of the annual report for the year ended31 December 2016 were those set out below. A detailedexplanation of these risks and uncertainties can be found onpages 28 and 29 of the 2016 Annual Report, which is availableat 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 investment portfolio

• Failure to secure planning permission

• Contractor solvency and availability

• Downturn in investment or occupational markets

• Increased construction costs

• Increasing building regulation and obsolescence

• Increasing energy costs and regulation

• Increases in tax rates or changes to the basis of taxation

• Unavailability of financing at acceptable prices

• Adverse interest rate movements

• Breach of borrowing covenants

• Foreign currency exposure

• Financial counterparty credit risk

• Break-up of the Euro

• UK exit from the EU

• Failure to recruit and retain key personnel

• Cyber attacks

• Major health & safety incidents

• Security threat/terrorist attack

GOING CONCERN

As stated in note 2 to the Condensed Group Financial Statements,the Directors are satisfied that the Group has sufficientresources to continue in operation for the foreseeable future,being a period of not less than 12 months from the date of thisHalf-Yearly Financial Report. Accordingly, they continue to adoptthe going concern basis in preparing the Condensed GroupFinancial Statements.

10

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 ofimportant events during the first six months and description of principal risks and uncertainties for the remaining six monthsof 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 ofrelated party transactions and changes therein).

On behalf of the Board

Henry Klotz Sten MortstedtExecutive Chairman Executive Director

16 August 2017

11

CLS Holdings plcHalf-Yearly Financial ReportINDEPENDENT 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 2017 which comprises the Condensed Group Income Statement, the Condensed Group Statement ofComprehensive Income, the Condensed Group Balance Sheet, the Condensed Group Statement of Changes in Equity, the CondensedGroup Statement of Cash Flows and related notes 1 to 15. We have read the other information contained in the Half-Yearly FinancialReport and considered whether it contains any apparent misstatements or material inconsistencies with the information in thecondensed 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 Auditing Practices Board.Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independentreview report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyoneother 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 forpreparing the Half-Yearly Financial Report in accordance with the Disclosure and Transparency Rules of the United Kingdom’s FinancialConduct Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EuropeanUnion. The condensed set of financial statements included in this Half-Yearly Financial Report has been prepared in accordance withInternational 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 FinancialReport 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 InterimFinancial Information Performed by the Independent Auditor of the Entity” issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financialand accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conductedin accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance thatwe 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 2017 is not prepared, in all material respects, in accordance withInternational Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the UnitedKingdom’s Financial Conduct Authority.

Deloitte LLPStatutory AuditorLondon, United Kingdom

16 August 2017

12

CONDENSED GROUP INCOME STATEMENTfor the six months ended 30 June 2017

Six months Six months Year ended ended ended 30 June 30 June 31 December 2017 2016 2016 £m £m £m Notes (unaudited) (unaudited) (audited)

Continuing operationsGroup revenue 60.1 59.5 128.5

Net rental income 3 50.6 51.2 107.1Administration expenses (10.3) (10.0) (21.3)Other expenses (8.1) (6.2) (14.0)

Group revenue less costs 32.2 35.0 71.8Net movements on revaluation of investment properties 9 48.7 2.4 36.1Profit on sale of properties 41.7 4.4 9.1Gain/(loss) on sale of corporate bonds and other financial instruments 3.1 (0.4) 3.2

Operating profit 125.7 41.4 120.2Finance income 4 5.6 11.6 13.6Finance costs 5 (11.2) (19.9) (32.7)Share of loss of associates after tax (0.7) – (1.0)

Profit before tax 119.4 33.1 100.1Taxation 6 (20.4) (3.6) (1.8)

Profit for the period 99.0 29.5 98.3

Attributable to:Owners of the Company 100.0 29.7 97.8Non-controlling interests (1.0) (0.2) 0.5

99.0 29.5 98.3

Earnings per share from continuing operations (expressed in pence per share)Basic 7 24.5p 7.1p* 23.6p*

* Restated for subdivision of shares (see note 7)

13

CLS Holdings plcHalf-Yearly Financial ReportCONDENSED GROUP STATEMENT

OF COMPREHENSIVE INCOMEfor the six months ended 30 June 2017

Six months Six months Year ended ended ended 30 June 30 June 31 December 2017 2016 2016 £m £m £m (unaudited) (unaudited) (audited)

Profit for the period 99.0 29.5 98.3

Other comprehensive incomeItems that will not be reclassified to profit or lossForeign exchange differences 6.7 25.5 33.1

Items that may be reclassified to profit or lossFair value gains/(losses) on corporate bonds and other financial investments 5.4 2.7 7.7Fair value (gains)/losses taken to gain/(loss) on sale of corporate bonds and otherfinancial instruments (2.0) 1.4 1.3Revaluation of property, plant and equipment (0.8) 1.1 2.6Fair value gains taken to profit on sale of properties (3.9) – –Deferred tax on net fair value (gains)/losses – (2.4) (3.8)

Total items that may be reclassified to profit or loss (1.3) 2.8 7.8

Total comprehensive income for the period 104.4 57.8 139.2

Attributable to:Owners of the Company 105.2 57.9 138.3Non-controlling interests (0.8) (0.1) 0.9

104.4 57.8 139.2

14

CONDENSED GROUP BALANCE SHEETat 30 June 2017

30 June 30 June 31 December 2017 2016 2016 £m £m £m Notes (unaudited) (unaudited) (audited)

Non-current assetsInvestment properties 9 1,499.6 1,445.9 1,536.6Property, plant and equipment 10 103.8 104.7 106.4Goodwill 1.2 1.1 1.2Investments in associates – 1.6 0.2Other financial investments 11 115.6 91.1 116.4Deferred tax 3.2 2.1 3.1

1,723.4 1,646.5 1,763.9

Current assetsTrade and other receivables 65.9 53.9 59.9Properties held for sale 34.4 15.8 –Derivative financial instruments – – 0.5Cash and cash equivalents 172.0 91.0 99.0

272.3 160.7 159.4

Total assets 1,995.7 1,807.2 1,923.3

Current liabilitiesTrade and other payables (51.8) (51.6) (50.5)Current tax (19.2) (7.9) (9.9)Borrowings 12 (122.6) (146.6) (125.8)Derivative financial instruments (0.1) (2.3) –

(193.7) (208.4) (186.2)

Non-current liabilitiesDeferred tax (126.8) (125.7) (120.7)Borrowings 12 (696.5) (652.1) (724.1)Derivative financial instruments (8.1) (12.6) (9.8)

(831.4) (790.4) (854.6)

Total liabilities (1,025.1) (998.8) (1,040.8)

Net assets 970.6 808.4 882.5

EquityShare capital 13 11.0 11.1 11.0Share premium 83.1 83.1 83.1Other reserves 131.1 113.5 125.9Retained earnings 740.1 595.6 656.4

Equity attributable to owners of the Company 965.3 803.3 876.4Non-controlling interests 5.3 5.1 6.1

Total equity 970.6 808.4 882.5

15

CLS Holdings plcHalf-Yearly Financial ReportCONDENSED GROUP STATEMENT

OF CHANGES IN EQUITYfor the six months ended 30 June 2017

Non- Share Share Other Retained controlling Total capital premium reserves earnings Total interest equityUnaudited £m £m £m £m £m £m £m

Arising in the six months ended 30 June 2017:Total comprehensive income for the period – – 5.2 100.0 105.2 (0.8) 104.4Dividends – – – (16.3) (16.3) – (16.3)

Total changes arising in the period – – 5.2 83.7 88.9 (0.8) 88.1At 1 January 2017 11.0 83.1 125.9 656.4 876.4 6.1 882.5

At 30 June 2017 11.0 83.1 131.1 740.1 965.3 5.3 970.6

Non- Share Share Other Retained controlling Total capital premium reserves earnings Total interest equityUnaudited £m £m £m £m £m £m £m

Arising in the six months ended 30 June 2016:Total comprehensive income for the period – – 28.2 29.7 57.9 (0.1) 57.8Issue of share capital – 0.1 – – 0.1 – 0.1Purchase of own shares (0.2) – 0.2 (17.4) (17.4) – (17.4)Expenses thereof – – – (0.1) (0.1) – (0.1)

Total changes arising in the period (0.2) 0.1 28.4 12.2 40.5 (0.1) 40.4At 1 January 2016 11.3 83.0 85.1 583.4 762.8 5.2 768.0

At 30 June 2016 11.1 83.1 113.5 595.6 803.3 5.1 808.4

Non- Share Share Other Retained controlling Total capital premium reserves earnings Total interest equityAudited £m £m £m £m £m £m £m

Arising in the year ended 31 December 2016:Total comprehensive income for the year – – 40.5 97.8 138.3 0.9 139.2Issue of share capital – 0.1 – – 0.1 – 0.1Purchase of own shares (0.3) – 0.3 (24.7) (24.7) – (24.7)Expenses thereof – – – (0.1) (0.1) – (0.1)

Total changes arising in 2016 (0.3) 0.1 40.8 73.0 113.6 0.9 114.5At 1 January 2016 11.3 83.0 85.1 583.4 762.8 5.2 768.0

At 31 December 2016 11.0 83.1 125.9 656.4 876.4 6.1 882.5

16

CONDENSED GROUP STATEMENTOF CASH FLOWSfor the six months ended 30 June 2017

Six months Six months Year ended ended ended 30 June 30 June 31 December 2017 2016 2016 £m £m £m Notes (unaudited) (unaudited) (audited)

Cash flows from operating activitiesCash generated from operations 14 37.4 32.1 62.0Interest received 4.6 3.6 5.8Interest paid (13.7) (11.0) (20.5)Income tax paid (7.5) (2.5) (7.2)

Net cash inflow from operating activities 20.8 22.2 40.1

Cash flows from investing activitiesPurchase of investment properties (55.8) (6.4) (45.7)Capital expenditure on investment properties (13.5) (11.2) (20.9)Proceeds from sale of investment properties 168.9 13.3 39.4Purchases of property, plant and equipment (2.4) (19.3) (20.9)Proceeds from sale of property, plant and equipment 5.7 – –Purchase of corporate bonds (6.7) (10.2) (35.9)Proceeds from sale of corporate bonds 6.9 46.7 54.3Dividends received from equity investments 1.3 1.3 1.4Proceeds from sale of equity investments 5.4 4.4 7.4Costs of foreign currency transactions 1.0 – (1.5)Purchase of equity investments – (1.1) (1.1)Distributions received from associate undertakings – – 0.3

Net cash inflow/(outflow) from investing activities 110.8 17.5 (23.2)

Cash flows from financing activitiesDividends paid (16.3) – –Purchase of own shares – (17.5) (24.8)New loans 50.7 87.6 200.2Issue costs of new loans (0.4) (0.5) (1.5)Repayment of loans (93.2) (125.5) (199.6)

Net cash (outflow) from financing activities (59.2) (55.9) (25.7)

Cash flow element of net (decrease)/increase in cash and cash equivalents 72.4 (16.2) (8.8)Foreign exchange gain 0.6 6.5 7.1

Net (decrease)/increase in cash and cash equivalents 73.0 (9.7) (1.7)Cash and cash equivalents at the beginning of the period 99.0 100.7 100.7

Cash and cash equivalents at the end of the period 172.0 91.0 99.0

17

CLS Holdings plcHalf-Yearly Financial ReportNOTES TO THE CONDENSED

GROUP FINANCIAL STATEMENTS30 June 2017

1 BASIS OF PREPARATION

The financial information contained in this Half-Yearly Financial Report does not constitute statutory accounts as defined in section434 of the Companies Act 2006. The results disclosed for the year ended 31 December 2016 are an abridged version of the fullaccounts 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 emphasiswithout qualifying the auditor’s report, and have been filed with the Registrar of Companies. The annual financial statements ofCLS Holdings plc are prepared in accordance with IFRSs as adopted by the European Union. The condensed financial statementsincluded in this Half-Yearly Financial Report have been prepared in accordance with IAS 34 Interim Financial Reporting, as adoptedby the European Union. The same accounting policies, presentation and methods of computation are followed in the condensed setof financial statements as applied in the latest audited annual financial statements.

2 GOING CONCERN

The Directors regularly stress-test the business model to ensure that the Group has adequate working capital. They have reviewedthe 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 loansexpiring within the next 12 months will be refinanced, and, therefore, they have a reasonable expectation that the Group hasadequate resources to continue in operational existence for the foreseeable future and, therefore, they continue to adopt the goingconcern 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 Mewshotel, corporate bonds, shares in Catena AB and First Camp Sverige Holding AB, and other small corporate investments. TheGroup 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.

Previously, the United Kingdom segment was split between London and the Rest of United Kingdom. From 2017, the managementof the United Kingdom portfolio has merged and comparative data has been restated to reflect this change.

18

NOTES TO THE CONDENSEDGROUP FINANCIAL STATEMENTSCONTINUED

3 SEGMENT INFORMATION CONTINUED

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

Investment Property

United Other Kingdom Germany France Sweden Investments Total £m £m £m £m £m £m

Rental income 27.2 10.4 7.7 – – 45.3Other property-related income 0.9 0.4 0.3 – 5.7 7.3Service charge income 2.4 2.4 2.7 – – 7.5Service charges and similar expenses (4.2) (2.5) (2.8) – – (9.5)

Net rental income 26.3 10.7 7.9 – 5.7 50.6

Administration expenses (2.6) (0.7) (0.9) (0.1) (3.1) (7.4)Other expenses (2.9) (1.1) (0.5) – (3.6) (8.1)

Group revenue less costs 20.8 8.9 6.5 (0.1) (1.0) 35.1

Net movements on revaluation of investmentproperties 20.8 16.1 11.8 – – 48.7Profit on sale of properties 41.7 – – – – 41.7Gain on sale of corporate bonds – – – – 3.1 3.1

Segment operating profit/(loss) 83.3 25.0 18.3 (0.1) 2.1 128.6

Finance income 0.1 – – 1.3 4.2 5.6Finance costs (8.1) (1.5) (1.0) – (0.6) (11.2)Share of loss of associates – – – – (0.7) (0.7)

Segment profit before tax 75.3 23.5 17.3 1.2 5.0 122.3

Central administration expenses (2.9)

Profit before tax 119.4

19


The Group’s results for the six months ended 30 June 2016 by operating segment were as follows:Investment Property

United Other Kingdom Germany France Sweden Investments Total £m £m £m £m £m £m (restated)

Rental income 26.7 9.3 7.2 1.2 – 44.4Other property-related income 0.4 – 0.8 – 6.7 7.9Service charge income 2.6 2.0 2.5 0.1 – 7.2Service charges and similar expenses (2.8) (2.2) (2.8) (0.5) – (8.3)

Net rental income 26.9 9.1 7.7 0.8 6.7 51.2


Group revenue less costs 23.2 7.9 6.6 0.7 (0.3) 38.1

Net movements on revaluation of investmentproperties (5.6) 3.9 4.1 – – 2.4(Loss)/profit on sale of properties – – (0.9) 5.3 – 4.4Loss on sale of corporate bonds – – – – (0.4) (0.4)

Segment operating profit/(loss) 17.6 11.8 9.8 6.0 (0.7) 44.5

Finance income – – – 0.4 11.2 11.6Finance costs (15.1) (1.8) (1.1) (0.2) (1.7) (19.9)




20


3 SEGMENT INFORMATION CONTINUED

The Group’s results for the year ended 31 December 2016 were as follows:Investment Property

United Other Kingdom Germany France Sweden Investments Total £m £m £m £m £m £m (restated)

Rental income 54.9 20.4 14.7 1.3 – 91.3Other property-related income 3.7 – 0.9 – 16.8 21.4Service charge income 6.3 4.6 4.8 0.1 – 15.8Service charges and similar expenses (9.9) (5.6) (5.4) (0.5) – (21.4)

Net rental income 55.0 19.4 15.0 0.9 16.8 107.1


Group revenue less costs 44.1 16.6 12.4 0.7 3.0 76.8

Net movements on revaluation of investmentproperties 12.1 12.4 11.6 – – 36.1Profit/(loss) on sale of properties 4.8 – (1.1) 5.4 – 9.1Gain on sale of corporate bonds – – – – 3.2 3.2

Segment operating profit 61.0 29.0 22.9 6.1 6.2 125.2

Finance income – – 0.1 1.4 12.1 13.6Finance costs (23.2) (3.1) (2.2) (0.1) (4.1) (32.7)Share of loss of associates after tax – – – – (1.0) (1.0)




21


Segment assets and liabilities

Assets Liabilities

30 June 30 June 31 December 30 June 30 June 31 December 2017 2016 2016 2017 2016 2016 £m £m £m £m £m £m

Investment PropertyUnited Kingdom* 902.5 931.0 948.9 553.0 539.7 567.6Germany 397.7 306.6 368.4 220.0 177.5 206.5France 281.8 254.9 263.8 186.5 192.2 184.2Sweden 48.6 49.0 42.8 3.6 3.9 3.4

Other investments 365.1 265.7 299.4 62.0 85.5 79.1

1,995.7 1,807.2 1,923.3 1,025.1 998.8 1,040.8

Segment capital expenditure Six months Six months Year ended ended ended 30 June 30 June 31 December 2017 2016 2016 £m £m £m

Investment PropertyUnited Kingdom* 41.8 15.5 20.2Germany 15.2 0.8 42.0France 3.6 1.7 4.4Other investments 1.8 19.2 20.6

62.4 37.2 87.2

* 2016 restated to reflect merger of London and Rest of United Kingdom

4 FINANCE INCOME Six months Six months Year ended ended ended 30 June 30 June 31 December 2017 2016 2016 £m £m £m

Interest income 4.1 3.4 7.4Other finance income 1.3 1.3 1.4Foreign exchange variances 0.2 6.9 4.8

5.6 11.6 13.6

22


5 FINANCE COSTS Six months Six months Year ended ended ended 30 June 30 June 31 December 2017 2016 2016 £m £m £m

Interest expenseBank loans 8.1 7.2 15.2Debenture loan 1.3 1.4 2.8Zero-coupon note – 0.5 0.8Secured notes 1.4 1.5 2.9Unsecured bonds 1.8 2.0 3.8

Amortisation of loan issue costs 0.8 0.8 1.5

Total interest costs 13.4 13.4 27.0Less interest capitalised on development projects (0.5) (0.3) (0.7)

12.9 13.1 26.3Loss on partial redemption of zero coupon note – – 2.4Movement in fair value of derivative financial instrumentsInterest rate swaps: transactions not qualifying as hedges (1.7) 6.8 4.0

11.2 19.9 32.7

6 TAXATION Six months Six months Year ended ended ended 30 June 30 June 31 December 2017 2016 2016 £m £m £m

Current tax 16.7 2.3 8.9Deferred tax 3.7 1.3 (7.1)

20.4 3.6 1.8

Tax for the six month period has been charged at 17.1% (six months ended 30 June 2016: 10.9%; year ended 31 December 2016: 1.8%),representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income ofthe six month period.

23


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 investmentproperties 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 and the net movement on revaluation of investment properties, and the relateddeferred taxation on these items.

Six months Six months Year ended ended ended 30 June 30 June 31 December 2017 2016 2016Earnings £m £m £m

Profit for the period 100.0 29.7 97.8Net movements on revaluation of investment properties (48.7) (2.4) (36.1)Change in fair value of derivative financial instruments (2.1) 9.7 5.4Impairment of carrying value of associates 0.7 – 1.0Profit on sale of properties, net of tax (29.1) (4.4) (6.8)Loss/(gain) on sale of corporate bonds (3.1) 0.4 (3.2)Deferred tax relating to the above adjustments 3.7 0.7 (7.2)

EPRA earnings 21.4 33.7 50.9

Six months Six months Year ended ended ended 30 June 30 June 31 December 2017 2016 2016 Number Number NumberWeighted average number of ordinary shares in circulation (restated*) (restated*)

Weighted average number of ordinary shares in circulation 407,395,760 418,395,040 413,798,550

Six months Six months Year ended ended ended 30 June 30 June 31 December 2017 2016 2016 Pence Pence PenceEarnings per Share (restated*) (restated*)

Basic 24.5 7.1 23.6EPRA 5.3 8.1 12.3

* 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 accordancewith IAS 33 Earnings per Share, the weighted average number of ordinary shares in circulation and earnings per share have been restated as ifthe subdivision were effective from 1 January 2016.

24


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 valueof equity on a long-term basis, and so excludes items which have no impact on the Group in the long term, such as fair valuemovements of derivative financial instruments and deferred tax on the fair value of investment properties. The EPRA triple netassets per share measure discloses net assets per share on a true fair value basis: all balance sheet items are included at theirfair value in arriving at this measure, including deferred tax, fixed rate loan liabilities and any other balance sheet items notreported at fair value.

30 June 30 June 31 December 2017 2016 2016Net Assets £m £m £m

Basic net assets attributable to owners of the Company 965.3 803.3 876.4Adjustment to increase fixed rate debt to fair value, net of tax (16.6) (37.9) (28.3)Goodwill as a result of deferred tax (1.1) (1.1) (1.1)

EPRA triple net assets 947.6 764.3 847.0Deferred tax on property and other non-current assets, net of minority interests 121.6 122.1 115.8Fair value of derivative financial instruments 8.2 14.9 9.3Adjustment to decrease fixed rate debt to book value, net of tax 16.6 37.9 28.3

EPRA net assets 1,094.0 939.2 1,000.4

30 June 30 June 31 December 2017 2016 2016 Number Number NumberNumber of ordinary shares in circulation (restated*) (restated*)

Number of ordinary shares in circulation 407,395,760 411,510,860 407,395,760

30 June 30 June 31 December 2017 2016 2016 Pence Pence PenceNet Assets per Share (restated*) (restated*)

Basic 236.9 195.2 215.1EPRA 268.5 228.2 245.6EPRA triple net 232.6 185.7 207.9

* 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. The numberof ordinary shares in circulation and net assets per share have been restated as if the subdivision were effective from 1 January 2016.

25


9 INVESTMENT PROPERTIES 30 June 30 June 31 December 2017 2016 2016 £m £m £m

United Kingdom 850.7 904.3 921.3Germany 373.5 298.9 356.9France 275.4 242.7 258.4

1,499.6 1,445.9 1,536.6

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

United Kingdom Germany France Total £m £m £m £m

At 1 January 2017 921.3 356.9 258.4 1,536.6Acquisitions 31.7 14.2 0.7 46.6Capital expenditure 9.9 0.8 2.9 13.6Disposals (99.4) (24.7) (7.0) (131.1)Net movements on revaluation of investment properties 20.8 16.0 11.9 48.7Rent-free period debtor adjustments 0.5 (0.5) 0.4 0.4Exchange rate variances – 11.1 8.1 19.2Transfer to held for sale (34.1) (0.3) – (34.4)

At 30 June 2017 850.7 373.5 275.4 1,499.6

The investment properties (and the hotel and landholding detailed in note 10) were revalued at 30 June 2017 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 (30 June 2016 and 31 December 2016: Cushman and Wakefield; Knight Frank)

Germany: Cushman and Wakefield

France: Jones Lang LaSalle

Sweden: L Fällström AB

Investment properties include leasehold properties with a carrying value of £37.9 million (30 June 2016: £41.0 million; 31 December 2016: £48.1 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. Inputsinto the valuations include equivalent yields and rental income and are described as ‘unobservable’ as per IFRS 13. These inputsare analysed by segment in the portfolio statistics on page 2. All other factors remaining constant, an increase in rental incomewould increase valuations, whilst an increase in equivalent nominal yield would result in a fall in value and vice versa.

26


10 PROPERTY, PLANT AND EQUIPMENT 30 June 30 June 31 December 2017 2016 2016 £m £m £m

Hotel 27.0 26.6 26.7Land and buildings 74.4 70.0 71.7Owner-occupied property – 5.7 5.7Fixtures and fittings 2.4 2.4 2.3

Total 103.8 104.7 106.4

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

Owner- Land and occupied Fixtures and Hotel buildings property fittings Total £m £m £m £m £m

At 1 January 2017 27.1 72.5 5.9 4.9 110.4Additions – 2.0 – 0.4 2.4Exchange rate variances – 2.0 – – 2.0Disposals – – (5.9) – (5.9)Revaluation 0.4 (1.2) – – (0.8)

At 30 June 2017 27.5 75.3 – 5.3 108.1

Comprising:At cost – – – 5.3 5.3At valuation 30 June 2017 27.5 75.3 – – 102.8

27.5 75.3 – 5.3 108.1

Accumulated depreciation and impairmentAt 1 January 2017 (0.4) (0.8) (0.2) (2.6) (4.0)Disposals – – 0.2 – 0.2Depreciation charge (0.1) (0.1) – (0.3) (0.5)

At 30 June 2017 (0.5) (0.9) – (2.9) (4.3)

Net book valueAt 30 June 2017 27.0 74.4 – 2.4 103.8

At 31 December 2016 26.7 71.7 5.7 2.3 106.4

27


11 OTHER FINANCIAL INVESTMENTS 30 June 30 June 31 December Destination of 2017 2016 2016 Investment type Investment £m £m £m

Available-for-sale financial investments Listed corporate bonds UK 11.1 9.4 10.9carried at fair value Eurozone 8.4 3.6 9.8 Other 46.5 26.7 44.4

66.0 39.7 65.1 Listed equity securities Sweden 49.1 50.9 50.8 Unlisted investments Sweden 0.5 0.5 0.5

115.6 91.1 116.4

The movement of other financial investments since the last reported balance sheet, based on the methods used to measure theirfair value, is given below: Level 1 Level 2 Level 3 Quoted Observable Other market market valuation price data methods* Total £m £m £m £m

At 1 January 2017 50.8 65.1 0.5 116.4Additions – 6.7 – 6.7Disposals (3.5) (5.7) – (9.2)Fair value movements recognised in reserves on available-for-sale assets 2.5 2.9 – 5.4Fair value movements recognised in profit before tax on available-for-sale assets (1.6) (0.4) – (2.0)Exchange rate variations 0.9 (2.6) – (1.7)

At 30 June 2017 49.1 66.0 0.5 115.6

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

Corporate Bond PortfolioAt 30 June 2017 Travel and Telecoms Energy andSector Banking Insurance Tourism and IT Resources Other Total

Value £23.4m £1.9m £11.1m £11.9m £13.6m £4.1m £66.0mRunning yield 7.0% 6.0% 7.2% 7.1% 9.4% 6.6% 7.5%

Issuers Standard Chartered Brit Insurance British Airways Western Digital Freeport-McMoRan Stora Enso Societe Generale Phoenix Life Air France Telecom Italia Arcelor Mittal L Brands Deutsche Bank Stena CenturyLink Transocean Credit Agricole Hertz Millicom Seadrill Allied Irish SAS Seagate Enel Santander Dell Unicredit Barclays Investec Lloyds HSBC RBS

28


12 BORROWINGS

Maturity profile Bank Debenture Zero coupon Unsecured Secured loans loans note bonds notes TotalAt 30 June 2017 £m £m £m £m £m £m

Within one year or on demand 117.6 2.1 – – 4.2 123.9More than one but not more than two years 44.7 2.4 – – 4.2 51.3More than two but not more than five years 424.9 8.9 – 65.0 12.5 511.3More than five years 81.2 11.1 – – 44.4 136.7

668.4 24.5 – 65.0 65.3 823.2Unamortised issue costs (3.2) – – (0.3) (0.6) (4.1)

Borrowings 665.2 24.5 – 64.7 64.7 819.1Less amount due for settlement within 12 months (116.5) (2.1) – 0.1 (4.1) (122.6)

Amount due for settlement after 12 months 548.7 22.4 – 64.8 60.6 696.5

Bank Debenture Zero coupon Unsecured Secured loans loans note bonds notes TotalAt 30 June 2016 £m £m £m £m £m £m

Within one year or on demand 141.8 1.9 – – 4.2 147.9More than one but not more than two years 88.9 2.1 – – 4.2 95.2More than two but not more than five years 276.4 8.0 – 65.0 12.5 361.9More than five years 126.1 15.8 7.4 – 48.6 197.9

633.2 27.8 7.4 65.0 69.5 802.9Unamortised issue costs (3.1) – – (0.5) (0.6) (4.2)

Borrowings 630.1 27.8 7.4 64.5 68.9 798.7Less amount due for settlement within 12 months (140.7) (1.9) – 0.1 (4.1) (146.6)

Amount due for settlement after 12 months 489.4 25.9 7.4 64.6 64.8 652.1

Bank Debenture Zero coupon Unsecured Secured loans loans note bonds notes TotalAt 31 December 2016 £m £m £m £m £m £m

Within one year or on demand 120.9 2.0 – – 4.2 127.1More than one but not more than two years 112.2 2.2 – – 4.2 118.6More than two but not more than five years 368.5 8.4 – 65.0 12.5 454.4More than five years 95.0 12.8 – – 46.5 154.3

696.6 25.4 – 65.0 67.4 854.4Unamortised issue costs (3.6) – – (0.4) (0.5) (4.5)

Borrowings 693.0 25.4 – 64.6 66.9 849.9Less amount due for settlement within 12 months (119.8) (2.0) – 0.1 (4.1) (125.8)

Amount due for settlement after 12 months 573.2 23.4 – 64.7 62.8 724.1

29


Fair values Carrying amounts Fair values

30 June 30 June 31 December 30 June 30 June 31 December 2017 2016 2016 2017 2016 2016 £m £m £m £m £m £m

Current borrowings 122.6 146.6 125.8 122.6 146.7 125.8Non-current borrowings 696.5 652.1 724.1 716.7 698.2 748.2

819.1 798.7 849.9 839.3 844.9 874.0

The fair value of borrowings represents the amount at which a financial instrument could be exchanged in an arm’s lengthtransaction between informed and willing parties, discounted at the prevailing market rate, and excludes accrued interest.

13 SHARE CAPITAL Number Ordinary Total

Ordinary Total shares in Treasury ordinary shares in Treasury ordinary circulation shares shares circulation shares shares £m £m £m

At 1 January 2017 40,739,576 3,138,202 43,877,778 10.2 0.8 11.0Share subdivision1 366,656,184 28,243,818 394,900,002 – – –

At 30 June 2017 407,395,760 31,382,020 438,777,780 10.2 0.8 11.0

Number Ordinary Total


At 1 January 2016 42,140,581 2,888,103 45,028,684 10.6 0.7 11.3Issued 5,000 (5,000) – – – –Cancelled following tender offer2 (739,396) – (739,396) (0.3) – (0.3)Purchase of own shares:pursuant to market purchase (255,099) 255,099 – – 0.1 0.1

At 30 June 2016 41,151,086 3,138,202 44,289,288 10.3 0.8 11.1

Number Ordinary Total


At 1 January 2016 42,140,581 2,888,103 45,028,684 10.6 0.7 11.3Issued 5,000 (5,000) – – – –Cancelled following tender offer2 & 3 (1,150,906) – (1,150,906) (0.3) – (0.3)Purchase of own shares:pursuant to market purchases (255,099) 255,099 – (0.1) 0.1 –

At 31 December 2016 40,739,576 3,138,202 43,877,778 10.2 0.8 11.0

1 On 8 May 2017, the Company subdivided each of its existing ordinary shares of 25 pence each into ten new ordinary shares of 2.5 pence each.2 A tender offer by way of a Circular dated 18 March 2016 for the purchase of 1 in 57 shares at 1,810 pence per share was completed in April 2016.It returned £13.4 million to shareholders, equivalent to 31.8 pence per share.

3 A tender offer by way of a Circular dated 26 August 2016 for the purchase of 1 in 100 shares at 1,750 pence per share was completed in September 2016.It returned £7.2 million to shareholders, equivalent to 17.5 pence per share.

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14 CASH GENERATED FROM OPERATIONS Six months Six months Year ended ended ended 30 June 30 June 31 December 2017 2016 2016 £m £m £m

Operating profit 125.7 41.4 120.2Adjustments for:Net movements on revaluation of investment properties (48.7) (2.4) (36.1)Depreciation and amortisation 0.5 0.5 1.1Non-cash rental income (0.4) (1.8) (2.4)Share-based payment expense – 0.1 0.1Profit on sale of investment properties (41.7) (4.4) (9.1)(Gain)/loss on sale of corporate bonds (3.1) 0.4 (3.2)

Changes in working capital:(Increase)/decrease in receivables 2.3 1.6 (2.7)Increase/(decrease) in payables 2.8 (3.3) (5.9)

Cash generated from operations 37.4 32.1 62.0

15 RELATED PARTY TRANSACTIONS

There have been no material changes in the related party transactions described in the last annual report, other than thosedisclosed elsewhere in this condensed set of financial statements.

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ADJUSTED NET ASSETS OR ADJUSTED SHAREHOLDERS’ FUNDSNet assets excluding the fair value of financial derivatives, deferred tax onrevaluations and goodwill arising as a result of deferred tax

ADJUSTED NET GEARINGNet debt expressed as a percentage of adjusted net assets

ADJUSTED SOLIDITYAdjusted net assets expressed as a percentage of adjusted total assets

ADJUSTED TOTAL ASSETSTotal assets excluding deferred tax assets

ADMINISTRATION COST RATIORecurring administration expenses of the Investment Property operatingsegment expressed as a percentage of net rental income

BALANCE SHEET LOAN TO VALUENet debt expressed as a percentage of total assets less cash and short-termdeposits

CONTRACTED RENTAnnual contracted rental income after any rent-free periods have expired

CORE PROFITProfit before tax and before net movements on revaluation of investmentproperties, profit on sale of investment properties, subsidiaries and corporatebonds, impairment of intangible assets and goodwill, non-recurring costs,change in fair value of derivatives and foreign exchange variances

DILUTED EARNINGS PER SHAREProfit after tax divided by the diluted weighted average number of ordinary shares

DILUTED NET ASSETSEquity shareholders’ funds increased by the potential proceeds from issuingthose shares issuable under employee share schemes

DILUTED NET ASSETS PER SHARE OR DILUTED NET ASSET VALUEDiluted net assets divided by the diluted number of ordinary shares

DILUTED NUMBER OF ORDINARY SHARESNumber of ordinary shares in circulation at the balance sheet date adjusted to include the effect of potential dilutive shares issuable under employee share schemes

DILUTED WEIGHTED AVERAGE NUMBER OF ORDINARY SHARESWeighted average number of ordinary shares in issue during the period adjustedto include the effect of potential weighted average dilutive shares issuableunder employee share schemes

EARNINGS PER SHAREProfit after tax divided by the weighted average number of ordinary shares in issue in the period

EPRA European Public Real Estate Association

EPRA EARNINGS PER SHARE Profit after tax, but excluding net gains or losses from fair value adjustments on investment properties, profits or losses on disposal of investment propertiesand other non-current investment interests, impairment of goodwill andintangible assets, movements in fair value of derivative financial instrumentsand their related current and deferred tax

EPRA NET ASSETS Diluted net assets excluding the mark-to-market on effective cash flow hedgesand related debt adjustments, deferred tax on revaluations and goodwill arisingas a result of deferred tax

EPRA NET ASSETS PER SHAREEPRA net assets divided by the diluted number of ordinary shares

EPRA NET INITIAL YIELDAnnual passing rent less net service charge costs on investment propertiesexpressed as a percentage of the investment property valuation after addingpurchasers’ costs

EPRA TOPPED UP NET INITIAL YIELDAnnual net rents on investment properties expressed as a percentage of theinvestment property valuation after adding purchasers’ costs

EPRA TRIPLE NET ASSETSEPRA net assets adjusted to reflect the fair value of debt and derivatives and to include the fair value of deferred tax on property revaluations

EPRA TRIPLE NET ASSETS PER SHAREEPRA triple net assets divided by the diluted number of ordinary shares

ESTIMATED RENTAL VALUE (ERV)The market rental value of lettable space as estimated by the Group’s valuers

INTEREST COVERThe aggregate of group revenue less costs divided by the aggregate of interestexpense and amortisation of loan issue costs, less interest income

LIQUID RESOURCESCash and short-term deposits and listed corporate bonds

NET ASSETS PER SHARE OR NET ASSET VALUE (NAV)Equity shareholders’ funds divided by the number of ordinary shares incirculation at the balance sheet date

NET DEBTTotal borrowings less liquid resources

NET GEARINGNet debt expressed as a percentage of net assets

NET INITIAL YIELDAnnual net rents on investment properties expressed as a percentage of theinvestment property valuation

NET RENTContracted rent less net service charge costs

OCCUPANCY RATEContracted rent expressed as a percentage of the aggregate of contracted rentand the ERV of vacant space

OVER-RENTEDThe amount by which ERV falls short of the passing rent

PASSING RENTContracted rent before any rent-free periods have expired

PROPERTY LOAN TO VALUEProperty borrowings expressed as a percentage of the market value of theproperty portfolio

RENT ROLLContracted rent

RETURN ON EQUITYThe aggregate of the change in equity attributable to the owners of the Companyplus the amounts paid to the shareholders by way of distributions and thepurchase of shares in the market, divided by the opening equity attributableto the owners of the Company

REVERSIONARYThe amount by which the ERV exceeds the passing rent

SOLIDITYEquity shareholders’ funds expressed as a percentage of total assets

TOTAL SHAREHOLDER RETURNFor a given number of shares, the aggregate of the proceeds from tender offerbuy-backs and change in the market value of the shares during the yearadjusted for cancellations occasioned by such buy-backs, as a percentage of the market value of the shares at the beginning of the year

TRUE EQUIVALENT YIELDThe capitalisation rate applied to future cash flows to calculate the grossproperty value, as determined by the Group’s external valuers

GLOSSARYOF TERMS

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DIRECTORS, OFFICERSAND ADVISERS

DirectorsHenry Klotz (Executive Chairman)Anna Seeley ø (Non-Executive Vice Chairman)Fredrik Widlund (Chief Executive Officer)John Whiteley (Chief Financial Officer) Sten Mortstedt ø (Executive Director)Malcolm Cooper * † ‡ (Non-Executive Director)Elizabeth Edwards ‡ ø (Non-Executive Director)Christopher Jarvis † ‡ (Non-Executive Director)Thomas Lundqvist (Non-Executive Director)Bengt Mortstedt (Non-Executive Director)Lennart Sten † ø (Non-Executive Director)

* Senior Independent Director

† member of Remuneration Committee

‡ member of Audit Committee

ø member of Nominations Committee

Company SecretaryDavid Fuller BA, FCIS

Registered Office86 BondwayLondon SW8 1SF

Registered Number2714781

Registrars and Transfer OfficeComputershare Investor Services PlcPO Box 82 The Pavilions Bridgwater RoadBristol BS99 7NH

Shareholder Helpline: 0870 889 3286

CLS Holdings plc online:www.clsholdings.com

email:[email protected]

Clearing BankRoyal Bank of Scotland Plc24 Grosvenor PlaceLondon SW1X 7HP

Financial AdvisersElm Square Advisers Limited10 Queen’s Elm SquareLondonSW3 6ED

StockbrokersLiberum CapitalRopemaker Place, Level 1225 Ropemaker StreetLondonEC2Y 9LY

Panmure Gordon (UK) LimitedOne New ChangeLondonEC4M 9AF

Registered AuditorDeloitte LLPChartered Accountants2 New Street SquareLondonEC4A 3BZ

Financial and Corporate Public RelationsSmithfield Consultants Limited10 Aldersgate StreetLondon EC1A 4HJ

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www.clsholdings.com

CLS Holdings plc

86 BondwayLondonSW8 1SF

Tel: +44 (0)20 7582 7766Fax: +44 (0)20 7735 2779email: [email protected]

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