CLS Holdings achieves revenue growth in 'robust' results

CLS Holdings reported a drop in annual profits as double-digit revenue growth was not enough to make up for far lower income from property sales compared to the previous year.

The property investor reported profit before tax of £144.9m for calendar 2018, down 24% compared to the year before, as profit on the sale of properties dropped to £2.3m from the £43.7 the year before that was boosted by the sale of Vauxhall Square.

Revenue increased by 11% to £133.0m as rental property income increased by 10% to £103.0m as the vacancy rate was reduced from 5.8% to 3.8% and acquisitions added £11.4m, with a back-dated rent review at New Printing House Square adding a further £1.8m and disposals accounted for a fall of £4.6m.

The year saw the FTSE 250-listed company purchase of £70.9m worth of new properties, as well as disposal gains of £48.5m from 11 properties: eight properties in the UK, a pair in Germany and one in France. Significant acquisitions were also made after the period end: the 9 Prescot Street, London E1 and Les Reflets, Lille office buildings for £64m in aggregate.

Henry Klotz, executive chairman of CLS, said: "I am delighted to report a robust set of results in 2018 which once again endorses CLS's strategy of geographical diversity as a long-term investor in the three largest economies in Europe. We shall continue to follow our medium-term strategy and long-term vision. Our balance sheet is strong, our business well-placed, and we remain focused on continuing to deliver value to our shareholders."

At 31 December CLS had cash and cash equivalents of £100.3m, down from £146.0m at the same point the year before, while a final dividend of 4.7p per share was proposed, bringing the total dividend up 9% on the year before to 6.9p per share.

"The economic and political environment is as challenging to interpret as I have known for some time. The impact of Brexit on our business is, of course, difficult to predict, but the spread of our operations across the three strongest European economies places CLS at a competitive advantage," said Klotz.

However, Klotz added that the main risk was that demand for its premises in the UK would fall, which he deemed unlikely as 43% of UK rental income is derived from the UK government.

A note from analysts at Liberum said: "Progress was made reducing vacancy on acquired assets and the portfolio continued to be repositioned towards higher growth properties with asset management potential. We expect a continuation of these trends through FY19. CLS’s European diversity supports its income and capital growth, in a period where other London-focused office REITs face elevated cycle risk."

CLS Holdings' shares were up 0.18% at 245.94p at 0804 GMT.