CLS Holdings plc
Annual Report and Accounts 2021

16
60
30
64
Pacific House, Reading
Volunteering at Archbishop’s Park
9 Prescot Street, London
Office connect, Cologne
Strategic report
02 Group highlights
10 Chairman’s letter
11 Chief Executive’s review
16 Our investment proposition
18 Country reviews
24 Business model and strategy
26 Strategy in action
34 Engaging our stakeholders
36 Key performance indicators
38 Chief Financial Officer’s review
42 Our principal risks
53 Going concern and viability
54 Environmental, social and
governance review
Corporate governance
78 Chairman’s introduction
80 Governance at a glance
82 Board of Directors
84 Senior Leadership Team
85 UK Corporate Governance Code
86 Board leadership and Company
purpose
92 Workforce engagement
94 Division of responsibilities
96 Nomination Committee Report
104 Audit Committee Report
110 Remuneration Committee Report
130 Directors’ Report
133 Directors’ responsibility statement
Financial statements
134 Independent Auditor’s report to the
members of CLS Holdings plc
142 Group income statement
143 Group statement of comprehensive
income
144 Group balance sheet
145 Group statement of changes in equity
146 Group statement of cash flows
147 Notes to the Group financial
statements
179 Company balance sheet
180 Company statement of changes
inequity
181 Notes to the Company financial
statements
Additional information
185 Five-year financial summary
186 Glossary of terms
188 Directors, officers and advisers
Front cover: Hansaallee 299, Düsseldorf
CLS Holdings plc Annual Report and Accounts 2021

Fredrik Widlund
Chief Executive Officer
Location Quality Flexibility
CLS has delivered a healthy and
robust set of results for 2021 with net
assets up from earnings and valuation
gains in all of our three countries. We
faced headwinds from the strengthening
of sterling and the impact of pandemic
restrictions which temporarily reduced
occupancy but our operational
performance, especially in the second
half of the year, was excellent with
collection and leasing activities at
pre-pandemic levels.
These results show that our well-located,
high quality and flexible offices with
greatamenities in modern, sustainable
buildings are meeting the needs of our
customers. We have seen significant
positive momentum in lettings in recent
months and have more than 30 ongoing
refurbishments and developments that will
drive strong growth going forwards.
Statutory and alternative performance measures
Throughout the strategic report we use a range of
financial and non-financial measures to assess our
performance. The majority of those are European
Public Real Estate Association (EPRA) measures.
EPRA is a recognised body in the property industry
which is involved in the formulation of accounting
metrics and sustainability reporting, which give
theEuropean listed real estate sector greater
transparency and consistency.
These standards also provide visibility and
comparability to industry stakeholders in addition
tobeing appreciated by the investment community.
Management uses these measures to monitor
theGroup’s financial performance alongside
International Financial Reporting Standards (IFRS)
measures because they help illustrate the underlying
financial performance and position of the Group.
The EPRA measurements should be considered in
addition to measures of financial performance,
financial position or cash flows reported in
accordance with IFRS.
Note 5 to the financial statements provides a
reconciliation of the alternative performance
measures used and the Glossary gives a more
complete description of them.
Strategic report Corporate governance Financial statements Additional information
CLS Holdings plc Annual Report and Accounts 2021
01

Highlights
Rental data
1
Rental
income for
the year
£m
Net rental
income
for the year
£m
Lettable
space
sqm
Contracted
rent at
year end
£m
ERV at
year end
£m
Contracted
rent subject
to indexation
£m
EPRA
vacancy
rate at
year end
United Kingdom 53.3 53.7 188,356 55.0 60.7 15.4 5.4%
Germany 33.8 33.3 327,418 38.8 44.9 24.7 7.4%
France 14.1 14.2 73,383 13.8 14.4 13.8 3.0%
Total portfolio 101.2 101.2 589,157 107.6 120.0 53.9 5.8%
Valuation data
1
Market value
of property
£m
Valuation movement
in the year
EPRA
net initial
yield
EPRA
‘topped-up’
net initial
yield Reversion
Over-
rented
Equivalent
yield
Underlying
£m
Foreign
exchange
£m
United Kingdom 1,034.5 3.1 – 4.8% 5.1% 7.5% 3.0% 5.5%
Germany 883.0 27.2 48.0 3.8% 4.2% 11.8% 4.6% 4.4%
France 280.1 0.9 17.9 3.8% 4.5% 5.1% 3.8% 5.0%
Total portfolio 2,197.6 32.2 65.9 4.3% 4.6% 8.7% 3.7% 5.0%
Lease data
1
Average lease length Contracted rent of leases expiring in: ERV of leases expiring in:
To break
years
To expiry
years
Year 1
£m
Year 2
£m
3 to 5
years
£m
After
5 years
£m
Year 1
£m
Year 2
£m
3 to 5
years
£m
After
5 years
£m
United Kingdom 3.2 4.3 5.0 3.9 31.4 14.7 5.7 4.0 32.7 15.0
Germany 4.9 5.0 8.2 6.4 11.8 12.4 9.7 6.9 12.2 12.8
France 2.6 5.0 0.5 2.3 3.3 7.7 0.6 2.1 3.2 8.1
Total portfolio 3.7 4.6 13.7 12.6 46.5 34.8 16.0 13.0 48.1 35.9
1 The above tables comprise data of the investment properties and properties held for sale (see note 12). They exclude owner occupied, land, student accommodation
and hotel.
Twenty, Kingston Road, Staines
CLS Holdings plc Annual Report and Accounts 2021
02

Statutory NAV per share +4.7%
20
21
326.6p
2
020
311.9p
EPRA NTA per share +1.5%
20
21
350.5p
2
020
345.2p
Statutory EPS +54.2%
20
21
29.3p
2
020
19.0p
EPRA EPS -7.4%
20
21
11.3p
2
020
12.2p
Property portfolio
20
21
£2.3bn
2
020
£2.2bn
Valuation uplift
1
20
21
1.6%
2
020
1.4%
Full year’s dividend +2.0%
20
21
7.70p
2
020
7.55p
Profit before tax -5.2%
20
21
£91.5m
2
020
£96.5m
Cost of debt
20
21
2.22%
2
020
2.28%
Rental income collection
20
21
99%
2
020
99%
Balance sheet loan-to-value
20
21
37.1%
2
020
33.7%
Increase in like-for-like CO
2
emissions from prior year
2
16%
Sustainable electricity
Renewable/carbon-free
electricity
92%
GRESB rating up thirteen points from prior year
85
Sustainably-linked loans of
Group debt are ‘green’ loans
21%
Contracted rent which
isindex-linked
50.1%
EPRA vacancy rate
(2020: 5.1%)
5.8%
Net rental income £108.0m
(2020: £109.8m)
-1.6%
Capital expenditure
(2020: £17.8m)
£36m
Net acquisitions
(2020: £49.0m)
£127m
Amount of Group borrowings
at fixed rates
(2020: 84%)
85%
Financial highlights
see pages 38 to 41
ESG highlights
see pages 54 to 77
Strategic highlights
see pages 10 to 15 and 18 to 23
1 In local currency – total property portfolio.
2 Rise due to the increase in occupancy of our buildings during the year as
tenants started returning to the office.
Strategic report Corporate governance Financial statements Additional information
CLS Holdings plc Annual Report and Accounts 2021
03

16
0
2
4
6
8
10
14
12
10-year annual compound returns by asset class
S&P500
EPRA
E300
ex-UK
E300
Germany
MSCI
EAFE
IPD UK
E100
Bund
10Y
Gold
HICP
%
GDP v Unemployment rates UK and EU
-2
-4
-6
-10
-8
2019
GDP (EU) GDP (UK) Unemployment (EU) Unemployment (UK)
2020 2021 2022 2023
-12
%
8
6
4
2
0
UK
Value of commercial real estate
Germany
France
% that is listed
€1,371m
8%
8%
5%
€1,063m
€1,531m
Market size
The European commercial real estate market totals €7.3 trillion
of which c.7% is listed and of this c.11% is office. Germany, the
UKand France are the largest real estate markets in Europe.
Investment in publicly listed companies owning offices gives
access to professional management, quality business models
and exposure to property that is scarcely traded.
Performance
Share prices of listed real estate companies are driven by a
combination of: actual and forecast growth in: asset values; and
cash flow/income yield which is linked to dividends, both of
which are reflected in share prices. As an asset class, European
real estatehas performed strongly over the last 10 years.
GDP / Unemployment
High GDP growth and low unemployment are positive drivers
ofthe economy in general. Moreover, they are strongly and
favourably correlated with the office market with job growth
driving higher levels of demand and occupation.
Commercial property is one of the most
attractive, global, asset investment
sectors. Offices, which are the largest
segment, also provide many fundamental
services including facilitating positive
interactions between colleagues and
enhancing productivity.
Source: UBS, Datastream, IPD, Jan-2022
Source: European Commission – European Economic Forecast, Autumn 2021
Source: European Public Real Estate Association Q4 2021 Global Real Estate TotalMarketsTable
CLS Holdings plc Annual Report and Accounts 2021
04
Our business is underpinned
by strong market drivers

Percentage of CLS rental income that is index-linked
28
64
100
%
U
K
G
ermany
F
rance
29%
53%
BREEAM In-Use ratings
3%
14%
1%
Excellent
Very good
Good
Pass
Not rated
Interest rates / inflation
The last decade has seen an extended period of low interest
rates and inflation, with low interest rates increasing asset
values, as equivalent yields have reduced, as investment return
demands have fallen. Going forward with expectations of
increasing interest rates, driving rental growth particularly
through indexation will be important to offset any softening
ofyields.
Future of the office
Further commentary is provided elsewhere in this report but
undoubtedly the pandemic has accelerated trends in the office
market. The balance of supply and dynamics will remain
important, for example inflation driving construction costs vs
replacement costs, but the importance of location, quality and
flexibility is clear.
See pages 11 to 15
Sustainability
Ensuring offices meet high sustainability standards is now
paramount and accords with the requirement for quality
buildings. The recognition of the release of embodied carbon in
many developments is leading to an increasing presumption in
favour of refurbishment.
See pages 54 to 77
The results of the CBRE 2022 Investor Intentions Survey show
that London was the most attractive city for property investment
in Europe, Paris placed second with Berlin and Munich also in the
top 10. Overall Germany was ranked highest in terms of expected
performance with the UK in second.
Most investors (60%) expect to increase their purchase of
properties in 2022. Offices were the preferred asset class, with
39% of investors eyeing these properties, reflecting a 3% rise
from lastyear. Around 47% of respondents expected similar or
higher demand for physical office space in the next three years
compared with 31% in 2021.
CGI of Prescot Street development
Strategic report Corporate governance Financial statements Additional information
CLS Holdings plc Annual Report and Accounts 2021
05

Group rent collection statistics
2020
9
9%
99
%
2021
97
%
Q1 2022
Historical EPRA vacancy
2
015 3.1
%
2
016 2.7
%
2
017 5.2
%
2
018 3.7
%
2
019 3.8
%
2
020 5.1
%
20
21 5.8
%
Acquired vacancy
Change in EPRA vacancy 2021
At 31 December 2020
5.1
%
Acquired vacancy
Acquired vacancy let
1.4
%
Net underlying change
(0.5)
%
(0.2)
%
At 31 December 2021
5.8
%
Top 15 tenants 34% of contracted rent
Secretary of State
UK
UK
UK
UK
1
4
7
10
13
2
5
8
11
14
3
6
9
12
15
Germany
GermanyGermany
Germany France
Germany UK UK
Germany UK UK
CLS Holdings plc Annual Report and Accounts 2021
06
We have a robust tenant base

1.
2.
3.
752
tenants
Contracted rent
Priory Place, Chelmsford
24.4%1. Government
29.2%
2. Major corporations
46.4%
3. Other
Tenant industries % of contracted rent
24.4%Government
12.9%Commercial and professional services
11.3%
Information technology
10.0%
Consumer discretionary
8.5%
Communication services
7.2%
Industrials
6.1%
Real estate
5.6%
Health care
5.1%
Other
4.9%
Financials
4.0%Consumer staples
Strategic report Corporate governance Financial statements Additional information
CLS Holdings plc Annual Report and Accounts 2021
07

We will achieve this by aligning our
strategic vision to our tenants’ business
ambitions and occupational needs,
reinforcing our diversification in our key
markets and elevating the importance
ofsustainability across all aspects of
ourbusiness.
Doing this will not only drive our business
forward, it will help to enhance our profile
within the sector.
Our investments are based on our long-
term vision, continuously modernising
ourportfolio into viable, future-focused
andsustainable properties. We apply the
same long-term approach to our tenants
byunderstanding their own business
ambitions.
By providing the right environment and
sharing our expert insight, we help them
make more informed choices and grow
their businesses in a more responsible,
considered way.

Our tenants, our focus
We pride ourselves
intheway we build
relationships with our
tenants. We get to know
them and understand their business
needs, so they feel listened to and valued.
We are responsive and flexible, ensuring
they stay with us for the long term.

Agility unlocks
opportunity
Our agile approach allows
us to see potential and
opportunities in ways
others can’t. It means we can respond to
changing market conditions and make
decisions quickly. We act with flexibility
and speed to make the most of
possibilities the moment they arise.

Openness creates
closeness
We treasure our inclusive,
close-knit and open
culture. Everyone has
visibility and a voice. Our open-door policy
encourages everyone to share opinions,
creating greater transparency, honesty
and trust.

Collaboration
gets the job done
We confidently take
ownership of projects from
beginning to end, making
the critical decisions that get the job
done.We get involved and collaborate
across departments and markets,
contributing ideas.
Our vision
To be a leading office space
specialist and a supportive,
progressive and sustainably
focused commercial landlord.
Our purpose
Our purpose is to transform
office properties into
sustainable, modern spaces
that help businesses to grow.
Our values
Our values represent both our
strong culture and how we
successfully and consistently
deliver on our strategy and
business model.
How we are ensuring that the business is sustainable
Sustainability is an integral aspect and focus of the Company’s
purpose. Our sustainability strategy is designed to create and embed
an understanding of, and to set the benchmark for, how we put
sustainability initiatives into practice throughout the Group.
CLS Holdings plc Annual Report and Accounts 2021
08
Driven by clear
purpose and values...

United Kingdom 44
London 33
South East 10
Birmingham 1
France 18
Paris 11
Lyon 5
Lille 2
Germany 31
Hamburg 8
Munich 7
Berlin 4
Stuttgart 3
Dusseldorf 3
Dortmund 2
Cologne 1
Nuremberg 1
Bochum 1
Essen 1
93
Properties
£120m
Estimated rental value
1
£2.3bn
Property portfolio
1 Investment property and assets held for sale
Strategic report Corporate governance Financial statements Additional information
CLS Holdings plc Annual Report and Accounts 2021
09
...and our well
locatedportfolio

Lennart Sten

Non-Executive Chairman

Our successful efforts to reduce vacancy,

our recent conversion to a REIT in the UK

and our focus on providing offices that

meet tenant needs leave us well-

positioned for 2022 onwards.

Dividends

Given the financial position of the business

and confidence in the future, the Board

has decided to propose an increase in

thefinal 2021 dividend of 3% to give a

2%increase in the full year dividend,

which will be 7.70 pence per share.

The Board’s policy of keeping the dividend

1.5 to 2.0 times covered by EPRA earnings

(i.e. paying out 50% to 66.6%) remains in

place but we will review this policy during

the year as the 2022 interim dividend in

September 2022 will be the first paid out

under the REIT regime.

Our staff and our culture

I and the rest of the Board continue to be

impressed by the ongoing hard work of

allour staff and the tremendous way that

they have responded to the challenges

thrown up during the last two years, for

which we offer our sincere thanks and

gratitude. One of CLS’ big attractions and

differentiators is its open, inclusive and

positive culture. It is very pleasing that

this has been maintained, which will

standCLS in good stead going forward.

Lennart Sten

Non-Executive Chairman

16 March 2022

Dear Shareholder,

The pandemic and the impact on working

practices and habits remains one of the

most significant influences on CLS’

operations. In response, we have

maintained our focus on the key drivers

ofthe business as well as adapting to

developing patterns such as hybrid

working. Whilst there is still some

uncertainty about the future of the office,

greater clarity is emerging. The market

isbecoming bifurcated such that offices

which are less sustainable with poorer

amenities will struggle, whilst well-

located, high quality and flexible buildings

with strong sustainability credentials such

as those provided by CLS will thrive.

Performance and our property portfolio

It is yet again pleasing that the benefits

ofour diversified business model and

clear strategy continue to persist as

demonstrated by our results. In 2021, we

delivered a robust financial performance

despite our results being impacted by the

strengthening of sterling and the negative

impacts of the pandemic restrictions on

our Vauxhall student and hotel operations.

EPRA NTA per share increased by 1.5%

to350.5 pence per share (2020: 345.2

pence per share) and total accounting

return, including the dividends paid

intheyear, was 3.7% (2020: 8.1%).

The valueof our property portfolio rose

to£2.3 billion (2020: £2.2 billion) as a

result of: £142.4 million of acquisitions

netof disposals; £36.0 million capital

expenditure; £36.7 million from net

valuation increases of 1.6% in local

currencies with uplifts in all countries;

offset by depreciation of £0.5m and a

reduction of £66.3 million as a result of

the strengthening of sterling by 6.3%.

Our property portfolio is split 50% in the

UK, 38% in Germany and 12% in France.

The roll-out of vaccines,

andcountries’ improved ability

to deal and live with Covid-19

variants, is propelling the return

of the economy to more normal

patterns and driving increased

occupation of modern,

sustainable offices such as

those offered by CLS.

Environmental, social and governance

As highlighted by the Glasgow Climate

Pact made at COP26, climate change

continues to dominate world events

reinforcing the need to reduce carbon

dioxide emissions, move away from fossil

fuels and align private finance towards

achieving net zero emissions. CLS is

proud to have published our sustainability

strategy, incorporating our pathway to net

zero carbon by 2030, which is aimed at

addressing each of these key themes.

As we are now into the delivery phase of

our strategy, I am energised by the way

inwhich our employees have embraced

our aspirations and the commitment

theyhave shown to deliver future-ready

assets. This energy is an essential part

ofour commitment to being a good

corporate citizen in our communities and

neighbourhoods whilst at the same time

maintaining the highest standards of

corporate governance.

Strategic outlook

We are seeing increasing clarity around

the companies and properties which will

be successful in the post-Covid era. As a

result, CLS will continue to pursue our

proven strategy and business model of

providing well-located, high quality and

flexible offices that have the ability to

respond to changing market dynamics.

CLS Holdings plc Annual Report and Accounts 2021

10

Chairman’s letter

Fredrik Widlund

Chief Executive Officer

Overall, what appears to be clear is that

hybrid working is here to stay and offices

need to be attractive and sustainable, and

offer better amenities. For CLS and our

tenant-focused strategy, this simply

reinforces our belief in ensuring we have

the right offices which offer Location,

Quality and Flexibility.

With these characteristics in mind, we

made six acquisitions in 2021 for a

headline purchase price of £164.8 million

and sold eight smaller properties for a

headline sale price of £37.4 million.

This resulted in net additions of

£127.4 million before costs.

Five of the acquisitions were in

Germanyand one was in the UK. All of

theproperties had asset management

opportunities to drive further value,

particularly the two properties in

Germany which had significant vacancy.

As a consequence, whilst the net initial

yield of these acquisitions was 3.9%,

wehave the opportunity within the

nextcouple of years or so to capture

thepotential of these assets, which is

reflected in the reversionary yield of 6.1%.

More detail on the individual buildings is

given in the country pages (pages 18 to

21). The three German properties which

were bought together are highlighted in

the case study on pages 26 and 27.

Historically, successful

investment in properties,

including offices, was largely

determined by Location,

Location, Location. In recent

years, the market and occupiers

have become increasingly

sophisticated – atrend which

has been accelerated by the

pandemic. Consequently, more

characteristics are demanded

with the most successful office

owners now offering Location,

Quality and Flexibility.

Delivering on our strategy

Much has been written, and continues to be

written, about the future of the office and

whilst a definitive conclusion has yet to be

reached, trends are starting to emerge.

Rather than repeat or rehash the debate, I

wanted to make a few observations.

A 2021 Knight Frank (Y)OUR SPACE survey

showed 30% of corporates anticipated

growing their total space in the next three

years, 35% anticipated it staying the same,

and 35% foresaw a decrease in space

occupied. This balanced picture feels about

right, but as work from home and other

restrictions have persisted, the attractions

of offices in surveys continues to increase.

Perhaps more important is the supply

sideof the debate. The importance of

sustainability amongst investors and

occupiers is increasing. Many existing

offices will become obsolete, as it is

uneconomic to upgrade them to meet

risingenvironmental standards, or will

beconverted to other uses. The pandemic

has also reduced the amount of

construction ofnew offices. This will

beexacerbated if other cities follow the

lead of the City of London in favouring

refurbishment over redevelopment –

which clearly supports CLS’ business

model. And finally, Google in acquiring

itsoffice in Kings Cross highlighted the

importance of“de-intensifying” space.

This reduction in density, creates more

space per worker and will further limit

supply, ultimately creating additional

demand.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

11

Chief Executive’s review

Since the year end we have exchanged

onthe acquisition of two properties in

Dusseldorf and Dortmund for £75.7 million,

which are due to complete in April 2022

and, after financing and costs, will result

in a net cash outflow of £32.7 million

whileadding c.£4 million of rent p.a.

The combined net initial yield is 5.1% with

the potential to reduce the limited vacancy

and capture rent increases to achieve a

reversionary yield of 5.6%. We continue to

look for further acquisition opportunities

across all three countries but we will not

compromise acquisition returns and thus

will only acquire when our acquisition

criteria are met.

We continue to recycle capital on a

selective basis, making disposals where

there are limited opportunities to add

value and/or drive returns, or when

offered a compelling price. Additionally,

we are seeking to increase the average

size of our properties by disposing of

smaller properties which usually

consumea disproportionate amount of

management time and are less economic

to equip with the best amenities. To that

end, we sold eight smaller properties

(three in the UK, two in Germany and

three in France) at a net initial yield of

4.8% for £37.4 million which was in line

with latest valuations. Since the year end,

we have exchanged on the disposal of two

further properties in the UK which will

complete in the first half of 2022. The total

consideration is £10.1 million, in line with

the latest valuations, reflecting a net initial

yield of 6.0%.

Hansaallee 299, Düsseldorf

CLS Holdings plc Annual Report and Accounts 2021

12

Chief Executive’s review

Continued

CLS has always listened,

and stayed close, to its

tenants. We are continuing to

respond to market changes by

providing modern, sustainable

offices with great transport

links as well as flexible spaces

and leases which meet

occupier needs.

Maintaining and improving the quality

ofour properties in terms of amenities

and sustainability remains paramount.

We aretherefore increasing our

investment across refurbishments such

as 45 London Road in the UK (see page

19), redevelopments such as Park Avenue

in France (see page 22) and developments

such as LichtHof in Germany (see page

21). Capital expenditure in 2021 was

£36.0 million and we expect to spend

around £50 to £70 million in each of 2022

and 2023, of which c.£5 million per annum

is part of the Net Zero Carbon pathway

spend, to improve the attractiveness of

the portfolio.

In November 2021, we held a Capital

Markets Day in London at which we

highlighted the considerable opportunities

in the short, medium and long-term to

improve rental income and the value

ofthe portfolio. We also showcased a

number of properties across all three

regions and were able to conduct

in-person site visits to some of these

opportunities. Since then, we have

continued to make good progress with

these opportunities.

Demolition, piling and the ground floor

slab were completed by December 2021

at our 28,500 sq. ft office development

atVauxhall Walk in London and the

concrete superstructure has now reached

the fourth floor of this £17.4 million

project. Completion is on target for

Q12023 and marketing has started.

The redevelopment of 9 Prescot Street in

London is also progressing well. Strip-out

works have been completed and the

c.£29 million 94,000 sq. ft project is on

target to complete in Q2 2023. More detail

is given in the case study on page 30.

Asset and property management

In last year’s annual report, I repeated

thewording from my 2019 commentary

about the importance of staying close

toour tenants and building long-term

relationships. I am not going to repeat the

wording again but will merely stress that

this business ethos, CLS’ business ethos,

remains critical in determining long-term

success. Testament to this, our rent

collection rates in 2021 were over 99%

ashas been the case throughout the

pandemic. On the whole, our properties

are multi-let with over 750 tenants, of

which 24% are government agencies and

29% are major corporations.

In 2021, the overall Group EPRA vacancy

rate increased to 5.8% (2020: 5.1%) which

remains above our target of 5%. However,

a simple number does not tell the story

ofthe drivers and the considerable

successes of the asset management team

in the year. Simplistically, the vacancy

rateincreased from 5.1% at the start of

the year to 7.7% in June as a result of

consciously acquired vacancy in Germany

as discussed above. The vacancy rate

then rose to over 8% in October from a

combination of significant lease expiries

and completed refurbishments becoming

available to let again. The reduction to

5.8% by the end of December (UK 5.4%,

Germany 7.4% and France 3.0%) reflected

substantial letting activity conducted

throughout Q4, particularly in Germany,

due to the team’s efforts and a rebound in

market activity. We are confident that our

active asset management strategy will

reduce vacancy levels below 5% in 2022.

At 31 December 2021, the value of the

portfolio increased by 1.6% in local

currencies as a result of revaluation

uplifts. There were increases in all

countries with Germany up 3.1%, the UK

0.7% and France up 0.3%. Whilst many of

the property increases were individual in

nature, some trends can be discerned.

In the UK, the attractiveness of

government income and longer-term

development potential helped drive a

reduction in equivalent yields to 5.5%

(2020: 5.7%) andERVs increased 1.3%

(2020: 1.6%) (netinitial yield fell to 4.8%

(2020: 5.0%)). In Germany, considerable

letting activity drove improvements in

ERVs, which increased 0.6% (2020: 3.1%),

with equivalent yields stable at 4.4%

(2020: 4.4%) (net initial yield fell to 3.8%

(2020: 4.1%)). In France, the picture was

more mixed with the continued strength

of the Lyon market but a more varied

picture for our Parisian assets resulting

inequivalent yields tightening to 5.0%

(2020: 5.2%) but ERVs down 1.6%

(2020: 0.2% up) (net initial yield fell to 3.8%

(2020: 4.0%)). In aggregate, fair value

uplifts added 9.0 pence per share to EPRA

NTA (£36.7 million including £2.7 million

lease incentive debtor adjustments)

before the impact of lease incentives and

depreciation.

9 Prescot Street: Investor visit as part of

November 2021 Capital Markets Day

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

13

Financial results

Overall, results in 2021 were robust with

excellent rent collection continuing and

revaluation uplifts across all countries.

However, as flagged earlier in the year,

results in 2021 were impacted by the

6.3%strengthening of sterling against the

euro and reduced occupancy in the first

half of the year in our student and hotel

operations as a result of pandemic

restrictions. As the impacts of the

pandemic have receded, the performance

of the student and hotel operations have

rebounded such that our student building

is now fully occupied (2020/21: 46%) and

the hotel is forecasting occupancy of 88%

in 2022 (2021: 70%).

Profit from recurring operations was

£77.3 million (2020: £77.4 million).

Revaluation gains and the sale of

investment properties in 2021 of

£28.4 million (2020: £43.1 million) were

below last year given lower valuation

uplifts with a foreign exchange loss of

£2.3 million (2020: £2.1 million gain).

Including non-recurring items, earnings

per share of 29.3p was ahead of last year

(2020: 19.0p) as a result of the release of

UK deferred tax liabilities on revaluation

gains following CLS’ conversion of its UK

operations to a REIT.

As highlighted, EPRA earnings were

impacted by negative exchange rate

movements and student and hotel

occupancy. Consequently, EPRA earnings

per share in 2021 were down at 11.3p

(2020: 12.2p). The second half of the year

contributed strongly with earnings of 5.9p

reflecting an accelerating recovery and

momentum as we go into 2022 as well as

actions to lower the cost base.

EPRA NTA increased by 1.5% (2020: 5.8%)

reflecting EPRA earnings, revaluation

gains of 1.6% in local currency and a

positive uplift from UK REIT conversion

offset by a £39.5 million reduction from

the 6.3% weakening of sterling against the

euro (2020: £29.7 million gain) and the

payment of an increased dividend.

At the year end, we had liquid resources

of £167.4 million (2020: £235.7 million),

reflecting net acquisitions and ongoing

investment, as well as £50.0 million

ofundrawn credit facilities (£2020:

£50.0 million).

In 2021, we generated £44.2 million

netcash from operating activities

(2020: £44.3 million) compared with

EPRAearnings of £45.9 million (2020:

£49.5 million) showing the continued

strong cash generation of our business

model. Of this cash, £30.8 million

(2020: £30.1 million) was paid as a

dividend to shareholders. We balance

theuse of the cash generated between

dividends and reinvestment in the

business to drive the total accounting

return to shareholders, which was 3.7%

in2021 (2020: 8.1%).

Purpose, people and planet

In 2021, we made significant progress in

future proofing our portfolio with the

publication of our enhanced sustainability

strategy, incorporating our Net Zero

Carbon pathway to 2030, which has been

validated by the Science Based Targets

initiative, and our Social Value Framework.

We have set ourselves clear and ambitious

targets that mirror our aspirations as a

sustainably focused landlord. The fully

costed plan has an estimated cost of

£58 million with a minimum expected

recovery of 20% through normal service

charge expenditure.

Whilst the focus in the years ahead is

onthe delivery of the Net Zero Carbon

pathway and the Social Value Framework,

thisyear has seen improvements and

developments in a number areas related

to our sustainability strategy. We have

implemented the results of our energy

and carbon audits into our capex budgets,

identifying initiatives that ensure our

buildings become more environmentally

efficient and reduce our energy usage as

well as informing our investment and

divestment decisions.

It is especially gratifying that our

progresshas been recognised by external

assessors with a big increase in our

GRESB score from 72 to 85, reflecting

thecontinuous improvements made

throughout the business. We met our 2021

target to double PV generation across the

portfolio through five installations,

increasing total generation to 469,411 kWh

per year, representing 2% of energy used

in our managed portfolio. We will continue

this progress though further ambitious

95, Rue de Bellevue, Boulogne-Billancourt

CLS Holdings plc Annual Report and Accounts 2021

14

Chief Executive’s review

Continued

ERV potential of the portfolio £m

107.6

7.0

5.4

120.0

c.1.5

c.9

c.3.5

c.134

c.5

c.139

Spring Gardens and

New Printing House Square

Contracted

Vacant

Long term CLS vacancy

Prescot Park Avenue Apex Tower

Kennington Road Columbia

Vauxhall Walk

LichtHof St Cloud Gate Adllershofer Tor

Net reversion

ERV

Refurbishments

Committed developments

Net acquisitions 2022 to date

Potential ERV

Planned developments

Post 2024

Post 2025

targets during 2022. Finally, we continued

to align our sustainability objectives with

those of our lenders. We secured our

second ‘green’ loan in 2021 and now

haveover 20% of our loans linked to

ESGtargets.

Our sustainability agenda is more than

simply environmental measures and

targets. At various times throughout the

year, the majority of our employees and I

took part in at least one day of community

support. In total, we invested c.400 hours

in our communities in which we are an

active participant and supporter. We also

delivered initiatives aimed at supporting

workplace health and wellbeing across

our managed portfolio, supporting our

tenants during what has been a very

difficult period.

Never before have our culture and values

been more important, both during the

various lockdowns but moreover in

ensuring we maintain and build on

thosestrong relationships as we return

tothe new norm. Our clear purpose,

underpinned by our core values has

continued to inspire our teams across our

countries and I thank all of our employees

for stepping up to the challenges of 2021,

which has enabled us to deliver a robust

set of results.

Looking to the future

To demonstrate more clearly the

opportunities within the portfolio to

capture higher rents, we have included

awaterfall chart in recent investor

materials. Set out above is an updated

chart which shows:

• contracted rent at the end of 2021 of

£107.6 million;

• the current potential Estimated

RentalValue (‘ERV’) of the portfolio

of£120.0 million if all vacant space

let(£7.0 million increase) and net

reversionary potential (£5.4 million

increase) were captured. We do though

benefit from some vacancy/churn

within the portfolio to capture reversion

more quickly and to allow the

refurbishment of older properties and

thus recognise that not all of this

vacancy upside should be captured;

• net acquisitions exchanged in 2022 to

reporting date (c.£3.5 million);

• the potential increase to ERV over

2022and 2023 to £134 million from

refurbishments (c.£9 million increase),

committed developments (£1.5 million

from Vauxhall Walk); and

• the potential increase to ERV between

2023 and 2025 to £139 million from the

uncommitted developments of LichtHof,

St Cloud Gate and the rooftop extension

at Adlershofer Tor (c.£5 million

increase).

In addition to these increases up to 2025,

there is further potential from: inflation

indexation, with over half the portfolio

having contractual increases; market

movements; and executing value-

enhancing transactions, both acquisitions

and disposals, to focus the portfolio on

faster growing properties. Post 2025,

wehave significant development,

redevelopment or rental increase

opportunities at Spring Gardens and

NewPrinting House Square, both of

whichare in Zone 1 in London.

Our strategy and our focus on the three

largest countries in Europe remains

unchanged but with slightly different

priorities: growing Germany; driving

UKlong-term value; and realising

Frenchprofitability and cash returns.

By concentrating on the Location, Quality

and Flexibility of our offices and ensuring

that we respond to client and market

demands, we are confident that CLS

willcontinue to be successful for all of

ourstakeholders.

Fredrik Widlund

Chief Executive Officer

16 March 2022

£44.2m

Net cash from operating activities

21%

of loans linked to ESG targets

Section 172(1) Statement

A description of how the Directors have had

regard to the matters set out in section

172(1)(a) to (f) when performing their duty

under section 172 can be found on pages 88

and 89 are incorporated into this statement

by reference.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

15

EPRA NTA per share (pence)

20

21

2

020

2

019

350.5

345.2

326.3

EPRA NAV per share (pence)

20

21

2

020

2

019

2

018

2

017

353.0

350.1

329.3

309.8

285.6

2012 2013 2014 2015 2016 2017 2018 2019 20212020

700

600

400

300

200

500

100

Total returns to shareholders

15.7% CAGR

CLS Holdings

FTSE All Share

FTSE 350

FTSE RE SS

(2012: 100)

1.

A clear strategy

Key investment tenets

Diversified approach

This approach is across: Countries

(we invest in Europe’s three largest

economies); Tenants (over 750 tenants

spread across most sectors); and

Financing (25 different lenders).

Sole focus on multi-let offices

Long-term investment in high yielding,

multi-let offices in London andthe South

East of the UK and the larger cities in

Germany and France.

Selected development schemes

Occasional opportunities arise in the

portfolio to carry out development

projects to capture rental and capital

growth; the amount of development is

kept below 10% of the portfolio value at

any one time. Opportunities to secure

alternative uses are pursued usually until

planning permission is secured and then

the property is sold to a developer.

Delivered outcomes

Office connect, Cologne

CLS Holdings plc Annual Report and Accounts 2021

16

Our investment proposition

(%)

6

5

4

3

0

2

1

2017 2018 2019 2020 2021

Net initial yield

Weighted average cost of debt

NIY vs cost of debt

Distribution of year’s profit (£m)

20

21

2

020

2

019

2

018

2

017

31.4

30.8

30.1

28.1

25.9

GRESB (ESG) score/100

20

21

2

020

2

019

2

018

2

017

85

72

70

63

56

Leading

track record

Key investment tenets

Disciplined approach to investment

Acquisitions are assessed against strict

return and strategic fit criteria but are

pursued on an opportunistic basis with

noset capital allocation across countries.

Low yielding assets with limited potential

or where the risk/reward ratio is

unfavourable are sold.

Cash-backed progressive dividend

CLS is a total return share using cash flow

generated to pay a progressive dividend

and also to reinvest in the business to

generate further net asset growth.

We aim to grow the dividend in line with

the growth of the business, targeting the

dividend to be covered 1.5 to 2.0 times by

EPRA earnings.

Financing headroom

Our aim is to keep at least £100 million

ofliquid resources including financing

headroom. This approach gives the ability

to move quickly to complete acquisition

opportunities as well as the flexibility to

secure the optimal financing solution.

Active

management

Key investment tenets

Experienced in-house capabilities

In-house asset, property and facilities

management teams result in better cost

control, closer asset knowledge and

synergies across the property portfolio.

Secure rents and high occupancy

Targeted occupancy levels above 95%,

whilst providing affordable rents and

flexible lease terms to meet tenant

demand and so create opportunities to

capture above market rental growth.

Interest rate management

Financing facilities, which are arranged

in-house, seek to balance flexibility,

diversity and maturity of funding whilst

ensuring a low cost of debt which is

targeted to be at least 200 basis points

below the Group’s net initial yield.

3.2. 4.

£100m

Liquid resources retained including

financing headroom

97%

Of rated portfolio achieving at least

BREEAM In-Use “Good” or better

95%

Targeted occupancy rate

A focus on

sustainability

Key investment tenets

Responsible profit

Across our business model, in everything

we do, we seek to generate responsible

profit through employing sustainable

long-term decisions with the environment

in mind.

Strong ESG performance

We believe in full transparency and

therefore continually submit our progress

to global ESG benchmark schemes in our

industry, such as GRESB and FTSE4GOOD.

This also allows us to monitor our

progress and gives our stakeholders

confidence in our delivery against our

commitments.

Climate risk mitigation

Our in-house sustainability programme

isfocused on mitigating our impact on

environmental climate risks and energy

security whilst maximising the benefits

we deliver to the communities in which

weare involved.

Delivered outcomes Delivered outcomes Delivered outcomes

Strategic report Corporate governance Financial statements Additional information

17

CLS Holdings plc Annual Report and Accounts 2021

The market in the United

Kingdom, for both investment

and occupation, is favouring

modern, sustainable and flexible space

as the return to the office ramps up.”

Value of property portfolio £1,160.9m

Percentage of Group’s property interests 50%

Number of properties 44

Number of tenants 227

EPRA vacancy rate 5.4%

Lettable space 2.0m sq. ft

Government and major corporates 64.6%

Weighted average lease length to end 4.3 years

Leases subject to indexation 28.0%

United

Kingdom

Portfolio movement and

valuation summary

The value of the UK portfolio increased by

£35.2 million as a result of: net additions

of £27.6 million (one acquisition for

£17.9 million including costs and capital

expenditure of £20.6 million partly offset

by three disposals for £10.9 million); and

avaluation gain of £8.0 million or 0.7%,

marginally offset by depreciation of

£0.4 million.

The like-for-like valuation increase, which

excludes acquisition costs, was also 0.7%.

The valuation increase was due to an

increase in ERVs and a slight decline in

equivalent yields (from 5.70% to 5.51%)

asgovernment income and long-term

development project opportunities are

now more sought after. The net initial

yield decreased to 5.1% (2020: 5.2%)

whilst like-for-like ERVs grew by 1.3%

andlike-for-like contracted rents

increased 1.1%.

Acquisitions

In January 2021, we completed on the

acquisition of Radius House in Watford

for£16.9 million which had exchanged

inDecember 2020. The well-located

property comprises 41,226 sq. ft

(3,830sqm) and, at completion, was fully

let to four tenants with a WAULT of 8.1

years. The net initial yield was 5.6% with

secure long-term income as 51% is

contracted to The Secretary of State

forHousing, Communities and Local

Government until 2030 without break.

Developments and refurbishments

In July 2021, construction started on

“TheCoade”, our new 28,500 sq. ft office

development at Vauxhall Walk with

completion forecast for the first quarter

of2023. We are targeting a minimum 20%

profit on cost and the 10-storey building

isexpected to achieve EPC A and BREEAM

Excellent ratings.

“The Artesian”, our development at 9

Prescot Street, London, is progressing

well with strip out works of the lower

floors complete. The scope of the project

has expanded such that the remaining

floors will also be redeveloped upon

expiry of leases in the first half of 2022.

The 94,000 sq. ft tenant-focused

development will feature a café/reception,

ample bike storage, showers and a large

roof terrace. A full case study is set out on

page 30 and 31.

CLS Holdings plc Annual Report and Accounts 2021

18

Business review

Investing to meet

tenant needs

In 2021, a number of refurbishments to

capture rental increases were also

completed. The most notable being the

completion of the refurbishment of the

entirety of 45 London Road in Reigate

(discussed below) and the 1st floor at

Columbia in Bracknell, both of which

resulted in improvements in the EPC

ratings to a Grade B.

Disposals

During 2021, we continued with our

strategy of repositioning the UK Portfolio

by way of £12.0 million of selected

disposals of a limited number of assets

which were either too small to have a

meaningful impact or had a greater

alternative use value. This capital has

been deployed into higher growth

opportunities across the portfolio.

In January 2021, we completed on the sale

of Atholl House in Aberdeen at book value

and in April and July, we completed on the

sale ofQuest House and Falcon House in

Hounslow for £11.8 million, a 10.2%

premium over the 2020 year end value.

It is intended that this programme of

disposing of smaller assets of less than

£10 million will continue into 2022.

In January 2022, we completed on the

saleof Kings House in Bromley for

£5.4 million which was 6.4% over the 2020

year end value of £5.1 million. In February

2022, we exchanged on the disposal of

Crosspoint House in Wallington for

£4.7 million, which was at book value.

The disposal will complete in the first half

of 2022.

Asset management

The vacancy rate in the UK reduced to

5.4% as at 31 December 2021 (2020: 5.9%)

with the reduction being largely driven

bysales and a general improvement in

letting conditions.

In 2021, we let or renewed leases on

118,357 sq. ft (10,996 sqm) and lost

238,843 sq. ft (22,189 sqm) of space from

expiries or new vacancies. For a number

of these expiries, we took the opportunity

to refurbish the buildings to ensure that

they provide the requisite quality and

amenities for tenants.

In 2021, excluding those arising from

contractual indexation uplifts, 55 lease

extensions and new leases were signed

which added £3.8 million of rent at an

average of 1.1% above 31 December 2020

ERVs. The portfolio was 4.5% net

reversionary at the year end.

In tandem with reduced restrictions

forthe hospitality sector and the

reintroduction of face-to-face tuition at

universities, the occupation of our one

hotel and one student accommodation

building improved significantly towards

the end of 2021. Going into 2022, the hotel

occupancy and room rates are now at

pre-pandemic levels, and the occupancy

of the student accommodation at 99% is

the highest since its opening in 2014.

Market overview and outlook

The UK economy has continued its

recovery from the effects of the pandemic

and 2021 GDP growth of 7.2% was among

the highest in the G7 countries.

Commercial property investments in 2021

were c.£55 billion which was an almost

30% increase on the previous year and

marginally below the five-year average.

For the office sector, transactions in the

South-East were £3.8 billion in the year

which is 67% above the five-year average.

In the occupational market, vacancy rates

in the South-East range from c.6.5% in the

M25 market to closer to 10% along the M4

corridor. For central London, the vacancy

rate stabilised around 8% as take up

increased during the year.

Ultimately, and despite temporary

Government guidance for staff to work

from home if they can, the trend amongst

UK occupiers is increasingly to recognise

the office as part of their overall business

strategy. In tandem with the end of all

restrictions and finding ways to live with

Covid, we remain convinced of the

attractiveness of offices as an asset class

and believe that our portfolio of affordable

office space in attractive locations is well

placed to capture future occupier demand.

182%

Year on year increase in UK capital

expenditure

Refurbishment of

45LondonRoad,Reigate

Across the entire portfolio, not just

theUK, CLS has increased, and is

increasing, its capital expenditure

investment to ensure its properties

meetchanging market demands and

improve the properties’ sustainable

performance. This spend encompasses

new developments (e.g. Vauxhall Walk

ashighlighted this year and last year),

redevelopments (e.g. 9 Prescot Street

set outon pages 30 and 31) and

refurbishments (e.g.45 London Road).

45 London Road is a prominent office

building located within the heart of the

affluent South-East town of Reigate.

The building, which comprises c.19,300

sq. ft (c.1,800 sqm) over four floors, has

excellent transport links and 57 car

parkspaces.

During 2021 we completed a full CAT

refurbishment, including new M&E

systems and lifts, to provide new and

attractive office space for both local

andnational occupiers. The enhanced

tenant amenities include new showers,

cycle parking and electric vehicle

charging points.

The total refurbishment cost was

c.£2.5m and the project achieved a

SKAGold sustainability rating and the

building’s EPC rating improved to a

Grade B from an original rating of D.

Marketing of the property is now well

underway with potential occupiers being

offered the option to take either one or

multiple floors.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

19

The market in Germany

remains well supported given:

low vacancy; limited high

quality, sustainable supply; and high

replacement costs.”

Portfolio movement and

valuation summary

The value of the German portfolio

increased by £140.3 million as a result

of:net additions of £160.9 million (five

acquisitions for £161.6 million including

costs and capital expenditure of

£9.4 million partly offset by two disposals

for £10.1 million); and a valuation gain

of£27.9 million or 3.1% in local currency,

offset by depreciation of £0.2 million and

aforeign exchange loss of £48.3 million.

The like-for-like valuation increase, which

excludes the acquisition costs, was 4.4%.

The valuation increase was as a result

ofletting activity driving higher rents,

particularly towards the end of the year,

and yield compression as the equivalent

yield fell to 4.39% (2020: 4.42%). The net

initial yield fell to 4.2% (2020: 4.3%) whilst

like-for-like ERVs increased by 0.6% and

like-for-like contracted rents increased by

1.6% as we have actively sought to capture

rental growth.

Acquisitions

The first half of 2021 was an especially

busy period with the completion of five

acquisitions for £147.9 million (two of

whichfor a combined £70.2 million had

exchanged inDecember last year). Two of

the properties are located in Berlin with

one ineach ofHamburg, Dusseldorf and

Essen. The overall net initial yield was

3.8%withareversionary yield of 5.9%.

This considerable upside is because of:

deliberately acquiring vacancy in three

ofthe buildings and reversionary rental

levels, which CLS will seek to capture

through our active asset management

model; as well as being able to source

off-market deals given our business

network and reputation as a trusted buyer.

The acquisition of three of these properties

is discussed in more detail on pages 26

and 27.

Since the year end, we have exchanged

onthe acquisitions of a further two

properties for £75.7 million in Dusseldorf

and Dortmund. The properties, which are

due to complete in the first half of 2022,

have an initial yield of 5.1% and a

reversionary yield of 5.6%.

Germany

Value of property portfolio £888.0m

Percentage of Group’s property interests 38%

Number of properties 31

Number of tenants 367

EPRA vacancy rate 7.4%

Lettable space 3.5m sq. ft

Government and major corporates 40.5%

Weighted average lease length to end 5.0 years

Leases subject to indexation 63.5%

CLS Holdings plc Annual Report and Accounts 2021

20

Business review

Continued

Active asset management

to reduce vacancy and

capture rental increases

Developments and refurbishments

Our German portfolio continues to offer

several added-value development and

refurbishment opportunities. The most

significant development is the LichtHof

building in Stuttgart, comprising at least

141,000 sq. ft (13,099 sqm) of lettable

space. We are currently marketing the

building to secure a significant pre-let

before proceeding and have signed a

construction contract which is conditional

on this pre-letting. We are also

progressing two roof top extensions:

firstly, the construction of c.2,000 sqm

additional office space at the Technical

Town Hall in Bochum which is leased to

the City of Bochum, our existing tenant;

and, secondly, c.3,500 sqm of speculative

offices at Adlershofer Tor in Berlin with

planning consent expected in spring 2022.

Both extensions are due in late 2023/

early2024.

Disposals

Limited portfolio adjustments have

takenplace with the sale of two smaller

assets, Frohbösestrasse in Hamburg

andKreuzberger Ring in Wiesbaden,

atacombined price of £9.0 million.

Asset management

EPRA vacancy rates rose sharply from

3.6% at 31 December 2020 to 9.3% at

30 June 2021 as a result of the vacancy

acquired with the new building purchases

and then rose to 11.0% at 30 October 2021

as a result of a few significant lease

expiries. Given very substantial leasing

activity, as highlighted in the case study,

particularly in the fourth quarter, the

vacancy rate was reduced to 7.4% at

theyear end. Of note, the re-letting

campaigns for two of the three new

acquisitions with vacancy are well

aheadof their business plans.

In 2021, we let or renewed leases on

446,914 sq. ft (42,449 sqm) and lost

498,787 sq. ft (46,339 sqm) of space from

expiries or new vacancies. Excluding

those arising from contractual indexation

uplifts, 50 rent reviews, lease extensions

and new leases secured £6.9 million of

rent at an average of 4.2% above ERV.

On a like-for-like basis, ERVs rose by 0.6%

in the year and at the end of 2021 the

portfolio was 7.2% net reversionary.

In light of the continued recovery of the

letting markets and despite the increased

vacancy rates we believe that there is the

potential for further rental growth.

Market overview and outlook

The German economy recovered in 2021

with GDP increasing close to 3% and is

forecast to grow by another 4% in 2022,

which will result in the economy returning

to pre-pandemic levels by the end of 2022.

The investment market for commercial

property finished the year strongly with

c.€20 billion in the fourth quarter which

took the full year to c.€58 billion.

Although overall investment volumes

were down 10%, offices represented

c.€31 billion, which is the second-best

volume ever recorded and 30% above the

10-year average. The majority of these

transactions was attributed to deals

above €300 million. Demand remains high

with investments in commercial property

in 2022 forecast to increase further.

The letting market recovered further,

especially in the second half of 2021, with

a take-up of c.3.4 million sqm, which is an

increase of 27% from 2020 and in line

with the 10-year average. There were

differences between the main cities but

pleasingly there was a significant increase

in larger lettings as occupier confidence

returns. Whilst vacancy has increased in

the top-seven cities from 4.5% in 2020 to

close to 5.0% by December 2021, the rate

of increase has significantly slowed, and

we expect that demand will continue to be

high for the right properties.

£6.9m

4% above ERV

Rental capture from new leases in 2021

Substantial letting activity

executed across the portfolio

Whilst investing in our properties to

provide modern, sustainable buildings

which meet client needs is a key activity,

ultimately success is demonstrated

through leasing transactions. Letting

activity was especially busy in 2021 as

aresult of increased available space

through lease expiries, the availability of

newly completed refurbishments and

acquired vacancy.

Nowhere was this increased letting

activity better demonstrated then in

Germany. The above description set out

the overall figures but it is especially

worth highlighting the major lease

transactions which were completed

between September and the end of the

year. There were five transactions

whichwere each over 1,000 sqm,

whichtotalled 14,263 sqm with the

leases secured 7.7% above ERV. The

transactions were across five different

major cities (Berlin, Cologne, Essen,

Hamburg and Dusseldorf) and were

forlease lengths from five to 15 years.

The two largest leases, representing

56%, were to government agencies with

the other three to large corporates or

education establishments. All of which

resulted in a 3.5% reduction in EPRA

vacancy from the peak and leaves our

German operations well on course to

achieve CLS’ 5% vacancy target.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

21

The market in France is mixed

with good demand in central

Paris and regional markets

likeLyon but weaker in Parisian suburbs

such as the Western Crescent, albeit with

some offset from contractual indexation.”

France

Portfolio movement and

valuation summary

The value of the French portfolio

decreased by £27.2 million as a result

of:net reductions of £10.0 million (three

disposals for £16.0 million offset by

capital expenditure of £6.0 million); and a

foreign exchange decline of £18.0 million,

partly offset by a valuation gain of

£0.8 million or 0.3% in local currency.

In the absence of any acquisitions, the

like-for-like valuation increase was also

0.3%. The valuation increase was as a

result of a decrease in ERVs with some

offset for a slight hardening of equivalent

yields. The net initial yield fell to 4.5%

(2020: 4.7%) whilst like-for-like ERVs

decreased by 1.6% and like-for-like

contracted rents declined by 0.3% as we

have actively sought to reduce vacancy.

Developments and refurbishments

During the year we embarked on a

programme of refurbishing several

ofourFrench properties. The most

significant of these is the redevelopment

of Park Avenue, Lyon for which our

revised application was approved in

September 2021. The planned works

include refurbishment of common areas,

replacement of the existing façade and

creation of new common terraces through

the extension of existing landings.

The works will improve the sustainability

credentials of the building through the

installation of new windows, electric

shades and a green roof. Our existing

tenants have been temporarily relocated

while the works are carried out to allow

us to complete the project much quicker

than if they were in situ. The works are

expected to complete in Q4 2022 at a cost

of €10.7 million resulting in expected

uplifts in the ERV of the building.

Disposals

During the course of 2021 we disposed

ofthree smaller assets for €19.3 million

(5.5% above book value) which offered

greater value through alternative use.

Further details are provided in the

accompanying case study.

Asset management

EPRA vacancy in France reduced to 3.0%

as at 31 December 2021 (2020: 5.1%) with

the reduction largely driven by active

asset management in spite of market

challenges. The majority of our 2021

expiries were renewed, and existing

vacancy was filled by attracting new

tenants and leasing additional space

toour existing tenants.

Value of property portfolio £282.4m

Percentage of Group’s property interests 12%

Number of properties 18

Number of tenants 158

EPRA vacancy rate 3.0%

Lettable space 0.8m sq. ft

Government and major corporates 46.4%

Weighted average lease length to end 5.0 years

Leases subject to indexation 100.0%

CLS Holdings plc Annual Report and Accounts 2021

22

Business review

Continued

Improving the portfolio’s

focusongrowth

In 2021, we let or renewed leases on

112,625 sq. ft (10,463 sqm) and lost

90,602sq. ft (8,417 sqm) of space from

expiries or new vacancies. Excluding

contractual indexation uplifts, 24 lease

extensions and new leases secured

£2.2 million of rent at an average of 10.8%

below ERV. The deficit to ERV was mainly

driven by the lease extension and renewal

with Veolia at Inside, Paris. Excluding this

deal, the remaining transactions secured

rent at 1.7% below ERV. On a like-for-like

basis, ERVs fell by 1.6% in the year and at

the end of 2021 the portfolio was 1.4%

netreversionary.

In 2021, Energy audits were completed for

the whole French portfolio, allowing the

group Net Zero Carbon pathway to be

calibrated with milestones set until 2030.

Smart metering was installed to allow us

to focus on managing consumption and

reporting in compliance with “Decret

Tertiaire” requirements.

Market overview and outlook

The French economy delivered a very

respectable 7% GDP growth in 2021 and

the economy is forecast to grow around

4% in 2022 on the back of economic

stimulus irrespectively of the outcome

ofthe upcoming presidential election.

Commercial property investments in 2021

were c.£24 billion which was marginally

up on the previous year. The regional

market performed well and now

represents 25% of the overall investment

volume with Lyon being the top regional

investment destination.

More than 1.8 million sqm of office space

was let in 2021 in the Paris Region, which

exceeded expectations and the prior year,

onthe back of a strong fourth quarter

with 631,000 sqm of take-up. Supply has

stabilised with four million sqm of office

space available in the Paris Region which

is a vacancy rate of 7.5%. There is a

widening gap between Paris CBD at 4%

vacancy and the western districts of la

Défense and Péri-Défense at15% vacancy

which are suffering from over-supply.

The southern and northern Paris districts

are performing relatively well. Vacancy in

Lyon continues to be between 5% and 6%.

We expect these differences to remain or

even widen further in 2022 which should

benefit ourFrench portfolio both in terms

of flexibility, floor plate sizes and the

quality that is required.

5.5%

Overall consideration ahead of valuation

Sale of three smaller French

properties

As we have consistently set out, CLS is

driven by our ability to generate returns

and add value when deciding whether

toretain a property. If we can secure

asignificant premium to book value

and/or deploy capital towards better

opportunities, we will sell. In addition, we

are reducing the number of properties that

we own which are worth less than around

£10 million in order to concentrate

management time on bigger opportunities.

All three of these factors contributed to

our French disposals in2021.

In total, we sold three properties for

€19.3 million which was a 5.5% premium

to book value. All of the properties

werefully-let or presented better

redevelopment opportunities, and

therefore there was little ability to

addvalue in the medium term through

activeasset management. The individual

properties, each of which was worth less

than €10 million, were: Gennevilliers, Paris,

Leclerc, Paris and La Madeleine, Lille.

The proceeds are being re-invested in

the redevelopment and refurbishment

ofthe French portfolio and in acquisition

opportunities across the Group, including

France if return criteria can be met.

D’Aubigny in Lyon

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

23

Realising value

and reinvesting

for the future

Growth through

reinvestment

Our purpose is to create

sustainable, long-term

valuethrough owning

andactively managing

high-yielding office properties

inkey European cities.

We acquire the right properties We secure the right finance

We invest in commercial real estate in

theUK, Germany and France. 89% of

ourproperties are offices.

We look to acquire high quality properties

with good transport links located in key

European cities.

Most of our properties are multi-let to a

wide variety of occupiers, giving us the

opportunity to add value whilst spreading

our risk.

The cost of buying investment properties

is met partly from the Group’s liquid

resources and partly from external

financing. Liquid resources are

supplemented by disposal proceeds from

selling assets which present limited

future opportunities to add value.

We have the ability to move quickly due

toour strong balance sheet.

Our in-house sustainability programme

isfocused on mitigating our impact on

climate change and continually improving

our properties.

Most of our properties are held in their

own SPVs, and are financed with bank

loans borrowed by the SPV on a non-

recourse basis to the rest of the Group.

We have the flexibility to borrow at

fixedor floating rates of interest and,

byborrowing against each asset, we are

able to use a level of gearing suitable to

the specific property.

Where properties are more suited to

beingfinanced together, such as on

theacquisition of a larger portfolio, we

finance them under one loan, often with

the flexibility to withdraw properties

fromcharge and to substitute others.

Our bank borrowing is typically for five or

seven years, and as most of our debt is

obtained from local banks, we have active

relationships with 25 lenders around

Europe, which spreads our risk.

In everything we do to secure the right

finance, we always generate responsible

profit through creating sustainable

long-term decisions with the environment

in mind.

CLS Holdings plc Annual Report and Accounts 2021

24

Business model and strategy

We deliver value through

active management and

cost control

We continually assess

whether to hold or

sell properties

We reward shareholders,

customers and employees

The key to active management is to

perform it in-house, because, by using

ourown employees, we harness greater

motivation, response times and attention to

detail than if tasks were to be outsourced.

In-house management includes

assetmanagement (leasing), property

management (refurbishments), facilities

management (day-to-day maintenance),

development management, tenant billing

and debt collection, and purchase ledger

and service charge management.

By performing all of these functions

in-house we control costs through

efficient working and we maintain our

revenue stream through providing a

first-rate service to our customers.

This approach also allows us to develop

and embed environmental behaviours

across our managed landscape which

supports our impact on climate change.

All of the above gives our shareholders

confidence in our day-to-day

management.

Our active management is also applied

ata portfolio level, continually assessing

whether properties meet return criteria

and/or we can continue to add value.

We have an asset management plan for

each asset which we flex depending upon

tenant requirements and leasing activity.

Refurbishments are undertaken to

maintain the portfolio and capture

rentalgrowth.

Our portfolio approach also includes

assessing whether greater value can

becaptured through a change of use,

forexample, a residential conversion.

In such cases, after planning permission

has been obtained, the property will

usually be sold to a developer.

At the appropriate time, we will also

dispose of properties which are too

small or too low yielding or for which the

risk/reward balance is unfavourable.

One of our decision criteria is the

sustainability rating of the property

andthe cost to make enhancements.

We aim to grow the dividend in line with

the growth of the business, targeting the

dividend to be covered 1.5 to 2.0 times by

EPRA earnings. The proposed full year

dividend represents £31.4 million of the

£46.0 million of EPRA earnings in 2021.

The balance is reinvested in the

business,increasing the size of the

Group.In this way shareholders can be

rewarded partly in cash and partly in

thecapital appreciation of their shares.

As the whole of CLS is not a REIT, we have

flexibilityin the amount we are required to

distribute to shareholders, which benefits

the business in the longer term.

Our tenants are our customers.

They benefit from a landlord who

understands their needs and who

provides cost-effective accommodation

through investing its profits back into

itsbusiness.

We reward employees for their work and

their loyalty, through salaries and bonus

schemes which reflect the success of the

business, thereby aligning their interests

with our shareholders and our customers.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

25

Deal structure

As part of the planned divestment from

itsfirst fund, private-equity group

Commodus RE (now named Coros) sought

to dispose of four assets through agents.

CLS was interested in three of the assets

and approached Commodus directly about

structuring a package deal.

The deal was structured as an off-market,

corporate acquisition with CLS taking over

the existing three individual companies

and associated financing. In this way,

certain tax, financing and other liabilities

were reduced for Commodus which was

reflected in the negotiated purchase

priceof €89.7 million. We exchanged

onthe acquisition in January 2021 and

completed on all three properties in

April2021.

The Commodus Collection

isasmall portfolio of high

quality, well located German

offices. The portfolio benefits

from a diversified tenant base as

well as the opportunity to secure

market rents and valuation

uplifts in the yearsahead.

We acquire the right properties

CLS has been increasing its presence in

Germany since entering the market in

2006, including a significant step-change

in2017 with the £140.1 million acquisition

of the 12-asset Metropolis portfolio.

Low unemployment; a strong decentralised

economy with multiple large cities; and

asset replacement costsabove acquisition

values thereby supporting rental growth,

all contribute tothe attractiveness of the

German office market.

Acquisition rationale

The portfolio fitted perfectly with CLS’

acquisition criteria:

• located in strong, well-connected top

five cities (Düsseldorf, Berlin and

Hamburg);

• strong and stable cash flow (WAULT

4.9years) generated from 31 tenants

offering a diverse income stream;

• under-rented assets as the current

average rent was 22% below estimated

market rents; and

• a good mix of fully-let assets and

vacancy, giving 93% occupancy overall,

providing asset management potential.

Reflecting the above points, the net initial

yield on the portfolio was 4.8% with a

reversionary yield of 6.1%.

Properties acquired

Hansaallee 299, Düsseldorf, is a modern

building which was developed in 2004.

It isthe largest property in the portfolio

comprising 16,622 sqm (178,918 sq. ft)

ofspace and 252 parking spaces. It is

located in the ‘Seestern’ district and sits

opposite Loerick underground station.

The building has excellent connectivity

with access to Düsseldorf Central Station

in 20 minutes and the airport in

30 minutes. It is fully let to eight tenants

with a WAULT of 3.9 years and has a

current rent of €2.5 million.

Storkower Strasse 132, Berlin was

comprehensively refurbished in 2020 and

is situated between Prenzlauer Berg and

Acquisitions

The Commodus Collection, Germany

With significant uncertainty at the start of 2020, CLS was

naturally cautious in deploying capital. Greater confidence

in the direction of the market started to come through by the

end of 2020 and the start of 2021 which led to opportunities

emerging that met our acquisition criteria.

Hansaallee 299, Düsseldorf

CLS Holdings plc Annual Report and Accounts 2021

26

Strategy in action

Friedrichshain in the east of Berlin, in

oneof the most popular and fastest

growing districts. The building has 6,105

sqm (65,714 sq. ft) of lettable space, fully

let toten tenants with a long WAULT of

over eightyears. The current rent is

€1.1 million.

The third property, Wendenstrasse 408 in

Hamburg, is a 9,676 sqm (104,152 sq. ft)

building with 191 parking spaces situated

in Hamburg City Süd, a fast-growing

submarket of the city. It is let to 13 tenants

with a WAULT of 3.9 years. The current

rent is €0.9 million. With an average rent

of €8.40/sqm/month, the building was

materially under rented with 21% vacancy,

providing an immediate opportunity to

capture market rents.

Going forward

The start of 2021 also saw the completion

of two further German acquisitions, in

Berlin and Essen, for €70.5 million

whichhad exchanged at the end of 2020.

All ofthe acquisitions offer significant

opportunities to drive value via active

asset management, by capturing

underrenting and vacancy through

refurbishment and repositioning as

wellas refinancing potential.

As a result of these acquisitions, the

German proportion of the portfolio

hasincreased to 38% from 23% only

fiveyears ago.

Section 172 considerations

Despite another challenging year for

investments, the Board was keen to

continue to identify and acquire the

right properties in order to meet its

strategic objectives.

Discussions at the 2020 October

StrategyBoard Meeting had reinforced

the growing benefit and attractiveness

ofGermany as a key market for CLS.

This led to the approval of the acquisition

of the Commodus portfolio in January

2021, which was considered by the Board

to be incremental in meeting the Group’s

strategic objectives.

Throughout 2021, the Board continued

to carefully consider other identified

properties and endorsed the acquisitions

of those which it recognised would

support the Group’s vision to be a

leading office space specialist in the

markets in which it operates.

For more information on s.172

please see page 88

€89.7m

Acquisition of three properties in Germany

with a reversionary yield of 6.1%

Wendenstrasse, Hamburg

Storkower Strasse, Berlin

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

27

CLS has committed to

ensuring that by 2030 at least

50% of our loan portfolio is

green. Following the execution

of the Scottish Widows

portfolio loan, over 20% of

ourportfolio is green and we

areon course to meet, and

hopefully beat, our target.

We secure the right financing

At our Strategy Day in October 2020,

theCLS Board again debated the

strategicpriorities for the financing of

theGroup and the right steps to achieve

these priorities.

Strategic financing priorities

The strategic priorities remain to match

the Group’s weighted average debt

maturity more closely with the Group’s

weighted average unexpired lease terms

whilst simultaneously securing more green

loans which align with our sustainability

strategy. These priorities sitalongside our

objectives of maintaining: loan flexibility; a

diversity of funding sources and long-term

relationships; a low cost of debt; and

sufficient covenant headroom. The loan

with Scottish Widows met all of CLS’

strategic priorities and objectives.

Financing

Scottish Widows ‘green’ loan, UK property portfolio

Securing the right finance is essential to maintaining capital

discipline, and thereby reducing equity investment and driving

property returns. In addition, it locks in excellent cash generation

through margin arbitrage capture. CLS uses a variety of local

financing solutions to ensure it is competitively positioned.

Key loan features and benefits

CLS has had a relationship with the Lloyds

Banking Group for over twenty years.

In early 2021, we started discussions with

Lloyds about a long-term, ‘green’ loan,

which sat more naturally with Scottish

Widows, the pension and life insurance

arm of Lloyds.

In April 2021, we completed a £61.7 million

loan with Scottish Widows, which is

secured on a portfolio of five UK properties.

The loan has a 12-year maturity at an all-in

fixed rate of 2.65% and represented an

initial loan-to-value of55%.

This loan allowed CLS to refinance two

existing loans of £27 million, which were

due to expire in 2021, as well as to gear

recently acquired properties including

Radius House in Watford, which was

acquired during 2021. Overall, the loan

resulted in net additional cash to CLS of

£34 million after costs.

This was CLS’ second sustainability-linked

loan which accords with the Loan Market

Association sustainability principles.

And like CLS’ first ‘green’ loan with Aviva,

this loan was also a first ‘green’ loan for

Scottish Widows. Also similar to the Aviva

facility, CLS has the opportunity to benefit

from up to a 10-basis point margin

incentive dependent on the delivery

ofspecific sustainability targets.

In terms of strategic priorities and

objectives, the Scottish Widows’ loan

added a new counterparty to the Group’s

panel of lenders. Also, similar to the Aviva

facility and subject to certain conditions,

CLS will be able to remove or substitute

properties as security for the loan.

Finally,on execution, the loan resulted

ina0.5-year increase in the Group’s

pro-forma weighted average maturity to

4.5 years. It was also a major contributor

to the lowest average cost of debt in the

Group’s history of 2.22%.

£61.7m

‘green’ loan for 12 years at 2.65%

Priory Place, Chelmsford

CLS Holdings plc Annual Report and Accounts 2021

28

Strategy in action

Continued

Going forward

The completion of another major financing

increased CLS’ cash reserves which

facilitated the acquisition of new

properties, particularly in Germany.

In addition, following the completion of

these two facilities, ‘green’ loans now

represent over 20% of the Group’s total

debt meeting 2021’s target and put CLS on

course to meet, and hopefully beat, its

2030 target of at least 50% of its loan

portfolio being ‘green’. CLS is also

oncourse to secure most or all of the

sustainability margin incentives under

thetwo loans.

In terms of financing sources, CLS’

financing strategy deliberately involves

abalance of secured Special Purpose

Vehicle borrowing – one company,

oneproperty and one loan – together

withseveral secured portfolios.

Going forward,CLS will continue to

pursue this successful strategy as well

asexplore widening its financing sources

including a larger Revolving Credit

Facility,unsecured borrowing and

different market instruments.

Section 172 considerations

In 2021, the Board considered how

tocontinue developing the Group’s

financings to support the delivery of

itsfuture sustainability targets.

The Board recognised the importance of

continuing to diversify the Company’s

loan book in a way which also supports

its vision to be a sustainably-focused

landlord. This led to the approval of the

Group’s second ‘green’ loan in 2021 with

Scottish Widows.

This loan allowed the Company to

foster further business relationships

with yet another well-established

lending institution while supporting

theGroup’s sustainability strategy on

‘green’ loan financing, and spreading

risk through a suite of borrowing

options all whilst facilitating the

Company’s journey to Net Zero Carbon

by 2030.

For more information on s.172

please see page 88

Radius House, Reading

One Church Road, Richmond

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

29

9 Prescot Street is a

wonderful example of the

execution of CLS’ business

model from a 2019 acquisition

case study to now being able

to showcase the refurbishment

and repositioning currently

taking place which will create

a stunning modern and

sustainable office building.

design and develop comprehensive plans

tomodernise the offices. The building, with

its impressive ceiling heights and large

floorplates, presented as a fantastic

refurbishment and repositioning opportunity,

where modern sustainable office standards

could be met within a heritage building.

Redevelopment scheme

Our in-house development team thoroughly

assessed the building to identify areas

where improvements could be made, as

well as determining the type of amenities

and certifications which future

tenantswould expect in this location.

The refurbishment has been designed to

retain and enhance the character of the

building by echoing the original Art Deco

features, for example byusing a rich

palette of deep blue andgreen tiles to

stunning effect in thereception, roof top

bar and showerfacilities.

A key objective of the refurbishment has

been to improve accessibility to all floors

ofthe building, including the roof terrace

through the introduction of lifts and other

facilities for the disabled. The health

andwellbeing of potential tenants has

alsobeen at the forefront of many

designdecisions. For instance, major

improvements have been made to the

amount of daylight on the office floors by

creating lightwells, adding new windows

and reinstating previously blocked

windows. Fresh air rates have been

elevated to 14 litres per second per person

(in line with 2021 BCO COVID best practise),

bi-polar ionisation filtration has been

incorporated which eliminates 99.8%

Covid-19 particles and active CO

2

control

isalso being incorporated.

A roof terrace of 4,000 sq. ft, with views

across the City, will be provided through

replacing all plant and machinery,

including redundant plant that had been

left in-situ, thereby freeing up space.

The building will be completely electrified,

in line with CLS’ sustainability strategy,

and new hybrid VRF will be installed

which significantly reduces the amount

ofclimate damaging refrigerant used.

The new, highly energy efficient

systemsare modelled to have an annual

operational energy usage below the RIBA

2025 target for new builds.

Additional, forward-thinking tenant

amenities include: a 3,000 sq. ft reception/

coffee lounge; a bookable meeting room;

amulti-faith room; and 163 electric and

standard cycle spaces, as well as shower

and drying facilities that meet Greater

We deliver value though

active asset management

9 Prescot St was designed for the

Co-operative Wholesale Society (‘CWS’)

asa seven-storey furnishing and

hardware warehouse and showrooms.

The building, which closely imitates the

CWS Administrative Office and Bank at

1Prescot Street by using the same

distinctive brickwork above a Cornish

granite base, opened in May 1939. In the

sub-basement, a 600ft artesian well

produced 10,000 gallons of water per

hourwhich, along with another well in

thedrapery department, was intended

tosupply all the water for the company’s

many premises in the area. CWS sold the

building in 2011.

CLS acquisition strategy

In 2019, CLS purchased the 94,000 sq. ft

office building for £54.7 million. The rationale

being that the building would initially be fully

income producing whilst giving time to

Asset management

9 Prescot Street refurbishment, London

Active, in-house asset management is a key ability of CLS to

createshareholder value as well as being a market differentiator.

Our asset management activities are at all points of the value

chainfrom refurbishing existing building in response to tenant

demands to new leases which capture rental increases and

keepvacancy low.

9 Prescot Street, London

CLS Holdings plc Annual Report and Accounts 2021

30

Strategy in action

Continued

London Authority new build office

requirements. 9 Prescot Street will

alsoachieve Cyclescore Platinum and

WiredScore Platinum certifications.

Overall, the refurbishment will target

BREEAM Excellent and an EPC B.

Financial assessment

During the course of the design

evaluation, CLS has benefited from

leasebreaks and terminations of the

remaining tenants such that the entire

building will be renovated at a cost of

c.£29 million. The repositioning plus

thehighly reversionary rental level will

allow CLS to increase annual rent from

£2.6 million to £4.9 million and a profit

oncost well in excess of 20%.

Construction plan, timing

and currentprogress

Planning and listed building consent

weresecured in 2020 and strip-out

workscompleted on the lower floors in

the first quarter of 2021. BW Interiors Ltd,

a Tier 1 contractor, has commenced the

refurbishment works, which are expected

to complete in the second quarter of 2023;

at which time the building will be branded

as The Artesian.

Section 172 considerations

The Board recognises that one of CLS’

key strengths has been active asset

management for the benefit of our

tenants, who are our focus.

When endorsing the redevelopment

of9 Prescot Street, the Board

acknowledged that it would provide

substantial improvements to the

provision of office space in a

regeneration area which consequently

provides employment and jobs for the

local community. The Board recognised

that the completed building, as

envisioned by the development team,

supports CLS’ purpose to transform

office properties into sustainable

modern workspaces to help

businesses grow.

Through continual active asset

management opportunities, CLS aims

to upgrade its properties to provide

amore sustainable and therefore

desirable environment for tenants,

which would also support the local

economy through the supply chain.

For more information on s.172

pleasesee page 88

Current roof terrace

Planned reception (CGI)

Planned internal (CGI)

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

31

Conversion of our UK

operations to a REIT is a

verypositive move which

hasincreased EPRA NTA at

31December 2021 by 4.5 pence

per share and will save

£3million to £5 million of tax

per annum from 2022 onwards

whilst retaining the existing

flexibility within our strategy.

We continually assess whether

to hold or sell properties

Whilst conversion of CLS’ UK operations

to a REIT is not a property transaction, it

will have a fundamental influence on our

future UK property transaction decisions,

whether to hold or sell, or acquire.

Going forward CLS will not pay tax on the

vast majority of its UK operations and

transactions, including gains on property

sales, which fall within the REIT regime.

Strategic rationale

CLS has been evaluating the REIT

regimein the UK for a number of years.

During this time, CLS’ operations have

become almost entirely focused on real

estate and in 2017 CLS changed from

tender buybacks to a standard dividend

policy. The trigger for making the decision

to convert was the substantive enactment

in May 2021 of the increase in the UK

corporation tax rate from 19% to 25%

from 1 April 2023.

Disposals

Conversion of CLS’ UK operations to a REIT

On 1 January 2022, CLS converted its UK operations to a

REITthereby allowing greater comparability with other listed

peersas well as saving tax on future UK asset disposals and

UKrental income.

£41.8m

of deferred tax liability extinguished

Benefits and constraints

As highlighted, going forward CLS will

payno corporation tax on its UK property

operations being rental income, gains on

property sales and sales of companies

owning UK property. As a result, around

£42 million of the UK deferred tax liability

as at 31 December 2021 has been

extinguished, EPRA NTA at 31 December

2021 increased by 4.5 pence and CLS

willsave £3 million to £5 million of

taxperannum from 2022 onwards.

This conversion will also improve the

economic assessment of new acquisitions

and remove tax considerations from the

decision to sell a property.

There are a number of tests which need

tobe met and monitored to be within the

REIT regime. CLS comfortably meets

these. One REIT regime requirement is

that 90% of profits within the regime need

to be distributed as a Property Income

Distribution (‘PID’).

CLS has only elected to convert its UK

operations, which account for about 50%

of the business, to a REIT for two reasons:

• there was no charge to convert nor any

structural changes in the UK. In France

and Germany, there are conversion

charges or structural or other changes

that would be required; but moreover

• as the PID only equates to c.45% of CLS’

earnings (i.e. 90% of c.50%), CLS will

maintain its total return strategy and its

business model through the flexibility

toretain significant levels ofearnings.

The overall dividend will be topped-up

from German and Frenchearnings

according to our dividend policy.

Kreuzberger Ring, Wiesbaden

CLS Holdings plc Annual Report and Accounts 2021

32

Strategy in action

Continued

Realising value from alternative

usepropositions

Going forward

Conversion took place on 1 January 2022

so that whole of the new financial year is

under the REIT regime thereby making the

calculation of the PID much simpler as

well as avoiding two set of tax returns

andassociated accounts.

No shareholder approval was required to

convert to a REIT. However, at the AGM

on29 April 2022, certain changes will be

proposed to incorporate the standard

REIT provisions within theArticles.

The 2022 interim dividend, expected to

bepaid in September 2022, and for all

dividends going forward, dividends will

comprise two elements. A PID from the

UK REIT operations and a second element

from CLS’ remaining operations. The split

will be shown on the face of each dividend

voucher. The existing dividend policy,

which seeks to pay out 50%-66% of EPRA

earnings, will be reviewed alongside

the2022 interim dividend to the

extentneeded.

Section 172 considerations

As part of the consideration to convert

the UK business to a REIT, the Board

consulted a wide variety of stakeholders,

including CLS’ controlling shareholder,

other large shareholders, lenders and

other relevant authorities.

Given the impact of the REIT regime

onthe Group, the Board oversaw

thatsignificant due diligence and

assessments were undertaken

throughout 2021 using internal and

external advisors to ensure compliance

with the REIT regime.

The Board concluded that adoption of

the REIT regime would ultimately be in

the best interests of the Group and its

key stakeholders. It approved this

decision which came into effect on

1 January 2022, following completion

of the requisite due diligence.

For more information on s.172

please see page 88

£0.8m

Profit on disposal

Sale of Quest House and Falcon

House,London

Our strategy of continually assessing

whether to hold or sell properties includes

appraising whether greater value can

becaptured through a change of use,

forexample, a residential conversion.

In Hounslow, West London we sold both

Quest House and Falcon House to a

residential developer securing a profit

ofcirca £0.8m for the Group after

assessing that these two smaller office

assets had alternative use value that

exceeded commercial value.

The properties are well located near

Hounslow Central underground station

and offered flexible floor plates with good

levels of natural light on all sides, suitable

for conversion to residential.

From August last year, the Government

amended the criteria for commercial

buildings that can secure prior approval

planning applications for conversion

fromoffices to residential. The Group

submitted a programme of prior approval

applications, successfully securing

alternative uses in a number of secondary

office locations, increasing the desirability

of these properties for sale.

CLS is a long-term investor but we

continually assess whether to hold or sell

properties, particularly if we can secure

asignificant premium to book value and

therefore deploy capital in opportunities

with stronger fundamentals.

Falcon House, London

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

33

Tenants Suppliers Communities Employees Investors Financial institutions

How we listened to our stakeholders

• Tenant meetings

• Tenant satisfaction surveys

How we listened to our stakeholders

• Quarterly review meetings with

principal suppliers

• Fair tendering process to ensure we

work in partnership with suppliers

How we listened to our stakeholders

• Supporting local organisations in the

areas in which we invest

• Working closely with communities

andcouncils on refurbishment and

development projects

How we listened to our stakeholders

• Employee surveys

• Open door policy for raising issues

• Our Workforce Advisory Panel

How we listened to our stakeholders

• Q&A session at analyst presentations

• Regular meetings with investors

• Feedback through our key advisors

How we listened to our stakeholders

• Frequent meetings with all lenders

• Presentations from institutions

What key topics were raised?

• Improvements to communal areas

• Input into tenants’ refurbishments

• Involvement in sustainability initiatives

• Appreciation of in-house teams and

fast response to issues

What key topics were raised?

• Recognition of the Group’s prompt

payment of invoices

• Working towards sustainable

practices

• Support for continual feedback

What key topics were raised?

• Improvements to public realms

• Financial and in-kind support for local

charities and other organisations

What key topics were raised?

• Improvements to workplace policies

and practices

• Levels of staffing to match growth

inportfolio

• Increased workforce interaction

fromNon-Executive Directors

What key topics were raised?

• Impact of Brexit/Covid-19

• Long-term growth strategy

• Importance of Group-wide

sustainability initiatives

• The future of the office

What key topics were raised?

• Changes in legislation

• Economic and market research

andtrends

• Ongoing compliance with loan

covenants

• Sustainability initiatives

How did we respond?

• Programme of refurbishments

• Active asset, property and facilities

management to deal with issues

quickly

• Enhancing communications through

on-line portals

How did we respond?

• Commitment to ensure new contracts

pay the Real Living Wage

• Ensure communication of Group

objectives to enable collaborative

approach

How did we respond?

• Increase in funding for local charities

and organisations

• Adapted refurbishments/

redevelopments in light of feedback

• Commitment to the Group’s policy

ofprompt payment of invoices

How did we respond?

• Reviewed workplace policies,

practices and benefits

• Increase number of operational

employees

• Programme for Non-Executive

Director involvement

How did we respond?

• Brexit and Covid-19 impact risk

assessments

• November 2021 Capital Markets Day in

London

• New sustainability strategy and Net

Zero Carbon pathway

• Engagement about future office

hybridmodel

How did we respond?

• Communication of Group strategy at

individual meetings

• Regular updates on portfolio changes

• Ensuring best practice in compliance

reporting

• ‘Green’ loans agreed with major

financial institutions

Our stakeholders

Why are they important?

We think that engaging with our key

stakeholders is fundamental to our

ability to make well informed decisions

which ultimately have a positive impact

on the business, in the communities in

which we invest and the people with

whom we do business.

Positive engagement and collaboration

with our stakeholders supports the

implementation of our long-term

strategy for growth.

We engage with our stakeholders

through a variety of channels throughout

the year. We have seen a positive impact

on the decisions we have taken during

the year as a result of the input from this

stakeholder engagement.

Further information on specific

stakeholder engagement initiatives

canbe found on pages 64 and 65 and

page 89

Our vision and values, which can be

found on page 8, reflect how our

stakeholders perceive us and, in turn,

how we conduct ourselves in our

interactions with them.

Our purpose is to transform office properties

intosustainable, modern spaces that help

businesses togrow

CLS Holdings plc Annual Report and Accounts 2021

34

Engaging our stakeholders

Tenants Suppliers Communities Employees Investors Financial institutions

How we listened to our stakeholders

• Tenant meetings

• Tenant satisfaction surveys

How we listened to our stakeholders

• Quarterly review meetings with

principal suppliers

• Fair tendering process to ensure we

work in partnership with suppliers

How we listened to our stakeholders

• Supporting local organisations in the

areas in which we invest

• Working closely with communities

andcouncils on refurbishment and

development projects

How we listened to our stakeholders

• Employee surveys

• Open door policy for raising issues

• Our Workforce Advisory Panel

How we listened to our stakeholders

• Q&A session at analyst presentations

• Regular meetings with investors

• Feedback through our key advisors

How we listened to our stakeholders

• Frequent meetings with all lenders

• Presentations from institutions

What key topics were raised?

• Improvements to communal areas

• Input into tenants’ refurbishments

• Involvement in sustainability initiatives

• Appreciation of in-house teams and

fast response to issues

What key topics were raised?

• Recognition of the Group’s prompt

payment of invoices

• Working towards sustainable

practices

• Support for continual feedback

What key topics were raised?

• Improvements to public realms

• Financial and in-kind support for local

charities and other organisations

What key topics were raised?

• Improvements to workplace policies

and practices

• Levels of staffing to match growth

inportfolio

• Increased workforce interaction

fromNon-Executive Directors

What key topics were raised?

• Impact of Brexit/Covid-19

• Long-term growth strategy

• Importance of Group-wide

sustainability initiatives

• The future of the office

What key topics were raised?

• Changes in legislation

• Economic and market research

andtrends

• Ongoing compliance with loan

covenants

• Sustainability initiatives

How did we respond?

• Programme of refurbishments

• Active asset, property and facilities

management to deal with issues

quickly

• Enhancing communications through

on-line portals

How did we respond?

• Commitment to ensure new contracts

pay the Real Living Wage

• Ensure communication of Group

objectives to enable collaborative

approach

How did we respond?

• Increase in funding for local charities

and organisations

• Adapted refurbishments/

redevelopments in light of feedback

• Commitment to the Group’s policy

ofprompt payment of invoices

How did we respond?

• Reviewed workplace policies,

practices and benefits

• Increase number of operational

employees

• Programme for Non-Executive

Director involvement

How did we respond?

• Brexit and Covid-19 impact risk

assessments

• November 2021 Capital Markets Day in

London

• New sustainability strategy and Net

Zero Carbon pathway

• Engagement about future office

hybridmodel

How did we respond?

• Communication of Group strategy at

individual meetings

• Regular updates on portfolio changes

• Ensuring best practice in compliance

reporting

• ‘Green’ loans agreed with major

financial institutions

Office Connect, Cologne

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

35

Total accounting return (%)

15

10

5

2017 2018 2019 2020 2021

0

20

Vacancy rate (%)

5.2 3.7 3.8 5.1 5.8

5

4

3

1

2

2017 2018 2019 2020 2021

6

0

EPRA earnings per share (p)

12.6 13.1 12.0 12.2 11.3

2017 2018 2019 2020 2021

13

12.5

12

11.5

11

10.5

10

13.5

Definition

As described in more detail in note 5,

EPRANTA has replaced EPRA NAV as the

Group’s primary measure of net assets.

Total accounting return is the aggregate

ofthe change in EPRA NTA plus the

dividends paid, as a percentage of the

opening EPRA NTA.

Why this is important to CLS

This KPI measures the increase in EPRA

NTA per share of the Company before the

payment of dividends and so represents

the value added to the Company in

theyear.

Our target

Our target total accounting return is

between 3% and 9%.

Progress

In 2021, the total accounting return

was3.7%.

Definition

Estimated rental value (ERV) of immediately

available space divided by the ERV of the

lettable portfolio.

Why this is important to CLS

This KPI measures the potential rental

income of unlet space and, therefore, the

cash flow which the Company would seek

to capture.

Our target

Wetarget a vacancy rate of between 3%

and 5%; if the rate exceeds 5%, other than

through recent acquisitions, we may be

setting our rental aspirations too high

above the current market; if it is below

3%we may be letting space too cheaply.

Progress

At 31 December 2021, the EPRA vacancy

rate was 5.8%.

Definition

EPRA earnings is a measure of

operational performance and represents

the net income generated from the

Group’s underlying operational activities.

Why this is important to CLS

This KPI gives relevant information to

investors on the income generation of the

Group’s underlying property investment

business and an indication of the extent

towhich current dividend payments are

supported by earnings.

Our target

We will seek to grow the earnings of

thebusiness alongside net asset value.

Following REIT conversion in the UK, the

tax saving is expected to increase EPRA

earnings by at least 0.7 pence.

Progress

EPRA earnings per share for 2021 was

11.3 pence.

Measuring

the performance

of our strategy

EPRA NAV

EPRA NTA

More detail is provided in the Chief

Financial Officer’s review on pages 38

to41 and in note 5.

More detail is provided in the Country

business reviews on pages 18 to 23 and

innote 5.

More detail is provided in the Chief

Financial Officer’s review on pages 38

to41 and in note 5.

CLS Holdings plc Annual Report and Accounts 2021

36

Key performance indicators

100

0

Total shareholder return – Relative (%)

1st

15th

10th

18th

23rd

7

5

5

0

2

5

2017 2018 2019 2020 2021

Administration cost ratios (%)

25

10

15

20

5

2017 2018 2019 2020 2021

0

30

Net initial yield vs cost of debt (%)

5

4

3

1

2

2017 2018 2019 2020 2021

0

6

GRESB (ESG) score/100

56 63 70 72 85

2017 2018 2019 2020 2021

80

70

60

50

40

30

20

10

0

90

Definition

The annual growth in capital in purchasing

ashare in CLS, assuming dividends are

reinvested in the shares when paid,

compared to the TSR of the 24 companies in

the FTSE 350 Real Estate Super Sector Index.

Why this is important to CLS

This KPI measures the increase in the

wealth of a CLS shareholder over the

year,against the increase in the wealth

ofthe shareholders of a peer group

ofcompanies.

Our target

Our target total shareholder return

(relative) is between the median

andupper quartile.

Progress

The TSR was 0.4%, making CLS the 23rd

ranked share of the FTSE 350 Real Estate

Super Sector Index of24 companies.

Measuring

the performance

of our strategy

Our main sustainability indicator has

changed to be the Group’s GRESB rating as

this is an industry standard measure and

also due to the difficulty in drawing

conclusions from carbon-related

measures due to the variability in

occupancy of our buildings during the

pandemic. We achieved a further thirteen

GRESB points this year, and an additional

green star taking our total score for 2021

to 85 points and four green stars.

Cost of debt

Net initial yield

We seek to maintain a cost of debt at least

200 bps below the Group’s net initial yield.

At 31 December 2021, the cost of debt of

2.22% was 205 bps below the net initial

yield of 4.27%.

CLS

EPRA

These measure the administration cost

ofrunning the core property business

byreference to the net rental income

thatit generates, and provides a direct

comparative to most of our peer group.

We aim to maintain the CLS ratio between

15%and 17%. The administration cost

ratio was for 2021 14.1%.

Other performance indicators

In addition to these key performance

indicators, the Group also has a number

ofother performance indicators by which

it measures its progress. These are

regularly reviewed. Three are shown here

but others are summarised on page 3 and

in note 5 and are discussed throughout

this strategic report. Our environmental

and social indicators (including health and

safety) are discussed in the ESG section

on pages 54 to 77.

More detail is provided in the Chief

Financial Officer’s review on pages 38

to41 and in note 5.

More detail is provided in the ESG

section on pages 54 to 77.

More detail is provided in the Chief

Financial Officer’s review on pages 38

to41 and in note 5.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

37

Andrew Kirkman

Chief Financial Officer

Robust results in 2021

with continuing excellent

rent collection, strong

EPRA NTA and revaluation uplifts

across all countries.

year onwards. One of the reasons for

conversion was so as to shield the UK

operations from being subject to the

increase in the rate of UK corporation

taxfrom 19% to 25% from 1 April 2023.

Conversion has increased EPRA NTA

by4.5 pence and will save between

£3 million to £5 million annually in UK

corporation tax from 2022 onwards.

The low end of the range being the tax

saving in EPRA EPS and the high end

being the usual tax saving in statutory

EPS including the tax on the realisation

ofvaluation gains on property disposals.

The overall level of CLS’ dividend under

the REIT regime will be reassessed in the

second half of the year.

REIT conversion in the UK

will save between £3 million

to £5 million of tax annually

from 2022 onwards.

CLS uses a number of alternative

performance measures (‘APMs’) alongside

statutory figures. We believe that these

assist in providing stakeholders with

additional useful information on the

underlying trends, performance and

position of the Group. Note 5 to the

financial statements gives a full

description and reconciliation of

ourAPMs.

Income statement

Net rental income in 2021 of

£108.0 million, as set out in graph A,

was£1.8 million lower than in 2020.

Acquisitions added £8.3 million but this

was more than offset by income lost

fromdisposals (£2.7 million); properties

being redeveloped (£2.3 million); net

leaseexpiries as vacancy increased

(£2.2 million); the impact of a stronger

sterling on German and French rent

receipts (£1.6 million); and lower

dilapidation income (£1.4 million).

Both thehotel and student income

rebounded in the second half, as

businesses recovered following the easing

of Covid-19 restrictions, such that overall

hotel revenue increased by £0.8 million

to£2.7 million (2020: £1.9 million).

Given the timing of the academic year

relative to Covid-19 restrictions, student

Summary

EPRA net tangible assets (‘NTA’) per

share, rose by 1.5% to 350.5 pence

(2020: 345.2 pence) and basic net

assetsper share by 4.7% to 326.6 pence

(2020: 311.9 pence). Profit after tax of

£119.5 million (2020: £77.4 million)

generated basic earnings per share of

29.3 pence (2020: 19.0 pence) and EPRA

earnings per share of 11.3 pence

(2020: 12.2 pence). EPRA EPS provided

1.5x cover of the full year dividend of

7.70per share.

On 1 January 2022, we converted our

UKoperations to a REIT. As a result of

theconversion, CLS will pay no UK

corporation tax on its UK property

operations (rental income, gains on

property sales and sales of companies

owning UK property) which fall within

theREIT regime from the 2022 financial

Continued high rent

collection in 2021 at 99%

CLS Holdings plc Annual Report and Accounts 2021

38

Chief Financial

Officer’sreview

A. Net rental income £m

109.8

8.3

(2.7)

(2.3)

(2.2)

(1.6)

(0.7)

0.8

(1.4)

108.7

2020

Acquistions

Disposals

Developments

Net lease expiries

Foreign exchange

Student income

Hotel income

Dilapidations

2021

B. EPRA EPS movement per share

12.2

(0.4)

1.0

(1.1)

(0.4)

11.3

2020

Net rental income

Expenses

Foreign exchange

Net finance costs and tax

2021

income fell£0.7 million to £4.1 million

(2020: £4.8 million) but occupancy rates

are back to, or above, normal levels at

99% for the current academic year.

As the difficult trading environment

continued during 2021, we also continued

our focus on our tenant relationships and

monitoring rent collection. Rent collection

statistics in 2021 and the first quarter of

2022, as set out below, remained excellent

throughout.

H1

2021

H2

2021

2021

Year

Q1

2022

UK 99% 99% 99% 96%

Germany 99% 99% 99% 98%

France 99% 99% 99% 98%

Total 99% 99% 99% 97%

Due to the continued 99% level of rent

collection, we have been able to reduce

our 2021 bad debts provision by

£0.3 million (2020: £1.8 million increase).

Index-linked rent represents 50.1% of the

total contracted rent of the portfolio which

is a slight increase from 48.5% in 2020.

This level of indexation is particularly

helpful in a time of higher inflation and

increasing interest rates.

We monitor the costs of running the

business closely and as a result of

severalcost control measures, including

limited redundancies, and lower bad debt

charges, the administration cost ratio fell

to 14.1% (2020: 16.7%) and the EPRA cost

ratio fell to 22.6% (2020: 26.6%).

The net surplus on revaluation of

investment properties of £28.5 million

(2020: £31.5 million) resulted from

valuation increases from all three

countries; in localcurrencies, Germany

again had the strongest year with a 3.1%

rise in values, UK by 0.7% and France

by0.3%.

Over 50% of contracted

rents are index-linked

Eight properties were sold in 2021 at 3.2%

above book value but after costs resulted

in a loss on sale of properties before taxof

£0.1 million (2020: £11.6 million profit).

Finance income of £5.9 million

(2020: £1.1 million) included unrealised

gains on derivative financial instruments

of £5.2 million (2020: £1.6 million loss).

Excluding the derivative financial

instruments, finance income fell by

£0.4 million as interest received fell to

£0.5 million (2020: £1.0 million) and

dividends receivable increased to

£0.2 million (2020: £0.1 million).

Excluding the 2020 derivative financial

instruments cost, finance costs increased

to £25.4 million (2020: £24.4 million)

mainly due to the increase in borrowings

offset by the further reduction in the

costof borrowing and the higher

exchange rate.

Approximately 53% of the Group’s sales

areconducted in the reporting currency

ofsterling and 47% in euros. Compared to

last year, relative movements of sterling

against the euro had a notable negative

impact onthe Group’s results for the year

both interms of the translation of our

balancesheet and the monetary assets

recognised in the income statement.

At 31 December 2021 sterling was

6.3%stronger against the euro than

12 months previously and sterling’s

average rate strengthened against the euro

by 3.4%. This strengthening resulted in a

foreign exchange loss of £2.3 million in the

income statement (2020: £2.1 million gain).

Exchange rates to the £ EUR

At 31 December 2019 1.1825

2020 average rate 1.1251

At 31 December 2020 1.1185

2021 average rate 1.1634

At 31 December 2021 1.1893

The effective tax rate of -30.6%

(2020: 19.8%) was below the weighted

average rate ofthe countries in which

weoperate, primarily due to the release

ofUK deferred tax liabilities following our

transfer to a REIT of ourUK operations.

Overall, as set out in graph B, EPRA

earnings were lower than last year at

£46.0 million (2020: £49.5 million)

andgenerated EPRA earnings per

shareof 11.3 pence (2020: 12.2 pence).

The decrease of 0.9 pence in EPRA

EPSwas primarily due to the 3.4%

strengthening of the average rate

ofsterling (1.1 pence comparative

movement), without which EPRA EPS

would have slightly increased. We were

able to achieve operational cost savings

of1.0 pence mostly offset by reduced net

rental income of 0.4 pence, as commented

on above, and increased finance costs and

tax of 0.4 pence.

Additional income of £7.5 million was

recognised in 2021 in statutory EPS as a

result of the sale and revaluation of our

remaining two legacy non-core Swedish

investments. CLS now directly holds

3.23% of Fragbite Group AB and indirectly

9.68% of Vo2 Cap Holding AB.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

39

C. EPRA NTA movement p

345.2

(7.6)

11.3

8.4

(1.6)

(9.7)

4.5

350.5

At 31 December 2020

Dividends

EPRA EPS

Valuation movement

Other

Foreign Exchange

REIT conversion

At 31 December 2021

D. Movement in liquid resources £m

235.7

(30.8)

73.1

(28.9)

35.7

88.1

(201.0)

(4.5)

167.4

At 1 January 2021

Dividends paid

Cash from operations

Interest/tax

Sale of properties

Net loan drawdown

Acquisitions/capex

Foreign exchange/other

At 31 December 2021

EPRA net tangible assets and gearing

At 31 December 2021, EPRA net tangible

assets per share were 350.5 pence

(2020: 345.2 pence), a rise of 1.5%, or

5.3pence per share. As set out in graph C,

the main reasons for the increase were;

EPRA earnings per share of 11.3 pence;

property valuation increases of 1.6%

equivalent to 8.4 pence per share; and the

impact of the REIT conversion of 4.5 pence

per share from the release of UK deferred

tax liabilities related to future sales and

timing differences, less foreign exchange

of 9.7 pence per share; dividends of 7.6

pence per share; and other movements of

1.6 pence per share.

REIT conversion in the

UKhas added 4.5 pence

toEPRA NTA.

Balance sheet loan-to-value (net debt to

property assets) at 31 December 2021

increased to 37.1% (2020: 33.7%) as a

result of net acquisitions. The loan-to-

value of secured loans by reference to the

value of properties secured against them

was 46.3% (2020: 48.8%). The value of

properties not secured against debt fell

to£100.8 million (2020: £138.8 million).

Cash flow and net debt

As at 31 December 2021, the Group’s

cashbalance had fallen to £167.4 million

(2020: £235.7 million) as set out in graph

D. Net cash flow from operating activities

generated £44.2 million, a reduction of

£0.1 million from 2021. £30.8 million was

distributed as dividends and £33.4 million

paid out for financing costs, tax and other

costs, with the remainder reinvested in

the business to grow net tangible assets.

Acquisitions of £164.6 million and capital

expenditure of £36.4 million were partly

funded by proceeds after tax from

property disposals of £35.7 million

andthe net drawdown of loans of

£88.1 million. The net result of property

and financing transactions being the

investment of £68.3 million in our

propertyportfolio.

Gross debt increased by £60.9 million

to£1,031.6 million (2020: £970.7 million)

dueto the net drawdown of loans of

£88.1 million, amortisation of loan issue

costs of £1.9 million and the decrease

of£29.1 million due to the strengthening

ofsterling against the euro. In the year,

£196.7 million (£195.3 million net of fees)

of new or replacement loans were taken

out, loans of £88.2 million were repaid

and£21.1m of contractual periodic or

partial repayments were made. Year

endnet debt rose to £864.2 million

(2020: £735.0 million). At the year end,

CLS’ additional facilities remained

unchanged comprising undrawn bank

facilities of £50.0 million, of which

£30.0 million was committed.

The weighted average cost of debt at

31 December 2021 was 2.22%, 6 basis

points (‘bps’) lower than 12 months earlier

and a new all-time low for CLS, as shown

ingraph E. The movement was as a result

ofnew lower cost debt drawn for German

acquisitions (8 bps reduction) and from

refinancing debt at a lower all-in-rate (4bps

reduction) partly offset by an increased

proportion of more expensive UK financing

due to stronger sterling (3bps increase), an

increase in the UK base rate (2 bps increase)

and cheaper euro-denominated debt being

repaid following disposals (1 bps increase).

In 2021, interest cover remained at a healthy

level of 3.2 times (2020: 3.3 times).

Financing strategy and covenants

The Group’s financing strategy remains

toutilise non-recourse bank debt in the

currency used to purchase the asset.

In this way credit and liquidity risk can

bemanaged easily, around 49% of the

Group’s exposure to foreign currency

isnaturally hedged and an efficient use

canbe made of the Group’s assets.

Most of the Group’s investment properties

are held in special purpose vehicles (‘SPVs’)

and the majority are financed on the basis

ofone property, one company and one loan.

This is particularly advantageous in

Germany and France where secured, SPV

financing rates are very low. In addition,

theGroup has a number of portfolio loans

orsecured notes including our two ‘green’

loans. The advantage of these portfolio

loans isthat they can be structured to

affordtheGroup greater flexibility such

thatproperties, with the appropriate

attributes, can be substituted into

andoutofsuch portfolios.

Second ‘green’ loan of

£61.7million completed in

2021 taking our sustainability-

linked loans to 21% of the

Group’s borrowings.

In 2020, we executed our first ‘green’ loan,

a £154.0 million 11-year loan with Aviva

Investors and during 2021, we signed

oursecond with Scottish Widows. The

£61.7 million loan was secured on a

portfolio of five properties for 12 years.

The sustainability objectives on both our

CLS Holdings plc Annual Report and Accounts 2021

40

Chief Financial Officer’s review

Continued

F. Debt maturity £m

71.9 90.7

5.5 68.3

GBP GBP ‘green’ loans EUR

58.8199.8

55.344.3

50.11.1

1.3

71.5

70.8

51.0

1.4

1.4

0.7

78.7

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

E. Average cost of debt %

2.51

2.43

58.82.42

2.28

2.22

2017

2018

2019

2020

2021

‘green’ loans are aligned with the targets

set out in our sustainability strategy.

The year one targets to achieve the margin

reduction have been met and subsequent

objectives are on target and will be tested

on an annual basis.

At 31 December 2021, as demonstrated in

graph F, the 12-year Scottish Widows loan

has added to the longer term loans such

that the weighted average unexpired term

of the Group’s debt remained similar at

4.4years (2020: 4.6years).

Given the significant refinancing activity

in2024, and to a lesser extent in 2022,

options are already being assessed.

One potential solution is a larger RCF to

give greater optionality regarding the

encumbered buildings, whether new

lettings, refurbishment or redevelopment.

To the extent that Group borrowings are

not at fixed rates, the Group’s exposure to

interest rate risk is mitigated by financial

derivatives, mainly interest rate swaps.

In the recent medium-term low interest

rate environment, the Group continued

tochoose to take advantage of the

conditions, fixing most of the medium-term

debt taken out during the year.

In 2021, the Group financed, refinanced

orextended ten loans to a value of

£196.7 million for a weighted average

duration of 6.9 years and at a weighted

average all-in rate of 1.62%, and of these

£172.8 million were fixed at a weighted

average all-in rate of 1.70%. Consequently,

at 31 December 2021, 85.0% of the

Group’s borrowings were at fixed rates or

subject to interest rate swaps, 4.5% were

subject to caps and 10.5% of loans were

floating and unhedged. The fixed rate debt

had a weighted average maturity of 5.1

years and the floating rate 3.3 years.

The Group’s financial derivatives,

predominantly interest rate swaps,

aremarked to market at each balance

sheetdate. At 31 December 2021 they

represented a net liability of £0.4 million

(2020: £5.6 million).

At 31 December 2021, the Group had

47loans (36 SPVs, nine portfolios and two

facilities) from 25 lenders. The loans vary

in terms of the number of covenants with

the three main covenants being ratios

relating to loan-to-value, interest cover

and debt service cover. However, some

loans only have one or two of these

covenants, some have other covenants

and some have none. The loans also vary

in terms of the level of these covenants

and the headroom to these covenants.

2.9% increase in final

dividend

On average across the 47 loans, CLS

hasbetween 29% and 48% headroom

forthese three main covenants. In the

eventof an actual or forecast covenant

breach, all of the loans have equity cure

mechanisms torepair the breach which

allow CLS to either repay part of the loan,

substitute property or deposit cash for the

period the loan is in breach, after which

the cash can be released.

Distributions to shareholders and total

accounting return

The proposed final dividend for 2020 of

5.20 pence per share (£21.2 million) was

paid in April. In September 2021, given

theongoing uncertainty, CLS maintained

itsinterim dividend for 2021 at the same

level as 2020 and an interim dividend of

2.35 pence per share (£9.6 million) was

paid. The proposed final dividend for 2021

is 5.35 pence per share (£21.8 million).

This represents a full year distribution of

7.70 pence per share (£31.4 million) which

was covered 1.5times by EPRA earnings

per share.

The 2021 dividend is an increase of 2.0%

over the prior year and the total

accounting return, being the increase in

EPRA NTA plus the dividends paid in the

year, was 3.7% (2020: 8.1%).

As a result of the conversion of our

UKoperations to a REIT, for the 2022

interim dividend, expected to be paid in

September 2022, and for all dividends

going forward, shareholders will receive

dividends comprising two elements.

The dividends will comprise a Property

Income Distribution (‘PID’) from the UK

REIT operations and a second element

from CLS’ remaining operations.

Andrew Kirkman

Chief Financial Officer

16 March 2022

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

41

Risk management framework

The risks, being both principal and

emerging, which the Group faces are

reviewed and monitored in Senior

Leadership Team meetings throughout

theyear and presented to the Board and

Audit Committee at least every six months

for further discussion and oversight.

The Senior Leadership Team comprises

the CEO, the CFO, the COO, regional

business heads as well as other

seniormanagers.

In addition, major business-wide

decisionssuch as property acquisitions,

disposals and significant strategy changes

are discussed at the Executive Committee

Meetings and reviewed by the Board

before implementation, subject to

authorisation limits. The Executive

Committee meets weekly and comprises

the CEO and the CFO.

An update on risks and the control

environment is presented at each

AuditCommittee meeting including the

results of any internal control review

procedures undertaken in the period.

Senior managers also attend Audit

Committee meetings to discuss specific

risk areas and these discussions are

supplemented by external advisors

whererelevant.

Risk management processes, which

include health and safety, human

resources and sustainability risk

management, are employed within

thebusiness and updates are reported

totheBoard at each meeting.

Covid-19 hasnot changed our risk

processes but increased the frequency

ofour considerations.

A summary of our risk management

structure is provided in the diagram opposite.

The effective management of

risk is critical for the Group to

be able to deliver its strategy,

which is especially important in these

times of heightened uncertainty. Our

organisational structure allows the close

involvement of senior management in all

significant decisions, which together with

the CLS in-house teams, embeds the

management of risks and opportunities

throughout the operation of the Group.

Our key activities

for the year

• Purchased and started

implementation of risk and internal

control software to allow the Group

to monitor and test its internal

controls and the risks associated

with them more efficiently and

extensively.

• Published 2030 sustainability

strategy and Net Zero Carbon

pathway.

• Grant Thornton conducted internal

controls and risk reviews with

limited findings.

• Rolled out improvement

recommendations from 2020

staffsurvey.

• Increased percentage of ‘green’

loans to over 20% of our loan

portfolio and fixed rate debt to 85%

whilst lowering average cost of debt

from 2.28% to 2.22%.

Our priorities

for 2022

• Roll-out of risk and internal control

software.

• Implement Grant Thornton findings.

• Establish milestone targets for Net

Zero Carbon pathway.

• Engage external consultants to assist

us with in-depth analysis of climate-

related resilience risk set across

different climate scenarios.

• Establish Risk and Sustainability

Committee.

• Establish benchmarks and targets

for Social Value Framework.

• Make improvements based on

tenantsurveys.

• Simulate a major business

interruption totest the Group’s

updated business continuity plan.

• Ensure Cyber Essentials plus

rankingretained.

CLS Holdings plc Annual Report and Accounts 2021

42

Our principal risks

Our risk management structure is set out below:

Policies

• Multi-level review of annual

budgetquarterly forecasts and

four-year strategic plans

• Tenant covenant testing and

leasingobjectives

• Occupancy targets

• Acquisition and development

appraisal criteria

• Gearing and liquidity benchmarks

• Security covenant compliance

Controls

• High level risk assessment

• Policy and procedure framework

• Strict authorisation structures

• Extensive back-up documentation

forall decision-making

• External review of key controls

• Recommendations from

externalAuditor

People

• Extensive market expertise

• Highly qualified staff with defined

roles and responsibilities

• Open and transparent internal

andexternal communication

• Integrity and diligence

• Alignment of interests with

investors

Audit Committee

• Key oversight and assurance

function on risk management,

internal controls and viability

• Reports to the Board on the

effectiveness of risk management

processes and internal controls

Executive Committee

• Day-to-day operational oversight

of risk management

• Consideration of business wide

decisions and their impact on

riskappetite

Senior Leadership Team

• Oversight function of business

activities and risk considerations

• Identifies strategic objectives

and assesses risk

The Board • Overall responsibility for risk management and internal controls

• Monitors the long-term viability of the business

• Sets strategic objectives and considers risk as part of this process

• Determines the level of risk appetite

• Sets business-wide delegated authority limits

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

43

Management of risks throughout

thebusiness

Each business area operates various

processes to ensure that key risks are

identified, evaluated, managed and

reviewed appropriately. For example:

• a monthly asset management portfolio

review for each region is prepared and

circulated to the Board which outlines

key business risks, developments and

opportunities; and

• the development team convenes risk

and opportunity workshops with the

design team at the feasibility stage of

development projects. Regular reviews

are then part of the design development

to ensure the continuous identification

and management of risks throughout

the development process.

The potential risks associated with loss

oflife or injury to members of the public,

customers, contractors or employees

arising from operational activities are

continually monitored. Competency

checks are undertaken for the consultants

and contractors we engage and regular

safety tours of our assets are undertaken

by the property management team.

In addition, the wellbeing of our

employees is a key focus for the Group

and various activities are supported by

the Board including the delivery of annual

mental health workshops and company-

funded employee contributions to promote

healthy lifestyle initiatives such as gym, or

other sports club, memberships. In this

way some of the people risks are

somewhat mitigated.

During the year we purchased a suite of

internal controls and risk software so

thatwe can fully embed an effective

riskmanagement structure within our

operations as well as monitor and report

the risks and their associated internal

controls more efficiently to the Audit

Committee and the Board.

Risk appetite

The Board recognises its overall

responsibility for undertaking a robust

risk assessment and for establishing

theextent to which it is willing to

acceptsome level of risk to deliver

itsstrategic priorities.

Our risk appetite is reviewed at least

annually and assessed with reference

tochanges both that have occurred, or

trends that are beginning to emerge in

theexternal environment, and changes in

the principal risks and their mitigation.

These will guide the actions we take in

executing our strategy. Whilst our appetite

for risk willvary over time, in general we

maintaina balanced approach to risk.

The Group allocates its risk appetite

intofive categories:

Very low: Avoid risk and uncertainty

Low: Keep risk as low as reasonably

practical with very limited, if any, reward

Medium: Consider options and accept a

mix of low and medium risk options with

moderate rewards

High: Accept a mix of medium and high

risk options with better rewards

Very high: Choose high risk options with

potential for high returns

The Board has assessed its risk appetite

and current status for each of the Group’s

principal risks as follows:

Board risk

appetite

Principal risk

assessment

Property Medium High

Sustainability Medium Medium

Business Interruption Low Medium

Financing Medium Medium

Political & Economic Medium High

People Medium Medium

The Board’s risk appetite in relation to the

Group’s principal risks is broadly aligned.

As shown in the table above, there is

divergence of risk appetite and risk status

inrelation to the property, sustainability,

business interruption, and political and

economic principal risks. The Board

accepts there are factors in relation to

these principal risks that are outside the

Group’s control and are likely to change

over time. Mitigating actions have been

put in place to ensure these risks are

adequately managed and monitored to

reduce the potential impact on the Group.

The Board also recognises that not all risk

can be fully mitigated and that they need

to be balanced alongside commercial

considerations. If a difference between

the Board’s risk appetite and the risk

assessment persists for an extended

period, this variance is debated asto

whether and how the gap should

beclosed.

CLS Holdings plc Annual Report and Accounts 2021

44

Our principal risks

Continued

1

5

High

Impact

Low Probability

26

34

Risk heatmap

The risk heatmap illustrates the relative

positioning of the potential impact and

probability of the principal risks on the

Group’s strategic objectives, financial

position or reputation after mitigation.

Internal or external forces, or a

combination of both, will continuously

have the potential to alter this positioning

and hence these risks are closely

monitored within our risk management

framework throughout the year.

Our risk assessment

Key

1. Property risk

2. Sustainability risk

3. Business interruption risk

4. Financing risk

5. Political and economic risk

6. People risk

Risk environment

The general risk environment in which the

Group operates has remained at a higher

level over the course of the year. This is

largely due to the continuing effects of

theCovid-19 outbreak, and associated

uncertainty, together with the increased

world-wide focus on sustainability.

Covid-19 presented a new and major

riskto the business in 2020 and this has

continued in 2021. Whilst much is starting

to return to normal, it is still hard to

predict the long-term impacts on the

Global and European economies and

consequentially the impacts on our key

markets and our business. In 2021, the

impact of the pandemic was most strongly

felt at our Spring Mews hotel and student

accommodation through lower occupancy

but we have seen a strong recovery at

both sites during the final few months of

the year. Rent collection rates have

remained at the same very high rate of

99% in 2021 (2020: 99%) for our office

tenants which comprise over 90% of

theportfolio.

Throughout the year, the Board monitored

the continually changing situation and

considered its effect on the business and

will continue to do so going forward.

Some of the potential longer-term effects

that may result from the pandemic are

discussed in the CEO review and the

individual country property reviews.

CLS condemns the invasion of Ukraine

byRussia and we are looking at ways that

we can support the Ukrainian people.

We continue to monitor whether additional

risk mitigation actions need to be taken to

counter greater expected increases in

inflation and overall economic disruption.

In considering our principal risks, set

outon pages 46 to 51, any potential

impactas a result of Covid-19 has been

taken into account.

As discussed in more detail in the political

and economic risk section, Brexit has had

a limited direct impact on our business

but we continue to monitor the situation.

Principal risks

Our principal risks are set out in the

diagram below and are discussed in the

following pages along with the change

intheir risk profile since the last year

endand the current direction of travel as

well as our risk mitigation actions and

plans. Whilst we do not consider there

hasbeen any material change to the

nature of the Group’s principal risks over

the last 12 months, several risksremain

elevated as a result of the challenging

external environment and significant

ongoing uncertainty.

The diagram and following pages are

onlyfocused on our principal risks

beingthose that have the greatest

impacton our strategy and/or business

model. In addition, there are many lower

level operational and financial risks

whicharemanaged on a day-to-day

basisthrough the effective operation

ofacomprehensive system of

internalcontrols.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

45

Business model and strategy

We acquire the right properties

We secure the right finance

We deliver value through active management and cost control

We continually assess whether to hold or sell properties

For more information on our business model and strategy please

see pages 24 and 25.

Key and other performance indicators (KPI/OPIs)

EPS Earnings per share

TSR(R) Total shareholder return (Relative)

TAR Total accounting return

VR Vacancy rate

ACR Administration cost ratio

For more information on our key performance indicators please

see pages 36 and 37.

Risk assessment:

High

Change in risk

profile in year:

Unchanged

Current direction

of travel:

Nochange

Key risks:

• Cyclical downturn in the property

market which may be indicated by

anincrease in yields

• Changes in supply of space and/or

demand

• Poor property/facilities management

• Inadequate due diligence and/or

poorcommercial assessment of

acquisitions

• Failure of tenants

• Insufficient health and safety

riskprotection

• Building obsolescence

KPI/OPI link:

EPS

TSR(R)

TAR

VR

ACR

Business Model Link:

More detail is provided in the Country

business reviews on pages 18 to 23.

1. Property risk

Market fundamentals and/or internal behaviours lead to

adverse changes to capital values of the property portfolio

or ability to sustain and improve income generation from

these assets.

Risk mitigation in action

As part of our diversified approach,

acquisitions continue to be made in line

with our strategic objective to grow both

rental income and capital returns through

filling vacancies and refurbishment.

In 2021, we made six acquisitions, all

withasset management opportunities.

We have rigorous and established

governance andapproval processes

andwe have continued to be resolute

withour pricing discipline in assessing

opportunities. Our Financial Investment

Committee meets at least monthly to

discuss potential acquisition opportunities

in each of our regions.

Eight disposals were made in 2021 of

assets which werelow yielding with

limited asset management potential or

where the risk/reward ratio was

unfavourably balanced. We are also

increasing the average size of the

properties in our portfolio by disposing

ofsmaller properties, which require

disproportionate amounts of management

time and are less economic to upgrade

interms of amenities and sustainability.

We have a high quality and diversified

tenant base and monitor any exposure to

individual tenants or sectors. A focused

review of the strength of the tenant

covenant is carried out when assessing

each new lease opportunity.

We closely monitor all health and safety

related issues and our in-house teams

ensure compliance with all regulations

supplemented by external oversight.

Reports outlining progress, issues and

potential risks are presented at each

Board meeting.

Risk mitigation priorities for 2022

We will continue to target properties with

asset management opportunities in good

locations as well as focusing on disposing

of smaller properties with limited

potential and reinvest the proceeds

inlocations and properties withthe

opportunity to add value throughactive

asset management.

We will continue to monitor the covenant

strength and health of our tenants and

provide support where appropriate.

Commentary

There still remains uncertainty regarding

the full economic and social impacts of

Covid-19. In particular, the impacts on the

demand for, and supply of, office space. It is

though becoming increasingly clear that

there is a market preference for well-

located, high quality and flexible space –

atrend to which CLS is actively responding.

The CLS in-house management model

allows us to build close links with our

tenants in order to understand their needs

and to provide timely insights into

potential occupier/property issues and

facilitate resolution. These ties have

allowed us to react quickly and work

collaboratively to respond dynamically

totenants’ changing requirements.

Our Asset Management Committees meet

once a month to discuss each of our

properties with regard to new leases,

lease events and tenant issues.

CLS Holdings plc Annual Report and Accounts 2021

46

Our principal risks

Continued

2. Sustainability risk

As a result of a failure to plan properly for, and act upon, the

potential environmental and social impact of our activities,

changing societal attitudes, and/or a breach ofany legislation,

this could lead to damage to our reputation and customer

relationships, loss of income and/or property value, and

erosionof shareholder confidence in the Group.

Risk mitigation in action

All physical and transition risks are

captured by the sustainability risk register

maintained by our in-house sustainability

team which is reviewed twice a year or

when a material change in the risk

landscape occurs. Additionally, each of

our buildings is reviewed annually.

Our Net Zero Carbon pathway to 2030,

which is aligned to a science-based

carbon reduction target (SBTi), was

published in August together with our new

sustainability strategy and are discussed

in more detail on pages 58 to 61.

We have BREEAM In-Use assessments

onall managed assets with 83%

achievingat least a “Good” rating.

We havealso undertaken a full Scope 3

carbon emissions baseline.

We employed an external consultant

toprovide independent assurance for

ourScope 1 and 2 greenhouse gas

2021disclosures.

We continue to carry out ongoing risk

reviews of environmental legislation for

any upcoming changes.

A portfolio-wide programme of energy

audits was carried out in 2021.

An Asset Management Plan for all

managed assets was carried out to

ensure they are as energy efficient as

possible, aiming fornet zero carbon.

Risk mitigation priorities for 2022

Our focuses for 2022 are set out on page

57. These include starting to implement

our sustainability strategy and Net Zero

Carbon pathway. More detail can be found

on pages 58 to 61.

Risk assessment:

Medium

Change in risk

profile in year:

Increased

Current direction

of travel:

Increasing

Key risks:

Transition risks:

These include regulatory changes,

economic shifts, obsolescence and

thechanging availability and price

ofresources.

Physical risks:

These are climate-related events that

affect our supply chain as well as the

buildings’ physical form and operation;

they include extreme weather events,

pollution and changing weather

patterns.

KPI/OPI link:

EPS

TSR(R)

TAR

VR

ACR

Business Model Link:

More detail is provided in the

environmental, social and governance

review on pages 54 to 77.

We continue to maintain our focus on

energy reduction at our existing assets

while also identifying potential climate

related physical risks on new acquisitions.

Sustainability assessments will continue

to be a key focus of asset management

decision making across the business in

each region.

We will continue to expand the coverage

ofour automatic data collection across

our energy and water supplies to

enablethe roll-out of portfolio-wide

performance reports

A new Sustainability acquisitions

checklistwill be rolled out in 2022 to

improve our due diligence on acquisitions

further and a Sustainability Design Guide

will be implemented to address energy

efficiency/health and wellbeing issues

fordevelopment and refurbishments.

Commentary

Whilst we have identified an increase in

this risk this year, theoverall assessment

remains at Medium. This increase is

inresponse to the trend of global

increases in emissions and the increasing

world-wide focus on this area, as well as

the resulting focus on carbon and waste/

resource reduction and habitat

preservation and restoration.

Increased monitoring of all carbon-related

activities, both directly and indirectly, was

a priority for 2021, and will be again in

2022, given an increase in government

policies around reporting thecarbon

impact on supply chain and direct use.

For the first time in this report, we are

reporting against the Task Force on

Climate-related Financial Disclosures and

UNSDG disclosures which are shown on

pages 74 to 77.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

47

3. Business interruption risk

Data loss; or disruption to corporate or building management

systems; or catastrophic external attack; or disaster; may limit

the ability of the business to operate resulting in negative

reputational, financial and regulatory implications for long term

shareholder value.

Risk assessment:

Medium

Change in risk

profile in year:

Unchanged

Current direction

of travel:

No change

Key risks:

• Cyber threat

• Large scale terrorist attack

• Environmental disaster, power

shortage or pandemic

KPI/OPI link:

EPS

TSR(R)

TAR

VR

ACR

Business Model Link:

Risk mitigation in action

The Group’s business continuity plan was

reviewed and updated during the year.

An annual review of each property’s

specific emergency plan is carried out

which considers a range of different

physical, utility and catastrophic risks.

As remote working continued to be the

norm foralarge part of the year, we

ensured that there was the necessary

system infrastructure to cope with the

increase inthe volume of remote access.

In addition, we ensured the ability to carry

out key operational procedures such as

payment authorisations safely and

effectively.

We have continued a programme of

employee cyber training which evolves

asthe threat landscape changes.

During the year, we have regularly tested

the Group’s capability to recover business

critical IT systems to secondary hosting

environments and restored data from

back-ups.

Risk mitigation priorities for 2022

Independent reviews of our cyber

defences are performed periodically.

The Group’s “Cyber Essentials Plus”

certification was achieved in 2020 and

weaim to exceed this benchmark

following the 2022 review.

Simulate a major business interruption

totest the Group’s updated business

continuity plan.

The Group’s insurance coverage is

regularly reviewed, particularly to assess

the relevance of cyber cover, and revised

whererelevant.

Commentary

Whilst the risks associated with the

pandemic have mostly continued during

the year, the business interruption risk to

long-term shareholder value is deemed to

remain unchanged due to our mitigation of

this risk through robust IT infrastructure.

Whilst companies continue to be subject

to an increasing number of attempted

cyber attacks and the pandemic has

resulted in an increase in Covid-19 related

phishing and fraud attempts, we have

continued to develop and invest in our

mitigation controls to reduce these risks.

We continue to implement a new shared

property and finance system across the

Group to mitigate against data, cyber,

system integration and control issues.

This platform is operational in the UK

region, with the French and German

implementations due to complete within

the next 12 months.

Business model and strategy

We acquire the right properties

We secure the right finance

We deliver value through active management and cost control

We continually assess whether to hold or sell properties

For more information on our business model and strategy please

see pages 24 and 25.

Key and other performance indicators (KPI/OPIs)

EPS Earnings per share

TSR(R) Total shareholder return (Relative)

TAR Total accounting return

VR Vacancy rate

ACR Administration cost ratio

For more information on our key performance indicators please

see pages 36 and 37.

CLS Holdings plc Annual Report and Accounts 2021

48

Our principal risks

Continued

4. Financing risk

The risk of not being able to source funding in cost effective

forms will negatively impact the ability of the Group to meet

itsbusiness plans or satisfy its financial obligations.

Risk assessment:

Medium

Change in risk

profile in year:

Unchanged

Current direction

of travel:

No change

Key risks:

• Inability to refinance debt at maturity

due to lack of funding sources,

market liquidity, etc.

• Unavailability of financing at

acceptable debt terms

• Risk of rising interest rates on

floating rate debt

• Risk of breach of loan covenants

• Foreign currency risk

• Financial counterparty risk

• Risk of not having sufficient liquid

resources to meet payment

obligations when they fall due

KPI/OPI link:

EPS

TSR(R)

TAR

Business Model Link:

More detail is provided in the Chief

Financial Officer’s review on pages 40

and41.

Risk mitigation in action

The Group continues to maintain a wide

number of banking relationships to diversify

funding sources.

During the year the Group executed its

second ‘green’ loan of£61.7 million, which

was secured on a portfolio of five properties

for 12years, taking the Group’s percentage

of ‘green’ loans to over 20%, which are

aligned to achieving our sustainability

targets. Including this loan, we financed,

refinanced or extended 10 loans to a value

of £196.7 million for a weighted average

duration of 6.9 years and a weighted all-in

rate of 1.62% and of these £172.8 million

were fixed at a weighted average all-in rate

of 1.70%.

The Group’s weighted average cost of

debtat 31 December 2021 fell to 2.22%

(2020: 2.28%). At the same time, as a result

of deliberately targeting longer term loans,

the Group’s average debt maturity has

beenbroadly maintained at 4.4 years

(2020: 4.6years).

The Group’s debt portfolio is split 51%

insterling and 49% in euros providing

a‘natural’ hedge against foreign

currencyrisk.

On average across the Group’s 49 loans,

wehave between 29% and 48% headroom

across the three main covenants. In the

event of an actual or forecast covenant

breach, all of the loans have equity cure

mechanisms to repair the breach which

allow us to either repay part of the loan

ordeposit cash for the period the loan

isinbreach, after which the cash can

bereleased.

Risk mitigation priorities in 2022

The Group has facilities with 25 lenders

andwill seek to continue to maintain its

existing relationships and develop new

ones, whilst also exploring the feasibility of

other funding sources in 2022 to diversify

funding sources further and achieve longer

debt maturities. The Group will continue to

focus on its corefinancing risk mitigation

strategies including:

• Obtaining bids from multiple

counterparties to compete for new

lending;

• Fixing a high proportion of new debt, in

particular in France and Germany due to

the negative interest rate environment;

• Ensuring that new debt facilities have

appropriate covenants and provisions

toallow borrower cure of covenant

breaches;

• Matching foreign currency liabilities with

foreign currency assets by borrowing in

the local markets to create natural

hedging relationships;

• Monitoring lender exposure and ensure

that no one lender represents more than

20% of total Group debt; and

• Managing cash balances with the aim of

maintaining a minimum of £100m of

liquidresources on average to mitigate

refinancing and liquidity risk.

Further ‘green’ loans will also be targeted.

Commentary

Inflation concerns have increased and

central banks are now increasing interest

rates in response. By having 85% of our at

fixed rates, CLS is relatively well insulated.

In our core markets, the appetite and

support of lenders varies and for real

estate, covenant strength and quality

ofproperty remain key.

Maintaining our strong lending relationships

across multiple, diversified finance

providers remains a key strength of the

Group in more volatile markets.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

49

5. Political and economic risk

Significant events or changes in the Global and/or European

political and/or economic landscape may increase the

reluctance of investors and customers to make timely

decisionsand thereby impact the ability of the Group to plan

anddeliver its strategic priorities in accordance with its core

business model.

Risk assessment:

High

Change in risk

profile in year:

Unchanged

Current direction

of travel:

Increasing

Key risks:

• Ongoing transition of the UK from

theEU

• Global geopolitical and trade

environments

KPI/OPI link:

EPS

TSR(R)

TAR

VR

ACR

Business Model Link:

Risk mitigation in action

As part of the Group’s budgeting and

forecasting processes, a range of

scenarios were modelled to determine

how various changes to property values,

rental income and interest cost may

impact the business model and funding.

This review also provided a key input into

the conclusions formed in the viability

statement on page 53.

CLS has a diversified approach in terms

ofcountries, tenants and financing which

provides some in-built risk mitigation.

Risk mitigation priorities for 2022

We will continue to maintain geographical,

customer and financing diversification of

the business model.

Where appropriate, we will continue to

engage in relevant industry forums to

discuss and contribute to policy and

regulatory changes that may have a direct

or indirect impact on the property sector

and our business.

To date, CLS has experienced little direct

impact following the UK’s exit from the

EU. However, it is hard to assess whether

there have been indirect impacts

particularly in terms of overseas property

investment and occupation. We monitor

the economic and political situations in

our country markets closely and flex

investment decisions accordingly.

Commentary

The direct and indirect impacts of

Covid-19 continue to influence global

andlocal economies in terms of interest

rates, inflation, supply chain dynamics

etc.For many countries, GDP is near or

above pre-pandemic levels but GDP

growth in2022 is likely to be below 2021.

As noted by many commentators,

including the World Economic Forum, the

global level of uncertainty has increased.

CLS continues to monitor events and

trends closely, making business

responses if needed.

Business model and strategy

We acquire the right properties

We secure the right finance

We deliver value through active management and cost control

We continually assess whether to hold or sell properties

For more information on our business model and strategy please

see pages 24 and 25.

Key and other performance indicators (KPI/OPIs)

EPS Earnings per share

TSR(R) Total shareholder return (Relative)

TAR Total accounting return

VR Vacancy rate

ACR Administration cost ratio

For more information on our key performance indicators please

see pages 36 and 37.

CLS Holdings plc Annual Report and Accounts 2021

50

Our principal risks

Continued

6. People risk

The failure to attract, develop and retain the right people with

the required skills, and in an environment where employees can

thrive, will inhibit the ability of the Group to deliver its business

plans in order to create long term sustainable value.

Risk assessment:

Medium

Change in risk

profile in year:

Increased

Current direction

of travel:

Increasing

Key risks:

• Failure to recruit senior management

and key executives with the

rightskills

• Excessive staff turnover levels

• Lack of succession planning

• Poor employee engagement levels

KPI/OPI link:

EPS

TSR(R)

TAR

VR

ACR

Business Model Link:

More detail is provided in the

environmental, social and governance

review on pages 65 to 68.

Risk mitigation in action

An annual review of employees’ salary

andbenefits is carried out to ensure they

are at appropriate levels. Our annual

appraisal process focuses on future

development opportunities and we

continue to maintain high levels of

trainingand development.

These measures seek to ensure we are

able to retain key staff and attract new

staff with the relevant skills and

experience to the company.

In 2021, the staff turnover level was 25%

as a result of a restructure during the

year. Excluding redundancies it was 18%.

This relatively high level was due to a tight

labour market. 35% of the vacated

positions were filled with internal

transfers or promotions.

Following the results of last year’s staff

survey which were reviewed by our

Workforce Advisory Panel, we;

• introduced a flexible working policy

during the year whereby staff can work

up to two days per week at home;

• have run Group-wide mental wellbeing

workshops; and

• have rolled out Group-wide training

including ‘how better to collaborate

across teams’.

We ensure that we have a modern

workplace, and a comfortable and

collaborative environment which is

inviting for employees. We also

maintaineffective IT systems including

allrelevant IT resources to enable

working from home.

Risk mitigation priorities for 2022

We will continue:

• our workforce engagement through

theWorkforce Advisory Panel;

• Group training activities and events;

• to ensure remuneration and benefits

are at market levels;

• the annual review of succession

planning at all levels, which will be

presented to the Board;

• to progress our health and wellbeing

programme; and

• to ensure we have appropriate systems

in place to allow employees to perform

at their best, in line with our vision and

values.

Commentary

We employ a diverse team of people with

a range of skills and experience and we

ensure that CLS is a great place to work

so that our employees remain motivated

and engaged to deliver the Group’s strategy.

Covid-19 presents a continuing health and

safety challenge for our people and has

made day-to-day operations more difficult

and complex. The safety of our people

isparamount and we were swift in

restructuring our offices and encouraging

our office-based staff towork from home.

As conditions return to greater normality,

we continue to monitor our staff

wellbeing.

The People risk is deemed to have

increased since last year due to skills

shortages, tight labour markets and a

general war on talent. However, it has

notincreased sufficiently to increase the

risk assessment.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

51

Time Horizon

Risk Potential Impact Mitigation

Short

< 2yrs

Medium

2-5 yrs

Long

> 5 yrs

Regulation/

compliance

Increased capital cost of maintaining our

property portfolio.

Continued ongoing assessment of all

properties against emerging regulatory

changes and benchmarking of fit-out

andrefurbishment projects against

third-party schemes.

Increasing

energyand

construction costs

Increased cost of operating properties will

reduce attractiveness of tenancies to

existing and potential customers.

Increased costs of refurbishments and

developments leading to reduced

investment returns.

Ongoing consideration of, and investment

in, energy efficient plant and building-

mounted renewable energy systems.

Continued monitoring of materials,

investment in key skills for staff and

viability assessments of buildings.

Changes in

technology

The attractiveness of our properties may

decline if the challenges to adapt office

facilities, to changing work practices/

environment expectations of customers

and advances in technology and

digitisation, are not met.

Each region updates the Senior Leadership

Team on trends, including technology,

throughout the business. The in-house

management model also gives valuable

insights into tenants’ ongoing needs and

potential trend changes that can be

incorporated into the future fit-out of

properties.

Changes in office

occupation trends

Changes in social attitudes to agile and flexible

working practices may reduce demand for

space compared to historic trends.

In-house asset management model

provides the means for the property team

to: proactively manage customers; and

gainreal-time insight and transparency

onchanges in needs and trends.

Workforce Failure to adapt to evolving expectations

ofan intergenerational working population

may reduce attractiveness as an employer

in the market.

The establishment of the Workforce

Advisory Panel and the staff survey

processprovide forums for employees

tocommunicate views on the working

environment. The Group also interacts

withrecruitment agents to keep abreast

oftrends in the employment marketplace.

Climate change Increased risk of weather-related damage

to property portfolio and reputational

impact of not evolving sustainability goals

in line with global benchmarks and/or

public expectations.

Our sustainability strategy continues to

evolve and has been developed in alignment

with Global Real Estate Sustainability

Benchmarks (GRESB), consideration of the

UN Sustainable Development Goals (SDGs)

and climate risk modelling.

Inability to obtain sufficient carbon credits

atsuitable price to offset residual carbon

emissions in order to achieve net zero carbon.

We are investigating various solutions to

achieve sufficient offsets by 2030.

Emerging risks

We define emerging risks to be those that

may either materialise or impact over a

longer timeframe. They may be a new

risk, a changing risk or a combination

ofrisks for which the broad impacts,

likelihoods and costs are not yet well

understood, and which could have a

material effect on CLS’ business strategy.

Emerging risks may also be superseded

by other risks or cease to be relevant as

the internal and external environment in

which we operate evolves. The Senior

Leadership Team, which has representatives

from each area of the business, is tasked

with identifying emerging risks for the

business and discussing what impact

these risks may have on the business

andwhat steps we should be taking to

mitigate these risks. The Board reviews

these assessments on an annual basis.

In 2021, both the Board and the Senior

Leadership Team were surveyed about

their views on emerging risks. A list,

which given it relates to emerging risks

islikely to be non-exhaustive, and the

timewhen these ongoing risks may have

a material effect on the business are set

out below:

CLS Holdings plc Annual Report and Accounts 2021

52

Our principal risks

Continued

Viability statement

In accordance with Provision 31 of

theCode, the Board has assessed the

prospects of the Group over a longer

period than the twelve months that has

inpractice been the focus of the going

concern statement.

Covid-19, and the associated responses,

are continuing to have a profound impact

on the global economy and it is currently

the single biggest direct and indirect

negative influence on the Group leading

toboth current and forecast impacts as

well as far greater levels of uncertainty.

e.g. The future of the Office. In addition,

ongoing events in Ukraine and the potential

impacts on commodity prices and overall

inflation, and supply chains have been

considered and are being monitored.

CLS continues to weather these impacts

well with high rent collection, low bad

debts and an ongoing ability to meet its

financing and refinancing needs. CLS has

no direct exposure to Russian and

Ukrainian interests.

The Board reviews the viability and going

concern assessments every six months

alongside the approval of the financial

statements. For the year end assessment,

a new four-year forecast was reviewed

and approved by the Board at its

November 2021 meeting. The viability and

the going concern assessments apply the

same methodology that was used for the

2020 year-end viability statement. i.e.

using the Board approved forecast for the

next four years.

The latest forecast reflects current

negative, but overall diminishing,

expectations arising as a result of

Covid-19 with the impacts largely

restricted to slower reductions in

vacancyand prudently no general

valuation increases.

This forecast is used as the base case

forour viability and going concern

assessments which has focused on the

cash, liquid resources and working capital

position of the Group. The Directors are

confident that loans expiring within at

leastthe next 12 months will be refinanced

as expected given existing banking

relationships and ongoing discussions.

Two downside scenarios, being mid and

severe cases, have also been prepared.

The key potential property risks have

been incorporated in the modelling by

assuming: lower rents; increased service

charges and property expenses; falling

property values; and reduced loan to

value covenants on refinancing reflecting

expected greater risk aversion by banks.

More general economic factors such

ashigher interest and tax rates, and

foreignexchange changes through

astrengthened sterling have also

beenassumed.

The downside scenarios modelled are

based off the negative market and

economic impacts experienced during the

2007-2009 global financial crisis with the

mid case being somewhat less extreme

and the severe case being somewhat

more extreme (for example property falls

of 35% over four years and 40% over two

years respectively). It is worth noting that

these scenarios are potentially overly

harsh as: it is unlikely all the changes

would occur at the same time; the

assumptions have been applied equally

toall regions and thus there is no benefit

given for the geographic and tenant

diversity benefits of the Group; and the

base case already reflects current

expectations of the impact of Covid-19.

The modelling has focused on the cash

position of the Group and potential

covenant breaches. On average across its

47 loans, CLS has between 27% and 48%

headroom for the three main covenant

ratios of loan-to-value, interest cover and

debt service cover. In addition, our loan

agreements have equity cure mechanisms

and in the downside scenarios it is

assumed that sufficient, available cash is

used to avoid covenant breaches. It has

also been assumed that acquisitions,

capital expenditure and dividends are

either reduced or cancelled. Finally,

property sales at the reduced modelled

values are assumed.

In the downside scenarios, a minimum

cash balance of £100 million has been

maintained and no use has been made

ofthe current £50 million of undrawn

facilities. In the severe case, only 1% of

the property portfolio, at the assumed

lower valuations, on top of planned

disposals, would need to be sold

tomaintain this £100 million cash buffer.

In a downside scenario, the £50 million of

facilities could be withdrawn but if they

were not withdrawn and were used, no

properties would need to be sold.

The longer term operational and financial

implications of Covid-19 are hard to

forecast accurately. However, based on

flexing the key financial assumptions

impacting core drivers of CLS’ cash flows,

it appears that the potential negative

outcomes can be mitigated without risking

the going concern and longer-term

viability of the Group.

As a result, the Directors can confirm that

they have a reasonable expectation that

theCompany will be able to continue in

operation and meet its liabilities as they fall

due over the period of their assessment.

Going concern

The current macro-economic conditions

have created a number of uncertainties

asset out on this and the previous

pages.The Group’s business activities,

and the factors likely to affect its future

development and performance, are set

out in this strategic report. The financial

position of the Group, its liquidity position

and borrowing facilities are described in

this strategic report and in notes 19 to 22

of the Group financial statements.

The Directors regularly stress-test the

business model to ensure that the Group

has adequate working capital and have

reviewed the current and projected

financial positions of the Group, taking

intoaccount the repayment profile and

covenants of the Group’s loan portfolio,

and making reasonable assumptions

about future trading performance.

The Directors havea reasonable

expectation that the Company and the

Group have adequate resources to

continue in operational existence for the

foreseeable future, being a period of at

least twelve months to March 2023 and

further details of this analysis are set out

in the viability statement on this page.

Therefore, the Directors continue to adopt

the going concern basisin preparing the

annual report andaccounts.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

53

Going concern and viability

440

933

305

283

104

2017 2018 2019 2020 2021

Capacity of installed solar PV (kWp)

72

85

70

63

56

GRESB (ESG) score/100

2017 2018 2019 2020 2021

Fredrik Widlund

Chief Executive Officer

We are proud to commit to

being a Net Zero Carbon

business by 2030. Our

pathway together with our new Risk

and Sustainability committee will

ensure that the right processes and

commitments are embedded across

theGroup.”

Q.

How do you define

Sustainability?

For CLS, sustainability means working in

line with the United Nations Sustainable

Development Goals (‘SDGs’). CLS needs to

have a positive environmental impact,

create shared value with our stakeholders

and be a responsible business with strong

governance and transparency.

A key focus is the impact on climate

change of operating and constructing

buildings. But beyond that, the role of our

business within communities and supply

chains is significant such that we need to

ensure responsible resource use and

healthy local environments.

Q.

There has been a lot of

press recently regarding

“greenwashing” being part of some

companies’ reporting in this area.

How would you respond to that?

We are clear that it is fundamental to our

strategy to be transparent and follow

recognised standards for reporting our

environmental impacts. We have chosen

to align to EPRA and GRESB reporting on

sustainability as well as have our key

dataindependently assured by DNV.

Additionally, we are reporting for the first

time in this report against SDGs and the

TCFD framework.

For others transparency may highlight

strategic weaknesses but sustainability

isan integral aspect of our purpose

totransform office properties into

sustainable, modern spaces that help

businesses to grow. As such, properly

measuring and reporting on recognised

sustainability risks and opportunities

provides resilience and the potential to

unlock future growth together with new

and existing occupiers.

Q.

What role do you play in

achieving the Group’s

sustainability strategy?

As sustainability is an integral part of

ouroverall strategy, my role is to monitor

the change process, particularly as we

move to embed Net Zero Carbon

compatible approaches into all aspects of

the business and our assets. I am proud of

thework our team are doing and want

toensure they have the appropriate

resources and capital to deliver our plans.

Q.

What sustainability achievements

are you most proud of over the

last 12 months?

I am proud of receiving the Board’s

approval for publishing our sustainability

strategy and costed Net Zero Carbon

pathway with sign-off of the associated

capital expenditure to deliver them.

This has already delivered benefits by

supporting our new ‘green’ loans. Also,

amidst the challenges of the pandemic,

Iam proud that we have continued to

implement sustainable improvements to

our assets such as the rapid expansion of

our solar PV capacity.

Q.

Your Net Zero Carbon pathway

was published in 2021, what

exactly does this mean for CLS?

It means we have a robust, evidence-

based, independently-assured and costed

plan to ensure our assets and business

are ready for the coming Net Zero Carbon

future. We now have a clear programme

of actions to implement between now and

2030 that will benefit the business, our

occupiers and our wider stakeholders.

These include boiler replacement, lighting

upgrades and facade improvements etc.

CLS Holdings plc Annual Report and Accounts 2021

54

Environmental, social

andgovernance review

Highlights

92%

Proportion of total Group electricity from

renewable or carbon-free sources

85

GRESB rating, up 13 points from

lastyear

100%

Waste diverted from landfill for

all managed assets

16%

Like-for-like increase in total Group

Scopes 1, 2 & 3 GHG emissions

1

21%

Of total Group debt covered under

sustainability-linked ‘green’ loans

83%

Of managed portfolio achieving at

least a “Good” BREEAM In-Use rating

44

Community and charitable organisations

supported through monetary donations

Q.

How does sustainability

impact your investment

and divestment decisions?

Investment and divestment are driven

byour overall strategy and sustainability

is one of four critical elements we take

into account. For these decisions we

undertake a specific sustainability review

that forms part of the overall review

process. We are mindful of increasing

regulatory requirements, such as

theneed to achieve minimum EPC

performance levels, but we go beyond

thesesince future-fit, high quality assets

form the basis of our success.

Q.

What is CLS doing to

ensure its properties

are fit for a sustainable future?

We have created an investment

programme as part of the sustainability

strategy and Net Zero Carbon pathway

identifying the key projects we need to

complete on each long-term asset to

improve their performance. These have

allocated capital expenditure as part of

our strategic budgets to ensure delivery

by 2030. These projects are designed

tomeet or exceed expected future

regulatory requirements that we continue

to monitor. This approach is mirrored in

developments, major refurbishments and

acquisitions as they occur.

Q.

What are your other ESG

priorities for the year ahead?

We want to make progress against some

of our key targets in the sustainability

strategy and Net Zero Carbon pathway

including implementing projects to reduce

carbon emissions, waste and water use.

We are also looking to complete crucial

feasibility and baseline work on

biodiversity and social value to build a

solid foundation for more progress in

these areas.

1 Rise due to the increase in occupancy of our

buildings during the year as tenants started

returning to the office.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

55

Pillars 2021 targets Achievement of targets Reference

A positive

environmental impact

Produce a company-wide

Net Zero Carbon strategy

aligned to a science-based

carbon reduction target

New sustainability strategy

incorporating our Net Zero

Carbon pathway was

published inAugust 2021.

For more information

see pages 58 to 61.

Increase our capacity for

generating renewable

electricity from solar PVs

by100% on FY20.

Installed 513 kWp of solar

PV,increasing generation

capacity by 112%.

For more information

see page 59.

Roll out smart water meters

across 50% of the managed

portfolio.

Technical barriers have

delayed smart water meter

implementation. This target

has been rolled forward

to2022.

For more information

see page 59.

Implement one initiative to

support local nature and

biodiversity on at least 50% of

our assets under management

49% of assets had new

initiatives installed in year,

rising to 53% counting

initiatives delayed until 2022.

For more information

see page 59.

Achieve 100% diversion from

landfill and 75% recycling rate

for operational waste from UK

& French assets under

management.

100% diversion from landfill

achieved and 60% recycling

rate across all assets under

management. (UK 64%,

France 28%, Germany 66%).

For more information

see page 59.

Creating shared

value

All assets under management

to deliver an initiative in

support of workplace health

and wellbeing.

71% of assets under

management delivered a

workplace health and

wellbeing initiative such

asnew outside terraces and

gardens.

For more information

see pages 64 and 65.

All employees to participate

inat least one community

orcharitable volunteering

initiative.

Despite the impact of

Covid-19 restrictions, 64% of

employees participated in

atleast one community or

charitable volunteering

initiative delivering

398hours.

For more information

see page 64.

Establish an appropriate

methodology for calculating

the Social Value from our

operations.

Social Value Framework

published in sustainability

strategy, baseline to be

established in 2022.

For more information

see pages 62 and 63.

Being a responsible

business

Increase the percentage of

Group debt covered under

asustainability-linked ‘green’

loan to over 20%.

21% of Group debt is now

from sustainability-linked

‘green’ loans.

For more information

see pages 40 to 41 and

page71.

Achieved

Partially achieved

Not achieved

Performance against 2021 targets

We made good progress against the sustainability targets we set ourselves for 2021: achieving three, partially achieving five and

failing on only one. Behind these targets there is also a significant improvement in the breadth and quality of environmental data

collection. Where we have not succeeded or only partially achieved the targets we have rolled actions to address these into our

targets for 2022.

CLS Holdings plc Annual Report and Accounts 2021

56

Environmental, social andgovernance review

Continued

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

57

Environment

Climate

• Reduction in carbon emissions and energy use in line with the Net Zero Carbon pathway model and completion of relevant

planned energy efficiency and PVprojects.

• Maintain or improve EPC (or country equivalent) ratings.

• Building on baseline assessment, assess and report on scope 3 carbon emissions, review tenancy sustainability requirements

in leasing documents and establish a sustainable procurement policy to address key scope 3 emission sources.

• Undertake an initial climate change risk assessment to inform comprehensive climate change resilience strategies for our

portfolio and disclose in line with TCFD requirements.

Other environmental

• Roll out water saving initiatives for 50% of the portfolio including implementing smart water metering where viable focusing on

the highest consumption sites.

• Assess existing implemented biodiversity and local nature measures/initiatives and identify best practices, potential

improvements and measures for broader rollout. In addition, commission a Biodiversity Net Gain and Rewilding Study for each

of ourproperties. In 2023, all of the recommendations in those studies will be implemented at the respective properties.

• Improve data collection and reporting on waste and focus on improving recycling rates.

• All new developments to achieve a minimum ofBREEAM Excellent (or equivalent) and maintain or improve the current BREEAM-

In-Use certification level for each of our properties.

Social

External stakeholders

• All assets under management to deliver an initiative in support of workplace health and wellbeing.

• Further develop the methodology for calculating the Social Value from our operations based on the Social Value Framework.

• Develop and roll out a Responsible Procurement Policy focusing on key procurements.

• Implement key recommendations from 2021 tenant survey feedback.

People

• Undertake a feasibility study to understand what would be required for CLS to become accredited by the Living Wage

Foundation and set a target date for accreditation that is no later than 2025 and initiate that process.

• Maintain access for every employee to a multidisciplinary health and wellness programme and a dedicated training and

development budget.

• Re-baseline the diversity monitoring data using recently collected data and establish our priorities for the period 2023-2025 that

will build on our commitment to maintaining an inclusive workplace which values diversity, as per our existing Diversity, Equality

and Inclusion Policy.

Governance

• Ensure all relevant business areas provide timely updating of zero carbon model, EPRA, GRESB and KPI data, and project

implementation.

• Fully embed Risk and Sustainability Committee in the operations of the Group.

ESG focus areas for 2022

Our new sustainability strategy, which

was published in August 2021, maps the

journey we will take up to 2030, with

thekey targets and milestones set

appropriately to reflect the position

weare starting from against each

material element.

Our strategy contains the three pillars

shown in the following diagram.

We believe that sustainable outcomes and

shareholder returns are not a zero sum

game. Properly valuing and integrating

sustainability risks and opportunities into

the business strategy provides resilience

to future disruption but can also unlock

the potential for future growth.

Building a resilient business means

takingsteps to prepare and adapt before

regulation requires it, or the environment

and our customers command it. Having a

sustainable operating model and growth

strategy reduces any material risks to our

reputation and balance sheet.

Net Zero Carbon pathway

We believe the most effective way to

create sustainable stakeholder value is

bytaking a strategic, evidence-based

approach that targets our resources at

our most material risks and opportunities.

Our Net Zero Carbon pathway illustrates

this approach. We invested in a program

of asset-level energy audits across all

three countries to compile a robust

technical evidence base of the energy and

carbon saving opportunities and costs.

We aggregated this data into a Group-wide

model to calibrate our targets, energy

strategy and capital expenditure plan; in

addition to incorporating into individual

asset and property management plans.

The pathway includes a 59% reduction

inScope 1 and 2 emissions and a 27%

reduction in Scope 3 emissions by 2030

against a 2020 benchmark.

More details are shown on page 60 and 61.

Social Value Framework

Our sustainability strategy includes an

aspiration to create shared value with our

stakeholders and we are proud to have

worked in partnership with the Social

Value Portal to develop our new Social

Value Framework. This will provide the

basis for measuring our positive

contribution to society beyond

shareholder returns.

Our aim is to integrate our new Social

Value Framework into our core business

systems and processes by 2025, and

publish the social value created from

ouroperations within our annual

report.Our approach to delivering and

measuringsocial value is based on the

widely recognised National social value

Themes, Outcomes and Measures

(TOMs)framework. Themes are wider

sustainability categories, such as

Jobs.Outcomes, such as ‘Improved

employability of young people’, feed into

the Themes and act as the targeted goal

of our actions. Measures are the individual

KPIs that measure the progress towards

each respective outcome.

More details are shown on pages 62 and 63.

Monitoring and reporting

Our commitment to transparent reporting

means that we report under various

frameworks. We continue to report

against SECR and EPRA guidelines.

We also participate in GRESB which is

theleading sustainability reporting and

benchmarking scheme for the real estate

industry and monitor the performance of

our buildings (new and existing) using

BREEAM and EPC (or local equivalent)

ratings. For the first time this year we

have also reported against TCFD and

UNSDG disclosures.

More details are shown on pages 72 to 77.

Environment Social Governance

A positive

environmental impact

Creating

shared value

Being a responsible

business

We will invest in

ourproperties and

collaborate with

tenants to sustainably

manage natural

resources, support

local environments

andbuild resilience

toclimate risks;

delivering future-

readyassets

We will create and

share value with

ourstakeholders

byengaging

collaboratively with

our tenants, supporting

local communities and

partnering with our

supply chain.

Strong governance

andtransparency will

provide the basis for

demonstrating our

values, supporting

people and working

with our stakeholders

to uphold high

standards.

Net Zero Carbon

pathway

Social Value

Framework

Monitoring and

regulatory reporting

See pages 60 and 61 See pages 62 and 63 See pages 72 to 77

TARGETS

(for more detail see our sustainability strategy document on our website)

CLS Holdings plc Annual Report and Accounts 2021

58

2030 sustainability strategy

2021 achievements

• Establishing our Net Zero Carbon

pathway

• 112% expansion of solar PV capacity

to 933 kWp

• 92% of Group electricity carbon-free

• 83% BREEAM In-Use ‘Good’ or better

2021 activity

2021 was a transformational year for

environmental sustainability across

thegroup. Delivering on our core

environmental priority for 2021, we

produced our Net Zero Carbon pathway.

To support this, we completed a full Scope

3 carbon emissions baseline assessment

and asset-level energy audits across most

ofthe portfolio. The energy efficiency

actions identified in the audits have

beenrolled into strategic budgets

forourassets.

In addition, we have continued to invest

inour own renewable energy generation

capacity, exceeding our 100% growth

target with a further 513kWp of solar

PVcapacity across our UK and

Germanportfolios.

For the first time we have an extensive

view of waste and recycling data.

We delivered on our 100% diversion from

landfill target but still have significant

workto reach our recycling targets.

Our recycling rate for 2021 was 60%

overall, below our target of 75%.

A significantly lower recycling rate was

achieved in France as well as the data not

being received for all assets. Processes

will be investigated in 2022 to improve both

the overall recycling rates as wellas the

coverage in France. We will investigate

ways of overcoming these barriers in 2022.

Our BREEAM In-Use program provides us

with a baseline sustainability appraisal

using the leading commercial property

sustainability rating system. By the end of

2021 only 17% of our German properties

were awaiting certification. A minimum

rating of “Good” was achieved by 83% of

the managed assets within the Group.

Our target to implement one initiative

tosupport local nature and biodiversity

onatleast 50% of our assets under

management has proved successful with

47 initiatives delivered on 40 sites (49% of

assets under management). These have

included beehives, insect hotels and

planting of native species of plants.

Energy efficiency projects

During 2021, we continued to deliver a

variety of projects and initiatives to

improve the energy efficiency of buildings

in our portfolio in the UK, Germany and

France. We have also continued our

energy audit programme to cover new

buildings in our portfolio.

There were over 50 small and medium

projects delivered. These included

refurbishments with new highly insulated

façades, replacement of HVAC plant and

equipment with higher efficiency units,

lighting upgrades to LED fittings, and

adding automatic lighting controls and

upgrades to BMS systems. There were

also simple operational BMS changes

where controls were inefficiently

deviating from their optimum settings.

Ongoing examples include the major

renovation at d’Aubigny in Lyon which

includes measures such as a new façade,

windows and lighting. It has achieved

BREEAM “Excellent” pre-certification.

We continued to expand our coverage of

automatic data collection technology

(‘AMR’) across our energy supplies in 2021

to improve the quality and accuracy of our

data and enable the roll out of smart

performance reports and analytical tools.

75% of our managed assets now have

AMR for electricity supply.

Whilst we had a target to roll out smart

water meters across 50% of the managed

portfolio, in practice, this has proved a

challenge due to unforeseen technical

limitations placed by water providers.

Green energy supplies

We succeeded in progressing our

commitment to sourcing clean,

sustainable energy for our properties

throughout 2021. The combined effect of

renewable and zero carbon electricity

contracts for all portfolios means 92% of

the total Group electricity is now carbon-

free. With new contracts for renewable

electricity starting in January 2022 this

percentage increases to almost 100%.

Performance data

The two dominant influences on our 2021

environmental performance metrics

(which were similar to last year), are the

expansion of the portfolio through new

acquisitions andthe continued impact

ofthe Covid-19 pandemic resulting in

varying occupancy throughout both 2020

and 2021. Whilst this has made drawing

conclusions from the data difficult, we are

pleased with the progress we have made

during 2021.

More detail on the absolute and like-for-

like movements from last year are

provided on page 73.

2021 was a transformational year for

environmental sustainability across

theGroup by publishing our fully-costed

Net Zero Carbon pathway

50+

Energy efficiency projects were delivered

during 2021

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

59

Environment

Net Zero Carbon process

Establish Scopes

1, 2 and 3 baselines

Undertake energy

audit programme

Build projection model

and undertake science-

based target appraisal

Implement actions to

be Net Zero Carbon

ready

Net Zero Carbon

pathway

Our sustainability strategy starts with our

properties. We invest in our properties to

provide healthy and productive workspaces

for our tenants while minimising their

negative, and maximizing their positive,

environmental impacts.

We will invest in our properties and

collaborate with our tenants to manage

natural resources sustainably, support local

environments and build resilience to climate

risks; delivering future-ready assets.

We have integrated energy audits into

each property’s Asset Management Plan

to enable strategic decisions about the

refurbishment, sale or full redevelopment

of assets to be made.

Where refurbishment is viable, the energy

audit projects will be incorporated into

each respective Property Management

plan to ensure the optimal timing and

allocation of capital over the course of

thepathway to achieve our carbon

reduction targets.

These plans have resulted in a timeline of

carbon reduction through to 2030 which

will be constantly updated as expenditure

is incurred at each asset. These plans will

be continually reviewed and improved

each year to incorporate improvements

intechnology as well as any changes

totheportfolio.

The residual amounts will be addressed

with carbon offsets. Whilst this is planned

for 2030 we will be investigating various

options for carbon offset over the next

couple of years.

£58m

Net Zero Carbon investment

(current prices)

Pacific House PV

In April, the Group’s largest

PV array was switched on at

Pacific House, Reading. The

630 panel system will produce

200,000 kWh p.a. of electricity

providing c.23% of the

building’s energy use. In

Stuttgart and Munich, four PV

stations were finished in 2021

totalling c.395kWp.

Mittlerer Pfad 9, Stuttgart

CLS Holdings plc Annual Report and Accounts 2021

60

Environment

Continued

Original

baseline

1

66,291

4,722

6,220

55,349

4,722

6,428

55,349

(3,396)

(1,312)

(40,520)

Scope 1

66,499

9,386

(9,856)

(6,459)

(4,547)

(9,795)

(45,228)

208

Adjustment

1

Adjusted

baseline

1

2 3 4 5 6 7

Scope 2 Scope 3

1. Revision to baseline

Following the assurance review of the

2021 energy data a small revision has

been made to the 2020 baseline to include

previously missing data (for more detail

see page 73).

2. Business as usual growth

Without taking any action, acquisitions

and development of additional floor space

will lead to growth in Group carbon

emissions over the baseline even with

electricity grid decarbonisation.

3. Electricity decarbonisation

We will obtain 100% certified renewable

electricity for all CLS-procured contracts.

4. Energy efficiency and F-Gas

phase-down

Delivering our Net Zero Carbon capital

projects pipeline as identified in energy

audits; electrification of buildings,

operational energy efficiency

improvements, transitioning to low-Global

Warming Potential fluorinated gas

replacements andensuring new buildings

and refurbishments incorporate energy

efficiency standards in line with the model.

5. On-site renewables

Installing large-scale on-site solar

photovoltaic installations where on-site

use of all power output is possible.

6. Upstream and downstream measures

We will reduce downstream emissions

(due to tenancies) by collaborating with

our tenants to reduce their energy use,

support the zero carbon-compatible

occupation of our buildings and facilitate

sustainable travel for tenants. We will

reduce upstream emissions (from

purchased goods and services for our

operations and assets) by obtaining

carbon reduction commitments from

oursuppliers, reducing business travel,

implementing a Circular Economy Plan

addressing waste and material use, and

reducing potable water consumption.

7. Carbon offsets

To become a Net Zero Carbon business

in2030 we will procure carbon offsets

forour residual Scope 1, 2 and 3 carbon

emissions in accordance with the

OxfordPrinciples.

42%

reduction from BAU

Net Carbon Zero roadmap Tonnes CO

2

e

59%

scope 1 & 2 reduction

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

61

Our sustainability strategy includes an

aspiration to create shared value with

our stakeholders. Our new Social Value

Framework will provide the basis for

measuring our positive contribution to

society beyond shareholder returns.

2021 achievements

• Establishing a Social Value

Framework as part of our

sustainability strategy

• 53 staff volunteering days

• 44 charities and community

organisations supported

• Implementation of 2020 staff

surveyresults

• Ranked 23rd in FTSE 250 in latest

FTSE Women Leaders report

Social Value

Framework

We create and share value with our

stakeholders by engaging collaboratively

with our tenants, supporting local

communities and partnering with our

supply chain.

We do this by supporting safe, vibrant,

healthy and prosperous neighbourhoods

to create value for our tenants, employees,

and local communities. By collaborating

with our tenants, supporting local

businesses and investing in communities

and charitable causes, wewill share our

success to support long-term social

valuecreation.

We recognise ‘Social Value’ as the term

toillustrate how our activity delivers

additional, measurable and sustainable

social, economic and environmental

outcomes. We have worked in partnership

with The Social Value Portal to calibrate a

Social Value Framework for CLS using the

National social value Themes, Outcomes

and Measures.

Our framework provides us with the

structure around which the social value

created by our business can be measured,

and we commit to publishing our social

value within our annual report from 2025.

In the meantime, we will evolve our

internal systems and processes to ensure

they are capable of collecting the new

data inputs required by the framework,

and estimate what we believe to be our

current social value baseline.

The framework allows us to measure the

social, environmental and economic value

of the impact we create in support of the

themes shown in the diagram opposite:

Targets for all the measures established

in our Social Value Framework will be

established in 2022.

Targets to be established for

27 measures

in 2022

CLS Holdings plc Annual Report and Accounts 2021

62

Social

Social Value Framework

5

themes

Jobs

Promoting local skills

and employment

Growth

Supporting the growth

of responsible regional

business

Social

Creating healthier,

safer and more

resilient communities

Environment

Decarbonising and

safeguarding our world

Innovation

Promoting social

innovation

15

outcomes

• Improved

employability of

young people

• More local people

in employment

• Ethical Procurement

is promoted

• More opportunities

for local MSMEs

and VCSEs

• More local

employment

• Reducing inequalities

• Improving staff

wellbeing and

mental health

• More working with

the Community

• Our occupiers are

more satisfied

• Creating a healthier

community

• Crime is reduced

• Carbon emissions

are reduced

• Air pollution

is reduced

• Sustainable

Procurement

is promoted

• Social innovation

to safeguard the

environment and

respond to the

climate emergency

27

measures

1

1 For details of the measures identified as part of our Social Value Framework see our sustainability strategy document on our website.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

63

External

stakeholders

Communities

The close integration of our properties

within local communities, combined

withour long-term investment model,

underpins our commitment to the

successof the neighbourhoods we

operate in. We work collaboratively

withour tenants and local community

groups to support the health and

prosperity of our neighbourhoods

andrealise mutual benefits.

This year we produced our Social Value

Framework as part of our sustainability

strategy. Work on the associated baseline

was deferred to 2022 as we refine the

calculation approach.

With the continuance of the Covid-19

pandemic in 2021 we maintained our

commitment to supporting our local

communities and charitable causes in

ourcore focus areas of food poverty,

homelessness, and youth education,

skills& training. Over 40 community and

charitable organisations were supported

by our philanthropic donations. In addition,

we continued to provide rent relief to

some of our charitable tenants.

We set the target of all employees

participating in one community or

charitable volunteering initiative and,

despite pandemic restrictions, we

achieved 64% of staff providing 398 hours.

These initiatives included volunteering

with Bee Urban, a local social enterprise

that focuses on responsible beekeeping,

horticulture and community growing and

supporting at community days with local

group Friends of Archbishop Park.

Tenants

We re-established the annual tenant

survey in 2021 across the UK, Germany

and France. This study focused on

tenants’ relationship with CLS, Covid-19

issues and sustainability.

The key findings included:

• 77% of occupiers in the UK and 80% in

Germany have a high level of overall

satisfaction. In France, there was a

12%increase in overall satisfaction

to69%. 69% of occupiers rated CLS’

communication ‘good’ or ‘excellent’.

• 74% of occupiers in the UK felt well

supported during the pandemic.

• A low level of engagement with

occupiers on sustainability was

highlighted in all surveys with a

significant need to improve

communications on energy data and

ourNet Zero Carbon pathway with the

desire to collaborate in future changes

and improvements.

• In the UK, 63% of occupiers identified

aneed to improve responsiveness to

requests and there was also a similar

need identified in France.

• Whilst HVAC improvements remain

asignificant desired improvement,

installation of electric charging points

topped the list for the first time in the

UK and was in the top three in France.

• CLS investment in modern, light

buildings in good locations in Germany

with good transport links has shown up

in a 15% increase in overall satisfaction

of German occupiers to 73%.

We have committed to implement the

results of these surveys in 2022.

A community day in Archbishops Park

helping restore the environment

High level of satisfaction

from 77% of tenants across

theGroup.

CLS Holdings plc Annual Report and Accounts 2021

64

Social

Continued

We also continued to maintain close and

regular engagement with our tenants

through monthly or quarterly drop-in

virtual meetings established in 2020.

In these forums, topics such as opening

times and Covid-19-safe protocols, such

as cleaning and ventilation, are discussed.

We are proud that all of our managed

assets maintained Covid-19-safe status

and, where local regulations allowed,

remained fully open for our tenants.

For tenants who were forced to close

again during further lockdowns, we have

continued ad-hoc support on rental

payments and lease break flexibility.

Our target to provide wellbeing initiatives

across all our estate was close to being

achieved with 71% of assets adding

initiatives such as enhanced outdoor

spaces like terraces and gardens which

were important during the pandemic.

Supply chain

Embedding sustainability into our supply

chain remains a key aspect of our strategy

and a key challenge given the focus on

reducing scope 3 emissions in the Net

Zero Carbon pathway. In 2021 we

procured new contracts for our gas and

electricity supplies across the UK portfolio

which included 100% renewable electricity

as we have already done in Germany and

France. We also entered new contracts for

wastewith an emphasis on recycling.

Defining sustainability requirements

formajor construction projects was

deferred into broader work on sustainable

procurement policies and tools to be done

in 2022.

People

Recruitment

Finding the right people is important to our

long-term success. We believe a diverse

workforce is a key strength and allows us

to collaborate better across departments

and markets, generate ideas and build new

initiatives to drive us forward. We are

proud that we attract, motivate and retain

high calibre employees, which, in turn,

benefits the performance of the Group.

We completed a significant restructure

in2021 to increase our operational

effectiveness and make running the UKHead

Office more efficient. In a year which has

seen unusually high rates of turnover across

the sector, our voluntary turnover rate,

excluding the restructure carried out in the

year, was 18%. We have been ableto fill 35%

of our permanent vacancies with internal

hires and promotions.

Our policies and procedures demonstrate

our commitment to equal opportunities and

diversity in employment. Our recruitment

and interview policy supports this

commitment and we ensure that it is fully

understood by all those in the recruiting

process. All employees and applicants are

treated equally on the grounds ofgender,

marital status, race, colour, nationality,

ethnicity, religion, disability or sexual

orientation, nor is disadvantaged by

conditions or requirements, including age

limits, which cannot be justified objectively.

Entry and progression within the Group is

solely determined by the job criteria,

personal aptitude and competence.

Our policies incorporates best practice

inthe employment of people with

disabilities. Full and fair consideration is

given to every application for employment

from people with disabilities whose

aptitude and skills can be used in the

business, and to employee’s training

andcareer development. This includes,

wherever possible, the retraining and

retention of staff who become disabled

during their employment.

35% of staff turnover was

fulfilled with internal transfers

and promotions.

Well-being initiatives were

delivered at 71% of our

properties.

Volunteering in Saint-Germain-en-Laye Forest

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

65

Training and development

All employees are actively encouraged to

undertake training to achieve professional

qualifications and to keep up to date with

developments in their specialised areas.

Each employee is allocated a personal

training budget which they can use

fortheir professional development.

We ensure that those with direct reports

undertake management training on

areassuch as diversity, appraisals

andperformance.

New joiners are offered a minimum of

20hours structured training and

development in their first year at CLS

andafurther 14 hours in year two.

We encourage staff to continue their

learning and development throughout their

career with CLS by providing a broad suite

of non-core training including mindset

coaching and foreign language classes.

Whilst these are not central to a particular

role, they allow employees to broaden

theirskills base, facilitate personal and

professional development and enable more

effective communication across the Group.

As part of our knowledge sharing and

personal development policy, we have set up

internal workshops in which teams present

on their specific role within theorganisation,

thereby developing employees’ wider

business knowledge and understanding

ofhow the Group’s activities inter-relate.

We also encourage all members of staff

toconsider areas of wider professional

development that may be of interest to other

teams, such as changes to planning laws or

data protection legislation, and we organise

seminars with the assistance of our network

of external advisers.

Remuneration

Our overall remuneration and benefits

package is designed to attract, motivate

andretain employees. Our remuneration

structure is simple, combining salary and

benefits with an annual discretionary bonus

and a long-term retention bonus based on

the Group’s medium-term performance.

In addition, the Group has a share incentive

plan, which is open to all employees in the

UK, Germany and Luxembourg. The scheme

matches employee contributions in the ratio

of 1:1 and take-up is over 65%, which is

above the average for this type of scheme

and testament to its success.

We support equal pay and review this

annually although we do not disclose

gender pay gap due to the low sample

sizeof employees.

Everyone has visibility

andavoice. Our culture

isprofessional, inclusive

andfriendly reflecting our

Purpose, Vision and Values.

Engagement

We promote all aspects of employee

engagement; we encourage all employees to

share ideas and to get involved in challenging

and developing our policies and practices.

This includes a Workforce Advisory Panel,

employee surveys and personal appraisals.

We also have a dedicated intranet and

internal social media channels which allow

us to promote new policies, procedures,

Group activities and employee events.

With a predominantly flat management

structure, we are able to ensure that all

employees are informed of matters

concerning their interests and the financial

and economic factors affecting the business

quickly and effectively. Weekly team

meetings are held across the Group and our

Executive Directors present our annual and

half yearly results to all employees, which

isfollowed by a question and answer

session. This is designed to give everyone an

understanding of the business and how their

work contributes to the Group’sperformance.

Our values in action:

“Collaboration gets the job done.”

CLS Holdings plc Annual Report and Accounts 2021

66

Social

Continued

The Workforce Advisory Panel, chaired

byNon-Executive Director Elizabeth

Edwards, meets quarterly to discuss

workforce related policies and practices.

See pages 92 and 93 for more detail.

Engagement is also about understanding

the needs of our employees so we can

create a better working environment.

This,in turn, drives performance, loyalty

and success. We seek the views of our

employees in a number of ways such

asthrough staff satisfaction surveys,

conducted through a third party advisor

so as to ensure anonymity, and employee

engagement initiatives.

The Board commissioned a staff survey in

2020 to gather the views of our employees

on topics which included: employee

engagement and effectiveness; employee

benefits; development opportunities,

respect and recognition; and confidence

inleaders.

57% of employees reported being at

their“Most Effective” (i.e highly engaged

and enabled) and 96% agreed that the

business has a “Clear and Promising

Direction”, both of which are exceptionally

high. The response rate of 83% is itself

testament to the culture at CLS being one

where staff feel their feedback is valued.

The full results of the 2020 staff survey

were presented to all staff in early 2021,

and have provided the Workforce Advisory

Panel and leadership with areas for focus

in 2021 and 2022.

On an individual basis; employees receive

a minimum of two appraisal/review

conversations each year and all

employees (inc. longer-term Fixed-term

Contractors) agree objectives with their

manager each year.

Culture

Our open-door policy encourages

everyone to share opinions, creating

greater transparency, honesty and trust.

We have employees from over 15

countries, which helps to foster a diverse,

collaborative, cosmopolitan environment.

We have around 100 employees looking

after a property portfolio of £2.3 billion

sowe recognise how vital they are to our

success. We foster an environment of

openness and feedback by consulting

regularly with our employees and other

stakeholders through various channels

tounderstand their needs and ensure

ourculture evolves with the business

andmodern working practices.

We prideourselves on the way we

buildrelationships, and our flexible

approach allows us to see potential and

opportunities in ways that others don’t.

We act with agility and speed to make the

most of possibilities as they arise.

The Workforce Advisory Panel contributes

to a culture of openness by creating

increased direct contact between

employees and the Board.

We have run Group-wide mental wellbeing

workshops; built on our already strong

track record of wellbeing-centric benefits

with weekly yoga sessions and mitigated

the isolating impact of lockdown

restrictions by hosting virtual socials and

events. We will continue to make the

wellbeing of our staff a priority in 2022.

Diversity, equality and inclusion

We are an inclusive and respectful

employer that welcomes diversity

andpromotes equality, tolerance and

teamwork. We recognise that diversity

enriches our creativity and adds value

forour stakeholders.

Our Diversity, Equality and Inclusion

(‘DE&I’) Policy underlines our commitment

to attracting, promoting and developing

talent no matter who they are. Throughout

the Group, 41% of managerial positions

are filled by women. We recently ranked

23rd out of the FTSE250 in a FTSEWomen

Leaders report analysing women on listed

company boards and direct reports.

In 2021, we recalibrated our approach

todiversity monitoring and invited UK

employees to self-report on a broader

range of demographic information and

this is provided overleaf.

The information collected from our recent

information gathering exercise, will be

used to set the DE&I agenda for 2022

aswell as to develop and implement

abroader DE&I policy. This will also

incorporate input from the workforce on

how we can facilitate better diversity

across the organisation through training

and development.

Additional diversity information and

graphs are shown on page 101 which use

the term “gender” as used in equal pay

legislation, However, in the graphs

overleaf, we have distinguished between

sex and gender.

More information is also provided in the

Workforce engagement and Nominations

Committee Report on pages 92 to 93 and

96 to 103.

Diversity is the one of the

most important things we all

have in common.

Group training session

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

67

Diversity, equality and inclusion (continued)

Sex

Board

Female 33%

Male 67%

Sex

Total employees

Female

51%

Male 49%

20-29 14%

30-39 32%

40-49 28%

50-59 19%

60-79 7%

Age ranges

Total employees

Gender

UK employees

Female 31%

Male 42%

Prefer not to say

5%

Did not respond

22%

Ethnicity

UK employees

White

54%

Asian 14%

Black 5%

Mixed/other 4%

Prefer not to say

2%

Did not respond

21%

Heterosexual/'Straight' 66%

Gay/Lesbian 2%

Bi-sexual 2%

Prefer not to say 7%

Did not respond 23%

Sexual orientation

UK employees

CLS Holdings plc Annual Report and Accounts 2021

68

Social

Continued

Health and safety

It is a primary focus of the Board that the

Group manages its activities so that the

health and safety of its employees,

customers, advisors and contractors, and

the general public is not compromised.

As part of this process the Group employs

specialist accredited advisors to advise

onall health and safety matters in each

country in which we operate. The Group

also operates a Health and Safety

Committee, which covers issues related

tothe portfolio and its employees.

Chaired by the Chief Operating Officer, the

committee comprises Facilities Managers,

Property Managers, employees and

advisors, and is responsible to the Chief

Executive Officer. The Chief Executive

Officer also attends Health and Safety

Committee meetings.

As shown below, all regions maintain

andfollow local health and safety

policiesand report issues to the

ChiefExecutive Officer.

This reporting process has worked

effectively throughout the year and has

ensured ongoing compliance with health

and safety legislation.

UK

The Group sets health and safety

objectives covering our workforce and

portfolio and is monitored by the Health

and Safety Committee.

Each managed or occupied property

within the UK portfolio undergoes

anannual risk assessment against

whichourtargets can be measured.

Our targetsaddress three key areas:

riskmanagement and control; document

compliance; and incidents.

These areas are reviewed each quarter

through the Health and Safety Committee

and reported to the Board.

As at the date of this report, the

percentage of risks which were under

control were: 99.4% for risk management

and control; and 97.4% for document

compliance. Our accident frequency rate

in 2021 was 87 accidents per 100,000

people (National Accident Frequency Rate:

930/100,000).

Germany

All CLS buildings must comply with

building permits and are regularly

reviewed by local authorities to

ensurecompliance with building law.

Facilities governed by special regulations

are reviewed more frequently by an

appropriate certified specialist.

Facilities (such as fire safety, electricity

supply, ventilation, lifts and heating) are

reviewed as required by law or business

standard and at least once a year by

authorised personnel. Reports and

protocols are reviewed by the operational

team. We ensure that all scheduled

reviews are conducted in accordance

withlocal laws.

Facilities managers provide

comprehensive reports on a monthly

basis to the operational team. As at the

date of this report, 99.1% of all identified

risks were under control, document

compliance was 95.1% and the accident

rate was zero.

France

All CLS buildings have to comply with

theCode du travail (Labour Code), which

defines our responsibilities. Each tenant

isin charge of its own security on its own

premises in accordance with the security

obligations of the building.

The building facilities (such as the

electricity supply, and building and

mechanical safety checks) are reviewed

once or twice a year by a statutory

controller. The reports of the statutory

controller are reviewed and acted upon

byour operational team. This process is

audited externally twice a year.

The accountability remains with CLS

France. As at the date of this report,

100%of regulatory audit reports have

been processed.

Working closely with our contractors

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

69

Our ESG governance framework

The Board

Overall responsibility for ESG matters

Executive Committee Audit Committee

Responsible for overseeing the Group’s

ESG initiatives

See page 94

Monitors regulatory and corporate

governance reporting for the Group

Identifies and evaluates the Group’s key

risks, including ESG risks, ensuring

they are appropriately managed

See pages 104 to 109

Dedicated sustainability team

Responsible for implementing and monitoring the Group’s ESG risks and initiatives

Risk and Sustainability Committee Health and Safety Committee

Responsible for monitoring and

reporting against the Board’s

ESGstrategy

Responsible for monitoring

health and safety management

and performance

CSR Committee Workforce Advisory Panel

Responsible for the Group’s charitable

activities and donations and organising

the Group’s volunteering activities

Responsible for providing input into

workforce policies and practices

The oversight of ESG matters is

a fundamental part of our overall

corporate governance andallows

the Board to understand the impact

of its decisions on the Group’s

keystakeholders and the environment

Reporting framework

The oversight of ESG matters is vital as

itallows the Board to understand the

impact of its decisions on the Group’s

keystakeholders and the environment

aswell as ensuring that it is kept aware

ofany significant changes in the market.

This includes the identification of

emerging risks and trends, which

canthen be factored into its

strategydiscussions.

ESG is overseen principally by the

Board,with our Chief Executive Officer,

having overall accountability. In order

toembedESG matters more fully into

theoperations of the Group, a Risk and

Sustainability Committee, chaired by our

Chief Operating Officer has been set up.

The purpose of the Committee is to: assist

with the embedding of the Net Zero

Carbon pathway and Social Value

Framework throughout the Group; allow

more efficient and effective monitoring

and reporting of the Group’s ESG

objectives; and to increase the discussions

and focus upon risk within the organisation.

2021 achievements

• First time reporting against TCFD

and UNSDG frameworks

• Implementation of a new Risk and

Sustainability Committee

• EPRA Sustainability bronze award

• Completion of the Group’s second

‘green’ loan for £61.7 million

• Increase of 13 points in GRESB score

to 85 points

1 The Group’s corporate governance reporting is

included on pages 78 to 133.

CLS Holdings plc Annual Report and Accounts 2021

70

Governance

Responsible business

We recognise that managing the risks and

opportunities from climate change on our

business requires a strategy that spans

the full breadth of our value chain – from

acquisitions to the securing of finance to

the day-to-day operation of our

properties.

Sustainability remains one of the six

corerisk themes for the CLS Group,

witheach individual risk captured within

theSustainability Risk Register tool

maintained by the sustainability team and

reviewed twice a year or when a material

change in the risk landscape occurs.

We continue to retain full membership of

the Better Buildings Partnership industry

body where we are provided access to

environmental legislation updates for the

UK and Europe.

We have maintained our participation in

GRESB which is the leading sustainability

reporting and benchmarking scheme for

the real estate industry. We were pleased

to achieve a further thirteen GRESB points

this year, and an additional green star

taking our total score for 2021 to 85 points

and four green stars. Additionally, we

continue to subject our greenhouse gas

and energy disclosures tolimited

independent assurance in accordance

with the ISAE 3000 revised

AssuranceStandard.

For the first time in this report, we are

reporting against the Task Force on

Climate-related Financial Disclosures

andUNSDG disclosures which are shown

on pages 74 to 77.

We continue to report under EPRA

Sustainability best practice guidelines

which also satisfies the reporting

requiredunder Streamlined Energy and

Carbon Reporting (‘SECR’) requirements.

This information together with comments

on the changes since 2020 is shown on

pages 73. Further EPRA and SECR

disclosures are contained in the Additional

Sustainability Information document on

our website.

The CLS business model is well aligned

tothe EU Taxonomy for Sustainable

Activities through our investment in the

refurbishment of existing commercial

properties. As the requirements of the

Taxonomy mature across the finance

industry we expect CLS debt for the

purposes of property refurbishment

tobecome an attractive prospect,

particularly if aligned to the delivery

ofour Net Zero Carbon pathway.

Green financing

Following our first sustainability-linked

loan in 2020, we secured our second in

2021 for £61.7 million bringing the total to

£215.7 million which represents 21% of

our total financing. The KPIs required for

the interest rate reduction have been

agreed for both loansandare aligned

withour sustainabilitystrategy.

Business ethics

The Board recognises the importance of

the Group’s responsibilities as an ethical

employer and views matters in which

theGroup interacts with the community

both socially and economically as the

responsibility of the whole Board.

Following the enactment of the Bribery

Act 2010, the Group implemented an

anti-bribery policy which further

demonstrated its commitment to

businessethics.

To ensure continued compliance with the

Bribery Act 2010, training is given to new

employees with formal internal control

checks during the system-based

procurement process.

Living Wage

In the UK, we are committed to providing

both our employees and our contractors

with the real Living Wage and in London,

with the London Living Wage. All new

contracts with suppliers, including facility

management contracts, when renewed,

must commit to paying the London Living

Wage as a minimum.

Whilst the Living Wage only applies to the

UK, we are currently investigating how to

establish equivalent benchmarks in

Germany and France.

The Modern Slavery Act 2015

The Modern Slavery Act 2015 requires

anyUK commercial organisation with

aturnover of more than £36 million to

prepare a statement setting out the steps

taken during the financial year to ensure

that slavery and human trafficking is not

taking place in its business or in its supply

chain. The Group’s statement, which is

signed by the Chief Executive Officer, can

be found on ourwebsite.

The Group upholds the highest standards

of business ethics. Through its internal

controls and procurement management

and reporting processes, the Board is

confident that the Company is in

compliance with this law.

Supply chain governance

Two of our focus areas for 2022 are to

engage with existing and potential tenants

to strengthen ‘green’ clauses in leases

and also to engage with existing or

potential major suppliers to strengthen

sustainability requirements in

procurements and contracts. These

requirements will cover areas such as;

energy use; energy supply; and waste,

toreduce our Scope 3 emissions.

Prompt Payment Code

CLS is a signatory to the Prompt Payment

Code (‘PPC’), a voluntary scheme backed

by the UK Government to set standards

ofbest practice for payment of suppliers.

The PPC requires all signatories to

pay95% of their undisputed invoices

fromsuppliers within a 60 day period.

Additionally, from 1 July 2021, to pay

95%of their undisputed invoices from

businesses with fewer than 50 employees

within a 30 day period.

In addition, we report on the Group’s UK

companies’ payment practices twice

yearly in accordance with The Reporting

on Payment Practices and Performance

Regulations 2017.

Whilst there is no equivalent legislation in

France and Germany in order to provide

additional transparency, we have provided

their figures as well as a weighted

average for the Group.

The table below shows our payment

statistics for the year ended

31 December2021

Within 30

days

Within 60

days

UK 90% 98%

Germany 93% 98%

France 70% 93%

Group 89% 98%

Additionally, CLS settled 90% of all

undisputed invoices for businesses with

fewer than 50 employees in the UK within

30 days in the six months ended

31 December 2021.

We recognise that whilst we are compliant

with PPC across all suppliers, the

percentage for smaller businesses did

notreach the required 95% level within

30days in 2021. This is primarily due to

the installation of a new accounting and

property management system in July

2021 in the UK and we will ensure that

weare fully compliant in 2022.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

71

EPRA and SECR sustainability reporting

Impact Area

EPRA Code

Units of

measure Indicator

Absolute performance (Abs) Like-for-like performance (LfL)

2020 2021 % change 2020 2021 % change

Boundary Number of applicable properties 85 85 0% 68 68 0%

Energy

Elec-Abs,

Elec-LfL

kWh Electricity for landlord shared services 19,073,885 21,637,452 13% 17,350,283 18,745,783 8%

(sub)metered exclusively to tenants 10,194,212 9,020,202 -12% 8,166,580 7,581,764 -7%

Total landlord-obtained electricity 29,268,097 30,657,654 5% 25,516,863 26,327,547 3%

Proportion of landlord obtained

electricity from renewable and low

carbon sources

91% 92% 1% 94% 92% -2%

DH&C-Abs,

DH&C-LfL

District

heating and

cooling

for landlord shared services 9,695,332 11,535,851 19% 9,363,610 10,019,840 7%

(sub)metered exclusively to tenants – – – – – –

Total landlord-obtained district

heating and cooling

9,695,332 11,535,851 19% 9,363,610 10,019,840 7%

Proportion of landlord obtained

district heating and cooling from

renewable and low carbon sources

0% 6% – 0% 7% –

Fuels-Abs,

Fuels-LfL

Fuels for landlord shared services 22,141,926 25,730,631 16% 19,994,312 21,852,453 9%

(sub)metered exclusively to tenants 295,969 2,498 -99% 6,997 2,498 -64%

Total landlord-obtained fuels 22,437,895 25,733,129 15% 20,001,309 21,854,951 9%

Energy-

Total-

Group

kWh Total energy Total Group energy 61,401,324 67,926,634 11% 54,881,782 58,202,339 6%

Total Group energy (net)  50,911,143 58,903,934² 16% 46,708,205 50,618,076 8%

Energy-

Total-UK

Total UK energy 31,850,023 38,018,541 19% 28,769,113 31,866,817 11%

Energy-

Total-UK

% Total UK energy as % of total Group

energy

53% 56% 6% 52% 55% 5%

Energy-Int kWh/

m/year

Energy

intensity

Landlord-obtained energy intensity 146 134 -8% 121 136 12%

Greenhouse gas emissions

GHG-

Dir-Abs

tonnes

CO

2

e

Direct Scope 1 4,722 5,407² 15% 4,213 4,625 10%

GHG-Indir-

Abs

tonnes

CO

2

e

Indirect Scope 2 (location based) 6,428 8,556² 33% 5,848 7,342 26%

GHG

emissions

Total Group Scope 1 & 2 emissions 11,150 13,963² 25% 10,061 11,966 19%

GHG-

Total-

Abs-UK

tonnes

CO

2

e

GHG

emissions

Total UK Scope 1 & 2 emissions 4,947 5,946 20% 4,463 5,024 13%

% Total UK Scope 1 & 2 emissions as

% oftotal Group emissions

45% 43% -5% 44% 42% -5%

GHG-

Indir-Abs

tonnes

CO

2

e

Indirect Scope 2 (market based) 1,827 1,743² -5% 1,701 1,553 -9%

Scope 3 2,204 2,136 -3% 1,842 1,830 -1%

GHG-

Total-Abs

GHG

emissions

Total Scope 1, 2 & 3 emissions 13,354 16,099 21% 11,903 13,796 16%

GHG-

Int

kg CO

2

e/

m/year

GHG

emissions

intensity

Scope 1 & 2 emissions intensity 26 28² 4% 22 28 26%

Scope 1, 2 & 3 emissions intensity 31 32 3% 26 32 23%

1 Restated 2020 figure

2 Assured 2021 figure

3 In the 2020 annual report, the total Group energy was stated as being assured. However, only the landlord energy portion of this figure, (i.e. excluding the portion

sub-metered to tenants) was assured and this net figure has been included this year as an additional line in the above table.

4 SECR disclosure

CLS Holdings plc Annual Report and Accounts 2021

72

Governance

Continued

Impact Area

EPRA Code

Units of

measure Indicator

Absolute performance (Abs) Like-for-like performance (LfL)

2020 2021 % change 2020 2021 % change

Boundary Number of applicable properties 85 85 0% 68 68 0%

Water

Water-

Abs,

Water-LfL

m

3

Water for landlord shared services 127,580 167,343 31% 114,114 136,193 19%

(sub)metered exclusively to tenants – – – – – –

Total landlord-obtained water 127,580 167,343 31% 114,114 136,193 19%

Water-Int m

3

/

m

2

/year

Water

intensity

Total building water intensity 0.30 0.33 10% 0.25 0.32 26%

Waste

Waste-

Abs,

Waste-LfL

tonnes Waste Total hazardous waste 1 2 71% 1 1 -23%

Total non-hazardous waste 1,197 1,628 36% 1,118 447 -60%

Total waste collected 1,198 1,630 36% 1,119 448 -60%

Total waste incinerated

with energy recovery

751 650 -13% 718 242 -66%

Total waste recycled 447 980 119% 401 206 -49%

Proportion of waste recycled 37% 60% 61% 36% 46% 28%

Proportion of waste incinerated

with energy recovery

63% 40% -36% 64% 54% -16%

Methodology

As a UK publicly listed FTSE250 company

we are subject to the greenhouse gas

(‘GHG’) reporting requirements defined

within the Companies Act 2006 (Strategic

Report and Directors’ Report) Regulations

2013 and the energy reporting requirements

under the Streamlined Energy and Carbon

Reporting (‘SECR’) requirements as stated in

the Companies (Directors’ Report) and

Limited Liability Partnerships (Energy and

Carbon Report) Regulations 2018 (the 2018

Regulations). The table above includes all

the required information under these

regulations as well as the disclosures under

the EPRA Sustainability best practices

reporting guidelines.

The scope, boundary and methodology

adopted by CLS for the calculation of the

Scopes 1 and 2 GHG emissions and SECR

metrics are set out in the Additional

Sustainability Information document in

the Sustainability section of our website

as well as the geographical splits of the

data above and any EPRA and SECR

disclosures which are not included in this

annual report.

Assurance

For the second year we have engaged

DNV, an independent expert in assurance

and risk management, to undertake

limited independent assurance over our

2021 greenhouse gas emissions and

energy metrics. The specific metrics that

have been subject to assurance are

identified in the table above. A copy of

DNV’s Assurance Statement can be found

on ourwebsite. Having reviewed our

energy data processes during assurance,

we have identified several metrics from

2020 that require restating to ensure

alignment withthe 2021 methodology

orwhere corrections have occurred.

The restated figures have not been

subject to assurance, and are identified

inthe above table.

Year-on-year movements

As mentioned earlier, it is difficult to

makecomparisons with last year due to

significant periods of low or no occupancy

throughout 2020 and 2021 as a result of

the continuation of the Covid-19 pandemic.

Our total absolute Scope 1, 2 & 3 GHG

emissions have increased by 21% in 2021

due to a combination of asset acquisition

and adding previously missing data for

F-gas assets, UK diesel for standby

generators and district heating in

Germany and France.

There has been an increase in total

electricity consumption from the 68

like-for-like buildings of 3% across the

Group made up of a 8% increase in

landlord areas and a reduction of 7%

intenant areas. Similarly, absolute

electricity consumption has increased 5%

primarily resulting from the inclusion of

six new acquisitions into the portfolio

which were larger than those disposed

during the year.

Water consumption across the Group

increased 31% as people partially

returned to offices. On a like-for-like basis

the increase was 26%, once acquisitions

and disposals are removed.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

73

The Task Force on Climate-related Financial Disclosures (‘TCFD’)

Compliance statement

The following table shows the Group’s disclosures in line with the TCFD recommendations. The steps we are taking to be able to make consistent

disclosures in the future including timeframes are as follows:

• During 2022, we will be engaging external consultants to assist us with in-depth analysis of climate-related resilience risks set across different

climate scenarios (namely 2°C and 4°C scenarios) and to consider the resilience of the Group and its properties under these scenarios as well as

to incorporate any results into our strategy and business plans as well as understand any financial implications of the risks.

Governance

Describe the Board’s oversight

ofclimate-related risks and

opportunities.

The Board has overall responsibility for ESG matters, in which climate-related aspects are included, and

monitors the management of our climate-related risks and opportunities, which in turn is informed by our Risk

and Sustainability Committee. Both the Chief Operating Officer, David Fuller, and Head of Sustainability, Will Ray,

provide written quarterly updates to these committees on our climate-related work, the associated risks and

opportunities and progress against our current year and longer term targets including our Net Zero Carbon

pathway. Data and performance reports are provided to the committees to provide oversight.

Describe management’s role in

assessing and managing climate

related risks and opportunities.

The Chief Executive Officer is the main Board member with overall accountability for sustainability. The Group’s

Chief Operating Officer chairs the Risk and Sustainability Committee and oversees the performance of our

climate-related work. They are supported by the sustainability team, led by the Head of Sustainability, which has

day-to-day management responsibility of climate-related issues and maintains contact with industry practices.

We also utilise the services of expert third-party consultants where necessary. Where appropriate, training and

presentations by the sustainability team and external third parties are provided to the Board and management

to maintain up-to-date industry knowledge.

Strategy

Describe the climate-related

risks and opportunities the

organisation has identified

overthe short, medium and

long-term.

Sustainability remains one of the six core risk themes for the CLS Group, with each individual risk captured in

our sustainability risk register maintained by the sustainability team and reviewed twice a year or when a

material change in the risk landscape occurs.

Short-term (0-5 years)

• market shift in terms of stricter legislation e.g. the introduction in the UK of the potential new minimum

energy efficiency standards (MEES) for commercial and domestic property in response to the UK committing

to becoming net zero carbon by 2050; and

• market demand from occupiers for buildings and spaces with higher levels of efficiency, climate resilience

and lower carbon footprints.

Medium-term (5-10 years)

• shift in sources of energy with the end of natural gas and electrification;

• price volatility associated with market shifts and changes in pricing structures; and

• technology changes associated with energy source shifts and increased efficiency requirements

Long-term (15+ years)

• significant changes in climatic conditions in the UK, Germany and France, principally storm events, extreme

weather frequency, flooding and rising temperatures, and their impact on our buildings.

These risks are reviewed in accordance with the UKGBC ‘A Framework for Measuring and Reporting of

Climate-related Physical Risks to Built Assets’.

The set of identified risks are consistent across the Group’s sectors and geographies.

Describe the resilience of the

organisation’s strategy, taking

into consideration different

climate related scenarios,

including a 2°C or lower

scenario.

As mentioned above we recognise that climate change does have an impact on our business, and part of our

strategic evolution has been our commitment to becoming a net zero carbon business by 2030 so that we can

transparently address the transitional and physical risks and opportunities which apply to our business. This is

in addition to our existing science-based targets, which are already aligned to a 1.5°C scenario.

Our pathway sets out a clear plan on how we will transition towards becoming a net zero carbon business by:

• reducing the energy consumption and improving the efficiency of our assets;

• increasing renewable energy procurement e.g. green gas procurement, self-generated energy managing the

future risk of higher energy costs;

• reducing the embodied carbon associated with our development and refurbishment schemes; and

• for those carbon emissions we cannot eliminate we will offset using verified schemes which remove carbon

from the atmosphere.

For more detail on our Net Zero Carbon pathway please see pages 60 to 61 and our website.

During 2022, we will be engaging external consultants to assist us with in-depth analysis of climate-related risk

set across different climate scenarios – namely 2°C and 4°C scenarios.

CLS Holdings plc Annual Report and Accounts 2021

74

Governance

Continued

Describe the impact of climate-

related risks and opportunities

on the organisation’s businesses,

strategy and financial planning.

We invest in, develop, and manage property in the UK, Germany and France and, as such, climate-related

issues affect the way we develop new buildings and how we manage and refurbish existing ones.

Recognising that climate change has an impact on our business and subsequently our stakeholders has led us

to develop our Net Zero Carbon pathway and announce our ambition to be a net zero carbon business by 2030

(aligned to a 1.5°C climate scenario) – to find out more please see pages 60 to 61 as well as the full report on

our website. Our pathway covers the breadth of our business activities to ensure we are reducing our carbon

footprint and exposure to risk, examples include:

Developments – our design standards and processes ensure we are designing buildings to be resilient to

physical risks such as changes in future weather patterns by making them long life, flexible and less reliant on

mechanical cooling and free from fossil fuel use (i.e. all electric heating and cooling).

Managing assets – our Net Zero Carbon pathway ensures we have Asset Management Plans in place for each

asset which sets out how we will reduce energy consumption/carbon emissions effectively.

Acquisitions – our business model is based on acquiring older buildings and improving them to add value.

During the acquisition process, we look to assess the true carbon cost of a potential purchase and how we can

transition it to a Net Zero Carbon pathway.

Access to capital – our financing strategy has been specifically developed to increase the proportion of our

‘green’ loans which will allow us to link our finances to our net zero carbon ambition by setting out

performance criteria and a governance framework.

Part of the review mentioned below to be carried out in 2022 will be to establish the potential impact of climate

scenarios on the resilience of our properties as well as our operations and asset values.

Additionally, we recognise the interdependence of climate-related risks with our carbon reduction plans. e.g.

the effect of increasing temperatures on energy use of cooling.

Risk management

Describe the processes for

identifying and assessing

climate-related risks.

Each year senior managers from the various business functions report their key risks (which includes

sustainability/climate change related risks) to the Executive Committee. The risks are assessed by the

Committee to understand their severity, likelihood and the optimal controls and/or mitigation required.

The Group’s climate-related risks are maintained in our sustainability risk register and are reviewed twice a

year or when a material change in the risk landscape occurs.

The internal controls and risk software being implemented in 2022 and discussed on pages 44 and 107 will

allow the Group to monitor and report its risks more effectively and efficiently, including those climate-related.

Describe the organisation’s

processes for managing

climate-related risks.

The sustainability team has the responsibility for managing the Group’s climate-related risks in conjunction

with the Group’s Risk and Sustainability Committee. The team has significant knowledge and experience of

climate-related and sustainability matters. In addition, we utilise the services of expert third-party consultants

where necessary. Where appropriate, training and presentations by the sustainability team and external third

parties are provided to the Board and management to maintain up-to-date industry knowledge. The Board has

experience with listed and non-listed organisations on their approach to ESG matters in the built environment

and across corporate disciplines and knowledge of ESG issues facing listed and non-listed organisations in the

property sector and wider UK businesses and charities.

Describe how processes for

identifying, assessing, and

managing climate-related

risksare integrated into the

organisation’s overall risk

management.

The Group’s risk management process, including a heat map showing the likelihood and impact of the Group’s

risks, is shown on pages 42 to 52 in this report.

The purpose of the Risk and Sustainability Committee is to: assist with the embedding of the Net Zero Carbon

pathway and Social Value Framework throughout the Group; allow more efficient and effective monitoring and

reporting of the Group’s ESG objectives; and to increase the discussions and focus upon risk within the

organisation. This work is supported by the sustainability team.

Metrics and targets

Disclose the metrics used by the

organisation to assess climate-

related risks and opportunities

in line with its strategy and

riskmanagement process.

To enable our stakeholders to understand our impact and subsequent performance we report an extensive

range of consumption and intensity metrics relating to energy, carbon, waste and water. These are shown in the

table on pages 72 and 73.

Disclose Scope 1, Scope 2,

and,ifappropriate, Scope 3

greenhouse gas (GHG) emissions,

and the related risks.

We provide extensive disclosure of our Scope 1, 2 and 3 emissions in our EPRA reporting. This reporting also

includes the disclosures required by Streamlined Energy and Carbon Reporting (‘SECR’) and can be found on

pages 72 and 73. Additional disclosures are also included in the Additional Sustainability Information document

which can be found on our website.

Describe the targets used by

theorganisation to manage

climate-related risks and

opportunities and performance

against targets.

We have developed a set of science-based targets which have been approved by the Science-Based Targets

Initiative (SBTi). These targets align our carbon reduction programme with our business activities and minimise

the effects of climate change on our managed portfolio. Please see our sustainability strategy and Net Zero

Carbon reports on our website for further details on our science-based targets.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

75

UNSDG disclosures

The United Nations Sustainable Development Goals (‘SDGs’) are an international standard developed to support global change and

sustainable growth. We believe that we have a part to play in supporting the cities in which we operate in responding to this standard

and helping to effect change.

We have reviewed the suite of 17 goals and have selected those goals which align most closely to our ESG pillars.

Additional disclosures

Set out in the table below is a summary of our progress against the goals which are particularly significant to our business.

Our ESG pillars

UN

Goal

Applicable

target

Applicable

indicator Our efforts

Environment

A positive environmental impact

7.2 7.2.1 92% of the Group’s electricity which supplies our buildings is from

renewable or low-carbon sources, and as part of our Net Zero Carbon

programme, we are looking at how we can increase our renewable

electricity supplies to 100%, procure renewable gas supplies and

incorporate higher levels of on-site renewable energy generation.

7.3 7.3.1 As part of our science-based targets we have a specific energy

intensity target (see our sustainability strategy report), designed to

help us improve our energy intensity.

12.5 12.5.1 We have established a portfolio-wide minimum recycling target of 75%

and a no waste to landfill policy.

12.6 12.6.1 We integrate comprehensive sustainability reporting information into

our company reporting cycles and public reporting.

13.2 13.2.2 We have independently verified science-based carbon targets which

are set to a 1.5°C reduction scenario. This means we are committed to

reducing our carbon emissions and making sure our portfolio is

climate resilient.

15.5 15.5.1 We are committed to improve the biodiversity at our properties.

During 2021, we completed 47 initiatives at 40 sites (49% of assets under

management). These included such projects as beehives, insect hotels

and planting of native species of plants. In 2022, we will assess existing

implemented biodiversity and local nature measures/initiatives and

identify best practices, potential improvements and measures for

broader rollout and commission a Biodiversity Net Gain and Rewilding

Study for each of our properties. In 2023, the recommendations from

those studies will be implemented at the respective properties.

Social

Creating shared value

1.2 1.2.2 In the UK, we are committed to providing both our employees and our

contractors with the real Living Wage and in London, with the London

Living Wage. Additionally, we are currently investigating how to

establish equivalent benchmarks in Germany and France.

As part of our charitable giving and community support we have

provided contributions to local food banks, women’s and homeless

shelters and community improvement programmes.

4.4 4.4.1 We invest in, and support, youth and adult education and skills training.

An example of this include for the third consecutive year, with our Paris

office based in Levallois, we sponsored the Levallois Young Readers Prize.

The Levallois Young Readers’ Prize is awarded by 300 students in classes

from CM1 to 6e of Levallois schools who have received the selection of

works established by the librarians of the city. Additionally, we have

supported the work of charities for young people with learning difficulties.

5.1 5.1.1 Beyond any legislative requirement, we are active in ensuring

meaningful gender equality in our business. Whether that is making

sure our business structure is representative or benchmarking against

our peer group. Some of our recent work internally includes the

formation of our Workforce Advisory Panel and in 2022 we will be

undertaking unconscious bias training.

5.5 5.5.2 51% of our employees are women and throughout the Group, 41% of

managerial roles/positions are filled by women.

CLS Holdings plc Annual Report and Accounts 2021

76

Governance

Continued

Our ESG pillars

UN

Goal

Applicable

target

Applicable

indicator Our efforts

Social

Creating shared value

8.6 8.6.1 Our Social Value Framework contains the following measures:

• Number of hours dedicated to support young people into work e.g.

CV advice, mock interviews, careers guidance – (under 24 years old)

• Number of staff hours spent on local school and college visits

e.g.delivering career talks, curriculum support, literacy support,

safety talks

Targets and benchmarks for these and all other measures in our Social

Value Framework will be established during 2022.

10.2 10.2.1 In the UK, we are committed to providing both our employees and our

contractors with the real Living Wage and in London, with the London

Living Wage. All new contracts with suppliers, including facility

management contracts, when renewed, must commit to paying the

London Living Wage as a minimum. Whilst the Living Wage only applies

to the UK, we are investigating how to establish equivalent

benchmarks in Germany and France.

We are committed to diversity in all its forms. In 2021, we recalibrated

our approach todiversity monitoring and invited UK employees to

self-report on a broader range of demographic information and this is

provided on page 68. The information collected from our recent

information gathering exercise together with input from the workforce,

will be used to set the DE&I agenda for 2022 as well as to develop and

implement a broader DE&I policy.

11.7 11.7.1 We actively promote the inclusion of public spaces in and around our

buildings and ensure they are fully accessible to those with disabilities.

Non-financial reporting

As we have fewer than 500 employees, the Non-Financial Reporting requirements contained in the Companies Act 2006 do not apply

to us. However, in order to provide additional transparency, we have elected to provide further information in the table below.

Our key policies and standards Additional information

Environmental

matters

• Our target to be net zero carbon by 2030

• Science-based carbon targets

• Task Force on Climate-related Financial Disclosures

• Streamlined Energy and Carbon Reporting (‘SECR’)

disclosure

• Sustainability strategy report (see our website)

• Net Zero Carbon pathway (see pages 60 and 61)

• Climate change governance (see page 70) and risk

management (see page 47)

Social and employee

aspects

• Volunteering Policy

• Diversity and Inclusion Policy

• Learning and Development Policy

• Shared Parental Leave

• Flexible Working Policy

• CSR initiatives (see pages 64 and 65)

• Our people (see pages 65 to 68)

• Diversity and inclusion (see pages 67 and 68)

Respect for

human rights

• Health and Safety Policy Statement

• Modern Slavery Statement

• Health and safety (see page 69)

• Human rights and modern slavery (see page 71)

Anti-corruption and

bribery issues

• Anti-bribery and Anti-corruption Policy

• Whistleblowing Policy

• Expenses Policy

• Securities Dealing Code

• Preventing facilitation of Tax Evasion Policy

• Audit Committee Report (see pages 104 to 109)

• Our principal risks (see pages 42 to 52)

Our 2021 strategic report, from pages 2 to 77, has been reviewed and approved by the Board of Directors on 15 March 2022.

Approved and authorised on behalf of the Board

David Fuller BA FCG

Company Secretary

16 March 2022

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

77

Board focus areas in 2021

• Continued to receive information on

the impact of Covid-19 across the

business and the markets in which

we operate.

• Approved the 2030 sustainability

strategy and Net Zero Carbon

pathway.

• Reviewed and approved financial

statements following

recommendations from the Audit

Committee.

• Reviewed and decided on the

Company’s long-term strategy.

• Received and reviewed the results of

the 2020 staff survey.

• Carried out an internal evaluation of

the performance of the Board and its

Committees.

Lennart Sten

Independent Non-Executive Chairman

Leading

withpurpose

Dear Shareholder,

On behalf of the Board, I am pleased to

present the Corporate Governance Report

for the year ended 31 December 2021.

This report sets out our governance

framework, the Board’s key focus areas

inthe last year as well as our approach

tomonitoring company culture and

aligning our strategy with our purpose,

vision and values.

UK Corporate Governance Code

This report also outlines how we have

complied with the principles set out in

theUK Corporate Governance Code 2018.

Our code compliance statement can be

found on page 85.

Living our purpose and culture

2021 proved to be yet another challenging

year for both our business and our

employees. As we, and many other

companies, continued to embrace our new

working environment following the impact

of the Covid-19 pandemic, I and my fellow

Board members were acutely aware of

the impact this has had on our culture

andtherefore active monitoring has

beenessential.

Our positive culture, strong

relationships and robust

governance framework has

continued to ensure the

success of the Company

We have benefited from a long established

purpose, vision and values, which we

regularly articulate and so are embedded

inour culture. This has been key in our

ability to adapt to the “new norm” but

alsoa strength in rebuilding those inter-

personal relationships and connections in

a hybrid working environment to drive the

businessforward.

One of our core values is “our tenants,

ourfocus”. Our teams worked tirelessly

toensure our buildings remained open

tosupport our business and those of

ourtenants. Supporting our tenants has

ensured we understood theirneeds and

we were able to deliver thesustainable

space they want.

Despite these difficulties, the publication

of our new sustainability strategy, driven

by our purpose, aligns our core values

with those of our tenants to deliver

abusiness that is supporting our

keystakeholders.

Balancing the interests of stakeholders

At the forefront of our decision making is

reflecting on the impact of our decisions

on the interests of stakeholders when

considering the long-term strategy for

theGroup.

Our employees have been brilliant in

actively engaging with the Workforce

Advisory Panel and, through its Chair,

Elizabeth Edwards, we ensure a two-way

open communication that enables us to both

monitor culture but facilitate discussion on

workforce policies and practices. Notably,

this year how we developed our working

from home strategy.

Later on during 2021, we were able to

return to holding in-person meetings

withtenants, giving us valuable insight

into how we can meet their needs going

forward. Our Executive Directors

continued to meet with investors and

analysts and, in November, we hosted

aCapital Markets Day, followed by a

tourof some of our UK properties and

development projects. The day provided

agreat opportunity forour Senior

Leadership Team to meet withour

investors and analysts and showcase

asmall selection of our high-quality

portfolio.

CLS Holdings plc Annual Report and Accounts 2021

78

Corporate governance

We recognised the impact of the pandemic

on the communities in which we invest,

which included some tenants who are local

charitable organisations. Through our CSR

Committee and the efforts of our employees,

we were able tosupport them with our time,

expertise or financial assistance.

The Board acknowledges its s.172 duties

to all key stakeholders and I believe the

strength of the Board’s relationships,

withthe support of a strong governance

framework will continue to enable us to

deliver on our long-term strategy to the

benefit of all stakeholders.

Sustainability

One of our greatest achievements this

year has been launching our 2030

sustainability strategy along with our Net

Zero Carbon pathway. While the continued

restrictions have come with a unique set

of challenges, we have not wavered from

our purpose of being a sustainably

focused landlord. In 2022, and in years to

come, we look forward to working with

our tenants to achieve our sustainability

commitments whilst also aiding them

inachieving theirs.

Looking forward

While the outcomes of the pandemic

continue to manifest in our industry, we

are confident that our robust strategy and

well-located high-quality and flexible

portfolio will continue to ensure the

success of the Company in 2022. Weare

looking forward to an exciting year ahead.

Lennart Sten

Non-Executive Chairman

16 March 2022

How governance supports our business model and strategy

Our governance structure enables the Board and Directors to provide the necessary oversight of the Company’s long-term

strategic plan and businessmodel.

The Board and Executive Committees facilitatethe implementation of the Group’s strategy and business model withtwo way

dialogue ensuring that the Group’s Vision, Purpose and strategic goals are aligned.

Clear reporting lines and division of responsibilities ensure efficient and effective strategic decision making.

Read more on pages 24 and 25

We acquire the

right properties

Read more on

pages 18-23 & 26-27

The Board Governance role

The Board considers the Group’s investment criteria and market conditions in the regions to ensure it supports

its long-term strategy.

What we considered for 2021

• Regularly reviewed proposals for acquisitions throughout the year which lead to the acquisition of six

properties and the disposal of eight properties

• Received detailed updates on the markets in which we operate together with investments at each Board meeting

We secure the

right finance

Read more on

pages 40-41 & 28-29

The Board Governance role

The Board considers the Group’s financing strategy to ensure it remains appropriate, dynamic and diverse.

What we considered for 2021

• Received regular updates on the Group’s debt position

• Approved the Group’s second ‘green’ loan with Scottish Widows

• Received detailed updates on the Group’s financing strategy

• Investigated the impact of other debt facilities

We deliver value

through active

management

and cost control

Read more on

pages 18-23

The Board Governance role

The Board considers the Group’s operational strategy to deliver on the Group’s vision to be a supportive,

progressive and sustainably focused commercial landlord.

What we considered for 2021

• Received regular updates on asset, property and facilities management operations

• Ensured appropriate resourcing levels to facilitate active in-house management

• Monitored performance against budget and organisational structure as part of cost control measures

We continually

assess whether

to hold or sell

properties

Read more on

pages 18-23 & 32-33

The Board Governance role

The Board oversees management’s assessments to ensure the Company focuses on holding properties with the

potential to add value in line with the Group’s investment strategy and sustainability goals.

What we considered for 2021

• Received regular updates on vacancy rates and rent collections

• Considered and approved the acquisition of six properties

• Received regular senior management recommendations for capital and operational expenditure in relation to

building management

• Approved 2030 sustainability strategy including Net Zero Carbon pathway

CLS Holdings plc Annual Report and Accounts 2021

79

Strategic report Corporate governance Financial statements Additional information

Major Board decisions

• Reviewed and approved acquisitions which completed during the year totalling

over £164 million across the UK and Germany. Reviewed and approved the sale

ofproperties totalling over £37 million

• Approved development of Vauxhall Walk site and major refurbishment of Prescot Street.

• Approved a final dividend of 5.20 pence per share for 2020 and an interim dividend

of 2.35 pence per shares for 2021

• Approved second ‘green’ loan with Scottish Widows totalling £61.7m

• Approved 2030 sustainability strategy including Net Zero Carbon pathway

• Conversion of the UK business into a REIT

• Appointment of EY as auditor for the year ending 31 December 2022 following

thecompletion of a formal tender process

Ongoing Covid-19 response

• Discussed the financial impact of the extended lockdown in early 2021,

implementing appropriate risk mitigation actions

• Received regular updates on building footfall across each region, as well as

onsiteproperty visits to understand Covid-19 measures in our buildings

• Continued publishing trading updates throughout the year to maintain

communication with shareholders

• Understood the needs of employees through regular dialogue with the Workforce

Advisory Panel

Governance improvements and updates

• Reviewed the Board Committees Terms of Reference, ensuring they remained

appropriate and in line with best practice

• Reviewed and updated the Schedule of Matters Reserved for the Board to reflect

the needs of the business

• Reviewed and updated the Division of Responsibilities to codify the Board’s current

structure and the roles associated with each Director

• Carefully considered responsibilities under s.172 during decision making process

Highlights

7.70p

Proposed dividend per share for the

year ended 31 December 2021

AGM

Held on 23 April 2021

50.8%

Percentage of portfolio visited by

Board members

UK REIT

Decision to convert the UK business

into a Real Estate Investment Trust

£37m

Total value of disposals approved

£164m

Total value of acquisitions approved

CLS Holdings plc Annual Report and Accounts 2021

80

Governance at a glance

Executive and Non-Executive Directors

a

s at 31 March 2021

2 Executive Directors

7 Non-Executive Directors

What we bring to the BoardOur Board

Number of Board

members

Experience

9

Property

Wide ranging experience of the property sector

including our European markets

4

International markets

Experience and in-depth knowledge of dealing in,

and the operation of, international markets

4

Financial management

Substantial background of financial experience

from wide ranging industries and markets

6

Governance

Significant listed company governance experience

and understanding of investor requirements

9

Risk management

In-depth insight and experience of risk management

within the property sector

9

ESG

Knowledge of environmental, social and governance issues

facing listed and non-listed organisations in the property sector

and wider UK businesses and charities

3

Human resource

Knowledge of HR operations, setting and monitoring

culture, and diversity and inclusion

33%

Female representation as at

31 December2021

100%

Board meeting attendance for the year

ended 31 December 2021

44%

Board independence (including the

Chairman) as at 31 December 2021

Length of tenure

4 4 1

4

3

2

1

0

0-5 6-10 11+

Strategic report Corporate governance Financial statements Additional information

81

CLS Holdings plc Annual Report and Accounts 2021

The right skills to

deliverourstrategy

Lennart Sten

Independent Non-

Executive Chairman

Appointment as a Director

1 August 2014

Tenure

7 years 4 months

Former roles: CEO, GE

Capital Real Estate Europe.

President, GE Real Estate

Nordic. CEO Fabege AB.

General Counsel, GE

Capital Equipment

Finances AB. Partner,

Baker & McKenzie,

Stockholm

Qualifications: Degree in

Law, Stockholm University

Experience: International

property industry. Founder

and CEO of Svenska

Handelsfastigheter. Board

member, Interogo Holding

AG. Chairman, Klara Bo

Sverige AB

Anna Seeley

Non-Executive Director

and Vice Chair

Appointment as a Director

11 May 2015

Tenure

6 years 7 months

Former roles: European

Property Surveyor,

General Electric Corporate

and BT Group. Group

Property Director, CLS

Holdings plc. Chartered

Surveyor, Chestertons

Qualifications: Degree in

Property Valuation and

Finance, City University

and Chartered Surveyor

Experience: 20+ years

ofproperty industry and

business experience

Fredrik Widlund

Chief Executive Officer

Appointment as a Director

3 November 2014

Tenure

7 years 1 month

Former roles: Global

Commercial Leader, GE

Capital International.

Regional CEO, GE’s

European Leasing

businesses. Managing

Director, GE Capital Real

Estate. CFO, GE Capital

Equipment Finance.

Various positions with

Royal Dutch Shell

Qualifications: Degree in

Business Administration,

Stockholm University

Experience: Business

leadership, property and

finance experience in

global organisations.

Trustee of Morden College,

a social and housing

charity

Andrew Kirkman

Chief Financial Officer

Appointment as a Director

1 July 2019

Tenure

2 years 5 months

Former roles: Finance

Director, Harworth Group

plc. Finance Director,

Viridor. Chief Finance

Officer, Balfour Beatty

Capital. Global Head of

Corporate Finance, Bovis

Lend Lease

Qualifications: Masters

inPolitics, Philosophy

andEconomics, Oxford

University. Fellow, Institute

of Chartered Accountants

Experience: Extensive plc,

property, finance and

operational experience.

Non-Executive Director,

A2Dominion Housing

Limited, a social housing

charity

Elizabeth Edwards

Senior Independent

Director

Appointment as a Director

13 May 2014

Tenure

7 years 7 months

Former roles: Head,

Property Lending,

Landesbank Berlin.

Senior positions with

National Australia Bank,

Berlin Hyp and

Westdeutsche

Immobilienban.

Management Consultant,

PwC

Qualifications: Chartered

Surveyor, Degree in Estate

Management, South Bank

University. Fellow, Royal

Institution of Chartered

Surveyors

Experience: Banking

(primarily property

related). Non-Executive

Director, Schroders

European REIT plc.

Trustee, Salvation Army

International Trust.

Trustee, Refuge.

Past Master, the

Worshipful Company of

Chartered Surveyors.

CLS Holdings plc Annual Report and Accounts 2021

82

Board of Directors

Denise Jagger

Non-Executive Director

Appointment as a Director

1 August 2019

Tenure

2 years 4 months

Former roles: Solicitor,

Slaughter and May,

Director Asda Stores,

Company Secretary and

General Counsel Asda

Group plc/Asda Wal Mart,

Partner Eversheds

Sutherland LLP, Chair

StGiles Trust

Qualifications: Law

degree, Warwick

University, Certificate in

EU Studies Universite de

Nice, Hon Doctorate of

Law, Leeds Beckett

University

Experience: Legal

advisory (corporate

finance, M&A, regulatory,

compliance and

governance). Retail

and property sector

specialism. Independent

NED and SID Bellway plc;

NED and Remuneration

and Nominations

Committee Chair, Pool

Reinsurance; Chair and

Pro Chancellor University

of York; Trustee National

Trust

Christopher Jarvis

Non-Executive Director

Appointment as a Director

25 November 2008

Tenure

13 years 1 month

Former roles: Owner,

Jarvis & Partners real

estate consultancy.

Partner, HRO Group. MD,

Richard Ellis Germany

Qualifications: Chartered

Surveyor. Masters in Land

Economy, Cambridge

University

Experience: Advising

onall property-related

matters, from debt

financing to asset

acquisitions, primarily

inthe German market

Bengt Mortstedt

Non-Executive Director

Appointment as a Director

7 March 2017

Tenure

4 years 9 months

Former roles: Director,

CLS Holdings plc

(1992–2010).

Former Junior District

Court Judge in Sweden

Qualifications: Degree in

Law, Stockholm University

Experience: European

property market and

Group business.

Developed and runs hotels

in St Vincent & Grenadines,

West Indies

Bill Holland

Non-Executive Director

Appointment as a Director

20 November 2019

Tenure

2 years 1 month

Former roles: Senior

Partner, KPMG real estate

audit practice

Qualifications: Fellow,

Institute of Chartered

Accountants. Degree in

Economics from Durham

University

Experience: Real estate,

finance and audit

experience. Non-Executive

Director, Urban&Civic and

Ground Rents Income Fund

plc. Governor, Winchester

College

Attendance table

Board

Audit

Committee

Remuneration

Committee

Nomination

Committee AGM

Lennart Sten –

Anna Seeley – –

Fredrik Widlund

– – –

Andrew Kirkman

– – –

Elizabeth Edwards –

Denise Jagger –

Christopher Jarvis – – –

Bengt Mortstedt – – –

Bill Holland –

Attended Did not attend due to Covid-19 restrictions

CLS Holdings plc Annual Report and Accounts 2021

83

Strategic report Corporate governance Financial statements Additional information

Fredrik Widlund

Chief Executive Officer

Please see full biography

on page 82

Philippe Alexis

Head of France

Tenure

24 years 2 months

Philippe is responsible

forthe Group’s French

portfolio.

Philippe is a Chartered

Surveyor and has over

30years’ experience in

theproperty sector.

Andrew Kirkman

Chief Financial Officer

Please see full biography

on page 82

David Fuller

Chief Operating Officer

and Company Secretary

Tenure

12 years 10 months

David is responsible for

the Group’s operational

functions, including

Secretariat, Human

Resources, Legal,

Sustainability, and Media

and Communications

David is a Fellow of the

Chartered Governance

Institute with over 20

years’ governance and

operational experience.

Francesca Fear

Group Financial

Controller

Tenure

6 years 3 months

Francesca is responsible

for the Group’s accounting

and reporting functions.

Francesca is a Fellow

Chartered Accountant

andhas over 10 years’

experience in audit

andreporting.

Dan Howson

Head of UK

Tenure

11 years 4 months

Danis responsible for the

Group’s UK portfolio.

Dan is a Chartered

Surveyor and has over

20years’ experience in

theUK property sector.

Rachel Broughton

Head of Development

Tenure

10 years 4 months

Rachel is responsible for

the Group’s Development

activities.

Rachel has over 20 years’

experience in the property

sector.

Rolf Mensing

Head of Germany

Tenure

15 years 6 months

Rolf is responsible for the

Group’s German portfolio.

Rolf is a Chartered

Surveyor and has over

25years’ experience in

theproperty sector.

CLS Holdings plc Annual Report and Accounts 2021

84

Senior Leadership Team

Principles and how the

Company addresses them

The principal corporate governance rules

which applied to the Company in the year

under review were those set out in the UK

Corporate Governance Code published by

the Financial Reporting Council (‘FRC’) in

April 2018 (the ‘Code’), the UK Financial

Conduct Authority (‘FCA’) Listing Rules

and the FCA’s Disclosure Guidance and

Transparency Rules.

The Board fully supports the principles

ofgood governance as set out in the Code,

which is available on the FRC’s website

(www.frc.org.uk), and its application of

themain principles are set out on pages

60 to 119.

Compliance with the Code

Save as identified below and explained

inthis report, the Board considers that

throughout 2021 it complied with the

provisions of the Code.

During the year the Board recognises that

it did not comply with Code provision:

11 – Board balance, explanation

onpage95

17 – Nomination Committee membership,

explanation on page 97

Board leadership and Company purpose

See pages

Our Board of Directors is responsible for setting the Group’s

strategy and ultimately ensuring the success of the Group. We

aim to hold five Board meetings a year, including a strategy day.

Our purpose is to transform office properties into sustainable,

modern spaces, that help businesses to grow. This year we

held five Board meetings.

Board of Directors

Board activities

Approach to s.172(1)

Strategy, Purpose, Vision and Values

82-83

86-87

88

8

Division of responsibilities

See pages

This year we reviewed our division of responsibilities to ensure

they reflect our Board structure.

Governance framework 94-95

Composition, succession and evaluation

See pages

Our Board consists of an Independent Non-Executive Chairman,

two Executive Directors, three independent Non-Executive

Directors and three non-independent Non-Executive Directors.

Succession planning is reviewed periodically by the Nomination

Committee. The evaluation of the Board and Committees’

performance is overseen by our Chairman.

Nomination Committee Report/Chairman’s statement

Internal Board evaluation

78-79 and 96-103

99

Audit, risk and internal control

See pages

The Audit Committee has oversight of the financial accounts

production process and audit, and reviews the effectiveness of

our risk management and internal controls system and the

need for an internal audit function annually.

Audit Committee Report

Going concern basis

Viability statement

Assessment of the principal risks facing the Group

Annual review of systems of risk management and internal control

Fair, balanced and understandable

104-109

53

53

42-52

106

107

Division of responsibilities

See pages

The Remuneration Committee is responsible for the design,

implementation and oversight of the Group’s Remuneration

Policy, which was approved by shareholders on 25 April 2020.

Remuneration Committee Report 110-129

CLS Holdings plc Annual Report and Accounts 2021

85

Strategic report Corporate governance Financial statements Additional information

UK Corporate Governance Code

Key activities of the Board during 2021

Overview

The Board met six times during the year (including the Annual General Meeting). Once a year, the Board meets specifically to

consider the Group’s strategy and four-year plan. Additional meetings are arranged if necessary, to allow the Board to discharge

its duties effectively. In 2021, a sub-committee of the Board met in December to consider and consequently approve the

conversion of the UK business to a Real Estate Investment Trust. An overview of our Board’s activities is provided below.

January March April May June August October November December

Board and

Committee

meetings

• Main Board

• Audit Committee

• Remuneration

Committee

• Annual General

Meeting

• Main Board

• Nomination Committee

• Audit Committee • Main Board

• Audit Committee

• Remuneration

Committee

• Strategy awayday • Board Meeting

• Audit Committee

• Remuneration

Committee

• Nomination Committee

• Sub-committee to

theBoard

Key announcements,

decisions and Board

approvals

• Trading update

• Acquisition of three

office buildings across

Germany

• Approval of the 2020

annual reports and

accounts

• Approval of the going

concern and viability

statements

• Approval of the 2020

final dividend

• All shareholder

resolutions passed

• Approval of the

principles of the Group

sustainability strategy

and Net Zero Carbon

pathway

• Conducted Audit tender

process

• Approval of the 2021

half-yearly report and

interim dividend

• Review of principal

risks and uncertainties

including emerging

risks

• Approval of the going

concern statement

• Consideration of the

Group strategy

• Recommendation and

appointment of new

external auditor

• UK property tour

• Trading update

• Approval of UK REIT

election

Property portfolio

• Approved the purchase of three

properties across Germany

• Approved the sale of eight

properties

• Received regular updates on key

development projects

• Received regular updates on

assetmanagement, leasing

andinvestment activities across

the Group

• Reviewed and approved

independent valuations of the

Group’s property portfolio

• Received regular updates on capital

and operational expenditure across

the Group’s property portfolio

• Received regular feedback from

tenants across the Group

Strategy and financing

• Carried out annual strategic

reviewin October

• Regularly review long-term

financestrategy

• Approved second ‘green’ loan with

Scottish widows

• Regularly reviewed the impact of

Covid-19 on the Group’s financial

position

• Periodically reviewed the impact

ofBrexit on the Group’s financial

position

• Received regular reports on

geopolitical and macro-economic

market conditions

Risk management and internal

control

• Reviewed the Group’s principal risks

and considered emerging risks

which could potentially impact

long-term strategy

• Received regular verbal updates

from the Audit Committee Chair at

Board meetings

• Received regular updates from the

Health and Safety Committee on

matters across the portfolio

• Reviewed the results of a legal audit

on Market Abuse Regulations

procedures and approved update of

documentation

• Received regular risk register

updates for discussion

• Appointment of Ernst & Young as

auditor for the year ended

31 December 2022

Link to strategic objectives

Link to strategic objectives

Link to strategic objectives

CLS Holdings plc Annual Report and Accounts 2021

86

Board leadership and Company purpose

What we did in 2021/22

January March April May June August October November December

Board and

Committee

meetings

• Main Board

• Audit Committee

• Remuneration

Committee

• Annual General

Meeting

• Main Board

• Nomination Committee

• Audit Committee • Main Board

• Audit Committee

• Remuneration

Committee

• Strategy awayday • Board Meeting

• Audit Committee

• Remuneration

Committee

• Nomination Committee

• Sub-committee to

theBoard

Key announcements,

decisions and Board

approvals

• Trading update

• Acquisition of three

office buildings across

Germany

• Approval of the 2020

annual reports and

accounts

• Approval of the going

concern and viability

statements

• Approval of the 2020

final dividend

• All shareholder

resolutions passed

• Approval of the

principles of the Group

sustainability strategy

and Net Zero Carbon

pathway

• Conducted Audit tender

process

• Approval of the 2021

half-yearly report and

interim dividend

• Review of principal

risks and uncertainties

including emerging

risks

• Approval of the going

concern statement

• Consideration of the

Group strategy

• Recommendation and

appointment of new

external auditor

• UK property tour

• Trading update

• Approval of UK REIT

election

Corporate reporting and performance

monitoring

• Reviewed the 2021 annual report

toconclude that it is fair, balanced

and understandable

• Approved the year-end and

interimresults

• Provided trading updates to

shareholders throughout the year

• Approved the 2022-2024 budget

• Received regular verbal updates

from the Remuneration Committee

Chair at board meetings, including

information from external advisors

Stakeholder engagement

• Approved publication of the annual

report and notice of meeting in a

timely manner, facilitating

engagement with shareholders

• Received feedback from investor

roadshows and from the Capital

Markets Day from Executive

Directors at Board meetings

• Approved new 2030 sustainability

strategy including the Group’s Net

Zero Carbon pathway in August

• Received regular tenant feedback

through heads of countries at Board

meetings

• Received regular employee feedback

from the Workforce Advisory Panel

Chair at Board meetings

• Maintained strong relationship with

majority shareholder

Governance

• Reviewed Terms of References

ofthe Audit, Remuneration,

Nominations and Disclosure

Committees

• Reviewed Division of

Responsibilities to ensure

separation of the roles of the

Chairman and CEO

• Reviewed Schedule of Matters

Reserved for the Board to ensure

approval levels remained relevant

to the growth of the business

• Received regular governance

updates from the Company

Secretary at Board meetings

• Received Board and Committee

Meetings papers in timely manner

• Carried out an internal board

evaluation and reviewed outcomes

to set objectives for the Board

for2022

Link to strategic objectives

Link to strategic objectives

Link to strategic objectives

We acquire the right properties

We secure the right finance

We deliver value through active management and cost control

We continually assess whether to hold or sell properties

Key

CLS Holdings plc Annual Report and Accounts 2021

87

Strategic report Corporate governance Financial statements Additional information

Purpose-led considerations

Our purpose is to transform office properties into sustainable, modern spaces that help businesses to grow. Our investments

arebased on long-term vision, continually modernising our portfolio into viable, future focused and sustainable properties.

Our vision is to be a leading office space specialist and a supportive, progressive and sustainably focused landlord. We achieve

this by aligning our strategic vision to our tenants’ business ambition, reinforcing our diversification in our key markets and

elevating the importance of sustainability across all aspects of our business.

Our four key values of: collaboration gets the job done; our tenants our focus; agility unlocks opportunity; and openness creates

closeness, define our culture.

Together, these underpin the decisions made at every level across the Group.

Read more on page 8

Culture

See page 67

Decision making

See pages 80 and 86-87

Key – Section 172 criteria

the likely consequences of any

decision in the long-term

the interests of the Company’s

employees

the need to foster the Company’s

business relationships with

suppliers, customers and others

the need to act fairly between

shareholders

the impact of the Company’s

operations on the community

and the environment

the desirability of the Company

maintaining a reputation for high

standards of business conduct

Stakeholders

See pages 34-35 &

64-68

Purpose

2030 Goals

See pages 58-61

Vision

Risks

See pages 42-52

Strategy

Our approach to Section 172 (1)

The Board recognises the importance

oftheviews of key stakeholders in its

decision making process. It believes this

to be crucialin maintaining a reputation

for high standards of business conduct,

and a Group that people want to work

forand to do business with.

Our key stakeholders are set out on pages

32to 33 and illustrate how the Group

hasengaged and consulted with them.

Thisapproach is reflected in the Board’s

decision making process and examples of

keydecisions are set out in thissection.

To support the recording and reporting of

our section 172 obligations, Board papers

arewritten so that they included a specific

section detailing how the impact the

decision the Board is being asked to make

would affect key stakeholders. In some

circumstances it has led to decisions

being amended to reduce the impact on

certain stakeholder groups.

Meeting tenants and employees (including

those below senior management level)

through our property tours, Board

presentations together with individual

meetings with members of staff and

external advisors on specific topics, provides

an excellent platform to understand the

views of our key stakeholder groups.

The Board also receives regular reports and

feedback from meetings with investors and

analysts, which provide further insight and

discussion on the views of investors.

This year, the impact of the pandemic

restricted the Board’s ability to meet

employees and undertake property tours.

However, the use of video conferencing

facilitated limited interaction with employees

below Board level and external advisors.

The strategy in action section on pages

24to31 gives specific examples of key

decisions taken in 2021 across our business

model and details how the Board gave

dueconsideration to their obligations

underSection 172.

CLS Holdings plc Annual Report and Accounts 2021

88

Board leadership and Company purpose continued

Understanding the views of stakeholders

Areas of focus Board considerations Outcomes

Employees

Workforce Advisory Panel

The Board established the Workforce Advisory Panel in 2019 in

compliance with the UK Corporate Governance Code in relation

toworkforce engagement. The Board concluded that this

methodwould best represent employees’ views in a way

thatencapsulated our values surrounding collaboration

andopenness.

Chaired by Elizabeth Edwards, the Panel met four times during

2021 and discussed topics relating to employment conditions

and practices within the Group. Elizabeth provides a report at

each Board meeting on the key topics discussed.

The Panel consists of eight employees from the UK, France,

Germany and Luxembourg. Further details on the work of the

Panel can be found on pages 92 and 93.

The discussions from the Panel are fed back

to the Board regularly to maintain strong

lines of communication throughout the year.

The Panel met once every quarter and the

Board was updated on the discussions at

thefollowing Board meeting to ensure

thevoice of our workforce is present

intheBoardroom.

Staff survey

In 2021, the outcomes of the staff survey carried out at the end

of 2020 were distilled into actionable objectives for the Group.

Further details can be found on page 67.

The outcomes of the staff survey were

reviewed by the Panel and distilled into

keyobjectives for the Group to achieve

overthe next 24 months.

Tenants

Tenant meetings and surveys

The Board wanted to maintain close and regular engagement

with tenants to continue to understand the impact of Covid-19

on their operations and assist them where possible.

Tenant meetings continued to be held regularly across the

Group which highlighted areas for support. The Board received

feedback from management on the results of tenant

discussions during theyear.

Tenant surveys were conducted across all regions.

All buildings remained Covid-secure and

fully open during the year.

Our in-house asset, property and facilities

management teams ensured the needs of

tenants were met.

Additional support was provided to

individual tenants who required financial

assistance.

High level of satisfaction reported from 78%

of tenants across the Group.

Long-term

strategy

Property acquisitions, disposals and financing initiatives

As part of its annual strategic review, the Board discussed the

composition of the portfolio. It considered the appropriateness

of annual acquisition targets, the Group’s investment criteria

for new acquisitions and certain properties within the portfolio

that no longer met the requirements of the Group and which

should be sold.

The Board also explored various justifiable opportunities that

would support the Group’s vision to be a sustainably focused

landlord and business model to “secure the right finance”.

To ensure the long-term success of the

Group,key acquisitions and disposals were

considered in detail by the Board following

presentations from the Chief Executive

Officer. The presentations included

stakeholder impact assessments, which did

not result ina negative outcome for any

stakeholder group.

Further details on the key acquisitions and

disposals can be found on pages 18 to 23.

Further details on the Group’s second

‘green’ loan financing can be found on pages

28 and29.

Investors

Dividend

The Board recognises meeting shareholder dividend

expectations is a key factor in investors supporting our

growthstrategy.

The Group’s progressive dividend policy supports the long-

term strategic plan, while meeting our obligations to reinvest

and grow the portfolio to ensure we realise our vision to be a

leading office space specialist and a supportive, progressive

and sustainability-focused commercial landlord.

This year, the Board considered the dividend in light of the

impact that the pandemic had on the Group.

The Board concluded that given the financial

and operational performance of the Group

during the pandemic and ongoing

uncertainty, the 2021 interim dividend was

paid at the same level asthe previous year.

The Board reviewed the financial and

operational performance of the Group

during 2021 and deemed it appropriate to

pay a 2021 final dividend of 5.35 pence

pershare.

CLS Holdings plc Annual Report and Accounts 2021

89

Strategic report Corporate governance Financial statements Additional information

The Company values its dialogue

with both institutional and

private investors.

The Board’s primary contact with existing

and prospective institutional shareholders

is through the Chief Executive Officer and

the Chief Financial Officer, who have

regular meetings with institutional

shareholders. They also undertake

analyst presentations following the

Company’s half-yearly and annual

financial results. They are supported by

afinancial relations adviser and during

2021 by two corporate brokers, all of

whom are in regular contact with

institutional and retail shareholders,

andwith analysts.

A report of feedback from each

institutional investor meeting is prepared

by the broker who organised it and a

report of unattributed feedback from

analysts on analyst presentations is

prepared by the financial relations

advisor. All such reports and coverage

ofthe Company by analysts are circulated

to the Board. Consequently, all Directors

develop an understanding of the views

ofinstitutional shareholders and

commentators.

Analyst presentations, following the

announcement of half-yearly and annual

financial results, are webcast and

available on the Company’s website.

Committee Chairs seek regular

engagement with shareholders on

significant matters as they arise.

Furtherdetail can be found in each

Committee report.

The Group issues its annual financial

report to each of its shareholders.

Inaccordance with the UK company

disclosure regulations the Group does

notdistribute its half-yearly financial

report to shareholders but makes it

available on its website.

All financial reports and press releases

are also included on the Group’s website

at www.clsholdings.com.

All shareholders have at least 20 working

days’ notice of the Annual General Meeting

at which all Directors who are available to

attend are introduced and are available

for questions. Allshareholders are

welcome to attend the Company’s Annual

General Meeting and toarrange individual

meetings by appointment. The views

received at such meetings are fed back

tothe Board.

Proxy voting

The proxy forms for the Annual General

Meeting which was held in 2021 included

a “vote withheld” box.

Details of the proxies lodged for this

meeting were announced to the London

Stock Exchange and are on the Company’s

website at www.clsholdings.com.

Shareholders may also choose to register

their vote by electronic proxy on the

Company’s website.

At the 2022 Annual General Meeting,

theCompany will comply with the

ListingRules in respect of the voting

requirements for the re-election of

independent Directors where a Company

has a controlling shareholder.

The usual pattern of investor meetings

took place in 2021, as set out below,

viavoice and video calls.

Key shareholder events

January

7 institutional investor meetings

March

31 institutional investor meetings

Analyst presentation

April

Annual General Meeting

August

12 institutional investor meetings

Analyst presentation

September

14 institutional investor meetings

November

Capital Markets Day with 19 institutional

investors in attendance

In addition, given the greater levels of

uncertainty and hence the need for

enhanced communication, CLS took

partin a number of virtual investor calls

either on a one-on-one or group basis.

These calls, which took place throughout

the year from May onwards, covered a

further 39 investors.

CLS Holdings plc Annual Report and Accounts 2021

90

Board leadership and Company purpose continued

Relationship with stakeholders

Maintaining a healthy culture

We continue to promote an open, collaborative culture within our workforce, with an efficient decision-making structure which

facilitates ownership and enables a hands-on operating process.

CLS’ culture and the role of the Board

The Board recognises the need to establish the correct culture, values andethics to ensure good standards of behaviour are

maintained throughout theGroup.

We engage with our employees in a number of ways but primarily through theWorkforce Advisory Panel and staff surveys to

ensure the voice of the workforce is prominent in our decision-making process.

The Board also receives information on human resourcing matters such as employee turnover and diversity statistics at

eachmeeting.

These feedback mechanisms allow the Board to understand how the culture of the Group evolves and, through the Chief Executive

Officer, facilitates changes to ensure the Group maintains its Purpose, Vision and Values which underpins ourculture.

How the Board assesses and monitors culture

The Board is able to assess and monitor Group culture through a range of key sources which are shown below. The Board

understands that these key sources of data are crucial in maintaining good communication with the employees who are integral in

ensuring the success of the Company.

Cultural priorities

Cultural identifier

Promoting

integrity and

openness

Valuing

diversity

Being

responsive

to the views of

stakeholders

Culture aligned

to purpose and

values

Culture aligned

to strategy

Staff surveys and regular meetings with staff

Regular feedback through the Workforce Advisory Panel

Flexible Working Policy

Training budget per head

Whistleblowing Policy

Anti-bribery and Corruption Policy

Modern Slavery Policy

Anti-Tax Evasion Policy

Employee data (HR updates, turnover and exit interview feedback)

Left to right: Chris Jarvis, Elizabeth Edwards, Andrew Kirkman,

Lennart Sten, Fredrik Widlund, Denise Jagger, Bengt Mortstedt,

BillHolland, Anna Seeley

CLS Holdings plc Annual Report and Accounts 2021

91

Strategic report Corporate governance Financial statements Additional information

Elizabeth Edwards

Senior Independent Director

Chair, Workforce Advisory Panel

The Panel continues to be

integral in fostering open

discussion and feedback on

workforce policies and practices, which

hasled to a number of positive outcomes.

Helping to

enhance

our working

environment

Dear Shareholder,

As Chair of the Workforce Advisory Panel,

I am pleased to present the 2021 report

from the Panel. The aim is for this report

to provide an insight into the work of the

Panel during the year.

Role of the Panel

Provision 5 of the Code requires the

Boardto understand the views of the

Company’s key stakeholders, including the

establishment of mechanisms to engage

with the workforce. In recognition of the

Code requirements, and considering the

size and complexity of the Group, the

Board has established a Workforce

Advisory Panel that has been operational

for over two years.

The main role of the Panel is to allow

employees to voice their views on the

Group’s workforce practices and policies,

and to encourage effective engagement

between the Board and its employees.

Through the Panel the Board ensures it

has visibility of the views of employees,

particularly when making decisions that

could directly affect the workforce. The

Panel also facilitates a gateway for the

Board to feed back to the workforce on

how their concerns are being addressed.

As Chair of the Panel, it is my

responsibility to understand the views

ofthe workforce that are raised during

Panel meetings and articulate these to

theBoard. Additionally, it is also my

responsibility to work together with the

Chief Executive Officer and Head of Group

Human Resources to facilitate further

discussion and action feedback from the

Panel. I also ensure that the views of the

Board are relayed to the Panel.

CLS Holdings plc Annual Report and Accounts 2021

92

Workforce engagement

Main activities during the year

At each meeting, the Chair provides the

Panel with an overview of the high level

strategic discussions that have taken

place at Board meetings and other

relevant topics.

Panel members also gather the views and

concerns of all employees on workplace

practices across the Group ahead of

eachmeeting, which forms the basis

fordiscussion.

In light of the ongoing pandemic, regular

updates were received by the Panel on

Covid-19 restrictions in each of the

countries in which we operate and the

impact foremployees in terms of national

lockdowns and working from home.

Staff survey outcomes

Following the staff survey undertaken at

the end of 2020, this year the Panel acted

as the forum to analyse its outcomes and

put forward a number of actionable

objectives for theCompany to consider.

The outcomes of the staff survey were

overwhelmingly positive, whilst also

identifying areas in which the Company

could improve.

The Panel, with the assistance of an

external facilitator, identified four key

areas of focus: the Flexible Working

Policy; career and development

opportunities; training in relation to

mental health andwellbeing; and

communication aroundcompensation.

We have worked with our colleagues in HR

and across the Senior Leadership Team

on these areas to enhance our policies

and practices, reflecting the views of the

workforce and supporting our culture.

Reviewing the Group’s Diversity and

Inclusion Policy

This year the Panel also reviewed the

Group’s Diversity, Equality and Inclusion

Policy, which ensured important input

from the wider workforce on how we can

facilitate better workplace diversity

across the organisation through training

and development.

Elizabeth Edwards

Chair, Workforce Advisory Panel

16 March 2022

Workforce inclusivity

The Panel met four times during 2021.

The Panel consists of eight employees

from across the Group. The selection

process is undertaken through an

interview process from a shortlist of

employees who either volunteered or

were nominated by their peers. This

ensures we have diverse cross section of

our workforce represented onthe Panel.

Membership of the Panel will be

refreshed periodically as we believe it

isimportant to allow all employees an

opportunity to participate.

Our focus for the year ahead

• Discuss the Company’s

implementation of the results of the

Staff Survey

• Continue to facilitate communication

between the Board and employees

• Continue to discuss the views of the

employees and review CLS

workplace practices

• Assisting HR in reviewing the Group’s

Diversity, Equality and Inclusion

Policy

Panel

Geography

50% UK

12.5% France

25% Germany

12.5% Luxembourg

Panel

Job function

25% Legal, IT and Administration

25% Finance

50% Property

CLS Holdings plc Annual Report and Accounts 2021

93

Strategic report Corporate governance Financial statements Additional information

The Board’s role

The Board has ultimate responsibility

forsetting the Group’s strategic direction,

leading and overseeing culture, delivering

value sustainably, understanding the

risksthe Group faces and ensuring that

we uphold the highest standards of

corporate governance.

Board and Committee structure

The Board is supported by the Audit,

Remuneration, Nomination and Disclosure

Committees who update Board members at

each meeting. The Board discusses issues

arising from Committee meetings which

allows them to gain a wider understanding

of the operation of theGroup.

Chair leadership and effectiveness

As the Group’s Independent Non-Executive

Chairman, Lennart leads the Board in

promoting a culture of openness and debate

to ensure the Board operates effectively. It is

the Board’s culture and accepted practice to

give regular feedback, but once a year a

more formal feedback session is undertaken

with the Non-Executive Directors, led by the

Senior Independent Director without the

Chair present. This session reviews the

Chair’s overall performance, considering

areas such as communication, effective

leadership and oversight of board and

company culture. The right “tone from the

top” iskey to support our Purpose, Vision

andValues. Lennart and the Board lead

byexample and the culture of openness

andcollaboration resonates throughout

theGroup.

Roles and responsibilities of the Directors

The Board’s composition and responsibilities

are set out in a formal schedule of matters

specifically reserved to it for decisions.

Matters reserved for Board decisions include

identifying strategic long-term objectives,

approving the annual Group budget, and

approving substantial property transactions

and investment decisions over £10 million.

The implementation of Board decisions and

the day-to-day operations of the Group are

delegated to the Executive Directors.

Division of responsibilities

The responsibilities of the Independent

Non-Executive Chairman, who is

responsible for the overall strategy of the

Group, the Non-Executive Vice Chair who

supports the Chairman, and the Chief

Executive Officer, who is responsible for

implementing the strategy and for the

day-to-day running of the Group, are clearly

divided. A written statement of thedivision

of these responsibilities is reviewed and

approved by the Board eachyear.

Audit

Committee

Three independent

Non-Executive Directors

Monitors the

arrangements for risk

management, corporate

reporting and internal

controls. Maintains

the relationship with

theAuditor

Remuneration

Committee

Three independent

Non-Executive Directors

Develops the Company’s

policies on executive and

senior management

remuneration and sets

the remuneration

packages of individual

Executive Directors and

other senior management

Nomination

Committee

One non-independent

Non-Executive Director

Two independent

Non-Executive Directors

Monitors and evaluates

the Board’s skills and

experience to ensure

full Board discussion

Financial Investment Committee

Analyses financial investment

opportunities and reviews

investmentportfolios

Health and Safety Committee

Reviews and moderates the Group’s

policy and best practices for Health

and Safety

Senior Leadership Team

Reports on the day to day operation of the

Group and implementation of strategy

across each region and function.

CSR Committee

Assists in implementing the Group’s

ESG strategy in relation to creating

shared value within the community

Workforce Advisory Panel

Monitors and reviews the Group’s

working practices and assists the

Board in monitoring Company culture

Asset Management Committee

Reviews the Group’s property

investments in each country

Executive Committee

Reviews the daily running

of the Group’s business

Disclosure Committee

Monitors inside information

and close periods

The Board

Independent Non-Executive Chairman

Two Executive Directors

Three independent Non-Executive Directors

Three non-independent Non-Executive Directors

Ensuring the Company’s growth and shareholder value

Board and committee structure

For more information

see pages 110 to 129

For more information

see pages 104 to 109

For more information

see pages 96 to 103

CLS Holdings plc Annual Report and Accounts 2021

94

Division of responsibilities

Role Board member Responsibility

Independent

Non-Executive

Chairman

Lennart Sten

1

Proposing the overall strategy of the Group and ensuring the effective running of

theBoard

Non-Executive

Deputy Chair

Anna Seeley Supporting the Chairman with developing Group strategy and managing the effective

running of the Board

Chief Executive

Officer

Fredrik Widlund Implementing Group strategy and the day-to-day running of the Group

Chief Financial

Officer

Andrew Kirkman Implementing Group strategy in relation to, and ensuring compliance with, all

financialmatters

Senior Independent

Director

Elizabeth Edwards

1

Providing a channel of communication for shareholders who do not wish to approach

the Chairman, Non-Executive Vice Chair or Chief Executive Officer

Leading the Non-Executive Directors, and providing feedback to the Chairman on

hisperformance

Non-Executive

Directors

Christopher Jarvis

Bengt Mortstedt

Denise Jagger

1

Bill Holland

1

Providing independent oversight, objectively challenging the Executive Directors in

Board discussions and decision making

1 Determined by the Board to be independent in accordance with Code Provision 10.

Conflicts of interest

The Company’s Articles of Association

contain procedures to deal with Directors’

conflicts of interest. The Board considers

that these have operated effectively

during the year.

Non-Executive Directors

A formal meeting of the Non-Executive

Directors took place during the year,

without the Executive Directors or the

Chairman present, at which a thorough

review of the performance of the

Chairman took place.

It was considered that the way in which

the Board operated had improved, led by

changes to the agendas and structure of

meetings made by the Chairman.

As highlighted by this year’s Board

evaluation, following an internal

assessment and subsequent discussion,

the Board was satisfied with the

experience, expertise and performance

ofeach Board member; they continue to

add significant value to the operation of

theCompany through their combined

knowledge and experience, and exercise

objectivity in decision-making and proper

control of the Company’s business.

Independence

Provision 11 of the Code recommends

thatat least half the Board, excluding

thechairman, should be non-executive

directors who the board considers to

beindependent.

At the year end, the Board comprised two

Executive Directors, three Non-Executive

Directors (excluding the independent

Non-Executive Chairman) who the Board

consider to be independent and three

other Non-Executive Directors.

The Company was therefore not compliant

with Provision 11. TheBoard is of the

viewthat despite not having a majority

ofindependent Non-Executive Directors,

thecurrent balance provides appropriate

oversight andsupports our governance

framework.

By setting the right culture and promoting

openness and transparency, the Board

ensures Non-Executive Directors maintain

their oversight of the Executive Directors

and their decision making. Our externally

facilitated Board evaluation also provides

an opportunity for a third party review on

the operation of the Board, which would

report on any undue closeness between

the Board and Executive Directors.

Nosuchobservations were made.

Additionally, no Board Committee or

SubCommittee can beestablished

without independent Non-Executive

Director or Chairman representation. As

natural refreshing of Board membership

occurs over the coming years, the balance

will beredressed such that it will be in

compliance with this provision of

theCode.

Mr Jarvis is determined to be a

“non-independent” Board member

givenhis tenure of service. However, the

Nomination Committee considers that his

experience within the German commercial

property market remains relevant and

important to the delivery of the

Group’sstrategy.

External directorships

Current external directorships for all

Directors can be found on pages 82 and

83. Alladditional directorships must be

approved by the Chairman, taking into

account potential conflicts of interest

andtime commitment. It is our policy

thatfull time Executive Directors should

not take on more than one non-executive

directorship in a FTSE company or other

significant appointment.

Information, support and development

All Directors are sent Board packs in advance

of each Board and Committee meeting.

Directors can obtain independent

professional advice at the Company’s

expense and access to the advice and

support of the company secretary on

allgovernance matters. A schedule of

appropriate training and development

courses, seminars and briefings is

circulated to Board members at each

meeting, which they are encouraged to

attend. To further their development and

knowledge we organise for Directors to

meet key employees and undertake

sitevisits.

CLS Holdings plc Annual Report and Accounts 2021

95

Strategic report Corporate governance Financial statements Additional information

Anna Seeley

Chair, Nomination Committee

Monitoring skills and

experience at Board and Senior

Management level ensures we

have the depth and breadth of experience

to oversee our strategic plan.

Dear Shareholder,

On behalf of the Nomination Committee,

Iam pleased to present my report as

Chair of the Committee for the year ended

31 December 2021. This report is intended

to provide an insight into the work of the

Committee during the year.

Role of the Committee

The Nomination Committee is responsible

for ensuring that the Board consists of

members who have the relevant skills,

experience and knowledge in order to set,

and enable the executive directors to

deliver, the Company’s strategy.

The Committee makes recommendations

to the Board with regard to the

nomination, selection and succession

ofdirectors and senior executives.

The Committee’s main role and

responsibility is to ensure that there is

appropriate succession planning in

place,having regard to the provisions

ofthe UK Corporate Governance Code.

The Committee regularly evaluates

theBoard’s performance and

effectiveness both as a group

andasindividual Directors.

There is also a regular review of

inductionprocesses, training and

thecontinued development of the

Non-Executive Directors.

Having the

right skills

andexperience

to deliver on

our purpose

Nomination Committee members’ attendance

during the year ended 31 December 2021

Anna Seeley

Lennart Sten

Elizabeth Edwards

Attended Did not attend

CLS Holdings plc Annual Report and Accounts 2021

96

Composition, succession and evaluation

Nomination Committee Report

Professional development at a glance

Training and

information

sessions

Site visits,

Board dinners

and breakfast

meetings

Briefing

material on

Board portal

Management

and one-to-one

meetings on

key topics

Deep dives

Membership and attendance

The Committee met twice during 2021

andheld frequent discussions outside

formal meetings.

During the year, the Committee comprised

three Non-Executive Directors, with a

majority being independent. Given the

Group has a Controlling Shareholder, the

composition of the Committee reflects

theneed for independent oversight

whilstrecognising the shareholder base.

The Company Secretary acts as

Secretaryto the Committee and its

Termsof Reference are available on

theCompany’s website.

Main activities during the year

The Committee continued to fulfil its core

responsibility to review the structure of

the Board and its Committees. Our review

this year focussed again on evaluating the

mix of experience, background, industry

knowledge and constructive challenge of

our Group strategy. It is the opinion of the

Committee, and endorsed by the Board,

that the Chairman and all the Non-

Executive Directors bring independence

ofjudgement and character, a wealth of

experience and knowledge, and the

appropriate balance of skills.

As highlighted in this year’s internal Board

Evaluation process, we have continued to

build on the areas of focus despite the

challenges of Covid-19. We were pleased

to re-establish working relationships

following the end of lockdown measures

towards the end of 2021, through our

onsite strategy meeting in October and a

UK property tour in November, where we

also met a number of key members of

theteam below Board level. It has shown

us the value of in-person meetings,

impromptu discussions and time outside

of formal meetings to get to know

eachother better.

We continued to focus on diversity

andsuccession planning, which included

reviewing our pipeline of internal talent.

Our process for this review is set out

laterin this report. We received a

comprehensive presentation from

FredrikWidlund on succession planning

below Board level, which the Committee

discussed at the full Board. This provided

the Committee and the Board with an

insight into the depth of our talent pool

where we have some fantastic employees

but it also highlighted some ofthe

challenges we face in retaining the next

generation of senior leaders.

There has been significant focus on

gender diversity at Board level. OurBoard

now comprises one third women and has

a broad range of skills and experience

tosupport the implementation of

ourstrategy.

Our next challenge is how we bring

forward diversity in our senior leadership

team. We nurture talent but, as a small

organisation, there is always a “bottle

neck” to senior leadership positions.

Oursize means we cannot justify the

creation of new positions to retain our

best employees, so our challenge is

ensuring that person continues to develop

until a senior leader position arises.

Unfortunately, our succession plans do

not always materialise but we aim to

support those who we have identified as

potential successors with other career

development opportunities.

Nevertheless, I believe we will always

facethese challenges and I am confident

that we have the right processes in place

to foster diverse talent and promote

fromwithin. I am pleased to report that in

2021, we were able to fill 35% of positions

through internal promotions.

Induction and ongoing development

It is important for all Directors, both

Executive and Non-Executive, when

joining the Company, to be provided with,

and given an insight into, the Company’s

operations, culture and values.

Whilst there were no further

appointments during the year, I set out our

induction programme, which has been

designed to involve a full overview of the

Group and how it operates. The process

starts with individual meetings with the

Non-Executive Chairman, Chief Executive

Officer and the Chief Financial Officer.

Following this a programme of meetings

with senior managers across the Group

and tours of the Group’s portfolio and

offices in the UK, Germany and France

areorganised.

Additionally, the Board aims to hold one

Board meeting a year either in France or

Germany so that it can gain first hand

knowledge into the activities, challenges

and opportunities across the portfolio.

Our individual portfolio tours and Board

meetings allow Directors to engage

directly with a range of employees below

Board level, which we believe is important

in relationship building, understanding our

talent pipeline, people and culture.

Meetings are also arranged with key

advisors such as the external Auditor,

valuers and brokers on an ongoing basis

both at Board level and individually.

Ongoing training and development beyond

the induction process is encouraged, with

updated schedules of events produced at

each Board meeting.

CLS Holdings plc Annual Report and Accounts 2021

97

Strategic report Corporate governance Financial statements Additional information

This year, with travel restrictions in place,

it has proved impossible for the Board to

visit any of our overseas portfolio, or

undertake in person Board meetings in

Germany or France. However, we were

able to undertake a UK property tour in

November, visiting a number of our

London properties.

We are fortunate to have a Board that has

established relationships which allowed

us to continue our collaborative work

when the only communication method

was via videoconference meetings. We

were also able to receive presentations

from, and interact with, the senior

leadership team during the year. Our UK

property tour undertaken in November

also enabled us to meet the wider team

offacilities and property managers,

whichgave us an insight into the

skillsandexperience of anumber

ofoperational employees.

We hope to recommence our overseas

meetings and regular property tours in

2022 when local Government guidance

and travel restrictions allow.

Appointments to the Board

As recommended by the UK Corporate

Governance Code, the Committee leads

the process for Board appointments

andmakes its recommendations to

theBoardfor final approval. There were

no appointments to the Board during

theyear.

Our process for Board appointments

starts with the Committee’s review of

Board composition. If an appointment is

recommended, it is the Committee’s policy

to use an open advert and/or an external

search consultancy forthe appointment

ofthe chair and non-executive directors.

A detailed role specification is reviewed

with the Chairman and the Committee

following which a final role specification

isthen approved.

The Committee then initiates two stage

interview process, with candidates first

meeting members of the Committee,

thenother members of the senior

leadership team.

Following these interviews, a shortlist

oftwo candidates will be made based

ontheir level of experience, commercial

focus and broad skill sets, and a

decisionmade.

Prior to making recommendations to

theBoard, the Committee also considers

the time commitment expected of the

proposed director in line with any other

commitments they may have already.

Directors are also required to seek

approval from the Chairman and the

ChiefExecutive prior to accepting

additional commitments to ensure that

they will be able to continue devoting a

suitable amount of time to the Company.

Succession planning

In considering succession planning for

theBoard, the Committee assesses its

optimal composition in terms of skills and

experience, and aligns it to medium and

long-term time horizons primarily based

on individual tenure and the need to

refresh Board membership. Because of

the composition of the Committee, on

which I serve as the representative of

themajority shareholder, these plans

arediscussed with their input. As noted

above, no appointments are made without

full and open discussion through an

independent search consultancy.

While identifying and developing talent

across the Group remains primarily the

responsibility of management, we have

aduty to secure its long-term success.

The Committee received updates from

theChief Executive Officer in relation to

succession planning, both at Board and

senior management level, to ensure there

is agood quality pipeline in place. This

enabled the Committee to challenge those

plans in order to understand the actions

taken to enhance the pipeline.

During the year we have been able to

monitor the Group succession plans

noting where we have potential internal

successors or where we have to

undertake an independent external

appointments process.

The Committee is acutely aware that

retaining talent is key to the successful

execution of our succession plans. We

also appreciate that, as a relatively

smalland flat organisation, this can

bechallenging. Through monitoring,

benchmarking and career development

opportunities we aim to retain our

besttalent.

Succession planning review process

Individual CEO meetings

with Heads of Functions

Assessment of teams

and high performers

Identification of individuals,

development needs and timeline

Group-wide report compiled

CEO presents to the

Nomination Committee

Nomination Committee presents

key findings to the Board

1.

2.

3.

4.

5.

6.

CLS Holdings plc Annual Report and Accounts 2021

98

Composition, succession and evaluation

Nomination Committee Report continued

Board composition and skills

Following a review of Board composition,

we remain pleased with the structure and

operation of the Board together with the

balance of skills and experience ofour

directors. These factors were highlighted in

the 2021 internal Board Evaluation process.

At the year end, the Board consisted of

two Executive Directors, four independent

Non-Executive Directors (including the

Chairman) and three non-independent

Non-Executive Directors.

Of the three non-independent Non-

Executive Directors, Iam a director of

Creative Value Investment Group Limited

(CVIG), the investment vehicle for The Sten

and Karin Mortstedt Family & Charity

Trust; Bengt Mortstedt remains one of our

largest shareholders; and Chris Jarvis

provides significant insight into the

German real estate market, where he

remains active.

Whilst the Committee notes that Board

composition has not complied with

Provision 11 of the Code during the year, it

believes that the composition reflects the

skills required to meet the current needs

of the Group to ensure it will support the

delivery of its strategy.

We ensure that all Non-Executive

Directors (both those deemed to be

independent and non-independent by

theBoard) maintain their independent

oversight of the Executive Directors so

that there can be no perception of undue

closeness. This is undertaken through our

review of Board composition in light of the

criteria set out in Provision 10 of the Code,

the Board Evaluation process and the

Chairman’s annual review, which also

considers the interaction between Board

members during meetings. This continues

to demonstrate that there is objective

andindependent judgement, and that

constructive challenge exists amongst

Board members.

Training

In order to ensure that the Directors’

knowledge and skills remain up-to-date,

Directors are encouraged to attend

regular training courses. As part of the

Board papers, Directors receive a training

schedule which highlights key events and

seminars due to be held in the following

quarter. The Company Secretary also

provides regular governance updates to

the Board.

Diversity

The Board’s policy is that the selection of

new Board members should be based on

the best individual for the role and that

theBoard’s composition should have an

appropriate balance of skills and diversity

to meet the requirements of the business.

The Committee has met its target for

female representation at Board level

(currently 33%) and continues to monitor

and support the aims and objectives of the

Parker Review and the FTSE Women

Leaders Review.

On recruitment, our policy is that we

expect our search consultants to

ensure,where possible, there is a

diverseselection of candidates. We

consider this to not just gender but also

all diversity characteristics; a policy that

we encourage throughout the Group when

recruiting. To this end, we ask our search

firms for all recruitment levels across

theGroup to aim for a long list of at

least50% women and appropriate

diversity representation.

We recognise that there are significant

benefits of diversity, including age, gender,

ethnicity, core skills, experience and

educational and professional background,

which we continue to consider whenever

changes to the Board’s composition

areconsidered.

The Board recognises that there is workto

be done in relation to diversity, especially

at senior management level.

As set out earlier in this report, we believe

this will be a gradual process as the

workplace evolves and policies, especially

in the area of parental leave, are aligned

to offer equal benefits.

Our Diversity, Equality and Inclusion Policy

underlines our commitment to attracting,

promoting and developing talent no

matter who they are.

Anna Seeley

Chair, Nomination Committee

16 March 2022

Our focus for the year ahead

• Annual review of our succession

plans for the Board

• Annual review of succession plans

and talent pipeline below Board level

• Ongoing Board development

• Implement findings from internal

Board Evaluation process

• Develop and implement a broader

Diversity, Equality and Inclusion

Policy

CLS Holdings plc Annual Report and Accounts 2021

99

Strategic report Corporate governance Financial statements Additional information

Board Diversity Policy

Policy objectives Implementation

Ensure the Board comprises an

appropriate balance of skills,

experience and knowledge required to

oversee and support themanagement

of the Companyeffectively.

Whilst no executive search firm was

used during 2021, the Committee

continues to monitor the composition

ofthe Board and meets at least annually

to review and discuss it.

Ensure consideration is given to

candidates for Non-Executive Director

Board appointments from a wide pool,

including those with no listed company

Board experience.

The brief that is given to our independent

executive search firms is to ensure that

this Policy objective is met. When

considering appointments to the Board

the Committee endeavours to consider

many candidates with a broad range of

experiences. There were no further

appointments made in 2021.

Ensure Board appointment ‘long lists’

contain diverse candidates, including

diversity of social and ethnic

backgrounds, and cognitive and

personal strengths.

The brief that is given to our independent

executive search firms is to ensure that

this Policy objective is met. When

considering appointments to the Board,

the Committee endeavours to consider

many candidates with a broad range of

experiences. There were no further

appointments made in 2021.

Policy targets Progress against target

One third female share of Board

Directors by2020.

One third female representation on our

Board as at the year end.

Minimum of one Board Director from

an ethnic minority background.

The Board is currently not seeking to

recruit further members. Nevertheless,

in line with the Principles of the Parker

Review, when the Board seeks to appoint

a Non-Executive Director, it will expect

its independent consultants to ensure

candidates come from a diverse range

ofbackgrounds.

Objectives and

progress against

targets

CLS Holdings plc Annual Report and Accounts 2021

100

Composition, succession and evaluation

Nomination Committee Report continued

Board skills and experience

Property

Wide ranging experience of the property

sector including our European markets

International markets

Experience and in-depth knowledge

ofdealing in, and the operation of,

international markets

Financial management

Substantial background of financial

experience from wide ranging industries

and markets

Governance

Significant listed company governance

experience and understanding of

investor requirements

Risk management

In-depth insight and experience of risk

management within the property sector

ESG matters

Experience with listed and non-listed

organisations on their approach to ESG

matters in the built environment and

across corporate disciplines.

Human resources

Knowledge of HR operations, setting

andmonitoring culture, and diversity

and inclusion

Age ranges

Total employees

20-29 14%

30-39 32%

40-49 28%

50-59 19%

60-79 7%

Ethnicity

UK employees

White 54%

Asian 14%

Black 5%

Did not respond 21%

Mixed/other

Prefer not to say

4%

2%

Gender diversity

Executive Committee

Male 2

Female 0

Gender diversity

Senior Leadership team

Male 6

Female 2

Length of tenure

4 4 1

4

3

2

1

0

0-5 6-10 11+

Composition of the Board

Executive 2

Independent 4

Non-independent 3

Gender diversity

Board

Male 67%

Female 33%

Gender diversity

UK employees

(excl. Senior Leadership team)

Male 49%

Female 51%

CLS Holdings plc Annual Report and Accounts 2021

101

Strategic report Corporate governance Financial statements Additional information

Snapshot of Board skills & diversity

at 31 December 2021

Review of Board

effectiveness

Board Evaluation Framework

The internal evaluation process covered

the key areas of Board Leadership and

Company Purpose, Division of

Responsibilities and Composition,

Succession and Evaluation.

The primary purpose of the review was

todirect the Board’s attention to areas

where there might be opportunities to

improve its performance.

The report was broken down into themes,

which corresponded to the groupings of

questions covering the key topics

highlighted in the chart.

After an introductory overview, each

thematic section provided a chart of

theresponses, with commentary that

synthesised the findings, drew out key

points, and contextualised the results

based on the experiences of other

reviewprocesses.

The review was presented to the Board for

an open discussion at its November meeting.

Appointment of consultants

The last external Board evaluation was

undertaken by Independent Audit Limited

in 2020, using their online governance

assessment service Thinking Board.

Over the following two years an internal

questionnaire is used to assess Board

effectiveness. Each year, the results of the

review together with those of the previous

year, are discussed in detail and enable

the Board to understand better whether

there have been improvements in the

operation of the Board and also where it

can be enhanced.

Based on the results of the 2021 review,

this approach met the Board’s objective.

Independent Audit Limited has no

connection with CLS or any individual

director.

Evaluation process

Board leadership and Company purpose

Division of responsibilities

Composition, succession and evaluation

Board

Evaluation

Framework

Composition

Challenge

Dynamics

Succession

Engagement

Risk

Role

Governance

Strategy

Execution

Structure

Leadership

Stage 1

Design and scope of questionnaire to

address core areas and key themes,

and facilitate the ability to provide

confidential written responses to

where improvements could be made

Stage 2

External questionnaire including

follow up on results of previous

performance evaluations

Stage 3

Review of the results of the

questionnaire and benchmark

findings against the 2021 internally

facilitated review outcomes as well as

2020 external evaluation outcomes.

Stage 4

Presentation of report to the Board

for discussion and to prepare a plan

for achieving desired outcomes

Year 1

Externally facilitated

questionnaire using

Independent Audit’s

Thinking Board software.

Year 2

Internal questionnaire

and follow up on results

of previous performance

evaluations

The process was divided

into four stages:

Year 3

Internal questionnaire and

follow up on results of

previous performance

evaluations

CLS Holdings plc Annual Report and Accounts 2021

102

Composition, succession and evaluation

Nomination Committee Report continued

2021 objectives and outcomes arising from 2020 external board evaluation results

Objectives during 2021 Outcomes

More contact with senior leaders

below Board level; and better

interaction with employees.

Despite the impact of the Covid-19 pandemic on the ability to meet in-person, the Board’s

agenda was widened to include a focus session that allowed senior leaders below Board

level to present on their area of expertise. In November, the Board went on a London

property tour, supported by our wider asset, property and facilities management teams.

Understanding the strategic

opportunities, as well as the risks,

from emerging technology; and

scenario planning including

questioning assumptions and

considering alternative plans.

The Board received updates from the Head of IT, which included a detailed presentation

of the Group’s Digitisation Strategy, IT security infrastructure (including cyber risks) and

improvements that had been made during the year. Scenario planning was addressed at

the strategy Board meeting in October and organisational risks were discussed ateach

Board, with input from members of the Audit Committee and the Executive Directors.

Continued focus on emerging risks

and cyber risks.

Due to the pandemic, limited contact with employees was made other than presentations

at Board meetings. However, the Workforce Advisory Panel continued to meet, during

which Elizabeth Edwards, Chair, explained the work oftheBoard.

More informal time together; and

more contact with the business.

There was, naturally, limited interaction outside of scheduled meetings in the first half

ofthe year due to the pandemic. The Board was able to meet in-person at itsOctober

strategy meeting, after which the Board met for dinner with the Senior Leadership Team,

and at its November Board meeting, before which a London property tourenabled

informal conversations between members facilitated.

Internal Board evaluation results 2021

Four key areas within the internal Board Evaluation Framework.

1. Leadership

There was unanimous agreement that members work together on a basis of trust and openness, that the right people are

around the table and that Directors have a good understanding of their duties. There was a consistent view that the Chairman

led and listened, and this was also reflective of the CEO. Members agreed that they kept abreast of changes to the regulatory

and governance landscape, and concluded that as a result they were effective in discharging their duties.

2022 objective: Continue to have: more contact with senior leaders below Board level; and better interaction with employees.

2. Accountability and risk

The Board considered that more time had been allocated to the strategic opportunities, risks, emerging technology and

changes in the real estate industry, and that consideration of scenario planning had improved. Nevertheless, the evaluation

showed that this should continue into 2022. Board members agreed there was good focus on compliance and members are

satisfied that the organisation is under control

2022 objective: Continue to spend time addressing opportunities but ensuring sufficient time is given to reviewing emerging

risks given the changes to the office environment post Covid-19. As highlighted in the external review of the Group’s internal

controls, further work should be undertaken to document existing controls.

3. Board and Committee operation

Members agreed that there was a good balance between operational and strategic matters, and that free discussion facilitated

better oversight of the monitoring of organisational risks and controls. It was noted that there was appropriate challenge of the

views of the Chair and CEO which had created a feeling of mutual respect and understanding between members. Whilst there

was an agreement that the Board communicated well with key stakeholders, further work could be focussed on spending more

time in the business, meeting with employees and understanding their challenges.

2022 objective: Continued focus on employee engagement and communications below Board through various activities like

property tours and informal meetings.

4. Board dynamics

Board dynamics are positive and information was considered to be of a high standard, clear and comprehensive. Meetings

were well chaired and supported by the Secretariat. Additional informal conversations with the Chair would be welcomed in

between meetings.

2022 objective: More informal time together, continual communication with the Chair, and more contact with the business.

CLS Holdings plc Annual Report and Accounts 2021

103

Strategic report Corporate governance Financial statements Additional information

Bill Holland

Chair, Audit Committee

This year we have focused

on an external audit tender

process and reviewing the

outcomes of our internal controls and

risk management framework review.”

Dear Shareholder,

On behalf of the Audit Committee, I am

pleased to present the report of the

Committee for the year ended 31 December

2021. This report is intended to provide an

insight into the work of the Committee

during the year.

The role of the Committee

The Committee’s main roles and

responsibilities are set out below

andreflect the Code provisions. The

Committee has Terms of Reference,

whichare reviewed annually and are

available on the Company’s website.

Membership and attendance

There has been no change to the

membership of the Committee

throughout2021.

My experience means I have recent and

relevant financial experience, and my

fellow Committee members all have

significant experience of the real estate

sector. Further details of our experience

can be found on pages 81 to 83.

TheCommittee comprised independent

Directors only, as required bythe Code.

The Committee met five times

during2021.

Ensuring

oversight, risk

management

and integrity

of financial

reporting

Audit Committee members’ attendance

during the year ended 31 December 2021

Bill Holland

Denise Jagger

Elizabeth Edwards

Attended Did not attend

CLS Holdings plc Annual Report and Accounts 2021

104

Audit, risk and internal control

Audit Committee Report

What we did in respect of the year ended 31 December 2021

2021

2022

June

Audit tender discussion

Following a comprehensive audit tender process for which

five firms were invited to pitch (BDO, Deloitte, Ernst &

Young, Grant Thornton and KPMG), the Committee received

final presentations from three audit firms. The Committee

considered key areas such as:

• Knowledge and understanding of the Real Estateindustry;

• Use of data analytics and associated systems;

• Organisational fit and knowledge support;

• Tenure of incumbent auditing firm; and

• Future regulatory landscape.

It was agreed that Ernst & Young be recommended to the

Board to be appointed as CLS’ external Auditor for the

financial year beginning 1 January 2022.

Internal controls update

We received a presentation on internal controls software

that would assist in the management and monitoring of

risksto the business which would enhance our control

environment. It was agreed that management should

progress with its implementation during 2022.

August

Review of half-year results

The Committee reviewed the half-year results to

30 June2021, and considered:

• the report from the external Auditor on their interim

review assessment;

• going concern analysis statement; and

• that the principal and emerging risks had not changed

since those published at the full year.

Internal audit

We received an update on the internal controls testing

process and a proposal to implement a targeted

programme of testing undertaken by athirdparty.

Other matters

The Committee received presentations from the German

andFrench valuers on the portfolio and provided

challenge on judgements made in respect ofvaluations.

March (two meetings)

2021 audit report

We were presented with Deloitte’s report on their 2021

audit. This focused on:

• valuation of the portfolio;

• management override of controls;

• going concern analysis statement;

• internal controls relevant to the preparation of the

financial statements; and

• adequacy of the Group’s TCFD disclosures.

We were pleased to note that no issues had arisen

during the audit process.

Review of full year results

We reviewed the full year results for the year ended

31 December 2021 from a financial and narrative

reporting perspective and concluded that:

• they were fair, balanced and understandable; and

• the internal controls, risk management including the

assessment of principal risks and emerging risks,

andthe viability statements were appropriate.

Other matters

The Committee was given a presentation on corporate

governance topics, including an update on the

implementation of the TCFD framework and current

government consultations relating to the audit landscape.

We met with the UKvaluers todiscuss the year-end

valuation process. We received a report from management

on internal controls testing programme for 2022 and an

update on theimplementation of internal controls software.

November

Annual audit planning and review

We received Deloitte’s annual audit planning report,

which highlighted the areas of focus for the external

auditor, including our extended reporting under

TCFDregulations.

We received a presentation from Grant Thornton

ontheir internal controls review and adopted

theirrecommendations.

In our Corporate Governance section, we

reviewedourRisk Register, Anti-bribery and

Whistleblowing policies, Terms of Reference and

Committee performance.

CLS Holdings plc Annual Report and Accounts 2021

105

Strategic report Corporate governance Financial statements Additional information

Establishment and review of

effectiveness of internal controls

The Board recognises that it is

responsible for maintaining and

monitoring the Group’s system of internal

controls and reviewing its effectiveness.

In order to do so, it is supported by the

work of the Committee.

During the year, the Committee undertook

a review of the Group’s internal control

systems, which sets out all control

andauthorisation parameters and

highlightedchanges that had happened

inbetweenmeetings.

Following its discussion, the Committee

then reported its findings to the

Boardforfurther discussion and

subsequent approval.

Key features of our system of internal

control include:

• a comprehensive system of financial

reporting and business planning;

• a defined schedule of matters for

decision by the Board, revisited by the

Board at least annually;

• an organisational structure with clearly

defined levels of authority and division

of responsibilities;

• formal documentation and approval

procedures;

• the close involvement of the Senior

Leadership Team in all aspects of

day-to-day operations, including regular

meetings with line managers to review

all operational aspects of the business

and risk management systems;

• annual Board review of Group strategy

including forecasts of the Group’s future

performance and progress against

strategy; and

• formal sign-off on the Group’s

Anti-Facilitation of Tax Evasion,

Whistleblowing, Securities Dealing

andAnti-bribery policies by all

employees annually.

Effectiveness of internal audit

In the absence of an internal audit function,

the Committee seeks assurance through a

programme of internal control testing,

overseen by the Group Financial Controller

and the regional Financial Controllers.

The programme of internal controls

testing consisted of sample testing

onthefollowing areas of process:

• purchase ledger: authorisation

ofpurchases; authorisation

ofpayments;and recovery

throughservice charges; and

• sales ledger: recording on tenant

database; completeness of sales

invoicing; and debt collection.

An overview of the results was presented

to the Committee with the external Auditor

present. The testing confirmed no control

issues had arisen but it had assisted

inensuring the processes were

sufficiently robust.

In order to provide further assurance

tothe Committee, formal attestations

were provided by the Group heads of

departments to confirm that internal

controls were working effectively and any

minor weaknesses had been addressed.

In addition, Grant Thornton was appointed

to undertake externalreview work of two

key areas: thevaluation process; and risk

management processes.

The programme of work carried out by

Grant Thornton concluded that the Group

had established a good, top-down,

strategy-led, principal risk identification

and assessment, and monitoring process.

However, whilst the operation of good

practice was acknowledged, there were

areas of the current framework that could

be improved such as establishing (where

necessary), and more comprehensively

documenting in writing, policies,

processes and related controls and the

establishment of standardised, bottom-up

risk registers across the business. These

improvements are planned to be

implemented during 2022 following the

roll-out of the risk and internal control

software discussed above. The valuation

review highlighted good established

processes and controls in the

management of the valuation process

andrecommended a number of minor

processes enhancements, all of which

have subsequently been implemented.

Bill Holland

Chair, Audit Committee

16 March 2022

Our focus for the year ahead

• Ensure a smooth transition process

with the new external Auditor.

• Ensure valuations and assumptions

surrounding the valuations are

appropriate.

• Monitor principal and emerging risks

to ensure they remain appropriate

and mitigations are in place.

• Review and monitor internal controls

and receive regular updates on

internal controls testing.

• Follow up on improvements

recommended by Grant Thornton’s

2021 review and consider further

reviews for 2022.

• Receive regular reviews on the

implementation of a new property

and finance software system.

• Develop a good working relationship

with the new external Auditor, with a

focus on the key issues outlined in

each audit report during the year.

• Monitor the impact of changes to

accounting and governance laws

andregulations.

• Implementation of risk and internal

controls software.

CLS Holdings plc Annual Report and Accounts 2021

106

Audit, risk and internal control

Audit Committee Report continued

Main activities during the year

Principal responsibilities of the Committee

Areas of responsibility Key areas discussed and reviewed by the Committee during the year in discharging its responsibilities

Monitoring the integrity of the

financialstatements and any formal

announcements relating to financial

performance, and reviewing significant

financial reporting judgements contained

inthem

At our meetings in March 2022 and August 2021 we reviewed the full year and half-year

results. This was in conjunction with the presentation of supporting external audit

reports andreviews from Deloitte, our external Auditor, on those financial statements.

Our discussions focused on the significant financial judgements which are explained in

the next table.

Providing advice on whether the annual

report and accounts, taken as a whole,

isfair, balanced and understandable, and

providing the information necessary for

shareholders to assess CLS’ position and

performance, business model andstrategy

We reviewed the 2021 annual report and accounts at our Committee meeting in

March2022 and reported our conclusions to the Board that they contained sufficient

information for shareholders to assess the Group’s performance and strategic operations.

We also considered the alternative performance measures (‘APMs’) that CLS use

alongside statutory figures and concluded that these should remain unchanged

fromlast year and that these assist in providing stakeholders with additional useful

information on the underlying trends, performance and position of the Group. Note 5

tothe financial statements gives a full description and reconciliation of our APMs.

Additionally, having considered how the report was formulated, reviewed internally

andby the external Auditor, we considered that the 2021 annual report and accounts

meets the criteria set out in Provision 25 of the Code and recommended them to the

Board. The Board’s statement is set out on page 130.

Reviewing our risks, risk management

systems and internal financial controls

The Committee assists the Board in undertaking a robust assessment of the Group’s

emerging and principal risks. It receives reports at its meetings which identify principal

risks and any movements in them, which it then reviews and reports to the Board on

itsfindings, for wider discussion and approval. The Committee, and the Board, also

undertook a survey to ascertain its views about CLS’ risks, including appetite and

mitigation. The ways in which the Group’s principal and emerging risks are identified

andaddressed are set out on pages 42 to 52.

During the year, in addition to reviewing the established framework for internal controls

and riskmanagement systems, the Committee received and discussed reports from

management on the operation of the Group’s internal controls. It also received a

reportfrom Grant Thornton on their programme of works covering areas such as

authorisation processes and property valuation process. The Committee is pleased

toreport that no material deficiencies were found, however, as set out above,

recommendations were made by Grant Thornton, which we reported to the Board

andare being actioned by management.

Further external assurance is being considered for 2022. Additionally, internal control

software will be installed in 2022 to allow the Group to monitor its internal controls and

the risks associated with them more efficiently.

We also monitored the roll-out of the Group’s new property and finance system, which

went live in the UK in August 2021. Extensive testing and documenting of controls were

helpful in ensuring the ongoing effectiveness of internal controls and in dealing with

issues in bedding in the system. Management expect to implement the system in

Germany and France during 2022.

Monitoring and reviewing annually

whether there is a need for an

internalaudit function and making

arecommendation to the Board

In light of the size and complexity of the organisation, and the regular updates the

Committee receives on internal controls testing (from management and externally),

theCommittee is confident that there remains no requirement for an in-house internal

audit function. This view was supported by the external Auditor on the basis that there

is a programme of internal controls testing. How assurance on internal auditing is

achieved is set out on page 106.

CLS Holdings plc Annual Report and Accounts 2021

107

Strategic report Corporate governance Financial statements Additional information

Areas of responsibility Key areas discussed and reviewed by the Committee during the year in discharging its responsibilities

Conducting the audit tender process and

making recommendations to the Board,

about the appointment, reappointment

and removal of the external Auditor, and

approving the remuneration and terms of

engagement of the external Auditor

Deloitte have been the Group’s external Auditor since 2007. The lead audit partner

responsible for the external audit rotates at least every five years.

The last time the external audit was tendered was in 2016, at which point Deloitte had

served 10 years as the external Auditor. Following the tender process in 2016, Deloitte

was appointed and could serve for a further 10 years. However, as part of that process,

the Committee decided that a tender process would in all likelihood take place in 2021

to choose an external Auditor for the Group for the 31 December 2022 audit onwards.

As a result of the tender process, Ernst & Young are to be appointed as the Group’s

external Auditor following the publication of the Group’s final results and are to be

recommended for appointment at the 2022 AGM.

Reviewing and monitoring the external

auditor’s independence and objectivity

The Committee receives a report twice yearly from the external Auditor on their

continued independence. Following consideration, the Committee considers Deloitte

remains independent and objective in its external audit of the Group.

Reviewing the effectiveness of the

external audit process, taking into

consideration relevant UK professional

and regulatory requirements

We reviewed Deloitte’s reports on the external audit strategy and findings from the

review of the half-yearly financial report and from the audit of the annual report

andaccounts. We found the reports to be comprehensive and sufficiently detailed

andfocused.

We also met with the auditor prior to the Board’s final approval of those financial

statements in order to receive reports on the external audit process. The Committee

ispleased to report that there were no issues of a material nature that needed to be

brought to the Board’s attention.

After the external audit process has taken place the Committee meets with internal

stakeholders to review the effectiveness of the external audit process. This is fed back

to our external audit partner. We consider that Deloitte provides an effective audit and

that key accounting and auditing judgements had been identified and reported in line

with regulatory and professional requirements. Given the external audit tender process

Deloitte LLP will not be reappointed at the 2022 AGM.

Developing and implementing a policy

onthe engagement of the external

Auditortosupply non-audit services,

ensuring there is prior approval of

non-audit services, considering the

impact this mayhave on independence,

taking into account the relevant

regulations and ethical guidance,

andreporting to the Board on any

improvement or action required

The Committee has developed a policy on the supply of non-audit services to safeguard

auditor independence and objectivity. The policy reflects the requirements of the FRC’s

ethical standard.

During the year non-audit services undertaken by Deloitte amounted to £40,000

(2020: £40,000) and related solely to the external Auditor’s work on the review of the

half-yearly financial report. The Committee concluded that the external Auditor’s

independence was not impaired.

The Committee considers that it has complied with the provisions of the Statutory Audit

Services for Large Companies Market Investigation (Mandatory Use of Competitive

Tender Processes and Audit Committee Responsibilities) Order 2014.

Financial reporting and significant financial judgements

Significant issues considered by the Committee

relating to the financial statements How these issues were addressed by the Committee

Property valuations The Committee met with the Group’s valuers and extended an invitation to the whole

Board to attend. During the meeting we discussed the methodology used for the six

monthly valuations of the Group’s properties and received in-depth reports on the local

markets inwhich the properties were located.

Independently, the external Auditor also met with the Group’s valuers using real estate

specialists and provided the Committee with a summary of their review contained

within their report at the half-year and year-end.

The Committee was satisfied with the explanations in relation to the portfolio and

itsassociated key risks, such as specific local market updates, vacancy levels and

rental demand.

CLS Holdings plc Annual Report and Accounts 2021

108

Audit, risk and internal control

Audit Committee Report continued

Significant issues considered by the Committee

relating to the financial statements How these issues were addressed by the Committee

Going concern and viability statement The Committee considered management’s assessment of the Group’s going concern

and viability statements giving the assessment greater scrutiny in the light of the actual

and potential impacts of Covid-19. It concluded that the assessment and statements

were appropriate, with mitigating actions that would ensure the Group’s ongoing

viability and going concern. In accordance with Provisions 30 and 31 of the UK

Corporate Governance Code, our going concern and viability statements can be found

on page 53.

Significant transactions The Committee considered there to be no significant transactions during the year that

wereoutside the ordinary course of business. However, it received management and

external Auditor commentary on transactions such as the Scottish Widows loan

financing and portfolio purchases.

Brexit The Committee continued to review the impact of Brexit on the principal risks and

uncertainties and provided the full Board with the Committee’s views in their wider

discussion as set out in the strategic report.

Covid-19 assessment The Committee considered the impact of Covid-19 on the Group and received reports

from management on tenant risk including rent collections, the associated financial

impact and the steps that were being taken to mitigate bad debts. Valuation and

loancovenant impacts were also reviewed as part of the going concern analysis.

TheCommittee was confident the steps taken by management were appropriate,

proportionate and would ensure the mitigation of this risk. Further information on

theGroup’s approach to Covid-19 can be found in the strategic report.

Management override of controls The Committee assessed the framework for financial controls to be regularly reviewed

by management and brought to the Committee for review. The external Auditor

confirmed to the Committee that there were defined lines of reporting and control

processes in place within the Group such that the external Auditor and Committee were

satisfied that the risk was appropriately mitigated.

CLS Holdings plc Annual Report and Accounts 2021

109

Strategic report Corporate governance Financial statements Additional information

Denise Jagger

Chair, Remuneration Committee

Operationally, we are seeing

improving market conditions

and activity levels in all our

geographies despite the ongoing

challenges over the year. While the

Group’s operational and financial

performance has again been robust, as

with last year, overall performance

related pay has resulted in relatively

lowremuneration outcomes.

Aligning

reward to

performance

and stakeholder

returns

Dear Shareholder,

I am pleased to present the Report

oftheRemuneration Committee

(the‘Committee’) for the year ended

31 December 2021.

This report sets out the implementation

ofthe Company’s current Directors’

Remuneration Policy (‘Policy’), for the year

ended 31 December 2021, and consists of:

• the Annual Statement from the Chair

ofthe Remuneration Committee; and

• the Annual Report on Remuneration

which explains how we have paid our

Directors under the current Policy this

year and how our framework aligns

with our wider strategy and corporate

governance best practice, as well as

how we consider remuneration of the

wider workforce in relation to

executivepay.

As in previous years, the Annual Report

on Remuneration and this Annual

Statement are subject to a single advisory

shareholder vote at the 2022 AGM.

Committee members’ attendance during the year ended

31 December 2021

Denise Jagger

Bill Holland

Lennart Sten

Attended Did not attend

CLS Holdings plc Annual Report and Accounts 2021

110

Remuneration

Remuneration Committee Report

Role of the Remuneration Committee

The Committee’s main purpose is to

assistthe Board in discharging its

responsibilities for:

• reviewing the overall remuneration

policy for senior management;

• recommending and monitoring the

leveland structure of remuneration

forsenior management;

• governing all share schemes; and

• reviewing any major changes in

employee compensation and benefit

structures throughout the Group.

The Committee’s Terms of Reference,

which are reviewed annually, are available

on the Company’s website.

Membership and attendance

The Committee’s membership did not change

during the year to 31 December 2021.

At the year-end, the Committee comprised

three independent Directors as required

by the Code.

During 2021, the Committee met four

times and held a number of informal

discussions with the Executive Directors

and the full Board. We believe it is

important that the Committee keeps

up-to-date during the year to enable

timely discussions where business

decisions may affect remuneration.

It also sought market updates, presented

at its meetings, from its retained

remuneration consultant,

PricewaterhouseCoopers LLP (‘PwC’).

2021 Company performance

andoutcomes

Covid-19

This year has been challenging and the

Covid-19 global pandemic has continued

to have an impact on the business and

businesses worldwide. For example,

student and hotel revenue continued to

belowerthan pre-pandemic levels as

accommodation remained unoccupied

dueto the UK lockdown in the early part

of2021. The impact of the Covid-19

pandemic on our Group performance

together with the mitigating actions the

Company has taken to secure its long-

term future has continued to be closely

monitored by theBoard.

The Group continued to safeguard our

staff, tenants and other key stakeholders.

Our teams focused on ensuring our

buildings were safe and in accordance

with local government guidelines and

maintained regular contact with tenants,

assisting those that were most in need

through, for example, the agreement to

phased rental plans. Due to our diversified

portfolio and tenant base (with modest

exposure to retail, leisure and tourism),

our operational performance remained

strong and rent collections were some

ofthe highest in the real estate sector.

Like other organisations, our executive

team continued to focus on cost control.

As a result, CLS continues to perform

wellin a marketthat remains challenging

due tothe ongoing impacts of Covid-19.

Investment, and especially letting,

markets have yet to return to pre-

pandemic levels although we are seeing

increasing levels of activity. Our focus

onour tenants remains absolute and

thatinvestment in relationships is

reapingrewards.

Our portfolio also remains well-placed

interms of: strategically well placed

locations; the potential to capture the

reversionary uplifts from vacancy, under

renting and selected refurbishment and

development; and the ability to provide

tenants with modern, flexible, high-quality

sustainable space. As workers return, the

attractions of the office will again be proved.

In light of the Group’s overall

performance, the Board maintained

itsdecision not to utilise any form of

government assistance or subsidies

inanyof the countries in which we

operate.Nor did the Group furlough

anyemployees, reduce working hours,

orpay or make any redundancies as a

result of Covid-19.

Our 2020 final dividend was payable in

April 2021 and our 2021 interim dividend

in September 2021. On both occasions, the

Board considered the overall performance

of the Group and concluded that it was

appropriate to pay the dividend, albeit the

interim dividend was maintained at the

same level as the prior year. Given the

overall performance of the Group, the

Board have agreed to recommend a final

dividend for 2021 of 5.35 pence per share.

At the year end, when the Group annual

salary and bonus review took place, the

Group wished to reward employees with

pay increases that took account of the

inflationary environment and bonuses

that, like the interim dividend, remained

flat compared to the prior year. As a

result, a 3% salary increase was applied

on average throughout the Group,

including the Executive Directors. I was

pleased to note that above inflationary

salary adjustments were made for some

employees to achieve market parity and

reward professional development.

The Committee considered that this was

an appropriate response to Group

performance, the current economic

environment and the efforts of the

workforce in difficult circumstances.

Key performance indicators

EPRA vacancy rate was 5.8%, which

wasmarginallyabove target but a solid

achievement given that a large proportion

of the strategic acquisitions in Germany

that had significant vacancies have

subsequently been re-let. There were

alsosome property refurbishments

becoming available to let that increased

the vacancy rate towards the end of

theyear.

Total accounting return, based on EPRA

NTA, was 3.7%, as NTA increased from

345.2 pence per share to 350.5 pence per

share mainly through revaluation uplifts

and EPRA earnings.

EPRA EPS was 11.3 pence, which was

below the forfeiture threshold target of

11.5pence. The forfeiture threshold target

was set following the approval by the

Board of the 2021 budget in November

2020, before the announcement of

extended lockdowns at the start of 2021.

Lockdown resulted in a further difficult

trading period for the hotel and student

operation as students were unable to

return to halls of residence and there was

lower hotel occupancy which impacted

revenues and profitability for the Group.

As set out in more detail on page 119, the

Committee determined that the KPIs

consisting of EPRA vacancy rate and total

accounting return were broadly at or

above the benchmark targets. However,

the EPRA EPS KPI fell marginally below

the benchmark target, reflecting the

impact of Covid-19 on the Group’s student

accommodation and hotel portfolio.

CLS Holdings plc Annual Report and Accounts 2021

111

Strategic report Corporate governance Financial statements Additional information

As a result, Element A of the PIP paid out

at 46.6% for the CEO and 31.1% fortheCFO

of salary. The Bonus Pool which is linked

to share price performance fell by 2.8%,

resulting in a reduction in its value for the

CEO of £7,654 and CFO of £2,232.

The Committee considered the factors

leading to the KPI outcomes and, taken

together, concluded that based on their

holistic view of the financial and

operational performance of the Group,

that there should be no reduction in the

notional balance of shares under PIP

Element A. Therefore, 100% of the

notional balance was paid in cash as cycle

3 of the PIP concluded its fourth year.

The second grants under the LTIP that

replaced PIP Element B were made in

March 2021, with the same award levels

asin 2020 at 150% of salary for the CEO

and 120% of salary for the CFO. As with

the2020 LTIP grant. The Committee

considered whether it should exercise

discretion upon grant, in relation to the

sizeof the 2021 LTIP award, taking account

of the Group’s share price at thetime of

grant. The Committee sought advice from

its advisers, PwC, and reviewed emerging

market practice, and concluded that given

that the share price was very similar to

12 months previously, it would be more

appropriate toreview the award upon

vesting in 2024 to ensure that there were

no windfall gains and that it was in line

with shareholders’ expectations.

It is also noted that the 107,720 shares

granted to the CEO in 2018 under Element

B of the PIP vested on 7 March 2021 and

that the second and final tranche of the

CFO’s buy-out awards in respect of

incentives foregone at his previous

employer vested on 5 April 2021 in

respect of 56,305 shares.

No other long-term incentive awards

completed their performance period

during 2021.

In line with our commitment to link

executive remuneration to annual

corporate performance and long-term

shareholder returns, the Committee

considers the outcome of executive

remuneration to be commensurate with

Group performance, noting that the level

of both Element A bonuses are similar to

2020 (caused by KPI performance and

theimpact of share price on Executive

Director bonus pools). The Committee is

comfortable that the Policy operated as

intended during 2021.

Discretion

Under the terms of the PIP, as performance

on the EPRA EPS KPI fell below threshold,

there was an opportunity, should the

Committee wish to exercise it, of reducing

the amount available to carry forward in

the Bonus Pool. After careful consideration,

taking into account the strong performance

of the Executive Directors in such a

turbulent time and the fact that the UK

lockdown announcement that primarily

contributed to missing the EPS target was

out of management’s control, the

Committee decided not to exercise their

discretion and reduce the award due

belowthe formulaic outcome under the

PIPPlan rules.

Implementation of Policy for2022

The Committee considers that the Policy,

which was approved by 97.8% of our

shareholders at the AGM on 23 April 2020,

remains fit for purpose and therefore

does not propose any changes to its

implementation in 2022.

During the year, the Committee undertook

its annual review of the underlying

elements of the Policy and decided to

make no changes to the performance

measures for incentives schemes

operating in 2022. The Committee

believes that, following the adoption of

industry standard EPRA metrics for the

PIP Element A in 2021, performance

measures are appropriately aligned to

theGroup’s KPIs.

Given the increased focus on

sustainability, the Committee will

investigate the suitability of introducing an

ESG KPI to either Element A or the LTIP.

In particular we will consider whether it

would be an appropriate measure over

and above the existing KPIs that will drive

strategic decision making notwithstanding

the Committee’s annual holistic

assessment of the of the financial and

operational performance of the Group.

Furthermore, the Committee is satisfied

that the Policy remains relevant taking

account of the challenges faced by the

business and the wider economy and that

it continues to meet the six factors set out

in Provision 40 of the Code (see page 117

for details).

We will be undertaking a detailed review of

our Remuneration Policy during 2022, with

aview to presenting an updated policy for

approval by our shareholders atthe 2023

AGM. We look forward to engaging with

shareholders as part of thisprocess.

Corporate governance

Through the implementation of the Policy,

we have taken the following steps to

ensure alignment with the Code as well

asprevailing shareholder guidance.

• Overseen the implementation of our

Policy to ensure alignment of our

structures with corporate governance

best practice and long-term value

creation for shareholders.

• Reviewed our terms of reference to

ensure the Committee has appropriate

oversight of theDirectors’ and senior

management payas well as the

operation of reward arrangements

throughout the organisation.

• Reviewed pension levels for Executive

Directors to ensure that these were

aligned with the wider workforce.

• Introduced a post-employment

shareholding requirement such that the

minimum shareholding requirement

must be retained for two years post

cessation, with a robust mechanism in

place to enforce this.

• Assessed workforce pay policies and

practices to ensure that they are

aligned to our wider culture and remain

an effective driver of Group success.

The Committee continues to review and

monitor governance developments and

market context regularly in order to

ensure the appropriateness of the Policy.

Performance of the Committee

The Committee undertakes a review of

itsperformance each year. During 2021,

this review was internally by way of a

questionnaire and concluded that the

Committee continued to perform

effectively and had unfettered access to

the information and advice it needed to

make informed decisions on all matters

related to remuneration.

CLS Holdings plc Annual Report and Accounts 2021

112

Remuneration

Remuneration Committee Report continued

Advisers to the Remuneration

Committee

To ensure that the Group’s remuneration

practices are in line with best practice,

the Committee has appointed independent

external remuneration advisers, PwC,

through a competitive tender process.

PwC attends meetings of the Committee

by invitation.

During the year, the Committee sought

advice from PwC in relation to emerging

market practices and general matters

related to remuneration. In addition, this

year the Company has obtained advice

from independent remuneration

consultants to benchmark remuneration

of its senior leadership team. On occasion,

the CEO and Head of Group HR were

invited toparts of Remuneration

Committee meetings to respond to

questions from the Committee.

Such attendances specifically excluded

any matter concerning their own

remuneration. The Company Secretary

acts as secretary to the Committee.

PwC is one of the founding members of

theRemuneration Consultants Group Code

ofConduct and adheres to this Codein its

dealings with the Committee. The Committee

reviews the objectivity andindependence of

the advice it receives from PwC at a private

meeting each year.It is satisfied that PwC is

providing independent, robust and

professional advice.

The fees for the advice provided by PwC

in2021 were £24,180 (2020: £53,400).

The fees were fixed on the basis of agreed

projects. Other services provided by PwC

in the year included advice on Swedish

social security and PAYE.

Concluding remarks

The Group has continued to face

significant headwinds as a result of the

pandemic during 2021 but has again

performed well in this context as shown

by the results contained in this annual

report. The Remuneration Committee

believes that the Executive Director pay

outcomes are appropriately reflective

ofperformance over the year, and the

approach to pay for 2021 aligns with

theCompany’s strategies of growing

profitability and delivering appropriate

returns in-line with expectations. We trust

that this report will answer any questions

you may have in respect of remuneration,

and we would be glad to receive your

support at the 2022 AGM in respect of the

advisory vote on the Annual Report on

Remuneration.

Finally, I want to recognise that the

Company’s performance would not be

possible without the resilience and

flexibility shown by our employees during

these unprecedented times. To all staff

– thank you for your hard work and

commitment to making CLS the strong

business it remains today.

Our focus for the year ahead

• Monitor the impact of the Covid-19

pandemic on the Group and its

impact on the outcomes of executive

remuneration.

• Investigate the viability of introducing

an ESG KPI as a suitable

performance measure.

• Continue to ensure consistency of

approach and fair pay conditions

across the Group and seek expert

advice and market data to inform

decisions.

• Ensure Company performance is

appropriately reflected in any

performance-related pay element

ofremuneration.

• Review the Group’s Remuneration

Policy.

• Receive updates from the Head of

HRin relation to developments in

employee benefit structures.

• Continue to ensure compliance with

the Code.

Denise Jagger

Chair, Remuneration Committee

CLS Holdings plc Annual Report and Accounts 2021

113

Strategic report Corporate governance Financial statements Additional information

Year 1 Year 2 Year 3 Year 4 Year 5

Fixed pay Salary, Pension

and Benefits.

PIP 50% of PIP Account. Deferral of remaining Account balance into notional shares

which pay out over remainder of 4-year cycle.

New PIP cycle granted in year 4.

LTIP 3-year performance period. 2-year post-vesting holding period.

Remuneration

at a glance

Remuneration Policy at a glance

The Company’s Remuneration Policy is

designed to attract, retain and motivate

itsleaders and to ensure that they are

focused on delivering business priorities

within a framework designed to promote

long-term success, aligned with

shareholder interests.

The diagram below illustrates the

elements of pay and time period of each

element of the Policy for Executive

Directors. The link between our Policy

andstrategy and how it aligns with

theprovisions of the UK Corporate

Governance Code can be found on

pages116 to 117.

Key points to note

• The 2020 Remuneration Policy was

approved by shareholders on 23 April 2020.

• The Committee has reviewed the application

of the Remuneration Policy in light of

Covid-19 and its impact on the Group.

• KPI performance has resulted in

historically low Element A bonus outcomes

and a reduction in the bonus pool value.

• The Committee considered the impact of

Covid-19 on 2021 LTIP awards made in

March 2021 and will review outcomes

upon vesting to ensure that these are a

true reflection of performance.

Total Executive remuneration

2021

£’000

2020

£’000

CEO –

Fredrik Widlund 944 830

CFO –

Andrew Kirkman 450 400

Total Executive remuneration

CEO – Fredrik Widlund

1062 1117 8301078 944

2017 2018 2019 2020 2 021

CFO – Andrew Kirkman

706 732 742 400 450

2017 2018 2019 2020 2 021

CLS Holdings plc Annual Report and Accounts 2021

114

Remuneration

Remuneration Committee Report continued

CEO pay ratio2021 Single Figure and

Element A outcomes

CFO – Andrew Kirkman

Fixed

Element A

LTP

450 400

2021 2020

2021 Element A outcomes

31.1%

2021 bonus

Maximum bonus 100%

2020

Base salary (£000)

Total pay and benefits (£000)

830 59 73 114

464

52

57

87

CEO Employee at

25th percentile

Employee at

50th percentile

Employee at

75th percentile

2021

Base salary (£000)

Total pay and benefits (£000)

946 58 79 130

468

43

62

75

CEO Employee at

25th percentile

Employee at

50th percentile

Employee at

75th percentile

CEO – Fredrik Widlund

Fixed

Element A

LTP

944 830

2021 2020

2021 Element A outcomes

46.6%

2021 bonus

Maximum bonus 150%

CLS Holdings plc Annual Report and Accounts 2021

115

Strategic report Corporate governance Financial statements Additional information

Linking our Remuneration Policy to our strategy

We acquire the right properties

• Invest in high-yielding properties, predominantly

offices, with afocus on cash returns

• Diversify market risk by investing in geographical

areas with differing characteristics

We secure the right finance

• Target a low cost of debt

• Utilise diversified sources of finance to reduce risk

• Maintain high level of liquid resources

We deliver value through active

management and cost control

• Maintain high occupancy rates

• Maintain a diversified customer base underpinned

by a strong core income stream

• Maintain strict cost control

We continually assess whether

to hold or sell properties

• Focus on holding those properties with the potential

to add value through active asset management

• Sell those properties which are low yielding or where

the risk/reward ratio is unfavourably balanced

CLS Holdings plc Annual Report and Accounts 2021

116

Remuneration

Remuneration Committee Report continued

Company strategy

Our Group strategy informs our Remuneration principles and our structure supports these objectives

Competitive • Salaries are targeted to be at a conservative level and variable pay is

targeted at above median so that combined, total remuneration should be

competitive when compared with companies of similar size and scale,

i.e.peers in the FTSE 350 real estate sector.

• LTIP ensures more competitive market positioning, provided thatthe

executive team delivers long-term sustainable performance.

Link to Code

Provision 40 factors:

• Alignment

to culture.

• Proportionality.

Performance

linked

• A significant part of the Executive Directors’ reward is determined by the

Company’s success in delivering its strategy.

• Failure to achieve threshold levels of annual and long-term performance

mayresult in both no bonus under the PIP and partial forfeiture of earned

deferred elements from previous years, and/or novesting of the LTIP.

• The fixed element of the Policy remains conservative against industry and

sectorpeers.

• The Committee retains discretion to adjust pay outcomes if they do not reflect

wider business performance.

Link to Code

Provision 40 factors:

• Predictability.

• Alignment

to culture.

Shareholder

aligned

• LTIP supports build up and retention of meaningful shareholdings by the

Executive Directors.

• PIP deferral into notional shares provides alignment.

• LTIP provides lock-in for fiveyears from grant.

• A considerable part of the reward is paid in shares that must be retained until

minimum shareholding requirements have been met.

• Introduction of post-employment shareholding requirement increases lock-in

over longer term and incentivises effective long-term decision making.

Link to Code

Provision 40 factors:

• Risk.

• Alignment

to culture.

• Clarity.

Simple and

transparent

• All aspects of the remuneration structure are clear to participants and

openly communicated.

• PIP Element A is well understood by management and LTIP is a market

standard structure.

• The framework is thereforealigned with good governance.

Link to Code

Provision 40 factors:

• Simplicity.

• Clarity.

Our chosen incentive plan measures clearly support the Company strategy

PIP Element

A matrix

LTIP

EPRA Earnings Per Share (40%) Total Accounting Return (40%) EPRA Vacancy rate (20%)

Relative Total Shareholder Return (50%) Relative EPRA NTA growth per share (50%)

Aligning Policy with Provision 40 of the 2018 Corporate Governance Code

The Code requires the Committee to determine the Policy and practices for Executive Directors in line with a number of factors set

out in Provision 40. The following table sets out how the Remuneration Committee’s Policy and its intended implementation in 2022

align with Provision 40 of the Code, the objective of which is to ensure that the remuneration operated by the Company is aligned to

all stakeholder interests including those of shareholders.

Provision 40 factor How the Policy aligns with the factor

Clarity – remuneration arrangements

should be transparent and promote

effective engagement with shareholders

and the workforce.

• The Company’s performance-linked remuneration is based on supporting the

implementation of the Company’s strategy as measured through its core KPIs.

There is transparency over the performance metrics in place for both PIP Element A

and the LTIP, and there is a clear link between long-term value creation and the

provision of reward to Executive Directors and senior management.

• The operation of the structures and in particular the value outstanding in respect

ofawards at any given time is made clear in the Directors’ Remuneration Report.

Simplicity – remuneration structures

should avoid complexity and their

rationale and operation should be easy

tounderstand.

• Element A of the PIP has been in place for a number of years so participants and

shareholders have a good understanding of how it operates.

• Three performance metrics in Element A reduces complexity.

• An EPRA EPS performance measure in the PIP Element A accurately reflects annual

absolute company performance and is therefore clear and motivational for those

participating in this plan.

• The LTIP is a market standard structure which is familiar to participants and

shareholders alike.

Risk – remuneration arrangements

should ensure reputational and other

risks from excessive rewards, and

behavioural risks that can arise from

target-based incentive plans, are

identified and mitigated.

• The Policy includes:

– setting defined limits on the maximum awards which can be earned;

– requiring the deferral of a substantial proportion of the incentives in shares for a

material period of time;

– aligning the performance conditions with the strategy of the Company;

– ensuring a focus on long-term sustainable performance through the LTIP;

– forfeiture thresholds; and

– ensuring there is sufficient flexibility to adjust payments through malus and

clawback and an overriding discretion to depart from formulaic outcomes.

• These elements mitigate against the risk of target-based incentives by:

– limiting the maximum value that can be earned;

– deferring the value in shares for the long-term which helps ensure that the

performance earning the award was sustainable and thereby discouraging short

term behaviours;

– aligning any reward to the agreed strategy of the Company;

– ensuring that the use of an LTIP supports a focus on the sustainability of the

performance over the longer term;

– providing an opportunity to reduce or cancel the awards if the behaviours giving

rise to the awards were inappropriate; and

– providing an opportunity to reduce or cancelling the awards, if it appears that the

criteria on which the award was based do not reflect the underlying performance

of the Company.

Predictability – the range of possible

values of rewards to individual Directors

and any other limits or discretions should

be identified and explained at the time of

approving the policy.

• The Remuneration Committee has good line of sight and control over the potential

performance outcomes, and the actual and perceived value of the incentives.

• The Policy sets out the potential remuneration available in a number of performance

scenarios.

Proportionality – the link between

individual awards, the delivery of strategy

and the long-term performance of the

Company should be clear.

Outcomes should not reward poor

performance.

• One of the key strengths of the approach of the Company to remuneration is the

direct link between the Company strategy and the value received by Executives.

• The Company has clearly articulated the potential reward to the Executives compared

to the value that has to be delivered to shareholders for that reward to be earned.

Alignment to culture – incentive schemes

should drive behaviours consistent with

Company purpose, values and strategy.

• The LTIP rewards long-term sustainable performance in an inherently cyclical

market.

• This focus on long-term sustainable value is a key tenet of the Company’s strategy

and its culture and values.

CLS Holdings plc Annual Report and Accounts 2021

117

Strategic report Corporate governance Financial statements Additional information

Single total figure for Executive Directors’ remuneration (Audited)

The following table shows an analysis of remuneration in respect of qualifying services for the 2021 financial year for each

ExecutiveDirector:

2021

Executive Director

Salary

£000

Taxable

benefits

6

£000

Bonus (PIP)

4

£000

LTIP

5

£000

Pension

£000

Other fees

7

£000

Total

rem

£000

Total

8

fixed

£000

Total

9

variable

£000Cash

Deferred

shares

Fredrik Widlund

1

515 9 109 – 290 – 23 946 524 420

Andrew Kirkman

2

311 7 44 – 84 4 – 450 322 128

2020

Executive Director

Salary

£000

Taxable

benefits

6

£000

Bonus (PIP)

4

£000

LTIP

5

£000

Pension

£000

Other fees

7

£000

Total

rem

£000

Total

8

fixed

£000

Total

9

variable

£000Cash

Deferred

shares

Fredrik Widlund 510 8 150 – 135 – 27 830 518 312

Andrew Kirkman 306 6 61 – 22 5 – 400 317 83

Sten Mortstedt

3

515 – – – – – – 515 515 –

1 Mr Widlund would have received total pension contributions of £46,815 (2020: £46,350). In accordance with the Policy, the entire amount was paid as a salary

supplement (this element of salary is not bonusable or pensionable). Mr Widlund’s 2021 LTIP was attributed to the deferred balance paid under PIP Element A

(see“LTIin single figure calculation” on page 119).

2 Andrew Kirkman would have received total pension contribution of £28,610 (2020: £28,325). In accordance with the Policy, £24,610 (2020: £22,825) was paid as salary

supplement and£4,000 (2020: £5,500) waspaid to his SIPP (this element of salary is not bonusable or pensionable). Mr Kirkman’s 2020 LTIP was attributed to the

deferred balance paid under PIP Element A (see LTI calculation on page 119).

3 Sten Mortstedt passed away on 15 December 2020. Prior to that date the Company had determined that it had a liability to pay the full December base salary on the

basis that thepayroll was signed off and that was his entitlement.

4 The Bonus total for 2020 comprises 50% of the PIP Element A 2021 contribution into the Director’s Plan Account. The reason that only 50% of Element A is disclosed as

Bonus isbecause the balance is deferred and at risk of forfeiture in respect of future years’ performance and therefore under the Regulations is required to be

disclosed on vesting.

5 The LTIP column consists of 50% of the value of the opening balance of deferred notional shares under PIP A Account. This approach reflects the fact that this value is

subject to forfeiture over the remaining life of the PIP cycle. The value of the notional shares under Element A has been based on the average market value of a share

for the 30-day period to 31 December 2021 of £2.115 in accordance with the rules of the PIP.

6 Taxable Benefits relate to the provision of private medical insurance and gym contribution.

7 Other fees relate to: £22,567 (2020: £26,197) in respect of the dividend equivalents following the vesting of Mr Widlund’s 2018 Element B Award and £582 (2020: £704)

in respect of the Matching Shares that vested during the year under the All Employee Share Incentive Plan.

8 Total fixed column is the total of salary, pension and benefits.

9 Total variable column is the total of bonus (PIP) cash, deferred shares, LTIP and other fees.

Annual Report on

Remuneration

CLS Holdings plc Annual Report and Accounts 2021

118

Remuneration

Remuneration Committee Report continued

Additional requirements in relation to the single total figure table

Performance Incentive Plan (PIP) – 2021 Element A structure

The schematic below illustrates the ongoing operation of PIP Element A, noting that the CFO joined the plan in the same year and

cycle as the CEO:

Year 2021 2022 2023 2024

Cycle 3 4th year

Cycle 4 1st year 2nd year 3rd year 4th year

With reference to the schematic above, Cycle 3 of the PIP Element A award was completed in 2021 and a new Cycle 4 award was

granted in the same financial year.

Summary of PIP Element A matrix outcomes in the year

The Remuneration Committee determined the 2021 PIP contribution and forfeiture outcomes during 2021. A summary of the 2021

KPIs and their achievement is as follows:

KPI Weighting

Maximum

forfeiture

Forfeiture

threshold

On-target

performance

Good

performance

Maximum

performance

2021 actual

achievement

EPRA earnings per share 40% 10.5p 11.5p 12.0p 12.5p 13.5p 11.3p

Total accounting return* 40% (3)% 0% 3% 6% 9% 3.7%

EPRA vacancy rate 20% 10% 8% 5% 4% 3% 5.8%

Overall achievement 100% 41.0%

* Based on EPRA NTA.

The table below sets out the annual opportunity and resulting contribution to the PIP Element A account for the Executive Directors.

CEO CFO

Maximum Element A award (% salary) in 2021 150% 100%

Maximum Element A award (£) in 2021 £702,225 £286,100

KPIs achievement as % of maximum 31.1% 31.1%

Contribution to Account based on achievement above £218,216 £88,905

Bonus as a % of 2021 salary 46.6% 31.1%

The following table sets out the breakdown of the performance calculation of the 1st award under Cycle 4:

KPI CEO CFO

EPRA earnings per share £0 £0

Total accounting return £157,356 £64,110

EPRA vacancy rate £60,860 £24,795

2021 total bonus £218,216 £88,905

Cycle 3

The following table sets out for Cycle 3 the PIP Accounts for the participants and shows the number of deferred notional shares

which formed the opening balance at 1 January 2021, and their opening value, the change in the value of the notional shares, and the

payments which closed Cycle 3 in 2021:

CEO CFO

PIP Plan Element A Accounts (Cycle 3)

Number of deferred notional shares in Account at the end of Year 3 131,432 38,326

Value of deferred notional shares at the end of Year 3

1

£285,603 £83,284

Change in value of deferred notional shares in 2021 £(7,654) £(2,232)

Final value of deferred notional shares

2

£277,949 £81,052

Plus: dividends attributable to deferred notional shares during the year £9,923 £2,894

Less: 2021 payment out of the Account £287,871 £83,946

Value of deferred notional shares carried forward nil nil

Number of deferred notional shares carried forward nil nil

1 The price used to calculate the opening value of shares was the mid-market value of a share for the 30 day period to 31 December 2020, which was £2.173 per share.

2 The price used to recalculate the final value of shares was the mid-market value of a share for the 30 day period to 31 December 2021, which was £2.115 per share.

CLS Holdings plc Annual Report and Accounts 2021

119

Strategic report Corporate governance Financial statements Additional information

It should be noted that the Committee did not exercise its judgement under the PIP to reduce the payments from the formulaic

outcome, from cycle 4 below, or to reduce the deferred share notional balance and final payment under cycle 3 above, given the

general environment, the strong performance of the Executive Directors at this turbulent time and the fact that the forfeitable

threshold for the EPRA EPS element was demonstrably missed because of the impact of the early 2021 UK lockdown which was

entirely outside of management’s control. The Committee also took into consideration the fact that the Group did not make use of

anyform of government loans or Covid-19 employment related schemes.

Cycle 4

The following table sets out for cycle 4 the PIP Element A Accounts for the participants and shows the value of the closing balance

and the number of deferred notional shares which will form the opening balance in respect of 2022 which is at risk of forfeiture in

respect of Year 2’s performance

CEO CFO

PIP Plan Element A Accounts (cycle 4)

Number of deferred notional shares in Account at the start of Year 1 nil nil

Value of deferred notional shares at the start of Year 1 nil nil

2021 bonus (contribution into the Account) £218,216 £88,905

Cumulative Account following contribution £218,216 £88,905

Less: 2021 payment out of the Account £(109,108) £(44,452)

Value of deferred notional shares carried forward into Year 2 £109,108 £44,453

Number of deferred notional shares carried forward into Year 2

1

51,587 21,017

1 The price used to calculate the value of shares was the mid-market value of a share for the 30-day period to 31 December 2021, which was £2.115 per share.

In the context of the operation of the PIP Element A, the deferred notional shares is a mechanism that allows the deferred cash

element of the award to be linked to the share price. The Committee confirms that there is no intention to issue actual shares.

Reconciliation of PIP Element A with single figure table for 2021

CEO CFO

Annual bonus – Cash in single figure table

50% of 2021 contribution into the PIP Element A Account

1

from cycle 4 £109,108 £44,452

LTI in single figure table

Comprising the opening balance of the PIP Element A account from cycle 3 £285,602 £83,284

Value of LTI due to share price increase/(decrease) £(7,654) £(2,232)

Dividends attributable to deferred notional shares during the year £9,923 £2,894

Total LTI £287,871 £83,946

1 The reason that only 50% of Element A 2021 Company Contribution is disclosed as Bonus is because the balance is deferred and is at risk of forfeiture in respect of

future years’ performance and therefore under the Regulations is required to be disclosed on vesting.

Long-Term Incentive Plan (LTIP)

No LTIP awards completed their performance period during the 2021 financial year.

LTIP awards made in 2021

The 2021 LTIP awards were granted on 10 March 2021 in the form of nil-cost options. In line with the Policy the awards had a face

value of 150% of base salary for the CEO and 120% for the CFO. The normal vesting date of the LTIP Awards will be 10 March 2024,

being the third anniversary of the award date.

As set out in the table below, the number of shares granted under the award was calculated using a share price of £2.23, being the

quoted closing price of the Company’s Ordinary Share on 10 March 2021.

Name Role

Base salary at

date of grant

Face value of 2021

LTIP award

(% of base salary)

Face value of

2021 LTIP award

Value at vesting

(threshold vesting

of 25%)

Number of

shares granted

Fredrik Widlund CEO £468,150 150% £702,225 £175,556 314,899

Andrew Kirkman CFO £286,100 120% £343,320 £85,830 153,955

CLS Holdings plc Annual Report and Accounts 2021

120

Remuneration

Remuneration Committee Report continued

The LTIP awards will vest based on the satisfaction of the following performance conditions which are each measured over a three

year period ending on 31 December 2023 in respect of the relative NTA growth per share element and ending on 9 March 2024 for the

relative TSR element:

Threshold Maximum

Award vesting for performance (% maximum) 25% 100%

Total shareholder return relative to FTSE 350 Real Estate Super Sector constituents (50%) Median Upper Quartile

EPRA NTA growth per share relative to FTSE 350 Real Estate Super Sector constituents (50%) Median Upper Quartile

Straight line interpolation between points.

On completion of the performance period, assuming that awards vest, they will be subject to a further two-year holding period.

No discretion was used by the Committee in determining the basis of the award granted, which is in line with previous years, however

the outcome will be reviewed at vesting to ensure no windfall gains have occurred as a result of changes in the share price between

the grant and vesting.

Total pension entitlements

The Executive Directors are entitled to participate in a defined contribution pension scheme, into which the Company contributes up

to 10% of base salary. No Directors were participants in the scheme as at 31 December 2021 (2020: none). As a result of the

applicable HMRC limits, Fredrik Widlund instead received the full 10% as a salary supplement and Andrew Kirkman received part of

his 10% contribution as a salary supplement and the balance as a contribution to his Self Invested Personal Pension Plan (see Note 2,

Single Total Figure for Executive Directors’ Remuneration (Audited)).

The maximum Company contribution for all UK employees is 10% (2020: 10%). In accordance with the Policy, the CEO received 10%

asa salary supplement and the CFO received a proportion of the 10% as a salary supplement (with the balance being paid into his

pension plan), in light of applicable HMRC limits.

Overall 2021 remuneration

The Committee is satisfied that the current Policy operated as intended and that the overall 2021 remuneration paid to Executive

Directors set out above was appropriate.

External appointments

Mr Widlund was appointed as a Trustee of Morden College, a social and housing charity, on 31 August 2018, for which no

remuneration is paid. On 1 January 2021, Mr Kirkman was appointed as a non-executive director of A2Dominion Housing Group

Limited, a registered social housing charity, for which he is paid £13,500 per annum.

Single total figure for Non-Executive Directors’ remuneration (audited)

Non-Executive Directors do not participate in any of the Company’s incentive arrangements nor do they receive any benefits other

than reimbursement for reasonable travel expenses for attending Board meetings.

The following table sets out the fees received for 2021:

Base membership fees

£000

Other committee fees

£000

Additional fees

£000

Taxable benefits

£000

Total

£000

2021 2020 2021 2020 2021 2020 2021 2020 2021 2020

Elizabeth Edwards

1

55 45 10 16 10 2 – – 66 63

Christopher Jarvis

2

45 45 – 4 – – 1 2 46 51

Bengt Mortstedt 45 45 – – – – 16 7 61 52

Anna Seeley

3

120 120 – – – – – – 120 120

Lennart Sten

4

220 220 – – – – – 33 220 253

Denise Jagger

5

45 45 15 14 – – 3 5 63 64

Bill Holland

6

45 45 15 14 – – 2 1 62 60

1 Ms Edwards received the following annual fees: Board membership £45,000; Senior Independent Director £10,000; Audit Committee membership £5,000; Nomination

Committee Membership £5,000; and Workforce Advisory Panel £1,125. She became Senior Independent Director on 23 April 2020 and the corresponding fee for 2020

shown in the table above is prorated.

2 Mr Jarvis stepped down as the Chair of the Remuneration Committee on 23 April 2020 and member of the Audit Committee on 5 March 2020. He received the following

fees: Board membership £45,000; Remuneration Committee Chairmanship £10,000; and Audit Committee membership £5,000. The figures shown in the table above

for 2020 are prorated.

3 Ms Seeley received the annual following fees: Non-Executive Vice-Chair fee of £120,000 (inclusive of all Committee fees).

4 Mr Sten received the following annual fees: Non-Executive Chairman fee of £220,000 (inclusive of all Committee fees).

5 Ms Jagger became the Chair of the Remuneration Committee on 23 April 2020. She received the following fees: Board membership £45,000; Remuneration Committee

Chairmanship £10,000 (from 23 April 2020); Remuneration Committee membership £5,000 (until 23 April 2020) and Audit Committee membership £5,000. Her 2020

Remuneration Committee fees in the above table are prorated.

6 Mr Holland became the Chair of the Audit Committee on 5 March 2020 and received the following fees: Board membership £45,000; Audit Committee Chairmanship

£10,000 (from 5 March 2020); Remuneration Committee membership £5,000; and Audit Committee membership £5,000 (until 5 March 2020). His 2020 Audit Committee

fees in the above table are prorated.

7 In accordance with the Company’s expenses policy, Non-Executive Directors receive reimbursement for their reasonable expenses for attending Board meetings.

In instances where those costs are treated by HMRC as taxable benefits, the Company also meets the associated tax cost to the Non-Executive Directors through

PAYE. Ms Edwards received such taxable benefits of £481, which being less than £500 is therefore not reported in the above table.

CLS Holdings plc Annual Report and Accounts 2021

121

Strategic report Corporate governance Financial statements Additional information

Payments to past directors

John Whiteley retired from the role of CFO on 30 June 2019. Details of payments for Mr Whiteley can be found on page 98 of the 2019

annual report. £14,746 was paid to Mr Whiteley in respect of the dividend equivalents following the vesting on 7 March 2021 of 70,388

shares granted in 2018 under PIP Element B, which had already been disclosed in that year’s single figure of remuneration and

remain subject to a two-year holding period.

Payments for loss of office

No payments for loss of office were made in 2021.

Directors’ interests in shares

The Executive Directors’ interests against the shareholding requirement under the Policy is provided below, with an indication

ofwhether the current shareholding requirement has been met. Under the Policy the Committee has implemented minimum

shareholdings for the Executive Directors, which requires that the Chief Executive Officer should build a holding with a value of at

least 250% of salary and the Chief Financial Officer at least 200%. At 31 December 2021, the interests of the Directors in the ordinary

shares of 2.5 pence each of the Company were:

Director

Unconditional

shares

Conditional

PIP Element B

shares

SIP shares

(partnership)

SIP shares

(matching)

Total

interests

3

Shareholding

3

(% salary)

Shareholding

requirement

met?

Conditional

PIP Element A

shares

LTIP unvested

awards

Fredrik Widlund

1

399,348 173,161 3,674 3,674 579,857 262 Y 131,432 694,817

Andrew Kirkman

2

320,894 26,358 2,136 2,136 351,524 260 Y 38,326 395,997

Elizabeth Edwards 9,809 – – – 9,809 n/a n/a – –

Christopher Jarvis 48,440 – – – 48,440 n/a n/a – –

Bengt Mortstedt 26,572,550 – – – 26,572,550 n/a n/a – –

Denise Jagger – – – – – n/a n/a – –

Bill Holland 7,500 – – – 7,500 n/a n/a – –

Anna Seeley 12,273 – – – 12,273 n/a n/a – –

Lennart Sten 71,350 – – – 71,350 n/a n/a – –

1 On 10 March 2021, 107,720 Conditional PIP Element B shares vested of which 50,285 were sold to settle Mr Widlund’s tax liabilities. As at the date of this report: the SIP

balance for Mr Widlund consists of: 3,898 Partnership Shares and 3,898 Matching Shares. As set out on page 120 a closing balance of 51,587 Conditional PIP Element

A notional shares will be awarded on 16 March 2022.

2 On 5 April 2021, 56,305 Conditional PIP Element B shares vested of which 26,378 were sold to settle Mr Kirkman’s tax liabilities. As at the date of this report: the SIP

balance for Mr Kirkman consists of: 2,360 Partnership Shares and 2,360 Matching Shares. As set out on page 120 a closing balance of 21,017 Conditional PIP Element

A notional shares will be awarded on 16 March 2022.

3 Shares counting towards total interests and therefore shareholding requirement include beneficially owned, pre-tax number of PIP Element B shares, pre-tax number

of vested but unexercised awards and all SIP shares, but excludes the notional shares awarded under PIP Element A and unvested LTIP awards. Shareholding values

based on 30-day average share price up to 31 December 2021, £2.115.

As part of the current policy, a post cessation of employment shareholding requirement has been implemented for the Executive

Directors requiring the minimum shareholding requirement to be retained for two years. The Committee has determined that to

ensure enforcement of this requirement, approval must be sought by the Company for any sales during this period. These restrictions

would be set out in an agreement with the individual at the appropriate time.

Otherwise than as set out in the notes above, there have been no movements in interests held by Directors between 31 December

2021 and the date of this report.

Overall link to remuneration and equity of the Executive Directors

As a Committee, we want to incentivise Executive Directors to take a long-term, view of the performance of the Company. Therefore,

when we look at the remuneration paid in the year, we also look at the total equity they hold, and its value based on the performance

of the Company. The table sets out the number of shares beneficially owned by the CEO and those shares subject to service based

conditions only at the beginning and end of the financial year, and the impact on the value of these shares taking the opening and

closing price for the year. PIP Conditional Element A notional shares and unvested LTIP awards are excluded from the calculations.

2021 single

figure

£000

Shares held at

start of year

Shares held at

end of year

Value of

shares at

start of year

£000

Value of

shares at

end of year

£000

Difference

increase/

(decrease)

£000

CEO 944 465,789 579,857 1,012 1,226 214

Starting share price £2.173 (one-month average share price to 31 December 2020). End share price £2.115 (one-month average to

31 December 2021).

CLS Holdings plc Annual Report and Accounts 2021

122

Remuneration

Remuneration Committee Report continued

Total returns to shareholders 2011–2021 (unaudited)

To comply with the remuneration regulations, the Company’s TSR performance is compared to the TSR performance of the FTSE 350

and the FTSE 350 Real Estate Super sector over the same period. The Committee believes that these are the most appropriate as

these are the indices and sector in which the Company has been included since listing.

15.7% CAGR

700

600

400

300

500

200

100

Total returns to shareholders

CLS Holdings

FTSE All Share

FTSE 350

FTSE RESS

(2012: 100)

30/12/11 30/12/12 30/12/13 30/12/14 30/12/15 30/12/16 30/12/17 30/12/18 30/12/19 30/12/20 30/12/21

Historical CEO remuneration

The table below sets out total CEO remuneration for 2021 and prior years, together with the percentage of maximum PIP Element A

awarded in that year. No LTIP vested in 2021.

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

CEO total remuneration (£000) 352 721 349 656 828 1,062 1,117 1,078 830 944

Element A of PIP –

% of maximum 83.5% 86.6% 89.0% 81.0% 76.0% 93.3% 62.7% 87.3% 43.3% 31.1%

Element B of PIP –

% of maximum – – – – 76.0% 93.3% 62.7% 87.3% n/a n/a

(–) The Company did not operate an incentive plan (PIP Element B) over this period.

Percentage change in Directors’ and employee remuneration

The table below shows how the percentage change in each Directors‘ salary/fees, benefits and bonus between 2020 and 2021

compared with the percentage change in each of those components of pay for employees, as well as the disclosure for 2020.

Percentage change 2020/21 Percentage change 2019/20

Salary/fees

%

Taxable

benefits

%

Bonus

%

Salary/fees

%

Taxable

benefits

%

Bonus

%

Fredrik Widlund 1.0 12.5 (27.3) 19 – (72)

Andrew Kirkman 1.6 16.7 (27.9) 108 (87) (56)

Elizabeth Edwards 4.8 – – 8 n/a –

Christopher Jarvis (8.2) (50.0) – (18) (71) –

Bengt Mortstedt 0.0 128.6 – – (76) –

Denise Jagger 0.0 – – 157 n/a –

Bill Holland 0.0 – – 883 n/a –

Anna Seeley 1.7 (40.0) – 50 – –

Lennart Sten 1.7 100.0 – 86 n/a –

Employees 1.4 (5) 2.7 (5) (10) 0

There were no changes to the Board/Committee fees for the years ended 2019, 2020 and 2021. However, as a result of the Board

andCommittee changes during 2020, Ms Edwards, Ms Jagger and Mr Holland received additional remuneration for their new

responsibilities (see page 118, single total figure for Non-Executive Directors Table Notes).

As set out in the 2019 annual report, Mr Sten became independent Non-Executive Chairman and Ms Seeley became Non-Executive

Vice Chair and received additional remuneration. Mr Widlund’s salary was increased during 2019 following a review and for taking on

additional responsibilities. In 2019, Mr Kirkman served for six months from 1 July 2019.

CLS Holdings plc Annual Report and Accounts 2021

123

Strategic report Corporate governance Financial statements Additional information

The Group’s pay review, taking effect from 1 January 2022, awarded an average percentage increase in wages and salaries of 3% to

all employees (including the Executive Directors).

The nature and level of benefits to employees in the year ended 31 December 2021 was broadly similar to those of the previous year.

CEO pay ratio

The table below sets out the ratios of the CEO single total figure of remuneration to the equivalent pay for the lower quartile, median

and upper quartile of UK employees.

Year Method

Pay ratio

25th 50th 75th

2019 Option A 19:1 15:1 8:1

2020 Option A 14:1 11:1 8:1

2021 Option A 16:1 12:1 7:1

The CEO remuneration figure is as shown in the Single Total Figure for Executive Directors’ Remuneration table on page 118.

The remuneration figures for the employee at each quartile were determined as at 31 December 2021. Each employee’s pay and

benefits were calculated using each element of employee remuneration, consistent with the CEO, on a full-time equivalent basis.

No adjustments (other than to achieve full-time equivalent rates) were made and no components of pay have been omitted.

The salary and total pay and benefits for employees at each of the percentile are as shown in the table below.

Pay data Base salary

Total pay and

benefits

CEO £468,150 £945,814

Employee at 25th percentile £43,150 £58,157

Employee at 50th percentile £62,000 £79,276

Employee at 75th percentile £75,000 £129,875

We have chosen methodology option A for the calculation, which takes into consideration the full-time equivalent basis of all UK

employees and provides a representative result of employee pay conditions across the Company.

These ratios are used as part of the Committee’s remuneration decision-making process with regards to broader employee pay

policies as well as remuneration policies for the Executive Directors.

The ratios reflect the difference in remuneration arrangements as responsibility increases for more senior roles within the Company.

The 25th and 50th percentile ratios have increased marginally in 2021 compared to 2020 mainly due to the increase in the CEO’s

single figure of remuneration. While the outcome under PIP Element A was lower for 2021 than for 2020, the CEO’s remuneration

increased primarily as a result of 100% of the notional balance of the PIP Element A account being paid in cash as cycle 3 of the PIP

concluded its fourth year. We note that due to the change in LTIP structure under the new Remuneration Policy, no LTIP awards will

be included in the single figure until 2022 whilst they remain subject to performance conditions.

The employee salary and total pay benefits set out above are very similar to 2020, with the exception of the 25th percentile employee

salary which has fallen versus 2020 as a result of a changes in headcount. The Committee notes that the Company continued to

increase salaries and pay bonuses to the vast majority of employees and is satisfied that the median pay ratio is consistent with pay

and progression policies for all CLS UK employees and is a reflection across the Group.

We expect the ratio to fluctuate in future years as awards under the LTIP begin to vest reflecting different vesting levels and the

movement in the share price over the three years prior to vesting. This may add significant volatility to the CEO’s pay and will be

reflected in the ratio. The ratio is also driven by the different structure of the pay of our CEO versus that of our employees, as well as

the makeup of our workforce. This ratio will therefore vary between businesses even in the same sector. What is important from our

perspective is that this ratio is influenced only by the differences in structure within our business, and not by divergence in fixed pay

between the CEO and wider workforce.

Relative importance of the spend on pay

2021

£000

2020

£000

Percentage

change

increase/

(decrease)

Remuneration paid to employees of the Group 9,562 10,138 (5.7)

Distributions to shareholders 30,758 30,147 2.0

Group revenue 139,824 139,351 0.3

CLS Holdings plc Annual Report and Accounts 2021

124

Remuneration

Remuneration Committee Report continued

Wider workforce considerations Cascade of pay through the organisation

The Group aims to provide a remuneration package for all employees which is market competitive and operates the same core

structure as for Executive Directors, with the exception of the PIP and LTIP, which is replaced by a time-based, company growth

related loyalty bonus.

The Company’s remuneration philosophy for all senior management from the Executive Directors downwards is that all employees

should have a significant annual element of performance-based pay.

Executive Directors and senior management are participants in the LTIP, with the number of employees eligible to participate

being13. This ensures a focus on long-term sustainable value creation to align their experience with those of shareholders.

For allemployees, the Group operates a performance-based discretionary bonus scheme and a loyalty bonus scheme based on

employment longevity. The Company also has a Share Incentive Plan (SIP) in order to increase levels of share-ownership throughout

the Company and to allow employees to share in the success of the Company in a tax-efficient manner.

Additionally, the Group’s pension contributions to an employee’s pension scheme are determined by their length of service from a

minimum of 5% up to a maximum of 10%.

The table below summarises the cascade of pay elements through the organisation below Executive Directors.

Number of

employees

Fixed

Remuneration

(including

pension)

Annual

bonus

Loyalty

bonus

Bonus

deferral LTIP

Share

Incentive Plan

Shareholding

guideline

Executive Directors 2 Y Y – Y Y Y Y

Senior Leadership Team (excl. Executive Directors) 6 Y Y – – Y Y –

Senior management (excl. Senior Leadership Team) 5 Y Y – – Y Y –

Wider Workforce 79 Y Y Y – – Y –

In order for the Committee to review the wider workforce pay, policies and incentives, reports are regularly considered at the

Remuneration Committee meetings, setting out key details of remuneration throughout the Company. The Committee is satisfied that

the approach to remuneration across the Company is consistent with the Company’s principles of remuneration. In the Committee’s

opinion the approach to executive remuneration aligns with wider Company pay policy and there are no anomalies specific to the

Executive Directors.

The outcomes of these discussions and key decisions made in respect of Executive and senior management pay are communicated

to employees through one of several channels used by the Company, as described below.

Employee engagement

We regularly communicate with our employees on a range of issues, including executive pay. In 2019, Elizabeth Edwards was

designated the Non-Executive Director responsible for overseeing employee engagement and chairs the Workforce Advisory Panel,

consisting of representatives from across the organisation and at varying levels of seniority. This Panel provides the opportunity for

an open discussion between employees and the Board. We have also used employee surveys as an effective means of gathering

wider views.

The Committee will continue to seek the views of the Workforce Advisory Panel to provide valuable insight when making wider

remuneration decisions. This engagement is critical in ensuring we offer a reward package across the business that continues to

attract and retain the talent necessary to achieve our Group objectives.

On behalf of the Committee, the Secretary provided the Workforce Advisory Panel with a presentation on the alignment of executive

director and wider workforce pay. This facilitated two-way dialogue with the workforce around general pay issues which, during

2021, focussed on the effects of rising inflation and the impact on annual pay rises and the need to retain talent. The Committee

ensured that management undertook benchmarking to ensure levels of remuneration were commensurate with market rates.

CLS Holdings plc Annual Report and Accounts 2021

125

Strategic report Corporate governance Financial statements Additional information

Fairness and diversity

The Company is committed to an active equal opportunities policy from recruitment and selection, through training and development,

to performance reviews and promotion. All decisions relating to employment practices are objective, free from bias and based solely

upon work criteria and individual merit. The Company is responsive to the needs of its employees, customers and the community at

large. We are an organisation which uses everyone’s talents and abilities, where diversity is valued. The Company remains supportive

of the employment and advancement of disabled persons and ensures its promotion and recruitment practices are fair and objective.

The Company encourages the continuous development and training of its employees and the provision of equal opportunities for the

training and career development of all employees.

Gender pay reporting

The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 requires companies with over 250 UK employees to disclose

their gender pay gap annually. CLS Holdings plc has 92 UK employees as at 31 December 2021 and is therefore not required to

disclose the Gender Pay Gap information under the regulations.

The Committee notes that results based on a relatively small sample of employees would not be meaningful and therefore has

decided not to disclose the Company gender pay gap.

Overall the Committee feels assured that the quality of processes behind individual pay decisions are effective in delivering an equal

pay environment (like pay for like work) for the wider workforce.

Statement of implementation of policy in the following financial year

The Policy, as approved at the 2020 AGM on 23 April 2020 is set out on pages 104-115 of the 2019 annual report

www.clsholdings.com/investors/corporate-governance/board-and-committee-documents and the table below sets out an overview

of the key elements of the Policy, together with details of how the Committee will implement the Policy in 2022. No deviations from

this implementation of policy areexpected.

Overview of Policy Implementation in 2022

Executive Directors

Base salary

Any increases will be in line with wider workforce unless there is a

significant change to the role and responsibilities.

As at 1 January 2022

• CEO: £482,195 (2021: £468,150) 3% increase

• CFO: £294,683 (2021: £286,100) 3% increase

An average increase of 3% was applied to the UK

workforce.

Benefits

The key benefits provided to the Executive Directors include private

medical insurance, life insurance, income protection, gym contribution

and staff lunch provision.

No change.

Pensions

CEO and CFO receive 10% of salary Company contribution in line with

maximum employee opportunity. For new joiners, thepension benefit

will be aligned to the staged percentages applicable to the wider UK

workforce, currently 5% of salary upon joining, rising to 7.5% of salary

after three years and 10% of salary after 5 years.

No change.

CLS Holdings plc Annual Report and Accounts 2021

126

Remuneration

Remuneration Committee Report continued

Overview of Policy Implementation in 2022

Performance

Incentive Plan

(the ‘PIP’)

Maximum annual PIP Element A opportunity of 150% of salary.

At threshold 25% of the maximum is payable. For “on target”

performance 50% of the maximum is payable.

50% of the value of a Participant’s Plan Account will be paid out

annually for three years with 100% of the residual value paid out at

the end of year four.

Malus and clawback provisions will apply.

2022 performance measures will be:

• EPRA vacancy rate (20%);

• EPRA earnings per share (40%); and

• Total accounting return (based on EPRA NTA)

(40%).

Maximum opportunity in 2022 will be 150% of

salary for the CEO and 100% salary for the CFO

See below for the PIP matrix which will apply

in2022

Long-term

Incentive Plan

(‘LTIP’)

Maximum annual LTIP opportunity of 150% of salary. 25% of awards

vest for threshold performance.

Performance will be measured over three years and vested awards

will be subject to a further two-year holding period post vesting.

Malus and clawback provisions will operate over the full 5-year

lock-inperiod.

Awards to be granted at 150% of salary for the

CEO and 120% for the CFO.

The 2022 LTIP grant is based on:

• Total shareholder return (50%); and

• EPRA NTA growth per share (50%)

Both measured relative to the FTSE 350 Real

Estate Super Sector constituent companies.

See below for detail of the LTIP awards which will

be made in 2022.

Shareholding

requirement

CEO shareholding requirement of 250% of salary and CFO

shareholding requirement of 200%. Post cessation of employment

shareholding requirement requiring the minimum shareholding

requirement to be retained for two years.

No change.

Non-Executive Directors (including Non-Executive Chairman and Non-Executive ViceChair)

Fees

Non-Executive Directors are paid a base fee and are eligible to receive

Committee chair and membership fees, a SID fee and Workforce

Advisory Panel daily fee. Non-Executive Directors do not participate in

any variable remuneration.

See below for fees which will apply in 2022.

CLS Holdings plc Annual Report and Accounts 2021

127

Strategic report Corporate governance Financial statements Additional information

Chairman and Non-Executive Directors’ fees (audited)

The current fee levels, and those for the future financial year, are set out in the table below.

Fees 2022

£000

Fees 2021

£000

Change

%

Chairman fees 220 220 0

Non-Executive Vice Chair 120 120 0

NED Base Membership fee 45 45 0

Senior Independent Director 10 10 0

Audit Committee Chairmanship 10 10 0

Remuneration Committee Chairmanship 10 10 0

Committee membership 5 5 0

Workforce Advisory Panel £750 p/d £750 p/d 0

Fees are reviewed in line with remuneration policy renewal. See page 121 for total fees received in 2021 by each of the Non-

Executive Directors based on their respective responsibilities.

PIP Element A matrix for 2022

Performance targets are determined annually and calibrated by the Committee considering the Company’s business plan, annual

budget and market conditions. The following table sets out the targets for 2022 in respect of each KPI, as well as the maximum bonus

which can be earned in respect of each KPI for 2022, expressed as a percentage of salary:

KPI

Maximum

forfeiture

Forfeiture

threshold

On-Target

performance

Good

performance

Maximum

performance

Performance breakdown

(% salary)

CEO

(max bonus

target)

CFO

(max bonus

target)

EPRA earnings per share* -15% -7.5% 0% 7.5% 15% 60 40

Total accounting return** -3% 0% 3% 6% 9% 60 40

EPRA vacancy rate 10% 8% 5% 4% 3% 30 20

Total 150 100

* Based on performance against 2022 budget.

** Based on EPRA NTA.

Long-Term Incentive Awards to be granted in 2022

The table below describes how the LTIP will be implemented in 2022. The CEO’s award will be 150% of salary and the CFO’s award

will be 120% of salary.

Threshold Maximum

Award vesting for performance (% maximum) 25% 100%

Total shareholder return relative to FTSE 350 Real Estate Super Sector constituents (50%) Median Upper Quartile

EPRA NTA growth per share relative to FTSE 350 Real Estate Super Sector constituents (50%) Median Upper Quartile

Straight line interpolation between points.

Consideration by the Committee of matters relating to Directors’ remuneration for 2021

The consideration of matters relating to Directors’ Remuneration for 2021 is on pages 118 to 129.

CLS Holdings plc Annual Report and Accounts 2021

128

Remuneration

Remuneration Committee Report continued

Executive Director service contracts and Non-Executive Director letters of appointment

Each of the Executive Directors has a service contract of no fixed term. There is no provision in the contracts of Mr Widlund or

MrKirkman for contractual termination payments, save for those payments normally due under employment law.

Each Non-Executive Director has a letter of appointment but, in accordance with best practice, none has a service contract. All of the

Non-Executive Directors are appointed until such time as they are not re-elected. In compliance with the Code, all Company Directors

will face annual re-election at the Company’s AGM. If a director fails to be re-elected the terms of their appointment will cease. It is

the Company’s policy not to offer notice periods of more than 12 months exercisable by either party.

Details of the service contracts for those who served as Executive Directors during the year are as follows:

Date of current

service contract Notice period

Fredrik Widlund 3 November 2014 12 months

Andrew Kirkman 30 March 2019 12 months

The table below sets out the dates that each Non-Executive Director was first appointed and the notice period by which their

appointment may be terminated early by either party.

Director Date of appointment Notice period

Elizabeth Edwards 13 May 2014 3 months

Bengt Mortstedt 7 March 2017 3 months

Denise Jagger 1 August 2019 3 months

Bill Holland 20 November 2019 3 months

Anna Seeley 11 May 2015 3 months

Christopher Jarvis 25 November 2008 3 months

Lennart Sten 1 August 2014 3 months

Shareholder engagement

The Committee takes the views of the shareholders seriously and these views were taken into account when shaping the Policy

thatwas approved at the AGM held on 23 April 2020. The Committee consulted with its 15 largest shareholders representing 86%

ofthe Company’s issued share capital in relation to the Policy in late 2019 and the consultation also included the main shareholder

representative bodies (IA, ISS, Glass Lewis). At the end of the consultation the majority of shareholders consulted indicated they

weresupportive of the proposals and this was reflected in the 97.76% vote in favour of the Policy at the 2020 AGM. The Committee is

grateful for the time that shareholders took to consider the Policy and to provide feedback during the consultation.

As the outcome at the 2021 AGM was a vote in favour of the Remuneration Report of over 99%, and as no changes are being made in

how Policy is implemented during 2022, the Committee was of the view that no shareholder engagement was required during 2021.

However, we will be undertaking a detailed review of our Remuneration Policy in 2022, with a view to presenting it to shareholders

for approval at our 2023 AGM and so intend to engage with shareholders again as part of this process.

Shareholder voting

The following table represents the voting outcome for the Directors’ Remuneration Report at the 2021 Annual General Meeting.

The current Policy was approved at the 2020 Annual General Meeting.

Directors Remuneration Report

(2021 AGM)

Directors Remuneration Policy

(2020 AGM)

Number of votes % of votes cast Number of votes % of votes cast

For 328,233,017 99.74 338,679,725 97.76

Against 842,563 0.26 7,771,550 2.24

Total votes cast 329,075,580 346,457,165

Votes withheld 12,676 17,235

CLS Holdings plc Annual Report and Accounts 2021

129

Strategic report Corporate governance Financial statements Additional information

The Directors present their annual report and the audited financial statements for the year ended 31 December 2021.

The Chairman’s letter, strategic report and corporate governance report form part of this report and should be read in conjunction

with it.

Review of business

• The Group income statement for the year is set out on page 142.

• The Group objectives, business model and strategy are set out on pages 24 and 25. KPIs are set out on pages 36 and 37.

• Important events (including post balance sheet events) affecting the Company are set out on pages 2 to 77.

• The principal and emerging risks and uncertainties are set out on pages 42 to 52.

• The use of financial instruments are set out on page 40 and 41, and in note 20 to the Group financial statements.

• The risk management objectives are detailed in note 20 to the Group financial statements. See also pages 42 and 45.

• The Group’s likely future developments are set out on pages 16 to 17.

Directors

Biographical details and experience of the current Directors of the Company are set out on pages 82 and 83.

All Directors will be subject to annual re-election at the 2022 Annual General Meeting in accordance with the UK Corporate

Governance Code. In his role as independent Non-Executive Chairman, Lennart Sten recommends the re-election of the retiring

Directors at the 2022 Annual General Meeting, given their experience, performance and continued important contribution to the

long-term success of the Company. The Senior Independent Non-Executive Director recommends the re-election of Mr Sten.

Directors’ remuneration and interests in shares are set out on pages 110 to 129.

Related party transactions are set out in note 32 to the Group financial statements.

Dividends

An interim dividend of 2.35 pence per share was paid on 24 September 2021. The Directors are proposing a final dividend of

5.35pence per share making a total dividend for the year ended 31 December 2021 of 7.70 pence per share. The final dividend will

bepaid on 29 April 2022 to shareholders who are on the register of members on 25 March 2022.

Purchase of the Company’s shares

There were no purchases of the Company’s own shares during the year. A resolution will be proposed at the 2022 Annual General

Meeting to give the Company authority to make market purchases of up to 40,739,576 shares, being 10% of the current issued

sharecapital.

Share capital

Changes in share capital are shown in note 23 to the Group financial statements. At 31 December 2021, and at the date of this report,

the Company’s issued share capital consisted of 438,777,780 ordinary shares of 2.5 pence each, of which 407,395,760 held voting

rights and 31,382,020 shares were held as treasury shares, and all of which ranked pari passu. The rights (including full details

relating to voting), obligations and any restrictions on transfer relating to the Company’s shares, and the powers of the Directors in

that regard, are set out in the Company’s Articles of Association.

Major interests in the Company’s shares

As at the date of this report the Company’s top 10 shareholders, including those who have notified the Company of their interests

above 3% in the Company’s issued share capital, are:

No. of shares %

The Trustee of The Sten and Karin Mortstedt Family & Charity Trust 209,648,740 51.46%

Bengt Mortstedt 26,572,550 6.52%

BlackRock Inc 16,377,705 4.02%

BMO Global Asset Management 16,192,006 3.97%

Janus Henderson Investors 13,420,068 3.29%

Invesco 7,774,612 1.91%

abrdn 7,708,932 1.89%

AXA 7,633,756 1.87%

Vanguard Group 6,717,428 1.65%

Amati Global Investors 6,036,432 1.48%

Details of the Directors’ interests in shares are shown in the Remuneration Committee Report on page 122. There are no

shareholders who carry special rights with regard to control of the Company and there are no restrictions on voting rights.

The Company knows of no agreements between holders of securities which would result in restrictions on the transfer of securities

or on voting rights.

CLS Holdings plc Annual Report and Accounts 2021

130

Directors’ report

Significant agreements – change of control

A change of control of the Company may cause a number of agreements to which the Company or its active subsidiaries is party,

such as commercial trading contracts, banking arrangements, property leases and licence agreements, to alter or terminate or

provisions in those agreements to take effect. In the context of the Group as a whole, only the banking arrangements are considered

to be significant. There are no agreements between the Company and its Directors or employees providing for compensation for loss

of office or employment that occur because of a change of control.

Relationship agreement – controlling shareholder

As at 31 December 2021, Creative Value Investment Group Limited (‘CVIG’), the investment vehicle for The Sten and Karin Mortstedt

Family & Charity Trust, held through its wholly owned subsidiaries 51.46% of the Company’s shares in issue and was therefore seen

as a controlling shareholder under the Listing Rules.

Pursuant to Listing Rule 9.8.4, the Company has entered into a relationship agreement which shall only be terminated in the event

that CVIG ceases to be a controlling shareholder or if the Company ceases to be admitted to listing on the premium segment of the

Official List. Throughout the period under review, the Company has complied with the mandatory independence provisions and

procurement obligations in the relationship agreement, and as far as the Company is aware, CVIG has also complied.

Property portfolio

A valuation of all the investment properties, properties held for sale and the student accommodation, hotel, and landholding in

plant,property and equipment in the Group at 31 December 2021 was carried out by Cushman and Wakefield for the UK and France,

Jones Lang LaSalle in Germany and L Fällström AB in Sweden, which produced an aggregate market value of £2,331.3 million

(2020: £2,183.0 million).

Corporate governance

The Corporate Governance Statement, prepared in accordance with rule 7.2 of the FCA’s Disclosure Guidance and Transparency

Rules, is set out on pages 78 to 129 and forms part of this report. It applies to the Company and its subsidiaries. It does not include

associates. The Group has no joint ventures.

Employees, environmental and social issues

The Group’s policies on employment, environmental and social issues (including the information required by the Companies Act 2006

(strategic report and Directors’ report) Regulations 2013), including charitable donations, are summarised in the Environmental,

Social and Governance Review on pages 54 to 77. No political donations to any parties, organisations or candidates, or political

expenditure were made during 2021. The Group has also published a Sustainability Strategy and a Net Zero Carbon pathway

documents which are available on line at www.clsholdings.com.

Charitable donations during the year totalled £77,372 (2020: £77,501). As part of the Group’s ESG strategy, it sponsors charitable

events and organisations relating to the real estate industry and, more specifically, assists charities and organisations with donations

and staff involvement initiatives in the areas where our properties are located. Further details can be found in our Sustainability

Report, available on the Company’s website www.clsholdings.com.

Engagement with suppliers, customers and others in a business relationship with the Company

The statement in respect of the Company’s engagement with suppliers, customers and others throughout the year is set out in the

stakeholder engagement sections on pages 34 to 35 and 64 to 69 and our Prompt Payment Code is detailed in the environmental,

social and governance review on page 71.

Human rights

The Board ensures the Group upholds and promotes respect for human rights in all its current operating locations and aims to

prevent any negative human rights impact. As the Group operates in the UK, Germany and France it is subject to the European

Convention on Human Rights and the UK Human Rights Act 1998. The Group respects all human rights and in conducting its business

regards those rights relating to non-discrimination and fair treatment to be the most relevant and to have the greatest potential

impact on its key stakeholders, which are deemed to be customers, employees and suppliers. The Board has also noted its moral

andlegal obligations under the Modern Slavery Act 2015. The Board has a zero tolerance approach towards modern slavery, and

throughout the year the Company has contacted its first tier contractors and suppliers to ensure their compliance with the Act.

Our full statement on Modern Slavery can be found on our website at www.clsholdings.com. The Group’s policies seek to ensure

thatemployees comply with the relevant legislation and regulations in place to promote good practice. The Group’s policies are

formulated and kept up to date and communicated to all employees through the Group Intranet and, where appropriate, individual

presentations. In the year to 31 December 2021, the Group was not aware of any incident in which the organisation’s activities have

resulted in an abuse of human rights.

Insurance of directors and indemnities

The Company has arranged insurance cover in respect of legal action against its Directors and Officers. The Company has granted

indemnities to each of the Directors and other senior management, uncapped in amount but subject to applicable law, in relation to

certain losses and liabilities which they may incur in the course of acting as Directors or employees of the Company or one or more

of its subsidiaries or associates.

CLS Holdings plc Annual Report and Accounts 2021

131

Strategic report Corporate governance Financial statements Additional information

Auditor

Deloitte LLP will not be standing for re-appointment at the forthcoming Annual General Meeting. A resolution to appoint Ernst &

Young LLP as Auditor to the Company will be proposed at the forthcoming Annual General Meeting.

2022 Annual General Meeting

The 2022 Annual General Meeting will be held on Thursday, 28 April 2022. The notice of meeting, including explanatory notes for the

resolutions to be proposed, will be posted to shareholders.

Disclosure of information to the Auditor

Each Director has confirmed at the date of this report that:

• so far as they are aware, there is no relevant audit information of which the Company’s Auditor is unaware; and

• they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit

information and to establish that the Company’s Auditor is aware of that information. This confirmation is given and should be

interpreted in accordance with the provisions of s418 of the Companies Act 2006.

Going concern

The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational

existence for the foreseeable future and further details of this analysis are set out together with the viability statement on page 53.

Therefore, the Directors continue to adopt the going concern basis in preparing the Annual Report and accounts.

Disclosures under listing rule 9.8.4R

The table below is included to comply with the disclosure requirements under Listing Rule 9.8.4R. The information required by the

Listing Rules can be found in the annual report at the location stated below.

Listing Rule Information required Disclosure

9.8.4(1) Interest capitalised by the Group Not applicable

9.8.4(2) Publication of unaudited financial information Pages 123 and 185

9.8.4(4) Long-term incentive schemes with directors Pages 110 -128

9.8.4(5) Director’s waiver of emoluments None

9.8.4(6) Director’s waiver of future emoluments None

9.8.4(7) Non-pro-rata allotments for cash (issuer) None

9.8.4(8) Non-pro-rata allotments for cash (major subsidiaries) None

9.8.4(9) Listed company is subsidiary of another company None

9.8.4(10) Contracts of significance with a director None

9.8.4(11) Contracts of significance with Controlling Shareholder None

9.8.4(12) Dividend waiver Not applicable

9.8.4(13) Waiver of future dividends Not applicable

9.8.4(14)

Relationship Agreement with controlling shareholder Page 131

The following table is included to comply with the additional disclosure requirements under the Listing Rule 9.8.6

Listing Rule Information Required Disclosure

9.8.6(1) Directors’ (and Connected Persons’) interests in CLS shares at yearend and at

not more than one month prior to the date of the AGMnotice

Page 122

9.8.6(2) Interests in CLS shares disclosed under DTR5 at year end and not more than

one month prior to the date of AGM notice

Page 130

9.8.6(3) The going concern statement Page 132

9.8.6(4)(a) Amount of authority to purchase own shares available at year end 40,739,576 shares

9.8.6(4)(b) Off-market purchases of own shares during the year None

9.8.6(4)(c) Off-market purchases of own shares since year end None

9.8.6(4)(d) Non-pro-rata sales of treasury shares during the year None

9.8.6(5) Compliance with the Main Principles of the UK Corporate GovernanceCode Page 85

9.8.6(6)(b) Details of non-compliance with the UK Corporate Governance Code Pages 85, 95 and 97

9.8.6(7) Directors proposed for re-election: the unexpired term of any director’s service

contract and a statement about directors with no service contracts

Page 129

9.8.6R Climate-related financial disclosures consistent with the TCFD

recommendations and recommended disclosures

Pages 74-75. Exceptions noted in

compliance statement

Approved and authorised on behalf of the Board

David Fuller BA FCG

Company Secretary

16 March 2022

CLS Holdings plc Annual Report and Accounts 2021

132

Directors’ report

Continued

Directors’ responsibilities

The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law

andregulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required

to prepare the Group financial statements in accordance with the Companies Act 2006 and United Kingdom adopted International

Accounting Standards and International Financial Reporting Standards (IFRSs) and have elected to prepare the parent company

financial statements in accordance with FRS101 of United Kingdom Generally Accepted Accounting Practice (United Kingdom

Accounting Standards and applicable law). Under company law the Directors must not approve the accounts unless they are satisfied

that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period.

In preparing the parent company financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained

in the financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue

inbusiness.

In preparing the Group financial statements, International Accounting Standard 1 requires that Directors:

• properly select and apply accounting policies;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable

information;

• provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to

understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial

performance; and

• make an assessment of the Group’s ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s

transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that

the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company

and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s

website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from

legislation in other jurisdictions.

Responsibility statement

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the

assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as

awhole;

• the strategic report includes a fair review of the development and performance of the business and the position of the Company

and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and

uncertainties that they face; and

• the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information

necessary for shareholders to assess the Company’s position and performance, business model and strategy.

This statement of responsibilities was approved by the Board on 15 March 2022.

Approved and authorised on behalf of the Board

David Fuller BA FCG

Company Secretary

16 March 2022

CLS Holdings plc Annual Report and Accounts 2021

133

Strategic report Corporate governance Financial statements Additional information

Directors’ responsibility statement

Report on the audit of the financial statements

1. Opinion

In our opinion:

• the financial statements of CLS Holdings plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of the

state of the group’s and of the parent company’s affairs as at 31 December 2021 and of the group’s profit for the year then ended;

• the group financial statements have been properly prepared in accordance with United Kingdom adopted international accounting

standards;

• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted

Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements which comprise:

• the Group income statement;

• the Group statement of comprehensive income;

• the Group and Company balance sheets;

• the Group and Company statements of changes in equity;

• the Group statement of cash flows; and

• the related notes 1 to 32 to the Group financial statements and 1 to 14 to the Company financial statements.

The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law

andUnited Kingdom adopted international accounting standards. The financial reporting framework that has been applied in the

preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including

FRS101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).

2. Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.

Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial

statements section of our report.

We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit

of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed

public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm

that we have not provided any non-audit services prohibited by the FRC’s Ethical Standard to the group or the parent company.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3. Summary of our audit approach

Key audit matters The key audit matters that we identified in the current year were:

• Valuation of the investment property portfolio

Within this report, key audit matters are identified as follows:

Newly identified

Increased level of risk

Similar level of risk

Decreased level of risk

Materiality The materiality that we used for the group financial statements was £26m which was determined on the

basis of 2% of net assets. For testing of balances that impacted EPRA earnings (see note 5), a lower

materiality of £2.2m was used based on 5% of the measure.

Scoping Our scoping covers 100% of the group’s net assets, revenue and profit before tax.

Significant changes

inourapproach

There have been no significant changes to our approach in the current year.

CLS Holdings plc Annual Report and Accounts 2021

134

Independent Auditor’s report

to the members of CLS Holdings plc

4. Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the

preparation of the financial statements is appropriate.

Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis

of accounting included:

• Assessment of the group’s financing facilities including assessing the maturity profile of the group’s debt and testing covenants;

• Challenge of management’s key assumptions used in their forecasts (Rental Income, Property Valuation, LTV (‘Loan-to-Value’

covenant), Sale of properties and Refinancing) based on the current performance, a retrospective review of previous assumptions,

consideration of external market factors and discussions with management;

• Evaluation of the sensitivity analysis and assessment of the amount of headroom under each scenario; and

• Assessment of the adequacy of the disclosures in the financial statements.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,

individually or collectively, may cast significant doubt on the group’s and parent company’s ability to continue as a going concern

foraperiod of at least twelve months from when the financial statements are authorised for issue.

In relation to the reporting on how the group has applied the UK Corporate Governance Code, we have nothing material to add or

draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it

appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections

ofthis report.

5. Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial

statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to

fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of

resources in the audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,

and we do not provide a separate opinion on these matters.

5.1 Valuation of the investment property portfolio

Key audit matter

description

The assessment of the carrying value of the investment property portfolio, specifically the

assumptions and judgements used to derive the property valuations.

The group’s investment properties in the UK, Germany, and France (including assets held for sale and PPE

valued by external valuers) are valued at £2,331m at 31 December 2021 (31 December 2020: £2,183m),

making this the most quantitatively material balance in the financial statements.

The valuation of the portfolio is a significant judgement area that is underpinned by a number of

assumptions including property yields and estimated future rental income. Our key audit matter in

relation to the valuation of the investment property portfolio is focussed on the assumptions applied in the

determination of the valuation, including property yields and estimated future rental income, where these

fall outside of a range which we would expect to be applied.

In addition, given the size of the portfolio and the judgements involved, we consider there to be a risk that

the inputs used in the data supplied to the group’s external valuers for the valuation process (specifically

the accuracy and completeness of this data) may potentially be manipulated by management in order to

fraudulently misstate the valuation.

Refer to the audit committee report on page 108 where this is included as a significant issue. The relevant

accounting policy for the group is presented in note 2 on page 149 and further details in note 13 to the

financial statements on pages 162 and 163

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

135

How the scope of our

audit responded to the

key audit matter

We obtained an understanding of the relevant controls in respect of this business process and tested the

operating effectiveness of the key controls.

We obtained the external valuation reports and met with the external valuers of the property portfolio to

discuss changes to the portfolio, tenancies and other performance drivers.

We evaluated the competence, capabilities and objectivity of the external valuers.

We involved our real estate specialist, a chartered surveyor, when attending the meetings with the

external valuers and on a sample basis challenged the assumptions and judgements made by the group’s

external valuers including, but not limited to, those around market rents, yields and void periods.

We involved our real estate specialist in obtaining relevant industry data for the UK and drawing on local

expertise in the European markets in which CLS operates. This was used to benchmark the portfolio

performance and key assumptions used to assess whether the external evidence supported the

assumptions used by the valuers.

In addition to assessing the key assumptions used in the valuation, with the involvement of our real estate

specialist, we also assessed whether the models used by the valuers were appropriate.

We assessed, on a sample basis, the accuracy and completeness of information provided to the valuers,

relating to rental income, to evaluate whether it was consistent with the relevant leases.

We assessed the disclosures in respect of the investment property portfolio and evaluated whether

property valuations, the underlying assumptions and sensitivity to change were appropriately disclosed.

Key observations

Based on the work performed above, we are satisfied with the valuation of the investment property

portfolio.

6. Our application of materiality

6.1 Materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic

decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of

our audit work and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Group financial statements Parent company financial statements

Materiality £26.0 million (2020: £25.4 million) and a lower

materiality of £2.2 million (2020: £2.5 million) for

EPRA earnings.

£9.0 million (2020: £9.2 million)

Basis for determining

materiality

2% (2020: 2%) of net assets.

5% (2020: 5%) of EPRA earnings for testing of

balances that impact the measure.

2% of total assets (2020: 2% of total assets)

Rationale for the

benchmark applied

As an investment property company, the main

focus of management is to generate long-term

capital value from the investment property

portfolio and, therefore, we consider net assets to

be the most appropriate basis for determining

materiality.

We continue to consider EPRA earnings to be a

critical performance measure for the group and

we therefore determined and applied a lower

materiality to testing of those items impacting

EPRA earnings.

Total assets is an appropriate basis for the Parent

Company as it holds investments in underlying

subsidiary undertakings. It does not hold external

debt and has no direct property holdings.

CLS Holdings plc Annual Report and Accounts 2021

136

Independent Auditor’s report

to the members of CLS Holdings plc

continued

Net assets Group materiality

Net assets

£1,330.7m

Component materiality range

£13.0m to £19.5m

Audit Committee reporting threshold

£1.3m

Group materiality

£26.0m

6.2 Performance materiality

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and

undetected misstatements exceed the materiality for the financial statements as a whole.

Group financial statements Parent company financial statements

Performance

materiality

70% (2020: 70%) of Group materiality 70% (2020: 70%) of parent company materiality

Basis and rationale

fordetermining

performance

materiality

In determining performance materiality, we considered the following factors:

a. our risk assessment, including our understanding of the Group’s overall control environment which

we consider appropriate forthe size and nature of the Group; and

b. our past experience of the audit, which has indicated a low number of uncorrected misstatements

identified in prior periods.

6.3 Error reporting threshold

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £1.3m (2020: £1.3m), as

well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit

Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

7. An overview of the scope of our audit

7.1 Identification and scoping of components

Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls, and

assessing the risk of material misstatement at the group level. Based on that assessment, and consistent with our conclusion on

scoping in the prior year, we focused our group audit scope on each of the group’s principal business units, being the UK, Germany

and France. These locations represent the principal business units of the group and are considered by us to be the significant

components. These components account for 100% (2020: 100%) of the group’s net assets, revenue and profit before tax.

Our audit work at each of the three significant components has been executed by Deloitte component auditors at levels of materiality

applicable to each individual component which were lower than group materiality and ranged from £13.0m to £19.5m (2020: £12.8m

to £19.1m) with lower materialities being used for those items impacting EPRA earnings ranging from £1.2m to £1.8m (2020: £1.4m to

£1.5m), consistent with the group audit approach.

At the group level we tested the consolidation process and carried out analytical procedures to confirm our conclusion that there

were no significant risks of material misstatement of the aggregated financial information.

7.2 Our consideration of the control environment

From our understanding of the Group and after assessing relevant controls, we tested controls in respect of rental income and relied

on them in performing our audit of the rental income for the UK group.

Whilst we did not take controls reliance, we also assessed and tested the controls relating to the valuation of investment property

given the significance to the group.

In addition, we have obtained an understanding of the relevant controls such as those relating to the financial reporting cycle.

There were no areas where we had planned to test or rely on controls, other than those set out above.

With the support of our IT specialists, we obtained an understanding of the IT environment. We did not test the general IT controls and

we did not place reliance on IT controls.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

137

7.3 Our consideration of climate-related risks

In planning our audit, we have considered the potential impact of climate change on the Group’s business and its financial statements.

The group continues to develop its assessment of climate-related risks and resilience of the group and its properties under different

climate scenarios, as explained in the Strategic Report on pages 70 to 77.

As a part of our audit, we have held discussions with management and head of sustainability to understand the process of identifying

and assessing climate-related risks, the process for managing the identified risks and the determination of mitigating actions as well

as the impact on the group’s financial statements. Management has assessed that there is currently no material impact arising from

climate change on the judgements and estimates that have been made in the preparation of the financial statements (see note 13).

We performed our own assessment of the potential impact of climate change on the group’s financial statements and did not identify

any reasonably possible risks of material misstatement. Our procedures also included reading disclosures included in the Strategic

Report to consider whether they are materially consistent with the financial statements and our knowledge obtained in the audit.

7.4 Working with other auditors

The audit work on the key audit matter has been led by the group audit team, supplemented by specific procedures by the component

auditors to gain assurance over the information provided to the valuers. The component auditors’ work has been reviewed remotely

by the group team for the German and French components in the current year and, where necessary, component auditors carried out

further testing at our request. The UK component is audited directly by the group audit team.

All component audit partners were included in our team briefing where the risk assessment was discussed and there was frequent

two-way communication between the group and component auditors. In the current year, we did not visit our component auditors in

Germany or France but we maintained regular communication utilising a number of collaboration tools and attended both close

meetings via a teleconference call. We also performed a remote review of their audit files.

8. Other information

The other information comprises the information included in the annual report, other than the financial statements and our auditor’s

report thereon. The directors are responsible for the other information contained within the annual report.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in

our report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent

with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives

rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that

there is a material misstatement of this other information, we are required to report that fact.

9. Responsibilities of directors

As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial

statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is

necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to

continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of

accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic

alternative but to do so.

10. Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material

misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a

high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material

misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the

aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial

statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:

www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

CLS Holdings plc Annual Report and Accounts 2021

138

Independent Auditor’s report

to the members of CLS Holdings plc

continued

11. Extent to which the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our

responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our

procedures are capable of detecting irregularities, including fraud is detailed below.

11.1 Identifying and assessing potential risks related to irregularities

In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with

lawsand regulations, we considered the following:

• the nature of the industry and sector, control environment and business performance including the design of the group’s

remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;

• results of our enquiries of management and the audit committee about their own identification and assessment of the risks of

irregularities;

• any matters we identified having obtained and reviewed the group’s documentation of their policies and procedures relating to:

– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of

non-compliance;

– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;

– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;

• the matters discussed among the audit engagement team including significant component audit teams and relevant internal

specialists, including tax, IT and real estate specialists regarding how and where fraud might occur in the financial statements

andany potential indicators of fraud.

As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and

identified the greatest potential for fraud in the accuracy and potential manipulation of the assumptions applied in determining the

valuation of the property. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond

to the risk of management override.

We also obtained an understanding of the legal and regulatory frameworks that the group operates in, focusing on provisions of

those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial

statements. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules and tax

legislation.

In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but

compliance with which may be fundamental to the group’s ability to operate or to avoid a material penalty. These included the

Landlord and Tenant Act, Health and Safety Act and environmental regulations.

11.2 Audit response to risks identified

As a result of performing the above, we identified the valuation of the investment property portfolio as a key audit matter related

tothe potential risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the

specific procedures we performed in response to that key audit matter.

In addition to the above, our procedures to respond to risks identified included the following:

• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of

relevant laws and regulations described as having a direct effect on the financial statements;

• enquiring of management, the audit committee and in-house legal counsel concerning actual and potential litigation and claims;

• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material

misstatement due to fraud;

• reading minutes of meetings of those charged with governance and reviewing correspondence with HMRC; and

• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other

adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and

evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including

internal specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with

laws and regulations throughout the audit.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

139

Report on other legal and regulatory requirements

12. Opinions on other matters prescribed by the Companies Act 2006

In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the

Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the strategic report and the directors’ report for the financial year for which the financial statements are

prepared is consistent with the financial statements; and

• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course

ofthe audit, we have not identified any material misstatements in the strategic report or the directors’ report.

13. Corporate Governance Statement

The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of

theCorporate Governance Statement relating to the group’s compliance with the provisions of the UK Corporate Governance Code

specified for our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate

Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:

• the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material

uncertainties identified;

• the directors’ explanation as to its assessment of the group’s prospects, the period this assessment covers and why the period

isappropriate;

• the directors’ statement on fair, balanced and understandable;

• the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks;

• the section of the annual report that describes the review of effectiveness of risk management and internal control systems; and

• the section describing the work of the audit committee.

14. Matters on which we are required to report by exception

14.1 Adequacy of explanations received and accounting records

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• we have not received all the information and explanations we require for our audit; or

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received

from branches not visited by us; or

• the parent company financial statements are not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

14.2 Directors’ remuneration

Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not

been made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

15. Other matters which we are required to address

15.1 Auditor tenure

Following the recommendation of the audit committee, we were appointed by the Board of CLS Holdings plc on 23 May 2007 to audit

the financial statements for the year ending 31 December 2007. The period of total uninterrupted engagement including previous

renewals and reappointments of the firm is 15 years, covering the years ending 2007 to 2021.

15.2 Consistency of the audit report with the additional report to the audit committee

Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).

CLS Holdings plc Annual Report and Accounts 2021

140

Independent Auditor’s report

to the members of CLS Holdings plc

continued

16. Use of our report

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.

Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to

them in an auditor’s 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 and the company’s members as a body, for our audit work, for this report, or for the

opinions we have formed.

As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial

statements form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National

Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard ((‘ESEF RTS’). This auditor’s report

provides no assurance over whether the annual financial report has been prepared using the single electronic format specified in the

ESEF RTS.

Georgina Robb FCA (Senior statutory auditor)

For and on behalf of Deloitte LLP

Statutory Auditor

London, United Kingdom

16 March 2022

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

141

2021 2020

Notes

Recurring

items

£m

Non-

recurring

items

£m

Note 10

Total

£m

Recurring

items

£m

Non-

recurring

items

£m

Total

£m

Revenue 4 139.8 – 139.8 139.4 – 139.4

Net rental income

4 108.0 – 108.0 109.8 – 109.8

Administration expenses

(15.0) (1.2) (16.2) (18.5) – (18.5)

Other expenses (14.4) – (14.4) (15.1) – (15.1)

Revenue less costs 78.6 (1.2) 77.4 76.2 – 76.2

Net revaluation movements on investment property

13 28.5 – 28.5 31.5 – 31.5

Net revaluation movements on equity investments 1.0 – 1.0 – – –

(Loss)/profit on sale of investment property (0.1) – (0.1) 11.6 – 11.6

Operating profit 108.0 (1.2) 106.8 119.3 – 119.3

Finance income

8 5.9 – 5.9 1.1 – 1.1

Finance costs

9 (25.4) – (25.4) (26.0) – (26.0)

Foreign exchange (loss)/gain (2.3) – (2.3) 2.1 – 2.1

Share of profit of associates after tax

31 5.1 1.4 6.5 – – –

Profit before tax 91.3 0.2 91.5 96.5 – 96.5

Taxation

11 (14.0) 42.0 28.0 (19.1) – (19.1)

Profit for the year attributable to equity shareholders

6 77.3 42.2 119.5 77.4 – 77.4

Basic and diluted earnings per share

5 29.3p 19.0p

The notes on pages 147 to 178 are an integral part of these Group financial statements.

CLS Holdings plc Annual Report and Accounts 2021

142

Group income statement

for the year ended 31 December 2021

Notes

2021

£m

2020

£m

Profit for the year 119.5 77.4

Other comprehensive income

Items that will not be reclassified to profit or loss

Foreign exchange differences

25 (32.8) 24.2

Items that may be reclassified to profit or loss

Revaluation of property, plant and equipment

14 5.5 (3.6)

Deferred tax on fair value movements

18 (1.0) 0.5

Total items that may be reclassified to profit or loss 4.5 (3.1)

Total other comprehensive (expense)/income (28.3) 21.1

Total comprehensive income for the year attributable to equity shareholders 91.2 98.5

The notes on pages 147 to 178 are an integral part of these Group financial statements.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

143

Group statement of comprehensive income

for the year ended 31 December 2021

Notes

2021

£m

2020

£m

Non-current assets

Investment properties

13 2,153.0 2,032.8

Property, plant and equipment

14 135.4 130.5

Goodwill and intangible assets 3.1 2.2

Investment in associate

31 4.9 –

Other financial investments 1.7 –

Deferred tax

18 2.6 7.7

Derivative financial instruments

20 0.4 –

Other receivables

15 7.7 8.2

2,308.8 2,181.4

Current assets

Trade and other receivables

15 18.1 22.0

Assets held for sale 44.2 21.9

Cash and cash equivalents

16 167.4 235.7

229.7 279.6

Total assets 2,538.5 2,461.0

Current liabilities

Trade and other payables

17 (57.6) (54.3)

Current tax (4.5) (0.3)

Borrowings

19 (169.1) (103.6)

Derivative financial instruments

20 (0.7) –

(231.9) (158.2)

Non-current liabilities

Deferred tax

18 (109.9) (159.5)

Borrowings

19 (862.5) (867.1)

Leasehold liabilities (3.4) –

Derivative financial instruments

20 (0.1) (5.6)

(975.9) (1,032.2)

Total liabilities (1,207.8) (1,190.4)

Net assets 1,330.7 1,270.6

Equity

Share capital

23 11.0 11.0

Share premium 83.1 83.1

Other reserves

25 88.7 117.3

Retained earnings 1,147.9 1,059.2

Total equity 1,330.7 1,270.6

The financial statements of CLS Holdings plc (registered number: 02714781) were approved by the Board of Directors and authorised for

issue on 16 March 2021 and were signed on its behalf by:

Mr F Widlund Mr A Kirkman

Chief Executive Officer Chief Financial Officer

The notes on pages 147 to 178 are an integral part of these Group financial statements.

CLS Holdings plc Annual Report and Accounts 2021

144

Group balance sheet

at 31 December 2021

Share

capital

£m

Share

premium

£m

Other

reserves

£m

Retained

earnings

£m

Total equity

£m

Note 23 Note 25

Arising in 2021:

Total comprehensive income for theyear – – (28.3) 119.5 91.2

Share-based payment charge – – (0.3) – (0.3)

Dividends to shareholders – – – (30.8) (30.8)

Total changes arising in 2021 – – (28.6) 88.7 60.1

At 1 January 2021 11.0 83.1 117.3 1,059.2 1,270.6

At 31 December 2021 11.0 83.1 88.7 1,147.9 1,330.7

Share

capital

£m

Share

premium

£m

Other

reserves

£m

Retained

earnings

£m

Total equity

£m

Note 23 Note 25

Arising in 2020:

Total comprehensive income for theyear – – 21.1 77.4 98.5

Share-based payment charge – – (0.2) – (0.2)

Dividends to shareholders – – – (30.1) (30.1)

Total changes arising in 2020 – – 20.9 47.3 68.2

At 1 January 2020 11.0 83.1 96.4 1,011.9 1,202.4

At 31 December 2020 11.0 83.1 117.3 1,059.2 1,270.6

The notes on pages 147 to 178 are an integral part of these Group financial statements.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

145

Group statement of changes in equity

for the year ended 31 December 2021

Notes

2021

£m

2020

£m

Cash flows from operating activities

Cash generated from operations

26 73.1 76.9

Interest received 0.5 1.0

Interest paid (24.3) (22.1)

Income tax paid on operating activities (5.1) (11.5)

Net cash inflow from operating activities 44.2 44.3

Cash flows from investing activities

Purchase of investment properties (164.6) (124.6)

Capital expenditure on investment properties (35.8) (18.9)

Proceeds from sale of properties 37.0 62.2

Income tax paid on sale of properties

(1.3) (9.0)

Purchases of property, plant and equipment (0.6) (0.3)

Net cash flow from sale of subsidiaries – (1.4)

Purchase of intangibles

(0.9) (0.8)

Distributions received from associate and investment undertakings 0.2 0.1

Disposal of associate undertakings 0.5 –

Net cash flow on foreign currency transactions – 0.3

Net cash outflow from investing activities (165.5) (92.4)

Cash flows from financing activities

Dividends paid

24 (30.8) (30.1)

New loans 196.7 182.5

Issue costs of new loans (1.4) (2.5)

Repayment of loans (107.2) (128.3)

Net cash inflow from financing activities 57.3 21.6

Cash flow element of net decrease in cash and cash equivalents (64.0) (26.5)

Foreign exchange (loss)/gain (4.3) 2.8

Net decrease in cash and cash equivalents (68.3) (23.7)

Cash and cash equivalents at the beginning of the year 235.7 259.4

Cash and cash equivalents at the end of the year

16 167.4 235.7

The notes on pages 147 to 178 are an integral part of these Group financial statements.

CLS Holdings plc Annual Report and Accounts 2021

146

Group statement of cash flows

for the year ended 31 December 2021

1. General information

CLS Holdings plc (the ‘Company’) and its subsidiaries (together ‘CLS Holdings’ or the ‘Group’) is an investment property group which

isprinis principally involved in the investment, management and development of commercial properties. The Group’s principal operations are

carried outin thd out in the United Kingdom, Germany and France.

The Company is registered and incorporated in the UK, registration number 02714781, with its registered address at 16 Tinworth Street,

London SE11 5AL. The Company is listed on the London Stock Exchange.

2. Significant accounting policies

The principal accounting policies applied in the preparation of these Group financial statements are set out below. Thesepolicies have been

consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

The financial statements have been prepared on a going concern basis as explained in the Directors’ Report on page 132 and have been

prepared in accordance with the requirements of the Companies Act 2006 and United Kingdom adopted International Accounting Standards

and International Financial Reporting Standards (IFRSs).

The financial statements have been prepared on the historical cost basis, except for the revaluation of certain properties and financial

instruments that are measured at fair values at the end of each reporting period, as explained in the accounting policies below. Historical

cost is generally based on fair value of the consideration given in exchange for goods and services. Fair value is the price that would be

received to sell the asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,

regardless of whether that price is directly observable or estimated using another valuation technique.

The consolidated financial statements, including the results and financial position, are presented in sterling, which is the functional and

presentation currency of CLS Holdings plc.

New standards and interpretations

In the current year, the Group has applied a number of new standards and amendments to IFRSs issued by the International Accounting

Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2021. Their adoption

hasnot hadany material impact on the disclosures or on the amounts reported in these financial statements. These new standards and

amendments are listed below:

• Amendment to IFRS 16 on Covid 19 related rent concessions

• Amendments to IFRS 9, IAS 29, IFRS 7, IFRS 4 and IFRS 16 - interest rate benchmark reform phase 2

At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRSs thathave been

issued but are not yet effective:

• Amendment to IFRS 16 – Covid 19 related rent concessions beyond 30 June 2021

• Amendments to IAS 16 – Property, plant and equipment proceeds before intended use

• Annual improvements to IFRS Standards 2018-2020 (May 2020)

• Amendments to IFRS 3 (May 2020) – Reference to the conceptual framework

• Amendments to IAS 37 (May 2020) – Onerous contracts, cost of fulfilling a contract

• IFRS 17 – Insurance contracts

• Amendments to IAS 1 – Classification of liabilities as current or non current (including deferral of effective date)

• Amendments to IFRS 4 – Extension of the temporary exemption from applying IFRS 9

• Amendments to IAS 1 and IFRS Practice Statement 2 – Disclosure of accounting policies

• Amendments to IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction

• Amendments to IAS 8 – Definition of accounting estimates

The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the

Group infuture periods.

Transition from LIBOR to SONIA

The London Interbank Offered Rate (LIBOR) is a measure of the average rate at which banks are willing to borrow wholesale unsecured

funds. It is administered by ICE Benchmark Administration and is calculated based on submissions from selected panel banks. It is

published in five currencies and a range of tenors and underpins financial contracts including derivatives, bonds and loans. As a result

ofpast market manipulation, LIBOR is being abolished from the end of 2021 and will be replaced by SONIA (Sterling Overnight Indexed

Average). SONIA has been administered and published by the Bank of England since April 2018. It is robust and sustainable given the

volume of transactions underpinning it and does not include a term bank credit risk component so is a better measure of the general level

of interest rates than LIBOR. SONIA can be compounded to be used in term contracts and the compounded rates tend to be relatively

predictable. Referencing alternatives such as SONIA is the most effective way of avoiding risks related to LIBOR discontinuation.

Discussions in relation to the transition from LIBOR to SONIA have taken place with our relationship banks during 2021 and new terms have

been agreed. There is no resulting financial impact on our results as a result of the transition.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

147

Notes to the Group financial statements

for the year ended 31 December 2021

2. Significant accounting policies continued

2.2 Business combinations

(I) Subsidiary undertakings

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group

isexposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through

itspower over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group.

They aredeconsolidated from the date that control ceases.

(II) Associates

Associates are those entities over which the Group has significant influence but which are not subsidiary undertakings or joint ventures.

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting.

Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net

assetsof the associate, less any impairment in the value of individual investments.

(III) Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value ofidentifiable

assets and liabilities of a subsidiary or associate at the date of acquisition. It is initially recognised as an asset atcost and is subsequently

measured at cost less any accumulated impairment losses. Goodwill which is recognised as anasset is reviewed for impairment at

least annually.

2.3 Assets held for sale

Assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell,

except for investment properties held for sale which are measured at fair value.

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction

rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal

group) is available for sale in its present condition. Management must be committed to the sale which should be expected to qualify for

recognition as a completed sale within one year from the date of classification.

When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are

classified as held for sale when the criteria above are met, regardless of whether the Group will retain a non-controlling interest in its

former subsidiary after sale.

2.4 Foreign currency

(I) Foreign currency transactions

Transactions in foreign currencies are translated into sterling using the exchange rate prevailing at the date of the transaction. Monetary

assets and liabilities denominated in foreign currencies at the balance sheet date are translated into sterling at the exchange rate ruling

atthat date, and differences arising on translation are recognised in the income statement.

In relation to financial assets measured at fair value through other comprehensive income, exchange differences on the amortised cost

ofthe financial assets are recognised in the income statement in the ‘finance costs or finance income’ line item. Other exchange differences

are recognised in other comprehensive income in the fair value reserve. For financial assets measured at fair value through profit and loss,

exchange differences are recognised in the income statement in the ‘finance costs or finance income’ line item.

(II) Consolidation of foreign entities

The results and financial position of all Group entities which have a functional currency different from sterling are translated into sterling

as follows:

(a) assets and liabilities are translated at the closing rate at the date of the balance sheet;

(b) income and expenses for each income statement are translated at the average exchange rates; and

(c) all resulting exchange differences are recognised directly in equity in the cumulative translation reserve.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and

othercurrency instruments designated as hedges of such investments, are taken to the cumulative translation reserve via other

comprehensive income. When a foreign operation is sold, such exchange differences are recognised as part of the gain or loss on sale

inthe income statement.

CLS Holdings plc Annual Report and Accounts 2021

148

Notes to the Group financial statements

continued

2. Significant accounting policies continued

2.5 Investment properties

Investment properties are those properties held for long-term rental yields or for capital appreciation or both. Investment properties

aremeasured initially at cost, including related transaction costs. Additions to investment properties comprise costs of a capital nature;

inthe case of investment properties under development, these include capitalised interest and certain staff costs directly attributable to

themanagement of the development. Capitalised interest is calculated at the rate on associated borrowings applied to direct expenditure

between the date of gaining planning consent and the date of practical completion. The Group recognises sales and purchases of

investment property when control passes on completion of the contract. Gains or losses on the sale of properties are calculated by

reference to the carrying value at the end of the previous year, adjusted for subsequent capital expenditure.

Investment properties are carried at fair value, based on market value as determined by professional external valuers at thebalance sheet

date. Investment properties being redeveloped for continuing use as investment properties, or for which themarket has become less

active, continue to be classified as investment properties and measured at fair value. Changesinfair values are recognised in the

income statement.

2.6 Property, plant and equipment

Property, plant and equipment is carried at fair value, based on market value as determined by professional external valuers at the balance

sheet date, except for fixtures and fittings and head office fit-out which are stated at historical cost less accumulated depreciation andany

impairment loss.

Any increase arising on the revaluation of land and buildings held as property, plant and equipment is credited to the fair value reserve via

other comprehensive income, except to the extent that it reverses a revaluation decrease for the same asset previously recognised as an

expense, in which case the increase in value is credited to the income statement to the extent the decrease was previously expensed.

Land is not depreciated. Depreciation on the property, plant and equipment that is depreciated is calculated using the straight-line method

to allocate cost less estimated residual values over the estimated useful lives or lease length, as follows:

Fixtures and fittings 4–5 years

Head Office fit-out 10 years

Hotel 250 years

Student 250 years

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from

the continued use of the asset. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between

the sale proceeds and the carrying amount of the asset and is recognised in the income statement.

2.7 Financial instruments

(I) Derivative financial instruments

The Group uses derivative financial instruments, including swaps and interest rate caps, to help manage its interest rate and foreign

exchange rate risks. Derivative financial instruments are recorded at, and subsequently revalued to, fair value. Revaluation gains and losses

are recognised infinance income or finance cost in the income statement.

(II) Financial assets classified as fair value through other comprehensive income (FVTOCI)

Financial assets classified as at FVTOCI are initially measured at cost, and are subsequently revalued to fair value. Revaluation gains and

losses are recognised in other comprehensive income, except for impairment losses and foreign exchange gains and losses on monetary

assets which are recognised in the income statement. On disposal, the cumulative gain or loss previously recognised in other

comprehensive income is recycled through the income statement.

(III) Financial assets at fair value through profit and loss (FVTPL)

Financial assets at FVTPL are revalued to fair value. Revaluation gains and losses are recognised in the income statement.

(IV) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits and other short-term highly liquid investments which arereadily

convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

(V) Trade and other receivables/Trade and other payables

Trade and other receivables are recognised initially at their transaction price. Subsequently they are measured at amortised cost with a

recognised loss allowance for expected credit losses which is measured at an amount equal to the lifetime expected credit loss. Trade and

other payables are stated atcost,whichequates to fair value.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

149

2. Significant accounting policies continued

(VI) Borrowings

Borrowings are recognised initially at fair value less attributable transaction costs. Subsequently, borrowings are stated atamortised cost

with any difference between the amount initially recognised and the redemption value being recognised inthe income statement over the

period of the borrowings, using the effective interest rate method.

2.8 Revenue

(I) Rental income

Rental income from operating leases is recognised on a straight-line basis over the lease term. The cost of incentives isrecognised over

thelease term, on a straight-line basis, as a reduction of rental income.

(II) Service charge income

Service charge income relates to expenditure that is directly recoverable from tenants and is recognised in accordance with IFRS 15

Revenue from Contracts with Customers, which prescribes the use of afive-step model for the recognition of revenue. These income

streams are recognised as revenue in the period in which they are earned.

(II) Other property income

Other property income relates to income from the Group’s student accommodation and hotel in addition to dilapidations receipts and

surrender premiums.

2.9 Taxation

Current tax is based on taxable profit for the year and is calculated using tax rates that have been enacted or substantively enacted by the

balance sheet date.

Deferred tax is provided using the balance sheet liability method on temporary differences between the carrying value ofassets and

liabilities for financial reporting purposes and the values used for tax purposes. Temporary differences are not provided for when they arise

from initial recognition of goodwill or from the initial recognition of assets and liabilities inatransaction that does not affect accounting or

taxable profit.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount ofassets and

liabilities, and is calculated using rates that are expected to apply in the period when the liability is settled or the asset is realised, in the tax

jurisdiction in which the temporary differences arise. Deferred tax is charged or credited in arriving at profit after tax, except when it relates

to items recognised in other comprehensive income, in which case the deferred tax isalso recognised in other comprehensive income.

Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the assets

can be used. The deferred tax assets and liabilities are only offset if they relate to income taxes levied by thesame taxation authority, there

is a legally enforceable right of set-off and the Group intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax are recognised in the income statement except when they relate to items that are recognised in other

comprehensive income ordirectly in equity, in which case the current and deferred tax are also recognised in other comprehensive income

or equity respectively.

3. Critical accounting judgements and key sources of estimation uncertainty

Critical accounting judgements

In accordance with IAS 1, the Directors have considered the judgements that have been made in the process of applying theGroup’s

accounting policies, which are described in note 2, and which of those judgements have the most significant effecton amounts recognised

in the financial statements.

In the opinion of the Directors, for the years ended 31 December 2021 and 31 December 2020 there are no accounting judgements that are

material to the financial statements.

Key sources of estimation uncertainty

The Group uses the valuations performed by its independent external valuers as the fair value of its investment properties and those

properties held at valuation and classified as property, plant and equipment. Thevaluations are based upon assumptions including future

rental income, anticipated maintenance costs, future development costs and an appropriate discount rate (see note 14 for more detail).

The valuers also make reference to market evidence oftransaction prices for similar properties.

CLS Holdings plc Annual Report and Accounts 2021

150

Notes to the Group financial statements

continued

4. Segment information

The Group has two operating divisions – investment properties and other investments. Other investments comprise the hotel and student

accommodation at Spring Mews and other small corporate investments. The Group manages the investment properties division on a

geographical basis due to its size and geographical diversity. Consequently, the Group’s principal operating segments are:

Investment properties: United Kingdom

Germany

France

Other investments

Year ended 31 December 2021

Investment properties

Other

investments

£m

Central

administration

£m

Non-

recurring

items

£m

Total

£m

United

Kingdom

£m

Germany

£m

France

£m

Rental income 53.3 33.8 14.1 – – – 101.2

Other property-related income 1.9 0.3 0.5 6.8 – – 9.5

Service charge income 12.3 11.2 5.6 – – – 29.1

Revenue 67.5 45.3 20.2 6.8 – – 139.8

Service charges and similar expenses (13.8) (12.0) (6.0) – – – (31.8)

Net rental income 53.7 33.3 14.2 6.8 – – 108.0

Administration expenses (6.9) (2.9) (1.7) 0.2 (3.7) (1.2) (16.2)

Other expenses (5.9) (3.3) (1.1) (4.6) 0.5 – (14.4)

Revenue less costs 40.9 27.1 11.4 2.4 (3.2) (1.2) 77.4

Net revaluation movements on investmentproperty 3.7 24.2 0.6 – – – 28.5

Net revaluation movements on equityinvestments – – – 1.0 – – 1.0

Profit/(loss) on sale of investment property 0.7 (1.1) 0.3 – – – (0.1)

Segment operating profit/(loss) 45.3 50.2 12.3 3.4 (3.2) (1.2) 106.8

Finance income 3.8 0.2 – 1.9 – – 5.9

Finance costs (15.7) (5.4) (2.7) (1.3) (0.3) – (25.4)

Foreign exchange loss – – – (2.3) – – (2.3)

Share of profit of associate after tax – – – 5.1 – 1.4 6.5

Segment profit/(loss) before tax 33.4 45.0 9.6 6.8 (3.5) 0.2 91.5

Year ended 31 December 2020

Investment properties

Other

investments

£m

Central

administration

£m

Non-

recurring

items

£m

Total

£m

United

Kingdom

£m

Germany

£m

France

£m

Rental income 58.2 33.3 15.0 – – – 106.5

Other property-related income 3.8 – 0.2 1.9 – – 5.9

Service charge income 11.2 10.3 5.5 – – – 27.0

Revenue 73.2 43.6 20.7 1.9 – – 139.4

Service charges and similar expenses (12.8) (10.9) (5.9) – – – (29.6)

Net rental income 60.4 32.7 14.8 1.9 – – 109.8

Administration expenses (7.5) (2.9) (1.8) (0.2) (6.1) – (18.5)

Other expenses (8.9) (2.8) (1.4) (2.0) – – (15.1)

Revenue less costs 44.0 27.0 11.6 (0.3) (6.1) – 76.2

Net revaluation movements on investmentproperty (29.1) 60.1 0.5 – – – 31.5

(Loss)/profit on sale of investment property (0.1) 11.7 – – – – 11.6

Segment operating profit/(loss) 14.8 98.8 12.1 (0.3) (6.1) – 119.3

Finance income – – – 1.1 – – 1.1

Finance costs (17.3) (5.1) (2.7) (0.9) – – (26.0)

Foreign exchange gain – – – 2.1 – – 2.1

Segment (loss)/profit before tax (2.5) 93.7 9.4 2.0 (6.1) – 96.5

1 On 1 January 2021 the student accommodation was transferred from the United Kingdom investment property segment to the ‘Other investments’ segment due to the

property’s reclassification to property, plant and equipment at 31 December 2020.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

151

4. Segment information continued

Other segment information

Assets Liabilities Capital expenditure

2021

£m

2020

£m

2021

£m

2020

£m

2021

£m

2020

£m

Investment properties

United Kingdom 1,065.6 1,044.8 555.0 605.2 20.6 7.3

Germany 900.2 767.2 462.4 373.3 9.4 6.3

France 293.8 314.9 183.8 207.2 6.0 4.2

Other investments 278.9 334.1 6.6 4.7 0.5 0.1

2,538.5 2,461.0 1,207.8 1,190.4 36.5 17.9

5. Alternative performance measures

Alternative performance measures (‘APMs’) should be considered in addition to, and are not intended to be a substitute for, or superior to,

IFRS measurements.

Introduction

The Group has applied the October 2015 European Securities and Markets Authority (‘ESMA’) guidelines on APMs and the October 2021

Financial Reporting Council (‘FRC’) thematic review of APMs in these results, whilst noting the International Organization of Securities

Commissions (IOSCO) 2016 guidance and ESMA’s December 2019 report on the use of APMs. An APM is a financial measure of historical

orfuture financial performance, position or cash flows of the Group which is not ameasure defined or specified in IFRS.

Overview of our use of APMs

The Directors believe that APMs assist in providing additional useful information on the underlying trends, performance and position of the

Group. APMs assist our stakeholder users of the accounts, particularly equity and debt investors, through the comparability of information.

APMs are used by the Directors and management, both internally and externally, for performance analysis, strategic planning, reporting

and incentive-setting purposes.

APMs are not defined by IFRS and therefore may not be directly comparable with other companies’ APMs, including peers in the real

estateindustry. There are two sets of APMs which we utilise, and which are reconciled where possible to statutory measures on the

following pages.

EPRA APMs and similar CLS APMs

CLS monitors the Group’s financial performance using APMs which are European Public Real Estate Association (‘EPRA’) measures as

these are a set of standard disclosures for the property industry and thus aid comparability for our stakeholder users. In previous years,

the two key APMs for CLS, which are in accordance with the November 2016 EPRA guidelines, were:

• EPRA earnings, which gives relevant information to investors on the long-term performance of the Group’s underlying property

investment business and an indication of the extent to which current dividend payments are supported by earnings; and

• EPRA net asset value (NAV), which excludes certain items not expected to crystallise in a long-term investment property business model,

such as CLS’.

The latest edition of the EPRA guidelines were issued in October 2019 and replaced EPRA NAV and EPRA NNNAV with three other balance

sheet reporting measures, which are defined in the glossary:

• EPRA net tangible assets (NTA);

• EPRA net realisable value (NRV); and

• EPRA net development value (NDV).

CLS considers EPRA NTA to be the most relevant of these new measures as we believe that this will continue to reflect the long-term

nature of our property investments most accurately. However, all the new measures have been disclosed. EPRA Earnings remains

the same.

CLS Holdings plc Annual Report and Accounts 2021

152

Notes to the Group financial statements

continued

5. Alternative performance measures continued

Whilst CLS primarily uses the measures referred to above, we have also disclosed all other EPRA metrics as well as disclosing the

measures that CLS used to prefer for certain of these categories. The notes below highlight where the measures that we monitor differ

andour previous rationale for using them. From 2021 onwards, following CLS’ re-entry into the EPRA indices, we will be just using EPRA

measures which are:

• EPRA net initial yield;

• EPRA ‘topped-up’ net initial yield;

• EPRA vacancy;

• EPRA capital expenditure; and

• CLS administration cost ratio and EPRA cost ratio.

Other APMs

CLS uses a number of other APMs, many of which are commonly used by industry peers:

• Total accounting return;

• Net borrowings and gearing;

• Loan-to-value;

• Dividend cover; and

• Interest cover.

There have been no changes to the Group’s APMs in the year with the same APMs utilised by the business being defined, calculated and

used onaconsistent basis. Set out below is a reconciliation of the APMs used in these results to the statutory measures.

1. EPRA APMs and similar CLS APMs

For use in earnings per share calculations

2021

Number

2020

Number

Weighted average number of ordinary shares in circulation 407,395,760 407,395,760

For use in net asset per share calculations

Number of ordinary shares in circulation at 31 December 407,395,760 407,395,760

i) Earnings – EPRA earnings

Notes

2021

£m

2020

£m

Profit for the year 119.5 77.4

Non-recurring items after tax

10

1.5 –

Recurring profit for the year 121.0 77.4

Net revaluation movement on investment property

13 (28.5) (31.5)

Deferred tax on revaluations (38.6) 10.9

Net revaluation movement on equities (1.0)

Loss/(profit) on sale of investment property 0.1 (11.6)

Current tax thereon 3.2 2.7

Movement in fair value of derivative financial instruments

8/9 (5.2) 1.6

Uplift in value of associates (5.1) –

EPRA earnings 45.9 49.5

Basic and diluted earnings per share 29.3p 19.0p

EPRA earnings per share 11.3p 12.2p

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

153

5. Alternative performance measures continued

ii) Net asset value measures

2021 2020

2021

IFRS

NAV

£m

EPRA

NTA

£m

EPRA

NRV

£m

EPRA

NDV

£m

IFRS

NAV

£m

EPRA

NTA

£m

EPRA

NRV

£m

EPRA

NDV

£m

Net assets 1,330.7 1,330.7 1,330.7 1,330.7 1,270.6 1,270.6 1,270.6 1,270.6

Goodwill as a result of deferred tax on acquisitions – (1.1) (1.1) (1.1) – (1.1) (1.1) (1.1)

Other intangibles – (2.0) – – – (1.1) – –

Fair value of fixed interest debt – – – (4.2) – – – (13.2)

Tax thereon – – – 0.8 – – – 2.5

Deferred tax on revaluation surplus – 108.1 108.1 – – 151.3 151.3 –

Capital allowances – (0.3) (0.3) – – (12.0) (12.0) –

Adjustment for short-term disposals – (7.8) – – – (6.9) – –

Fair value of financial instruments – 0.4 0.4 – – 5.6 5.6 –

Purchasers’ costs – – 149.3 – – – 140.9 –

1,330.7 1,428.0 1,587.1 1,326.2 1,270.6 1,406.4 1,555.3 1,258.8

Per share 326.6p 350.5p 389.6p 325.5p 311.9p 345.2p 381.8p 309.0p

1

EPRA NTA and EPRA NDV reflect IFRS values which are net of purchasers’ costs. Purchasers’ costs are added back when calculating EPRA NRV.

CLS Holdings plc Annual Report and Accounts 2021

154

Notes to the Group financial statements

continued

5. Alternative performance measures continued

iii) Yield

EPRA net initial yield (NIY)

EPRA NIY is calculated as the annualised rental income based on the cash rents passing at the balance sheet date less non-recoverable

property operating expenses, divided by the gross market value of the property (excluding those that are under development, held as PPE

or occupied by CLS).

2021 2020

United

Kingdom

£m

Germany

£m

France

£m

Total

£m

United

Kingdom

£m

Germany

£m

France

£m

Total

£m

Rent passing 52.8 34.9 11.7 99.4 54.4 33.2 13.7 101.3

Adjusted for development stock (2.6) (0.5) – (3.1) (1.1) – – (1.1)

Forecast non-recoverable service charge (2.0) (0.6) (0.3) (2.9) (2.5) (0.8) (0.5) (3.8)

Annualised net rents (A) 48.2 33.8 11.4 93.4 50.8 32.4 13.2 96.4

Property portfolio 1,034.5 883.0 280.1 2,197.6 1,003.8 743.3 307.6 2,054.7

Adjusted for development stock (103.7) (46.2) – (149.9) (49.5) (7.5) – (57.0)

Purchasers’ costs at 6.8% 63.3 56.9 19.0 139.2 64.6 50.0 20.9 135.5

Property portfolio valuation including

purchasers’ costs (B) 994.1 893.7 299.1 2,186.9 1,018.9 785.8 328.5 2,133.2

EPRA NIY (A/B) 4.8% 3.8% 3.8% 4.3% 5.0% 4.1% 4.0% 4.5%

EPRA ‘topped-up’ NIY

EPRA ‘topped-up’ NIY is calculated by making an adjustment to EPRA NIY in respect of the expiration of rent-free periods (or other

unexpired lease incentives such as discounted rent periods and step rents).

2021 2020

United

Kingdom

£m

Germany

£m

France

£m

Total

£m

United

Kingdom

£m

Germany

£m

France

£m

Total

£m

Contracted rent 55.0 38.8 13.8 107.6 57.2 34.7 16.0 107.9

Adjusted for development stock (2.6) (0.6) – (3.2) (1.2) – – (1.2)

Forecast non-recoverable service charge (2.0) (0.6) (0.3) (2.9) (2.5) (0.8) (0.5) (3.8)

‘Topped-up’ annualised net rents(A) 50.4 37.6 13.5 101.5 53.5 33.9 15.5 102.9

Property portfolio 1,034.5 883.0 280.1 2,197.6 1,003.8 743.3 307.6 2,054.7

Adjusted for development stock (103.7) (46.2) – (149.9) (49.5) (7.5) – (57.0)

Purchasers’ costs (6.8%) 63.3 56.9 19.0 139.2 64.6 50.0 20.9 135.5

Property portfolio valuation including

purchasers’ costs (B) 994.1 893.7 299.1 2,186.9 1,018.9 785.8 328.5 2,133.2

EPRA ‘topped-up’ NIY (A/B) 5.1% 4.2% 4.5% 4.6% 5.2% 4.3% 4.7% 4.8%

1 The above tables comprise data of the investment properties and properties held for sale. They exclude owner occupied, land, student accommodation and hotel.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

155

5. Alternative performance measures continued

iv) Vacancy

The EPRA vacancy rate calculates vacancy as a proportion of the ERV of the total portfolio and, from 2021, is the only measure used by

the Group.

EPRA vacancy

2021

£m

2020

£m

ERV of vacant space (A) 7.0 6.1

ERV of let space 113.0 113.9

ERV of total portfolio (B) 120.0 120.0

EPRA vacancy rate (A/B) 5.8% 5.1%

v) Capital expenditure

EPRA capital expenditure

This measure shows the total amounts spent on the Group’s investment properties on an accrual and cash basis with a split between

expenditure used for the creation of incremental space and enhancing space (‘no incremental space’).

Notes

2021

£m

2020

£m

Acquisitions 13 179.5 119.1

Amounts spent on the completed investment property portfolio

13

Creation of incremental space 8.6 1.9

Creation of no incremental space 27.4 15.9

EPRA capital expenditure 215.5 136.9

Conversion from accrual to cash basis (15.1) 6.6

EPRA capital expenditure on a cash basis

CF

1

200.4 143.5

1 Group statement of cash flows

vi) Cost ratios

CLS administration cost ratio

CLS’ administration cost ratio represents the cost of running the property portfolio relative to its net income. CLS uses this measure to

monitor the efficiency of the business as it focuses on the administrative cost of active asset management across three countries.

Notes

2021

£m

2020

£m

Recurring administration expenses 15.0 18.5

Less: Other investment segment

4 0.2 (0.2)

Underlying administration expenses (A) 15.2 18.3

Net rental income (B)

4 108.0 109.8

Administration cost ratio (A/B) 14.1% 16.7%

CLS Holdings plc Annual Report and Accounts 2021

156

Notes to the Group financial statements

continued

5. Alternative performance measures continued

EPRA cost ratio

Notes

2021

£m

2020

£m

Recurring administration expenses 15.0 18.5

Other expenses

4 14.4 15.1

Less: Other investment segment

4 (4.4) (2.2)

25.0 31.4

Net service charge costs

4 2.7 2.6

Service charge costs recovered through rents but not separately invoiced (0.3) (0.3)

Dilapidations receipts (1.2) (2.6)

EPRA costs (including direct vacancy costs) (A) 26.2 31.1

Direct vacancy costs (3.4) (2.9)

EPRA costs (excluding direct vacancy costs) (B) 22.8 28.2

Gross rental income

4 101.2 106.5

Service charge components of gross rental income (0.3) (0.3)

EPRA gross rental income (C) 100.9 106.2

EPRA cost ratio (including direct vacancy costs) (A/C) 26.0% 29.3%

EPRA cost ratio (excluding direct vacancy costs) (B/C) 22.6% 26.6%

2. Other APMs

i) Total accounting return

Notes

2021

£m

2020

£m

EPRA NTA at 31 December 5 1,428.0 1,406.4

Distribution – prior year final

24 21.2 20.5

Distribution – current year interim

24 9.6 9.6

Less: EPRA NTA at 1 January (A)

5 (1,406.4) (1,329.3)

Return before dividends (B) 52.4 107.2

Total accounting return (NTA) (B/A) 3.7% 8.1%

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

157

5. Alternative performance measures continued

ii) Net borrowings and gearing

Notes

2021

£m

2020

£m

Borrowings short-term 19 169.1 103.6

Borrowings long-term

19 862.5 867.1

Add back: unamortised issue costs

19 5.9 6.3

Gross debt

19 1,037.5 977.0

Cash

16 (167.4) (235.7)

Net borrowings (A) 870.1 741.3

Net assets (B) 1,330.7 1,270.6

Net gearing (A/B) 65.4% 58.3%

iii) Balance sheet loan-to-value

Notes

2021

£m

2020

£m

Borrowings short-term 19 169.1 103.6

Borrowings long-term

19 862.5 867.1

Less: cash

16 (167.4) (235.7)

Net debt (A) 864.2 735.0

Investment properties

13 2,153.0 2,032.8

Properties in plant, property and equipment

14 133.3 128.3

Properties and land held for sale

12 45.0 21.9

Total property portfolio (B) 2,331.3 2,183.0

Balance sheet loan-to-value (A/B) 37.1% 33.7%

iv) Dividend cover

Notes

2021

£m

2020

£m

Interim dividend 24 9.6 9.6

Final dividend

24 21.8 21.2

Total dividend (A) 31.4 30.8

EPRA earnings (B)

5 45.9 49.5

Dividend cover (B/A) 1.46 1.61

CLS Holdings plc Annual Report and Accounts 2021

158

Notes to the Group financial statements

continued

5. Alternative performance measures continued

v) Interest cover

Notes

2021

£m

2020

£m

Net rental income 4 108.0 109.8

Recurring administration expenses (15.0) (18.5)

Other expenses

4 (14.4) (15.1)

Group revenue less costs (A) 78.6 76.2

Finance income (excluding derivatives and dividend income)

8 0.5 1.0

Finance costs (excluding derivatives)

9 (25.4) (24.4)

Net interest (B) (24.9) (23.4)

Interest cover (-A/B) 3.16 3.26

6. Profit for the year

Profit for the year has been arrived at after charging/(crediting):

Notes

2021

£m

2020

£m

Auditor’s remuneration: Fees payable to the Company’s Auditor for:

Audit of the Parent Company and Group accounts 0.5 0.4

Audit of the Company’s subsidiaries pursuant to legislation 0.1 0.1

Depreciation of property, plant and equipment

14 1.0 0.7

Employee benefits expense

7 11.3 13.5

Foreign exchange loss/(gain) 2.3 (2.1)

Provision against trade receivables

15 (0.3) 1.8

Other services provided to the Group by the Company’s Auditor consisted of the 2021 interim review of £40k (2020: £40k).

7. Employee benefits expense

2021

£m

2020

£m

Wages and salaries 8.6 9.1

Social security costs 1.1 1.1

Pension costs – defined contribution plans 0.4 0.4

Performance incentive plan 1.0 1.1

Other employee-related expenses 0.2 1.8

11.3 13.5

The Directors are considered to be the only key management of the Group.

Information on Directors’ emoluments, share options and interests in the Company’s shares is given in the Remuneration Committee Report

on pages 110 to 129.

The monthly average number of employees of the Group in continuing operations, including Executive Directors, was as follows:

2021 2020

Property

Number

Hotel

Number

Total

Number

Property

Number

Hotel

Number

Total

Number

Male 46 9 55 47 7 54

Female 48 9 57 53 9 62

94 18 112 100 16 116

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

159

8. Finance income

2021

£m

2020

£m

Interest income

Financial instruments carried at amortised cost 0.5 1.0

Movement in fair value of derivative financial instruments 5.2 –

Dividend income 0.2 0.1

5.9 1.1

9. Finance costs

2021

£m

2020

£m

Interest expense

Secured bank loans 21.4 20.0

Secured notes 2.1 2.3

Amortisation of loan issue costs 1.9 2.1

Total interest costs 25.4 24.4

Movement in fair value of derivative financial instruments – 1.6

25.4 26.0

10. Non-recurring items

Notes

2021

£m

2020

£m

Administration costs – UK restructuring costs A (1.2) –

Share of associates – profit on sale of associate

B 1.4 –

0.2

Taxation – tax credit on UK restructuring costs

A 11 0.2

Taxation – deferred tax liability release due to REIT conversion

C 11 43.7 –

Taxation – deferred tax asset release due to REIT conversion

C 11 (1.9)

Non-recurring tax 42.0 –

Total non-recurring 42.2

A – UK restructuring costs

The Group incurred costs of £1.2m associated with redundancies made in the UK. These costs are tax deductible and so the associated tax

credit of £0.2m has also been treated as non recurring.

B – Profit on sale of associate

This relates to the sale of our 21.8% share in Fragbite AB to Funrock (now renamed Fragbite Group AB). The consideration for the sale was

acombination of cash and shares in the purchaser. Subsequent to our sale, the purchaser listed on the Nasdaq Nordic stock exchange and

the shares are held as an ‘other financial investment’ on the Group balance sheet and were revalued at the year end. The revaluation of

£1.0m has been treated as a recurring item.

C – Deferred tax arising on conversion to REIT

The UK property business became a REIT on 1 January 2022. As a result, the majority of the UK deferred tax liabilities and assets were

released. The majority of the deferred tax liability released relates to the revaluation of the UK properties. The deferred tax assets disclosed

as non-recurring relate to the non property business in the UK and were released as it is no longer probable that sufficient taxable profits

will be generated in the future for the recognition criteria to be met.

1 These items are included as non-recurring items in the ERPA earnings reconciliation presented in note 5.

CLS Holdings plc Annual Report and Accounts 2021

160

Notes to the Group financial statements

continued

11. Taxation

2021

£m

2020

£m

Corporation tax

Current year charge 11.7 8.1

Non-recurring tax on restructuring costs (0.2)

Adjustments in respect of prior years (0.7) 0.3

10.8 8.4

Deferred tax (see note 18)

Origination and reversal of temporary differences 3.0 5.7

Effect of change in UK tax rate – 5.0

Non-recurring deferred tax liability release due to REIT conversion (43.7) –

Non-recurring deferred tax asset release due to REIT conversion 1.9 –

(38.8) 10.7

Tax charge for the year (28.0) 19.1

A deferred tax charge of £1.0 million (2020: credit of £0.5 million) was recognised directly in equity (note 18). The charge for the year differs

from the theoretical amount which would arise using the weighted average tax rate applicable to profits ofGroup companies as follows:

2021

£m

2020

£m

Profit before tax 91.5 96.5

Expected tax charge at the weighted average applicable tax rate 17.0 16.3

Expenses not deductible for tax purposes 2.6 1.1

Change in tax basis of UK properties, including indexation uplift – 0.7

Change in UK tax rate – 5.0

Non-taxable income (3.8) (1.6)

Deferred tax on losses not recognised/(recognised) 0.7 (2.8)

Adjustments in respect of prior years (0.7) 0.3

Release of deferred tax on election into UK REIT regime (43.7) –

Other (0.1) 0.1

Tax charge for the year (28.0) 19.1

The weighted average applicable tax rate of 18.6% (2020: 16.9%) was derived by applying to their relevant profits and losses therates in the

jurisdictions in which the Group operated. The standard UK rate of corporation tax applied to profits is 19.0% (2020: 19.0%).

12. Property portfolio

Notes

United

Kingdom

£m

Germany

£m

France

£m

Total

£m

Investment property 13 996.4 883.0 273.6 2,153.0

Property held as property, plant and equipment

14 126.4 5.0 1.9 133.3

Properties held for sale 38.1 – 6.5 44.6

Land held for sale – – 0.4 0.4

Property portfolio at 31 December 2021 1,160.9 888.0 282.4 2,331.3

1 Total differs from the assets held for sale on the Group balance sheet due to £0.8m of associated liabilities.

Notes

United

Kingdom

£m

Germany

£m

France

£m

Total

£m

Investment property 13 997.9 733.2 301.7 2,032.8

Property held as property, plant and equipment

14 121.9 4.3 2.1 128.3

Properties held for sale 5.9 10.2 5.8 21.9

Property portfolio at 31 December 2020 1,125.7 747.7 309.6 2,183.0

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

161

13. Investment property

United

Kingdom

£m

Germany

£m

France

£m

Total

investment

properties

£m

At 1 January 2021 997.9 733.2 301.7 2,032.8

Acquisitions 17.9 161.6 – 179.5

Capital expenditure 20.6 9.4 6.0 36.0

Disposals (5.0) – (10.7) (15.7)

Net revaluation movement 3.7 24.2 0.6 28.5

Lease incentive debtor adjustments (0.6) 3.0 0.3 2.7

Exchange rate variances – (48.0) (17.9) (65.8)

Transfer to plant, property and equipment – (0.4) – (0.4)

Transfer to properties held for sale (38.1) – (6.5) (44.6)

At 31 December 2021 996.4 883.0 273.6 2,153.0

United

Kingdom

£m

Germany

£m

France

£m

Total

investment

properties

£m

At 1 January 2020 1,014.7 663.6 282.7 1,961.0

Acquisitions 98.1 17.3 3.7 119.1

Capital expenditure 7.3 6.3 4.2 17.8

Disposals – (40.4) – (40.4)

Net revaluation movement (29.1) 60.1 0.5 31.5

Lease incentive debtor adjustments 3.4 (1.7) 0.2 1.9

Exchange rate variances – 38.2 16.2 54.4

Transfer to plant, property and equipment (90.8) – – (90.8)

Transfer to properties held for sale (5.7) (10.2) (5.8) (21.7)

At 31 December 2020 997.9 733.2 301.7 2,032.8

Investment properties included leasehold properties with a carrying amount of £48.6 million (2020: £32.8 million).

The property portfolio which comprises investment properties, properties held for sale and the student accommodation, hotel and

landholding, detailed in note 12, was revalued at31December 2021 to its fair value. Valuations were based on current prices in an active

market for all properties. Theproperty valuations were carried out by external independent valuers as follows:

Investment

property

2021

£m

Other

property

2021

£m

Property

portfolio

2021

£m

Investment

property

2020

£m

Other

property

2020

£m

Property

portfolio

2020

£m

Cushman and Wakefield 1,270.0 173.3 1,443.3 1,299.6 135.7 1,435.3

Jones Lang LaSalle 883.0 1.8 884.8 733.2 11.4 744.6

LFällström AB – 3.2 3.2 – 3.1 3.1

2,153.0 178.3 2,331.3 2,032.8 150.2 2,183.0

The total fees, including the fees for this assignment, earned by each of the valuers from the Group is less than 5% of their total revenues in

each jurisdiction.

Valuation process

The Group’s property portfolio was valued by external valuers on the basis of fair value using information provided to them by the Group

such as current rents, terms and conditions of lease agreements, service charges and capital expenditure. This information is derived from

the Group’s property management systems and is subject to the Group’s overall control environment. The valuation reports are based on

assumptions and valuation models used by the external valuers. The assumptions are typically market related, such as yields and discount

rates, and are based on professional judgement and market evidence of transactions for similar properties on arm’s length terms.

The valuations are prepared in accordance with RICS standards.

Each Country Head, who report to the Chief Executive, verifies all major inputs to the external valuation reports, assesses the individual

property valuation changes from the prior year valuation report and holds discussions with the external valuers. When the process is

complete, the valuation report is recommended to the Audit Committee and the Board, which considers it as part

ofitsoverall responsibilities.

CLS Holdings plc Annual Report and Accounts 2021

162

Notes to the Group financial statements

continued

13. Investment property continued

Valuation techniques

The fair value of the property portfolio (excluding ongoing developments, see below) has been determined using the following approaches

in accordance with International Valuation Standards:

United Kingdom an income capitalisation approach whereby contracted and market rental values are capitalised with a market

capitalisation rate

Germany a 10 year discounted cash flow model with an assumed exit thereafter

France both the market capitalisation approach and a 10 year discounted cash flow approach

The resulting valuations are cross-checked against the equivalent yields and the fair market values per square foot derived from

comparable recent market transactions on arm’s length terms. Other factors taken into account in the valuations include the tenure of the

property, tenancy details, and ground and structural conditions.

Ongoing developments are valued under the ‘residual method’ of valuation, which is the same of the method as the income capitalisation

approach to valuation described above, with a deduction for all costs necessary to complete the development, including a notional finance

cost, together with a further allowance for remaining risk. As the development approaches completion, the valuer may consider the income

capitalisation approach to be more appropriate.

All valuations have considered the environmental, social and governance credentials of the properties and the potential cost of improving

them to local regulatory standards along with the broader potential impact of climate change.

These techniques are consistent with the principles in IFRS 13 Fair Value Measurement and use significant unobservable inputs such that

the fair value measurement of each property within the portfolio has been classified as Level 3 in the fair value hierarchy.

There were no transfers between any of the Levels in the fair value hierarchy during either 2021 or 2020.

Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy

amount to a gain of £28.5 million (2020: £31.5 million) and are presented in the income statement in the line item ‘Net movements on

revaluation of investment properties’. The revaluation gain for the property, plant and equipment of £5.5 million (2020: deficit of £3.6 million)

wasincluded within the revaluation reserve via other comprehensive income.

All gains and losses recorded in profit or loss in 2021 and 2020 for recurring fair value measurements categorised within Level 3 of the fair

value hierarchy are attributable to changes in unrealised gains or losses relating to investment property held at 31 December 2021 and

31 December 2020, respectively.

Quantitative information about investment property fair value measurement using unobservable inputs (Level 3)

ERV Equivalent yield

Average Range Average Range

2021

£ per sq. ft

2020

£ per sq. ft

2021

per sq. ft

2020

per sq. ft

2021

%

2020

%

2021

%

2020

%

UK 36.91 35.51 10.00-66.19 10.00-66.43 5.51 5.70 2.54-10.30 2.42-8.80

Germany 13.21 13.52 8.88-24.05 9.44-25.09 4.39 4.42 3.00-5.40 3.00-5.50

France 19.49 20.48 11.96-37.36 11.25-38.95 5.04 5.24 4.38-6.00 4.13-6.50

Sensitivity of measurement to variations in the significant unobservable inputs

All other factors remaining constant, an increase in ERV would increase valuations, whilst an increase in the equivalent yield would result

ina fall in value, and vice versa. There are inter-relationships between these inputs as they are partially determined by market conditions.

An increase in the reversionary yield may accompany an increase in ERV and would mitigate its impact on the fair value measurement.

A decrease in the equivalent yield by 25 basis points would result in an increase in the fair value of the Group’s investment property

by£126.3 million (2020: £115.2 million) whilst a 25 basis point increase would reduce the fair value by £125.4 million (2020: £103.7 million).

A decrease in the ERV by 5% would result in adecrease in the fair value of the Group’s investment property by £88.8 million

(2020: £75.8 million) whilst an increase in the ERV by 5% would result in an increase inthe fair value of the Group’s investment property

by£74.7 million (2020: £75.6 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 and no interest has been capitalised within capital expenditure in either the current or comparative year.

Sustainability and climate change

The Group published its new sustainability strategy including a pathway to net zero carbon in August 2021 and has set 2030 as its date to

achieve this (see pages 58 to 61). During the year the Group employed technical experts to carry out individual property energy audits to

identify energy and carbon saving opportunities. A total of 76 properties were visited from January to April 2021 across the UK, France and

Germany, with new developments, properties under refurbishment and properties earmarked for sale all excluded from the programme.

The investment needed to deliver the audit findings amounts to an estimated £58 million over 9 years. We have integrated these energy

audits into each Asset Management Plan to enable strategic decisions about the refurbishment, sale or full redevelopment of assets to

be made.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

163

14. Property, plant and equipment

Student

accommodation

£m

Hotel

£m

Land and

buildings

£m

Owner-

occupied

property

£m

Fixtures

and fittings

£m

Total

£m

Cost or valuation

At 1 January 2020 – 29.0 2.4 10.3 6.0 47.7

Additions – 0.1 – – 0.3 0.4

Reclassification from investment property

1

90.8 – – – – 90.8

Revaluation – (4.1) 0.4 0.1 – (3.6)

Exchange rate variances – – 0.3 0.2 – 0.5

At 31 December 2020 90.8 25.0 3.1 10.6 6.3 135.8

Additions – – – – 0.5 0.5

Disposals (0.9) (0.9)

Reclassification from investment property

2

– – – 0.4 – 0.4

Reclassification to accumulated depreciation – (1.2) – – (2.7) (3.9)

Revaluation 3.3 1.2 0.4 0.1 – 5.0

Exchange rate variances – – (0.3) (0.1) – (0.4)

At 31 December 2021 94.1 25.0 3.2 11.0 3.2 136.5

Comprising:

At cost – – – – 3.2 3.2

At valuation 94.1 25.0 3.2 11.0 – 133.3

94.1 25.0 3.2 11.0 3.2 136.5

Accumulated depreciation and impairment

At 1 January 2020 – (1.0) – – (3.6) (4.6)

Depreciation charge – (0.2) – – (0.5) (0.7)

At 31 December 2020 – (1.2) – – (4.1) (5.3)

Depreciation charge (0.3) (0.1) – (0.1) (0.5) (1.0)

Reclassification from cost – 1.2 – – 2.7 3.9

Disposals – – – – 0.8 0.8

Revaluation 0.3 0.1 – 0.1 – 0.5

At 31 December 2021 – – – – (1.1) (1.1)

Net book value

At 31 December 2021 94.1 25.0 3.2 11.0 2.1 135.4

At 31 December 2020 90.8 23.8 3.1 10.6 2.2 130.5

1 As a result of the ending of an agreement with a third party the Group will be managing the student accommodation internally and the services it provides will no longer be

ancillary. Therefore, the Group has decided that, in accordance with IAS16 Plant, Property and Equipment, this property should be reclassified from investment property to

plant, property and equipment.

2 During 2021, the CLS Group opened an office in the City of Dusseldorf within a property classified as investment property. This is the transfer of the value of the part of this

investment property that is now owner occupied by CLS.

CLS Holdings plc Annual Report and Accounts 2021

164

Notes to the Group financial statements

continued

15. Trade and other receivables

2021

£m

2020

£m

Current

Trade receivables 8.8 7.3

Other receivables 3.9 4.3

Prepayments 2.4 8.5

Accrued income 3.0 1.9

18.1 22.0

Non-Current

Other receivables

1

7.7 8.2

25.8 30.2

1 This is the vendor loan granted on completion of the sale of First Camp Sverige Holdings AB in March 2019. The loan is due for repayment no later than June 2023 and can be

repaid by the borrower at any time without penalty. Given current economic uncertainty the Group has assessed the likely repayment date to be more than 12 months from the

year end.

Trade receivables are shown after deducting a provision of £2.4 million (2020: £2.8 million) which is calculated as an expected credit loss on

trade receivables in accordance with IFRS 9 (see note 2). The movements in this provision were as follows;

2021

£m

2020

£m

At 1 January 2.8 1.1

Debt write-offs (0.1) (0.1)

(Credit)/charge to the income statement (0.3) 1.8

At 31 December 2.4 2.8

The expected credit loss is recognised on initial recognition of a receivable and is reassessed at each reporting period. In order to calculate

the expected credit loss, the Group uses historic default rates and applies a forward-looking outlook. In the current reporting period, the

forward-looking outlook has considered the actual and potential impacts of Covid-19. The historic default rates used are specific to how

many days past due a receivable is. Specific provisions are also made in excess of the expected credit loss where information is available

tosuggest that a higher provision than the expected credit loss is required. In the current reporting period, an additional review of tenant

debtors was undertaken to assess recoverability in light of the Covid-19 pandemic.

The Directors consider that the carrying amount of trade and other receivables is approximate to their fair value. There is no concentration

ofcredit risk with respect to trade receivables as the Group has a large number of customers who are paying their rent in advance.

Further details about the Group’s credit risk management practices are disclosed in note 21.

16. Cash and cash equivalents

2021

£m

2020

£m

Cash at bank and in hand 167.4 235.7

At 31 December 2021, cash at bank and in hand included £13.2 million (2020: £14.5 million) which was restricted byathird-party charge.

17. Trade and other payables

2021

£m

2020

£m

Current

Trade payables 3.0 1.7

Social security and other taxes 1.9 5.8

Other payables 12.1 12.1

Deferred income 19.8 18.2

Accruals 20.8 16.5

57.6 54.3

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

165

18. Deferred tax

Liabilities Assets

Total

deferred

tax

£m

UK capital

allowances

£m

Fair value

adjustments

to properties

£m

Other

£m

Total

£m

UK capital

allowances

£m

Fair value

adjustments

to properties

£m

Other

£m

Total

£m

At 1 January 2020

11.2 128.2 1.4 140.8 (0.2) (3.7) (0.8) (4.7) 136.1

Charged/(credited)

to income statement 1.1 12.2 0.4 13.7 (0.1) (2.3) (0.6) (3.0) 10.7

to OCI

1

– (0.5) – (0.5) – – – – (0.5)

Exchange rate variances – 5.4 0.1 5.5 – – – – 5.5

At 31 December 2020 12.3 145.3 1.9 159.5 (0.3) (6.0) (1.4) (7.7) 151.8

Charged/(credited)

to income statement (12.0) (32.0) 0.1 (43.9) 0.3 3.6 1.2 5.1 (38.8)

to OCI

1

– 1.0 – 1.0 – – – – 1.0

Exchange rate variances – (6.5) (0.2) (6.7) – – – – (6.7)

At 31 December 2021 0.3 107.8 1.8 109.9 – (2.4) (0.2) (2.6) 107.3

1 Other Comprehensive Income.

Deferred tax has been calculated at a weighted average across the Group of 23.3% (2020: 17.5%) and has been based on the rates applicable

under legislation substantively enacted at the balance sheet date.

Deferred tax assets are recognised in respect of tax losses carried forward to the extent that the realisation of the related tax benefit

through future taxable profits is probable. At 31 December 2021 the Group did not recognise deferred tax assets of £7.5 million

(2020: £5.7 million) in respect of losses amounting to £43.3 million (2020: £35.3 million) which may be carried forward and utilised against

future taxable income or gains.

19. Borrowings

At 31 December 2021 At 31 December 2020

Current

£m

Non-current

£m

Total

borrowings

£m

Current

£m

Non-current

£m

Total

borrowings

£m

Secured bank loans 122.7 862.5 985.2 99.5 820.7 920.2

Secured notes 46.4 – 46.4 4.1 46.4 50.5

169.1 862.5 1,031.6 103.6 867.1 970.7

Issue costs of £5.9 million (2020: £6.3 million) have been offset in arriving at the balances in the above tables.

Secured bank loans

Interest on bank loans is charged at fixed rates ranging between 0.8% and 5.5% including margin (2020: 0.8% and 5.5%) and atfloating rates

of typically LIBOR or EURIBOR plus a margin. Floating rate margins range between 1.1% and 2.3% (2020: 1.1% and 2.4%). The bank loans are

secured by legal charges over £2,194.3 million (2020: £1,904.3 million) of the Group’s properties, and in most cases a floating charge over

the remainder of the assets held in the company which owns the property. In addition, the share capital of some ofthe subsidiaries within

the Group has been charged.

Secured notes

On 3 December 2013, the Group issued £80.0 million secured, partially-amortising notes. The notes attract a fixed-rate couponof

4.17%onthe unamortised principal amount, the balance of which is repayable in December 2022 and are secured by legal charges over

£137.1 million (2020: £139.9 million) of the Group’s properties. The fair value was determined by the higher of the carrying principal amount

and the discounted future cash flows (adjusted by excluding the margin component of the fixed interest rate) at a discount rate derived

from the market interest rate yield curve at the date of the valuation.

1 The fixed interest rate is made up of a market interest rate (typically a swap rate) plus a margin.

CLS Holdings plc Annual Report and Accounts 2021

166

Notes to the Group financial statements

continued

19. Borrowings continued

The maturity profile of the carrying amount of the Group’s borrowings was as follows:

At 31 December 2021

Secured

bank loans

£m

Secured

notes

£m

Total

£m

Maturing in:

Within one year or on demand 124.3 46.5 170.8

One to two years 111.3 – 111.3

Two to five years 432.7 – 432.7

More than five years 322.7 – 322.7

991.0 46.5 1,037.5

Unamortised issue costs (5.8) (0.1) (5.9)

Borrowings 985.2 46.4 1,031.6

Due within one year (122.7) (46.4) (169.1)

Due after one year 862.5 – 862.5

At 31 December 2020

Secured

bank loans

£m

Secured

notes

£m

Total

£m

Maturing in:

Within one year or on demand 101.2 4.2 105.4

One to two years 116.1 46.5 162.6

Two to five years 432.0 – 432.0

More than five years 277.0 – 277.0

926.3 50.7 977.0

Unamortised issue costs (6.1) (0.2) (6.3)

Borrowings 920.2 50.5 970.7

Due within one year (99.5) (4.1) (103.6)

Due after one year 820.7 46.4 867.1

The carrying amounts of the Group’s borrowings are denominated in the following currencies:

At 31 December 2021 At 31 December 2020

Sterling

£m

Euro

£m

Total

£m

Sterling

£m

Euro

£m

Total

£m

Fixed rate financial liabilities 290.0 450.8 740.8 255.2 399.8 655.0

Floating rate financial liabilities – hedged 140.9 – 140.9 143.0 18.7 161.7

Total fixed rate 430.9 450.8 881.7 398.2 418.5 816.7

Floating rate financial liabilities – capped – 47.3 47.3 – 25.6 25.6

Floating rate financial liabilities – unhedged 94.3 14.2 108.5 119.1 15.6 134.7

Total floating rate 94.3 61.5 155.8 119.1 41.2 160.3

525.2 512.3 1,037.5 517.3 459.7 977.0

Unamortised issue costs (3.9) (2.0) (5.9) (4.0) (2.3) (6.3)

Borrowings 521.3 510.3 1,031.6 513.3 457.4 970.7

Of the Group’s total borrowings, 85% (2020: 84%) are considered fixed rate borrowings.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

167

19. Borrowings continued

The interest rate risk profile of the Group’s borrowings was as follows:

At 31 December 2021

Weighted average interest rate

1

Weighted average life

Sterling

%

Euro

%

Total

%

Sterling

Years

Euro

Years

Total

Years

Fixed rate financial liabilities 2.9 1.4 2.0 8.0 3.2 5.1

Floating rate financial liabilities – hedged 3.4 – 3.4 2.2 – 2.2

3.1 1.4 2.2 6.1 3.2 4.6

Floating rate financial liabilities – capped – 1.3 1.3 – 5.1 5.1

Floating rate financial liabilities – unhedged 2.9 1.2 2.7 2.5 2.0 2.4

2.9 1.3 2.2 2.5 4.4 3.3

Gross borrowings 3.1 1.4 2.2 5.5 3.3 4.4

At 31 December 2020

Weighted average interest rate

1

Weighted average life

Sterling

%

Euro

%

Total

%

Sterling

Years

Euro

Years

Total

Years

Fixed rate financial liabilities 3.0 1.4 2.1 7.4 3.9 5.3

Floating rate financial liabilities – hedged 3.3 1.9 3.1 3.2 1.0 2.9

3.2 1.5 2.3 5.9 3.7 4.8

Floating rate financial liabilities – capped – 1.5 1.5 – 4.6 4.6

Floating rate financial liabilities – unhedged 2.5 1.2 2.4 3.1 2.3 3.0

2.5 1.4 2.3 3.1 3.7 3.3

Gross borrowings 3.0 1.5 2.3 5.3 3.7 4.5

1 The weighted average interest rate are based on the nominal value of the debt facilities.

The carrying amounts and fair values of the Group’s borrowings are as follows:

Carrying amounts Fair values

2021

£m

2020

£m

2021

£m

2020

£m

Current borrowings 169.1 103.6 169.1 103.6

Non-current borrowings 862.5 867.1 866.7 880.3

1,031.6 970.7 1,035.8 983.9

The valuation methods used to measure the fair values of the Group’s fixed rate borrowings were derived from inputs which were either

observable as prices or derived from prices (Level 2).

The fair value of non-current borrowings represents the amount at which a financial instrument could be exchanged in an arm’s length

transaction between informed and willing parties, discounted at the prevailing market rate, and excludes accrued interest.

The Group had the following undrawn committed facilities available at 31 December:

2021

£m

2020

£m

Floating rate:

– expiring within one year – 30.0

– expiring after one year 30.0 –

30.0 30.0

CLS Holdings plc Annual Report and Accounts 2021

168

Notes to the Group financial statements

continued

19. Borrowings continued

Contractual undiscounted cash outflows

The tables below show the contractual undiscounted cash outflows arising from the Group’s gross debt.

At 31 December 2021

Less than

1 year

£m

1 to 2

years

£m

2 to 3

years

£m

3 to 4

years

£m

4 to 5

years

£m

Over

5 years

£m

Total

£m

Secured bank loans 124.3 111.3 265.9 116.2 50.6 322.7 991.0

Secured notes 46.5 – – – – – 46.5

Total on maturity 170.8 111.3 265.9 116.2 50.6 322.7 1,037.5

Interest payments on borrowings

1

21.1 18.4 14.6 9.7 7.6 30.0 101.4

Effect of interest rate swaps 1.1 – 0.1 – – – 1.2

Gross loan commitments 193.0 129.7 280.6 125.9 58.2 352.7 1,140.1

At 31 December 2020

Less than

1 year

£m

1 to 2

years

£m

2 to 3

years

£m

3 to 4

years

£m

4 to 5

years

£m

Over

5 years

£m

Total

£m

Secured bank loans 101.2 116.1 73.8 258.6 99.6 277.0 926.3

Secured notes 4.2 46.5 – – – – 50.7

Total on maturity 105.4 162.6 73.8 258.6 99.6 277.0 977.0

Interest payments on borrowings

1

19.9 17.3 14.1 11.8 7.1 24.7 94.9

Effect of interest rate swaps 2.4 2.1 1.0 0.5 – – 6.0

Gross loan commitments 127.7 182.0 88.9 270.9 106.7 301.7 1,077.9

1 Interest payments on borrowings are calculated without taking into account future events. Floating rate interest is estimated using a future interest rate curve asat31December.

20. Derivative financial instruments

2021

Assets

£m

2021

Liabilities

£m

2020

Assets

£m

2020

Liabilities

£m

Non-current

Interest rate caps and swaps 0.4 (0.1) – (5.6)

Current

Forward foreign exchange contracts – (0.7) – –

0.4 (0.8) – (5.6)

The valuation methods used to measure the fair value of all derivative financial instruments were derived from inputs which were either

observable as prices or derived from prices (Level 2).

There were no derivative financial instruments accounted for as hedging instruments.

Interest rate caps

The aggregate notional principal of interest rate caps at 31 December 2021 was £nil (2020: £nil). The average period to maturity of these

interest rate caps was 4.2 years (2020: 4.6 years).

Interest rate swaps

The aggregate notional principal of interest rate swap contracts at 31 December 2021 was £159.4 million (2020: £161.9 million). The average

period to maturity of these interest rate swaps was 1.9 years (2020: 2.2 years).

Forward foreign exchange contracts

The Group uses forward foreign exchange contracts from time to time to add certainty to, and to minimise the impact of foreign exchange

movements on, committed cash flows. At 31 December 2021 and 31 December 2020 the Group had no outstanding netforeign

exchange contracts.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

169

20. Derivative financial instruments continued

Derivative financial instruments cash flows

The following table provides an analysis of the anticipated contractual cash flows for the derivative financial instruments using

undiscounted cash flows. These amounts represent the gross cash flows of the derivative financial instruments and are settled as either

anet payment or receipt.

2021

Assets

£m

2021

Liabilities

£m

2020

Assets

£m

2020

Liabilities

£m

Maturing in:

Less than 1 year – (1.1) – (2.4)

1 to 2 years – (0.1) – (2.1)

2 to 3 years 0.1 (0.1) – (1.0)

3 to 4 years – – – (0.5)

4 to 5 years – – – –

Over 5 years – – – –

0.1 (1.3) – (6.0)

21. Financial instruments

Categories of financial instruments

Financial assets of the Group comprise: interest rate caps; foreign currency forward contracts; financial assets at fair value through

othercomprehensive income or fair value through profit and loss; investments in associates; trade and other receivables; and cash and

cashequivalents.

Financial liabilities of the Group comprise: interest rate swaps; forward foreign currency contracts; bank loans; secured notes; and trade

and other payables.

The fair values of financial assets and liabilities are determined as follows:

(a) Interest rate swaps and caps are measured at the present value of future cash flows based on applicable yield curves derived from

quoted interest rates;

(b) Foreign currency options and forward contracts are measured using quoted forward exchange rates and yield curves derived from

quoted interest rates matching maturities of the contracts;

(c) The fair values of non-derivative financial assets and liabilities with standard terms and conditions and traded on active liquid markets

are determined with reference to quoted market prices. Financial assets in this category include financial assets at fair value through

other comprehensive income or fair value through profit and loss such as listed corporate bonds and equity investments;

(d) In more illiquid conditions, non-derivative financial assets are valued using multiple quotes obtained from market makers and from

pricing specialists. Where the spread of prices is tightly clustered the consensus price is deemed to be fair value. Where prices become

more dispersed or there is a lack of available quoted data, further procedures are undertaken such as evidence from the last non-forced

trade; and

(e) The fair values of other non-derivative financial assets and financial liabilities are determined in accordance with generally accepted

pricing models based on discounted cash flow analysis, using prices from observable current market transactions and dealer quotes for

similar instruments.

Except for investments in associates and fixed rate loans, the carrying amounts of financial assets and liabilities recorded atamortised cost

approximate to their fair value.

Capital risk management

The Group manages its capital to ensure that entities within the Group will be able to continue as going concerns while maximising the

return to stakeholders through the optimisation of debt and equity balances. The capital structure of the Group consists of debt, cash and

cash equivalents, other investments and equity attributable to the owners of the parent, comprising issued capital, reserves and retained

earnings. Management perform “stress tests” of the Group’s business model to ensure that the Group’s objectives can be met and these

objectives were met during 2021 and 2020.

CLS Holdings plc Annual Report and Accounts 2021

170

Notes to the Group financial statements

continued

21. Financial instruments continued

The Directors review the capital structure on a quarterly basis to ensure that key strategic goals are being achieved. As part ofthis review

they consider the cost of capital and the risks associated with each class of capital.

The gearing ratio at the year end was as follows:

Notes

2021

£m

2020

£m

Debt 19 1,037.5 977.0

Liquid resources

16

(167.4) (235.7)

Net debt (A) 870.1 741.3

Equity (B) 1,330.7 1,270.6

Net debt to equity ratio (A/B) 65% 58%

Debt is defined as long-term and short-term borrowings before unamortised issue costs as detailed in note 18. Liquid resources are cash

and short-term deposits. Equity includes all capital and reserves of the Group attributable to the owners of theCompany.

Externally imposed capital requirement

The Group was subject to externally imposed capital requirements to the extent that debt covenants may require Group companies to

maintain ratios such as debt to equity (or similar) below certain levels.

Risk management objectives

The Group’s activities expose it to a variety of financial risks, which can be grouped as:

• market risk;

• credit risk; and

• liquidity risk.

The Group’s overall risk management approach seeks to minimise potential adverse effects on the Group’s financial performance whilst

maintaining flexibility.

Risk management is carried out by the Group’s treasury department in close co-operation with the Group’s operating units and with

guidance from the Board of Directors. The Board regularly assesses and reviews the financial risks and exposures of the Group.

(a) Market risk

The Group’s activities expose it primarily to the financial risks of changes in interest rates and foreign currency exchange rates, and to

alesser extent other price risk. The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate

and foreign currency risk and also uses natural hedging strategies such as matching the duration, interest payments and currency of

assets and liabilities. There has been no change to the Group’s exposure to market risks or the manner in which these risks are managed

and measured.

(I) Interest rate risk

The Group’s most significant interest rate risk arises from its long-term variable rate borrowings. Interest rate risk is regularly monitored

by the treasury department and by the Board on both a country and a Group basis. The Board’s policy is to mitigate variable interest rate

exposure whilst maintaining the flexibility to borrow at the best rates and with consideration to potential penalties on termination of fixed

rate loans. To manage its exposure the Group uses interest rate swaps, interest rate caps and natural hedging from cash held on deposit.

In assessing risk, a range of scenarios is taken into consideration such as refinancing, renewal of existing positions and alternative

financing and hedging. Under these scenarios, the Group calculates the impact on the income statement for a defined movement in

theunderlying interest rate. The impact of a reasonably likely movement in interest rates, based on historic trends, is set out below:

Scenario

2021

Income

statement

£m

2020

Income

statement

£m

Cash +50 basis points 0.8 1.2

Variable borrowings (including swaps and caps) +50 basis points (1.0) (1.0)

Cash -50 basis points (0.8) (1.2)

Variable borrowings (including swaps and caps) -50 basis points 0.5 0.6

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

171

21. Financial instruments continued

(II) Foreign exchange risk

The Group does not have any regular transactional foreign exchange exposure. However, it has operations in Europe which transact

business denominated in Euros and, to a minimal extent, in Swedish krona. Consequently, there is currency exposure caused by translating

into sterling the local trading performance and net assets for each financial period and balance sheet, respectively.

The policy of the Group is to match the currency of investments with the related borrowing, which reduces foreign exchange risk on

property investments. A portion of the remaining operations, equating to the net assets of the foreign property operations, is not hedged

except in exceptional circumstances. Where foreign exchange risk arises from future commercial transactions, the Group will hedge the

future committed commercial transaction using foreign exchange swaps or forward foreign exchange contracts.

The Group’s principal currency exposure is in respect of the Euro. If the value of sterling were to increase or decrease instrength the

Group’s net assets and profit for the year would be affected. The impact of a reasonably likely movement in exchange rates, is set

out below:

Scenario

2021

Net

assets

£m

2021

Profit

before tax

£m

2020

Net

assets

£m

2020

Profit

before tax

£m

1% increase in value of sterling against the Euro (6.2) (0.4) (6.1) (1.1)

1% fall in value of sterling against the Euro 6.3 0.4 6.2 1.2

(b) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk

arises from the ability of customers to meet outstanding receivables and future lease commitments, and from financial institutions with

which the Group places cash and cash equivalents, and enters into derivative financial instruments. The maximum exposure to credit risk

ispartly represented by the carrying amounts of the financial assets which are carried inthe balance sheet, including derivatives with

positive fair values.

For credit exposure other than to occupiers, the Directors believe that counterparty risk is minimised to the fullest extent possible as the

Group has policies which limit the amount of credit exposure to any individual financial institution.

The Group has policies in place to ensure that rental contracts are made with customers with an appropriate credit history. Credit risk to

customers is assessed by a process of internal and external credit review, and is reduced by obtaining bank guarantees from the customer

or itsparent, and rental deposits. The overall credit risk in relation to customers is monitored on an ongoing basis. Moreover, a significant

proportion of the Group portfolio is let to Government occupiers which can be considered financially secure.

Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial

institutions, only independently rated parties with a minimum rating of investment grade are accepted.

At 31 December 2021 the Group held £0.4 million (2020: £nil) of financial assets at fair value through other comprehensive income orfair

value through profit and loss. Management considers the credit risk associated with individual transactions and monitors the risk on

acontinuing basis. Information is gathered from external credit rating agencies and other market sources to allow management to react

toany perceived change in the underlying credit risk of the instruments in which the Group invests. This allows the Group to minimise its

creditexposure to such items and at the same time to maximise returns for shareholders.

(c) Liquidity risk

Liquidity risk management requires maintaining sufficient cash, other liquid assets and the availability of funding to meet short, medium

and long-term requirements. The Group maintains adequate levels of liquid assets to fund operations and to allow theGroup to react

quickly to potential risks and opportunities. Management monitors rolling forecasts of the Group’s liquidity on the basis of expected cash

flows so that future requirements can be managed effectively.

The majority of the Group’s debt is arranged on an asset-specific, non-recourse basis. This allows the Group a higher degree offlexibility

indealing with potential covenant defaults than if the debt was arranged under a Group-wide borrowing facility.

Loan covenant compliance is closely monitored by the treasury department. Potential covenant breaches can ordinarily be avoided by

placing additional security or a cash deposit with the lender, or by partial repayment to cure an event of default.

CLS Holdings plc Annual Report and Accounts 2021

172

Notes to the Group financial statements

continued

22. Financial assets and liabilities

Fair value

through

profit and

loss

£m

Amortised

cost

£m

Total

carrying

value

£m

Financial assets

Cash and cash equivalents – 167.4 167.4

Derivative financial assets 0.4 – 0.4

Other assets – non-current

1

– 7.7 7.7

Other assets – current

1

– 15.7 15.7

0.4 190.8 191.2

Financial liabilities

Secured bank loans – (985.5) (985.5)

Secured notes – (46.4) (46.4)

Derivative financial liabilities (0.8) – (0.8)

Other liabilities – current

2

– (35.9) (35.9)

(0.8) (1,067.8) (1,068.6)

At 31 December 2021 (0.4) (877.0) (877.4)

Fair value

through

profit and

loss

£m

Amortised

cost

£m

Total

carrying

value

£m

Financial assets

Cash and cash equivalents – 235.7 235.7

Other assets – non-current

1

– 8.2 8.2

Other assets – current

1

– 13.5 13.5

– 257.4 257.4

Financial liabilities

Secured bank loans – (920.2) (920.2)

Secured notes – (50.5) (50.5)

Derivative financial liabilities (5.6) – (5.6)

Other liabilities – current

2

– (30.3) (30.3)

(5.6) (1,001.0) (1,006.6)

At 31 December 2020 (5.6) (743.6) (749.2)

1 Other assets included all amounts shown as trade and other receivables in note 14 except prepayments of£2.4 million (2020: £8.5 million). All current amounts are non-interest

bearing and receivable within one year.

2 Other liabilities included all amounts shown as trade and other payables in note 16 except deferred income and sales and social security taxes of £21.7 million (2020: £24.0 million).

All amounts are non-interest bearing and are due within one year.

Reconciliation of net financial assets and liabilities to borrowings and derivative financial instruments

2021

£m

2020

£m

Net financial assets and liabilities 877.4 749.2

Other assets – non-current 7.7 8.2

Other assets – current 15.7 13.5

Other liabilities – current (35.9) (30.3)

Cash and cash equivalents 167.4 235.7

Borrowings and derivative financial instruments 1,032.3 976.3

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

173

23. Share capital

Number of shares authorised, issued and fully paid

Ordinary

shares in

circulation

£m

Treasury

shares

£m

Total

ordinary

shares

£m

Ordinary

shares in

circulation

Treasury

shares

Total

ordinary

shares

At 1 January 2020, 31 December 2020

and 31 December 2021 407,395,760 31,382,020 438,777,780 10.2 0.8 11.0

The Board is authorised, by shareholder resolution, to allot shares or grant such subscription rights (as are contemplated by sections 551(1)

(a) and (b) respectively of the Companies Act 2006) up to a maximum aggregate nominal value of £3,394,964 representing one-third of the

issued share capital of the Company excluding treasury shares.

24. Dividend

Payment

date

Dividend

per share

p

2021

£m

2020

£m

Current year

2021 final dividend

1

29 April 2022 5.35 – –

2021 interim dividend 24 September 2021 2.35 9.6 –

Distribution of current year profit 7.70 9.6 –

Prior year

2020 final dividend 29 April 2021 5.20 21.2 –

2020 interim dividend 25 September 2020 2.35 – 9.6

Distribution of prior year profit 7.55 21.2 9.6

2019 final dividend 29 April 2020 5.05 – 20.5

Dividends as reported in the Group statement of changes in equity 30.8 30.1

1 Subject to shareholder approval at the AGM on 28 April 2021.

25. Other reserves

Notes

Capital

redemption

reserve

£m

Cumulative

translation

reserve

£m

Fair value

reserve

£m

Share-based

payment

reserve

£m

Other

reserves

£m

Total

£m

At 1 January 2021 22.7 64.0 0.5 2.0 28.1 117.3

Exchange rate variances – (32.8) – – – (32.8)

Property, plant and equipment

– net fair value gains in the year

14 – – 5.5 – – 5.5

– deferred tax thereon

18 – – (1.0) – – (1.0)

Share-based payment credit – – – (0.3) – (0.3)

At 31 December 2021 22.7 31.2 5.0 1.7 28.1 88.7

Notes

Capital

redemption

reserve

£m

Cumulative

translation

reserve

£m

Fair value

reserve

£m

Share-based

payment

reserve

£m

Other

reserves

£m

Total

£m

At 1 January 2020 22.7 39.8 3.6 2.2 28.1 96.4

Exchange rate variances – 24.2 – – – 24.2

Property, plant and equipment

– net fair value deficits in the year

14 – – (3.6) – – (3.6)

– deferred tax thereon

18 – – 0.5 – – 0.5

Share-based payment charge – – – (0.2) – (0.2)

At 31 December 2020 22.7 64.0 0.5 2.0 28.1 117.3

The cumulative translation reserve comprises the aggregate effect of translating net assets of overseas subsidiaries into sterling

since acquisition.

CLS Holdings plc Annual Report and Accounts 2021

174

Notes to the Group financial statements

continued

25. Other reserves continued

The fair value reserve comprises the aggregate movement in the value of financial assets classified as fair value through comprehensive

income andowner-occupied property since acquisition, net of deferred tax.

The amount classified as other reserves was created prior to listing in 1994 on a Group reconstruction and is considered to be

non-distributable.

26. Notes to the cash flow

Cash generated from operations

2021

£m

2020

£m

Operating profit 106.8 119.3

Adjustments for:

Net movements on revaluation of investment properties (28.5) (31.5)

Net movements on revaluation of equity investments (1.0) –

Depreciation and amortisation 1.1 0.7

Profit on sale of investment property 0.1 (11.6)

Lease incentive debtor adjustments (2.7) (1.9)

Share-based payment charge (0.3) (0.2)

Changes in working capital:

Increase in receivables (3.7) (0.8)

Increase in payables 1.3 2.9

Cash generated from operations 73.1 76.9

Non-cash movements

Changes in liabilities arising from financing activities Notes

1 January

2021

£m

Financing

cash flows

£m

Amortisation

of loan

issue costs

£m

Fair value

adjustments

£m

Foreign

exchange

£m

31 December

2021

£m

Borrowings 19 970.7 88.1 2.0 – (29.2) 1,031.6

Interest rate swaps

20 5.6 – – (5.2) – 0.4

Forward foreign exchange contracts

20 – – – – – –

976.3 88.1 2.0 (5.2) (29.2) 1,032.0

Non-cash movements

Changes in liabilities arising from financing activities Notes

1 January

2020

£m

Financing

cash flows

£m

Amortisation

of loan

issue costs

£m

Fair value

adjustments

£m

Foreign

exchange

£m

31 December

2020

£m

Borrowings 19 891.7 51.7 2.1 – 25.2 970.7

Interest rate swaps

20 4.1 – – 1.6 (0.1) 5.6

Forward foreign exchange contracts

20 (0.3) 0.3 – – – –

895.5 52.0 2.1 1.6 25.1 976.3

27. Contingencies

At 31 December 2021 and 31 December 2020 CLS Holdings plc had guaranteed certain liabilities of Group companies. These were primarily

in relation to Group borrowings and covered interest and amortisation payments. Principal amounts of loans secured from external lenders

by two Group companies totalling £30.2 million at 31 December 2021 are also covered by guarantees provided by CLS Holdings plc

(£30.6 million at 31 December 2020).

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

175

28. Commitments

At the balance sheet date the Group had contracted with customers under non-cancellable operating leases for the following minimum

lease payments:

Operating lease commitments – where the Group is lessor

2021

£m

2020

£m

Within one year 99.9 100.5

Between one and two years 88.7 91,0

Between two and three years 73.3 77.3

Between three and four years 59.2 62.6

Between four and five years 38.9 48.6

More than five years 133.4 90.7

493.4 470.7

Operating leases where the Group is the lessor are typically negotiated on a customer-by-customer basis and include break clauses and

indexation provisions.

Other commitments

At 31 December 2021 the Group had contracted capital expenditure of £25.1 million (2020: £16.5 million). At the balance sheet date, the

Grouphad not exchanged contracts to acquire any investment properties (2020: £89.9 million). There were no authorised financial

commitments which were yet to be contracted with third parties (2020: nil).

29. Post balance sheet events

In February and March 2022, the Group exchanged on the acquisition of properties for £20.8 million and £54.9 million, before costs.

On 1 January 2022, we converted our UK operations to a REIT. As a result of the conversion, CLS will pay no UK corporation tax on its UK

property operations (rental income, gains on property sales and sales of companies owning UK property) which fall within the REIT regime

from the 2022 financial year onwards.

30. Subsidiaries

The Group financial statements include the financial statements of CLS Holdings plc and all of its subsidiaries, which are listed below.

All are 100% owned unless otherwise stated. Those marked with a * were dissolved during 2021.

United Kingdom

Registered Office: 16 Tinworth Street, London SE11 5AL

16 Tinworth Street (Residential)

Limited

401 King Street Limited

Apex Tower Limited

Base Offices Limited

Brent House Limited

Buspace Studios Limited*

Cassini Pascal Limited

Centenary Court Limited

Central London Securities Limited

Chancel House Limited *

Citadel Finance Limited

Citadel Holdings plc

CI Tower Investments Limited

CLS Capital Partners Limited

CLS Chancery House Limited

CLS Church Road Limited

CLS Cliffords Inn Limited

CLS Clockwork Limited

CLS Crawley Limited

CLS England and Wales Limited

CLS Gateway House Limited

CLS Germany Limited

CLS Gresham Limited

CLS Harrow Limited

CLS Holdings UK Limited

CLS Kings Court Limited

CLS Lloyds Avenue Limited

CLS London Limited

CLS London Properties Limited

CLS Northern Properties Limited

CLS One Limited

CLS Pacific House Limited

CLS Prescot Limited

CLS Priory Place Limited

CLS Residential Investments

Limited

CLS South London Limited

CLS Spring Gardens Limited

CLS Staines Limited

CLS UK Properties plc

CLS UK Property Finance Limited

CLS UK Property Finance 2

Limited

CLS Watford Limited

CLSH Management Limited

Columbia Bracknell Limited

Coventry House Limited

Dukes Road Limited

Elmfield Road Limited

Fetter Lane Apartments Limited

Fetter Lane Leasehold Limited

Great West House Limited

Harman House Limited

Hygeia Harrow Limited

Ingrove Limited

Instant Office Limited

Kennington Road Limited

Larkhall Lane Limited

Maidenhead Cloud Gate Limited

Mirenwest Limited

New Printing House Square

Limited

NYK Investments Limited

One Elmfield Park Limited

Prescot Street Leasco Limited

Quayside Lodge Limited

Rayman Finance Limited

Reflex Bracknell Limited

Sentinel House Limited

Shard of Glass Limited

Southern House Limited

Spring Gardens III Limited

Spring Mews (Block D) Limited

Spring Mews (Hotel) Limited

Spring Mews Limited

Spring Mews (Student) Limited

Three Albert Embankment Limited

Vauxhall Square Limited

Vauxhall Square (Nominee 3)

Limited

Vauxhall Square One Limited

Vauxhall Square (Student) Limited

Wandsworth Road Limited

1 Previously named CLS Office Collection until 13 March 2021.

CLS Holdings plc Annual Report and Accounts 2021

176

Notes to the Group financial statements

continued

30. Subsidiaries continued

United Kingdom continued

Registered Office: 15 Atholl Crescent, Edinburgh EH3 8HA

CLS Aberdeen Limited

CLS Scotland Limited

Ladywell House Limited

Sidlaw House Limited

France

Registered Office: 36 Rue Jules Verne, 92300 Levallois-Perret, Paris

120 Jean Jaures Sàrl

Avenue du Park SCI

BV France Sàrl

Capitaine Guynemer Sàrl

Chorus Sàrl

CLS France Sàrl

CLS Management Sàrl

Debussy SCI

De Musset Sàrl

Foch SCI

Forum France SCI

Georges Clemençeau Sàrl

Immobilière V SA

Immobilière 6 Sàrl

Immobilière 8 Sàrl

Immobilière 10 Sàrl

Immobilière 12 Sàrl

Jean Walters Sàrl

Le D’Aubigny SCI

Le Quatuor SCI

Le Sigma Sàrl

Leclerc SCI

Mission Marchand Sàrl

Panten Sàrl

Parc SCI

Petits Champs Sàrl

Petits Hotels Sàrl

Rhone Alpes Sàrl

Rue Stephenson Sàrl

Scala Sàrl

SCI Frères Peugeot

SCI Pierre Valette

Sego Sàrl

Solferino SCI

Germany

Registered Office: Nagelsweg 37, 20097 Hamburg

CLS Germany GmbH

CLS Green Energy GmbH

Jarrestrasse Immobilien GmbH

Luxembourg

Registered Office: 33 Avenue de la Liberte, 1931 Luxembourg

Adlershofer Sàrl

Albertina Sàrl

Cavernet Sàrl

Chronotron Sàrl

CLS Immobilien Stuttgart Sàrl

CLS Investments Sàrl

CLS Investments 2 Sàrl

CLS Luxembourg Sàrl

CLS Metropolis Sàrl

CLS Palisade Sàrl

CLS Tangentis Sàrl

Freepost Sàrl

Frohbösestrasse Sàrl

Garivet Sàrl

Gotic Haus Sàrl

Grossglockner Sàrl

Hermalux Sàrl

Kapellen Sàrl

Landstrasse Sàrl

Naropere Sàrl

Network Perlach Sàrl

Prater Sàrl

Rock Harman House Sàrl

Salisbury Hill Sàrl

Satimood Sàrl

Schönbrunn Sàrl

Zillertal Sàrl

Netherlands

Registered Office: Burgemeester van Reenensingel 101, 2803 DA Gouda

Chorus BV

CLS Management BV

Hamersley International BV

Malmros Property BV

Petits Champs BV

Portapert Properties III BV

Portapert Properties UK BV

Rasstaf BV

Jersey

Registered Office: PO Box 167, 3rd Floor, 2 Hill Street, St Helier JE4 8RY

Hawkswell One Limited

Hawkswell Two Limited

Sweden

Registered Office: Skönabäck 122, 274 91 Skurup

Rasstaf Sweden AB

Museion Förvaltning AB

Xtraworks AB

With Young Attitude Media Group AB (98.87%)

Cood Investments AB (58.02%)

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

177

31. Associates

The Group financial statements include the Group’s share of the results and net assets of the following associates:

Name Principal activity Registered office

Country of

incorporation

Holding Proportion

ofownership interest

andvoting rights held

bythe Group

2021 2020

24 Media Network AB To own and manage investments

inthe media sector

Stureplan 4, 114 35 Stockholm Sweden 24.2% 24.2%

The above associates are accounted for using the equity method with an adjustment to the associate’s accounting policies to conform to

those of the Group.

The Group’s share of loss from continuing operations of the associate was £0.1 million (2020: £nil)

There are no restrictions on the ability of the associate to transfer funds to the Group.

32. Related party transactions

Transactions with Directors

Distributions totalling £17,899,753 (2020: £17,508,017) were made through dividend payments in the year in respect of ordinary shares held

by the Directors.

During the year the following transactions occurred with companies associated to the majority shareholder:

• The Group charged a management fee in relation to providing property management and administration services. A Group company,

CLSH Management Limited, invoiced fees totalling £23,980 (2020: £25,559). At the balance sheet date £nil was outstanding

(2020: £25,500).

• The Group recharged salary costs in relation to providing administration services. CLS Holdings plc, invoiced costs totalling £62,705

(2020: £63,021). At the balance sheet date £62,705 was outstanding (2020: £63,021).

• The Group paid fees in relation to the provision of company administration and bookeeping services in Sweden totalling £18,552

(2020: £19,823). At the balance sheet date £2,451 was outstanding (2020: £nil).

During the year, the Group invoiced rental related charges of £143,469 (2020: £132,216) to IKEA Limited, a company in a group of companies

with acommon Director. At the balance sheet date £nil was outstanding (2020: £38,362).

During the year, an internship was awarded to a person related to Denise Jagger, a director of the Company. The internship was for a period

of three months and they received a salary equivalent to £25,000 per annum (£5,000 for the period).

Directors’ remuneration

The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for eachof the

categories specified in IAS 24 Related Party Disclosures. Information about the remuneration of individual Directors is provided in the

audited part of the Remuneration Committee Report on pages 110 to 129.

2021

£000

2020

£000

Short-term employee benefits 995 1,550

Post-employment benefits 4 5

Other long-term benefits 372 157

1,371 1,712

CLS Holdings plc Annual Report and Accounts 2021

178

Notes to the Group financial statements

continued

Notes

2021

£m

2020

£m

Non-current assets

Investment in subsidiary undertakings

7 451.4 432.9

Intangible assets 2.0 1.1

Current assets

Trade and other receivables

8 3.0 3.0

Total assets 456.4 437.0

Current liabilities

Other payables

9 (43.9) (36.8)

Total liabilities (43.9) (36.8)

Net assets

412.5 400.2

Equity

Share capital

10 11.0 11.0

Share premium

11 83.1 83.1

Other reserves

11 28.1 28.2

Retained earnings

11 290.3 277.9

Shareholders’ funds

12 412.5 400.2

The Company reported a profit for the financial year ended 31 December 2021 of £43.2 million (2020: £74.2 million).

The notes on pages 147 to 178 are an integral part of these Company financial statements.

These financial statements of CLS Holdings plc (registered number: 02714781) were approved by the Board of Directors andauthorised for

issue on 16 March 2022 and were signed on its behalf by:

Mr F Widlund Mr A Kirkman

Chief Executive Officer Chief Financial Officer

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

179

Company balance sheet

at 31 December 2021

Notes

Share

capital

£m

Share

premium

£m

Other

reserves

£m

Profit

and loss

account

£m

Total

£m

Arising in 2021:

Profit for the year

11 – – – 43.2 43.2

Share-based payment charge

11 – – (0.1) – (0.1)

Dividends to shareholders

6 – – – (30.8) (30.8)

Total changes arising in 2021

– – (0.1) 12.4 12.3

At 1 January 2021

11.0 83.1 28.2 277.9 400.2

At 31 December 2021

11.0 83.1 28.1 290.3 412.5

Notes

Share

capital

£m

Share

premium

£m

Other

reserves

£m

Profit

and loss

account

£m

Total

£m

Arising in 2020:

Profit for the year

11 – – – 74.2 74.2

Share-based payment charge

11 – – (0.5) – (0.5)

Dividends to shareholders

6 – – – (30.1) (30.1)

Total changes arising in 2020

– – (0.5) 44.1 43.6

At 1 January 2020

11.0 83.1 28.7 233.8 356.6

At 31 December 2020

11.0 83.1 28.2 277.9 400.2

The notes on pages 181 to 184 are an integral part of these Company financial statements.

CLS Holdings plc Annual Report and Accounts 2021

180

Company statement of changes in equity

for the year ended 31 December 2021

1. General information

These separate Company financial statements are presented as required by the Companies Act 2006 and prepared on the historical

costbasis.

The Company has applied UK GAAP Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (‘FRS 101’) incorporating the

Amendments to FRS 101 issued by the FRC in July 2015 other than those relating to legal changes and has not applied the amendments to

Company law made by The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 that are effective for accounting

periods beginning on or after 1 January 2016.

CLS Holdings plc is the ultimate parent company of the CLS Holdings Group registered and incorporated in the United Kingdom under

Companies Act 2006. Its primary activity (which occurs exclusively within the United Kingdom) is to hold shares in subsidiary companies.

2. Basis of accounting

As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard inrelation to capital

management, presentation of a cash flow statement, presentation of comparative information in respect ofcertain assets, standards not

yet effective, impairment of assets and related party transactions. The Company is not a financial institution and is therefore able to take

advantage of exemption from all requirements of IFRS 7 Financial Instruments: Disclosures and from the disclosure requirement of IFRS 13

Fair Value Measurements.

Where required, equivalent disclosures are given in the Group financial statements.

3. Significant accounting policies

The principal accounting policies are summarised below.

3.1 Going concern

The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the

foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the annual report and accounts as detailed

inthe Director’s Report on page 130.

3.2 Investments in subsidiaries

Investments in subsidiaries are accounted for at cost less provisions for impairment. Dividend income isrecognised when received.

3.3 Pension costs

The Company operates a defined contribution pension scheme for all eligible employees. The pension costs charged represent the

contributions payable. Differences between contributions payable in the year and contributions paid are shown as either accruals or

prepayments in the balance sheet.

3.4 Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from proceeds, net of tax.

Where a Group company purchases the Company’s equity share capital, the consideration paid, including any directly attributable

incremental costs (net of income taxes), is deducted from equity attributable to the owners of the Company until the shares are cancelled,

reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable

incremental transaction costs and the related income tax effects, is included inequityattributable to the owners of the Company.

3.5 Foreign currencies

The financial statements are presented in sterling, which is the currency of the primary economic environment in which the Company

operates, known as its functional currency. Transactions in currencies other than the Company’s functional currency are recognised at

therates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are

denominated in other currencies are translated into sterling at the rates prevailing atthat date.

4. Critical accounting judgements and key sources of estimation uncertainty

Critical accounting judgements

In accordance with IAS 1, the Directors have considered the judgements that have been made in the process of applying theCompany’s

accounting policies, which are described in note 3, and which of those judgements have the most significant effecton amounts recognised

in the financial statements.

In the opinion of the Directors, for the years ended 31 December 2021 and 31 December 2020 there are no accounting judgements that are

material to the financial statements.

Key sources of estimation uncertainty

There are no key sources of estimation uncertainty in these Company financial statements for the years ended 31 December 2021 and

31 December 2020.

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

181

Notes to the Company financial statements

for the year ended 31 December 2021

5. Profit for financial year

As permitted by s408 Companies Act 2006, the Company’s profit and loss account has not been presented in these financial statements.

The Company’s profit for the financial year was £43.2 million (2020: £74.2 million).

Audit fees for the Company were £0.1 million (2020: £0.1 million).

Details of the Directors employed during the year and of their remuneration is included in the Remuneration Committee Report on pages

110to 129.

6. Dividend

Payment

date

Dividend

per share

p

2021

£m

2020

£m

Current year

2021 final dividend

1

29 April 2022 5.35 – –

2021 interim dividend 24 September 2021 2.35 9.6 –

Distribution of current year profit 7.70 9.6 –

Prior year

2020 final dividend 29 April 2021 5.20 21.2 –

2020 interim dividend 25 September 2020 2.35 – 9.6

Distribution of prior year profit 7.55 21.2 9.6

2020 final dividend 29 April 2020 5.05 21.2 20.5

Dividends as reported in the Group statement of changes in equity 30.8 30.1

1 Subject to shareholder approval at the AGM on 28 April 2022.

7. Investment in subsidiary undertakings

2021

£m

2020

£m

At 1 January 432.9 441.0

Additions 49.6 69.3

Disposals (21.7) (49.1)

Provision for impairment (9.4) (28.3)

At 31 December 451.4 432.9

8. Trade and other receivables

2021

£m

2020

£m

Amounts owed by subsidiary undertakings 1.6 1.9

Other receivables 0.2 0.9

Prepayments and accrued income 1.2 0.2

3.0 3.0

CLS Holdings plc Annual Report and Accounts 2021

182

Notes to the Company financial statements

continued

9. Other payables

2021

£m

2020

£m

Trade payables 0.1 –

Amounts owed to subsidiary undertakings 42.0 34.5

Social security and other taxes 0.2 0.2

Accruals 1.6 2.1

43.9 36.8

10. Share capital

Number of shares authorised, issued and fully paid

Ordinary

shares in

circulation

£m

Treasury

shares

£m

Total

ordinary

shares

£m

Ordinary

shares in

circulation

Treasury

shares

Total

ordinary

shares

At 1 January 2021, 31 December 2020

and 31 December 2021 407,395,760 31,382,020 438,777,780 10.2 0.8 11.0

The Board is authorised, by shareholder resolution, to allot shares or grant such subscription rights (as are contemplated by sections 551(1)

(a) and (b) respectively of the Companies Act 2006) up to a maximum aggregate nominal value of £3,394,964 representing one-third of the

issued share capital of the Company excluding treasury shares.

11. Reserves

Other reserves

Profit

and loss

account

£m

Share

premium

£m

Capital

redemption

reserve

£m

Share-based

payment

reserve

£m

Other

£m

Total

£m

At 1 January 2021 83.1 22.7 0.9 4.6 28.2 277.9

Share-based payment charge – – (0.1) – (0.1) –

Profit for the year – – – – – 43.2

Dividends to shareholders – – – – – (30.8)

At 31 December 2021 83.1 22.7 0.8 4.6 28.1 290.3

Other reserves

Profit

and loss

account

£m

Share

premium

£m

Capital

redemption

reserve

£m

Share-based

payment

reserve

£m

Other

£m

Total

£m

At 1 January 2020 83.1 22.7 1.4 4.6 28.7 233.8

Share-based payment charge – – (0.5) – (0.5) –

Profit for the year – – – – – 74.2

Dividends to shareholders – – – – – (30.1)

At 31 December 2020 83.1 22.7 0.9 4.6 28.2 277.9

Strategic report Corporate governance Financial statements Additional information

CLS Holdings plc Annual Report and Accounts 2021

183

12. Reconciliation of movements in shareholders’ funds

2021

£m

2020

£m

At 1 January 400.2 356.6

Profit for the year 43.2 74.2

Dividends to shareholders (30.8) (30.1)

Share-based payment charge (0.1) (0.5)

At 31 December 412.5 400.2

13. Contingencies

At 31 December 2021 and 31 December 2020 CLS Holdings plc had guaranteed certain liabilities of Group companies. These were primarily

in relation to Group borrowings and covered interest and amortisation payments. Principal amounts of loans secured from external lenders

by two Group companies totalling £30.2 million at 31 December 2021 are also covered by guarantees provided by CLS Holdings plc

(£30.6 million at 31 December 2020). Since the possibility of payment by the Company under any of these guarantees and warranties is

considered remote, no provisions in relation to these have been made in the Company’s financial statements and no reportable contingent

liability exists.

14. Commitments

At 31 December 2021, the Company had no contracted capital expenditure (2020: £nil) and no authorised financial commitments which

were yet to be contracted with third parties (2020: £nil).

CLS Holdings plc Annual Report and Accounts 2021

184

Notes to the Company financial statements

continued

2021

£m

2020

£m

2019

£m

2018

£m

Restated

2017

£m

Continuing operations

Revenue 139.8 139.4 138.3 133.0 120.3

Net rental income 108.0 109.8 110.6 107.3 100.0

Administration expenses (16.2) (18.5) (19.9) (17.8) (14.6)

Other expenses (14.4) (15.1) (13.7) (13.2) (12.2)

Revenue less costs 77.4 76.2 77.0 76.3 73.2

Net movements on revaluation of investment property 28.5 31.5 57.4 62.8 94.2

(Loss)/profit on sale of investment property (0.1) 11.6 8.6 2.3 43.7

Gain on sale of other financial investments – – 40.4 1.7 2.5

Net movement on revaluation of equity investments 1.0 – – 22.2 –

Operating profit 106.8 119.3 183.4 165.3 213.6

Finance income 5.9 3.2 5.0 6.1 10.0

Finance costs (27.7) (26.0) (29.4) (26.5) (32.4)

Share of profit/(loss) of associates after tax 6.5 – – – (0.7)

Profit before tax 91.5 96.5 159.0 144.9 190.5

Taxation 28.0 (19.1) (23.8) (12.1) (33.5)

Profit for the year from continuing operations 119.5 77.4 135.2 132.8 157.0

Discontinued operations

(Loss)/profit for the year from discontinued operations – – (0.5) (14.9) 0.9

Profit for the year 119.5 77.4 134.7 117.9 157.9

Dividends paid 30.8 30.1 28.7 26.5 24.7

Distribution of current year’s profit 31.4 30.8 30.1 28.1 25.9

Net assets employed

Non-current assets 2,301.1 2,181.4 2,010.2 2,034.5 1,913.1

Current assets 237.4 279.6 295.4 173.0 244.3

2,538.5 2,461.0 2,305.6 2,207.5 2,157.4

Current liabilities (229.8) (158.2) (198.9) (170.0) (207.2)

Non-current liabilities (978.0) (1,032.2) (904.3) (914.5) (916.9)

Net assets 1,330.7 1,270.6 1,202.4 1,123.0 1,033.3

Ratios 2021 2020 2019 2018 2017

Net assets per share (pence) 326.6 311.9 295.1 275.5 252.0

EPRA NAV per share (pence) 353.0 350.1 329.2 309.8 285.6

EPRA NTA per share (pence) 350.5 345.2 326.3 304.6 n/a

Earnings per share (pence) 29.3 19.0 33.3 30.5 38.7

EPRA earnings per share (pence) 11.3 12.2 12.0 13.1 12.6

Total Accounting Return – basic (%) 7.1 8.2 10.7 11.9 19.9

Total Accounting Return – EPRA NTA (%) 3.7 8.1 9.4 n/a n/a

Net gearing (%) 65.4 58.3 53.0 63.4 65.2

Balance sheet loan-to-value (%) 37.1 33.7 31.4 36.7 36.9

Interest cover (times) 3.16 3.26 3.42 3.80 3.89

2017 was restated to separate the individual line items in the income statement that related to the operations of First Camp Sverige

Holdings AB which was classified as discontinued as at 31 December 2018. Accordingly, the assets and liabilities were disclosed in current

assets and current liabilities on the Group balance sheet as the First Camp sub-group was classified as a disposal group held for sale.

On 7 March 2019, the disposal of the First Camp sub-group completed and accordingly the assets and liabilities of the sub-group were

de-recognised from the Group balance sheet.

CLS Holdings plc Annual Report and Accounts 2021

185

Strategic report Corporate governance Financial statements Additional information

Five-year financial summary (unaudited)

Administration cost ratio

Recurring administration expenses oftheinvestment property

operating segment expressed as a percentage ofnetrental income.

Balance sheet loan-to-value

Net debt expressed as a percentage ofproperty assets.

Building Research Establishment Environmental Assessment

Method (BREEAM)

An environmental impact assessment method for non-domestic

buildings. Their standards cover new construction, In-Use as well

asrefurbishment and fit-out. BREEAM In-Use enables property

investors, owners, managers and occupiers to determine and drive

sustainable improvements in the operational performance of their

buildings. It provides sustainability benchmarking and assurance

for all building types and assesses performance in a number

ofareas; management, health & wellbeing, energy, transport,

water,resources, resilience, land use & ecology, and pollution.

Performance is measured across a series of ratings; Good,

VeryGood, Excellent and Outstanding.

Carbon emissions Scopes 1, 2 and 3

Scope 1 – direct emissions;

Scope 2 – indirect emissions; and

Scope 3 – other indirect emissions.

CDP

CDP, formerly known as the Carbon Disclosure Project, assesses

the ESG performance of all major companies worldwide and

aidscomparability betweenorganisations to allow the investor

community to assess the carbon and climate change risk of

each company.

Contracted rent

Annual contracted rental income after any rent-free periods

have expired.

Earnings per share

Profit for the year attributable to the owners of the Company divided

by the weighted average number of ordinary shares in issue in

theperiod.

Energy Performance Certificate (EPC)

An EPC is an asset rating detailing how energy efficient a building

is,rated by carbon dioxide emission on a scale of A-G, where an

Arating is the most energy efficient. They are legally required for

any building that is to be put on the market for sale or rent.

European Public Real Estate Association (EPRA)

A not-for-profit association with a membership of Europe’s leading

property companies, investors and consultants which strives to

establish best practices in accounting, reporting and corporate

governance and to provide high-quality information to investors.

EPRA’s Best Practices Recommendations includes guidelines for

the calculation of the following performance measures which the

Group has adopted.

EPRA capital expenditure

Investment property acquisitions and expenditure split between

amounts used for the creation of additional lettable area

(‘incremental lettable space’) and enhancing existing space

(‘noincremental space’) both on an accrual and cash basis.

EPRA cost ratio

Administrative & operating costs (including & excluding costs

ofdirect vacancy) divided by gross rental income. A measure to

enable meaningful measurement of the changes in a company’s

operating costs.

EPRA earnings per share (EPS)

Earnings from operational activities. A measure of a company’s

underlying operating results and an indication of the extent to

whichcurrent dividend payments are supported by earnings.

EPRA net reinstatement value (NRV)

NAV adjusted to reflect the value required to rebuild the entity

andassuming that entities never sell assets. Assets and liabilities,

such as fair value movements on financial derivatives are not

expected to crystallise in normal circumstances and deferred taxes

on property valuation surpluses are excluded.

EPRA net tangible assets (NTA)

Assumes that entities buy and sell assets, thereby crystallising

certain levels of unavoidable deferred tax.

EPRA net disposal value (NDV)

Represent the shareholders’ value under a disposal scenario, where

deferred tax, financial instruments and certain other adjustments

are calculated to the full extent of their liability, netofany

resultingtax.

EPRA net initial yield (NIY)

Annualised rental income based on the cash rents passing at the

balance sheet date, less non-recoverable property operating

expenses, divided by the market value of the EPRA property

portfolio, increased by estimated purchasers’ costs.

EPRA ‘topped up’ net initial yield

This measure incorporates an adjustment to the EPRA NIY in

respect of the expiration of rent free periods (or other unexpired

lease incentives such as discounted rent periods and stepped rents).

EPRA vacancy rate

Estimated rental value (ERV) of immediately available space divided

by the ERV of the lettable portfolio.

Estimated rental value (ERV)

The market rental value of lettable space asestimated by the

Group’s valuers.

GRESB

GRESB assesses and benchmarks the environmental, social

andgovernance (ESG) performance of real assets, providing

standardised and validated data to the capital markets.

Interest cover

The aggregate of group revenue less costs, divided by the aggregate

of interest expense and amortisation of loan issue costs, less

interest income.

Key performance indicators (KPIs)

Activities and behaviours, aligned to both business objectives

andindividual goals, against which the performance of the Group

isannually assessed. Performance measured against them is

referenced in the annual report.

Liquid resources

Cash and short-term deposits.

CLS Holdings plc Annual Report and Accounts 2021

186

Glossary of terms

Net assets per share or net asset value (NAV)

Equity attributable to the owners of the Company divided by the

diluted number ofordinary shares.

Net debt

Total borrowings less liquid resources.

Net gearing

Net debt expressed as a percentage ofnetassets attributable

totheowners ofthe Company.

Net initial yield

Net rent on investment properties and properties held for sale

expressed as apercentage of the valuation of those properties.

Net rent

Passing rent less net service charge costs.

Occupancy rate

Contracted rent expressed as a percentage ofthe aggregate

ofcontracted rent and the ERV of vacant space.

Over-rented

The amount by which ERV falls short of the aggregate

ofcontracted rent.

Passing rent

Contracted rent before any rent-free periods have expired.

Passive infrared sensor (PIR)

A PIR sensor will turn the lights on automatically when someone

walks into a room or space and off when it becomes empty

resulting in significant energy savings.

Property loan-to-value

Property borrowings expressed as apercentage of the market

value of the property portfolio.

Real Estate Investment Trust (REIT)

A Real Estate Investment Trust (REIT) is a vehicle that allows an

investor to obtain broadly similar returns from their investment,

asthey would have, had they invested directly in property. In the

UKa REIT is exempt from UK tax on the income and gains of its

property rental business. A REIT in the UK is required to invest

mainly in property and to pay out 90% of the profits from its

property rental business as measured for tax purposes as

dividends to shareholders (property income distributions). In the

hands of the shareholder, property income distributions (PID) are

taxable as profits of a UK property rental business. The PID is

received net of withholding tax, unless it is to a recipient entitled

togross payment

Rent reviews

Rent reviews take place at intervals agreed in the lease (typically

every five years) and their purpose is usually to adjust the rent to

thecurrent market level at the review date. For upwards only rent

reviews, the rent will either remain at the same level or increase

(ifmarket rents are higher) at the review date.

Rent roll

Contracted rent.

Return on equity

The aggregate of the change in equity attributable to theowners

ofthe Company plus the amounts paid to the shareholders as

dividends and the purchase of shares in themarket, divided by

theopening equity attributable to the owners of the Company.

Reversion

The amount by which ERV exceeds contracted rent.

Streamlined energy and carbon reporting (SECR)

The SECR regulations were introduced in April 2019 and require

companies incorporated in the UK to undertake enhanced

disclosures of their energy and carbon emissions in their

financial reporting.

SKA rating

SKA rating is an environmental assessment method, benchmark

and standard for non-domestic fit-outs, led and owned by RICS.

Performance is measured across the ratings; Bronze, Silver

and Gold.

The Task Force on Climate-related Financial Disclosures (TCFD)

Set up by the Financial Stability Board (FSB) in response to the G20

Finance Ministers and Central Bank Governors request for greater

levels of decision-useful, climate-related information; the TCFD was

asked to develop climate-related disclosures that could promote

more informed investment, credit (or lending), and insurance

underwriting decisions. In turn, this would enable stakeholders to

understand better the concentrations of carbon-related assets in

the financial sector and the financial system’s exposures to

climate-related risks.

Total accounting return – basic

The change in IFRS net assets before the payment of dividends.

Total accounting return

The change in EPRA NTA before the payment of dividends.

Total shareholder return (TSR)

The growth in capital from purchasing ashare, assuming that

dividends are reinvested every time they are received.

True equivalent yield

The capitalisation rate applied to future cash flows tocalculate

thegross property value, asdetermined bytheGroup’s

external valuers.

UN Sustainable Development Goals (SDGs)

The 2030 Agenda for Sustainable Development, adopted by all

United Nations Member States in 2015, provides a shared blueprint

for peace and prosperity for people and the planet, now and into the

future. At its heart are the 17 Sustainable Development Goals

(SDGs), which are an urgent call for action by all countries –

developed and developing – in a global partnership. They recognize

that ending poverty and other deprivations must go hand-in-hand

with strategies that improve health and education, reduce inequality,

and spur economic growth – all while tackling climate change and

working to preserve our oceans and forests.

Variable refrigerant flow (VRF)

The modular design of VRF results in energy savings by giving

occupants the choice to air condition or heat only the zones in use.

CLS Holdings plc Annual Report and Accounts 2021

187

Strategic report Corporate governance Financial statements Additional information

Directors

Lennart Sten*

◊

(Non-Executive Chairman)

Anna Seeley

◊

(Non-Executive Vice Chair)

Fredrik Widlund (Chief Executive Officer)

Andrew Kirkman (Chief Financial Officer)

Elizabeth Edwards

‡†◊

(Non-Executive Director)

Bill Holland*

†

(Non-Executive Director)

Denise Jagger*

†

(Non-Executive Director)

Christopher Jarvis (Non-Executive Director)

Bengt Mortstedt (Non-Executive Director)

‡ Senior Independent Director

*

Member of Remuneration Committee

† Member of Audit Committee

◊ Member of Nomination Committee

Chief Operating Officer & Company Secretary

David Fuller BA, FCG

Registered Office

16 Tinworth Street, London, SE11 5AL

Registered Number

02714781

Website

www.clsholdings.com

Email

enquiries@clsholdings.com

Telephone

+44 (0)20 7582 7766

Registrars and Transfer Office

Computershare Investor Services Plc

The Pavilions

Bridgwater Road

Bristol BS99 6ZZ

Shareholder Helpline: 0870 889 3286

Germany

CLS Germany GmbH

Hamburg Office:

Nagelsweg 37

20097 Hamburg

Dusseldorf Office:

Roßstraße 96

40476 Dusseldorf

Tel: +49 (0)40 29 81 39 0

France

CLS France Sarl

36 rue Jules Verne

92300 Levallois-Perret

Tel: +33 (0)1 86 26 48 50

Luxembourg

CLS Luxembourg Sarl

33 Avenue de la Liberte

1931 Luxembourg

Tel: +352 (0)27 861 217

Clearing Bank

Royal Bank of Scotland Plc

24 Grosvenor Place

London

SW1X 7HP

Joint Corporate Brokers

Liberum Capital Limited

Ropemaker Place, Level 12

25 Ropemaker Street

London EC2Y 9LY

Panmure Gordon (UK) Limited

One New Change

London EC4M 9AF

Joh. Berenberg, Gossler & Co. KG

London Branch

60 Threadneedle Street

London EC2R 8HP

Registered Auditor

Deloitte LLP

Chartered Accountants

1 New Street Square

London EC4A 3HQ

Financial and Corporate Public Relations

Daniel J. Edelman Limited

Southside

105 Victoria Street

London SW1E 6QT

CLS Holdings plc Annual Report and Accounts 2021

188

Directors, officers and advisers

Both the paper manufacturer and printer are

registered to the Environmental Management

System_ISO14001 and are Forest Stewardship

Council® (FSC)® chain-of-custody certified

CLS Holdings plc

16 Tinworth Street

London

SE11 5 AL

Tel: +44 (0)20 7582 7766

Fax: +44 (0)20 7735 2779

www.clsholdings.com

enquiries@clsholdings.com

Design and production

CLS Holdings plc Annual Report and Accounts 2021

CLS Holdings plc Annual Report and Accounts 2021