Land Sec. Group PLC (LAND) - Half-yearly results to 30 September 2012 RNS Number : 5578Q Land Securities Group PLC 08 November 2012 Half-yearly results for the six months ended 30 September 2012 "Our clear plan is driving high levels of activity as we secure lettings and progress our development programme. In uncertain market conditions we remain well positioned" Results summary 30 September 2012 31 March 2012 Change Valuation deficit (1) £10.9m N/A Down 0.1% Basic NAV per share 922p 921p Up 0.1% Adjusted diluted NAV per share (2) 864p 863p Up 0.1% Group LTV ratio (1) 36.2% 38.0% Six months ended 30 Six months ended 30 September 2012 September 2011 Change Profit before tax £131.4m £378.9m Down 65.3% Revenue profit (1) £143.7m £159.3m Down 9.8% Basic EPS 16.8p 50.0p Down 66.4% Adjusted diluted EPS 18.4p 20.5p Down 10.2% Dividend 14.8p 14.4p Up 2.8% 1. Including share of joint ventures 2. Our key valuation measure Resilient performance in challenging market · Total property return 2.7%, ahead of IPD Quarterly Universe at 1.1% · Adjusted diluted NAV per share up 1p since March 2012 · Revenue profit of £143.7m, down 9.8% on the six months ended 30 September 2011 following disposals and development starts · 33,410 sq m of new retail space opened since 1 April 2012 through new formats for John Lewis and Debenhams plus two new Primark stores · £14.6m of development lettings since 1 April 2012 with a further £9.1m in solicitors' hands · £15.1m of investment lettings across the portfolio at 2.8% below ERV due to pre-development properties · Like-for-like voids down at 2.6% from 2.9% since March 2012. Retail at 3.1% from 3.4% and London at 2.0% from 2.4% · Units in administration down in Retail at 1.8% from 2.8%, with London unchanged at 0.1% · Weighted average unexpired lease term across the like-for-like portfolio, completed developments and acquisitions of 9.0 years (31 March 2012: 9.2 years) Development programme continues to deliver · Developments continue to contribute positively to returns - with a valuation surplus of 8.2% in the six month period · £9.1m of London Portfolio development lettings since 1 April 2012 o 20 Fenchurch Street, EC3, now 23% pre-let with a further 11% in solicitors' hands o 123 Victoria Street, SW1, practical completion achieved with the building now 53% let with a further 20% in solicitors' hands · £5.5m of Retail Portfolio development lettings since 1 April 2012 o Trinity Leeds development now 76% pre-let with a further 8% in solicitors' hands and on schedule to open on 21 March 2013 o 185-221 Buchanan Street, Glasgow 92% pre-let with a further 7% in solicitors' hands and on schedule to open on 22 March 2013 · Our 11,000 sq m out-of-town development at Crawley, 94% pre-let, has commenced · Work starts this month on the £350m Zig Zag Building and Kings Gate development on Victoria Street, SW1, with completion due in January 2015 · Demolition has started at Victoria Circle, SW1, our proposed 84,660 sq m mix of retail, residential, office and public amenity space Strong financial position · Group LTV ratio including share of joint ventures at 36.2% (38.0% at 31 March 2012) · Weighted average maturity of debt at 10.9 years · Cash and undrawn facilities of £1.2bn Commenting on the results, Land Securities' Chief Executive Robert Noel said: "We continue to deliver on a clear plan, and this is driving high levels of activity across the business. Having reduced our vacancy rates, and with encouraging interest in our developments, we have added more schemes to our development programme. "Our plan is based on a realistic outlook allied to a strong balance sheet. Every part of the business is focused on protecting and creating value for shareholders. In challenging market conditions, we remain confident in our position and in our ability to deliver." Chief Executive's statement In 2009 Land Securities set out a clear plan for recovery and growth. We have followed that plan, we are on track and we see no reason to deviate. Our plan was not built on a bull-market strategy and we said that growth would not be in a straight line. Our action to increase our development activity has improved our property returns, though funding this activity through sales rather than increased debt has, as expected, had a short term impact on earnings. Revenue profit was £143.7m, down 9.8% compared to the first half last year. Although our combined portfolio saw a small 0.1% fall in value, we delivered a total property return of 2.7% which outperformed the IPD Quarterly Universe at 1.1%. Adjusted diluted NAV per share was up 1p at 864p and, with our LTV down to 36.2% and £1.2bn of available facilities, we have plenty of capacity to invest in new opportunities. Over the first six months of this year we continued to reduce voids, while achieving lettings broadly in line with valuers' estimates. Development lettings exceeded our expectations in terms of rent, timing and incentives. We have positioned the business to operate efficiently and effectively in a low-growth environment. Tight financial discipline directs every decision. We have a clear plan for every asset and are constantly looking for smart ways to protect and add value. We are reallocating capital realised from sales to make our shareholders' money work harder elsewhere. We will not allow capital to languish in under-performing assets. The high levels of activity within our portfolio give us confidence that we are well placed for the next six months and beyond. Pockets of opportunity Over the past six months, our development programme has outperformed the rest of the portfolio. We expect development activity to continue to generate higher returns for us over the short to medium term. The next six months will see us increase activity, with the start of construction on two buildings to replace Kingsgate House, SW1, and retail developments in Crawley and Taplow as well as demolition works at Victoria Circle, SW1. We have further schemes ready to start when we feel it is appropriate. We will continue to be risk aware but not risk averse. In the London Portfolio, we are confident we are delivering the right space at the right time. Despite wider business confidence remaining subdued, relatively low levels of development and evolving occupier needs are combining to increase interest in our schemes, as we demonstrate that more efficient new space can reduce overall occupancy cost. With finance for property development still tough to secure, the supply of new office space will remain relatively restricted. As a result, the window for development is likely to be open for longer than we originally thought. We have the schemes and we have the financial capability to deliver them. In the face of tough conditions and gloomy sentiment, our performance in Retail has been ahead of the market. While retailers are generally not hungry for new units, the most successful operators do have an appetite for the right space in the right location. We continue to evolve our portfolio so that it meets the changing needs of retailers and the changing expectations of shoppers. Leisure is increasingly important so we were pleased to add Nottingham's Cornerhouse leisure complex to our portfolio in May 2012, and since the half year we have also acquired The Printworks, Manchester's dominant leisure destination. Long-term approach Our lifeblood comes from achieving planning consents so we can provide better places for people to live, work, shop and play. We aspire for people to be pleased that it is Land Securities investing and developing in their area, not someone else. The quality of our schemes and our strong relationships with local communities are central to improving returns for shareholders. Our approach has enabled us to develop and improve major schemes in sensitive and highly prized city centre locations. For us, development is about placemaking, not simply putting up buildings. By working to draw people together before, during and after construction, we add vibrancy. This makes our schemes more attractive and more successful and it also brings more opportunities our way. Consistent outlook Nothing we have seen in the last six months leads us to change our outlook. Wider economic uncertainty continues to restrain business confidence but take-up of new space is coming through and the interest we have in our schemes is encouraging. Within our market, we expect to see a divergence in rental levels between the best properties and the rest. In retail, rental growth is most likely to come from assets that have a dominant position in a thriving location. In London, rental growth is likely to come from new buildings that meet occupier needs in terms of technical performance. Value creation will come from responsible and well financed property companies who are best able to develop winning schemes profitably and manage mature assets proactively. Over the next six months you will see this business stick to its plan. Every part of the business is focused on protecting and creating value for shareholders through an uncertain period in the economy. We will exert tight financial discipline, progress development ahead of our peers and work hard to maximise returns through active asset management. Robert Noel Chief Executive Financial review Overview and headline results The Group's profit before tax was £131.4m, compared to £378.9m for the six months ended 30 September 2011. Revenue profit was £143.7m, down from £159.3m in the comparable period. Basic earnings per share were 16.8p compared to 50.0p for the six months ended 30 September 2011. Adjusted diluted earnings per share were 18.4p (2011: 20.5p), down 10.2% on the comparable period. Despite a small underlying fall in values of £10.9m, our combined portfolio increased in value from £10.33bn to £10.58bn, due to capital expenditure on developments and acquisitions. Net assets per share increased by 1p from 921p at 31 March 2012 to 922p at 30 September 2012. Adjusted diluted net assets per share also increased by 1p from 863p at 31 March 2012 to 864p. Revenue profit Revenue profit is our measure of the underlying pre-tax profit of the Group, which we use internally to assess our income performance. It includes the pre-tax results of our joint ventures but excludes capital and other one-off items. A reconciliation of revenue profit to our IFRS profit before tax is given in note 3 to the financial statements. Table 1 shows the composition of our revenue profit including the contributions from London and Retail. Table 1: Revenue profit 30 30 Retail London September Retail London September Portfolio Portfolio 2012 Portfolio Portfolio 2011 Change £m £m £m £m £m £m £m Gross rental income* 148.2 138.5 286.7 156.1 153.0 309.1 (22.4) Net service charge expense (0.6) (0.4) (1.0) (1.6) (1.8) (3.4) 2.4 Direct property expenditure (net) (14.2) (1.4) (15.6) (13.6) 1.6 (12.0) (3.6) Net rental income 133.4 136.7 270.1 140.9 152.8 293.7 (23.6) Indirect costs (11.7) (8.2) (19.9) (12.6) (8.5) (21.1) 1.2 Segment profit before interest 121.7 128.5 250.2 128.3 144.3 272.6 (22.4) Unallocated expenses (net) (16.7) (18.8) 2.1 Net interest - Group (75.2) (78.4) 3.2 Net interest - joint ventures (14.6) (16.1) 1.5 Revenue profit 143.7 159.3 (15.6) * Includes finance lease interest, net of ground rents payable. Revenue profit declined by £15.6m from £159.3m in the comparative period to £143.7m for the six months ended 30 September 2012. The 9.8% decrease was mainly due to a reduction in net rental income, which was down £23.6m, partly offset by lower indirect and net interest costs. The decline in net rental income is due to disposals we made last year and the cessation of income on properties in our development pipeline. Further information on the net rental income performance of the London and Retail portfolios is given in the respective business reviews. The aggregate of indirect costs of London and Retail and net unallocated expenses represent the net indirect expenses of the Group including joint ventures. The £3.3m reduction in these costs is largely due to lower staff costs and professional fees. Net interest expenditure was £4.7m lower due to higher capitalised interest as we invested capital in our development programme. Valuation movement A key component of our pre-tax profit is the movement in the values of our investment properties and any profits or losses on disposals. Over the last six months we saw a small valuation deficit of £10.9m, or 0.1%, and our profit on disposals was £1.8m, down from £25.4m in the comparable period. A breakdown of the valuation deficit by category is shown in table 2 below. Table 2: Valuation analysis Market value Movement 30 Rental Net in September Valuation value initial Equivalent equivalent 2012 (deficit)/surplus change* yield yield yield £m % % % % bps Shopping centres and shops 2,193.3 (3.7) (2.5) 6.2 6.4 5 Retail warehouses and food stores 1,141.6 (2.9) 0.3 5.3 5.8 16 London offices 3,587.3 - 0.4 5.0 5.6 - Central London shops 775.7 1.2 (0.7) 4.0 5.4 (11) Other 777.3 1.0 0.4 6.1 6.8 (13) Total like-for-like portfolio 8,475.2 (1.2) (0.7) 5.4 5.9 1 Proposed developments 223.4 4.7 n/a - n/a n/a Completed developments 733.4 0.4 (0.2) 3.5 5.2 (2) Acquisitions 96.1 (3.8) n/a 5.1 5.6 n/a Development programme 1,050.4 8.2 n/a 0.7 5.4 n/a Total investment portfolio 10,578.5 (0.1) (0.6) 4.7 5.8 (4) *Rental value change excludes units materially altered during the year and Queen Anne's Gate, SW1 In aggregate, the like-for-like portfolio saw a 1.2% decline in value over the six months to September 2012 on the back of rental values down by 0.7% with little change in yields. Shopping centres and shops saw a 3.7% valuation decline, largely due to a 2.5% fall in rental values. Values in retail warehouses and food stores were down by 2.9% due to an outward movement in equivalent yields particularly for larger lot sizes. London offices saw little overall change in value while central London shops saw a 1.2% valuation surplus as equivalent yield compression more than offset the decline in rental values. Outside the like-for-like portfolio, completed developments saw little valuation movement while proposed developments were up 4.7% due to lower than expected construction costs following receipt of tenders. Purchase costs accounted for the 3.8% valuation decline of acquisitions while the development programme was up by 8.2% as risk reduced on some of our major schemes through pre-letting and construction progress. Earnings per share Basic earnings per share were 16.8p, compared to 50.0p for the six months ended 30 September 2011, the reduction being predominantly due to a small valuation deficit compared to a surplus for the comparable period and lower profits on investment property disposals. In a similar way that we adjust profit before tax to remove capital and one-off items to give revenue profit, we also report an adjusted earnings per share figure. Adjusted diluted earnings per share reduced by 10.2% from 20.5p for the six months ended 30 September 2011 to 18.4p per share for the current period, reflecting the reduction in revenue profit. Total dividend We will be paying a second quarterly dividend of 7.4p per share on 10 January 2013. Taken together with the first quarterly dividend of 7.4p paid on 12 October 2012, this makes a first half dividend of 14.8p. Shareholders continue to have the opportunity to participate in our scrip dividend scheme and receive their dividend in the form of Land Securities shares (a scrip dividend alternative) as opposed to cash. The take-up for the dividends paid on 26 April 2012 and 26 July 2012 was 22.7% and 17.2% respectively. This resulted in the issue of 3.1m new shares at between 726p and 735p per share and £22.8m of cash being retained in the business. All of the cash dividends paid and payable in respect of the six months ended 30 September 2012 comprise Property Income Distributions (PID) from REIT qualifying activities. In contrast to the cash dividends, none of the scrip dividends paid to date have been PIDs and therefore they have not been subject to the 20% withholding tax requirement which applies to PIDs for certain classes of shareholders. The latest date for election for the non-PID scrip dividend alternative in respect of the second interim dividend will be 10 December 2012 and the calculation price will be announced on 18 December 2012. The purpose of the scrip dividend alternative is to enable shareholders to select the distribution they prefer. While the scrip dividend alternative results in cash being retained in the business, it also results in new shares being issued. If the new shares are issued at a time when the share price is below our adjusted net asset value per share, there will be a small dilution to existing shareholders from this discount. As announced at the year end, rather than suspend the scrip dividend alternative when the discount is material, the Company intends to buy back an equivalent number of shares to those issued in connection with the scrip dividend, thereby retaining choice for shareholders but minimising any dilution associated with issuing shares. In accordance with this approach, during the period the Company bought back 3.1m shares at a cost of £23.1m. Net assets At 30 September 2012, our net assets per share were 922p, an increase of 1p from 31 March 2012. In common with other property companies, we calculate an adjusted measure of net assets which we believe better reflects the underlying net assets attributable to shareholders. Our adjusted net assets are lower than our reported net assets primarily due to an adjustment to include our debt at its nominal value. At 30 September 2012, adjusted diluted net assets per share were 864p per share, an increase of 1p from 31 March 2012. Table 3 summarises the main differences between net assets and our adjusted measure of net assets together with the key movements over the period. Table 3: Net assets attributable to owners of the Parent Six months ended Year ended 30 September 2012 31 March 2012 £m £m Net assets at the beginning of the period 7,155.4 6,811.5 Adjusted earnings 143.4 298.3 Valuation (deficit)/surplus on investment properties (10.9) 190.9 Profit on disposal of investment properties 1.8 46.4 Profit on disposal of trading properties 1.0 5.2 Other (4.2) (17.9) Profit after tax attributable to owners of the Parent 131.1 522.9 Dividends (90.8) (154.8) Purchase of treasury and own shares (23.8) (18.5) Other reserve movements 0.2 (5.7) Net assets at the end of the period 7,172.1 7,155.4 Fair value of interest-rate swaps 21.4 20.8 Debt adjusted to nominal value (442.1) (450.9) Adjusted net assets at the end of the period 6,751.4 6,725.3 To the extent tax is payable, all items are shown post-tax Net pension deficit The Group operates a defined benefit pension scheme which is closed to new members. At 30 September 2012, the scheme was in a net deficit position of £4.3m compared to a deficit of £2.4m at 31 March 2012. The change is primarily due to lower than expected returns on scheme assets. Cash flow A summary of the Group's cash flow for the six months is set out in table 4 below. Table 4: Cash flow and net debt Six months ended Year ended 30 September 2012 31 March 2012 £m £m Operating cash inflow after interest and tax 66.5 254.1 Dividends paid (90.9) (153.1) Non-current assets: Acquisitions (73.7) (107.3) Disposals 396.6 513.7 Capital expenditure (143.5) (307.0) 179.4 99.4 Loans repaid by third parties 0.8 22.8 Net payments to joint ventures (101.9) (45.5) Fair value movement of interest-rate swaps (1.6) (4.5) Purchase of own shares and treasury shares (19.8) (18.5) Other movements (6.7) (24.3) Decrease in net debt 25.8 130.4 Net debt at the beginning of the period (3,183.2) (3,313.6) Net debt at the end of the period (3,157.4) (3,183.2) The main cash flow items are typically operating cash flows, the dividends we pay and the capital transactions we undertake. Operating cash inflows after interest and tax were £66.5m for the six months ended 30 September 2012. Although we did not make any disposals during the six months, we received £396.6m from sales recognised in the prior period, including the disposals of Arundel Great Court, WC2, St Johns Centre, Liverpool and 50% of our interest in Victoria Circle, SW1. We spent £217.2m on assets: investment property acquisitions cost £73.7m and capital expenditure totalled £143.5m, principally on our developments at Trinity Leeds, 123 Victoria Street, SW1 and 62 Buckingham Gate, SW1. Our largest investment property acquisition in the period was The Cornerhouse, Nottingham which cost £50.0m. The net payment of £101.9m to our joint ventures is largely the result of a partner loan to The Scottish Retail Property Limited Partnership, which was used to repay external debt, development funding for 20 Fenchurch Street, EC3 and further partner loans to the St. David's Limited Partnership. Net debt and gearing As a result of the cash flows described above, our IFRS net debt decreased by £25.8m to £3,157.4m, while the reduction in borrowings in our joint ventures led to our IFRS net debt (including joint ventures) falling by £81.1m to £3,470.2m (£3,551.3m at 31 March 2012). Adjusted net debt, which includes our joint ventures and the nominal value of our debt but excludes the mark-to-market on our swaps, was down £90.5m at £3,890.9m (31 March 2012: £3,981.4m). Table 5 below sets out various measures of our gearing. Table 5: Gearing 30 September 31 March 2012 2012 % % Adjusted gearing* - including notional share of joint venture debt 57.6 59.2 Group LTV 39.0 40.4 Group LTV - including share of joint ventures 36.2 38.0 Security Group LTV 36.8 37.6 * Book value of balance sheet debt increased to recognise nominal value of debt on refinancing in 2004 divided by adjusted net asset value. The measure most widely used in our industry is loan-to-value (LTV). We focus most on Group LTV including our notional share of joint venture debt, despite the fact that lenders to our joint ventures have no recourse to the Group for repayment. Group LTV (including joint ventures) declined from 38.0% at March 2012 to 36.2% at September 2012. This reflects proceeds received this year relating to sales recognised prior to 31 March 2012. Our interest cover, excluding our share of joint ventures, has reduced from 2.7 times in the comparative period to 2.3 times, as a result of the decline in revenue profit and an increase in interest margins on our revolving credit facility. Under the rules of the REIT regime, we need to maintain an interest cover in the exempt business of at least 1.25 times to avoid paying tax. As calculated under the REIT regulations, our interest cover of the exempt business for the six months to 30 September 2012 was 2.0 times. Financing structure and strategy The total capital of the Group consists of shareholders' equity, non-controlling interests and net debt. Since IFRS requires us to state a large part of our net debt at below its nominal value, we view our capital structure on a basis which adjusts for this. Table 6 below outlines our main sources of capital. Further details are given in notes 14 and 15 to the financial statements. Table 6: Financing structure 30 September 2012 31 March 2012 Joint Joint Group ventures Combined Group ventures Combined £m £m £m £m £m £m Bond debt 3,358.8 - 3,358.8 3,363.5 - 3,363.5 Bank borrowings 255.0 329.4 584.4 300.0 393.4 693.4 Amounts payable under finance leases 24.2 4.6 28.8 23.3 4.5 27.8 Less: cash and restricted deposits (46.6) (34.5) (81.1) (59.2) (44.1) (103.3) Adjusted net debt 3,591.4 299.5 3,890.9 3,627.6 353.8 3,981.4 Non-controlling interests 0.1 - 0.1 0.2 - 0.2 Adjusted equity attributable to owners of the Parent 6,738.1 13.3 6,751.4 6,711.0 14.3 6,725.3 Total adjusted equity 6,738.2 13.3 6,751.5 6,711.2 14.3 6,725.5 Total capital 10,329.6 312.8 10,642.4 10,338.8 368.1 10,706.9 In general, we follow a secured debt strategy as we believe that this gives the Group and joint ventures better access to borrowings and at lower cost. Other than our finance leases, all our borrowings at 30 September 2012 were secured. A key element of the Group's capital structure is that the majority of our borrowings are secured against a large pool of our assets (the Security Group). This enables us to raise long-term debt in the bond market as well as shorter-term flexible bank facilities, both at competitive rates. In addition, the Group holds a number of assets outside the Security Group structure (in the Non-Restricted Group). These assets are typically our joint venture interests or other properties on which we have raised separate, asset-specific finance. By having both the Security Group and the Non-Restricted Group, and considerable freedom to move assets between the two, we are able to raise the most appropriate finance for each specific asset or joint venture. Importantly, we can use borrowings raised against the Security Group to fund expenditure on both acquisitions and developments. At a time when finance to fund capital expenditure on speculative developments is largely unavailable or prohibitively expensive, this gives the Group a considerable advantage in being able to develop at this point in the cycle. The weighted average duration of the Group's debt (including joint ventures) is 10.9 years with a weighted average cost of debt of 5.1%. Hedging We use derivative products to manage our interest-rate exposure, and have a hedging policy which generally requires at least 80% of our existing debt plus increases in debt associated with net committed capital expenditure to be at fixed interest rates for the coming five years. Specific interest-rate hedges are also used within our joint ventures to fix the interest exposure on limited-recourse debt. At 30 September 2012, Group debt (including joint ventures) was 95.3% fixed (31 March 2012: 94.8%) and the notional amount of outstanding interest-rate swaps (including joint ventures) was £1,057.8m (31 March 2012: £618.9m). Taxation As a consequence of the Group's conversion to REIT status, income and capital gains from our qualifying property rental business are now exempt from UK corporation tax. No tax charge arose in the period. The Group holds provisions of £21.3m for interest on overdue tax in relation to a matter in dispute with HMRC, which will become payable if it is not settled in our favour. The provision will be released, and the tax paid to date of £60.7m recovered, if the Group's claim is successful. Martin Greenslade Chief Financial Officer London Portfolio Highlights · Valuation surplus of 2.0% since March 2012 · £7.1m of investment lettings in the period, at 8.5% below ERV, but 4.5% ahead of ERV excluding pre-development properties. A further £2.1m in solicitors' hands · £9.1m of development lettings since 1 April 2012, with a further £5.1m in solicitors' hands · Like-for-like voids down from 2.4% to 2.0% · 20 Fenchurch Street, EC3, now 34% let or in solicitors' hands · Construction to commence at The Zig Zag Building and Kings Gate, SW1, and demolition started at Victoria Circle, SW1 Our market Overall the dynamics of our market remain unchanged: a market structurally undersupplied with new space despite below-average levels of take-up. The period January to June saw muted take-up of new office space. However, in July to September we saw a marked improvement in active demand which has continued. As active demand is a lead indicator of take-up, this is encouraging and we are particularly pleased by the level of enquiries, active discussions and transactions under way in our schemes. The supply of new office developments in central London remains relatively low. CB Richard Ellis forecast that an average of 0.4m sq m of new space will be delivered per year between 2012 and 2015, less than half the long run average take-up rate of 1.1m sq m per year. Furthermore, of the total 1.6m sq m due in this timeframe, only half is actually under construction and 0.2m sq m is already pre-let. This supply is less than we envisaged in 2010 primarily due to the lack of available development finance. As a consequence, our window for development has been extended and we are well placed to take advantage of this. The property investment market remains competitive as London's qualities as a leading financial and commercial centre continue to attract investors from overseas. We will maintain a disciplined approach to buying given the relative attraction of the opportunities within our portfolio. London's population is rising and demand for central London residential space remains strong. All of the units at Wellington House, SW1, were sold ahead of completion of the building. We expect this demand to continue, particularly in our core area of activity. Our performance Our London Portfolio, valued at £5,807.0m at 30 September 2012, produced a valuation surplus for the period of 2.0%. West End offices were up 3.1%; City offices were up 2.6%; and central London shops up 1.9% with inner London down 2.1%. Included within these figures are properties in the development programme, with a surplus of 13.4%. The portfolio produced a total property return of 4.4%, compared to its sector benchmark in the IPD Quarterly Universe of 4.3%. Offices outperformed their benchmark by 0.5%, while our central London shops under performed their benchmark by 2.5%. Rental values in our like-for-like portfolio (excluding units materially altered during the period and Queen Anne's Gate, SW1) increased marginally by 0.2%. Like-for-like voids were 2.0%, compared to 2.4% at March 2012. Void levels on the like-for-like central London shops were 0.6% (March 2012: 1.2%) and London offices were 2.4% (March 2012: 2.6%). Table 7: Net rental income 30 September 30 September 2012 2011 Change £m £m £m Like-for-like investment properties 120.9 119.2 1.7 Proposed developments 1.5 3.5 (2.0) Development programme 1.0 5.4 (4.4) Completed developments 9.7 8.0 1.7 Acquisitions since 1 April 2011 - - - Sales since 1 April 2011 0.8 14.5 (13.7) Non-property related income 2.8 2.2 0.6 Net rental income 136.7 152.8 (16.1) Net rental income reduced by £16.1m to £136.7m. The main reason behind this reduction is £13.7m of net rental income foregone on the properties we sold in the prior year, which included Eland House, SW1, 50% of Victoria Circle, SW1, Arundel Great Court, WC2 and Bonhill Street, EC2. Overall, like-for-like investment properties showed a small increase in net rental income, largely due to higher income from Piccadilly Lights, W1, and the newly refurbished 40 Strand, WC2. Completed developments saw net rental income increase by £1.7m reflecting lettings at One New Change, EC4, while the development programme is down by £4.4m, driven by the expiry of rental income at Kingsgate House, SW1 prior to demolition. Our two proposed developments, Victoria Circle, SW1 and 1 & 2 New Ludgate, EC4, both saw income decline as leases ended in preparation for redevelopment. Acquisitions We have secured two predominantly vacant strategic sites for £35.9m: we purchased St James's Park Centre in Victoria, SW1, an important extension to our masterplan for Victoria; and, since the half year, we acquired 19-23 Shaftesbury Avenue, W1, completing the freehold island site behind Piccadilly Lights, W1 and opening up a number of reconfiguration options. Asset management We have continued to focus on asset management to lengthen and strengthen income. During the period we let or restructured 25,320 sq m of space. £7.1m of new lettings were completed at 8.5% below ERV but 4.5% ahead of ERV excluding pre-development properties, where we seek to maintain full occupancy with flexibility for development. Our weighted average unexpired lease term on the like-for-like portfolio, completed developments and acquisitions is now 9.8 years (31 March 2012: 9.9 years). Key activity during the period included: · One New Change, EC4 In the retail element of this scheme we completed lettings to Boots and Bang & Olufsen, both ahead of ERV. With 3,230 sq m of office space let to Panmure Gordon and bwin in the period, the scheme is now 95% let overall. · 47 Mark Lane, EC3 We restructured the leases with AXA Insurance UK, securing an additional five years of income on 1,460 sq m of space. In addition, a letting to Jubilee Insurance Services was secured ahead of Marsh vacating the building. · Times Square, EC4 This building is now fully let following the 4,800 sq m lettings to Research Now and National Institute of Clinical Excellence. · Cardinal Place, SW1 We completed the lease restructure and additional letting to Ruffer, who have doubled their occupancy to 4,150 sq m and extended their lease from 2016 to 2021. A part surrender and part lease re-structure with 3i was completed in June 2012, securing one of the largest tenants until 2025. As part of this transaction we took back 1,910 sq m of space which has since been refurbished and for which we have good interest. In a small but significant letting, KPI Oil have taken part of the 4th floor at £65 psf setting a new rental tone for the six-year-old building. Through negotiating the surrender of the Thorntons unit and the simultaneous letting to Space NK, we have further strengthened the retail offer. · Oriana, W1 Primark opened their new flagship store on 20 September 2012 at the east end of Oxford Street at our Oriana scheme jointly owned with Frogmore. The joint venture has submitted a planning application for Phase II of the scheme which will add an additional 6,950 sq m of retail space along with 18 residential apartments. Development We have maintained good momentum on our development pipeline since March with a total of 21,900 sq m of development lettings and have progressed our plans for transforming Victoria. · 123 Victoria Street, SW1 Practical completion was achieved in August 2012. Jimmy Choo increased its occupancy by 1,070 sq m to 4,450 sq m and a further 2,870 sq m has been let to CDC Group plc taking the percentage let to 53%. A further 20% is in solicitors' hands. · 62 Buckingham Gate, SW1 This 24,160 sq m office and 1,450 sq m retail development is the next development we will complete in Victoria and is slightly ahead of programme for completion in spring next year. As we approach completion, we have strong interest in the floorspace. · 20 Fenchurch Street, EC3 We continue to be encouraged by the interest in this world class 63,980 sq m office building being developed with our partner Canary Wharf Group for spring 2014. During the period we saw our first pre-letting, to Markel International for 4,730 sq m, followed by Kiln Group who have taken 7,270 sq m. Since September we have pre-let a further 2,730 sq m to Ascot Underwriting. The development is now 23% pre-let with a further 11% in solicitors' hands. All of the deals completed have been ahead of our expectations in terms of rental level, lease length and incentives. · The Zig Zag Building and Kings Gate, SW1 (formerly Kingsgate House) Construction of two new developments will start this month on Victoria Street. The £350m scheme comprises The Zig Zag Building, a 17,450 sq m office building over 12 floors, and Kings Gate, a 14 storey building comprising 100 residential apartments. Both buildings will provide a new enhanced retail and leisure offer with 4,150 sq m of space. The estimated completion of the buildings is January 2015. · 1 & 2 New Ludgate, EC4 With demolition completed and a construction time of approximately 22 months from instruction, we expect to start this 35,210 sq m development of high quality office, restaurant and retail accommodation, in early 2013. · Victoria Circle, SW1 We are working with our partner Canada Pension Plan Investment Board to deliver this proposed scheme of six new buildings occupying an island site opposite Victoria station. The completed scheme will provide a spectacular 84,660 sq m mix of retail, residential, office and public amenity space. As planned, by 30 September, we had secured vacant possession from around 170 leasehold interests at below cost estimates. Demolition work started immediately on the site in tandem with Transport for London works on the Victoria station upgrade. Other development projects in the course of design include 20 Eastbourne Terrace, W2; Portland House, SW1; and Oxford House, W1. Looking ahead We continue to deliver on the plan we set out when we restarted our development programme. The key drivers of supply and demand are broadly consistent with those set out at that time. Although take-up of office space has been slower than originally expected, there have been fewer development starts. We are confident about the prospects for new, efficient, well configured office space which is evidenced by the strength of interest we are seeing on our schemes. While we remain of the view that delivering developments early in the cycle is preferable, we believe that the period of opportunity will last longer than we had anticipated in 2010 as completions of new space over the next three years will be insufficient to meet demand. We are able to take advantage of this with our pipeline of oven-ready schemes. . We outline our development pipeline in table 8. Table 8: London development pipeline at 30 September 2012 Total Forecast Net development total Property income/ Estimated/ costs to development Ownership Size Letting Market ERV actual date cost Description interest Planning status value completion of use % sq m status % £m £m date £m £m Developments after practical completion 123 Victoria Office 100 18,490 42 212 13.5 Aug 2012 155 155 Street, SW1* Retail 2,620 100 Developments approved or in progress 62 203 Buckingham Office 100 24,160 - 17.6 May 2013 139 178 Gate, SW1 Retail 1,450 - 20 Fenchurch Office 50 62,890 19 136 21.0 Apr 2014 110 239 Street, EC3 Retail 1,090 - The Zig Zag 124 Building and Kings Gate, Office 100 17,450 - 16.2 Jan 2015 111 343 SW1 (formerly Retail 4,150 - Kingsgate House) Residential 10,090 - Proposed developments 1 & 2 New Office 100 32,180 PR - n/a n/a 2015 n/a n/a Ludgate, EC4 Retail 3,030 - Office 50 57,480 PR - n/a n/a 2016-18 n/a n/a Victoria Circle, SW1 Retail 8,490 - Residential 18,690 - *Office refurbishment only. Figures provided are for the property as a whole including the retail element. Developments let and transferred or sold One New Change, EC4 Office 100 31,990 92 490 27.6 Oct 2010 530 530 Retail 20,160 99 Where the property is not 100% owned, floor areas shown above represent the full scheme whereas all other figures represent our proportionate share. Letting % is measured by ERV and shows letting status at 30 September 2012. Trading property development schemes (e.g. Wellington House, SW1) are excluded from the development pipeline. Planning status for proposed developments PR - Planning received Total development cost Total development cost refers to the book value of the land at the commencement of the project, the estimated capital expenditure required to develop the scheme from the start of the financial year in which the property is added to our development programme, together with capitalised interest, being the Group's borrowing costs associated with direct expenditure on the property under development. Interest is also capitalised on the purchase cost of land or property where it is acquired specifically for redevelopment. Of the properties in the development pipeline at 30 September 2012, there were no properties on which interest was capitalised on the land cost. The figures for total development costs include £152.0m for the residential elements of Kings Gate, SW1. Net income/ERV Net income/ERV represents net headline annual rent on let units plus ERV at 30 September 2012 on unlet units. Retail Portfolio Highlights · Valuation deficit of 2.5% since March 2012 · £8.0m of investment lettings in the period, 2.9% ahead of ERV, with a further £3.0m in solicitors' hands · £5.5m of development lettings since 1 April 2012, with a further £4.0m in solicitors' hands · Like-for-like voids down from 3.4% to 3.1% and units in administration down from 2.8% to 1.8% · Trinity Leeds 84% pre-let or in solicitors' hands · Crawley development started with Taplow expected to start soon Our market Although there has been no let-up in the pressure on consumers and the challenges for retailers, there continues to be demand for space in the right locations as retailers respond to the growth of multi-channel retailing and the evolution of consumer shopping habits. With consumer weakness continuing to hold back rental growth, retail property owners must keep ahead of the changing trends. For both retailers and consumers, the leisure and food and beverage offer in retail centres, together with convenience, continue to be important drivers of behaviour. As a result, retailers retain a preference for larger shopping centres and out-of-town locations. Our portfolio is positioned to take advantage of this. Consumers also appear to favour shopping less often but taking longer and spending more per trip. This shift is something our own portfolio has mirrored in the period with footfall down but retailer sales up. Retailers continue to look for new ways to respond to the challenge of attracting customers to their brands both physically and on-line and our scale allows us to be in constant touch with their thinking on new store strategies and new format ideas. The new Debenhams at Chesterfield is an example of this as is our work with John Lewis to develop a new format shop in Exeter following on from us delivering their first 'at home' shop in Poole. We continue to stay at the forefront of the use of digital technology to support retailers and shoppers. The local product search trial with Google at the White Rose Centre has now been rolled out to our other shopping centres and extended to include other landlords and retailers. Our performance Our Retail Portfolio, valued at £4,771.5m at 30 September 2012, produced a valuation deficit of 2.5% overall, with shopping centres and shops down 3.1% and retail warehouses and food stores down 2.7%. Included within these figures are our current development projects which were down 0.3%. Our portfolio of Accor hotels showed a valuation surplus of 0.4%, driven by the London properties. Rental values on our like-for-like portfolio (excluding units materially altered during the period) decreased by 2.5% for our shopping centres and shops, and increased by 0.3% for our retail warehouses and food stores. Overall, the portfolio produced a total property return of 0.5%, compared to its sector benchmark in the IPD Quarterly Universe of 0.0%. Our shopping centres outperformed their IPD sector benchmark by 0.1% and retail warehouses outperformed their sector benchmark by 0.3%. Voids across our like-for-like Retail Portfolio reduced from 3.4% at 31 March 2012 to 3.1% at 30 September, of which 1.1% are subject to temporary lettings. Units in administration were 1.8%, down from 2.8% at 31 March 2012. Of these units in administration, 0.8% were still trading and, including these and our temporary lettings, our overall level of occupancy was 97.0%. Footfall in our shopping centre portfolio in the period was down 2.6% on the same period in the prior year against the national benchmark which was down 2.7%. Our measured same store like-for-like sales were up 1.3% against the British Retail Consortium (BRC) benchmark which was down 0.2%. Our same centre sales, taking into account new lettings and tenant changes, were up 3.7%. Our measured retailer rent/sales ratio for the year ended 30 September 2012 was 10.0%. Total occupancy costs (including rent, rates, service charge and insurance) represented 17.5% of sales. Table 9: Net rental income 30 September 30 September 2012 2011 Change £m £m £m Like-for-like investment properties 123.9 123.7 0.2 Proposed developments (0.3) 0.4 (0.7) Development programme 1.2 1.8 (0.6) Completed developments 4.1 4.0 0.1 Acquisitions since 1 April 2011 2.2 0.4 1.8 Sales since 1 April 2011 0.6 8.6 (8.0) Non-property related income 1.7 2.0 (0.3) Net rental income 133.4 140.9 (7.5) Net rental income is down by £7.5m to £133.4m, the primary driver being the properties we sold in the prior year, which included St Johns Centre, Liverpool and Corby Town Centre. Acquisitions have contributed £2.2m of net rental income, mainly due to The Cornerhouse, Nottingham and Kingsmead, Bath. The rest of the portfolio is broadly flat with small declines due to proposed and current developments. At the Bishop Centre, Taplow, almost all income has now ceased in advance of redevelopment. Acquisitions and sales Acquisitions in the period totalled £63.7m at an average yield of 5.0%. In line with our belief in the growing importance of leisure, the key transaction was the off-market acquisition of The Cornerhouse leisure complex in Nottingham for £50.0m. This acquisition further strengthens our excellent relationships with leisure operators across the portfolio. We also made a number of smaller acquisitions including site assembly in Crawley for £6.0m and Europa House, Portsmouth, for £3.3m delivering an empty office block, now with planning permission for a 170 bedroom hotel, and 400 car park spaces close to Gunwharf Quays. To complement our Kingsmead leisure asset, Bath, we forward purchased a 108 bedroom Premier Inn hotel on the adjacent site. Since the half year, we have acquired a further city centre leisure scheme, The Printworks in Manchester, for £93.9m. Also, we have satisfied the planning conditions relating to the sale of land at Banbridge, NI, and we completed the sale of 12 acres to Tesco after the half year for £17.5m. Asset management Whilst the retail environment remains challenging, we continue to utilise our asset management skills to drive new lettings and provide the space retailers want. We continue to execute plans for every asset. Bringing in major new occupiers Our work to bring in major new occupiers is resulting in 27,930 sq m of new openings this autumn. · John Lewis Partnership We have worked with John Lewis to create its first flexible format department shop at Sidwell Street in Exeter. The shop opened on 12 October and occupies 10,080 sq m over five floors, offering the full John Lewis range by maximising the opportunity for "omnichannel" shopping. John Lewis is a significant addition to the retail offer in Exeter and complements our other holdings in the city including our Princesshay shopping centre, which together with the new shop, are held jointly with the Crown Estate. · Primark On 1 October we opened a new 6,500 sq m Primark store at Westwood Cross, Thanet. The new store is the latest addition to the shopping park and joins M&S, Debenhams, H&M, Topshop and Next in providing an exciting fashion offer. At The Bridges shopping centre in Sunderland, Primark will open a 5,550 sq m store this month providing a major new anchor for the centre. · Debenhams At the Ravenside Retail Park in Chesterfield, we worked with Debenhams to open a department store which extends to 5,800 sq m including its mezzanine floor. The new store replaces the former Focus unit and further cements the park as a stand-alone shopping destination. Since the half year, we have also entered into an agreement for lease for a 7,600 sq m department store at Southside, Wandsworth, part of our Metro joint venture with Delancey. Improving leisure and food and beverage provision · Kingsmead, Bath This 8,400 sq m leisure and restaurant complex in the heart of Bath is now 100% let following the opening of Frankie & Benny's. Our forward purchase of a 108 bedroom Premier Inn hotel next to the centre complements our existing ownership and improves Bath's under-provided budget hotel offer. · The O2 Centre, Finchley Road Work is under way to significantly enhance the retail and leisure offer at this centre. Space has been reconfigured to create four new retail units with lettings to Oliver Bonas, Paperchase and Bo Concept. Planning permission has been granted for improvements to the frontage and increasing the first floor restaurant space and in addition, Vue Cinemas have completed work to add four new screens. Retail warehouse asset management activity · Ravenside Retail Park, Chesterfield Planning consent has been granted for the construction of an additional 2,460 sq m of floorspace in 2 new stores, pre-let to Asda Living and Hobbycraft, due to open in November 2013. · Nene Valley Retail Park, Northampton We have lengthened income at this retail park through lease restructuring. As a result, the average unexpired lease term on the park moved from 3.5 years at 31 March 2012 to 8.1 years at 30 September 2012. A further letting, currently in solicitors' hands, will take this to 9.2 years when completed. · Bexhill Retail Park We secured planning permission in August for the 4,920 sq m M&S store at this park. Works are due to start later this month, with completion in August 2013. Development · Trinity Leeds Further letting progress has moved Trinity Leeds from 65% pre-let at March 2012 to 76% with Urban Outfitters and Victoria's Secret taking the final major stores. A further 8% is in solicitors' hands. Trinity Leeds is the only major new shopping centre under construction in the UK and is due to open on 21 March 2013. Other occupiers already signed up to the scheme include M&S, Primark, Cult, Hollister, Next, River Island, H&M, and Topshop/Topman. The Topshop store fronting Briggate opened on 4 October 2012. An amendment to the scheme has been implemented, restructuring the existing Boots store and creating a new food service area, extending and improving the food and beverage offer in the scheme in line with greater demand from this sector. This has added £15m to total development costs. · 185-221 Buchanan Street, Glasgow Work is on schedule to complete this scheme in March next year. The retail element of the scheme is 92% pre-let to occupiers including Forever21, Paperchase, Gap, Fat Face and Watches of Switzerland. A further 7% is in solicitors' hands. · Bishop Centre, Taplow In September, full planning consent was secured for redevelopment of the existing shopping centre. The new 12,260 sq m development is 51% pre-let to Tesco with a further 17% in solicitors' hands. We are engaged in detailed design at the moment and aim to be on site in early 2013. · Crawley We have commenced development of the 7,000 sq m supermarket, pre-let to Morrisons, 600 sq m of restaurant space and a 110 bedroom Travelodge hotel. The scheme is 94% pre-let. · Whalebone Lane, Chadwell Heath Having pre-let this 4,470 sq m development to Asda, we expect to start on site by the end of the year. · Meteor Centre, Derby We are not planning to start development here until we have a pre-let for the major store. This scheme has therefore been removed from our proposed developments for the time being. Looking ahead Overall, the retail market is characterised by a continuing tough environment and evolving consumer and retailer demand. Our asset management actions and our targeted, de-risked development schemes help us to deliver the right assets in the right locations. The quality of our portfolio and the relationships we have with retailers will be increasingly important in the current environment as retailers continue to take space, but in formats and locations which meet their new requirements. As technology advances, new ways will emerge for consumers to shop and stay informed. Successful retail centres will increasingly polarise into those which are destination centres with a strong leisure component and those which are convenience-led in great locations. Our strategy is well placed to respond to these trends. We outline our development pipeline in table 10. Table 10: Retail development pipeline at 30 September 2012 Total Forecast Net development total Property income/ Estimated/ costs to development Ownership Size Letting Market ERV actual date cost Description interest Planning status value completion of use % sq m status % £m £m date £m £m Developments approved or in progress Trinity 305 Leeds Retail 100 75,900 72 29.5 Feb 2013 256 378 185-221 60 Buchanan Retail 100 10,700 92 4.7 Mar 2013 39 61 Street, Glasgow Residential 4,200 Crawley Retail 100 11,000 94 11 2.6 Dec 2013 12 39 Proposed developments Bishop n/a Centre, Taplow Retail 100 12,260 PR 51 n/a 2014 n/a n/a Whalebone n/a Lane, Chadwell Heath Retail 100 4,470 PR 100 n/a 2013 n/a n/a Where the property is not 100% owned, floor areas shown above represent the full scheme whereas all other figures represent our proportionate share. Letting % is measured by ERV and shows letting status at 30 September 2012. Trading property development schemes are excluded from the development pipeline. Planning status for proposed developments PR - Planning received Total development cost Total development cost refers to the book value of the land at the commencement of the project, the estimated capital expenditure required to develop the scheme from the start of the financial year in which the property is added to our development programme, together with capitalised interest, being the Group's borrowing costs associated with direct expenditure on the property under development. Interest is also capitalised on the purchase cost of land or property where it is acquired specifically for redevelopment. Of the properties in the development pipeline at 30 September 2012, interest was capitalised on the land cost at Trinity Leeds and 185-221 Buchanan Street, Glasgow. The figures for total development costs include £12.9m for the residential elements of 185-221 Buchanan Street, Glasgow. Net income/ERV Net income/ERV represents net headline annual rent on let units plus ERV at 30 September 2012 on unlet units. Principal risks and uncertainties The principal risks of the business are set out on pages 41-43 of the 2012 Annual report alongside their potential impact and related mitigations. These risks fall into four categories: financial (including liability structure), property investment (including customers, composition of our property portfolio and acquisition), development and regulatory (including health and safety and environment). The Board has reviewed the principal risks in the context of the second half of the current financial year. The Board believes that the risks outlined in the Annual Report have not changed and that the existing mitigation measures within the business remain relevant for the risks highlighted. Statement of directors' responsibilities The Directors confirm to the best of their knowledge that the condensed interim financial statements have been prepared in accordance with IAS 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report herein includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7 and DTR 4.2.8, namely: · An indication of important events that have occurred during the first six months ended 30 September 2012 and their impact on the condensed interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and · Any material related party transactions in the first six months ended 30 September 2012 and any material changes in the related party transactions described in the last Annual Report. The Directors of Land Securities Group PLC as at the date of this announcement are as set out below: Alison Carnwath, Chairman Robert Noel, Chief Executive David Rough* Martin Greenslade, Chief Financial Officer Sir Stuart Rose* Richard Akers, Executive Director Kevin O'Byrne* Chris Bartram* Simon Palley* Stacey Rauch* * Non-executive directors A list of the current Directors is maintained on the Land Securities Group PLC website at: www.landsecurities.com. By order of the Board Adrian de Souza Group General Counsel and Company Secretary 7 November 2012 Independent review report to Land Securities Group PLC Introduction We have been engaged by the Company to review the condensed set of financial statements in the half-yearly results for the six months ended 30 September 2012, which comprises the unaudited consolidated income statement, unaudited statement of comprehensive income, unaudited consolidated balance sheet, unaudited consolidated statement of changes in equity, unaudited consolidated statement of cash flows and related notes. We have read the other information contained in the half-yearly results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. Directors' responsibilities The half-yearly results are the responsibility of, and have been approved by, the directors. The directors are responsible for preparing the half-yearly results in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in the half-yearly results has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly results based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly results for the six months ended 30 September 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. PricewaterhouseCoopers LLP Chartered Accountants London 7 November 2012 Notes: 1. The maintenance and integrity of the Land Securities Group PLC website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. 2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Financial Statements Unaudited consolidated income statement for the six months ended 30 September 2012 Six months ended 30 September 2012 2011 Notes £m £m Group revenue (1) 4 303.6 339.0 Costs (102.4) (114.8) 201.2 224.2 Profit on disposal of investment properties 3 1.8 24.4 Net (deficit)/surplus on revaluation of investment properties 3 (4.2) 172.3 Impairment release/(charge) on trading properties 3 3.1 (1.6) Operating profit 201.9 419.3 Interest expense 5 (98.0) (99.3) Interest income 5 14.0 12.8 Fair value movement on interest-rate swaps 5 (1.6) (3.9) 116.3 328.9 Share of post tax profit from joint ventures 10 15.1 50.0 Profit before tax 131.4 378.9 Income tax - 8.0 Profit for the period 131.4 386.9 Attributable to: Owners of the Parent 131.1 386.3 Non-controlling interests 0.3 0.6 Profit for the period 131.4 386.9 Earnings per share attributable to the owners of the Parent (pence) Basic earnings per share 7 16.8 50.0 Diluted earnings per share 7 16.8 49.9 1. Group revenue excludes the share of joint ventures' revenue of £59.1m (30 September 2011: £50.2m). Unaudited consolidated statement of comprehensive income Six months ended for the six months ended 30 September 2012 30 September 2012 2011 Notes £m £m Profit for the period 131.4 386.9 Other comprehensive income consisting of: Actuarial losses on defined benefit pension scheme (4.1) (8.6) Share of joint ventures' fair value movement on interest-rate swaps treated as cash flow hedges 10 (1.2) 3.9 Other comprehensive expense for the period (5.3) (4.7) Total comprehensive income for the period 126.1 382.2 Attributable to: Owners of the Parent 125.8 381.6 Non-controlling interests 0.3 0.6 Total comprehensive income for the period 126.1 382.2 Unaudited consolidated balance sheet at 30 September 2012 30 September 31 March 2012 2012 Notes £m £m Non-current assets Investment properties 9 8,672.3 8,453.2 Other property, plant and equipment 8.7 8.8 Net investment in finance leases 184.7 185.0 Loan investments 50.0 50.8 Investments in joint ventures 10 1,210.5 1,137.6 Other investments 32.4 32.3 Total non-current assets 10,158.6 9,867.7 Current assets Trading properties and long-term development contracts 11 147.2 133.1 Trade and other receivables 416.9 759.6 Monies held in restricted accounts and deposits 12 27.3 29.5 Cash and cash equivalents 13 19.3 29.7 Total current assets 610.7 951.9 Total assets 10,769.3 10,819.6 Current liabilities Borrowings 14 (11.3) (10.8) Trade and other payables (349.9) (361.3) Provisions (7.8) (8.6) Current tax liabilities (20.4) (21.6) Total current liabilities (389.4) (402.3) Non-current liabilities Borrowings 14 (3,184.6) (3,225.1) Derivative financial instruments (8.1) (6.5) Pension deficit (4.3) (2.4) Trade and other payables (10.7) (27.7) Total non-current liabilities (3,207.7) (3,261.7) Total liabilities (3,597.1) (3,664.0) Net assets 7,172.2 7,155.6 Equity Capital and reserves attributable to the owners of the Parent Ordinary shares 78.9 78.5 Share premium 787.4 786.2 Capital redemption reserve 30.5 30.5 Share-based payments 5.1 6.8 Retained earnings 6,279.3 6,271.2 Own shares (9.1) (17.8) Equity attributable to the owners of the Parent 7,172.1 7,155.4 Non-controlling interests 0.1 0.2 Total equity 7,172.2 7,155.6 Unaudited consolidated statement of changes in equity Attributable to owners of the Parent Capital Retained Ordinary Share redemption Share-based earnings Own Non-controlling Total shares premium reserve payments (1) shares Total interest equity £m £m £m £m £m £m £m £m £m At 1 April 2011 77.6 785.5 30.5 7.2 5,914.3 (3.6) 6,811.5 0.8 6,812.3 Profit for the financial period - - - - 386.3 - 386.3 0.6 386.9 Other comprehensive income: Actuarial loss on pension scheme - - - - (8.6) - (8.6) - (8.6) Share of joint ventures' fair value movement on interest-rate swaps treated as cash flow hedges - - - - 3.9 - 3.9 - 3.9 Total comprehensive income for the six months ended 30 September 2011 - - - - 381.6 - 381.6 0.6 382.2 Transactions with owners: Exercise of options - 0.5 - - 0.1 - 0.6 - 0.6 New share capital subscribed 0.5 42.0 - - - - 42.5 - 42.5 Transfer to retained earnings in respect of shares issued in lieu of cash dividends - (42.0) - - 42.0 - - - - Fair value of share-based payments - - - 2.3 - - 2.3 - 2.3 Release on exercise/forfeiture of share options - - - (2.7) 2.7 - - - - Settlement and transfer of shares to employees on exercise of share options net of proceeds - - - - (1.8) 1.8 - - - Dividends to owners of the Parent - - - - (109.5) - (109.5) - (109.5) Distribution paid to non-controlling interests - - - - - - - (1.0) (1.0) Acquisition of own shares - - - - - (14.8) (14.8) - (14.8) Total transactions with owners of the Parent 0.5 0.5 - (0.4) (66.5) (13.0) (78.9) (1.0) (79.9) At 30 September 2011 78.1 786.0 30.5 6.8 6,229.4 (16.6) 7,114.2 0.4 7,114.6 Profit for the financial period - - - - 136.6 - 136.6 0.2 136.8 Other comprehensive income: Actuarial loss on pension scheme - - - - (7.5) - (7.5) - (7.5) Share of joint ventures' fair value movement on interest-rate swaps treated as cash flow hedges - - - - 1.0 - 1.0 - 1.0 Total comprehensive income for the six months ended 31 March 2012 - - - - 130.1 - 130.1 0.2 130.3 Transactions with owners: Exercise of options - 0.2 - - (0.1) - 0.1 - 0.1 New share capital subscribed 0.4 23.7 - - - - 24.1 - 24.1 Transfer to retained earnings in respect of shares issued in lieu of cash dividends - (23.7) - - 23.7 - - - - Fair value of share-based payments - - - 2.5 - - 2.5 - 2.5 Release on exercise/forfeiture of share options - - - (2.5) 2.5 - - - - Settlement and transfer of shares to employees on exercise of share options net of proceeds - - - - (2.5) 2.5 - - - Dividends to owners of the Parent - - - - (111.9) - (111.9) - (111.9) Distribution paid to non-controlling interests - - - - - - - (0.4) (0.4) Acquisition of own shares - - - - - (3.7) (3.7) - (3.7) Total transactions with owners of the Parent 0.4 0.2 - - (88.3) (1.2) (88.9) (0.4) (89.3) At 31 March 2012 78.5 786.2 30.5 6.8 6,271.2 (17.8) 7,155.4 0.2 7,155.6 Profit for the financial period - - - - 131.1 - 131.1 0.3 131.4 Other comprehensive income: Actuarial loss on pension scheme - - - - (4.1) - (4.1) - (4.1) Share of joint ventures' fair value movement on interest-rate swaps treated as cash flow hedges - - - - (1.2) - (1.2) - (1.2) Total comprehensive income for the six months ended 30 September 2012 - - - - 125.8 - 125.8 0.3 126.1 Transactions with owners: Exercise of options - 1.2 - - - - 1.2 - 1.2 New share capital subscribed 0.4 22.4 - - - - 22.8 - 22.8 Transfer to retained earnings in respect of shares issued in lieu of cash dividends - (22.4) - - 22.4 - - - - Fair value of share-based payments - - - 1.8 - - 1.8 - 1.8 Release on exercise/forfeiture of share options - - - (3.5) 3.5 - - - - Settlement and transfer of shares to employees on exercise of share options net of proceeds - - - - (6.9) 9.4 2.5 - 2.5 Dividends to owners of the Parent - - - - (113.6) (113.6) - (113.6) Distribution paid to non-controlling interests - - - - - - - (0.4) (0.4) Acquisition of own shares and treasury shares - - - - (23.1) (0.7) (23.8) (23.8) Total transactions with owners of the Parent 0.4 1.2 - (1.7) (117.7) 8.7 (109.1) (0.4) (109.5) At 30 September 2012 78.9 787.4 30.5 5.1 6,279.3 (9.1) 7,172.1 0.1 7,172.2 1. Included within retained earnings are cumulative losses in respect of cash flow hedges (interest-rate swaps) of £4.2m (30 September 2011: £4.0m, 31 March 2012: £3.0m). Unaudited consolidated statement of cash flows Six months ended for the six months ended 30 September 2012 30 September 2012 2011 Notes £m £m Net cash generated from operations Cash generated from operations 17 144.3 189.3 Interest paid (79.6) (93.4) Interest received 4.1 6.9 Employer contributions to defined benefit pension scheme (2.2) (2.5) Corporation tax paid (0.1) (1.1) Net cash inflow from operations 66.5 99.2 Cash flows from investing activities Investment property development expenditure (114.0) (65.3) Acquisition of investment properties and other investments (73.7) (55.6) Other investment property related expenditure (28.4) (50.5) Capital expenditure on properties (216.1) (171.4) Disposal of investment properties 396.6 185.2 Net proceeds on properties 180.5 13.8 Expenditure on non-property related non-current assets (1.1) - Net cash inflow from capital expenditure 179.4 13.8 Receipts/(payments) in respect of finance lease receivables 0.2 (14.5) Loans repaid by third parties 0.8 1.4 Cash contributed to joint ventures 10 (1.4) (2.1) Loan advances to joint ventures 10 (116.8) (10.4) Loan repayments by joint ventures 10 3.2 10.0 Distributions from joint ventures 10 13.1 7.4 Net cash inflow from investing activities 78.5 5.6 Cash flows from financing activities Cash received on issue of shares arising from exercise of share options 3.7 0.5 Purchase of own shares and treasury shares (19.8) (14.8) Proceeds from new loans (net of finance fees) 35.0 - Repayment of loans 14 (85.2) (46.1) Decrease in monies held in restricted accounts and deposits 12 2.2 5.0 Decrease in finance leases payable - (0.1) Dividends paid to owners of the Parent 6 (90.9) (66.9) Distributions paid to non-controlling interests (0.4) (1.0) Net cash outflow from financing activities (155.4) (123.4) Decrease in cash and cash equivalents for the period (10.4) (18.6) Cash and cash equivalents at the beginning of the period 29.7 37.6 Cash and cash equivalents at the end of the period 13 19.3 19.0 Notes to the Financial Statements 1. Basis of preparation This condensed consolidated interim financial information for the six months ended 30 September 2012 has been prepared on a going concern basis and in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 'Interim Financial Reporting' as adopted by the European Union (EU). In order to satisfy themselves that the Group has adequate resources to continue in operational existence for the foreseeable future the Directors have reviewed an 18 month forecast extracted from the Group's current five year plan, which includes assumptions about future trading performance, valuation projections and debt requirements. This, together with available market information and experience of the Group's property portfolio and markets, has given them sufficient confidence to adopt the going concern basis in preparing the financial statements. The condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2012 were approved by the Board of Directors on 15 May 2012 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. The condensed consolidated interim financial information has been reviewed, not audited. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 March 2012, which have been prepared in accordance with IFRSs as adopted by the EU. This condensed consolidated interim financial information was approved for issue on 7 November 2012. 2. Significant accounting policies Except as described below, the condensed consolidated interim financial information has been prepared on the basis of the accounting policies, significant judgements, key assumptions and estimates as set out in notes 2 and 3 of the Group's Annual Report for the year ended 31 March 2012. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings. There are no accounting standards or interpretations that have been adopted since 1 April 2012 which have had a material impact on the Group's financial statements. The following accounting standards or interpretations were effective for the financial year beginning 1 April 2012 but have not had a material impact on the Group: IAS 12 (amendment) 'Income taxes' on deferred tax (not yet endorsed by the EU) IFRS 1 (amendment) 'First Time Adoption' on hyperinflation and fixed dates (not yet endorsed by the EU) IFRS 7 (amendment) 'Financial Instruments' on transfers of financial assets The following IFRS accounting standards and interpretations have been issued but are not yet effective. None of these standards or interpretations have been early adopted by the Group. The Group is in the process of assessing the impact of these new standards and interpretations on its financial reporting. IAS 1 (amendment) 'Presentation of Financial Statements' on OCI (endorsed by the EU) IAS 19 (revised) 'Employee Benefits' (endorsed by the EU) IAS 27 (revised) 'Separate Financial Statements' IAS 28 (revised) 'Investments in Associates and Joint Ventures' IFRS 1 (amendment) 'First Time Adoption' on government grants IFRS 7 (amendment) 'Financial Instruments' on financial instruments asset and liability offsetting IFRS 9 'Financial Instruments' IFRS 10 'Consolidated Financial Statements' IFRS 11 'Joint Arrangements' IFRS 12 'Disclosure of Interests in Other Entities' IFRS 13 'Fair Value Measurements' IFRIC 20 'Stripping costs in the production phase of a surface mine' 3. Segmental information Management has determined the Group's operating segments based on the information reviewed by the Senior Management Board ("SMB") to make strategic decisions. The SMB consists of the three executive directors. All the Group's operations are in the UK and are organised into two business segments against which the Group reports its segmental information, being Retail Portfolio and London Portfolio. The London Portfolio includes all our London offices and central London shops (excluding assets held in the Metro Shopping Fund Limited Partnership joint venture) and the Retail Portfolio includes all our shopping centres, shops, retail warehouse properties, the Accor hotel portfolio and assets held in retail joint ventures, excluding central London shops. The information and reports reviewed by the SMB are prepared on a combined portfolio basis, which includes the Group's share of joint ventures on a proportionately consolidated basis. The following segmental information is therefore presented on a proportionately consolidated basis. The Group's primary measure of underlying profit before tax is revenue profit. This measure seeks to show the profit arising from on going operations and as such removes all items of a capital nature (e.g. valuation movements, profit/(loss) on disposal of investment and trading properties) and one-off or exceptional items. Segment profit is the lowest level to which the profit arising from the on-going operations of the Group is analysed between the two segments. The Group manages its financing structure, with the exception of joint ventures, on a pooled basis and, as such, debt facilities and interest charges are not specific to a particular segment. The Group's financial performance is not impacted by seasonal fluctuations. The segmental information provided to senior management for the reportable segments for the six months ended 30 September 2012 is as follows: Six months ended 30 September 2012 Retail Portfolio London Portfolio Total Joint Joint Joint Group ventures Total Group ventures Total Group ventures Total Revenue profit £m £m £m £m £m £m £m £m £m Rental income 121.0 32.3 153.3 126.6 9.1 135.7 247.6 41.4 289.0 Finance lease interest 0.9 0.2 1.1 4.5 - 4.5 5.4 0.2 5.6 Gross rental income (before rents payable) 121.9 32.5 154.4 131.1 9.1 140.2 253.0 41.6 294.6 Rents payable (1) (5.0) (1.2) (6.2) (1.7) - (1.7) (6.7) (1.2) (7.9) Gross rental income (after rents payable) 116.9 31.3 148.2 129.4 9.1 138.5 246.3 40.4 286.7 Service charge income (2) 15.5 5.0 20.5 19.2 0.6 19.8 34.7 5.6 40.3 Service charge expense (15.6) (5.5) (21.1) (19.6) (0.6) (20.2) (35.2) (6.1) (41.3) Net service charge expense (0.1) (0.5) (0.6) (0.4) - (0.4) (0.5) (0.5) (1.0) Other property related income (2) 5.6 0.5 6.1 8.6 0.2 8.8 14.2 0.7 14.9 Direct property expenditure (14.8) (5.5) (20.3) (9.4) (0.8) (10.2) (24.2) (6.3) (30.5) Net rental income 107.6 25.8 133.4 128.2 8.5 136.7 235.8 34.3 270.1 Indirect property expenditure (2) (10.2) (1.4) (11.6) (7.6) (0.2) (7.8) (17.8) (1.6) (19.4) Depreciation (0.1) - (0.1) (0.4) - (0.4) (0.5) - (0.5) Segment profit before interest 97.3 24.4 121.7 120.2 8.3 128.5 217.5 32.7 250.2 Joint venture net interest expense - (8.5) (8.5) - (6.1) (6.1) - (14.6) (14.6) Segment profit 97.3 15.9 113.2 120.2 2.2 122.4 217.5 18.1 235.6 The story has been truncated, [TRUNCATED]
Land Sec. Group PLC LAND Half-yearly results to 30 September 2012
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