REG - Land Sec. Group PLC - Preliminary Results to 31 March 2017 <Origin Href="QuoteRef">LAND.L</Origin> - Part 2
18/05/2017 07:05
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eastern entrance
to Liverpool Street Crossrail station, ready for building 522,000 sq ft in two buildings. Completing the raft in July 2018
will mean we can complete construction of the buildings in 24 months, providing an excellent prospect for the pre-letting
market.
In Westminster at 1 Sherwood Street, W1 behind Piccadilly Lights, we secured planning consent for a 142,000 sq ft mixed use
scheme and in Southwark, at Sumner Street, SE1, resolution to grant planning consent for 134,000 sq ft.
We have a further 360,000 sq ft in feasibility at Red Lion Court, SE1.
Manage
We were very active asset managers this year, moving early to address lease expiries and rent reviews, as well as securing
reversions ahead of expectation.
At Dashwood House, EC2, we completed rent reviews on £6m (86%) of the income, increasing the rent by 26%. At One New
Change, EC4, we reviewed £19m (65%) of the rent increasing the offices by 3% and the retail by 18%. At Cardinal Place, SW1,
we reviewed £11m (48%) of rent increasing the offices by 14% and the retail by 23%, as well as letting 113,000 sq ft of
available space. At 140 Aldersgate Street, EC1, we reviewed £1m (44%) of the rent and achieved a 33% uplift, as well as
letting 25,000 sq ft of available space.
At Piccadilly Lights, W1, we obtained planning consent to replace the six screens with Europe's most technically advanced
digital screen, maintaining the heritage of the site while giving advertisers innovative ways to interact with more than
100 million passers-by each year. Coca-Cola committed to continuing its 60 year residence and will be joined by Samsung and
Hyundai. We have three remaining advertising opportunities and are in discussion with other major brands to complete the
line-up. We'll be launching the new screen at this major tourist attraction in November.
Sell
In 2015, to reduce risk, we started a disposal programme of weaker assets after we had completed asset management plans to
maximise value. The majority of these sales were executed last year and we successfully completed the programme this year
with disposals totalling £46m. Trading property disposals of £135m include sales at Nova, Victoria, SW1 following
completion of residential units, further disposals at Kings Gate, SW1 and the disposal of our remaining interest in the
Kodak land at Harrow. Sales of other investments totalled £13m.
Net rental income
Table 13: Net rental income(1)
31 March 2017 31 March 2016 Change
£m £m £m
Like-for-like investment properties 203 199 4
Proposed developments - - -
Development programme 16 5 11
Completed developments 62 45 17
Acquisitions since 1 April 2015 2 1 1
Sales since 1 April 2015 - 21 (21)
Non-property related income 2 4 (2)
Net rental income 285 275 10
1. On a proportionate basis.
Net rental income in the London Portfolio has increased by £10m from £275m to £285m, with additional income from recently
completed developments largely offset by lost income from properties sold last year.
Income from our developments contributed an additional £28m this year, principally at 1 New Street Square, EC4, 20
Eastbourne Terrace, W2 and Nova, Victoria, SW1. We also benefited from a full year's income at The Zig Zag Building, SW1, 1
& 2 New Ludgate, EC4 and 62 Buckingham Gate, SW1. The increase in the like-for-like portfolio of £4m reflects new lettings
and settled rent reviews, partly offset by reduced income at Piccadilly Lights following the start of refurbishment.
Overall, these increases are largely offset by a £21m reduction in net rental income from disposals since 1 April 2015,
most notably Thomas More Square, E1, Times Square, EC4 and Haymarket House, SW1.
Outlook
In the current uncertain environment, investment demand is likely to be lower for all but the very best assets. In the
occupational market, we expect net effective rental values to weaken but demand from dynamic businesses to continue for
high quality, resilient space. We're well prepared for these conditions with a portfolio of assets designed to meet the
needs of these customers.
We're ready to add to our portfolio when the time is right. Our team is tracking around £2bn of opportunities, building up
our intelligence network ready for a future investment phase. In addition, we're preparing 1.4 million sq ft of future
development opportunities for when conditions are right to proceed.
Retail Portfolio
Highlights
· Valuation deficit of 0.8%
· £15m of investment lettings
· £4m of development lettings
Actions and outcomes
Focus for 2016/17 Progress in 2016/17
· Outperform IPD sector benchmark · The total return of the Retail Portfolio was 4.7% outperforming its IPD sector benchmark at 1.1%
· Progress lettings at Westgate Oxford; Selly Oak, Birmingham; and the White Rose, Leeds leisure extension · Westgate Oxford 68% pre-let; Selly Oak 73% pre-let; and White Rose leisure extension 100% let
· Resolution to grant planning consent at Worcester Woods · Planning consent at Worcester Woods rejected
· Achieve planning consent and progress lettings for Glow space at Bluewater, Kent · Planning consent for Glow space at Bluewater achieved. Space 69% pre-let
· Progress to time and budget at our committed developments · Westgate Oxford on time and budget
· Expand the Community Employment Programme to other retail sites · Expanded the Community Employment Programme to St David's, Cardiff; White Rose; and Gunwharf Quays, Portsmouth and secured employment for 49 candidates
Focus for 2017/18
· Outperforming IPD sector benchmark
· Growing like-for-like net rental income
· Progressing lettings at Westgate Oxford; Selly Oak, Birmingham; and the Plaza reconfiguration at Bluewater
· Progressing the Plaza reconfiguration at Bluewater to time and budget
· Successfully launching Westgate Oxford after achieving practical completion on time and on budget
· Integrating the three newly acquired outlet centres
· Further developing the Community Employment Programme beyond its current focus on construction with 75 people being supported into jobs in retail
· Improving energy management in support of 2030 corporate commitments
At a glance
· Valuation deficit of 0.8%(1)
· Ungeared total property return of 4.7%
· The portfolio outperformed its IPD Quarterly Universe sector benchmark at 1.1%
· £15m of investment lettings and £4m of development lettings
· Like-for-like voids: 2.8% (31 March 2016: 2.0%) and units in administration: 0.4% (31 March 2016: 0.5%)
1. On a proportionate basis.
Key indicators
· Footfall in our shopping centres was down 1.6% (national benchmark down 2.5%)
· Same centre non-food retail sales, taking into account new lettings and occupier changes, were up 1.7% (national
benchmark for same centre physical store non-food retail sales down 1.9%; national benchmark for all retail sales,
including online, up 0.3%)
· Same store non-food retail sales were down 1.1% (national benchmark for same store physical store non-food retail
sales down 2.2%)
· Retailers' rent to sales ratio in our portfolio was 10.3%, with total occupancy costs (including rent, rates,
service charges and insurance) representing 17.6% of sales
We went into the year with a portfolio well matched to the evolving needs and expectations of our customers. Despite
uncertainty in the wider market, retail destinations that provide consumers with a great experience held up well.
Retailers' and consumers' use of online retailing continues to influence demand for physical space, and inflation is now
putting pressure on consumer spending. However, we've continued to see good demand for the best space in the right
locations.
Buy
Our acquisitions during the year were limited to a small number of properties adjacent to space we own. Since the year end,
we've acquired a portfolio of three outlet centres for £333m, which, alongside our existing outlet centres at Gunwharf
Quays, Portsmouth, and The Galleria, Hatfield, establishes our position as the leading owner-manager of outlets in the UK.
Develop
Our Westgate Oxford development with The Crown Estate is on time and on budget for opening in October 2017. We've made good
progress on lettings with 80% of the scheme now pre-let or in solicitors' hands. The latest brands to sign up include
Uniqlo, Cath Kidston, Levis and Molton Brown. We've also invested to ensure the sustainability of the development,
including extending our Community Employment Programme so local disadvantaged people will continue to benefit from job
opportunities after the centre opens.
At Selly Oak, Birmingham, 91% of the retail is either pre-let or in solicitors' hands, demonstrating occupier support for
this potential retail and student housing scheme.
Manage
This year we've secured £15m of investment lettings. Our like-for-like portfolio is virtually full, with voids of just 2.8%
and a weighted average lease term of 8.2 years. We have strong relationships with vibrant customers, from groundbreaking
start-ups to global brands.
Trinity Leeds continues to be the beating heart of the city and we've brought new brands to the centre including Lindt,
Côte Brasserie and Indian street food operator Mowgli. We're also creating an upsized unit for New Look and expanding the
centre's vibrant leisure offer with two new operators.
At White Rose, Leeds, the demise of BHS enabled us to deliver a 55,000 sq ft Next store, doubling its previous space. We
also upsized space for JD Sports, Pandora, Schuh and Holland & Barrett. Construction of our leisure extension is now
complete and fully let, with the six new restaurants and IMAX cinema units being fitted out to open later this year.
At Gunwharf Quays, Portsmouth, we introduced Armani and Coach to build on the centre's strong aspirational offer. We also
opened one of the first Under Armour 'athleisure' outlet stores in the UK.
At Bluewater, Kent, we delivered a 40,000 sq ft flagship for H&M, who had outgrown their existing unit. We've continued to
broaden the wide range of retail brands on offer, with eight new openings including Mint Velvet and Michael Kors, and
upgraded stores for LK Bennett and Jigsaw. Online retailer Missguided also committed to Bluewater. We started construction
of the Plaza leisure reconfiguration this year and expect to complete by December. The project enables us to bring new
leisure operators to Bluewater and the scheme is 80% pre-let or in solicitors' hands, with Showcase taking a lease for a
four screen extension. We've also continued to invest in the Learning Shop, which connects retailers and local unemployed
people.
Throughout the year, we developed new relationships and ideas to keep the customer experience fresh and exciting. For
example, we attracted on trend operators out of central London and into regional locations, including Dirty Bones and
Sticks'n'Sushi at Westgate. We brought Mercedes into St David's, Cardiff, and Buchanan Galleries, Glasgow. Cycle brand
Ribble's pop-up at St David's was so successful they're looking at more sites. In total, we brought 150 pop-up stores and
kiosk operators into our assets this year.
Our retail parks are well matched to customers' needs and remain 100% let. Our leisure parks are 99% let and are all
anchored by the dominant cinema for their catchment, providing a broad, family-friendly entertainment and food offer.
Sell
Disposals totalled £219m during the year. We sold the Ealing Filmworks development site to a residential developer,
crystallising an element of the development profit up front, without risk. As we continue our focus on family-orientated
leisure assets, we sold our two drinks-led city centre leisure schemes, The Printworks, Manchester, and The Cornerhouse,
Nottingham. And since the year end, we've sold our 50% interest in Clapham Shopstop, SW11 to our former joint venture
partner.
In February 2016, Accor exercised its right to break the leases on seven of their 29 hotels. All seven hotels have since
been sold at a premium to their investment values and the remaining Accor leases, where breaks weren't exercised, now
extend to 2031.
Net rental income
Table 14: Net rental income(1)
31 March 2017 31 March 2016 Change
£m £m £m
Like-for-like investment properties 295 289 6
Proposed developments - - -
Development programme - 1 (1)
Completed developments - - -
Acquisitions since 1 April 2015 2 1 1
Sales since 1 April 2015 9 28 (19)
Non-property related income 9 10 (1)
Net rental income 315 329 (14)
(14)
1. On a proportionate basis.
Net rental income reduced by £14m from £329m to £315m. This was largely due to disposals since 1 April 2015. These include
The Cornerhouse, Nottingham and The Printworks, Manchester both sold in the current year and retail parks in Gateshead,
Dundee and Derby, a leisure park in Maidstone and a supermarket in Crawley, all sold in the second half of last year. The
increase in our like-for-like portfolio of £6m is due to a combination of new lettings, improved turnover performance and a
reduction in bad debt provisions compared to last year.
Outlook
Current uncertainty and rising costs will continue to affect consumer confidence and retailers' readiness to invest and
expand. As a result, we expect letting activity to larger occupiers of retail space and leisure operators to slow in the
year ahead. However, we believe that the best physical stores will play a critical role for retailers, not least in
enabling them to create memorable brand experiences and to engage with their customers. Internet sales provide competition
to physical space, but we're also seeing opportunities to help brands develop their multichannel offer. We'll remain alert
to buying opportunities over the next 12 months, but our focus will be on enhancing the space and offer at our most
successful destinations, launching Westgate Oxford in October and successfully integrating the three new outlet centres
into the portfolio.
Principal risks and uncertainties
The Company has identified certain principal risks and uncertainties that could prevent the Group from achieving its
strategic objectives and has assessed how these risks could best be mitigated through a combination of internal controls,
risk management and the purchase of insurance cover. These risks are reviewed and updated on a regular basis and were last
formally assessed by the Board in May 2017.
A description of the principal risks and uncertainties faced by the Group, together with an assessment of their impact is
set out below. The Group's approach to the management and mitigation of these risks is included in the 2017 Annual Report.
Risk description Impact
Customers
· Structural changes in customer and consumer behaviours · Shift in office and retailer customer demand with consequent impact on new lettings, renewal of existing leases and rental growth
Market cyclicality
· Market and political uncertainty or change in legislation · Reduces liquidity and impacts property performance· Fall in values· Limits ability to raise further funding
Disruption
· Failure to react effectively to new disruptors within our sectors, including technological advances · Asset obsolescence· Loss of competitive advantage
People and skills
· Inability to attract, retain and develop the right people and skills · Lack the skills necessary to deliver the business objectives
Major health and safety incident
· Accidents causing injury to employees, contractors, occupiers or visitors to our properties · Injury or loss of life· Criminal/civil proceedings and resultant reputational damage· Delays to building projects and access restrictions to shopping centres
Security threat or attack
· Failure to identify or prevent a major security related threat or attack, or react immediately and effectively · Injury, loss of life, damage to buildings· Loss of consumer confidence with consequent impact on new lettings, renewal of existing leases and rental growth· Loss of income
Risk description Impact
Cyber threat or attack
· External and internal threat to corporate and building management systems and data · Negative reputational impact· Adverse operational and financial impact
Sustainability
· Increasing environmental pressure and/or properties that do not comply with legislation, meet customer expectations or are unable to withstand the expected challenges of climate change · Increased cost base· Inability to attract or retain customers· Premature obsolescence and loss of asset value
Development
· Unable to deliver capex programme to agreed returns and/or occupiers reluctant to commit to take new space in our developments · Negative valuation movements· Reduction in income
Statement of Directors' Responsibilities
The Annual Report 2017 contains the following statements regarding responsibility for the financial statements and business
reviews included therein.
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
have prepared the Group and parent company financial statements in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union. Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit and
loss of the Group and the Company for that period.
In preparing these financial statements the Directors are required to:
· select suitable accounting policies in accordance with IAS 8 'Accounting Policies, Changes in Accounting Estimates
and Errors' and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
· state that the Group and Company has complied with IFRS as adopted by the European Union, subject to any material
departures disclosed and explained in the financial statements;
· provide additional disclosures when compliance with the specific requirements of IFRS is insufficient to enable
users to understand the impact of particular transactions, other events and conditions on the Group's and Company's
financial position and performance; and
· prepare the Group's and Company's financial statements on a going concern basis, unless it is inappropriate to do
so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's
and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the
Company, and to enable them to ensure that the Annual Report complies with the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS regulation. They are also responsible for safeguarding the assets of the Group
and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Directors' responsibility statement under the Disclosure and Transparency Rules
Each of the Directors, whose names and functions are listed below, confirm that to the best of their knowledge:
· the Group financial statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true
and fair view of the assets, liabilities, financial position and profit of the Group; and
· the Company financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view
of the assets, liabilities, financial position, performance and cash flows of the Company; and
· the Strategic Report contained in the Annual Report includes a fair review of the development and performance of the
business and the position of the Group and the Company, together with a description of the principal risks and
uncertainties faced by the Group and Company.
Directors' statement under the UK Corporate Governance Code
Each of the Directors confirm that to the best of their knowledge the Annual Report taken as a whole is fair, balanced and
understandable and provides the information necessary for shareholders to assess the Group's and Company's position,
performance, business model and strategy.
A copy of the financial statements of the Group is placed on the Company's website. The Directors are responsible for the
maintenance and integrity of statutory and audited information on the Company's website at www.landsecurities.com.
Information published on the internet is accessible in many countries with different legal requirements. Legislation in the
United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other
jurisdictions.
The Directors of Land Securities Group PLC as at the date of this Annual Report are as set out below:
Dame Alison Carnwath, Chairman*
Robert Noel, Chief Executive
Martin Greenslade, Chief Financial Officer
Edward Bonham Carter, Senior Independent Director*
Kevin O'Byrne*
Chris Bartram*
Simon Palley*
Stacey Rauch*
Cressida Hogg CBE*
Nicholas Cadbury*
*Non-executive Directors
The Statement of Directors' Responsibilities was approved by the Board of Directors on 17 May 2017 and is signed on its
behalf by:
Robert Noel Martin Greenslade
Chief Executive Chief Financial Officer
Financial statements
Income statement Year ended Year ended 31 March 2016
31 March 2017
Revenue Capital and other items Total Revenue Capital and other items Total
profit profit
Notes £m £m £m £m £m £m
Revenue 4 721 66 787 744 198 942
Costs 5 (242) (24) (266) (259) (151) (410)
479 42 521 485 47 532
Profit on disposal of investment properties - 19 19 - 75 75
Loss on disposal of investment in joint venture - (2) (2) - - -
Profit on disposal of other investment - 13 13 - - -
Net (deficit)/surplus on revaluation of investment properties 9 - (186) (186) - 739 739
Operating profit 479 (114) 365 485 861 1,346
Share of post-tax profit from joint ventures 11 21 48 69 20 179 199
Finance income 6 37 - 37 35 - 35
Finance expense 6 (155) (204) (359) (178) (66) (244)
Profit before tax 382 (270) 112 362 974 1,336
Taxation - 1 1 - 2 2
Profit attributable to owners of the parent 382 (269) 113 362 976 1,338
Earnings per share attributable to owners of the parent:
Basic earnings per share 3 14.3p 169.4p
Diluted earnings per share 3 14.3p 168.8p
Statement of comprehensive income Year ended Year ended 31 March 2016
31 March 2017
Total Total
£m £m
Profit attributable to owners of the parent 113 1,338
Items that will not be subsequently reclassified to the income statement:
Net re-measurement (loss)/gain on defined benefit pension scheme (12) 18
Deferred tax credit/(charge) on re-measurement above 2 (3)
Other comprehensive (loss)/income attributable to owners of the parent (10) 15
Total comprehensive income attributable to owners of the parent 103 1,353
Balance sheets
2017 2016
Notes £m £m
Non-current assets
Investment properties 9 12,144 12,358
Intangible assets 36 38
Net investment in finance leases 165 183
Investments in joint ventures 11 1,734 1,668
Investments in subsidiary undertakings - -
Trade and other receivables 123 86
Other non-current assets 51 44
Total non-current assets 14,253 14,377
Current assets
Trading properties 10 122 124
Trade and other receivables 418 445
Monies held in restricted accounts and deposits 14 21 19
Cash and cash equivalents 15 30 25
Total current assets 591 613
Total assets 14,844 14,990
Current liabilities
Borrowings 13 (404) (19)
Trade and other payables (302) (289)
Other current liabilities (7) (19)
Total current liabilities (713) (327)
Non-current liabilities
Borrowings 13 (2,545) (2,854)
Trade and other payables (25) (28)
Other non-current liabilities (9) (47)
Redemption liability (36) (35)
Total non-current liabilities (2,615) (2,964)
Total liabilities (3,328) (3,291)
Net assets 11,516 11,699
Equity
Capital and reserves attributable to owners of the parent
Ordinary shares 80 80
Share premium 791 790
Capital redemption reserve 31 31
Own shares (9) (14)
Share-based payments 8 11
Merger reserve - -
Retained earnings 10,615 10,801
Total equity 11,516 11,699
The financial statements on pages 27 to 49 were approved by the Board of Directors on 17 May 2017 and were signed on its
behalf by:
R M Noel M F Greenslade
Directors
Statement of changes in equity Attributable to owners of the parent
Ordinary shares Share premium Capital redemption reserve Own Share- based payments Retained earnings Total
shares equity
£m £m £m £m £m £m £m
At 1 April 2015 80 789 31 (12) 9 9,709 10,606
Total comprehensive income for the financial year - - - - - 1,353 1,353
Transactions with owners:
Share-based payments - 1 - 16 2 (6) 13
Dividends paid to owners of the parent - - - - - (255) (255)
Acquisition of own shares - - - (18) - - (18)
Total transactions with owners of the parent - 1 - (2) 2 (261) (260)
At 31 March 2016 80 790 31 (14) 11 10,801 11,699
Total comprehensive income for the financial year - - - - - 103 103
Transactions with owners:
Share-based payments - 1 - 11 (3) - 9
Dividends paid to owners of the parent - - - - - (289) (289)
Acquisition of own shares - - - (6) - - (6)
Total transactions with owners of the parent - 1 - 5 (3) (289) (286)
At 31 March 2017 80 791 31 (9) 8 10,615 11,516
Statement of cash flows for the year ended 31 March 2017
2017 2016
Notes £m £m
Cash flows from operating activities
Net cash generated from operations 8 464 451
Interest received 15 21
Interest paid (152) (197)
Capital expenditure on trading properties (12) (32)
Disposal of trading properties 69 190
Other operating cash flows 2 (1)
Net cash inflow from operating activities 386 432
Cash flows from investing activities
Investment property development expenditure (46) (118)
Acquisition of investment properties (16) (103)
Other investment property related expenditure (80) (100)
Disposal of investment properties 245 1,221
Disposal of other investment 13 -
Cash contributed to joint ventures 11 (67) (62)
Net loan advances to joint ventures 11 (45) (106)
Loan repayments by joint ventures 11 54 14
Distributions from joint ventures 11 44 63
Other investing cash flows (19) 40
Net cash inflow from investing activities 83 849
Cash flows from financing activities
Proceeds from new borrowings (net of finance fees) 356 249
Repayment of borrowings 13 (391) (806)
Issue of medium term notes (net of finance fees) 13 698 -
Redemption of medium term notes 13 (690) (400)
Premium payable on redemption of medium term notes 13 (137) (26)
Refinancing of derivative financial instruments (4) -
Dividends paid to owners of the parent 7 (289) (262)
Other financing cash flows (7) (26)
Net cash outflow from financing activities (464) (1,271)
Increase in cash and cash equivalents for the year 5 10
Cash and cash equivalents at the beginning of the year 25 15
Cash and cash equivalents at the end of the year 15 30 25
Notes to the financial statements
1. Basis of preparation and consolidation
Basis of preparation
These financial statements have been prepared on a going concern basis and in accordance with International Financial
Reporting Standards as adopted by the EU (IFRS), IFRIC Interpretations and the Companies Act 2006 applicable to companies
reporting under IFRS. The financial statements have been prepared in Pounds Sterling (rounded to the nearest one million),
which is the presentation currency of the Group (Land Securities Group PLC (the Company) and all its subsidiary
undertakings), and under the historical cost convention as modified by the revaluation of investment property,
available-for-sale investments, derivative financial instruments and pension assets.
During the year, the Group has reviewed the presentation of the financial statements and has made some changes with the
intention of simplifying the way in which the Group's results are presented. One of the main changes is from reporting to
the nearest hundred thousand pounds, to reporting to the nearest million pounds. Additionally, certain insignificant line
items that were previously presented separately in the financial statements have been aggregated. Where line items have
been aggregated in the primary statements, explanatory notes providing a breakdown of the aggregated balances are included
in the notes to the financial statements.
The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires the use
of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are
based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those
estimates.
The accounting policies used in these financial statements are consistent with those applied in the last annual financial
statements, as amended where relevant to reflect the adoption of new standards, amendments and interpretations which became
effective in the year. These amendments have not had an impact on the financial statements.
A number of new standards and amendments to standards have been issued but are not yet effective for the Group. The most
significant of these, and their potential impact on the Group's accounting, are set out below:
IFRS 15 Revenue from Contracts with Customers (effective from 1 April 2018) - the standard will be applicable to service
charge income, other property related income, trading property sales proceeds and proceeds from the sale of investment
properties, but not rental income arising from the Group's leases with tenants. Based on the transactions impacting the
current financial year and future known transactions, the Group does not expect the adoption of IFRS 15 to have a material
impact on the Group's reported results. However, we will continue to assess new transactions as they arise to the date of
adoption.
IFRS 9 Financial Instruments (effective from 1 April 2018) - the standard applies to classification and measurement of
financial assets and financial liabilities, impairment provisioning and hedge accounting. The Group is in the process of
assessing the impact of IFRS 9, but adoption of the new standard may impact the measurement and presentation of the Group's
financial liabilities.
IFRS 16 Leases (effective from 1 April 2019) - the adoption of this standard is not expected to significantly impact the
recognition of rental income earned under the Group's leases with tenants. The Group holds a small number of operating
leases as a lessee which are affected by this standard, however, these are not material to the financial statements.
On 17 May 2017, the consolidated financial statements of the Group and this preliminary announcement were authorised for
issue in accordance with a resolution of the Directors and will be delivered to the Registrar of Companies following the
Group's Annual General Meeting. Statutory accounts for the year ended 31 March 2016 have been filed unqualified and do not
contain any statement under Section 498(2) or Section 498(3) of the Companies Act 2006. The annual financial information
presented in this preliminary announcement for the year ended 31 March 2017 is based on, and consistent with, the financial
information in the Group's audited financial statements for the year ended 31 March 2017. The audit report on these
financial statements is unqualified and did not contain a statement under Section 498(2) or 498(3) of the Companies Act
2006. This preliminary announcement does not constitute statutory financial statements of the Group within the meaning of
Section 235 of the Companies Act 2006. Whilst the information included in this preliminary announcement has been prepared
in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient
information to comply with IFRS.
A copy of the Group's Annual Report for the year ended 31 March 2016 can be found at www.landsecurities.com/investors.
Basis of consolidation
The consolidated financial statements for the year ended 31 March 2017 incorporate the financial statements of the Company
and all its subsidiary undertakings. Subsidiary undertakings are those entities controlled by the Company. Control exists
where an entity is exposed to variable returns and has the ability to affect those returns through its power over the
investee.
The results of subsidiaries and joint ventures acquired or disposed of during the year are included from the effective date
of acquisition or to the effective date of disposal. Accounting policies of subsidiaries and joint ventures which differ
from Group accounting policies are adjusted on consolidation.
Where instruments in a subsidiary held by third parties are redeemable at the option of the holder, these interests are
classified as a financial liability, called the redemption liability. The liability is carried at fair value; the value is
reassessed at the balance sheet date and movements are recognised in the income statement.
Intra-group balances and any unrealised gains and losses arising from intra-group transactions are eliminated in preparing
the consolidated financial statements. Unrealised gains arising from transactions with joint ventures are eliminated to the
extent of the Group's interest in the joint venture concerned. Unrealised losses are eliminated in the same way, but only
to the extent that there is no evidence of impairment.
Our property portfolio is a combination of properties that are wholly owned by the Group, part owned through joint
arrangements and properties owned by the Group but where a third party holds a non-controlling interest. Internally,
management review the results of the Group on a basis that adjusts for these different forms of ownership to present a
proportionate share. The Combined Portfolio, with assets totalling £14.4bn, is an example of this approach, reflecting the
economic interest we have in our properties regardless of our ownership structure. We consider this presentation provides a
better explanation to stakeholders of the activities and performance of the Group, as it aggregates the results of all of
the Group's property interests which under IFRS are required to be presented across a number of line items in the statutory
financial statements.
The same principle is applied to many of the other measures we discuss and accordingly, a number of our financial measures
include the results of our joint ventures and subsidiaries on a proportionate basis. Measures that are described as being
presented on a proportionate basis include the Group's share of joint ventures on a line-by-line basis, and are adjusted to
exclude the non-owned elements of our subsidiaries. This is in contrast to the Group's statutory financial statements,
where the Group's interest in joint ventures is presented as one line on the income statement and balance sheet, and all
subsidiaries are consolidated at 100% with any non-owned element being adjusted as a non-controlling interest or redemption
liability, as appropriate. Our joint operations are presented on a proportionate basis in all financial measures.
2. Segmental information
The Group's operations are organised into two operating segments, being the London Portfolio and the Retail Portfolio. The
London Portfolio includes all our London offices and central London shops and the Retail Portfolio includes all our
shopping centres and shops (excluding central London shops), hotels and leisure assets and retail park properties. All of
the Group's operations are in the UK.
Management has determined the Group's operating segments based on the information reviewed by senior management to make
strategic decisions. During the year, the chief operating decision maker was the Executive Committee (ExecCom), which
comprised the Executive Directors, the managing directors of the Retail and London portfolios, the Group General Counsel
and Company Secretary, the Group HR Director and the Corporate Affairs and Sustainability Director. The information
presented to ExecCom includes reports from all functions of the business as well as strategy, financial planning,
succession planning, organisational development and Group-wide policies.
The Group's primary measure of underlying profit before tax is revenue profit. However, 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
finance expenses (other than those relating to joint ventures) are not specific to a particular segment. Unallocated income
and expenses (Group services) are items incurred centrally which are neither directly attributable nor can be reasonably
allocated to individual segments.
All items in the segmental information note are presented on a proportionate basis. A reconciliation from the Group income
statement to the information presented in the segmental information note is included in table 25.
2017 2016
Retail London Total Retail London Total
Revenue profit £m £m £m £m £m £m
Rental income 342 296 638 363 287 650
Finance lease interest 1 9 10 1 9 10
Gross rental income (before rents payable) 343 305 648 364 296 660
Rents payable(1) (8) (3) (11) (9) (3) (12)
Gross rental income (after rents payable) 335 302 637 355 293 648
Service charge income 56 45 101 56 46 102
Service charge expense (60) (46) (106) (58) (47) (105)
Net service charge expense (4) (1) (5) (2) (1) (3)
Other property related income 20 14 34 21 17 38
Direct property expenditure (36) (30) (66) (45) (34) (79)
Net rental income 315 285 600 329 275 604
Indirect property expenditure (21) (16) (37) (25) (18) (43)
Depreciation (1) (1) (2) - (1) (1)
Segment profit before finance expense 293 268 561 304 256 560
Joint venture finance expense (4) (17) (21) (4) (17) (21)
Segment profit 289 251 540 300 239 539
Group services - other income 2 4
- expense (42) (38)
Finance income 37 35
Finance expense (155) (178)
Revenue profit 382 362
1. Included within rents payable is finance lease interest payable of £1m (2016: £1m) and £1m (2016: £nil), for the
Retail and London portfolios, respectively.
Reconciliation of revenue profit to profit before tax 2017 2016
Total Total
£m £m
Revenue profit 382 362
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