Annual results for the year ended 31 March 2014

Forward-looking statements

These Annual Results, our Annual Report and the Land Securities website may contain certain "forward-looking statements" with respect to the Land Securities Group PLC and the Group's financial condition, results of its operations and business, and certain of Land Securities Group PLC's and the Group's plans, strategy, objectives, goals and expectations with respect to these items and the economies and markets in which Land Securities Group operates.

Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as "anticipates", "aims", "due", "could", "may", "should", "will", "would", "expects", "believes", "intends", "plans", "targets", "goal" or "estimates" or, in each case, their negative or other variations or comparable terminology. Forward-looking statements are not guarantees of future performance. By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Many of these assumptions, risks and uncertainties relate to factors that are beyond the Group's ability to control or estimate precisely. There are a number of such factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, changes in the economies and markets in which the Group operates; changes in the legal, regulatory and competition frameworks in which the Group operates; changes in the markets from which the Group raises finance; the impact of legal or other proceedings against or which affect the Group; changes in accounting practices and interpretation of accounting standards under IFRS, and changes in interest and exchange rates.

Any written or verbal forward-looking statements, made in these Annual Results, our Annual Report, or the Land Securities website or made subsequently, which are attributable to Land Securities Group PLC or any other member of the Group or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. Each forward-looking statement speaks only as of the date it is made. Except as required by its legal or statutory obligations, Land Securities Group PLC does not intend to update any forward-looking statements.

Annual results for the year ended 31 March 2014

"Land Securities is reaping the reward of its bold strategy to develop early and speculatively in central London. Our buildings are coming to the London market in the right locations, when competition is low and occupiers are actively planning to move. This strategy, together with a resurgent London market, has led to significant valuation gains, while our near fully-let retail portfolio has delivered strong cash flow and increased revenue profit.

"20 Fenchurch Street, one of our most financially successful developments yet, has so far delivered a valuation surplus of £137.2m. The combination of location, timing, form and function mean the building is now 87% let with an average lease length of 17 years. The solar glare issue last summer illustrates the risk associated with development but we now have planning permission for an external solution which we will commence fitting this month. Further west, at the emerging Crossrail/Thameslink hub, since the year end we have pre-let the entirety of 2 New Ludgate to Mizuho Group on a 20 year lease.

"Our balance sheet discipline is also making the business stronger. Development expenditure and acquisitions have been funded by recycling capital from sales. As a result, the increase in valuation of our portfolio coupled with more recent sales has reduced our loan-to-value ratio further, to 32.5%.

"In London, our building programme will continue apace as we seek to maximise the benefits from favourable market conditions, though any additional commitments in the near term will require pre-lets. We expect to see a shortage of Grade A space until at least late 2016. The market balance beyond that will depend on the general development response to improving market conditions.

"In retail, economic growth has returned and we are now seeing a real rise in wages which is welcome news for retailers, but rental growth will be limited to the best locations. Our strategy is to ensure we have the right properties in the right locations and to anticipate and accommodate retail trends. Unless we see buying opportunities that satisfy these requirements, our focus will remain on developing retail assets which fit this strategy and selling assets that do not.

"Overall, market conditions for property are positive and Land Securities is well positioned. Our strategy is clear, our people focused, our activity relentless and our business stronger. I am confident of continued good performance." said Land Securities' Chief Executive Robert Noel.

Results summary

1. Including our proportionate share of subsidiaries and joint ventures. The % change for the valuation surplus represents the valuation movement as a percentage of the market value of the combined portfolio at the beginning of the year.

2. Our key valuation measure.

A year of action….

· £26.6m of development lettings

· £23.6m of investment lettings

· Sales(1) of £920.4m

· Acquisitions of £209.9m including X-Leisure

· Development and refurbishment expenditure(1) of £366.6m

· Further developments committed with total development costs of £551.0m

....delivering results

· Ungeared total property return 12.8%, underperforming the IPD Quarterly Universe at 13.6%

· Total business return (dividends and adjusted diluted NAV growth) of 15.5%

· Combined portfolio valued at £11.86bn, with a valuation surplus of 7.1%

· Valuation surplus on properties in the development programme of 22.3%

· Revenue profit £319.6m, up 9.9%

· Profit before tax £1,108.9m, up from £533.0m

· Voids in the like-for-like portfolio up from 2.0% to 2.1%

Strong financial structure

· Group LTV ratio at 32.5%, based on adjusted net debt of £3.9bn

· Weighted average maturity of debt at 9.3 years

· Weighted average cost of debt at 5.0%

· Cash and available facilities of £1.1bn

· Recommended increase in final dividend to 7.9p (from 7.6p)

1. Includes trading properties.

Chief Executive's statement

Our highlights

· Profit before tax £1,108.9m (2013: £533.0m)

· Revenue profit £319.6m, up 9.9%

· Adjusted diluted earnings per share 40.5p, up 10.1%

· Valuation surplus of £763.8m or 7.1%

· Adjusted diluted NAV per share 1,013p, up 12.2%

· Recommended total dividend for the year 30.7p, up 3.0%

We aim to provide attractive and sustainable returns for our shareholders through the property cycle by anticipating markets and understanding customers' and communities' needs. We create value by taking a pro-active approach to how and when we buy, develop, manage and sell assets. Three key factors shape our approach. First, a recognition that we operate in cyclical markets. Second, that our customers' needs always evolve. These mean income from rent does not last forever, so we must regularly recycle capital and upgrade our portfolio. Third, that communities give us our licence to trade so we must ensure they are pleased that it is Land Securities operating in their neighbourhoods.

We have continued to pursue the clear strategy first articulated in 2010. Our acquisitions and significant push into speculative development over the last four years have been funded by sales rather than increased net debt. This has enabled us to reduce financial gearing, and strengthen the business, as we move through the cycle. Our plan is to have low operational and financial gearing as we approach the top of the cycle, so that risk is reduced and we have good capacity to buy as market conditions turn and opportunities present themselves.

Our actions have delivered a strong financial performance this year. We generated good growth in revenue profit, up 9.9% to £319.6m, and our development programme helped push our adjusted diluted net asset value per share up 12.2% to 1,013p. Our total business return - the increase in adjusted net asset value plus dividend paid per share - was 15.5%.

Meeting strong demand in London

Four years ago we anticipated the onset of supply-constrained conditions in the London offices market. That is exactly what we have seen. And, if anything, demand has been stronger than we signalled in our Annual Report last year.

We have developed speculatively into these market conditions and are currently in delivery mode. We completed 62 Buckingham Gate, SW1 in May 2013. 20 Fenchurch Street, EC3 is all but completed. In Victoria, The Zig Zag Building, Kings Gate and Nova are all rising out of the ground fast. During the year we also started our developments at 1 & 2 New Ludgate, EC4; 1 New Street Square, EC4; and 20 Eastbourne Terrace, W2. Having prepared the New Ludgate project for a 21 month construction programme, we said we would push the button when we saw good emerging interest from occupiers. Construction started in August without a pre-let and we have already pre-let 49% of the space and have a further 12% in solicitors' hands. Our London developments produced a valuation surplus of £269.0m or 22.5%.

The most complex aspects of our construction programme in the Capital will shortly be behind us and we will move into the de-risking phase of the cycle. This is about ensuring we let our speculative developments well and have relatively long lease lengths across the office portfolio as the current London office cycle matures.

Navigating a changing retail market

The year brought brighter prospects for the economy. But with no general rise in real wages emerging until the final quarter, this did not translate into increased consumer spending everywhere.

Over the last few years we have talked about how the retail market is changing and we have reshaped our portfolio as a result. The portfolio today is much more concentrated on dominance, experience and convenience.

This year we have focused on nurturing a pipeline of dominant shopping centre, and convenience led edge-of-town, developments. The Westgate Centre, Oxford, is a great example of where we intend to create a destination in a city which tops the list of retailer requirements. We have also grown our leisure portfolio further, taking our ownership of X-Leisure up to 95%. And to fund our activities we have exited the most at risk locations. Buying and selling activity will continue because consumer behaviour evolves.

A sustainable business

Like any good business, success for us is all about understanding what our customers want and making sure we provide it - at the right time, in the right way, at the right price.

20 Fenchurch Street, EC3, shows our approach in action. In 2010, we recognised that the City market needed better space and that much of the planned new development would be delayed due to lack of development finance. So we set out, with our partner Canary Wharf Group, to build a highly efficient, technically resilient building in response. The building is now 87% let, well ahead of our expectations.

In everything we do we strive to shape the future for good. By investing in the built environment, we improve the public realm while enhancing the economic and social environment by employing people to build. Our properties then help to generate and sustain economic activity for the communities in which they are located. Our shopping centres are major employers and our offices, through the many people who work in them, bring demand for local services. In turn, the local environment is more attractive to our retail and office customers who sustain our business.

We are adapting our business in anticipation of the changing demands of society. We are imposing tougher environmental targets and reporting standards for our buildings and setting ourselves a higher level of ambition for our contribution towards local employment, education and charity. Creating a sustainable business is a vital part of our corporate strategy and encourages our employees to make a difference individually. Sustainability is created by everyday acts as well as big decisions.

New management structure

In December 2013, we announced that Richard Akers intended to step down from the Board and leave the company. He goes with our thanks for an outstanding contribution over 19 years and our very best wishes for the future.

Following Richard's departure, we have reorganised our leadership team. We have simplified the structure with clearer accountabilities and shorter reporting lines. Colette O'Shea and Scott Parsons, two outstanding candidates from within the business, have been appointed as managing directors of the London and Retail portfolios respectively. Each has reshaped the executive committee for their business unit with all but one of the senior posts filled by internal promotions. This speaks volumes for the talent within the company.

Outlook

The lead up to a general election is bound to bring an element of uncertainty to the business community. However, extraordinary events aside, we do not expect to see a correction of the balance between supply and demand in the London office market over the next two years. There is not enough efficient, technically resilient space for businesses and this bodes well for our committed speculative developments.

We will remain very busy in London as we press ahead with construction and de-risk the portfolio. We are confident about the prospects for our committed schemes. We also recognise that the risk profile of future speculative development is changing as competition for sites has increased, construction costs are rising, and development activity is set to pick up. As a result, any new development commitments in the near term are likely to require pre-lettings.

In retail, a return to economic growth and real growth in wages is welcome news for retailers, but we still do not expect this to translate into rental growth across the entire retail market. We will continue to sell assets which are less well equipped for the future and focus on assets that offer a great experience or convenience. This includes our plans for new city centre schemes such as Oxford and edge-of-town schemes such as our proposals for Worcester which provide the right space for retailers. 

We enter a new year with confidence.

Robert Noel

Chief Executive

Financial review

Overview and headline results

This year we delivered a profit before tax of £1,108.9m, compared with £533.0m last year, driven by a valuation surplus of £763.8m (including our proportionate share of subsidiaries and joint ventures). Basic earnings per share were 142.3p compared with 68.4p. Underlying earnings were also up; revenue profit was £319.6m compared with £290.7m and adjusted diluted earnings per share improved to 40.5p from 36.8p last year.

Our combined portfolio increased in value over the year by £413.0m to £11.86bn as a result of our valuation surplus of £763.8m, partly offset by net disinvestment. Net assets per share increased by 11.5% to 1,069p at 31 March 2014. Adjusted diluted net assets per share were up by 12.2% over the year, increasing from 903p to 1,013p. This 110p increase in adjusted diluted net assets per share together with the dividend paid in the year represents a 15.5% total business return.

Presentation of financial information

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%.

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 subsidiaries and joint ventures on a proportionate basis, but excludes capital and other one-off items. This year we have shown revenue profit on the face of the income statement alongside the IFRS requirement and provided a more detailed reconciliation of revenue profit to our IFRS profit before tax in note 2 to the financial statements.

Table 1 shows the composition of our revenue profit including the contributions from London and Retail.

Table 1: Revenue profit

1. Includes finance lease interest, net of rents payable.

Revenue profit increased by £28.9m from £290.7m last year to £319.6m in the year ended 31 March 2014. The 9.9% increase was mainly due to higher net rental income, which was up £46.3m, partly offset by higher indirect costs and net interest charges. The increase in net rental income is largely due to the full year impact of the acquisition of a controlling interest in X-Leisure in the prior year and the opening in March 2013 of our developments at Trinity Leeds and 185-221 Buchanan Street, Glasgow. Further information on the net rental income performance of the London and Retail portfolios is given in the respective business reviews.

The indirect costs of London and Retail and net unallocated expenses need to be considered together as, collectively, they represent the net indirect expenses of the Group including joint ventures. In total, net indirect expenses were £83.7m compared with £76.8m last year. The £6.9m increase in these costs is primarily due to higher pre-development spend on assets we do not yet own and increased share based payment costs. Further information on our total costs is given in table 13.

Our net interest expense has increased by £10.5m in part due to higher average debt balances, but also reflecting an end to capitalised interest on our completed developments.

One of the key drivers of our revenue profit is the level of net capital we have invested in our business. In the low interest rate environment in which we are currently operating, the yield on income producing commercial property significantly exceeds our marginal cost of debt, which is below 2%. As a result, net capital investment in any one year - the balance between acquisitions, sales and capital expenditure - has a marked near term impact on revenue profit. This year, ignoring the valuation surpluses over the last two years, the total capital employed in our investment and trading properties averaged £11.2bn, compared with £10.9bn last year as a result of acquisitions made in the Retail Portfolio towards the end of last year and earlier this year. During the year, the net rental income we received from assets acquired since 1 April 2012 was £42.2m, compared with £9.9m last year.

At 31 March 2014, the net capital employed in our properties on the same basis was £11.0bn. The reduction is as a result of asset sales made later in the financial year. The assets we have now sold contributed £34.5m to net rental income this year. While there is a small interest benefit from the sale proceeds, this will be insufficient to offset the negative impact on next year's revenue profit from these sales. The extent to which this impact can be offset is dependent on the timing and scale of new investment opportunities. In contrast, if we believe there are compelling reasons to make further disposals, we will do so even if there is a further impact on our revenue profit. Our capital decisions are not made on the basis of the near term impact on revenue profit alone but from the perspective of total return over the longer term.

Valuation surplus and disposal profits

The movement in the values of our investment properties and any profits or losses on disposals are key components of our pre-tax profit. Over the year, the valuation surplus on our combined portfolio was £763.8m, or 7.1%. We made a profit on the disposal of investment properties and joint ventures of £18.1m, compared with a loss of £3.1m last year. A breakdown of the valuation surplus by category is shown in table 2 below.

Table 2: Valuation analysis

1. Rental value change excludes units materially altered during the year and Queen Anne's Gate, SW1.

In aggregate, the like-for-like portfolio saw values rise by 5.4% for the year to 31 March 2014 driven by a combination of a 30 basis point reduction in equivalent yields and rental values up 1.1%.

Shopping centres increased in value by 2.3% driven by yield compression of 16 basis points. Retail warehouses and food stores were down marginally; despite smaller lot sizes benefiting from increased investor demand, our larger lot sizes continued to be impacted by lower demand and a fall in rental values. Leisure and hotels reported a 6.5% valuation surplus as equivalent yields reduced by 27 basis points and rental values grew by 2.7%. London offices were 7.0% higher, primarily due to yield compression of 38 basis points. Central London shops rose in value by 16.8% driven by yield compression of 46 basis points, a 1.9% increase in rental values and some asset improvement initiatives, notably at Piccadilly Lights, W1.

Outside the like-for-like portfolio, completed developments increased in value by 5.7% due to a small inward movement on yields and further lettings, while the development programme was up 22.3% following continued construction and pre-letting progress on our major schemes particularly 20 Fenchurch Street, EC3 and 62 Buckingham Gate, SW1.

Earnings per share

Basic earnings per share were 142.3p, compared with 68.4p last year, primarily due to the significant increase in the valuation surplus.

Similar to the adjustments we make to profit before tax, which remove capital and one-off items to give revenue profit, we also report adjusted earnings per share figures. Adjusted diluted earnings per share increased by 10.1% from 36.8p last year to 40.5p per share this year as a result of the increase in revenue profit.

Total dividend

We are recommending a final dividend of 7.9p per share to be paid on 22 July 2014. Taken together with the three quarterly dividends of 7.6p, our full year dividend will be up 3.0% at 30.7p per share (year ended 31 March 2013: 29.8p) or £241.4m (year ended 31 March 2013: £232.4m).

In line with our comments in the half-yearly results in November last year and subsequent communication to shareholders, we have suspended our scrip dividend following payment of the third interim dividend in April 2014 and introduced a dividend reinvestment plan.

All of the cash dividends paid and payable in respect of the year ended 31 March 2014 comprise Property Income Distributions (PIDs) from REIT qualifying activities. In contrast to the cash dividends, none of the scrip dividends have been PIDs.

Net assets

At 31 March 2014, our net assets per share were 1,069p, an increase of 110p or 11.5% from 31 March 2013. The increase in our net assets was primarily driven by the increase in value of our investment properties, profits on disposal of investment properties and our adjusted earnings, partly offset by the dividends we paid.

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 increase our debt to its nominal value. At 31 March 2014, adjusted diluted net assets per share were 1,013p per share, an increase of 110p or 12.2% from 31 March 2013.

Table 3 summarises the main differences between net assets and our adjusted measure of net assets together with the key movements in the year.

Table 3: Net assets

To the extent tax is payable, all items are shown post-tax.

Net debt and gearing

Over the year, our net debt decreased by £368.1m to £3,330.5m. The main elements behind this decrease are set out in our statement of cash flows. Operating cash inflow after interest and tax was £158.6m, lower than the £246.7m received last year primarily due to some £40m of interest costs related to last year being paid this year. In addition, we are required to include capital expenditure on, and disposal proceeds from, trading properties as part of our operating cash flow. Last year, we had net capital receipts of £71.8m, largely due to the sales of apartments at Wellington House, SW1, compared with net capital payments of £11.0m this year.

We spent £123.4m on acquisitions in the year, primarily the purchase of a further 35.6% of the units in X-Leisure together with the cash payment for the 5% interest acquired in late March 2013. Capital expenditure was £223.7m, largely relating to our wholly owned developments in Victoria, and we contributed a net £83.5m to our joint ventures to fund developments at 20 Fenchurch Street, EC3 and Nova, Victoria, SW1. Offsetting these investments in our portfolio were sales proceeds of £821.9m, primarily from Bankside 2 & 3, SE1, Overgate, Dundee and Oxford House, W1.

Adjusted net debt, which is presented on a proportionate basis and includes the nominal value of our debt but excludes the mark-to-market on our swaps, was down £341.9m to £3,948.3m (31 March 2013: £4,290.2m).

A reconciliation between net debt and adjusted net debt is given in note 13 to the financial statements.

Table 4 below sets out various measures of our gearing.

Table 4: Gearing

1. Adjusted net debt divided by adjusted net asset value.

With an increase in our asset values and lower debt compared with last year, our gearing measures have all declined. The measure most widely used in our industry is loan-to-value (LTV). We focus most on Group LTV, presented on a proportionate basis. This LTV measure decreased from 36.9% at 31 March 2013 to 32.5% at 31 March 2014. Our strategy at this stage in the property cycle of allowing gearing to decline as property values rise remains unchanged.

Our Security Group LTV saw a smaller decline to 35.5% (31 March 2013: 37.7%), as a result of expenditure on 20 Fenchurch Street, EC3 and the acquisition of additional units in X-Leisure, both of which are held outside the Security Group.

Financing

The total capital of the Group consists of shareholders' equity and adjusted 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. Details of our main sources of capital are given in notes 13 and 14 to the financial statements.

During the year, we refinanced a £165m bilateral revolving credit facility that was due to expire in May 2014, replacing it with a £250m facility maturing in September 2018. This brings to £385m the total pool of committed facilities which extend beyond December 2016, the expiry date of our £1,085m revolving credit facility. In addition, we also agreed a new £100m bilateral revolving credit facility which matures in August 2016 and a short-term bilateral facility of £500m maturing in June 2014. The pricing of our facilities which fall due in more than one year range from LIBOR +115 basis points to LIBOR +120 basis points.

The weighted average duration of the Group's debt (on a proportionate basis) is 9.3 years with a weighted average cost of debt of 5.0%, and 94.5% at fixed interest rates. At 31 March 2014, we had £1.1bn of cash and available facilities. This gives the business considerable flexibility to deploy capital quickly should an acquisition opportunity arise.

American Depositary Receipt (ADR) programme

The Group has a significant US shareholder base and, in order to provide these investors and potential new US investors with a dollar denominated method of holding the Company's shares, the Group applied on 2 May 2014 to the SEC in the US for registration of a Sponsored Level One ADR programme which was registered on 14 May 2014. Under the Depositary Agreement, the Depositary, Citi, acting through Citibank N.A, converts the Company's ordinary shares into American Depositary Shares, represented by ADRs, in the ratio of one ADR for one ordinary share. The ADRs are quoted in US dollars and holders of ADRs will receive dividends in US dollars. As an over-the-counter, non-capital raising programme, the company does not fall within the Sarbanes-Oxley compliance regime and the ADRs are also exempt from SEC registration, reporting and US GAAP reconciliation.

Environmental reporting

In addition to the financial performance of our assets, we also recognise the importance of ensuring we improve their environmental performance. We are determined to see our assets play an important role in shaping the built environment for good.

As at 31 March 2014, we report an overall reduction of 16% against our 2011 baseline target (like-for-like) for normalised equivalent CO2 emissions. This is increasingly important to us as it becomes more so for our customers. As we see the cost of energy increasing and the security of supply under threat, we are helping customers reduce the variable costs of their occupancy by making the buildings more efficient.

Detailed analysis of the overall reduction shows divergence across the Group. In the London Portfolio, normalised equivalent CO2 emissions increased. This is due to a number of factors: the disposal of buildings with simple service infrastructure and inclusion in the like-for-like portfolio of sites with full infrastructure; Thomas More Square, E1, being only part occupied in the baseline year; and greater occupational density. As occupational density increases, recording building-by-building data and reporting against both landlord and occupier demises means we can work directly with occupiers to increase efficiency on a real-time basis.

Across the Retail Portfolio, we saw a reduction in normalised equivalent CO2 emissions. This reduction was experienced predominantly in our shopping centres. This can be credited partly to the move away from enclosed malls to a more open, naturally ventilated urban design in our new centres, with greater reliance on daylighting and energy efficient LED lighting to the public spaces.

Taxation

As a consequence of the Group's REIT status, income and capital gains from our qualifying property rental business are exempt from UK corporation tax. A tax credit of £7.7m arose in the year (31 March 2013: £nil), being a current year charge of £0.9m and a prior year credit of £8.6m arising from release of provisions and settlement of historical issues.

Martin Greenslade

Chief Financial Officer

Retail Portfolio review

Progress on our objectives

Highlights

· Valuation surplus of 2.2%

· Ungeared total property return of 8.5%

· The portfolio outperformed its IPD Quarterly Universe sector benchmark at 8.0%

· £18.3m investment lettings

· £2.3m development lettings

· Like-for-like voids were 2.6% (2013: 2.9%)

· Units in administration were 0.8% (2013: 2.4%)

In a demanding and fast-moving market, we have kept a sharp focus on our customers' changing needs, increased occupancy, sold weaker assets, added further to our leisure offer and nurtured a pipeline of development opportunities.

Buy

During the year we added a further 35.6% to our ownership of X-Leisure, the largest portfolio of leisure property in the UK, and now own 95% of the fund. We have also fully integrated the X-Leisure team into our own business, which has further strengthened our expertise in leisure and catering as this sector becomes an increasingly important part of the retail consumer experience.

Develop

Following its opening in March 2013, Trinity Leeds ended this financial year 97% let and attracted 22 million visitors in its first year. We opened the award-winning Trinity Kitchen street food market in the autumn; this has proved very popular and further strengthened the leisure offer in the centre. The opening of Primark in December has added substantial footfall, as has our imaginative use of social media, pop-up stores and events. Bishop Centre, Taplow, our 101,500 sq ft edge-of-town scheme, is taking shape and is set to complete in July. It is 85% pre-let or in solicitors' hands.

Development offers the opportunity for outperformance but comes with greater risk. We have continued to nurture our pipeline of opportunities and are working hard on plans for potential schemes including Oxford, Glasgow and Ealing - and edge-of-town schemes including Selly Oak, Maidstone and Worcester. We will remain disciplined in evaluating which of these schemes to pursue.

Manage

· Footfall in our shopping centres was down 0.8% (national benchmark down 2.6%)

· Same store sales were up 0.9% (national benchmark up 2.1%)

· Same centre sales, taking into account new lettings and tenant changes, were up 4.7%

· Measured retailers' rent to sales ratio was 10.2%

· Total occupancy costs (including rent, rates, service charges and insurance) represented 17.8% of sales

With our relentless focus on asset management, we increased the volume of investment lettings compared with last year, reducing like-for-like voids across the portfolio to 2.6%. This reflects the quality of our assets and customer relationships.

We constantly look to enhance our assets to ensure they meet the changing needs of retailers and shoppers. At the White Rose shopping centre in Leeds, for example, we have received planning permission for a cinema and more food outlets to enhance the shopping and leisure experience. Despite the excitement and footfall generated by the opening of Trinity Leeds, White Rose has continued to trade well.

Sell

We have continued to rebalance our portfolio in line with the changes in our sector, selling assets that are less likely to thrive. This year we sold assets in Livingston, Liverpool, Welwyn Garden City and Chadwell Heath. We also sold the Bon Accord & St Nicholas Centre in Aberdeen, which we held in a joint venture with British Land. And we sold the Overgate Centre in Dundee. This was an asset we bought in 2010 at a higher price and the sale demonstrates how quickly consumer behaviour is changing and how this influences our decision-making. Although the centre trades well at the moment, the experience cannot be improved without disproportionate capital expenditure.

Net rental income

Table 5: Net rental income

Net rental income increased by £54.5m, from £280.7m to £335.2m. The increase is largely due to our completed developments, combined with income from acquisitions we made in the second half of last year, notably our interest in X-Leisure and The Printworks, Manchester. Completed developments have contributed an additional £21.8m of income, primarily due to the opening of Trinity Leeds in March 2013. The £8.2m increase within like-for-like is largely due to new lettings, improved turnover rent performance and lower bad debts.

Outlook

While economic conditions have improved and consumer spending is set to increase, the benefits of this will not be felt uniformly across the retail market. The structural changes that have deeply affected the sector over recent years will continue, particularly the effect of multichannel retailing, growth in demand for great experiences and convenience, and an increasing polarisation between the best retail destinations and the rest.

These changes are producing challenges for everyone in the sector, but they are also providing opportunities for those able to evolve their offer in line with changing consumer behaviour. We believe total demand for floor space will further decrease across the sector, but demand for the right space in the best locations will continue.

Unless we see buying opportunities that suit these market dynamics, our focus will remain on developing retail assets that do, and selling assets that do not.

London Portfolio review

Progress on our objectives

Highlights

· Valuation surplus of 11.9%

· Ungeared total property return of 16.8%

· The portfolio underperformed its IPD Quarterly Universe sector benchmark at 21.2%

· £5.3m investment lettings

· £24.3m development lettings

· Like-for-like voids were 1.6% (2013: 0.9%)

We have strong momentum behind our developments which are being delivered into the right market conditions. We are securing good lettings and residential sales.

Buy

We saw a high number of assets put up for sale in the market but there is also a high level of capital competing for opportunities. Given the effect of this on property values, we chose to make no major acquisitions, preferring to invest £246.4m in our existing assets and our development programme.

Develop

Given emerging supply-constrained conditions, we have moved forward at pace with construction while working hard to secure lettings.

In the City, 20 Fenchurch Street, EC3 was 87% let at the year end, well ahead of our expectations. Occupiers started to fit out in the spring. A solar glare issue drew attention to the building for the wrong reasons, but did nothing to deter lettings, with 200,000 sq ft taken up in the months after the problem materialised. Our brise soleil solution has gained planning approval and installation will start shortly. It will not interfere with the customer fit-out or occupation. The cost involved has not altered our original estimated total cost of the building. Construction of the sky garden - the top three floors - has required complex engineering and delayed the space by four months and it will be completed in August.

Reflecting our confidence in the market, we started construction at 1 & 2 New Ludgate, EC4 and 1 New Street Square, EC4 during the year. We have secured the construction contracts at competitive rates and aim to deliver these schemes in 2015 and 2016 respectively. New Ludgate has attracted strong interest and is now 49% pre-let with a further 12% in solicitors' hands.

Across town, we have made solid progress in Victoria, SW1. 123 Victoria Street is now fully let. 62 Buckingham Gate is now 65% let. The pace of letting has been slower than planned but the rents achieved have been higher.

During the year, construction started at The Zig Zag Building, Kings Gate and our Nova, Victoria joint venture, all SW1 and we also committed to 20 Eastbourne Terrace, W2 and the second phase of Oriana, W1. We expect to deliver these into continued favourable market conditions in 2015 (The Zig Zag Building and Kings Gate) and 2016 (Nova, Victoria, 20 Eastbourne Terrace and Oriana). 

We are pleased with the speed and price point of residential sales at both Kings Gate and Nova, Victoria, SW1, where in aggregate 73% of the 270 residential apartments have been pre-sold. At Portland House, SW1, we secured planning permission for 206 residential apartments, but are extending existing office leases to 2016 whilst we work up detailed plans. We are also maintaining the option of either a residential development or retaining the office use.

Manage

This year customer retention remained high, although void levels increased from 0.9% to 1.6%. At Cardinal Place, SW1, we have extended our weighted average lease lengths on 20% of the space from 4.2 years to 10.5 years. At Piccadilly Lights, W1, lease restructurings with Barclays, Boots and Gap enabled us to expand our advertising screens, increasing rents on the units involved from £4.6m to £7.6m.

Sell

We are prepared to sell any asset at the right price. This year we made disposals of £594.5m including our 50% share in Empress State Building, SW6; Bankside 2 & 3, SE1; 3-5 Harbour Exchange, E14; and Oxford House, W1.

Net rental income

Table 6: Net rental income

Net rental income decreased by £8.2m to £258.8m, as a result of properties sold in the year. Net rental income from like-for-like properties reduced by £2.5m as a result of a prior year surrender receipt, partially offset by rights of light receipts in the current year. The development programme contributed an additional £3.0m of income, largely due to lettings achieved at 123 Victoria Street and 62 Buckingham Gate, both SW1, and completed developments increased by £2.0m, reflecting the full year benefit of lettings completed at One New Change, EC4 in the prior year.

Outlook

We expect to see a shortage of Grade A office space until at least late 2016. The market balance beyond that will depend on the development response to improved market conditions. The next 12 months will see us focus on developing to time and budget, letting office space, selling residential space and increasing lease lengths as we begin to de-risk our portfolio. Any new development commitments are likely to require pre-lettings.

Our principal risks and how we manage them

Our Board recognises the importance of identifying and actively monitoring the full range of financial and non-financial risks facing the business. By regularly reviewing the risk appetite of the business, the Board ensures that the risk exposure remains appropriate at any point in the cycle. Whilst overall responsibility for the risk management framework clearly rests with the Board, managing risk is embedded as part of our everyday business activities and culture with all our employees having a role to play.

Importantly the Board perceives risk not only as having a potential negative influence on the business but also as an opportunity that can be a source of financial outperformance as we have expertise to take and manage risks others cannot.

For effective risk management it is necessary that the identification, assessment and management of known and emerging risks form part of a dynamic process.

In the same way that we measure our performance against these objectives, we also consider our risks and their potential impact on these objectives as well as our approach to mitigating those risks. We have set out our principal risks below and grouped them together under the strategic objectives most likely to be impacted.

Maximise the returns from the investment portfolio

Manage our balance sheet effectively

Maximise development performance

Attract, develop, retain and motivate high performance individuals

Continually improve sustainability performance

Statement of directors' responsibilities in respect of the Annual Report and the financial statements

The Annual Report 2014 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 as adopted by the European Union (IFRSs). 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 IFRSs, subject to any material departures disclosed and explained in the financial statements;

· provide additional disclosures when compliance with the specific requirements of IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group and Company's financial position and performance; and

· prepare the Group and Company's financial statements on a going concern basis, unless it is inappropriate to presume that the Group will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company 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 IFRSs, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

· to the best of their knowledge, the Company financial statements prepared in accordance with IFRSs give a true and fair view of the assets, liabilities, financial position, performance and cash flows of the Company; and

· to the best of their knowledge, 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 the Company.

Directors' responsibility 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 performance, business model and strategy.

A copy of the financial statements of the Group will be 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 announcement are as set out below:

Dame Alison Carnwath, Chairman*

Robert Noel, Chief Executive

Martin Greenslade, Chief Financial Officer

Kevin O'Byrne, Senior Independent Director*

David Rough*

Chris Bartram*

Simon Palley*

Stacey Rauch*

Edward Bonham Carter*

Cressida Hogg CBE*

*Non-executive Directors

By order of the Board

Adrian de Souza

Group General Counsel and Company Secretary

14 May 2014

Financial Statements

The financial statements were approved by the Board of Directors on 14 May 2014 and were signed on its behalf by:

The Company cash flow statement excludes transactions, including the payment of dividends, which are settled on the Company's behalf by other group undertakings.

Notes to the Financial Statements

Basis of preparation

These preliminary financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards as adopted by the EU (IFRSs), IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRSs. The financial statements have been prepared in Pounds Sterling (rounded to the nearest hundred thousand), which is the presentation currency of the Group (Land Securities Group PLC and all of its subsidiary undertakings), and under the historical cost convention as modified by the revaluation of investment property, available-for-sale investments and derivative financial instruments.

The preparation of financial statements in conformity with generally accepted accounting principles 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 are consistent with those applied in the year ended 31 March 2013, as amended to reflect the adoption of the new Standards, Amendments to Standards and Interpretations which are mandatory for the year ended 31 March 2014.

The following accounting standards or interpretations were adopted for the year ended 31 March 2014 but have not had a material impact on the Group:

· IAS 1 (amendment) 'Presentation of Financial Statements'

· IAS 12 (amendment) 'Income Tax'

· IAS 19 (revised) 'Employee Benefits'

· IFRS 7 (amendment) 'Financial Instruments: Disclosures' (offsetting requirement and converged disclosure)

· IFRS 13 'Fair Value Measurement'

On 14 May 2014, 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 2013 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 2014 is based on, and consistent with, the financial information in the Group's audited financial statements for the year ended 31 March 2014. 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 IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs.

A copy of the Group's Annual Report for the year ended 31 March 2013 can be found at www.landsecurities.com/investors.

Land Securities Group PLC has not presented its own statement of comprehensive income (and separate income statement), as permitted by Section 408 of Companies Act 2006. The loss for the year of the Company, dealt with in its financial statements, was £47.7m (2013: a profit of £298.5m). The merger reserve arose on 6 September 2002 when the Company acquired 100% of the issued share capital of Land Securities PLC. The merger reserve represents the excess of the cost of acquisition over the nominal value of the shares issued by the Company to acquire Land Securities PLC. The merger reserve does not represent a realised or distributable profit. The capital redemption reserve represents the nominal value of cancelled shares.

Presentation of results

The Group income statement is presented in a columnar format, split into those items that relate to revenue profit and capital and other items. The total column represents the Group's results presented in accordance with IFRSs. The year ended 31 March 2014 is the first period for which the Group has presented the income statement in this way. The change in presentation is intended to reflect the way in which the Group's senior management review the results of the business and to aid reconciliation to the segmental reporting.

A number of the financial measures used by the Group to measure performance include the results of subsidiaries and joint ventures on a proportionate basis. Measures that are described as being 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 redemption liability. Measures described as being prepared on a proportionate basis are non-GAAP measures and therefore not presented in accordance with IFRSs.

Revenue profit is the Group's measure of underlying pre-tax profit, which is used by senior management to assess the Group's income performance. It excludes all items of a capital nature, such as valuation movements and profits and losses on the disposal of investment properties, as well as one-off items. A full definition of revenue profit is given in the glossary. Revenue profit is presented on a proportionate basis and is therefore a non-GAAP measure. Revenue profit is detailed in note 2.

The Group's operations are organised into two operating segments, being the Retail Portfolio and the London Portfolio. The London Portfolio includes all our London offices and central London shops and the Retail Portfolio includes all our shopping centres and shops, hotels and leisure assets, and retail warehouse properties, excluding central London shops. 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 Senior Management Board ('SMB'), which consisted of the Executive Directors with the Group General Counsel and Company Secretary in attendance. From 1 April 2014, the SMB was renamed the Executive Committee ('ExecCom'). ExecCom comprises the Executive Directors, the managing directors of the Retail and London business units, the Group General Counsel and Company Secretary, and the Group HR Director. The information presented to the SMB and 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 interest charges are not specific to a particular segment. Unallocated income and expenses are items incurred centrally which are neither directly attributable nor can be reasonably allocated to individual segments. 

1. Included within rents payable is finance lease interest payable of £2.0m (2013: £1.7m) and £0.4m (2013: £0.4m) for the Retail and London portfolios respectively.

2. Of the net release of impairment of trading properties of £5.0m, an impairment of £0.4m relates to the Retail Portfolio, and a reversal of impairment of £5.4m relates to the London Portfolio.

3. All items in the segment note are presented on a proportionate basis (see note 1). This adjustment represents the difference between profit before tax on a proportionate basis and profit before tax per the Group income statement.

1. Included within rents payable is finance lease interest payable of £1.7m and £0.4m for the Retail and London portfolios respectively.

2. Of the net release of impairment of trading properties of £3.1m, an impairment of £0.2m relates to the Retail Portfolio, and a reversal of impairment of £3.3m relates to the London Portfolio.

3. All items in the segment note are presented on a proportionate basis (note 1). This adjustment represents the difference between profit before tax on a proportionate basis and profit before tax per the Group income statement.

All revenue is classified within the 'Revenue profit' column of the income statement, with the exception of proceeds on the sale of trading properties and income arising on long-term development contracts, which are presented in the 'Capital and other items' column. Also included in the 'Capital and other items' column is the difference between the relevant line item on a proportionate basis and the amount included in the Group income statement.

All costs are classified within the 'Revenue profit' column of the income statement, with the exception of the cost of sale of trading properties and costs arising on long-term development contracts, which are presented in the 'Capital and other items' column. Also included in the 'Capital and other items' column is the difference between the relevant line item on a proportionate basis and the amount included in the Group income statement.

Included within rents payable (note 2) is finance lease interest payable of £2.4m (2013: £2.1m).

The Group has changed the calculation and presentation of pension interest following the adoption of IAS 19R. In accordance with IAS 19R, pension interest for the current year has been calculated and presented on a net basis. The corresponding balances in the prior year have been re-presented to align the presentation but have not been adjusted as the impact is not considered to be material.

The following table reconciles interest expense and interest income per the Group income statement to interest expense and interest income included within revenue profit (note 2):

1. This represents the difference between interest expense and the fair value movement on interest-rate swaps on a proportionate basis and net interest expense and the fair value movement on interest-rate swaps per the Group income statement.

Adjusted net assets per share excludes the fair value of financial instruments used for hedging purposes and the bond exchange de-recognition adjustment as management consider that this better represents the expected future cash flows of the Group. EPRA measures have been included to assist comparison between European property companies. We believe our measure of adjusted net assets attributable to the owners of the Parent is more indicative of underlying performance.

Earnings per share (EPS) is the amount of post-tax profit attributable to each share.

The Group has also chosen to disclose adjusted earnings per share in order to provide an indication of the Group's underlying business performance. Adjusted earnings per share exclude items of a capital nature and one-off items. We believe our measure of adjusted diluted earnings per share is more appropriate than the EPRA measure in the context of our business.

1. Joint ventures with net liabilities are carried at zero value in the balance sheet where there is no commitment to fund the deficit.

2. Adjusted earnings are presented on a proportionate basis. This adjustment represents the difference between the proportionate share of earnings of non-wholly owned subsidiaries which is included in adjusted earnings, and the 100% share which is consolidated in the Group's income statement.

3. The profit on long-term development contracts has been removed from our adjusted earnings due to the long-term, capital nature of these programmes.