Half Yearly Report - Part 2

INDEPENDENT REVIEW REPORT TO THE BRITISH LAND COMPANY PLC

Report on the condensed set of financial statements in the half-yearly financial report

Our conclusion

We have reviewed the condensed set of financial statements, defined below, in the half-yearly financial report of The British Land Company PLC ("the Company") for the six months ended 30 September 2014. Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

This conclusion is to be read in the context of what we say in the remainder of this report.

What we have reviewed

The condensed set of financial statements, which are prepared by the Company, comprise:

• the consolidated balance sheet as at 30 September 2014;

• the consolidated income statement and consolidated statement of comprehensive income for the period then ended;

• the consolidated statement of cash flows for the period then ended;

• the consolidated statement of changes in equity for the period then ended; and

• the explanatory notes to the condensed consolidated interim financial statements.

As disclosed in note 1, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The condensed set of financial statements in the half-yearly report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

What a review of condensed set of financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Responsibilities for the condensed set of financial statements and the review

Our responsibilities and those of the Directors

The half-yearly financial report, including the condensed set of financial statements, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

PricewaterhouseCoopers LLP

Chartered Accountants

17 November 2014

London

The maintenance and integrity of The British Land Company PLC's website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Consolidated Income Statement

for the period ended 30 September 2014

Year ended31 March 2014

Six months ended30 September 2014

Six months ended30 September 2013

Audited

Unaudited

Unaudited

Underlying pre tax*

Capital and other

Total

Underlying

pre tax*

Capital and other

Total

Underlying

pre tax*

Capital and other

Total

£m

£m

£m

Note

£m

£m

£m

£m

£m

£m

384

-

384

Gross rental and related income

3

232

-

232

179

-

179

313

-

313

Net rental and related income

3

185

-

185

148

-

148

15

-

15

Fees and other income

3

7

-

7

7

-

7

124

253

377

Joint ventures and funds (see also below)

64

340

404

63

89

152

(72)

-

(72)

Administrative expenses

(39)

-

(39)

(36)

-

(36)

-

615

615

Net valuation movement (includes result on disposals)

3

-

519

519

-

204

204

Financing costs

9

3

12

- financing income

4

25

29

5

3

8

(90)

(60)

(150)

- financing charges

(58)

(4)

(62)

(41)

(20)

(61)

(81)

(57)

(138)

(54)

21

(33)

(36)

(17)

(53)

299

811

1,110

Profit on ordinary activities before taxation

163

880

1,043

146

276

422

Taxation

3

3

- current tax (expense) income

3

(2)

(2)

4

4

3

3

- deferred tax (expense) income

3

-

-

1

1

6

6

(2)

(2)

5

5

1,116

Profit for the period after taxation

1,041

427

2

8

10

Attributable to non-controlling interests

8

35

43

-

-

-

297

809

1,106

Attributable to shareholders of the Company

155

843

998

146

281

427

110.7

p

Earnings per share:

basic

2

98.5p

43.0p

110.2

p

diluted

2

97.9p

42.8p

Share of results of joint ventures and funds

124

-

124

Underlying profit before taxation

64

-

64

63

-

63

-

258

258

Net valuation movement (includes result on disposals)

-

342

342

-

83

83

-

-

-

Financing break costs on property disposals

-

(1)

(1)

-

-

-

-

(5)

(5)

Current tax (expense) income

-

-

-

-

(1)

(1)

-

-

-

Deferred tax (expense) income

-

(1)

(1)

-

7

7

124

253

377

64

340

404

63

89

152

*As defined in note 2

 Consolidated Statement of Comprehensive Income

 for the period ended 30 September 2014

 Year ended

31 March 2014

 Six months ended

30 September 2014

 Six months ended

30 September 2013

 Audited

 Unaudited

 Unaudited

 £m

 £m

 £m

1,116

Profit for the period after taxation

1,041

427

Other comprehensive income:

Items that will not be reclassified subsequently to profit or loss:

(2)

Net actuarial gain (loss) on pension scheme

1

(2)

-

Revaluation of owner occupied properties

8

-

(2)

9

(2)

Items that may be reclassified subsequently to profit or loss:

(Losses) gains on cash flow hedges

14

- Group

(23)

11

48

- Joint ventures and funds

6

35

62

(17)

46

Transferred (from) to the income statement (cash flow hedges)

8

- foreign currency derivatives

(3)

6

15

- interest rate derivatives

5

7

23

2

13

Exchange differences on translation of foreign operations

2

- hedging and translation

2

(1)

1

- other

(1)

1

3

1

-

5

Deferred tax taken to equity

-

-

5

-

-

91

Other comprehensive (loss) income for the period

(5)

57

1,207

Total comprehensive income for the period

1,036

484

10

Attributable to non-controlling interests

43

-

1,197

Attributable to shareholders of the Company

993

484

Consolidated Balance Sheet at 30 September 2014

 31 March 2014

 30 September 2014

 30 September 2013

 Audited

 Unaudited

 Unaudited

 £m

 Note

 £m

 £m

Assets

Non-current assets

7,272

Investment and development properties

4

7,752

5,950

47

Owner-occupied property

4

57

45

7,319

7,809

5,995

Other non-current assets

2,712

Investments in joint ventures and funds

5

3,008

2,676

262

Other investments

6

330

124

32

Interest rate derivative assets

7

53

35

10,325

11,200

8,830

Current assets

271

Trading properties

4

258

242

41

Debtors

43

41

142

Cash and short-term deposits

7

92

112

454

393

395

10,779

Total assets

11,593

9,225

Liabilities

Current liabilities

(495)

Short-term borrowings and overdrafts

7

(202)

(772)

(263)

Creditors

(298)

(241)

(8)

Corporation tax

(10)

(8)

(766)

(510)

(1,021)

Non-current liabilities

(2,803)

Debentures and loans

7

(2,955)

(1,989)

(32)

Other non-current liabilities

(32)

(30)

(4)

Deferred tax liabilities

(4)

(15)

(57)

Interest rate derivative liabilities

7

(68)

(64)

(2,896)

(3,059)

(2,098)

(3,662)

Total liabilities

(3,569)

(3,119)

7,117

Net assets

8,024

6,106

Equity

255

Share capital

257

252

1,257

Share premium

1,272

1,250

213

Merger reserve

213

213

(70)

Other reserves

(76)

(104)

5,091

Retained earnings

5,990

4,495

Equity attributable to shareholders

6,746

of the Company

7,656

6,106

371

Non-controlling interests

368

-

7,117

Total equity

8,024

6,106

688

 p

EPRA NAV per share*

2

769

p

626

 p

 * As defined in note 2

 Consolidated Statement of Cash Flows

 for the period ended 30 September 2014

 Year ended

31 March 2014

Six months ended

30 September 2014

 Six months ended

30 September 2013

 Audited

 Unaudited

 Unaudited

 £m

 Note

 £m

 £m

312

Rental income received from tenants

194

145

19

Fees and other income received

9

10

(88)

Operating expenses paid to suppliers and employees

(60)

(48)

243

Cash generated from operations

143

107

(116)

Interest paid

(62)

(64)

29

Interest received

10

13

63

Distributions received from joint ventures and funds

5

40

31

219

Net cash inflow from operating activities

131

87

Cash flows from investing activities

(175)

Development and other capital expenditure

(73)

(94)

(569)

Purchase of investment properties

-

(586)

352

Sale of investment and trading properties

137

125

-

Payments received in respect of trading properties

24

-

(84)

Purchase of investments

-

(6)

8

Sale of investments

-

-

5

Deferred consideration received

-

-

(145)

Acquisition of units in Hercules Unit Trust

(27)

(19)

18

Cash acquired on acquisition of subsidiary

-

-

(113)

Purchase of joint ventures and funds

-

-

179

Sale of joint ventures and funds

-

-

(162)

Investment in and loans to joint ventures and funds

(96)

(80)

28

Capital distributions and loan repayments from joint ventures and funds

101

9

(2)

Indirect taxes received (paid) in respect of investing activities

3

(3)

(660)

Net cash inflow (outflow) from investing activities

69

(654)

Cash flows from financing activities

11

Issue of ordinary shares

5

4

(159)

Dividends paid

(95)

(74)

-

Dividends paid by subsidiaries to non-controlling interests

(11)

-

(16)

Close out of interest rate derivatives

(2)

-

(8)

Movement in other financial liabilities

(2)

(10)

(49)

Decrease in bank and other borrowings

(313)

(49)

669

Drawdowns on bank and other borrowings

168

673

448

Net cash (outflow) inflow from financing activities

(250)

544

7

Net (decrease) increase in cash and cash equivalents

(50)

(23)

135

Opening cash and cash equivalents

142

135

142

Closing cash and cash equivalents

92

112

Cash and cash equivalents consists of:

142

Cash and short-term deposits

92

112

Consolidated Statement of Changes in Equity

for the period ended 30 September 2014

Hedging &

Non-

Share

Share

translation

Revaluation

Merger

Retained

controlling

Total

capital

*

premium

reserve

reserve

reserve

earnings

Total

interests

Equity

£m

£m

£m

£m

£m

£m

£m

£m

£m

Six month movements in equity

Balance at 1 April 2014

255

1,257

(32)

(38)

213

5,091

6,746

371

7,117

Total comprehensive income for the period

-

-

(19)

13

-

999

993

43

1,036

Share issues

2

15

-

-

-

(12)

5

-

5

Purchase of units from non-controlling interest

-

-

-

-

-

-

-

(35)

(35)

Adjustment for share and share option awards

-

-

-

-

-

4

4

-

4

Dividends payable

-

-

-

-

-

(136)

(136)

-

(136)

Dividends payable by subsidiaries

-

-

-

-

-

-

-

(11)

(11)

Adjustment for scrip dividend element

-

-

-

-

-

44

44

-

44

Balance at 30 September 2014

257

1,272

(51)

(25)

213

5,990

7,656

368

8,024

Balance at 1 April 2013

249

1,242

(71)

(92)

213

4,146

5,687

-

5,687

Total comprehensive income for the period

-

-

23

36

-

425

484

-

484

Share issues

3

8

-

-

-

-

11

-

11

De-designation of cash flow hedges

-

-

-

-

-

-

-

-

-

Adjustment for share and share option awards

-

-

-

-

-

(3)

(3)

-

(3)

Dividends payable in the six month period

-

-

-

-

-

(130)

(130)

-

(130)

Adjustment for scrip dividend element

-

-

-

-

-

57

57

-

57

Balance at 30 September 2013

252

1,250

(48)

(56)

213

4,495

6,106

-

6,106

Prior year movements in equity

Balance at 1 April 2013

249

1,242

(71)

(92)

213

4,146

5,687

-

5,687

Total comprehensive income for the period

-

-

39

54

-

1,104

1,197

10

1,207

Share issues

6

15

-

-

-

(8)

13

-

13

Non-controlling interest on acquisition of a subsidiary

-

-

-

-

-

-

-

374

374

Purchase of units from non-controlling interest

-

-

-

-

-

-

-

(13)

(13)

Adjustment for share and share option awards

-

-

-

-

-

10

10

-

10

Dividends payable in the year

-

-

-

-

-

(266)

(266)

-

(266)

Transfer

-

-

-

-

-

-

-

-

-

Adjustment for scrip dividend element

-

-

-

-

-

105

105

-

105

Balance at 31 March 2014

255

1,257

(32)

(38)

213

5,091

6,746

371

7,117

* See note 12 for a summary of the number of shares in issue

Notes to the accounts (unaudited)

1. Basis of preparation

The financial information for the period ended 30 September 2014 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for the year ended 31 March 2014 has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report, and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The financial information included in this announcement has been prepared on a going concern basis using accounting policies consistent with International Financial Reporting Standards (IFRS) as adopted by the European Union and in accordance with IAS 34 'Interim Financial Reporting'. The current period financial information presented in this document has been reviewed, not audited.

The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 March 2014, which have been prepared in accordance with IFRS as adopted by the European Union.

In the current financial year the Group has adopted the amendments to IAS 32 "Financial instruments: presentation", IAS 36 "Impairment of assets", IAS 27 (revised) "Separate financial statements", IAS 28 (revised) "Associates and joint ventures", IFRS 10 "Consolidated financial statements", IFRS 11 "Joint arrangements", and IFRS 12 "Disclosure of interests in other entities". Otherwise the same accounting policies, estimates, presentation and methods of computation are followed in the half year report as applied in the Group's latest annual audited financial statements.

Adoption of the standards listed above did not have a material impact on the financial statements of the Group.

IFRS 9 "Financial Instruments" was the only standard or interpretation issued but not effective for the current accounting period. IFRS 9 will impact both the measurement and disclosures of financial instruments and is effective for the Group's year ending 31 March 2018. The Group has not yet completed its evaluation of the effect of adoption.

The Group's business activities, financial position, cash flows, liquidity position and financing structure are discussed in the first half of this report. The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. The Group's business is not seasonal.

The accounting judgements and estimates are discussed in the Financial Review.

The interim financial information was approved by the Board on 17 November 2014.

2. Performance measures

Year ended

31 March 2014

Six months ended 30 September 2014

Six months ended

30 September 20131

Earnings

Penceper share

Earnings per share

Earnings

Penceper share

Earnings

Penceper share

£m

£m

£m

297

-

Underlying pre-tax profit attributable to shareholders of the company - income statement

155

-

146

-

(2)

-

Tax charge relating to underlying profit

-

-

(1)

-

295

29.4

Underlying earnings

155

15.3

145

14.5

-

-

Dilution due to convertible bond

-

(0.6)

-

-

295

29.4

EPRA earnings per share (diluted)

14.7

14.5

0.1

Remove dilution due to share options and convertiblebond

0.6

0.1

29.5

EPRA earnings per share (basic)

15.3

14.6

1,106

110.2

Profit for the period after taxation (diluted)

998

97.9

427

42.8

The European Public Real Estate Association (EPRA) has issued Best Practices Recommendations, the latest update of which was issued in January 2014, which give guidelines for performance measures. EPRA earnings is the profit after tax excluding property revaluations and gains or losses on disposals, changes in the fair value of financial instruments and associated close-out costs and their related taxation. A summary of the EPRA Performance Measures is provided in Table B within the Supplementary Disclosures. The EPRA earnings per share (diluted) also takes into account dilution due to the Convertible Bond issued on 10 September 2012. The Company's share price reached the conversion price of the convertible bond for the first time in the period to 30 September 2014 and therefore it was dilutive for the first time in the period. Underlying earnings consists of the EPRA earnings (diluted) measure excluding the dilutive impact of the convertible bond.

The weighted average number of shares in issue for the six month period was: basic: 1,013m (Year ended 31 March 2014: 999m; six months ended 30 September 2013: 993m); diluted for the effect of share options and the convertible bond: 1,077m (Year ended 31 March 2014: 1,004m; six months ended 30 September 2013: 997m). Basic undiluted earnings per share for the six month period was 98.5p (Year ended 31 March 2014: 110.7p; six months ended 30 September 2013: 43.0p).

31 March 2014

30 September 2014

30 September 20131

£m

Net asset value (NAV) (diluted)

£m

£m

7,117

Balance sheet net assets

8,024

6,106

(371)

Less non-controlling interests

(368)

-

6

Deferred tax arising on revaluation movements

5

5

173

Mark to market on effective cash flow hedges and related debt adjustments

170

164

63

Surplus on trading properties

93

12

39

Dilution due to share options

45

37

-

Dilution due to convertible bond

400

-

7,027

EPRA NAV

8,369

6,324

688

p

EPRA NAV per share

769

p

626

 p

The EPRA NAV per share excludes the mark to market on effective cash flow hedges and related debt adjustments, and the convertible bond, deferred taxation on revaluations, and includes the surplus on trading properties and is calculated on a fully diluted basis. The EPRA NAV per share calculation also takes into account dilution for the Convertible Bond issued on 10 September 2012. The Company's share price exceeded the conversion price of the convertible bond for the first time as at 30 September 2014 and therefore it was dilutive for the first time at the period end.

1 EPRA earnings per share and EPRA NAV per share at 30 September 2013 have been re-presented to exclude the mark to market movements in the convertible bond in line with the EPRA Best Practices Recommendations additional guidance, issued in January 2014. This update increased EPRA Earnings per share by 1.9p and EPRA NAV per share by 3p in the comparative period.

At 30 September 2014, the number of shares in issue was: basic: 1,018m (31 March 2014: 1,008m; 30 September 2013: 999m); diluted for the effect of share options and the convertible bond: 1,089m (31 March 2014: 1,021m; 30 September 2013: 1,011m).

Total accounting return per share for the six months ended 30 September 2014 of 13.7% includes dividends paid of 13.5p (see note 8) in addition to the increase in EPRA NAV 81p. Total accounting return per share for the six months ended 30 September 2013 was 6.8% and the year ended 31 March 2014 was 20.0%.

3. Income statement notes

Year ended

31 March 2014

Six months ended

30 September 2014

Six months ended

30 September 2013

£m

£m

£m

Gross and net rental income

310

Rent receivable

181

149

20

Spreading of tenant incentives and guaranteed rent increases

14

6

4

Surrender premia

3

2

334

Gross rental income

198

157

50

Service charge income

34

22

384

Gross rental and related income

232

179

(50)

Service charge expenses

(34)

(22)

(21)

Property operating expenses

(13)

(9)

313

Net rental and related income

185

148

Fees and other income

10

Performance & management fees (from joint ventures & funds)

5

5

5

Other fees and commission

2

2

15

7

7

Net valuation movements on property and investments (including result on disposals)

580

Revaluation of properties

512

191

17

Result on property and investment disposals (excluding tradingproperty disposals)

7

13

14

Result on trading property disposals

1

-

4

Revaluation of investments

(1)

-

615

519

204

258

Share of valuation movements of joint ventures and funds (note 5)

342

83

873

861

287

Consolidated statement of comprehensive income

-

Revaluation of owner occupied properties

8

-

873

869

287

Result on trading property disposals

109

Sale proceeds

38

-

(95)

Cost of sales

(37)

-

14

Result on trading property disposals

1

-

Included in the £21m of net financing costs in the Capital and other column are a £17m fair value gain on the convertible bond, plus a £4m net foreign exchange gain on foreign currency denominated debt and investments in foreign operations.

Tax (expense) income

2

Current tax:

UK corporation tax (30 September 2014: 21%; 31 March 2014: 23%; 30 September 2013: 23%)

(2)

(1)

2

(2)

(1)

(5)

Adjustments in respect of prior periods

-

5

(3)

Total current tax (expense) income

(2)

4

(3)

Deferred tax on revaluations

-

1