Interim Results

15th Nov 2006 07:04

Land Securities Group Plc15 November 2006 15 November 2006 Land Securities Group PLC ("Land Securities" / "Group") Interim Results for the six months to 30 September 2006 Highlights • Net assets per share up - Basic NAV at 1747p - Adjusted diluted NAV up 10.9% to 2121p • Combined portfolio totalling £14.4bn, including a valuation surplus of 7.3% - Valuation uplifts from London offices of 10.8%, shopping centres of 6.1%, retail warehouses of 3.9% and central London shops 5.9% • Total investment portfolio outperformed the Investment Property Databank by 1.0% • Pre-tax profit of £1,178.2m, down 0.5%; excluding exceptional items pre-tax profit rose 23.3% • Revenue profit marginally down at £193.1m • Earnings per share - Basic at 183.25p up 3.4% - Adjusted diluted 32.84p, down 4.4% • Interim dividend of 19.00p per share, up 4.7%, payable to shareholders on 8 January 2007 • Intentionally quieter on acquisition front reflecting the limited number of purchase opportunities which now offer prospective returns sufficiently above our cost of capital • Continued investment in the development pipeline with spend of £243.0m and the ongoing development programme has generated a valuation surplus of £252.5m over the period • Planning consents achieved for 138,850 sq m of development as well as completing 91,400 sq m of development lettings • Strong pipeline of new business at Land Securities Trillium; bidding on 1.1 million sq m of additional accommodation - representing a potential 40% increase in accommodation under management Commenting on the results, Peter Birch, Chairman of Land Securities, said: "I amdelighted with another strong six months for the Group. Since I joined in April1997, Land Securities has delivered a total shareholder return of some 259% ascompared to 84% for the FTSE100 Index. It is my privilege to be stepping downat a time when the outlook for the Group is positive and when the prospects forcommercial property in the UK remain sound. "We have REIT conversion on the horizon which will bring benefits toshareholders in terms of tax efficiencies; we are making excellent progress withour development activities; and we have a high quality investment portfolio withreversionary potential as well as an outsourcing business which is poised forfurther growth. "Since this is one of the last times that I will address shareholders as theChairman of the Land Securities Group, I welcome this opportunity to thank youfor your support over the years and wish my colleagues continued success in thefuture." For further information, please contact: Land Securities Financial DynamicsFrancis Salway/Emma Denne Stephanie Highett/Dido LaurimoreTel: 020 7413 9000 Tel: 020 7831 3113 Interim Results for the six months to 30 September 2006 Financial Highlights 30/9/06 30/9/05 £m £m % change Operating profit 1,229.6 1.230.5 -0.1Operating profit (pre-exceptionals) 1,229.6 1,002.0 +22.7Pre-tax profit 1,178.2 1,184.4 -0.5Pre-tax profit (pre-exceptionals) 1,178.2 955.9 +23.3Revenue profit (pre-tax) 193.1 195.9 -1.4 Pence PenceEarnings per share 183.25 177.26 +3.4Adjusted diluted earnings per share 32.84 34.35 -4.4Dividends per share 19.00 18.15 +4.7 30/9/06 31/3/06Net assets per share 1747 1597 +9.4Adjusted diluted net assets per share 2121 1912 +10.9 £m £mCombined portfolio valuation 14,439.8 12,892.9 +12.0Net debt 4,100.8 3,685.9 +11.3Equity shareholders' funds 8,191.7 7,493.9 +9.3 % %Gearing (net) 50.1 49.2 Chairman and Chief Executive's Review We continued to deliver a strong performance over the past six months with a10.9% growth in adjusted diluted net assets per share, driven by a 7.3%valuation surplus from our £14bn investment portfolio. Pre-tax profit was£1,178.2m, down 0.5% on the comparable period. Before exceptional items, pre-taxprofit was up 23.3%. As expected, revenue profit, our measure of underlyingpre-tax results, was marginally down by 1.4% to £193.1m. The interim dividendwill be 19.00p per share, which represents a 4.7% increase on last year'sinterim dividend. Over a 12-month period we benchmark our performance against three keyperformance indicators, providing shareholders with a clear indication of thevalue we are creating. Over a six month period, however, the most relevantindicator of our performance is a comparison to the Investment PropertyDatabank, the industry standard. During the period under review our ungearedtotal investment portfolio return was 10.0% as compared to 8.9% for the IPDquarterly benchmark(*). We believe that our focus on creating value throughdevelopment and the scale of our activities in the London office market havehelped to drive this outperformance. Performance Highlights Over the past six months we continued to progress with our strategy of investingcapital into higher return activities. We have intentionally been quieter on theacquisition and disposal front. In part this reflects the substantial changes tothe portfolio over the past three years, which has seen the Group dispose of£3.5bn of assets while investing £4.0bn* in acquisitions and development. It isalso due to the difficulties we perceive in buying assets with sufficientlyattractive prospective returns at this stage in the market cycle, together withour belief that it is prudent to await REIT conversion before concluding sales.As a result, during the period under review, we invested £477.9m inacquisitions, of which £446.0m was in the London Portfolio, and we received£175.7m from disposals. We have continued to invest heavily in development. Including our share of jointventures, over the six months our development pipeline spend was £243m and thevaluation surplus on the ongoing development projects was £252.5m (a surplus of17.3%). Value is created from development by securing planning consents andachieving lettings and we were therefore delighted to have received planningconsent for a further 138,850sq m of development and to have let 91,400 sq m ofcommercial accommodation to date this financial year. At Land Securities Trillium, if our current bids are successful this businesscould expand to cover some 1.1 million sq m of additional accommodation a 40%increase on Land Securities Trillium's current portfolio. We are awaiting adecision from the Government on the Defence Training Review, where we arebidding jointly with QinetiQ for a contract which could see us provide 0.6million sq m of accommodation. We have also recently submitted our bid for theNorthern Ireland Civil Service. In addition to these two substantial contractswe are in the process of developing further bids for the corporate sector andthe Government's Building Schools for the Future programme. We also continue to manage actively our balance sheet. We extended the durationand renegotiated the terms of our bank facility and concluded a £300m bond issueat an all in cost of just under 5%. These bonds were issued from our fundingstructure established in November 2004 and have been rated AA by both Fitch andStandard and Poor's. We also took the opportunity to buy back £21m of our sharesin June 2006, at a time when the market was temporarily depressed. (*)The IPD Quarterly Benchmark is comprised of 184 quarterly andmonthly-revalued funds, valued at £115.9 billion at the end of September 2006.This benchmark includes direct domestic property only. The Board We announced two changes to the Board in the period under review. We would liketo welcome Paul Myners as a non-executive director and Chairman dsesignate. Paulbrings to the Board a wealth of experience, having had an illustrious career inthe City, most notably running fund manager Gartmore for 15 years, together withwider expertise garnered as non-executive director of several leading corporateand non-financial institutions, including the role of Chairman at Marks &Spencer plc. In October we also announced that Mark Collins would be steppingdown from the Board after a very successful four and a half years with theCompany. Mark has made a significant contribution to the Group, most notablyleading our business development activities through the property swap withSlough Estates and the corporate acquisition of Tops Estates. He will be leavingthe Group at the end of November and we would like to thank him for hiscontribution to our success. Real Estate Investment Trusts Over the past few months much has been written about the introduction of RealEstate Investment Trusts ('REITs') and we are delighted to confirm that we areplanning to elect for REIT status from 1 January 2007. Shareholders willshortly receive a circular convening an EGM in December 2006 which containsdetails of changes proposed to our Memorandum and Articles of Association toaccommodate REIT status. Subject to receiving shareholder approval to thesechanges we see no obstacle to conversion. It is worthwhile stressing here that REIT conversion represents a change in taxstatus. As we are already a quoted entity, with a listing on the London StockExchange, conversion to a REIT does not necessitate any amendment to the Group'sstructure. The main difference will be that, having paid a conversion chargecalculated at 2% of the Group's gross assets, around 90% of our activitiesbecome tax exempt. As a result we anticipate distributing the taxed saved toshareholders in the form of an increased dividend which, over a full year, isexpected to represent around a 30% increase. Shareholders should note that forthe year to 31 March 2007, the Group will only benefit from three months statusas a REIT. Further information on the impact of REIT conversion on the Group'sincome statement, balance sheet and dividend policy will be detailed in thecircular to shareholders. In addition an illustrative income statement andbalance sheet will be available on our website after the presentation toanalysts today. In order to establish the amount we will have to pay to HM Revenue and Customsas a REIT conversion charge, we will be conducting a valuation of our qualifyingproperty assets as at 31 December 2006. This will be a one-off exercise and willinclude an external valuation of both our investment portfolio and also theproperties held by Land Securities Trillium, representing the first valuation ofthese assets since we acquired Trillium in 2000. We expect to announce theresults of this valuation exercise in February 2007. Outlook After an extended period when buyers of commercial property investmentssignificantly outnumbered sellers, we are moving closer to equilibriumconditions, with less parties bidding for investments and an increasing numberof properties being marketed for sale. This is likely to herald an end to yieldcompression, but also to increase the scope for the Group to find opportunitieswhere we can create value for shareholders. We are now benefiting from ourdecision to initiate large scale development projects early in the recoverycycle in London, and also from the effective management of our existingoutsourcing contracts. We also look forward to a further phase of growth forLand Securities Trillium from our strong new business pipeline. Prospects forgrowth in rental values for London offices remain attractive for at least thenext two years and retail sales figures have been stronger in 2006 than 2005,although retailers are still experiencing pressure on their cost bases. The outlook for the Group remains positive. REIT conversion is on the horizonbringing undoubted benefits to shareholders in terms of tax efficiencies; we aremaking excellent progress with our development activities; and we have a highquality investment portfolio with reversionary potential as well as anoutsourcing business which is poised for growth. Financial Review Headline results Profit before tax stayed broadly constant, marginally decreasing by 0.5% to£1,178.2m as compared to £1,184.4m for the six months to 30 September 2005.Revenue profit, our measure of underlying profit before tax, decreased by 1.4%from £195.9m to £193.1m. Earnings per share were 183.25p, up 3.4% (30/9/05:177.26p) with adjusted diluted earnings per share at 32.84p showing a 4.4%decrease (30/9/05: 34.35p). The combined investment portfolio rose in value from £12.9bn to £14.4bn, whichincluded a valuation surplus of £962.1m or 7.3%. More detail of this performanceis contained in the Investment Property Business review. Net assets per sharerose by 9.4% to 1747p from 1597p, with adjusted diluted net assets per sharerising by 10.9% to 2121p (31/3/06: 1912p). Profit before tax Our profit before tax represents the total pre-tax return to shareholders forthe period, including both realised and unrealised gains and losses on the valueof our investment properties as well as exceptional items. In the first sixmonths of the year, this fell slightly by 0.5% to £1,178.2m, notwithstanding thefact that the prior period included an exceptional profit of £293.0m on thedisposal of our interest in the Telereal joint venture. The principal driversbehind this change are set out in Table A. Table A - Principal changes in profit before tax and revenue profit Profit Revenue before tax profit £m £mSix months ended 30 September 2005 1,184.4 195.9Valuation surplus (A) 200.6 -Profit on disposal of Telereal (B) (293.0) -Distributions received from Telereal (C) (11.7) -Impact of Telereal sale 30 September 2005 (D) - (16.1)Profit on disposal of non-current properties 17.1 -Profit on sale of trading properties 1.1 -Decrease in capitalised interest (3.5) (3.5)Amortisation of bond de-recognition (E) 4.7 -Long-term development contract profits (F) (1.3) -Goodwill impairment (G) 64.5 -Property outsourcing profit (H) 13.8 13.8Net rental and service charge income(I) 35.7 35.7Indirect costs (J) (8.2) (8.2)Interest on increased debt (24.5) (24.5)Debt restructuring charges (6.3) -Other 4.8 -Six months ended 30 September 2006 1,178.2 193.1 A. The valuation surplus was £200.6m higher than the first six months lastyear as described in the Investment Property Business review. B. The disposal of our interest in the Telereal joint venture was completedon 30 September 2005. C. Distributions from Telereal ceased on 30 September 2005 following itsdisposal. D. The impact of the sale of Telereal has been partially offset by operatingprofit of £7.0m on the Telereal II contract which is included as part of theproperty outsourcing profit, Note H. Additionally, £7.5m of interest income wasearned on the disposal proceeds which is part of the net change in interest. E. The debt instruments issued as part of the refinancing in November 2004do not meet the requirements of IAS 39 as they are not deemed to besubstantially different from the debt they replaced. As a result, the book valueof the new instruments is reduced to the book value of the debt it replaced andthe difference is amortised over the life of the new instruments. The decreasein amortisation over the comparable period is a reflection of the maturityprofile of debt replaced. F. Lower levels of activity, with the recognition of profits on thedevelopment contract at Broadcasting House being below the profit recognised onBankside1 in the comparable period. G. Goodwill arising on the acquisition of Tops Estates PLC in June 2005 wasimpaired in the comparable period. There was no goodwill impairment in thecurrent period. H. Inclusion of Telereal II contract, for the first time and betterperformance on DWP contract. I. Increase in rental income offset by greater service charge underrecovery is largely driven by acquisitions. Higher volume of vacant propertiesand increase in marketing costs have also impacted the result. J. Primarily due to higher staff costs for existing employees and increasedemployee numbers following acquisitions. Revenue profit Revenue profit is the financial measure we use internally to assess ourunderlying results and includes the pre-tax results of our joint ventures butexcludes capital and other one-off items such as the valuation surplus,long-term contract income and gains on disposals, including trading properties.Revenue profit for the six months was 1.4% lower, falling to £193.1m from£195.9m in the comparable period. The main reasons for this change are detailedin Table A. A reconciliation between profit before tax and revenue profit is shown in TableB. Table B - Reconciliation of profit before tax to revenue profit 6 months 6 months ended ended 30/9/06 30/9/05 £m £mProfit before tax 1,178.2 1,184.4Revaluation - Group (896.7) (726.0)surpluses - joint ventures (65.7) (35.8)Non-current property disposals (33.6) (17.4)Goodwill impairment - 64.5Mark-to-market adjustment on interest rate swaps (6.2) 7.9Eliminate effect of bond exchange de-recognition 8.6 13.3Debt restructuring charges 6.3 -Profit on disposal of Telereal joint venture - (293.0)Adjustment to restate the Group's share ofTelereal earnings from a distribution basis to an equity basis - 5.0Joint venture tax adjustment 20.4 15.6Profit on sale of trading properties (8.8) (11.9)Long-term development contract profits (9.4) (10.7)Revenue profit 193.1 195.9 Earnings per share Basic earnings per share grew by 3.4% to 183.25p (30/9/05: 177.26p), the changebeing mainly attributable to the same factors as set out for profit before taxin Table A. The growth in earnings per share compared to the slight decline inrevenue profit is due to a decrease in the tax rate for the current period.Reasons for the change in tax rate are set out in the section on taxation. In the same way that we adjust profit before tax to remove capital and one-offitems to give revenue profit, we also report an adjusted earnings figure.Adjusted earnings are based on our revenue profit after tax but also includelong-term development contract profits and profit on the sale of tradingproperties. The adjustments made to our profit for the financial period toarrive at adjusted earnings are set out in Note 7 to the financial statements.As a result of lower revenue profits, a slight decline in long-term contract andtrading profits and a small increase in the weighted average number of shares,adjusted diluted earnings per share declined to 32.84p per share in the firstsix months of the year from 34.35p per share for the same period in 2005, a 4.4%decrease. Dividend We are paying an interim dividend of 19.00p per share, an increase of 4.7%compared to the 18.15p paid for the same period in 2005. The interim dividend will be paid on 8 January 2007 to shareholders on theregister on 8 December 2006. The shares will trade ex-dividend from 6 December2006. Net assets At 30 September 2006, net asset value per share was 1747p, an increase of 150pfrom 31 March 2006. In common with other property companies, we also calculatean adjusted measure of net assets, which we believe better reflects theunderlying net assets attributable to shareholders. The adjustments required toarrive at our adjusted diluted net assets per share are listed in Table C andalso set out in Note 8 to the financial statements. The adjusted diluted net assets per share were 2121p at 30 September 2006, anincrease of 209p or 10.9% since the last financial year end. Table C - Net assets 6 months ended 6 months ended 6 months ended 30/9/06 31/3/06 30/9/05 £m £m £mNet assets at beginning of period 7,493.9 6,726.4 6,050.3Profit after tax 859.8 846.7 829.2Dividends paid (133.8) (85.1) (153.8)Other (28.2) 5.9 0.7Net assets at end of period 8,191.7 7,493.9 6,726.4Deferred tax on investment properties 151.5 145.0 151.4Deferred tax on net revaluation surpluses 2,007.7 1,739.7 1,470.7Mark-to-market on interest rate hedges 1.1 8.6 17.9Debt adjusted to nominal value (369.3) (375.3) (385.7)Adjusted net assets at end of period 9,982.7 9,011.9 7,980.7 Cash flow and net debt During the six months, cash receipts from investment property disposals were£319.5m. In total we spent £667.5m on our investment properties including£473.4m on acquisitions and £158.2m on developments. We also invested a net£38.4m in our joint ventures. At 30 September 2006, the Group's net debt was£4,100.8m, an increase of £414.9m over the position at 31 March 2006. Thefactors contributing to this increase are shown in Table D. Table D - Cash flow and net debt 6 months 6 months 6 months ended ended ended 30/9/06 31/3/06 30/9/05 £m £m £mOperating cash inflow after interest and tax 174.1 213.8 162.1Dividends paid (133.8) (85.1) (153.8) Property acquisitions (473.4) (632.9) (1,375.4) Development and refurbishment capital expenditure (219.0) (222.2) (122.9) Investment in properties (692.4) (855.1) (1,498.3) Other capital expenditure (9.1) (14.8) (12.1)Total capital expenditure (701.5) (869.9) (1,510.4)Disposals (including Telereal in 2005) 334.2 245.8 726.8Joint ventures (38.4) (67.8) 201.6Other movements (49.5) (40.5) (70.4)(Increase) in net debt (414.9) (603.7) (644.1)Opening net debt (3,685.9) (3,082.2) (2,438.1)Closing net debt (4,100.8) (3,685.9) (3,082.2) Despite the 11.3% increase in our net debt since 31 March 2006, gearing levelshave barely changed. The main reason for this is that the valuation upliftduring the period has resulted in increased net assets which have offset thegrowth in net debt. Details of the Group's gearing are set out in Table E, whichincludes the effects of our share of joint venture debt, although the lenders toour joint ventures have no recourse to the Group for repayment. Table E - Gearing At At 30/9/06 31/3/06 % %Gearing - on book value of balance sheet debt 50.1 49.2Adjusted gearing* 46.4 46.9Adjusted gearing* - as above plus notional share - of joint venture debt 50.2 51.1 * Book value of balance sheet debt increased to recognise nominal value of debton refinancing in 2004 divided by adjusted net asset value. Funding and Hedging In the six month period, we issued a £300m 17 year sterling bond within thesecured funding structure through our £6bn note programme. The debt carries acoupon of 4.875% and was issued at a yield to maturity of 4.939%. We also tookthe opportunity to replace the £2bn five year secured group bank facility with aseven year £1.5bn agreement. This has allowed us to consolidate our bankinggroup, extend the facility's maturity and to reduce ongoing interest margins. We use derivative products to manage our interest rate exposure and have ahedging policy which seeks to have at least 80% of our existing debt plus ournet committed capital expenditure at fixed interest rates for the coming fiveyears. Specific hedges are also used in geared joint ventures to fix theinterest exposure on limited recourse debt. At the period end we had £1,048.2mof interest rate swaps in place, and our debt was 92% fixed. Consequently, based on 30 September 2006 debt levels, a 1% rise in interestrates would increase full year interest charges by only £3.3m. Taxation The tax charge for the period is £318.4m, giving an effective rate of 27.0% (30/9/05: 30.0%). The lower tax rate in 2006 is primarily due to larger deferred taxreleases on property disposals and the absence of non-tax deductible goodwillimpairment. IFRS requires that full provision is made for the deferred tax liabilityassociated with the revaluation of investment properties. Accordingly, the taxcharge includes deferred tax of £269.0m on revaluation gains arising in theperiod (30/9/05: £217.7m). The current or 'cash' tax charge for the period, before property disposals, is£48.5m. If we adjust this to reflect our definition of revenue profit, we havean effective current tax rate of 23.0% (30/9/05: 13.6%). This rate reflects thebenefits of approximately £24m of gross capital allowances on developments aswell as tax deductions available for capitalised interest. The equivalent ratefor 2005 is not directly comparable due to the use of losses generated by theGroup refinancing in the prior period. Investment Property Business The performance of our £14.4bn combined investment portfolio is theresponsibility of our Retail and London Portfolio businesses. The day-to-dayresponsibility for the performance of the London retail properties, with theexception of £251.3m of retail and £15.1m of office assets held in the MetroShopping Fund, is with the London Portfolio business. However, to assist comparison with our performance against the InvestmentProperty Databank ('IPD'), we include the performance of our London retailproperties under Retail in order to disclose our portfolio valuation statisticsaccording to the IPD categories. Performance The combined investment portfolio was revalued at £14.4bn at 30 September 2006as compared to £12.9bn at 31 March 2006 and £11.54bn at 30 September 2005. Table F - Combined investment portfolio performance summary Open Open Open Rental Rental Rental market market market income income income Value value Value Valuation 6 months 6 months 6 months 30/9/06 31/3/06 30/9/05 surplus 30/9/06 31/3/06 30/9/05 (1) (1) (1) (1) £m £m £m % £m £m £mRetail Shopping centres and shops 3,115.1 2,910.5 2,699.2 6.5 79.8 76.0 80.9 Retail warehouses 1,601.6 1,534.4 1,404.5 3.8 33.0 31.9 30.0 London retail 959.6 911.3 840.3 5.3 28.1 31.5 22.2London offices 3,456.2 3,176.7 2,891.3 8.4 97.9 100.3 93.5Other 394.4 375.8 351.2 4.8 9.0 7.6 7.8Like-for-like investment portfolio (2) 9,526.9 8,908.7 8,186.5 6.5 247.8 247.3 234.4Completed developments 314.3 306.2 278.5 1.6 6.8 4.6 5.9Purchases 2,872.0 2,277.9 1,540.2 4.9 66.0 51.2 21.1Disposals and restructured interests - 147.9 564.8 - 1.7 11.6 18.5Development programme (3) 1,726.6 1,252.2 924.2 17.3 14.8 12.2 7.2Combined investment portfolio 14,439.8 12,892.9 11,494.2 7.3 337.1 326.9 287.1Adjustment for finance leases - - - - (6.3) (6.8) (6.4)Combined investment portfolio - - - - 330.8 320.1 280.7 1. The valuation surplus and rental income are stated after adjusting forthe effect of spreading of rents and rent free periods over the duration ofleases in accordance with IFRS but before restating for finance leases. 2. Properties that have been in the combined investment portfolio for thewhole of the current and previous financial periods. 3. Development programme comprising projects which are completed but lessthan 95% let, developments on site, committed developments (approved projectswith the building contract awarded), and authorised developments (projectsapproved by the Board, but for which the contract has not yet been awarded). On the like-for-like portfolio the valuation surplus was 6.5% and we saw thestrongest performance from London offices with a surplus of 8.4%, followed by a6.9% surplus from shopping centres. In addition our ongoing extensive development programme, currently valued at£1.7bn, has continued to be a significant differentiator in terms of performancewith a valuation surplus of 17.3% for the six months. The overall valuation surplus from our combined investment portfolio over thelast six months, including acquisitions and developments, was £962.1m or 7.3%and the total property return (including income) was 10.0%. Our contribution to performance In terms of ungeared total property return, our investment portfoliooutperformed the UK commercial property market, as represented by the IPDQuarterly benchmark by 1.0% on a relative basis, as a result of our exposure toLondon offices and the scale and success of our development activities. While yield shift has again contributed to the overall portfolio performance weillustrate below how the application of our skills can drive the creation ofexcess value. Table G details the top six performing properties in each sectorby revaluation increase together with an explanation of the key drivers of thatperformance. This table also demonstrates clearly the strong contribution fromLondon development. Table G - Top six performing properties by business unit Valuation ValuationRetail surplus London Portfolio surplus (%) (%)Lewisham 15.3 Rental value growth Dashwood House, 54.4 Proposed refurbishmentShopping Centre and EC2 and extension yield compression Gunwharf Quays, 12.0 Rental value growth New Street Square, 38.2 DevelopmentPortsmouth and yield compression EC4 Princesshay, 11.0 Development Bankside 2&3, SE1 23.3 DevelopmentExeter Greyhound Retail 10.5 Yield compression and 1 Wood Street, EC2 21.1 DevelopmentPark, Chester new lettings The Mall, 10.1 Reconfiguration and 10/20/30 19.7 Potential refurbishmentStratford new lettings Eastbourne Terrace, W2 opportunity The Bridges, 9.5 Rental value growth Cardinal Place, 17.0 DevelopmentSunderland and SW1 yield compression At 30 September 2006 the net reversionary potential of the like-for-likeportfolio was 9.7%, markedly higher than the 6.8% six months ago. Growth inrental values for London offices, together with the impact of reversionaryLondon office acquisitions now moving into the like-for-like portfolio, accountfor most of this change. Our London office portfolio now has a positive netreversionary potential of 4.5% (even after off-setting residual over-renting of5.9%). In addition, the reversionary potential on our retail assets has moved upslightly from 12.3% to 12.9%. Set against this positive news on rental growth,voids on the like-for-like portfolio have increased from their historically lowlevels to 5.3%, although a significant proportion are strategic voids where weare keeping units vacant prior to redevelopment. Table H - Investment and development portfolio valuation movements Investment Development Total £m £m £mNet book value at 1/4/06 10,211.2 1,229.3 11,440.5Purchases 461.1 12.3 473.4Disposals (145.3) (5.3) (150.6)Transfers into development (6.4) 6.4 -Transfers out of development 32.5 (32.5) -Surrender premiums received (1.0) - (1.0)Capital expenditure 35.9 148.8 184.7Valuation surplus (*) 648.8 247.6 896.4Capitalised interest - 10.9 10.9Depreciation (1.7) - (1.7)Net book value at 30/9/06 11,235.1 1,617.5 12,852.6Combined investment portfolio at 30/9/06 12,713.2 1,726.6 14,439.8 (*) Excludes joint ventures Investment As previously stated, levels of activity during the first half of the year werelower. We have sold £175.7m of property (net of sale costs) out of the combinedinvestment portfolio, generating a profit of £25.1m (16.7% above book value).Including our share of joint ventures, we purchased £477.9m of investmentproperties. The average yield on the properties sold was 3.7% and the averageinitial yield on the assets acquired was 4.5%. Some 75% of the purchase activitywas accounted for by the acquisitions in London of Arundel Great Court, WC2 and22 Kingsway, WC2. Development Our development programme produced a valuation surplus of £250.2m, including ourshare of joint ventures and those properties completed and let in the sixmonths. Including our share of joint ventures and land acquisitions we spent £243m(excluding capitalised interest) on the development pipeline projects includingNew Street Square, EC4, Bankside 2&3, SE1 and 50 Queen Anne's Gate, SW1 andshopping centre developments in Bristol, Cardiff, Exeter and Corby. We have anestimated further spend of £692m on the projects currently underway which, whencomplete and fully let, will produce £144m of annual cash income (using today'sestimated rental value for the available space). Further capital expenditure onproposed developments could total £1,321m if we proceed with these schemes,which are held as part of the combined investment portfolio and have a currentcarrying value of £546m. The figures given above for capital expenditure represent the Group's actual orforecast cash outlays on developments. Including land values and capitalisedinterest, the total development cost for the full development pipeline is£3.7bn, of which £1.8bn relates to our current development programme. We have been undertaking two developments on behalf of the BBC. We handed overthe new headquarters for BBC Scotland at Pacific Quay in Glasgow in August 2006,having completed the project on programme and within budget. The much largerdevelopment of Broadcasting House has been more complex than originallyenvisaged, but the first phase was handed over earlier this year and we have nowrecognised a profit on this. The final phase is now underway and is scheduledfor completion in 2010. Business Unit Review Retail We own 1.9 million sq m of retail accommodation including 30 shopping centresand 31 retail parks which represent a 5.8% share of the UK's retail commercialproperty market (excluding high street shops). We have over 1,600 occupiersacross this portfolio. Many of our retail properties form the central shoppingdistricts of major cities and towns across the UK and, over a year, we estimatethat some 332 million visits are made by consumers to our locations. We are alsoinvesting £0.9bn to create the next generation of retail locations through a360,000 sq m development pipeline. Market conditions have remained broadly constant since we reported at the yearend. However, demand from retailers across the UK continues to be patchy as aresult of fragile consumer confidence and rising costs, and retailers areseeking greater incentives in terms of rent free periods and capitalcontributions. Despite these market conditions, we have been successful inletting or agreeing terms for nearly 140,000 sq m of retail floor space,creating future cash rental income of approximately £29m per annum. Table I - Retail valuation and performance summary 30/9/06 31/3/06 30/9/05Total retail*Combined investment portfolio valuation £7,315.6m £6,877.7m £6,291.9mLike-for-like investment portfolio valuation £5,025.4m £4,783.3m £4,372.7mRental income £124.5m £123.3m £114.8mGross estimated rental value £288.3m £284.0m £274.3mVoids by estimated rental value £11.8m £9.8m £5.1mGross income yield 4.8% 5.0% 5.3%Shopping centresCombined investment portfolio valuation £4,114.6m £3,816.5m £3,352.6mLike-for-like investment portfolio valuation £2,820.8m £2,628.6m £2,434.5mRental income £74.4m £70.6m £74.8mGross estimated rental value £174.2m £171.5m £164.1mVoids by estimated rental value £6.0m £5.3m £3.3mGross income yield 5.2% 5.5% 5.9%Retail warehousesCombined investment portfolio valuation £2,405.3m £2,298.8m £2,102.6mLike-for-like investment portfolio valuation £1,601.6m £1,534.4m £1,404.5mRental income £33.0m £32.3m £29.64mGross estimated rental value £77.7m £76.7m £74.7mVoids by estimated rental value £3.3m £1.9m £0.3mGross income yield 4.1% 4.2% 4.5% * Retail includes shopping centres, retail warehouses, shops outside London,shops held through the Metro Shopping Fund LP, regional offices and sundry otherproperties outside London In terms of valuation the retail portfolio continues to perform well. On alike-for-like basis this portfolio increased in value to £5.0bn with a 5.6%valuation surplus over the six months. The strongest performance was in shoppingcentres with a 6.9% valuation surplus. Retail warehouse returns have reducedfrom the very high levels of recent years but still showed a 3.8% surplus overthe six month period. The valuation uplifts were driven largely by yield shiftwith low levels of rental value growth. Our focus has been on improving thetenant mix and overall attractiveness of our shopping centres and retail parks,the success of which is evidenced by data showing increased footfall across ourshopping centres. The portfolio is 13.5% reversionary and void levels remain low at 4.1% withinthe like-for-like portfolio. Activity Update Asset Management The success of our asset management activities is evidenced by the performanceof some of our larger shopping centres. White Rose Centre, Leeds, LewishamShopping Centre, London and Gunwharf Quays, Portsmouth have all performed wellin the first six months. In particular Gunwharf Quays saw strong like-for-likesales growth and numerous asset management initiatives. New tenants attracted tothis property include Guess UK, The Works, L'Occitane, Elle and Lee Cooper. One of our largest retail parks, Lakeside Retail Park, Thurrock also benefitedfrom the recent opening of the new ILVA store and the letting of a 2,000 sq mstore to Next. In addition our recently purchased Greyhound Retail Park, Chesteralso demonstrated a strong valuation uplift as a result of yield compression andnew lettings ahead of assumed rental value at purchase. Development We made good progress with our development programme which will create 228,680sq m of new predominantly retail and leisure accommodation over the next threeyears. We also have a further 131,750 sq m of proposed developments in thepipeline. In the first six months of the year we completed or agreed terms for£10.3m of lettings across the development programme. At Exeter, a 44,600 sq m scheme scheduled to open next year, our lettingsprogramme is on target with 64% of the retail accommodation already let or insolicitors' hands. At Bristol, a 140,000 sq m partnership development withHammerson plc, due to complete in autumn 2008, 45% of the retail accommodationis let or in solicitors' hands. Christ's Lane, Cambridge, a 7,150 sq m mixed-usescheme, comprising eight shops, a cafe overlooking Christ's Pieces and 15residential apartments, is 76% let and on target to open in autumn 2007. We have now secured a number of pre-lettings at our scheme in Cardiff, the StDavids 2 development, which we are carrying out in partnership with CapitalShopping Centres. We awarded the construction contract to Bovis Lend Lease andwill be starting on site in January. The scheme, which will bring the first JohnLewis department store to Wales, comprises 106,400 sq m of new accommodation inCardiff's city centre. We also received planning consent for our proposals at Livingston to create anadditional 32,000 sq m of new retail space, 5,670 sq m of leisure space, 28flats, including affordable housing and new public spaces in the town centre. Wewere very pleased to announce that we have secured M&S and Debenhams as anchorsto the scheme. We are also making good progress at Willow Place, Corby where weare progressing 16,260 sq m of retail accommodation in 27 units and we now have35% of the retail accommodation let or in solicitors' hands. We are also progressing with 33,730 sq m of development across our retail parkportfolio with schemes underway in Peterborough and due to commence in Plymouthand Thanet. At Peterborough we have pre-let 91% of the scheme to Matalan and B&Q. London Portfolio Our London Portfolio comprises 930,000 sq m of office accommodation and 81,000sq m of retail floor space. Our office portfolio represents approximately 4% ofLondon's total office floor space with over 600 occupiers accommodating morethan 45,000 people. We are investing £1.9bn on development, responding to ourcustomers' needs with innovative, relevant buildings and top quality customerservice. Availability levels continue to decline for Central London offices. As a result,rental value growth has emerged strongly in the City and continues in the WestEnd and Mid-town. Retail sales levels in London are also now showing strongergrowth than the rest of the UK. At the same time demand from investors remainsbuoyant. Table J - London Portfolio valuation and performance 30/9/06 31/3/06 30/9/05London Portfolio*Combined investment portfolio valuation £7,039.8m £5,932.5m £5,069.4mLike-for-like investment portfolio valuation £4,438.9m £4,109.1m £3,753.7mRental income £121.4m £121.9m £117.5mGross estimated rental value £261.5m £253.3m £248.3mVoids by estimated rental value £17.2m £7.9m £9.9mRunning yield 4.8% 5.5% 5.9%London officesCombined investment portfolio valuation £5,731.9m £4,788.3m £4,068.1mLike-for-like investment portfolio valuation £3,441.8m £3,163.1m £2,878.5mRental income £98.0m £100.2m £93.6mGross estimated rental value £208.1m £200.5m £195.3mVoids by estimated rental value £14.6m £6.4m £8.8mRunning yield 4.9% 5.7% 6.1%London shopsCombined investment portfolio valuation £1,121.2m £1,053.8m £918.9mLike-for-like investment portfolio valuation £907.5m £863.5m £797.5mRental income £21.5m £20.0m £21.8mGross estimated rental value £48.3m £48.1m £48.0mVoids by estimated rental value £2.5m £1.5m £1.0mRunning yield 4.6% 4.8% 5.3% \* The London Portfolio includes London offices, London shops (with the exceptionof shops held through the Metro Shopping Fund LP) and sundry other properties inLondon. We continue to deliver strong performance across the London Portfolio which, ona like-for-like basis, increased in value to £4.4bn representing a 7.7%valuation surplus for the first half of the year. Our development activity madea significant contribution to performance with a valuation surplus of 21.4%. As a result of growth in rental values, like-for-like London office investmentsnow have a 4.5% net reversionary potential. London office voids have risen to7.0% on a like-for-like basis. This is primarily attributable to a number ofsubstantial pre-development properties falling vacant, including 20 FenchurchStreet, EC3 and One New Change, EC4. London retail is 9.3% reversionary and voidlevels are 5.2% on a like-for-like basis. Activity update Asset management The strong valuation increase of those properties purchased over the past threeyears demonstrates the success of the portfolio restructuring and our assetmanagement activities. Times Square, EC4, purchased some 18 months ago, is nowfully let and has achieved rental value growth of 9.5%. At Holborn Gate, WC1,both yield shift and rental value growth contributed to a strong valuationincrease of 15.7%. Development We are also making excellent progress with our development programme, which isgenerating substantial value to shareholders. Over the first six months of theyear the surplus created by our development activities was £234.3m. Developmentscurrently on site will provide 143,050 sq m of new office accommodation togetherwith some 7,650 sq m of retail floor space. Our future pipeline of projects willprovide another 115,130 sq m of offices and 31,590 sq m of retail, together with39 residential units. We are delighted that we achieved the first or secondlargest lettings in each of our core markets of City, Mid-town and West End,with the lettings to Eversheds, Taylor Wessing and Microsoft. At Cardinal Place, SW1 only 33% of the office accommodation is now available tolet and we continue to see good demand for the remaining space. The retailelement, which is trading above expectations, is 98% occupied. At New StreetSquare, the scheme is now 61% pre-let and construction of the four buildingscontinues according to plan with completion due on a phased basis between June2007 and March 2008. Since 30 September 2006 we have pre-let another 16,000 sq min the 21,370 sq m office building, 5 New Street Square, to Taylor Wessing. Thefinal building, a 17-storey 18,000 sq m office block which we intend tomulti-let, is already receiving strong interest from a number of occupiers. Wecontinue to make good progress with Bankside 2&3, where we are creating some35,550 sq m of speculative office accommodation together with 3,170 sq m ofretail accommodation in two buildings, which are due for completion in August2007. This is in addition to Bankside 1 which is a 46,350 sq m office buildingpreviously sold to IPC Media. We announced that we have decided to proceed with our development at One NewChange on the basis of a 50/50 joint venture with Beacon Capital Partners LLC.The Jean Nouvel designed scheme close to St Paul's Cathedral will provide 31,660sq m of office accommodation and 19,830 sq m of retail floor space. We were also very pleased to receive outline planning consent at three furtherschemes, totalling 101,180 sq m of accommodation, namely Park House, W1, 20Fenchurch Street, EC3 and Dashwood House, EC2. At Park House we receivedapproval for 31,200 sq m mixed used scheme incorporating retail, office andresidential accommodation, designed by Hamilton Associates. Two schemes in theCity, 20 Fenchurch Street, EC3 the Raphael Vinoly designed 55,370 sq m officetower and our 14,610 sq m refurbishment scheme at Dashwood House, EC2 designedby Fletcher Priest, have also received approval. Property Outsourcing - Land Securities Trillium Land Securities Trillium produced 17% of the Group's underlying profit in thesix months under review. This business has a commercial portfolio totalling 2.87million sq m and six clients for whom it provides business accommodationservices to 175,000 people. Our performance Land Securities Trillium has had a good first half, producing a segment profitof £60.6m. This is lower than the corresponding period last year which includedthe exceptional profit on the disposal of our Telereal joint venture. Table K - Land Securities Trillium financial results 6 months ended 6 months ended 6 months ended 30/9/06 31/3/06 30/9/05 £m £m £mContract level operating profit- Barclays 1.2 1.2 1.3- BBC 3.3 0.5 -- Driver and Vehicle Licensing Agency ('DVLA') 0.7 0.7 0.3- Department for Work and Pensions ('DWP') 42.8 56.0 41.7- Norwich Union 3.9 3.8 1.2- Telereal II 7.0 6.9 -Bid costs (1.4) (4.6) (2.8)Central costs (5.7) (4.8) (4.8)Underlying profit 51.8 59.7 36.9Profit on sale of non-current properties 8.5 1.2 (0.2)Net surplus on revaluation of investment property 0.3 1.6 0.3Profit on disposal of joint venture (Telereal) - - 293.0Segment profit 60.6 62.5 330.0Share of loss from Investors in the Community ('IIC') joint venture (1.1) - -Distribution received from Telereal - - 11.7 Underlying profit is stronger at £51.8m compared to £36.9m for the six monthsended 30 September 2005. Profit on disposal of fixed asset properties was £8.5mcompared to a small loss in the six months ended 30 September 2005. The increasein operating profit is driven by three key factors: i) the inclusion of the Telereal II contract which commencedon 1 October 2005 ii) improved contributions from both DVLA and Norwich Union asa result of the refurbishment programmes starting to generate income iii) conclusion of the BBC contract in June 2006 with lowerexit costs than previously provided for Notwithstanding increased utilisation of its vacation allowances by the DWP,profits from that contract remained stable because the loss of some £15m ofincome following vacations was offset by indexation increases, the addition ofnew facilities and successful asset management of head rent liabilities. Activity update Existing contracts We continue to work with the DWP to reduce costs to meet its Governmentefficiency and Comprehensive Spending Review targets. These targets include therationalisation of the DWP estate. In the six months to 30 September 2006, theDepartment vacated 73,800 sq m of flexible space, and served notice to vacate afurther 85,360 sq m. Vacant property is managed through the Corporate RealEstate Group's specialist disposals team who seek to mitigate leaseholdliabilities through lettings and surrenders and to maximise the proceeds onfreehold disposals. Advantage is also taken of head lease expiries and tenantlease break opportunities. Where possible, through working closely with the DWP,opportunities are identified where mutual capital value gains or risk mitigationcan be achieved. We are now 67% through the refurbishment programme for the DVLA in Swansea andare currently running slightly ahead of schedule. In August we signed anextension to this contract to provide a new 4,800 sq m print facility inSwansea. This is scheduled for completion in autumn 2007 and will then beprovided with full services as in the original agreement running until 31 March2025. In August, we also started providing services to a new 2,800 sq m buildingknown as the Shared Services Centre on the Swansea Estate. Our other major refurbishment is for Norwich Union on their NorwichHeadquarters. We have now delivered 40% of that scheme with the customerresponding very positively to the refurbished accommodation. In September wealso completed the 7,000 sq m refurbishment of the Colegate building in Norwich,which was an addition to the original contract. New business We continue to make good progress on potential new business, with a recordpipeline and a number of opportunities at an advanced stage of development. This month, in competition with three other parties, we submitted our bid forthe Northern Ireland Civil Service ('NICS') Workplace 2010 contract. This 20year partnership aims to transform the NICS office estate by improving theworking environment for staff and facilitating new ways of working across309,000 sq m of accommodation. In January we formed the Investors in the Community joint venture with the MillGroup. Since then, and in line with our plans, we have developed its resourcebase and almost doubled staff numbers to 52. During the current financial year,IIC has closed three transactions (Bristol Building Schools for the Future ('BSF'), Peterborough Schools and Barnet and Enfield Street Lighting) and reachedpreferred bidder status on the £25m Redcar & Cleveland Street Lighting project.IIC is actively bidding on five projects including three BSF contracts. As inall competitive markets some bids are unsuccessful. We were disappointed on theLeeds BSF where we were down to the final two but were not chosen as preferredbidder. We also expect to hear imminently from Government on the outcome of its DefenceTraining Review ('DTR'). The DTR is being procured by the MoD in two packages,with a combined estimated total value of about £13bn over a 25 year term.Package One is primarily technical training, including aeronautical engineeringand communications and information systems. Package Two incorporates logistics,joint personnel administration, security, languages, intelligence andphotography as well as supply training. We are bidding for both elements as partof Metrix , which is a special purpose 50/50 joint venture company betweenourselves and our training partner QinetiQ. If successful, we will be providingMetrix with 570,000 sq m of accommodation and maintenance and facilitiesmanagement services for 25 years. Metrix is the only provider shortlisted inboth packages. Urban Community Development Kent Thameside In Kent Thameside, our focus continues to move away from an emphasis onstrategic planning towards the delivery of development. We completed the sale of our remaining interests in Crossways Business Park toLegal & General generating some £17.7m of proceeds and a profit of £5.5m. We are working with Countryside Properties on two residential development jointventures. The first, Waterstone Park, is now approximately 40% complete withsome 254 apartments and houses completed and sold out of the 650 new homesapproved. The construction of a further 186 apartments and houses is currentlyunderway. The second joint venture, at Springhead, has outline planningpermission for 600 new houses and received detailed planning permission for thefirst phase of 388 new homes in September 2006. Work on delivering the siteinfrastructure has started with the first sales of the completed new homes dueto take place in late 2007. We have now named the adjoining developments at Ebbsfleet and Eastern Quarry,Ebbsfleet Valley. Earlier this year we officially opened our new marketingcentre, The Observatory, which has generated a very favourable reaction from ourpartners, in the Ebbsfleet project, including the local authorities. In relation to our outline planning application at Eastern Quarry, we have madegood progress towards resolving the remaining outstanding issues with respect toour planning gain obligations and we continue discussions around solutions tothe strategic highways issues. In the meantime, this spring we awarded the earthmoving contract for this site and the works to create the new landscape toaccommodate development at the eastern end of Eastern Quarry is nearingcompletion. This summer we submitted our application for the Station Quarter South masterplan at Ebbsfleet., where we have a 48.5% interest. This comprises some 250,000sq m and the proposals include plans for up to 1,300 new homes as well as officeaccommodation, hotel and retail space. A decision on this is expected towardsthe end of the year. Stansted Easton Park, our 650-hectare landholding adjoining Stansted Airport, hascontinued to be actively managed and we are promoting the site as a developmentopportunity within the East of England Regional Spatial Strategy and theUttlesford Local Development Framework. Following completion of the optionagreement with Aggregate Industries, work is well advanced on the submission ofa planning application for the excavation of up to 4.0 million tonnes of sandand gravel reserves which is identified in the Essex Mineral Plan. Cambridge Having completed the commercial element at Coldhams Lane, Cambridge we havedecided to sell the residual land and will start marketing this in the periodleading up to Christmas 2006. Milton Keynes We have now exercised our options to acquire the land at Magna Park, MiltonKeynes, with our joint venture partner Gazeley Limited where, following receiptof planning consent, we have the potential to develop up to 315,000 sq m ofaccommodation within a sustainable logistics park in two phases. We weredelighted to initiate the development with a pre-letting to John Lewis for a new60,400 sq m automated distribution centre. Business Analysis Further non-statutory information, relating to the Group's Investment Portfolioand Property Outsourcing businesses, is available on the Group's website atwww.landsecurities.com. Unaudited consolidated income statement for the six months ended 30 September2006 Six months ended 30/9/06 Six months ended 30/9/05 Year ended 31/3/06 Before Before Before except- Except- except- Except- except- Except- ional ional ional ional ional ional items items Total items items Total items items Total Notes £m £m £m £m £m £m £m £m £m Income: Group and 853.9 - 853.9 1,007.1 - 1,007.1 1,988.2 - 1,988.2share of jointventuresLess: share of joint 12 (39.5) - (39.5) (122.6) - (122.6) (159.5) - (159.5)ventures incomeGroup revenue 2 814.4 - 814.4 884.5 - 884.5 1,828.7 - 1,828.7Costs 2 (515.1) - (515.1) (624.8) - (624.8) (1,267.8) - (1,267.8) 299.3 - 299.3 259.7 - 259.7 560.9 - 560.9Profit on disposal of 2 33.6 - 33.6 16.3 - 16.3 74.5 - 74.5non-currentpropertiesNet surplus on 2 896.7 - 896.7 726.0 - 726.0 1,579.5 - 1,579.5revaluation ofinvestment propertiesGoodwill impairment 2,4 - - - - (64.5) (64.5) - (64.5) (64.5)Profit on disposal of 2,4 - - - - 293.0 293.0 - 293.0 293.0jointventure (Telereal)Operating profit 1,229.6 - 1,229.6 1,002.0 228.5 1,230.5 2,214.9 228.5 2,443.4Interest expense 3 (114.7) - (114.7) (99.7) - (99.7) (201.8) - (201.8)Interest income 3 4.2 - 4.2 4.5 - 4.5 7.3 - 7.3 1,119.1 - 1,119.1 906.8 228.5 1,135.3 2,020.4 228.5 2,248.9Share of the profit 12 59.1 - 59.1 37.4 - 37.4 98.6 - 98.6of jointventures (post-tax)Distribution received 12 - - - 11.7 - 11.7 11.7 - 11.7from jointventure (Telereal)Profit before tax 2 1,178.2 - 1,178.2 955.9 228.5 1,184.4 2,130.7 228.5 2,359.2Income tax expense 5 (318.4) - (318.4) (265.2) (90.0) (355.2) (593.3) (90.0) (683.3)Profit for the 23 859.8 - 859.8 690.7 138.5 829.2 1,537.4 138.5 1,675.9financial period Basic earnings per 7 183.25p 177.26p 357.95pshare*Diluted earnings per 7 182.51p 176.46p 356.50pshare*Dividend per share 6 19.00p 18.15p 46.70p *adjusted earnings per share is given in note 7 Unaudited consolidated statement of recognised income and expense for the sixmonths ended 30 September 2006 Six Six months months Year ended ended ended 30/9/06 30/9/05 31/3/06 £m £m £m Actuarial (losses) / profits on defined benefit pension schemes (3.5) 5.2 (5.0)Deferred tax on actuarial losses / (profits) on defined benefit 1.0 (1.6) 1.5pension schemesFair value movement on cash flow hedges taken to equity - Group 2.6 (5.3) (2.2)Fair value movement on cash flow hedges taken to equity - joint 1.9 (7.3) (2.7)venturesDeferred tax on fair value movement on cash flow hedges taken to equity (0.7) 1.6 0.6- GroupDeferred tax on fair value movement on cash flow hedges taken to equity (0.6) 2.2 0.8- joint venturesNet gains / (losses) recognised directly in equity 0.7 (5.2) (7.0)Profit for the financial period 859.8 829.2 1,675.9Total recognised income and expense 860.5 824.0 1,668.9 Unaudited consolidated balance sheet at 30 September 2006 30/9/06 30/9/05 31/3/06 Notes £m £m £mNon-current assetsInvestment properties 9 12,852.6 10,140.4 11,440.5Property, plant and equipment Property outsourcing properties 9 573.9 554.9 563.2 Other property, plant and equipment 9 75.4 64.9 73.6 9 13,501.9 10,760.2 12,077.3Net investment in finance leases 10 247.0 221.5 233.9Goodwill 11 34.3 34.3 34.3Investment in joint ventures 12 928.3 697.3 829.5Total non-current assets 14,711.5 11,713.3 13,175.0Current assetsTrading properties and long-term development contracts 13 156.9 220.2 255.9Trade and other receivables 14 577.9 409.3 578.9Cash and cash equivalents 15 25.2 28.2 15.6Total current assets 760.0 657.7 850.4Total assets 15,471.5 12,371.0 14,025.4Current liabilitiesShort-term borrowings 16 (316.8) (55.4) (46.7)Trade and other payables 17 (630.6) (559.0) (585.0)Current tax liabilities (229.0) (179.9) (212.5)Total current liabilities (1,176.4) (794.3) (844.2)Non-current liabilitiesProvisions 18 (57.3) (76.8) (58.2)Borrowings 19 (3,809.2) (3,055.0) (3,654.8)Pension benefits 20 (9.5) (4.9) (6.5)Deferred tax liabilities 21 (2,227.4) (1,713.6) (1,967.8)Total non-current liabilities (6,103.4) (4,850.3) (5,687.3)Total liabilities (7,279.8) (5,644.6) (6,531.5)Net assets 8,191.7 6,726.4 7,493.9EquityOrdinary shares 23 47.0 46.9 46.9Own shares 23 (18.6) (4.0) (3.4)Share-based payments 23 8.9 4.5 6.3Share premium 23 47.9 37.9 43.2Capital redemption reserve 23 30.5 30.5 30.5Retained earnings 23 8,076.0 6,610.6 7,370.4Total shareholders' equity 8,191.7 6,726.4 7,493.9 The following financial statements were approved by the Board of Directors on 15November 2006 and were signed on its behalf by: F W Salway M F GreensladeDirectors Cash flow statement for the six months ended 30 September 2006 30/9/06 30/9/05 31/3/06 Notes £m £m £mNet cash generated from operationsCash generated from operations 24 335.3 244.5 591.5Interest paid (121.4) (92.1) (187.7)Interest received 3.8 4.5 7.3Funding pension scheme deficit (1.6) (2.6) (4.9)Taxation (corporation tax (paid) / received) (42.0) 7.8 (30.3) Net cash inflow from operations 174.1 162.1 375.9 Cash flows from investing activitiesInvestment property development expenditure (158.2) (88.0) (236.6)Acquisition of investment properties (473.4) (796.3) (1,429.2)Other investment property related expenditure (35.9) (18.4) (78.8)Capital expenditure associated with property outsourcing (24.9) (16.5) (29.7)Capital expenditure on properties (692.4) (919.2) (1,774.3)Disposal of non-current investment properties 319.5 432.6 675.5Disposal of non-current operating properties 14.7 1.2 4.1Net expenditure on properties (358.2) (485.4) (1,094.7)Net expenditure on non-property related fixed assets (9.1) (12.1) (26.9)Net cash outflow from capital expenditure (367.3) (497.5) (1,121.6)Receivable finance leases acquired (18.9) (60.6) (84.8)Receipts in respect of receivable finance leases 1.5 1.1 2.3Net loans made to joint ventures (45.3) (5.3) (72.8)Distributions from joint ventures 6.9 206.9 206.6Proceeds from disposal of joint venture (Telereal) - 293.0 293.0Acquisitions of Group undertakings (net of cash acquired) - (321.2) (321.2) Net cash used in investing activities (423.1) (383.6) (1,098.5) Cash flows from financing activitiesIssue of shares 4.8 6.6 11.9Purchase of own share capital (35.7) (1.9) (1.9)Increase in debt 424.5 652.1 1,221.2Debt repaid on acquisition of Tops Estates PLC - (257.9) (257.9)Decrease in finance leases payable (1.2) (0.4) (1.2)Dividend paid to ordinary shareholders (133.8) (153.8) (238.9)Net cash from financing activities 258.6 244.7 733.2Increase in cash and cash equivalents at end of the period 9.6 23.2 10.6 1. Basis of preparation The interim financial information comprises the consolidated balance sheets asat 30 September 2006, 30 September 2005, and 31 March 2006 and relatedconsolidated statements of income, cash flow, and recognised income and expenseand the related notes for periods then ended. The interim financial information contained in this report is unaudited and doesnot constitute statutory accounts within the meaning of Section 240 of theCompanies Act 1985. The Annual Report and Accounts for the year ended 31 March2006, which were prepared under IFRS, as adopted by the European Union, receivedan unqualified auditors report and did not contain a statement under Section 237(2) of(3) of the Companies Act 1985 and have been filed with the Registrar ofCompanies. The unaudited interim financial information has been prepared inaccordance with the Listing Rules of the Financial Services Authority. Theaccounting policies adopted are consistent with those set out in the AnnualReport and Accounts for the year ended 31 March 2006, as amended to reflect theadoption of the new standards, amendments to standards, and interpretationsdescribed below. There are a number of new Standards, Amendments to Standards and Interpretationswhich are mandatory for the year ending 31 March 2007. In most cases, these newrequirements are not relevant for the Group. This is the case for theAmendments to IAS 39, IAS 21, and IFRS 4, to the new Standard IFRS 6, and to thenew Interpretations IFRIC 5 and IFRIC 6. In accordance with the requirements ofIFRIC 4 "Determining whether an arrangement contains a lease", the Group hasreviewed its sales and purchase arrangements to ascertain whether any of themeffectively contain a lease with the Group acting as either lessor or lessee.No changes to the accounting treatments of the Group's sales and purchasearrangements have been necessary. The following new Standards and Interpretations have been issued but are noteffective for the year ending 31 March 2007, and have not been early adopted:IFRIC 7, IFRIC 8, IFRIC 9, IFRIC 10 and IFRS 7. Management are currentlyassessing the impact of these new requirements. 2. Segmental information Six months ended 30/9/06 Six months ended 30/9/05 Other Other London Investment Property London Investment Property Retail Portfolio Portfolio Outsourcing Total Retail Portfolio Portfolio Outsourcing Total £m £m £m £m £m £m £m £m £m £mIncome statementsRental income 139.2 154.0 4.9 - 298.1 118.4 132.8 2.2 - 253.4Service charge income 24.2 21.8 0.4 - 46.4 20.2 19.5 0.1 - 39.8Property services income - - - 395.5 395.5 - - - 439.2 439.2Trading property sale - 12.7 27.6 - 40.3 - 41.7 3.6 - 45.3proceedsLong-term development - - 29.5 - 29.5 - 52.6 49.1 - 101.7contract incomeFinance lease interest 1.7 2.9 - - 4.6 3.0 2.1 - - 5.1Revenue 165.1 191.4 62.4 395.5 814.4 141.6 248.7 55.0 439.2 884.5Rents payable (5.6) (2.7) - (88.3) (96.6) (4.6) (2.5) - (91.0) (98.1)Other direct property or (34.3) (31.1) (0.7) (233.9) (300.0) (26.9) (22.4) (0.4) (293.2) (342.9)contract expenditureIndirect property or (17.6) (16.0) (2.4) (6.3) (42.3) (14.4) (11.2) (1.7) (4.0) (31.3)contract expenditureLong-term development - - (20.1) - (20.1) - (42.4) (48.6) - (91.0)contract expenditureBid costs - - - (1.4) (1.4) - - - (2.8) (2.8)Cost of sales of trading - (10.7) (20.8) - (31.5) - (34.9) (2.7) - (37.6)propertiesDepreciation (0.8) (2.5) (0.2) (13.8) (17.3) (1.0) (1.5) - (11.3) (13.8) 106.8 128.4 18.2 51.8 305.2 94.7 133.8 1.6 36.9 267.0Profit on disposal of 4.1 20.9 0.1 8.5 33.6 2.2 14.5 (0.2) (0.2) 16.3non-current propertiesNet surplus on 283.9 611.3 1.2 0.3 896.7 312.4 412.7 0.6 0.3 726.0revaluation ofinvestment propertiesGoodwill impairment - - - - - (64.5) - - - (64.5) Profit on disposal of - - - - - - - - 293.0 293.0jointventure (Telereal)Segment result 394.8 760.6 19.5 60.6 1,235.5 344.8 561.0 2.0 330.0 1,237.8Credit arising from - -change inpension scheme benefitsUnallocated expenses (5.9) (7.3)Operating profit 1,229.6 1,230.5Net financing costs (110.5) (95.2) 1,119.1 1,135.3Share of the profit of 59.1 37.4joint ventures(post-tax)Distribution received - 11.7from jointventure (Telereal)Profit before tax 1,178.2 1,184.4 2. Segmental information continued Included within rents payable for Retail and London Portfolio is finance leaseinterest payable of £1.0m (30 September 2005: £0.6m; 31 March 2006: £1.8m) and£1.6m (30 September 2005: £1.5m; 31 March 2006: £2.8m) respectively. Of the share of the profit of joint ventures (post-tax) £58.2m (30 September2005: £37.4m; 31 March 2006: £98.6m) is attributable to Retail and £0.9m (30September 2005: £nil; 31 March 2006: £nil) is attributable to Other InvestmentPortfolio. The distribution received from the joint venture (Telereal) for the six monthsended 30 September 2005 and year ended 31 March 2006 of £11.7m was attributableto Property Outsourcing. Year ended 31/3/06 Other London Investment Property Retail Portfolio Portfolio Outsourcing Total £m £m £m £m £mIncome statementRental income 255.9 278.5 4.3 - 538.7Service charge income 38.3 40.0 0.2 - 78.5Property services income - - - 924.8 924.8Trading property sale proceeds - 93.8 5.9 - 99.7Long-term development contract income - 95.7 78.4 - 174.1Finance lease interest 4.4 6.0 - 2.5 12.9Revenue 298.6 514.0 88.8 927.3 1,828.7Rents payable (12.0) (4.1) - (183.9) (200.0)Other direct property or contract expenditure (59.7) (47.9) (0.9) (610.1) (718.6)Indirect property or contract expenditure (32.7) (28.7) (4.8) (8.8) (75.0)Long-term development contract expenditure - (74.7) (77.5) - (152.2)Bid costs - - - (7.4) (7.4)Cost of sales of trading properties - (78.0) (4.2) - (82.2)Depreciation (1.0) (4.1) (0.1) (20.5) (25.7) 193.2 276.5 1.3 96.6 567.6Profit on disposal of non-current properties 40.1 33.2 0.2 1.0 74.5Net surplus on revaluation of investment properties 636.9 935.5 5.2 1.9 1,579.5Goodwill impairment (64.5) - - - (64.5)Profit on disposal of joint venture (Telereal) - - - 293.0 293.0Segment result 805.7 1,245.2 6.7 392.5 2,450.1Credit arising from change in pension scheme benefits 8.3Unallocated expenses (15.0)Operating profit 2,443.4Net financing costs (194.5) 2,248.9Share of the profit of joint ventures (post-tax) 98.6Distribution received from joint venture (Telereal) 11.7Profit before tax 2,359.2 All the Group's operations are in the UK and are organised into four mainbusiness segments against which the Group reports its primary segmentinformation. These are Retail, London Portfolio, Other Investment Portfolio andProperty Outsourcing. 3. Net finance costs Six Six months months Year ended ended ended 30/9/06 30/9/05 31/3/06 £m £m £m Interest expense Bond and debenture debt (80.8) (72.4) (143.1) Bank borrowings (39.9) (21.1) (56.8) Other interest payable (2.1) (0.6) (1.3)Fair value gains / (losses) on interest rate swaps 4.2 (7.9) (2.2)Amortisation of bond exchange de-recognition (note 19) (8.6) (13.3) (26.6)Bond exchange de-recognition adjustment written - - (1.5) off on redemption of bonds (note 19)Expected return on pension scheme assets 4.4 3.9 7.3Interest on pension scheme liabilities (3.8) (3.7) (7.2)Net financing income on pension scheme 0.6 0.2 0.1 (126.6) (115.1) (231.4)Interest capitalised in relation to properties under development 11.9 15.4 29.6Total interest and similar charges payable (114.7) (99.7) (201.8)Interest income Short-term deposits 0.4 0.2 1.0 Other interest receivable 2.0 1.7 1.7 Interest receivable from joint ventures 1.8 2.6 4.6Total interest receivable 4.2 4.5 7.3Net finance costs (110.5) (95.2) (194.5) Included within rents payable (note 2) is finance lease interest payable of£2.6m (30 September 2005: £2.1m; 31 March 2006: £4.6m). 4. Exceptional items Six Six months months Year ended ended ended 30/9/06 30/9/05 31/3/06 £m £m £m Profit on disposal of joint venture (Telereal) - (293.0) (293.0)Goodwill impairment - 64.5 64.5 On 30 September 2005 the Group sold its interest in the Telereal joint venturefor £293.0m (net of costs), resulting in an exceptional profit of £293.0m, asthe book value of the joint venture was £nil. The tax charge arising on thedisposal was £90.0m. Where goodwill arises as a result of recognising deferredtax on a business combination, the goodwill is written off immediately to theincome statement. The goodwill impairment arose on the acquisition of TopsEstates PLC on 10 June 2005. Exceptional items are defined in note 1(s) of the2006 Annual Report. 5. Income tax expense Six Six months months Year ended ended ended 30/9/06 30/9/05 31/3/06 £m £m £mCurrent taxCorporation tax charge for the period 48.5 123.4 181.6Adjustment in respect of prior years - (0.6) (14.7)Corporation tax in respect of property disposals 10.3 10.3 38.0Total current tax charge 58.8 133.1 204.9Deferred taxOrigination and reversal of timing differences 15.0 21.9 34.6Released in respect of property disposals (24.4) (17.5) (30.1)On valuation surplus 269.0 217.7 473.9Total deferred tax charge 259.6 222.1 478.4Total income tax charge in the income statement 318.4 355.2 683.3 Income tax expense is recognised based on management's best estimate of theexpected tax rate for the full year. However, no account has been taken of anyreduction in the full year's rate if the Group was to convert to a REIT. 5. Income tax expense continued Six Six months months Year ended ended ended 30/9/06 30/9/05 31/3/06 £m £m £m The tax for the period is lower than the standard rate ofcorporation tax in the UK (30%). The differences are explained below:Profit on activities before taxation 1,178.2 1,184.4 2,359.2Profit on activities multiplied by rate of corporation tax in the 353.5 355.3 707.8UK of 30%Effects of:Deferred tax released in respect of property disposals (24.4) (17.5) (34.7)Corporation tax on disposal of non-current assets - 5.9 23.0Goodwill impairment - 19.3 19.4Joint venture accounting adjustments (14.3) (8.0) (26.5)Prior year corporation tax adjustments - (0.6) (14.7)Prior year deferred tax adjustments - - 0.8Non-allowable expenses and non-taxable items 3.6 0.8 8.2Total income tax expense in the income statement (as above) 318.4 355.2 683.3 The calculation of the Group's tax charge and liability necessarily involves adegree of estimation and judgement in respect of certain items whose taxtreatment cannot be finally determined until a formal resolution has beenreached with the relevant tax authorities. If all such issues are resolved inthe Group's favour, provisions established in previous periods of up to £225.0mcould be released in the future. 6. Dividends Six Six months months Year ended ended ended 30/9/06 30/9/05 31/3/06 £m £m £mOrdinary dividends paidFinal dividend for the year ended 31 March 2005 (32.85p per share) - 153.8 153.8Interim dividend for the year ended 31 March 2006 (18.15p per - - 85.1share)Final dividend for the year ended 31 March 2006 (28.55p per share) 133.8 - - 133.8 153.8 238.9 The Board has proposed an interim dividend of 19.00p per share (interim dividendfor the year ended 31 March 2006: 18.15p) which will result in a furtherdistribution of £89.1m. It will be paid on 8 January 2007 to shareholders whoare on the register of members on 8 December 2006. 7. Earnings per share Six Six months months Year ended ended ended 30/9/06 30/9/05 31/3/06 £m £m £m Profit for the financial period 859.8 829.2 1,675.9Revaluation surplus net of deferred taxation - Group (627.7) (508.3) (1,105.6) (45.9) (25.1) (73.8) - joint venturesNon-current property disposals after current and deferred tax (47.7) (24.6) (66.5)Goodwill impairment on Tops Estates PLC - 64.5 64.5Deferred tax arising from capital allowances on investment 6.7 4.5 12.2propertiesMark-to-market adjustment on interest rate swaps (net of deferred (4.3) 5.5 1.5tax)Eliminate effect of bond exchange de-recognition (net of deferred 6.0 9.3 19.7tax)Eliminate effect of debt restructuring charges (net of taxation) 4.4 - -Deferred tax arising from capitalised interest on investment 3.4 4.4 7.2propertiesCredit arising from change in pension scheme benefits (net of - - (5.8)deferred tax)Profit on disposal of joint venture (net of taxation) - (203.0) (203.0)Adjustment to restate the Group's share of Telereal's earnings from - 5.0 5.0a distribution to an equity basisAdjusted earnings 154.7 161.4 331.3 Six Six months months Year ended ended ended 30/9/06 30/9/05 31/3/06 No. m No. m No. m Weighted average number of ordinary shares 469.5 468.1 468.5Effect of own shares (0.3) (0.3) (0.3)Weighted average number of ordinary shares after 469.2 467.8 468.2 adjusting for own sharesEffect of dilutive share options 1.9 2.1 1.9Weighted average number of ordinary shares adjusted 471.1 469.9 470.1 for dilutive instruments Six Six months months Year ended ended ended 30/9/06 30/9/05 31/3/06 pence pence pence Basic earnings per share 183.25 177.26 357.95Diluted earnings per share 182.51 176.46 356.50Adjusted earnings per share 32.97 34.50 70.76Adjusted diluted earnings per share 32.84 34.35 70.47 Management have chosen to disclose adjusted earnings per share in order toprovide an indication of the Group's underlying business performance.Accordingly, it excludes the effect of all exceptional items, debt restructuringcharges, the one-off benefit from the pension scheme changes and other items ofa capital nature (excluding trading properties and long-term contract profits)as indicated above. In addition, the deferred tax arising on capital allowancesin respect of investment properties has been eliminated as experience has shownthat these allowances are not in practice repayable. Deferred tax on capitalisedinterest is also added back as this is effectively a permanent difference. 8. Net assets per share 30/9/06 30/9/05 31/3/06 £m £m £m Net assets attributable to equity shareholders 8,191.7 6,726.4 7,493.9Deferred tax arising on revaluation surpluses - Group 1,829.1 1,332.8 1,580.9Deferred tax arising on revaluation surpluses - joint ventures 95.3 54.6 75.5Deferred tax arising on revaluation surpluses - acquired 83.3 83.3 83.3Cumulative mark-to-market adjustment on interest rate 0.6 11.5 5.4 swaps (net of deferred tax) - GroupCumulative mark-to-market adjustment on in) - joint ventures 0.5 6.4 3.2Deferred tax arising from capital allowances on investment 119.9 125.8 116.8propertiesDeferred tax arising from capitalised interest on investment 31.6 25.6 28.2propertiesReverse bond exchange de-recognition adjustment (net of deferred (369.3) (385.7) (375.3)tax)Adjusted net assets attributable to equity shareholders 9,982.7 7,980.7 9,011.9 30/9/06 30/9/05 31/3/06 No. m No.m No. m Number of ordinary shares 469.9 468.6 469.3Effect of own shares (1.0) (0.3) (0.3)Number of ordinary shares after adjusting for own shares 468.9 468.3 469.0Effect of dilutive share options 1.8 2.4 2.1Number of ordinary shares adjusted for dilutive instruments 470.7 470.7 471.1 30/9/06 30/9/05 31/3/06 pence pence pence Net assets per share 1747 1435 1597Diluted net assets per share 1740 1428 1590Adjusted net assets per share 2129 1703 1920Adjusted diluted net assets per share 2121 1694 1912 Adjusted net assets per share excludes the deferred tax arising on revaluationsurpluses, mark-to-market adjustments on financial instruments used for hedgingpurposes and the bond exchange de-recognition adjustment as management considerthat this better represents the expected future cash flows of the Group. Inaddition, the deferred tax arising on capital allowances in respect ofinvestment properties is excluded as experience has shown that these allowancesdo not in practice crystallise. Deferred tax on capitalised interest is alsoadded back as this is effectively a permanent difference. The adjusted netassets per share does not take into account management's estimate of the tax onproperty disposals as referred to in note 21. 9. Non-current assets Property Property investment outsourcing Other Investment properties Operating Other and property, Portfolio Development investment plant and management programme Total properties equipment Total £m £m £m £m £m £m Net book value at 31 March 2005 7,484.5 755.6 8,240.1 546.3 57.9 8,844.3Properties transferred from portfolio management intothe developmentprogramme during the year (at 1 April 2005 valuation) (102.4) 102.4 - - - -Developments completed, let and transferred from thedevelopmentprogramme into portfolio management during the year 271.6 (271.6) - - - -Property acquisitions 1,414.1 24.7 1,438.8 - - 1,438.8Acquisitions through business combinations 592.6 - 592.6 - - 592.6Capital expenditure 78.8 239.3 318.1 29.7 27.4 375.2Capitalised interest - 24.5 24.5 - - 24.5Disposals (641.8) (7.8) (649.6) (3.1) (0.5) (653.2)Transfer to trading properties (84.7) - (84.7) - - (84.7)Surrender premiums received (14.0) - (14.0) - - (14.0)Depreciation (2.9) - (2.9) (11.6) (11.2) (25.7) 8,995.8 867.1 9,862.9 561.3 73.6 10,497.8Surplus on revaluation 1,215.4 362.2 1,577.6 1.9 - 1,579.5Net book value at 31 March 2006 10,211.2 1,229.3 11,440.5 563.2 73.6 12,077.3Properties transferred from portfolio management intothe developmentprogramme during the period (at 1 April 2006 valuation) (6.4) 6.4 - - - -Developments completed, let and transferred from thedevelopmentprogramme into portfolio management during the period 32.5 (32.5) - - - -Property acquisitions 461.1 12.3 473.4 - - 473.4Capital expenditure 35.9 148.8 184.7 24.9 9.1 218.7Capitalised interest - 10.9 10.9 - - 10.9Disposals (145.3) (5.3) (150.6) (6.2) - (156.8)Surrender premiums received (1.0) - (1.0) - - (1.0)Depreciation (1.7) - (1.7) (8.3) (7.3) (17.3) 10,586.3 1,369.9 11,956.2 573.6 75.4 12,605.2Surplus on revaluation 648.8 247.6 896.4 0.3 - 896.7Net book value at 30 September 2006 11,235.1 1,617.5 12,852.6 573.9 75.4 13,501.9 The following table reconciles the net book value of the investment propertiesto the market value. The components of the reconciliation are included withintheir relevant balance sheet headings. Investment properties Portfolio Development management programme Total £m £m £m Net book value at 30 September 2006 11,235.1 1,617.5 12,852.6Plus: amount included in prepayments in respect of lease incentives 87.5 24.6 112.1Less: head leases capitalised (note 22) (64.4) (8.4) (72.8)Plus: properties treated as finance leases 178.1 - 178.1Market value at 30 September 2006 - Group 11,436.3 1,633.7 13,070.0Market value at 31 March 2005- plus: share of joint 1,369.8ventures (note 12)Market value at 30 September 2006 - Group and share of joint 14,439.8ventures Net book value at 30 September 2005 9,244.9 895.5 10,140.4Plus: amount included in prepayments in respect of lease incentives 62.0 7.6 69.6Less: head leases capitalised (note 22) (57.3) - (57.3)Plus: properties treated as finance leases 191.9 - 191.9Market value at 30 September 2005 - Group 9,441.5 903.1 10,344.6Market value at 31 March 2006 - plus: share of joint 1,149.6ventures (note 12)Market value at 30 September 2005 - Group and share of joint 11,494.2ventures Net book value at 31 March 2006 10,211.2 1,229.3 11,440.5Plus: amount included in prepayments in respect of lease incentives 76.8 4.6 81.4Less: head leases capitalised (note 22) (66.1) (8.5) (74.6)Plus: properties treated as finance leases 171.7 - 171.7Market value at 31 March 2006 - Group 10,393.6 1,225.4 11,619.0Market value at 31 March 200 6 - plus: share of joint ventures 1,273.9(note 12)Market value at 31 March 2006 - Group and share of joint ventures 12,892.9 10. Net investment in finance leases 30/9/06 30/9/05 31/3/06 £m £m £mNon-currentFinance leases - gross receivables 582.0 576.1 595.6Unearned finance income (364.4) (387.8) (391.1)Unguaranteed residual value 29.4 33.2 29.4 247.0 221.5 233.9CurrentFinance leases - gross receivables 14.7 13.2 14.8Unearned finance income (10.8) (10.5) (10.6) 3.9 2.7 4.2Total net investment in finance leases 250.9 224.2 238.1 Gross receivables from finance leases:Not later than one year 14.7 13.2 14.8Later than one year but not more than five 109.8 70.8 72.5More than five years 472.2 505.4 523.1 596.7 589.4 610.4Unearned future finance income (375.2) (398.4) (401.7)Unguaranteed residual value 29.4 33.2 29.4Net investment in finance leases 250.9 224.2 238.1 The Group has leased out a number of investment properties under finance leasesranging between 15 and 100 years in duration. These are accounted for as financelease receivables rather than investment properties. The fair value of theGroup's finance lease receivables approximates to the carrying amount. 11. Goodwill 30/9/06 30/9/05 31/3/06 £m £m £m At beginning of period 34.3 34.3 34.3Arising on acquisitions during the period - 64.5 64.5Impaired during the period - (64.5) (64.5)At end of period 34.3 34.3 34.3Represented by:Gross goodwill recognised 119.2 119.2 119.2Total accumulated impairment losses (84.9) (84.9) (84.9) 34.3 34.3 34.3 12. Investment in joint ventures Six months ended 30/09/06 and at 30/09/06 Scottish Retail Buchanan MartineauSummary financial Property Metro Galleries Galleries Bullring information of Group's Limited Shopping Limited Parc Limited Limited Bristolshare of joint ventures Partnership Fund LP Partnership Tawe Partnership Partnership Alliance Other* Telereal Total £m £m £m £m £m £m £m £m £m £m Income statementRental income 10.8 6.5 4.6 0.6 0.8 7.4 1.7 0.3 - 32.7Service charges income 2.0 1.5 0.8 0.2 0.1 1.1 - - - 5.7Property services - - - - - - - 1.1 - 1.1incomeTrading property sale - - - - - - - - - -proceedsRevenue 12.8 8.0 5.4 0.8 0.9 8.5 1.7 1.4 - 39.5Rents payable (0.1) - - - - - - - - (0.1)Other direct property (4.2) (2.0) (1.3) (0.2) (0.5) (2.0) (0.1) (1.8) - (12.1)expenditureIndirect property (1.0) (0.1) - - - (0.1) (0.1) (0.4) - (1.7)expenditureCost of sales of - - - - - - - - - -trading propertiesDepreciation - - - - - - - - - - 7.5 5.9 4.1 0.6 0.4 6.4 1.5 (0.8) - 25.6Profit on disposal of - - - - - - - - - -non-current propertiesNet surplus / (deficit) 10.2 18.4 10.8 0.5 2.5 18.7 4.4 0.2 - 65.7on revaluation ofinvestment propertiesOperating profit 17.7 24.3 14.9 1.1 2.9 25.1 5.9 (0.6) - 91.3Net finance (expense) / (5.8) (4.3) (1.8) - - 0.1 0.1 (0.1) - (11.8)incomeProfit before tax 11.9 20.0 13.1 1.1 2.9 25.2 6.0 (0.7) - 79.5Income tax (expense) / (3.1) (6.1) (3.2) (0.2) (0.8) (5.6) (1.3) (0.1) - (20.4)creditProfit after tax 8.8 13.9 9.9 0.9 2.1 19.6 4.7 (0.8) - 59.1Adjustment due to net - - - - - - - - - -liabilitiesShare of profits of joint venturesafter tax 8.8 13.9 9.9 0.9 2.1 19.6 4.7 (0.8) - 59.1Distribution received - -from Telereal Balance sheetInvestment properties ** 356.0 294.7 184.7 21.9 25.4 314.4 155.6 11.4 - 1,364.1Current assets 12.8 6.3 4.4 0.3 2.5 11.9 12.2 70.5 - 120.9 368.8 301.0 189.1 22.2 27.9 326.3 167.8 81.9 - 1,485.0Current liabilities (14.1) (5.7) (2.1) (0.2) (0.6) (5.3) (6.5) (14.1) - (48.6)Non-current liabilities (221.5) (184.3) - - - - (2.4) (0.3) - (408.5)Deferred tax (17.2) (16.0) (6.5) (0.2) (2.1) (49.2) (8.2) (0.2) - (99.6) (252.8) (206.0) (8.6) (0.4) (2.7) (54.5) (17.1) (14.6) - (556.7)Net assets 116.0 95.0 180.5 21.8 25.2 271.8 150.7 67.3 - 928.3Market value ofinvestment properties ** 349.8 292.9 188.5 21.9 26.6 320.0 158.7 11.4 - 1,369.8Net investmentAt 1 April 2006 105.2 81.0 173.0 24.9 23.1 259.3 118.5 44.5 - 829.5Properties contributed - - - - - - - - - -Cash contributed - 0.8 - - - - - 21.5 - 22.3Cost of acquisition - - - - - - - - - -Share of post-tax 8.8 13.9 9.9 0.9 2.1 19.6 4.7 (0.8) - 59.1resultsAdjustment to restatethe Group's share ofTelereal's earnings from an equity to a - - - - - - - - - -distribution basisDistributions - - (2.4) (4.0) - - - (0.5) - (6.9)Fair value movement oncash flow hedgestaken to equity 2.0 (0.7) - - - - - - - 1.3Loan advances - - - - - - 29.8 2.6 - 32.4Loan repayments - - - - - (7.1) (2.3) - - (9.4)At 30 September 2006 116.0 95.0 180.5 21.8 25.2 271.8 150.7 67.3 - 928.3 * Other principally includes the St Davids Limited Partnership, the Ebbsfleet Limited Partnership, the A2 Limited Partnership and Investors in the Community. ** The difference between the book value and the market value is the amount included in prepayments in respect of lease incentives, head leases capitalised and properties treated as finance leases. Six months ended 30/09/05 and at 30/09/05 Scottish Retail Buchanan MartineauSummary financial Property Metro Galleries Galleries Bullring information of Group's Limited Shopping Limited Parc Limited Limited Bristolshare of joint ventures Partnership Fund LP Partnership Tawe Partnership Partnership Alliance Other* Telereal Total £m £m £m £m £m £m £m £m £m £mIncome statementRental income 9.3 5.1 4.2 - 0.5 6.1 1.9 0.2 - 27.3Service charges income 3.4 1.0 1.1 - 0.2 3.3 - - - 9.0Property services - - - - - - - - 80.8 80.8incomeTrading property sale - - - - - - - - 5.5 5.5proceedsRevenue 12.7 6.1 5.3 - 0.7 9.4 1.9 0.2 86.3 122.6Rents payable (0.1) - - - - - - - (17.1) (17.2)Other direct property (4.5) (1.2) (1.2) - (0.4) (3.2) (0.2) - - (10.7)expenditureIndirect property (0.4) (0.4) (0.1) - (0.1) (0.4) - - (7.6) (9.0)expenditureCost of sales of - - - - - - - - (1.3) (1.3)trading propertiesDepreciation - - - - - - - - (7.1) (7.1) 7.7 4.5 4.0 - 0.2 5.8 1.7 0.2 53.2 77.3Profit on disposal of - - - - - - - 0.2 0.9 1.1non-current propertiesNet surplus / (deficit)on revaluationof investment 13.1 7.4 2.5 - (0.4) 13.7 (0.4) (0.1) - 35.8propertiesOperating profit 20.8 11.9 6.5 - (0.2) 19.5 1.3 0.3 54.1 114.2Net finance (expense) / (5.1) (4.0) (2.5) - - - - - (32.9) (44.5)incomeProfit before tax 15.7 7.9 4.0 - (0.2) 19.5 1.3 0.3 21.2 69.7Income tax (expense) / (3.9) (2.4) (0.8) - 0.1 (4.2) 0.1 - (4.5) (15.6)creditProfit after tax 11.8 5.5 3.2 - (0.1) 15.3 1.4 0.3 16.7 54.1Adjustment due to net - - - - - - - - (16.7) (16.7)liabilitiesShare of profits ofjoint venturesafter tax 11.8 5.5 3.2 - (0.1) 15.3 1.4 0.3 - 37.4Distribution received 11.7 11.7from TelerealBalance sheetInvestment properties ** 328.2 257.8 161.8 - 22.4 278.3 87.0 23.6 - 1,159.1Current assets 16.0 10.1 5.2 - 2.6 9.4 7.9 1.5 - 52.7 344.2 267.9 167.0 - 25.0 287.7 94.9 25.1 - 1,211.8Current liabilities (14.3) (9.9) (3.4) - (0.6) (4.1) (3.0) (4.9) - (40.2)Non-current liabilities (228.5) (187.2) - - - - (2.3) - - (418.0)Deferred tax (10.0) (5.0) 0.2 - (1.3) (38.1) (2.1) - - (56.3) (252.8) (202.1) (3.2) - (1.9) (42.2) (7.4) (4.9) - (514.5)Net assets 91.4 65.8 163.8 - 23.1 245.5 87.5 20.2 - 697.3Market value ofinvestment properties ** 319.8 256.0 165.7 - 23.4 284.5 89.6 10.6 - 1,149.6Net investmentAt 1 April 2005 293.6 39.6 163.5 - 23.5 238.2 82.0 14.5 - 854.9Properties contributed - - - - - - - - - -Cash contributed - 19.8 - - - - - - - 19.8Cost of acquisition - - - - - - - 6.7 - 6.7Share of post-tax 11.8 5.5 3.2 - (0.1) 15.3 1.4 0.3 16.7 54.1resultsAdjustment to restatethe Group's share of Telereal's earnings from an equity to a - - - - - - - - (5.0) (5.0)distribution basisDistributions (190.1) - (2.9) - (0.9) - - (1.3) (11.7) (206.9)Fair value movement oncash flow hedges taken to equity (4.0) (1.1) - - - - - - - (5.1)Loan advances - 2.0 - - 0.6 - 7.1 - - 9.7Loan repayments (19.9) - - - - (8.0) (3.0) - - (30.9)At 30 September 2005 91.4 65.8 163.8 - 23.1 245.5 87.5 20.2 - 697.3 * Other principally includes the Martineau Limited Partnership, the Ebbsfleet Limited Partnership and the A2 Limited Partnership. ** The difference between the book value and the market value is the amount included in prepayments in respect of lease incentives, head leases capitalised and properties treated as finance leases. 12. Investment in joint ventures continued Year ended 31/03/06 and at 31/03/06 Scottish Retail Buchanan MartineauSummary financial Property Metro Galleries Galleries Bullring information of Group's Limited Shopping Limited Parc Limited Limited Bristolshare of joint ventures Partnership Fund LP Partnership Tawe Partnership Partnership Alliance Other* Telereal Total £m £m £m £m £m £m £m £m £m £m Income statementRental income 20.8 11.8 9.1 0.5 1.3 14.6 3.5 0.5 - 62.1Service charges income 4.8 2.3 1.5 - 0.4 2.1 - - - 11.1Property services - - - - - - - - 80.8 80.8incomeTrading property sale - - - - - - - - 5.5 5.5proceedsRevenue 25.6 14.1 10.6 0.5 1.7 16.7 3.5 0.5 86.3 159.5Rents payable - - - - (0.1) - - - (17.1) (17.2)Other direct property (8.8) (3.2) (2.5) (0.1) (1.2) (4.0) (0.5) - - (20.3)expenditureIndirect property (1.0) (0.6) (0.1) - - (0.3) (0.3) - (7.6) (9.9)expenditureCost of sales of - - - - - - - - (1.3) (1.3)trading propertiesDepreciation - - - - - - - (7.1) (7.1) 15.8 10.3 8.0 0.4 0.4 12.4 2.7 0.5 53.2 103.7(Loss) / profit on - - - - - (0.2) - 0.1 0.9 0.8disposal of non-currentpropertiesNet surplus / (deficit)on revaluation of investment properties 20.7 23.2 14.4 0.1 (0.3) 31.3 15.7 0.4 - 105.5Operating profit 36.5 33.5 22.4 0.5 0.1 43.5 18.4 1.0 54.1 210.0Net finance (expense) / (10.8) (9.4) (4.3) - 0.1 0.1 0.3 (0.3) (32.9) (57.2)incomeProfit before tax 25.7 24.1 18.1 0.5 0.2 43.6 18.7 0.7 21.2 152.8Income tax (expense) / (6.5) (7.8) (4.3) - 0.1 (9.7) (4.7) (0.1) (4.5) (37.5)creditProfit after tax 19.2 16.3 13.8 0.5 0.3 33.9 14.0 0.6 16.7 115.3Adjustment due to net - - - - - - - - (16.7) (16.7)liabilitiesShare of profits ofjoint venturesafter tax 19.2 16.3 13.8 0.5 0.3 33.9 14.0 0.6 - 98.6Distribution received 11.7 11.7from TelerealBalance sheetInvestment properties ** 345.3 275.9 173.9 21.4 22.8 297.2 120.7 11.2 - 1,268.4Current assets 12.0 7.8 6.6 3.9 2.0 10.6 16.3 39.0 - 98.2 357.3 283.7 180.5 25.3 24.8 307.8 137.0 50.2 - 1,366.6Current liabilities (17.7) (8.5) (4.2) (0.4) (0.4) (4.9) (9.2) (5.6) - (50.9)Non-currentliabilities (221.2) (184.0) - - - - (2.4) - - (407.6)Deferred tax (13.2) (10.2) (3.3) - (1.3) (43.6) (6.9) (0.1) - (78.6) (252.1) (202.7) (7.5) (0.4) (1.7) (48.5) (18.5) (5.7) - (537.1)Net assets 105.2 81.0 173.0 24.9 23.1 259.3 118.5 44.5 - 829.5Market value ofinvestmentproperties ** 339.2 274.1 177.5 21.4 23.8 303.0 123.7 11.2 - 1,273.9Net investmentAt 1 April 2005 293.6 39.6 163.5 - 23.5 238.2 82.0 14.5 - 854.9Properties contributed - - - - - - - 6.4 - 6.4Cash contributed - 24.7 - 24.8 - - - 0.8 - 50.3Cost of acquisition - - - - - - - 26.5 - 26.5Share of post-tax 19.2 16.3 13.8 0.5 0.3 33.9 14.0 0.6 16.7 115.3resultsAdjustment to restatethe Group's share of Telereal's earnings from an equity to a - - - - - - - - (5.0) (5.0)distribution basisDistributions (185.9) (1.5) (4.3) (0.4) (1.5) - - (1.3) (11.7) (206.6)Fair value movement oncash flow hedgestaken to equity (1.8) (0.1) - - - - - - - (1.9)Loan advances - 2.0 - - 0.8 - 27.5 - - 30.3Loan repayments (19.9) - - - - (12.8) (5.0) (3.0) - (40.7)At 31 March 2006 105.2 81.0 173.0 24.9 23.1 259.3 118.5 44.5 - 829.5 * Other principally includes the Martineau Limited Partnership, the Ebbsfleet Limited Partnership, the A2 Limited Partnership and Investors in the Community. ** The difference between the book value and the market value is the amount included in prepayments in respect of lease incentives, head leases capitalised and properties treated as finance leases 13. Trading properties and long-term development contracts 30/9/06 30/9/05 31/3/06 £m £m £m Trading properties 140.0 132.2 163.5Amount recoverable under long-term development contracts less 16.9 88.0 92.4payments on account 156.9 220.2 255.9The amounts for contracts in progress at the balance sheet dateare as follows:Contract revenue recognised as revenue in the period 29.5 101.7 174.1 Contract costs incurred and recognised profits (less recognised 448.1 353.0 414.0losses) to dateAdvances received (440.9) (278.7) (339.0) 7.2 74.3 75.0Plus: gross amount due to customers for contract work (included in 9.7 13.7 17.4accruals and deferred income)Gross amount due from customers for contract work 16.9 88.0 92.4 14. Trade and other receivables 30/9/06 30/9/05 31/3/06 £m £m £m Trade receivables - property investment 60.2 35.5 27.1Trade receivables - property outsourcing 94.4 98.7 107.4Property sales receivables 6.4 3.2 145.2Other receivables 93.2 61.6 61.4Prepayments and accrued income 319.8 207.6 233.6Finance leases receivable within one year (note 10) 3.9 2.7 4.2 577.9 409.3 578.9 Trade receivables are net of provisions for doubtful debts of £17.3m (30September 2005: £9.8m; 31 March 2006: £12.6m). 15. Cash and cash equivalents 30/9/06 30/9/05 31/3/06 £m £m £m Cash at bank and in hand 15.5 20.0 5.1Short-term deposits 9.7 8.2 10.5 25.2 28.2 15.6 The effective interest rate on short-term deposits was 4.4% (30 September 2005:4.6%; 31 March 2006: 4.6%) and the deposits have an average maturity of 3 days(30 September 2005: 3 days; 31 March 2006: 2 days). 16. Short-term borrowings and overdrafts 30/9/06 30/9/05 31/3/06 £m £m £m Borrowings falling due within one year (note 19) 327.2 76.3 59.2Bond exchange de-recognition adjustment falling due within (12.5) (21.8) (15.6)one year (note 19)Amounts payable under finance leases falling due within one 2.1 0.9 3.1year (notes 19 and 22) 316.8 55.4 46.7 17. Trade and other payables 30/9/06 30/9/05 31/3/06 £m £m £m Trade payables 29.8 39.5 42.9Capital payables 75.8 119.4 85.2Other payables 68.9 37.1 28.2Accruals and deferred income 456.1 363.0 428.7 630.6 559.0 585.0 Capital payables represent amounts due under contracts to purchase properties,which were unconditionally exchanged at the period end, and for work completedon investment properties but not paid for at the financial period end. Deferredincome principally relates to rents received in advance. 18. Provisions Onerous Dilapidations leases Other Total £m £m £m £m At 1 April 2005 22.7 - 19.3 42.0Charged to income statement for year 1.9 25.0 8.9 35.8Utilised in year (1.5) (5.2) (12.9) (19.6)At 31 March 2006 23.1 19.8 15.3 58.2Charged to income statement for period 0.1 0.5 5.9 6.5Utilised in period (5.0) (2.4) - (7.4)At 30 September 2006 18.2 17.9 21.2 57.3 19. Borrowings 30/9/06 30/9/05 31/3/06 £m £m £mUnsecuredAmounts payable under finance leases (note 22) 72.8 57.3 74.6Acquisition loan notes 2015 120.7 129.8 122.8Money market borrowings 135.2 70.4 43.6 328.7 257.5 241.0Secured5.016 percent Notes due 2007 181.7 181.6 181.64.625 percent Notes due 2013 299.5 - 299.55.292 percent Notes due 2015 390.6 392.4 390.64.875 percent Notes due 2019 395.5 - 395.45.425 percent Notes due 2022 254.4 256.3 254.34.875 percent Notes due 2023 296.8 - -5.391 percent Notes due 2026 209.7 209.6 209.75.391 percent Notes due 2027 608.3 610.5 608.25.376 percent Notes due 2029 316.2 316.1 316.25.396 percent Notes due 2032 320.9 321.3 320.9Bank facility due 2010 15.4 - 15.4Syndicated bank debt 800.0 848.2 748.4DWP term loan 235.0 251.4 248.8 4,324.0 3,387.4 3,989.0 4,652.7 3,644.9 4,230.0Bond exchange de-recognition adjustment (527.6) (551.0) (536.2)Fair value of interest rate swaps - qualifying hedges 1.7 7.4 4.3Fair value of interest rate swaps - non-qualifying hedges (0.8) 9.1 3.4Total borrowings 4,126.0 3,110.4 3,701.5Less: borrowings falling due within one year (note 16) (327.2) (76.3) (59.2)Plus: bond exchange de-recognition falling due within one year (note 16) 12.5 21.8 15.6Less: amounts payable under finance leases falling due within one year (2.1) (0.9) (3.1)(notes 16 and 22)Falling due after one year 3,809.2 3,055.0 3,654.8 All borrowings are denominated in Sterling. On 3 November 2004 a debt refinancing was completed resulting in the Groupexchanging all of its outstanding bond and debenture debt for new Notes. The newNotes do not meet the IAS 39 requirement to be substantially different from thedebt that it replaced. Consequently the book value of the new Notes is reducedto the book value of the original debt ('the bond exchange de-recognitionadjustment'). The adjustment will be amortised to zero over the life of the newNotes. The Notes and the committed bank facilities are secured on a fixed and floatingpool of assets ("the Security Group"). This grants the Group's investorssecurity over a pool of investment properties valued at £10.9bn at 30 September2006 (30 September 2005: £8.8bn; 31 March 2006: £9.4bn). The secured debtstructure has a tiered covenant regime which gives the Group substantialoperational flexibility when the loan to value and interest cover ratio in theSecurity Group are less than 65% and more than 1.45 times respectively. If theselimits are exceeded, operational restrictions increase significantly and couldact as an incentive to reduce gearing. The acquisition loan notes were issued by Retail Property Holdings TrustLimited, a subsidiary of the Group, as partial consideration for the purchase ofTops Estates PLC and the LxB portfolio. The notes are unsecured, however theyhave the benefit of a commercial bank guarantee. Interest is calculated withreference to six month LIBOR. The DWP term loan is a syndicated term loan due to expire in December 2017 andis secured on the freehold and long leasehold properties acquired from theDepartment of Work and Pensions. The carrying amount of the properties concernedwas £391.8m at 30 September 2006 (30 September 2005: £386.4m; 31 March 2006:£388.1m). The Group had interest rate swaps outstanding with a notional principal of£805.0m (30 September 2005: £390.0m; 31 March 2006: £615.0m) which do notqualify for hedge accounting and which terminate over the period 2007 to 2011.The contracts have fixed interest payments at an average rate of 4.9% and havefloating interest receipts at LIBOR. In addition, there were interest rate swaps outstanding with a notionalprincipal of £243.2m (30 September 2005: £235.6m; 31 March 2006: £243.2m) whichqualify for hedge accounting and which terminate over the period 2009 to 2017.The contracts have fixed interest payments at an average rate of 5.1% and havefloating interest receipts at LIBOR. The fair value of interest rate swaps is based on the market price of comparableinstruments at the balance sheet date. The fair values of short-term deposits,loans and overdrafts are assumed to approximate to their book values, as are thevalues of longer-term, floating rate bank loans. The Group's Notes are listed onthe Irish Stock Exchange and their fair values are based on their respectivemarket prices. Borrowings Undrawn committed facilities 30/9/06 30/9/05 31/3/06 30/9/06 30/9/05 31/3/06 £m £m £m £m £m £m The maturity profiles of the Group'sborrowings and the expiry periods of itsundrawn committed borrowing facilitiesare: One year or less, or on demand 316.8 55.4 46.7 - - -More than one year but no more than two 14.1 180.5 185.7 - - -yearsMore than two years but no more than five 819.0 861.8 780.8 702.0 1,150.0 1,252.0yearsMore than five years 2,976.1 2,012.7 2,688.3 - - - 4,126.0 3,110.4 3,701.5 702.0 1,150.0 1,252.0 30/9/06 30/9/05 31/3/06 £m £m £mThe fair value of the Group's borrowingsare:Book value 4,126.0 3,110.4 3,701.5Fair value 4,782.2 3,808.2 4,426.0Excess of fair value over book value (656.2) (697.8) (724.5) Of the excess of fair value over book value, £527.6m (30 September 2005:£551.0m; 31 March 2006: £536.2m) is the bond exchange de-recognition adjustment. 20. Pension benefits 30/9/06 30/9/05 31/3/06Analysis of the movement in the balance sheet deficit £m £m £m At beginning of period 6.5 10.9 10.9Charge / (credit) to operating profit 1.7 2.0 (4.4)Expected return on plan assets (4.4) (3.9) (7.3)Interest on schemes liabilities 3.8 3.7 7.2Employer contributions (1.6) (2.6) (4.9)Actuarial losses / (gains) 3.5 (5.2) 5.0At end of period 9.5 4.9 6.5 21. Deferred taxation Accelerated tax Capitalised Revaluation depreciation interest surplus Other TotalDeferred tax liabilities £m £m £m £m £m At 1 April 2005 (135.6) (28.9) (1,136.9) (158.7) (1,460.1)Net (charge) / credit to income statement for the (20.4) (8.9) (473.9) 8.1 (495.1)yearReleased in respect of property disposals during 17.8 11.3 10.9 (4.6) 35.4the yearDeferred tax on acquisition of a company (9.7) - (64.3) 0.5 (73.5)At 31 March 2006 (147.9) (26.5) (1,664.2) (154.7) (1,993.3)Net (charge) / credit to income statement for the (9.2) (3.6) (269.0) 3.1 (278.7)periodReleased in respect of property disposals during 3.6 - 20.8 - 24.4the periodDeferred tax on acquisition of a company - - - (0.3) (0.3)At 30 September 2006 (153.5) (30.1) (1,912.4) (151.9) (2,247.9) Pension Tax losses Hedges deficit Other Total £m £m £m £m £mDeferred tax assetsAt 1 April 2005 37.8 1.0 3.3 - 42.1Net (charge) / credit to income statement for the (20.3) 0.7 (2.8) 9.0 (13.4)yearReleased in respect of property disposals during (5.3) - - - (5.3)the yearCharged to equity - 0.6 1.5 - 2.1At 31 March 2006 12.2 2.3 2.0 9.0 25.5Net charge to income statement for the period (3.6) (1.3) (0.4) - (5.3)Released in respect of property disposals during - - - - -the periodCharged to equity - (0.7) 1.0 - 0.3At 30 September 2006 8.6 0.3 2.6 9.0 20.5 30/9/06 30/9/05 31/3/06Deferred tax is provided as follows: £m £m £m Excess of capital allowances over depreciation - investment properties 119.9 125.8 116.8Excess of capital allowances over d atio - operating 33.6 26.0 31.1propertiesCapitalised interest - investment properties 27.3 21.3 23.9Capitalised interest - operating and trading properties 2.8 1.0 2.6Revaluation surpluses - own 1,829.1 1,332.8 1,580.9Revaluation surpluses - acquired 83.3 83.3 83.3Tax losses (8.6) (23.1) (12.2)Other differences 140.0 146.5 141.4Total deferred tax 2,227.4 1,713.6 1,967.8Tax on capital gains that would become payable by the Group if it were todispose of all of its investmentproperties at the amount stated in the balance sheet 1,196.8 773.1 991.2Potential reduction in tax on contingent capital gains if properties were (25.1) (31.6) (28.3)sold within their owning companiesTax on contingent capital gains assuming no further mitigation 1,171.7 741.5 962.9 It has not been possible to determine the amounts that will crystallise withinone year as required by IFRS as it is not possible to determine whichproperties, if any, will be sold in the next financial period. It is the current intention of the Group to hold investment assets for thelong-term and the deferred tax provision has been calculated on this basis. 22. Obligations under finance leases 30/9/06 30/9/05 31/3/06 £m £m £mThe minimum lease payments under finance leases fall due as follows:Not later than one year 7.0 5.3 7.2Later than one year but not more than five 27.2 19.5 27.7More than five years 432.6 454.9 438.4 466.8 479.7 473.3Future finance charges on finance leases (394.0) (422.4) (398.7)Present value of finance lease liabilities (notes 9 and 19) 72.8 57.3 74.6The present value of finance lease liabilities is as follows:Not later than one year (notes 16 and 19) 2.1 0.9 3.1Later than one year but not more than five 8.8 2.8 5.6More than five years 61.9 53.6 65.9 72.8 57.3 74.6 The fair value of the Group's lease obligations, using a discounting rate of5.5%, is £90.6m (30 September 2005: £77.7m; 31 March 2006: £92.7m). 23. Total shareholders' equity Ordinary Own Share- Capital based Share redemption Retained shares shares payments premium reserve earnings* Total £m £m £m £m £m £m £m At 1 April 2005 46.8 (2.1) 3.3 31.4 30.5 5,940.4 6,050.3Exercise of options 0.1 - - 6.5 - - 6.6Fair value movement on - - - - - (3.7) (3.7) cash flow hedges - GroupFair value movemes - joint - - - - - (5.1) (5.1)venturesFair value of share-based - - 1.2 - - - 1.2paymentsOwn shares acquired - (1.9) - - - - (1.9)Actuarial gains on defined - - - - - 3.6 3.6benefit pension schemesDividend paid (note 6) - - - - - (153.8) (153.8)Profit for the financial period - - - - - 829.2 829.2At 30 September 2005 46.9 (4.0) 4.5 37.9 30.5 6,610.6 6,726.4Exercise of options - - - 5.3 - - 5.3Fair value movement on - - - - - 2.1 2.1 cash flow hedges - GroupFair value movement - joint - - - - - 3.2 3.2venturesFair value of share-based - - 2.4 - - - 2.4paymentsCost of shares awarded to - 0.6 (0.6) - - - -employeesActuarial losses on defined - - - - - (7.1) (7.1)benefit pension schemesDividend paid (note 6) - - - - - (85.1) (85.1)Profit for the financial period - - - - - 846.7 846.7At 31 March 2006 46.9 (3.4) 6.3 43.2 30.5 7,370.4 7,493.9Exercise of options 0.1 - - 4.7 - - 4.8Fair value movement - - - - - 1.9 1.9 on cash flow hedges - GroupFair value movement - joint - - - - - 1.3 1.3venturesFair value of share-based - - 2.6 - - - 2.6paymentsOwn shares acquired - (15.2) - - - (21.1) (36.3)Actuarial losses on defined - - - - - (2.5) (2.5)benefit pension schemesDividend paid (note 6) - - - - - (133.8) (133.8)Profit for the financial period - - - - - 859.8 859.8At 30 September 2006 47.0 (18.6) 8.9 47.9 30.5 8,076.0 8,191.7 * Included within retained earnings is £0.3m (30 September 2005: £nil; 31 March2006: £3.5m) of losses in respect of cash flow hedges. Own shares represents the cost of shares purchased in Land Securities Group PLCby the Employee Share Ownership Plan ('ESOP') which is operated by the Group inrespect of its commitment to the Deferred Bonus scheme. The number of sharesheld by the ESOP at 30 September 2006 was 961,057 (30 September 2005: 296,101;31 March 2006: 292,703). In addition, the Group has acquired shares in Land Securities Group PLC to beheld in treasury. 24. Cash flow from operating activities before tax Reconciliation of profit to net cash inflow from operating activities: 30/9/06 30/9/05 31/3/06 £m £m £mCash generated from operationsProfit for the financial period 859.8 829.2 1,675.9Income tax expense 318.4 355.2 683.3Profit before tax 1,178.2 1,184.4 2,359.2Distribution received from joint venture (Telereal) - (11.7) (11.7)Share of the profits of joint ventures (post-tax) (59.1) (37.4) (98.6) 1,119.1 1,135.3 2,248.9Interest income (4.2) (4.5) (7.3)Interest expense 114.7 99.7 201.8 Operating profit 1,229.6 1,230.5 2,443.4 Adjustments for:Depreciation 17.3 13.8 25.7Profit on disposal of non-current properties (33.6) (16.3) (74.5)Profit on disposal of joint venture (Telereal) - (293.0) (293.0)Net surplus on revaluation of investment properties (896.7) (726.0) (1,579.5)Goodwill impairment - 64.5 64.5Pension scheme charge / (credit) 1.7 2.0 (4.4) Changes in working capital:Decrease / (increase) in trading properties and long-term development 100.0 (37.6) (2.1)contracts(Increase) / decrease in receivables (135.7) 45.9 23.0Increase / (decrease) in payables 52.7 (39.3) (11.6)Net cash generated from operations 335.3 244.5 591.5 Independent review report to Land Securities Group PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 September 2006 which comprises the consolidated interimbalance sheet as at 30 September 2006 and the related consolidated interimstatements of income, cash flows and recognised income and expense for the sixmonths then ended and related notes. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of and has been approved by the directors. The Listing Rulesof the Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out inNote 1. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance. Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 September 2006. PricewaterhouseCoopers LLPChartered AccountantsLondon15 November 2006 Notes: (a) The maintenance and integrity of the Land Securities Group PLC web site isthe responsibility of the directors; the work carried out by the auditors doesnot involve consideration of these matters and, accordingly, the auditors acceptno responsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. This information is provided by RNS The company news service from the London Stock Exchange

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