The financial information contained in this report does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The full accounts for the year ended 31 March 2005, which were prepared under UK GAAP and which received an unqualified report from the auditors, and did not contain a statement under s 237(2) or (3) of the Companies Act 1985, have been filed with the Registrar of Companies. The unaudited financial information contained in this report has been prepared on the basis of accounting policies set out below. Comparatives for the year ended 31 March 2005 contained within this report were published in a press release on 14 July 2005, which are unaudited, and further details and reconciliations explaining the transition to IFRS are available on the Group’s website.

The interim report was approved by the Board on 23 November 2005.

The financial information presented in this document is unaudited and has been prepared in accordance with International Financial Reporting Standards and International Accounting Standards (‘IFRS’ or as applicable ‘IAS’) and interpretations adopted by the International Accounting Standards Board (the ‘IASB’).

On 19 November 2004, the European Commission endorsed an amended version of IAS 39, “Financial Instruments: Recognition and Measurement” rather than the full version as previously published by the IASB. In accordance with guidance issued by the UK Accounting Standards Board, the full version of IAS 39, as issued by the IASB, has been adopted in the preparation of this financial information.

The financial information has been prepared under the historical cost convention, except for the revaluation of investment and development properties, fixed asset investments, certain financial instruments and deferred tax thereon. The principal accounting policies adopted are set out below.

Consolidation of subsidiaries, joint ventures and associates

The consolidated accounts include the accounts of The British Land Company PLC and all subsidiaries (entities controlled by British Land). Control is assumed where British Land has the power to govern the financial and operating policies of an investee entity so as to gain benefits from its activities.

The results of subsidiaries, joint ventures or associates acquired or disposed of during the year are included from the effective date of acquisition or to the effective date of disposal. Accounting practices of subsidiaries or associates and joint ventures, which differ from Group accounting policies are adjusted on consolidation.

Business combinations are accounted for under the acquisition method. Any excess of the purchase price of business combinations over the fair value of the assets, liabilities and contingent liabilities acquired and resulting deferred tax thereon is recognised as goodwill. Any discount received is credited to the income statement in the period of acquisition. All intragroup transactions, balances, income and expenses are eliminated on consolidation.

Joint ventures and associates are accounted for under the equity method, whereby the consolidated Balance Sheet incorporates the Group’s share of the net assets of its joint ventures and associates. The consolidated income statement incorporates the Group’s share of joint venture and associate profits after tax. Their profits include revaluation movements on investment properties.

Other investments

Other investments are shown at fair value. Any surplus or deficit arising on revaluation is recognised directly in the income statement.

Properties

Investment properties

Investment properties, including freehold and long leasehold properties, are independently valued each year on an open market basis. Any surplus or deficit arising is recognised in the income statement for the period.

Development properties

Development properties which were not previously investment properties are independently valued each year on an open market basis. A valuation in excess of a property’s historic cost is credited directly to equity within the revaluation reserve. Where the value of a property falls below its historic cost, the surplus or deficit on valuation is recognised in the income statement.

Where an investment property is being redeveloped the property is accounted for as if it were an investment property and any movement in valuation is recognised in the income statement.

The cost of properties in the course of development includes attributable interest and other associated outgoings. Interest is calculated on the development expenditure by reference to specific borrowings where relevant and otherwise on the average rate applicable to short-term loans. Interest is not capitalised where no development activity is taking place. A property ceases to be treated as a development property on practical completion.

Trading properties

Trading properties are stated at the lower of cost and net realisable value.

Property disposals and transfers

Disposals are recognised on completion: profits and losses arising are recognised through the income statement, the profit on disposal is determined as the difference between the sales proceeds and the carrying amount of the asset.

Intangible assets

Intangible assets, such as customer contracts, acquired through business combinations, are measured initially at fair value and are amortised on a straight-line basis over their estimated useful lives, and are subject to regular reviews for impairment.

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of the subsidiary, associate or jointly controlled entity at the time of acquisition. In particular, goodwill arises as a result of deferred tax provisions within the acquired entities’ accounts and on fair value adjustments. Goodwill is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed.

Head leases

Where an investment property is held under a head lease it is initially recognised as an asset as the sum of the premium paid on acquisition and the present value of minimum ground rent payments. The corresponding rent liability to the head leaseholder is included in the Balance Sheet as a finance lease obligation.

Financial instruments

Trade debtors and creditors

Trade debtors and creditors are stated at their nominal value. Trade debtors are reduced by appropriate allowances for estimated irrecoverable amounts.

Financial obligations

Debt instruments are stated at their net proceeds on issue. Finance charges including premiums payable on settlement or redemption and direct issue costs are spread over the period to redemption, using the effective interest method.

Hedging instruments

As defined by IAS 39, cash flow hedges are carried at fair value in the Balance Sheet. Changes in the fair value of derivatives that are designated and qualify as effective cash flow hedges are recognised directly in the hedging reserve and any ineffective portion is recognised in the income statement.

Fair value hedges are carried at fair value in the Balance Sheet. Changes in the fair value of derivatives that are designated and qualify as effective fair value hedges, are recorded in the income statement, along with any changes in the fair value of the hedged item that is attributable to the hedged risk. Any ineffective portion is also recognised in the income statement.

The Group’s use of financial derivatives is governed by the Group’s financing policies, details of which are included in the Financing Policy and Risk Management section of the Annual Report and Accounts.

Net rental income

Rental income is recognised on an accruals basis, exclusive of service charge recoveries. Rental income from fixed and minimum guaranteed rent reviews is recognised on a straight-line basis over the shorter of the entire lease term or the period to the first break option. Where rental income is recognised ahead of the related cash flow, an adjustment is made to ensure the carrying value of the related property including the accrued rent does not exceed the external valuation. A rent adjustment based on open market estimated rental value is recognised from the rent review date in relation to unsettled rent reviews.

Initial direct costs incurred in negotiating and arranging a new lease are amortised on a straight-line basis over the period from the date of lease commencement to the earliest termination date.

Where a lease incentive payment does not enhance the property, it is amortised on a straight-line basis over the period from the date of lease commencement to the earliest termination date. Where a rent free period is included in a lease, the rental income forgone is allocated evenly over the period from the date of lease commencement to the earliest termination date.

Service charges and other recoveries are credited directly against relevant expenditure.

Taxation

The tax expense represents the sum of the tax currently arising and deferred tax for the period.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, most notably revaluation movements, and it further excludes items that are never taxable or deductible. The liability is calculated using tax rates that have been enacted or substantially enacted by the balance sheet date.

Deferred tax assets and liabilities arise from differences between the carrying amounts of assets and liabilities in the balance sheet and their tax bases (known as ‘temporary differences’), principally due to revaluation movements on properties held for the long term. Deferred tax is provided in respect of all taxable temporary differences at the balance sheet date that may give rise to an obligation to pay more or less tax in the future. Deferred tax is measured on a non-discounted basis.

A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying temporary differences can be deducted.

On business combinations, the deferred tax effect of fair value adjustments is incorporated in the consolidated balance sheet.

Employee costs

Defined benefit pension scheme assets are measured using fair values; pension scheme liabilities are measured using the projected unit credit method and discounted at the rate of return of a high quality corporate bond of equivalent term to the scheme liabilities. The net surplus or deficit is recognised in full in the consolidated balance sheet. Any asset resulting from the calculation is limited to past service costs plus the present value of available refunds and reductions in future contributions to the plan.

The current service cost and gains and losses on settlement and curtailments are charged to operating profit. Past service costs are recognised in the income statement if the benefits have vested or, if they have not vested, are amortised on a straight-line basis over the period until vesting occurs. Actuarial gains and losses are recognised in full in the period in which they occur and are presented in the statement of recognised income and expense.

Contributions to the Group’s defined contribution schemes are expensed on the basis of the contracted annual contribution.

Share-based incentives

The fair value of equity-settled share-based payments to employees is determined at the date of grant and is expensed on a straight-line basis over the vesting period based on the Group’s estimate of shares or options that will eventually vest. In the case of options granted, fair value is measured by a Black-Scholes pricing model.

IFRS transitional arrangements

When preparing the Group’s IFRS balance sheet at 1 April 2004, the date of transition, the following material optional exemptions from full retrospective application of IFRS accounting policies have been adopted:

  • Business combinations – the provisions of IFRS 3 ‘Business combinations’ have been applied prospectively from 1 April 2004. The Group has chosen to not restate business combinations that took place before the date of transition; and
  • Employee benefits – the accumulated actuarial gains and losses in respect of employee defined benefit plans have been recognised in full through reserves.

Financial Instruments – the Group has applied IAS 32 ‘Financial Instruments: Disclosure and Presentation’ and IAS 39 ‘Financial Instruments: Recognition and Measurement’ for all periods presented and has therefore not taken advantage of the option that would enable the Group to only apply these standards from 1 April 2005.