Planning and the business cycle
A Land Securities Group case study

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Page 4: Planning - monitoring the environment

The planning cycle

Land Securities has a rolling five-year plan and is therefore always looking forward. At the end of each six month period the plan is reviewed, updated, and implemented by the Board of Directors. The planning cycle draws upon information from inside and outside the business. The directors use a five year financial business planning process together with a system called 'balance scorecard'. This is essentially a scorecard that uses financial and non-financial criteria to assess all aspects of the organisation's performance. This gives a clear indication of how well the business is doing as a whole and provides a clear indication to employees of the performance targets set for the business. As part of the business planning process each property is reviewed to make sure that it will provide a return on the investment made by the company, which can either be a return on the amount invested to buy the property or a return on any money that has been invested in the development of a property. This means that each investment property needs to have a long-term plan, based on detailed research and analysis, to help the Board evaluatethe future prospects for that property. If the research shows that the returns are slowing the directors may then decide to sell that property.

An essential part of planning is also to look closely at economic forecasts. These provide indicators that relate to the decisions the government and the Monetary Policy Committee might make together with employment and housing market factors which may impact on consumer demand. These all affect the business cycle and therefore Land Securities, its tenants and their customers. In the 2004 annual report, the Chairman Peter Birch predicts:

"future growth in asset value will be more dependent on rental growth and success in securing lettings". He continues: "we believe that our development and asset management skills will be one of the keys to the creation of attractive returns for our shareholders"

Many retail businesses have struggled this year and are reporting or warning of lower profits. This could be a problem for Land Securities. It might face large retailers reducing demand for floor space to cut costs as salesfall or retailers going bankrupt.

Corporate Review

Land Securities completed a Corporate Review in November 2005. The results suggested the Board of Directors believe that retailers generally have adopted a strategyof taking additional floor space to grow total sales. The review says this trend,

"explains the difference between retailer negative like-for-like sales growth and the positive absolute sales growth". The review continues "...we believe that demand for large and well- configured shops in strong trading locations will remain firm".

Financial highlights

The company explains that it has taken steps to acquire property offering long-term asset management and development opportunities, as well as good rental growth prospects. The company is confident that leasing and renting property has been successful and will remain so. This is shown in annual net rent between 2004 and 2005.

Land Securities Group | Planning and the business cycle