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St. Modwen Props (SMP)

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Monday 07 February, 2011

St. Modwen Props

Final Results

RNS Number : 7536A
St. Modwen Properties PLC
07 February 2011
 



7 February 2011

 

St. Modwen Properties PLC

 

Results for the year ended 30th November 2010

St. Modwen Properties PLC, the UK's leading regeneration specialist, announces annual results for the year ended 30th November 2010.

HIGHLIGHTS:

·      Net assets per share up by 9% to 218p (2009: 200p), EPRA up 7% to 234p (2009: 219p)

·      Profit before tax increased to £37.5m (2009: loss of £119.4m)

·      Property profits* increased to £21.9m (2009: £7.6m)

·      Rent roll increased by 5% to £46m with voids reduced to 12% (2009: 17%)

·      Valuation gains* of £23 million (2009: loss of £122 million)

·      Strong pipeline of development opportunities / schemes

·      Persimmon joint venture to develop 2,000 houses over seven sites

·      Dividends resumed

 

*including our share of joint ventures and associates as detailed in note 2.

 

Anthony Glossop, Chairman, comments:

"As we look forward, our financial position is sound; our business model will increasingly create value; our valuations are prudent and our recurring income is robust. We are also in a good position to seize attractive opportunities to add further to the hopper, our regional teams continue to find opportunities to generate value and we are seeing a gradual recovery of liquidity in our key markets." 

 

Bill Oliver, Chief Executive, comments:

"Looking ahead, we are confident that St. Modwen's long-established strategy will once again give us the opportunity to provide sector-leading returns to shareholders.

 

"We have a strong balance sheet and a landbank that is full of latent value. Our development pipeline for 2011 and beyond is strengthening and a number of significant schemes are being marshalled for delivery in future years.

 

"Our asset management capability is proving invaluable in maintaining occupancy and rent levels, and we are confident that we will be able to continue with the positive progress in this area that we have demonstrated in the past two years.

 

"As a result, we believe that we are well positioned to deliver profit and net asset value growth in 2011, despite the ongoing uncertain market conditions."

 

 

 

ENQUIRIES:

 

St. Modwen Properties PLC

Tel: 0121 222 9400

Bill Oliver, Chief Executive

www.stmodwen.co.uk

Michael Dunn, Finance Director


Charlotte McCarthy, PR Manager




Financial Dynamics

Tel: 020 7831 3113

Stephanie Highett / Richard Sunderland / Will Henderson


 

A presentation for analysts and investors will be held at 9.30am today at the offices of  Numis Securities, 10 Paternoster Square, London, EC4M 7LT. If you would like to attend, please contact Lianne Robinson at Financial Dynamics (stmodwen@fd.com, 020 7831 3113).

 

 

Chairman's Statement

 

Dear Shareholder,

 

In my final statement to you as Chairman and as predicted in our half year and interim management statements, I am pleased to be able to report on a strong recovery by your company with a return to profit and NAV growth.

 

Profit before tax was £37.5m (2009: loss of £119.4m) with net asset value per share growing by 9% to 218p (2009: 200p).

 

These results were driven by significant progress in property profits* to £21.9m (2009: £7.6m) and a recovery in valuation gains* of £23.0m (2009: loss of £122.3m), of which £17.6m were attributable to asset management initiatives, progressing our projects through the planning and development stages ("marshalling") and other added value activities.

 

These achievements resulted in a 7% increase in our diluted EPRA net asset value, which now stands at 234p per share (2009: 219p) and helped generate a positive operational cashflow and enabled us to reduce our gearing to 72% (2009: 80%).

 

Our active approach to asset management has led to an increase in recurring income and our rent roll, and vacancy levels within our portfolio have reduced to 12% (2009: 17%).  Our financial position has been further improved by active management of our funding requirements, through adding to and extending our existing banking facilities.

 

Dividends

 

On the back of this recovery, dividend payments were resumed at the half year and your board is now recommending a final dividend of 2p (2009: nil) per ordinary share, making a total distribution for the year of 3p (2009: nil). This final dividend will be paid on 4 April 2011 to shareholders on the register on 11 March 2011.

 

Strategy

 

Our strategy is a long-standing and consistent one: to add value to the properties we control through remediation, marshalling, asset management, development and delivery by our first rate regional teams, focusing on areas where our regeneration and brownfield expertise enables us to generate profits in commercial and residential development. 

 

Our business model has evolved over many years to ensure that our longer-term development activities are underpinned by a reliable, recurring income stream (and capital appreciation) generated by our portfolio of rent-producing properties.  These assets are now valued at over £500m, representing 50% by value of our total portfolio, and ensure we can progress our developments in a controlled and profitable manner. 

 

In addition, we own an extensive landbank (our "hopper") of over 5,700 developable acres, 28% of which comprises land earmarked for residential development.

 

During the course of this year, many commentators have focused their attention on the prospects for 'prime' assets.  It is therefore pleasing that we have been able demonstrably to deliver against our strategy and business model and record healthy year-on-year growth in profits, property valuations and net asset values.  Our development and remediation activity levels have improved; we have continued to progress our schemes successfully through the planning process to ensure a pipeline of future activity and added value, and the hopper of development opportunities has increased to record levels through a programme of selective acquisitions. 

 

We are always looking to challenge and improve this strategy.  Our groundbreaking joint venture with Persimmon, which covers 2,000 plots on seven sites, is a clear example of how we are able to extract value (and cash) from the longer-term residential assets in the hopper, accelerating the use of our residential land stock and improving profitability.

 

 

Directors and Employees

 

At the forthcoming Annual General Meeting, Ian Menzies-Gow will retire after nine years service, the last two as Senior Independent Director. His robust and incisive contribution to board debate was always of the greatest assistance and I would like to thank him for his considerable help.

 

It is intended that Ian will be replaced as Senior Independent Director by David Garman who joined us in April 2010 as a non-executive director. David has a broad range of industrial experience both in an executive and non-executive capacity, which I expect to be of great assistance to the company.

 

I will also step down as Chairman at the same time and I would like to welcome Bill Shannon who joined us in November 2010 as my designated successor. He had a long and successful executive career with Whitbread PLC before establishing himself as a respected non-executive.

 

We also welcome Michael Dunn as Group Finance Director. He joined in December 2010 to replace Tim Haywood who left us last year after almost eight years' service with the company. Michael, who joined us from May Gurney, has extensive experience of working for publicly listed companies in the construction and outsourcing sectors and will be a great asset to the company.

 

The fact that the company has emerged from the undoubted challenges of the past three years in such good shape is largely due to the expertise and drive of the company`s employees at all levels in the organisation. Their dedication and skill has been of the highest order. They have been a pleasure to work with.

 

Prospects

 

Although the property market and broader economic prospects remain uncertain, and the impact of spending cuts has yet to be fully felt, we are nevertheless confident of the prospects for the company.  We have a long track record of generating value from our traditional activities of regeneration and the proactive management of 'secondary' assets. The results for the year to 30 November 2010 demonstrate that we have been able to manage our business and assets through the global crisis while continuing to progress our portfolio of development projects, to ensure the company is well positioned to deliver value for our shareholders.

 

As we look forward, our financial position is sound; our business model will increasingly create value; our valuations are prudent and our recurring income is robust. We are also in a good position to seize attractive opportunities to add further to the Hopper, our regional teams continue to find opportunities to generate value and we are seeing a gradual recovery of liquidity in our key markets. 

 

I am confident that I leave the company in capable hands and that 2011 will be a year of further progress.

 

Anthony Glossop

Chairman

 

4 February 2011

 

* Including our share of joint ventures and associates as detailed in note 2.

 



Chief Executive's Review

 

We are proud to be recognised as the UK's leading regeneration specialist. Our regeneration activities and the complex schemes we deliver make a real and lasting difference and provide an economic boost to many deprived areas across the country.

 

Our return to profit is testament to the strength of our business, the hard work and skill of our employees and our proven strategy of adding value to the portfolio of properties we own and manage. The performance is also a result of our regional presence which differentiates us from many of our competitors and has kept us in tune with the needs of local communities and businesses. It has also enabled us to continue to access sites that offer us the potential to apply our expertise to create value for our shareholders, partners and stakeholders.

 

Our balanced business model ensures that our development activities are underpinned by a reliable, recurring income stream from our £525m portfolio of rent-producing properties. This enables us to fund our cost base and progress our longer-term regeneration projects in a risk-averse and profitable manner.

 

Our extensive and very diverse hopper of over 5,700 developable acres is controlled and managed through a network of seven teams across the UK, comprising highly skilled and experienced professionals. This enables us to adopt a detailed and hands-on approach to all aspects of our schemes, enabling us to deliver sector-leading results.  Our long-standing emphasis on value creation enables us to deliver more than market valuation movements for our portfolio, as we marshal assets from our hopper through the planning process to higher value uses.

 

There are three main areas of focus for our business, each supported by our proven business strategy:

 

1.   Income-producing investments - representing 50% by value of our portfolio. Our strategy is to acquire income producing properties where we can add value through our asset management and development expertise. Our recurring income, generated from an extensive and diversified rent roll, enables us to continue to operate profitably, meeting the running and financing costs of the business.

2.   Residential land - 38% by value of our portfolio.  We acquire and develop land with the potential for residential development.  Our asset management skills enable us to add value throughout the development process, realising value through land sales or by development either in joint ventures or solely through our in-house development teams. Our skills in driving our landholdings through the planning process, brownfield land remediation and other aspects of regeneration and development make us an attractive partner to landowners, local authorities and central government agencies.

3.   Commercial land - 12% by value of our portfolio.  Our ability to marshal land through the planning process and offer 'oven ready' sites for development means that we are able to meet occupiers' demands swiftly and take advantage of a growing demand for pre-let and design and build opportunities arising from a decreasing supply of stock across the UK.

 

Our Market

 

We have witnessed some improvement in market conditions over the last 12 months. Our broad range and our regional spread of development and regeneration activities has enabled us to continue to secure business across a wide variety of sectors, achieving property sales, including our share of JVs, of £125m.

 

Our levels of development activity are still lower than we are used to historically but we do compare well to the rest of the marketplace, with a good programme of activity in place for 2011 and beyond.

 

As we forecast last year, our valuations at 30 November 2010 were reflective of more stable market conditions after a long period of uncertainty, with an average positive yield shift of 0.5%. The value of our commercial land has stabilized, while the valuation of our residential land has encouragingly recovered a small element of the values previously written off.  We believe this may reflect the start of a recovery in the market for residential land, as evidenced by the transactions we have completed during the year and since the year-end.

 

Competitive and Regulatory Environment

 

The lack of readily-available finance and the continuing drive to de-gear and de-risk their businesses has restricted many developers' appetite and ability to compete for new development schemes. Speculative development remains almost non-existent and there are still very few developers who are both willing to bid for, and able to finance, new schemes.

 

By contrast, in this new competitive landscape, we are operating in our chosen regional and secondary markets from a position of strength. We are identifying an increasing stream of opportunities, both for acquisitions and for developments which offer clear potential to create and enhance value for our shareholders. As a result, we are able to report on yet another very successful year for our hopper, which at over 5,700 acres, once again stands at record levels.

 

Despite some of the gloomier forecasts to the contrary, we have also continued to benefit from the relative resilience of our occupier markets, underpinned by our own focus on specific active asset management initiatives.

 

This year we have been highly successful in both reducing void levels and increasing the rent roll. Our secondary retail centres in particular are continuing to perform strongly, with high occupancy and robust rental levels. We are also seeing an increased level of enquiries for new development space, with a number of sizeable opportunities now coming to fruition; for example we are in advanced discussions with Siemens in Lincoln to develop a new 127,000 sq ft manufacturing facility.

 

On face value, the regulatory environment remains cumbersome and complex.  However,  we remain optimistic that the latest planning process reforms will not have an adverse impact while local authorities seek to make sense of their new-found powers and responsibilities, including the proposed abolition of regional spatial strategies, the replacement of Regional Development Agencies with Local Enterprise Partnerships and the merger of the Housing and Communities Agency with English Partnerships.

 

One of the company's key skills is being able to work our schemes through the planning system in a responsive and time-efficient manner.  For this reason, the more restrictive a system becomes, the more our skills are needed, and potentially, the greater the value that is created by our marshalling activities. Furthermore, sites with a secured planning consent (of which we have many, including 20,724 residential plots with a recognised planning status) should command an increasing premium while the system adjusts to operate in the more efficient way intended.

 

Outlook

 

Looking ahead, we are confident that St Modwen's long-established strategy will once again give us the opportunity to provide sector-leading returns to shareholders.

 

We continue to adopt a cautious, but opportunistic, stance to changing conditions.  The expertise and knowledge that we have built up over many years in diverse markets across the UK will ensure that we are strongly placed to continue to identify and secure opportunities in the markets that are most active and offer the best potential to create value.

 

We have a strong balance sheet and a landbank that is full of latent value. Our development pipeline for 2011 and beyond is strengthening and a number of significant schemes are being marshalled for delivery in future years.

 

Our asset management capability is proving invaluable in maintaining occupancy and rent levels, and we are confident that we will be able to continue with the positive progress in this area that we have demonstrated in the past two years.

 

As a result, we believe that we are well positioned to deliver profit and net asset value growth in 2011, despite the ongoing uncertain market conditions.

 

Bill Oliver

Chief Executive

4 February 2011

 

Operating and Financial Review

 

Business Model and Strategy

 

Our established business strategy is to add maximum value to the land and property assets we own through remediation, marshalling, asset management and development and subsequently to recycle the capital released on sale into the acquisition of new opportunities.

 

We operate predominantly in locations where we are able to offer value for money to occupiers and undertake substantial planning or remediation activities to transform asset values. It is in these locations, via our regeneration activities, where we can make a positive and lasting difference by providing the right physical and economic infrastructure for businesses and communities to evolve and develop. Regardless of recent generic market commentary, we continue to experience improving market conditions for the type of secondary properties in our portfolio which are proving remarkably robust in terms of rental and occupation levels.

 

Obtaining control of opportunities through self-financing transactions has always been part of our hopper strategy. This year, our total expenditure on new acquisitions was only £31m which added 375 acres of developable land to the portfolio, of which 318 acres were via options and development agreements. As a result, our hopper now stands at the record level of 5,736 developable acres. This landholding is very broadly based, comprising over 180 separate schemes, across all sectors of the property market.

 

Hopper Analysis                                            2010                            2009

(acres)

 

Developable

Retail and leisure                                                 368                              433

Employment                                                     2,927                           2,735

Residential                                                        1,550                           1,564

Unspecified                                                         891                              872

 

                                                                        5,736                           5,604

                                                                       

During the past year, we have not undertaken any speculative development, but have continued to advance sites for development on the back of pre-let or pre-sold opportunities.

 

Our strategy of constantly seeking to add value to the properties we own (whether through asset management, remediation or driving them through the planning process) has also continued to deliver tangible progress. During the year, we achieved a number of important planning consents and advanced the status of several of our key schemes, generating added value gains of £18m (2009: £27m).

  

We have also continued to dispose of mature assets and those developed specifically for sale. We have completed over 50 disposals in the year realising £125m which includes our share of JVs and £22m of disposal profits, enabling us to reinvest in new long-term opportunities.

 

 

Employees

 

St Modwen's business model is based on a hands-on approach in all areas: asset management; marshalling; remediation; construction and development. As a result, the skill of our people is fundamental to our success. Therefore, as we emerge from financially-constrained times, we will continue to retain and incentivise and to grow the abilities of the talented people who will be the drivers of the company's future expansion.

 

Financial Objectives

 

St. Modwen's financial objectives over the past year have been to deliver positive NAV growth and resume dividend payments; to grow the recurring income; to optimise the company's cashflow and financing position; and to be in the best possible shape to capture new acquisition or development opportunities.

 

With the stabilisation of property valuations, we are pleased to have returned to profitability, reporting a profit before tax of £37.5m (2009: £119.4m loss).  Our NAV per share has grown 9% to 218p per share and the EPRA equivalent 7% to 234p (2009: 219p).  Our recurring gross rent roll has grown to £45.7m (2009: £43.0m) with voids reduced to 12% (2009: 17%).

 

This, and our confidence in the robustness of our net asset value and our prospects for the coming year, enabled us to resume the payment of dividends during the year. An interim dividend of 1p per share was paid in September, and the board is recommending a final dividend of 2p.

 

In the current (less liquid, more cautious) market, our business model is - perhaps counter-intuitively - particularly appropriate.  Our prudent approach to financing, excellent relationships with our key banks and strengthened balance sheet following the Placing and Placing and Open Offer in 2009 has given us a stable financial footing and ensured we have significant capacity for growth as market conditions improve.

 

The company is trading within all its banking covenants and our forward projections show a continuation of that position.

 

A further key objective for the year was to renew and extend the maturity of our banking facilities to ensure that sufficient funding remained in place for the company's medium-term requirements. We have realised this aim and renewal dates for the majority of our existing facilities have been extended to 2014/15 with no changes to the existing terms and conditions. The earliest significant maturity date is now September 2012 and the weighted average maturity of the group's facilities at the date of this report is now 3.7 years (November 2009: 3.0 years).

 

Income Producing Investments

 

Hands-on asset management is a very significant part of our business model. Our regional teams have been very active during the period, working closely with tenants to mitigate the impact on our rent roll of the current difficult market conditions.  The effect of asset disposals, tenant failures and vacations was more than offset by our successes in letting void space and newly-completed developments giving us an overall increase in net rental income.

 

The benefit of this pragmatic and hands-on approach is shown by the fact that our like-for-like gross rent roll has increased by £1.9m to £45.7m since 30 November 2009. This reflects our success in achieving £7.8m of new lettings to offset rent lost of £5.7m due to vacations and £0.2m due to tenant failures in the period. This activity has enabled us to reduce our overall portfolio void to 11.8% and reduce the level of unsold stock to £66.3m.

 

Rental income by sector

 

                                2010       2009

                                    %            %

 

Industrial                      55           52

Retail                           35           39

Offices                         10             9

 

  

While we may see continued pressure on our net rents in 2011, as the macro-economic conditions continue to give rise to increased unemployment and a reduction in consumer spending, our rents are at the affordable end of the scale.  We believe this will provide some insulation from the effect of further tenant failures. 

 


Income producing investments - key highlights during the year:

 

  • During the year we acquired the ETP portfolio, an eleven-site portfolio of industrial estates for £21.4 m. With a rental income of £2.2 m, this represents a net initial yield of 10.3%. The portfolio, comprises 610,000 sq ft of multi-let industrial assets located throughout the Midlands and North of England, including Birmingham, Sheffield and Stoke on Trent. It includes some 75 occupational leases, let to 60 tenants, with a void level of 3%.
  • Testament to the fact that well located and well managed secondary retail property can prove to be a reliable investment is the Elephant and Castle Shopping Centre in London. The Centre now comprises 82 tenants and occupancy has increased from 93% to 98% during 2010. As a result of 15 new lettings and lease renewals, the net rent receivable has increased by 3.2% during the year to £3.8m per annum.

 

Outlook

 

We continue to see opportunities to add to our income-producing portfolio.  Our regional presence, flexible funding and appetite for assets that generate income but have the potential for future development is enabling us to move quickly, which provides us with an advantage in the current marketplace.  We anticipate acquiring further income-producing assets at attractive yields, and believe that our active asset management will continue to add value.

 

 

Residential Land

 

The gradual recovery of the residential market, and the consequent erosion of housebuilders' landbanks and housing stock levels has seen a re-emergence of demand for residential land, particularly for our type of 'oven-ready' consented sites that can be brought quickly into production.

 

This is demonstrated by our disposal of 40 acres during the year and the signing of the strategic joint venture with Persimmon to develop an initial seven sites. This JV will unlock considerable value and cash from our residential land bank as well as delivering development profit from house sales.

 

As an example of our acquisition activity in the year, we have concluded an agreement with Branston Properties Ltd to acquire, subject to planning, a 280 acre site near Burton-on-Trent. We anticipate the site being brought forward for a mixed use development of 500 new homes and 650,000 sq ft of employment space.

 

Marshalling:

 

The planning position on our residential land bank is now:

 


Nov 10

 

Nov 09

Planning status

Acres

Units

Acres

Units

 

Allocated in local plan or similar

Resolution to grant permission

Outline permission granted

Detailed permission granted

Sub-total

 

No planning recognition

 

TOTAL

 

 

 

   309

     39

   794

     68

1,210

 

   340

 

1,550

 

  6,550

     806

12,239

  1,129

20,724

 

  4,081

 

24,805

  

   231

   323

   517

     32

1,103

 

   440

 

1,543

 

  6,134

  5,230

  7,887

     833

20,084

 

  4,956

 

25,040

Planning progress - key highlights during the year:

 

·    Two sites at Longbridge and Weston-super-Mare have received detailed planning consent for residential development totalling 215 new homes. With the benefit of HCA funding, demonstrating our ability to actively manage development without major use of our own funds, these sites are being developed directly by the company under its house-building brand, St. Modwen Homes.

·    South Ockendon, Essex - we received outline planning permission for 650 homes on a 31 acre former car factory which we acquired from Ford in 2006. This scheme will form a key part of the delivery of new housing in the Thames Gateway region.

 

In addition, the following major planning applications are being progressed in 2011:

 

·    Mill Hill - as part of a consortium with neighbouring landowners, we have submitted plans for a comprehensive development of our 83 acre former MoD site comprising 2,174 new homes, 11,800 sq ft of new retail, 37,000 sq ft of commercial space, a GP surgery, an energy centre and two primary schools.

·    Uxbridge - plans for the extensive development of this 108 acre former MoD site includes 1,373 new homes, 31,000 sq ft of new retail and 145,000 sq ft of new office space, together with a 77 bed retirement home, 1,200 seat theatre, 6,300 sq ft community/museum uses, an energy centre, a GP surgery, 90 bed hotel and three primary schools, for which outline planning was granted in January.2011.

 

Delivery and disposal - key examples:

 

·    One of the key transactions during the year was the signing of a joint venture agreement with Persimmon PLC to develop 2,000 homes on seven of our sites. The development of this 120 acres of land will take up to five years to complete and should have an end value of over £300m. The structure of the JV accelerates the realisation of value from our hopper, and also enables us to share in the future value of the houses built. We anticipate that the transaction will be cash positive for us in 2011, and will remain so throughout the duration of the JV.

·    We have sold 29 acres of residential land for a total consideration of £40.5m at values equal to, or ahead of book value: 20 acres at the former MoD site at Bentley Priory, Stanmore to Barratt Developments; four acres at Haywards Heath to Crest Nicholson; and five acres at Newton le Willows to Jones Homes.

 

Outlook

 

Our ability to be flexible and innovative gives us confidence that we will continue to unlock the value from our substantial and diverse landbank.  Our developments in progress should generate increases in NAV over the coming years while our landbank should prove a valuable long term asset as the housing market recovery accelerates.

 

 

Commercial Land Development

 

In line with the rest of the market, we are not currently undertaking any speculative development.  However,  our regional structure enables us to continue to drive our land holdings through the planning process and offer occupiers 'oven ready' sites for development. This means that we are well placed to take advantage of the resulting and growing demand for pre-let and design and build opportunities.

 

Our brownfield remediation expertise makes us an attractive proposition to landowners who trust us implicitly to remove the risk from their sites.

 

Acquisitions - key examples during the year:

 

·    Hednesford - a vehicle component factory from ATP Industries Group, in a deal which unlocks the development potential of the £50m Hednesford Gateway scheme in Cannock Chase, Staffordshire. The factory will be demolished in 2011 to clear the way for future development. Following the demolition programme, a new 80,000 sq ft foodstore will be constructed, for which planning has been obtained during the year.

·    Crawley - an option to acquire, subject to planning, a 100 acre site at Copthorn adjacent to the M23 near Crawley and Gatwick for employment-led development.

 

Planning progress - key highlights:

·    Exeter - outline planning consent has been obtained for our £120m Skypark development near Exeter Airport, together with detailed consent for the first phase. Funded by the Low Carbon Infrastructure Fund of HCA, the innovative first phase is set to comprise a £20m Energy Centre - the first of its kind on this scale in the UK - which will be run by E.ON, and which will provide sustainable energy for the entire scheme and the neighbouring community of Cranbrook.

·    Longbridge Town Centre - Proposals have been submitted for the £70m next phase of the town centre which include 80,000 sq ft of retail space, a major 85,000 sq ft foodstore, a 75 bed hotel and 40 two-bedroom apartments, together with community space access roads and continued local road improvements to join the town centre with the newly-built £66 m Bournville College.

 

Delivery and disposal - key examples:

 

Some of the principal disposals which were all made at or above book value, in the period were:

·    Catford shopping centre and parade of shops - sold to Lewisham Borough Council for £11.5m.

·    The Malls, Basingstoke - our joint venture, KPI, sold its 65% share in this 300,000 sq ft shopping centre to Basingstoke & Deane Borough Council (who owned the remaining 35%) for £15.3m.

 

Key employment schemes include:

·    The 300,000 sq ft waste treatment and recycling facility at Avonmouth for New Earth Solutions is on target for completion in Spring 2011.  

·    Works have also commenced on the construction of the pre-sold 48,000 sq ft office complex for Manchester City Council in Wythenshawe.

 

We have also made significant progress on a number of important town centre, retail and public sector schemes:

·    Wembley - Our Wembley Central scheme will provide 135,000 sq ft of retail and leisure space, together with 117 private apartments and 85 affordable homes already completed on site. During 2010, 23,000 sq ft of office space in Ramsey House was refurbished; the fitting out of the first phase of 117 apartments was completed, of which 50 have been sold or let; Co-Op have completed a lease on 10,000 sq ft and will commence trading in March 2011; and terms have been agreed with Travelodge for a new 86 bed hotel.

·    We have completed the 72,000 sq ft retail scheme at Connah's Quay, Flintshire including a new 52,000 sq ft Morrisons food store which commenced trading in November 2010. Over 300 new jobs have been created at the Ffordd Llanarth site, which has attracted lettings from a wide range of national retailers including Greggs, Bargain Booze, Just Go Travel, and Home Bargains.

·    We completed and handed over the 150,000 sq ft Warwickshire College at our Rugby site in time for the first intake of students in September 2010. Work is also progressing on schedule and budget towards completion of the flagship six storey 250,000 sq ft £66m Bournville College at Longbridge, to be opened to over 10,000 studentsin September 2012.

 

Outlook

 

Our developments in progress should continue to generate value.  While we do not foresee returning to speculative development in the near future, our regional presence is enabling us to find development opportunities that can be satisfied by our existing landbank.  We are currently in negotiations to secure a number of opportunities that should enable us to continue to create value and generate good profits over the next few years.

    


FINANCIAL REVIEW

 

Trading profit

 

Our business model is based on core rental and other income covering the running costs of the company (property outgoings, overheads and interest) which provides a stable base from which the Group can maximise its development activities.

 

 

(£m)*                                       2010                2009

                       

Net rental income                      33.7                 33.5                

Property profits                         21.9                   7.6                

Other income                              3.1                   1.8                

Administrative expenses           (17.1)               (14.1)               

Bank interest*                          (24.2)                20.4)               

 

Trading Profit                           17.4                   8.4 

*see note 2 of the financial statements

 

Net rental income

 

During the course of the year we have focused on our asset management activity in order to safeguard our future rental returns.

 

At 30 November 2010 the like-for-like gross rent roll, including our share of rent from joint ventures, had increased from £43.0m to £45.7m. At the year end our overall voids had been reduced considerably to 12% (2009: 17%).   Furthermore we have increased our weighted average lease length to 5.1 years (2009: 4.3 years).

 

            Property profits

 

Property profits, including our share of joint ventures, were £21.9m (2009: £7.6m), with significant contributions from our remediation contracts with BP at Coed Darcy and Baglan Bay, a number of pre-let and pre-sold developments (including for Manchester City Council, New Earth Solutions, Morrisons and Bournville and Rugby Colleges), as well as the disposal of residential land.


Property Valuations

 

All of our investment properties (including land) are valued every six months by King Sturge LLP at market value, and our work in progress is also independently assessed, where appropriate, for any impairment issues.

 

PROPERTY PORTFOLIO (£m)*

 

                                                                        2010                2009   

           

Residential land                                                 400                  339

Commercial land                                               130                  155

Income producing

            Retail                                                    194                  197

            Offices                                                   60                    63

            Industrial                                              271                  253                 

 

Total                                                            1,055               1,007

 

·    including the Group's share of joint ventures and associates (excluding minimum lease payments). 

·    valuation numbers include investment properties and legally owned properties held in inventory (except for those inventory properties already contracted for transfer under the Project MoDEL agreements).

 

The valuation of our investment properties reflects both market movements and the value added by our own activities, including the achievement of marshalling milestones in the planning process. The calculation of this added value reflects the present value of future cash flows, based on existing land prices and the current best estimate of costs to be incurred.

 

2010 was another year of uncertainty in the real estate investment market, but one in which values recovered some of the losses of the previous two years. Our valuations at 30 November 2010 reflect a stabilised secondary property market, with our investment property valuations having increased overall by £29m (3%) during the year.

 

In the first half of the year, we saw the gradual return of some real estate investor appetite and an increasing level of housebuilding activity, resulting in an overall uplift of £24m. In the second half, these trends had stabilised and both investment yields and underlying land values were more stable with a movement of £5m. Throughout the year, we produced significant gains through our marshalling and asset management efforts which added value to the underlying market movements, the beneficial impact of this can be seen in the table below:


 

INVESTMENT PROPERTY VALUATION MOVEMENTS (£m)*

                                                                                    2010                            2009

                                                                        H1       H2       Total                Total

Market value movement                                      9        2          11                    (134)

Marshalling and asset management                    15        3          18                       27

 

Total                                                                24        5          29                    (107)

 

*including the Group's share of joint ventures and associates

 

The valuation of our residential land portfolio was thoroughly market-tested during the year by the sale of land during the year and the formation of the joint venture with Persimmon over a further seven sites: in all cases, our carrying values were proven by these market transactions. Furthermore, our ability via this Persimmon JV to participate in the future housebuilding profits implies that there is a further stream of value to come from this portfolio which has not yet been fully recognised.

 

Of the overall investment property valuation movements of £29m, our valuers consider that over 60%, or £18m, is due to value added by our own management of the assets. This is an achievement consistent with our expectations and one that gives us confidence in our future valuations.

 

Administrative expenses

 

We continue to maintain close control over underlying costs. Underlying recurring costs have remained stable. We have, however, incurred £2.2m of restructuring costs in the year as we rationalised our properties and reorganised our internal legal structure in line with approved tax planning activities. Due to the successful outcome to the year we have also reintroduced the staff bonus scheme.

 

As a consequence of the factors above, administrative expenses (including our share of joint ventures) have moved during the year to £17.1m (2009: £14.1m).

 

            Joint ventures and associates

 

Our share of the post tax results of joint ventures and associates is shown on the income statement as one net figure. A full analysis of the underlying details is disclosed in note 8. The principal joint venture in which the group is involved is Key Property Investments Limited, which recorded a profit of £16.6m of which our share was £8.3m (2009: £22.1m loss).

 

 Finance costs and income

 

Net finance charges (including our share of joint ventures) have reduced to £26.4m (2009: £26.7m). The level of charges was due to the following principal factors: lower borrowing levels; reduced mark-to-market costs; partly offset by increased borrowing costs.

 

As a result of low and stable interest rates and the renegotiating of some of our hedging contracts (at zero cost) with our banks, the revaluation of our interest rate swap contracts (which have a weighted average cost before margin of 4.6%) to market value at year-end resulted in a net credit to the Income Statement of £0.1m (2009: charge £5.9m).

 

The impact of the renegotiation of our banking covenants mid way through 2009 was to increase the weighted average margin on our facilities by 113 basis points to 199 basis points.

 

            Net finance charges also include a charge of £1.6m (2009: £0.2m) for the amortisation of the discounted deferred consideration payable to the MoD in respect of Project MoDEL.

 

            During 2010, the Group continued to expense all interest as it has arisen, and has not capitalised any interest on its developments or its investments.

 

Profit before Tax

 

With the stabilisation of property valuations, we are pleased to have returned to profitability, reporting a profit before tax of £37.5m (2009: £119.4m loss). 

 

Taxation and Profits After Tax

 

The effective tax credit for the year, including our share of joint ventures, is £0.8m (2009: £17.7 million).

 

This rate is substantially lower than the standard rate of UK Corporation Tax due to the utilisation of previous years' tax losses and allowances.

 

It is anticipated that, with the continued utilisation of these losses and of other tax allowances, and the benefit in future years of approved tax planning activities, the effective rate of tax on future profits will be lower than the standard rate of UK Corporation Tax.

 

Benefit from tax planning activities is only recognised when the outcome is reasonably certain.

 

Taking into account these tax rates, profit after tax has risen to £38.3m (2009: loss of £101.7m)

 

Financial Structure

 

Financing

 

Following the refinancing of the business in 2009, we continue to operate well within our banking covenants and have substantial headroom within our existing facilities to cover all of our current and proposed development and acquisition programmes.

 

We have also taken a number of steps during the year to renew and extend our banking facilities. During the financial year we renewed facilities with Barclays, Royal Bank of Scotland and Bank of Ireland. Following the year-end, but before the date of this report, we have also renewed facilities with HSBC and put in place a new facility with Santander, further increasing the weighted average expiry to 3.7 years at the date of this report (November 2009: 3.0 years).  This has been done with no material impact on borrowing costs.

 

The company's cash flow was again an area of significant focus during the year as we realised £93m from our ongoing programme of asset disposals. This, together with our recurring net rental income and close management of our working capital, enabled us to meet our administrative expenses, interest, and a £111m development and capital expenditure programme, whilst delivering a net reduction in borrowings from trading cash flows. 

 

The table below shows an additional analysis of the operational cashflow of the business.

 

Operational cashflow                                       2010               2009

(£m)

 

Net rent                                                             26.4                  26.1

Property disposals                                             92.9                100.9

Property acquisitions                                        (30.5)               (12.9)

Capital expenditure                                          (80.1)               (79.7)

Working capital and other movements               33.9                   (6.3)

Overheads, interest and tax                              (36.5)               (27.0)

 

Net cash inflow (outflow)                                    6.1                   1.1

 

*see note 2

 

We now have total group facilities of £539m (2009: £519m). Year-end net debt is £315m (2009: £319m), giving us gearing of 72% (2009: 80%) and headroom of over £200m to meet future commitments. Including joint ventures, total banking facilities are £784m (2009: £764m), net debt is £504m (2009: £527m) and gearing is 94% (2009: 106%).

 

The maturity of both hedges and facilities is aligned with individual schemes where applicable. Following the repayment of £101.6m of borrowings after the equity issue during 2009, the amount of our debt at fixed rates rose to 99% and is currently 98%.  This will gradually reduce during 2011 as a number of the hedging contracts mature.  We are keeping our hedging positions under review. 

 

Covenants

 

We are operating well within the covenants which apply to our banking facilities. These are :-

 

·    net assets must be greater than £250m (actual £437m);

·    gearing must not exceed 175%  (actual 72%); and

·    interest cover ratio (which excludes non-cash items, such as revaluation movements) must be greater than 1.25x (actual 1.8x).

 

Although current economic conditions still have an element of uncertainty, we have considered available market information, consulted with our advisers and applied our own knowledge and experience to the Group's property portfolio. As a result of this, we believe covenant levels are more than adequate for our worst-case scenarios

 

         Financial Statistics and Key Performance Indicators

                                                                                    2010                                        2009

 

         Net Borrowings                                                £315m                                     £319m

         Gearing                                                                72%                                         80%

         Gearing, incl share of JV debt                               94%                                       106%

         Average debt maturity                                             3.7 years                               3.0 years

         Interest cover                                                         1.8x                                      1.7x

 

 

         Balance Sheet

 

            Net assets

 

            At the year end, net asset value per share was 218p, an increase of 18p (9%). In common with other property companies, we also use the diluted EPRA NAV measure of net assets which analysts also use in comparing the relative performance of such companies. The adjustments required to arrive at our adjusted net assets measure are shown in the table below.

 

            EPRA adjusted net assets per share were 234p at 30 November 2010, an increase of 15p (7%) in the year.

 

            Net Assets

                                                           

                                                                                    2010                2009

                                                                                    £m                   £m

 

            Net assets, beginning of year                             401.0               402.2

            Issue of new shares                                              -                    101.6

            Profit / (loss) after tax                                         38.3              (101.7) 

            Dividends paid                                                   (2.0)                 -

            Other                                                                 (0.5)                 (1.1)

            Net assets, end of year                                     436.8               401.0

 

            Deferred tax on capital allowances                        9.4                 18.0

            and revaluations

            Mark to market of interest rate swaps                 16.7                 19.3

            Fair value of inventories                                        5.3

            Diluted EPRA NAV   - total                          468.2               438.3

                                                - per share                  234p                219p

 

Investment properties

 

The total value of investment properties under our control, including 100% of joint ventures, increased by £66m during the year to £1,101m (2009: £1,035m).

 

The independent valuations during the year-ended 30 November 2010 resulted in net revaluation gains, including our share of joint ventures, of 3% (£29m), compared with the previous year-end. Our properties are currently valued at the following weighted average yields:

 

 


Equivalent

Net Initial

 

 

 

Retail

Office

Industrial

2010

 

 

8.6%

9.0%

9.2%

 

2009

 

 

9.9%

8.7%

9.4%

 

2010

 

 

7.4%

7.1%

7.4%

 

2009

 

 

8.4%

5.7%

8.4%

 

Total

9.0%

9.5%

7.4%

8.0%

 

Inventories

 

Inventories have reduced in the year from £193m to £173m, reflecting the completion of the development programme started in previous years (including £88m relating to Project MoDEL) and the effect of disposals or transfers into investment properties of completed schemes. Assets held in inventories principally comprise development projects that are on site and under construction and have not been pre-sold, and other assets that are held for resale at the period-end.

 

Assets held in inventories are not included in the annual valuation, but are assessed for impairment and net realisable value issues using independent external advice where appropriate. As a result, we have written down certain of our assets for resale and work in progress balances to reflect their net realisable value in current market conditions. The total provided amounted to £6.1m in the Group and £0.3m in joint ventures.

 

Pension Scheme

 

Our defined benefit pension scheme continues to be fully funded on an IAS19 basis. The next triennial valuation is due in 2011 but as the scheme is closed to new entrants and closed to future accrual we do not anticipate any significant increase in scheme contributions.

 

Financial Outlook

 

Our business is in a robust financial position.  Active management of our portfolio is enabling us to generate profits, our valuations are prudent and our financial structure is solid.  We are continuing to recycle our portfolio and generate cash and this, together with the headroom in our financial structures, enables us to continue to invest in opportunities that offer the potential to create and enhance shareholder value. 

 

Given the opportunities in the current markets, this gives us a sound platform for future growth.

 


Directors' Responsibility Statement

 

We confirm to the best of our knowledge:

 

-      The financial information contained within this announcement has been prepared on the basis of the accounting policies applied in the year ended 30th November 2010 which are set out below.  Whilst the information included in this announcement has been computed in accordance with International Financial Reporting Standards ("IFRS"), this announcement does not itself contain sufficient information to comply with IFRS as adopted by the European Union.  The financial information contained in this announcement does not constitute the company's statutory accounts for the years ended 30th November 2010 or 2009, but is derived from those accounts. Those accounts give a true and fair view of the assets, liabilities, financial position and profit and loss of the company and the undertakings in the consolidation taken as a whole.

 

-      Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered following the company's annual general meeting.  The auditors have reported on these accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report, and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

-      The Chairman's Statement, Business Review, Financial Review and the principal risks and uncertainties faced by the company within this announcement are extracted from the company's annual report which gives a fair review of the business and the position of the company and the undertakings included in the consolidation taken as a whole.

 

-      The company expects to post full financial statements that comply with IFRS to shareholders, and on its website at www.stmodwen.co.uk, on or before 28th February 2011. The full financial statements will be availiable to view on National Storage Mechanism on the same date.

 

Signed on behalf of the Board on 4th February 2011

 

 

BILL OLIVER

MICHAEL DUNN

Chief Executive

Group Finance Director

 

 



 

Group income statement

for the year ended 30th November



2010

2009


Notes

 £m

 £m

 Revenue

1

121.4

113.7





 Net rental income

1

26.4

26.1





 Development profit/(loss)

1

12.5

(9.3)





 Gains on disposal of investments/ investment properties


2.5

2.2





 Investment property revaluation gains/(losses)

6

23.2

(81.7)





 Other net income

1

3.1

1.8





 Profits/(losses) of joint ventures and associates (post tax)

8

7.4

(22.9)





 Administrative expenses


 (16.8)

 (13.9)





 Profit/(loss) before interest and tax


58.3

(97.7)





 Finance cost

3

 (24.0)

 (26.0)





 Finance income

3

3.2

4.3





 Profit/(loss) before tax


37.5

(119.4)





 Tax credit

4

 0.8

 17.7





 Profit/(loss) for the year


38.3

(101.7)





 Attributable to: 








 Equity shareholders of the Company


37.2

(101.1)





 Non-controlling interests


1.1

(0.6)







38.3

(101.7)






Notes

2010

2009



Pence

Pence





Basic and diluted profit/(loss) per share

5

18.6

(59.7)





 



 

Group balance sheet as at 30th November



2010

2009


Notes

 £m

 £m

 Non-current assets




 Investment property

6

828.0

762.9

 Operating property, plant and equipment

7

7.4

7.9

 Investments in joint ventures and associates

8

49.4

41.3

 Trade and other receivables

9

8.2

5.2







893.0

817.3





 Current assets




 Inventories

10

171.6

192.7

 Trade and other receivables

9

45.3

47.0

 Cash and cash equivalents


11.3

4.8







228.2

244.5





 Current liabilities




 Trade and other payables

11

(133.3)

(139.2)

 Borrowings 

12

-

(0.4)

 Tax payables

4

 (9.3)

 (7.7)







(142.6)

(147.3)





 Non-current liabilities




 Trade and other payables

11

(214.9)

(188.9)

 Borrowings 

12

 (326.2)

 (323.2)

 Deferred tax

4

 (0.7)

 (1.4)







 (541.8)

 (513.5)





 Net assets


436.8

401.0





 Capital and reserves








 Share capital


20.0

20.0

 Share premium account


102.8

102.8

 Capital redemption reserve


0.3

0.3

 Retained earnings


304.7

269.6

 Own shares


(0.6)

(0.4)





 Shareholders' equity


427.2

392.3





Non-controlling interests


9.6

8.7





 Total equity


436.8

401.0

 



Group cash flow statement for the year ended 30th November



 2010

 2009


Notes

 £m

 £m





 Operating activities








 Profit/(loss) before interest and tax


58.3

(97.7)

 Gains on investment property disposals


      (2.5)

      (2.2)

 Share of profits/(losses) of joint ventures and associates (post-tax)

8

 (7.4)

 22.9

 Investment property revaluation (gains)/losses

6

 (23.2)

 81.7

 Depreciation

7

0.7

1.0

 Impairment losses on inventories


 6.1

 14.2

 (Increase)/decrease in inventories


 (1.6)

 6.5

 (Increase)/decrease in trade and other receivables


(12.5)

0.6

 Increase/(decrease) in trade and other payables


29.0

(13.5)

 Share options and share awards


(0.2)

(0.3)

 Pension funding


 -

 (0.8)

 Tax received

4 (c)

1.7

3.2





Net cash inflow from operating activities


 48.4

 15.6





 Investing activities








 Investment property disposals


27.5

31.3

 Investment property additions


 (49.0)

 (28.0)

 Property, plant and equipment additions


 (0.3)

 (1.5)

 Cash and cash equivalents acquired with subsidiary


-

0.4

 Interest received


0.6

1.4





 Net cash (outflow)/inflow from investing activities


 (21.2)

 3.6





 Financing activities








 Dividends paid


 (2.0)

 -

 Dividends paid to non-controlling interests


 (0.2)

 (0.2)

 Interest paid


 (21.1)

 (17.9)

 Net proceeds on issue of share capital


-

 101.6

 New borrowings drawn


33.1

44.2

 Repayment of borrowings


(30.5)

(154.8)





 Net cash outflow from financing activities


(20.7)

(27.1)





 Increase/(decrease) in cash and cash equivalents


6.5

(7.9)

 Cash and cash equivalents at start of year


4.8

12.7





 Cash and cash equivalents at end of year


11.3

4.8





 



Group statement of comprehensive income

for the year ended 30th November



 2010

 2009



 £m

 £m





 Profit/(loss) for the year


38.3

(101.7)





 Pension fund:




   - actuarial losses


 (0.1)

 (0.8)

   - deferred tax thereon


-

0.2





 Total comprehensive income for the year


38.2

(102.3)





 Attributable to:




   - Equity shareholders of the Company


37.1

(101.7)

   - Non-controlling interests


1.1

(0.6)





 Total comprehensive income for the year


38.2

(102.3)









 

 

 

Group statement of changes in equity

For the two years ended 30th November

 


Share capital

Share premium account

Capital redemption reserve

Retained earnings

Own shares

Share-holders' equity

Non- controlling

interest

Total equity


£m

£m

 £m

£m

£m

£m

£m

£m










At 30th November 2008

12.1

9.1

0.3

371.3

(0.1)

392.7

9.5

402.2

Loss for the year attributable to shareholders

-

-

-

(101.1)

-

(101.1)

(0.6)

(101.7)

Pension fund actuarial losses

-

-

-

(0.6)

-

(0.6)

-

(0.6)

Total comprehensive income

-

-

-

(101.7)

-

(101.7)

(0.6)

(102.3)

Net shares acquired

-

-

-

-

(0.3)

(0.3)

-

(0.3)

Dividend paid

-

-

-

-

-

-

(0.2)

(0.2)

Issue of share capital

7.9

93.7

-

-

-

101.6

-

101.6

At 30th November 2009

20.0

102.8

0.3

269.6

(0.4)

392.3

8.7

401.0

Profit for the year attributable to shareholders

-

-

-

37.2

-

37.2

1.1

38.3

Pension fund actuarial losses

-

-

-

(0.1)

-

(0.1)

-

(0.1)

Total comprehensive income

-

-

-

37.1

-

37.1

1.1

38.2

Net shares acquired

-

-

-

-

(0.2)

(0.2)

-

(0.2)

Dividends paid

-

-

-

(2.0)

-

(2.0)

(0.2)

(2.2)

At 30th November 2010

20.0

102.8

0.3

304.7

(0.6)

427.2

9.6

436.8

 

 

 

 

 

ACCOUNTING POLICIES

for the year ended 30th November 2010

 

Basis of consolidation

 

The Group financial statements consolidate the financial statements of St. Modwen Properties PLC and the entities it controls. Control comprises the power to govern the financial and operating policies of the investee and is achieved through direct or indirect ownership of voting rights or by contractual agreement. A list of the principal entities controlled is given in note (F) of the Company's financial statements.

 

VSM Estates (Holdings) Limited is 50% owned by St. Modwen Properties PLC.  However, under the funding agreement the Group obtains the majority of the benefits of the entity and also retains the majority of the residual risks. This entity is therefore consolidated in accordance with SIC 12 "Consolidation - Special Purpose Entities".

 

All entities are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All intra-Group transactions, balances, income and expense are eliminated on consolidation.

 

Non-controlling interests represent the portion of profit or loss and net assets that are not held by the Group and are presented separately within equity in the Group balance sheet.

 

Interests in joint ventures

 

The Group recognises its interest in joint ventures using the equity method of accounting. Under the equity method, the interest in the joint venture is carried in the balance sheet at cost plus post-acquisition changes in the Group's share of its net assets, less distributions received less any impairment in value of individual investments. The income statement reflects the Group's share of the jointly controlled entities' results after interest and tax.

 

Financial statements of jointly controlled entities are prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting policies used into line with those of the Group.

 

The Group statement of comprehensive income reflects the Group's share of any income and expense recognised by the jointly controlled entities outside the income statement.

 

Interests in associates

 

The Group's interests in its associates, being those entities over which it has significant influence and which are neither subsidiaries nor joint ventures, are accounted for using the equity method of accounting, as described above.



 

Properties

 

Investment properties

 

Investment properties, being freehold and leasehold properties held to earn rental income, for capital appreciation and/or for undetermined future use, are carried at fair value following initial recognition at the present value of the consideration payable. To establish fair value, investment properties are independently valued on the basis of market value. Any surplus or deficit arising is recognised in the income statement for the period.

 

Once classified as an investment property, a property remains in this category until development with a view to sale commences, at which point the asset is transferred to inventories at current valuation.

 

Where an investment property is being redeveloped for continued use as an investment property, the property remains within investment property and any movement in valuation is recognised in the income statement.

 

Investment property disposals are recognised on completion. Profits and losses arising are recognised through the income statement and the profit on disposal is determined as the difference between the sales proceeds and the carrying amount of the asset.

 

Investment properties are not depreciated.

 

Inventories

 

Inventories principally comprise properties held for sale, properties under construction and land under option.  All inventories are carried the lower of cost and net realisable value.

 

Cost comprises land, direct materials and, where applicable, direct labour costs that have been incurred in bringing the inventories to their present location and condition. When inventory includes a transfer from investment properties, cost is recorded as the book value at the date of transfer. Net realisable value represents the estimated selling price less any further costs expected to be incurred to completion and disposal.

 

Operating property, plant and equipment

 

Operating property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Such cost includes costs directly attributable to making the asset capable of operating as intended.

 

Depreciation is provided on all operating property, plant and equipment at rates calculated to write off the cost less estimated residual value of each asset evenly over its expected useful life as follows:

 

Leasehold operating properties               - over the shorter of the lease term and 25 years

Plant, machinery and equipment              - over 2 to 5 years



Leases

 

The group as lessee

 

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

 

Non-property assets held under finance leases are capitalised at the inception of the lease with a corresponding liability being recognised for the fair value of the leased asset or, if lower, the present value of the minimum lease payments. Lease payments are apportioned between the reduction of the lease liability and finance charges in the income statement so as to achieve a constant rate of interest on the remaining balance of the liability. Non-property assets held under finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term.

 

Freehold interests in leasehold investment properties are accounted for as finance leases with the present value of guaranteed minimum ground rents included within the carrying value of the property and within long-term liabilities. On payment of a guaranteed ground rent, virtually all of the cost is charged to the income statement, as interest payable, and the balance reduces the liability.

 

Rentals payable under operating leases are charged in the income statement on a straight-line basis over the lease term.

 

The group as lessor

 

Rental income from operating leases is recognised in the income statement on a straight-line basis over the lease term.

 

Income taxes

 

Current tax assets and liabilities are measured at the amount expected to be recovered from, or paid to, the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.

 

The tax currently payable is based on the taxable result for the year. The taxable result differs from the result as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

 

Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, using the rates of tax expected to apply based on legislation enacted or substantively enacted at the balance sheet date, with the following exceptions:

 

- in respect of taxable temporary differences associated with investments in subsidiaries, joint ventures and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and

- deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised.

 

Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and laws substantively enacted at the balance sheet date. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same authority and the Group intends to settle its current tax assets and liabilities on a net basis.

 

Income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise, income tax is recognised in the income statement.

 

 

Pensions

 

The Group operates a pension scheme with both defined benefit and defined contribution sections. The defined benefit section is closed to new members and, from 1st September 2009, to future accrual.

 

The cost of providing benefits under the defined benefit section is determined using the projected unit credit method, which attributes entitlement to benefits to the current period (to determine current service cost) and to the current and prior periods (to determine the present value of defined benefit obligation) and is based on actuarial advice. Past service costs are recognised in the income statement immediately if the benefits have vested.

 

The interest element of the defined benefit cost represents the change in present value of scheme obligations resulting from the passage of time and is determined by applying the discount rate to the opening present value of the benefit obligation, taking into account material changes in the obligation during the year. The expected return on plan assets is based on an assessment made at the beginning of the year of long-term market returns on scheme assets, adjusted for the effect on the fair value of plan assets of contributions received and benefits paid during the year. The difference between the expected return on plan assets and the interest cost is recognised in the income statement as other finance income or expense.

 

Actuarial gains and losses are recognised in full in the statement of comprehensive income in the year in which they occur. The defined benefit pension asset or liability in the balance sheet comprises the present value of the defined benefit obligation, less any past service cost not yet recognised and less the fair value of plan assets out of which the obligations are to be settled directly.

 

When a pension asset (net surplus) arises and the directors consider it is controlled by the Company such that future economic benefits will be available to the Company, it is carried forward in accordance with the requirements of IFRIC 14.

 

Contributions to defined contribution schemes are recognised in the income statement in the year in which they become payable.

 

Own shares

 

St. Modwen Properties PLC shares held by the group are classified in shareholders' equity and are recognised at cost.

 

Dividends

 

Dividends declared after the balance sheet date are not recognised as liabilities at the balance sheet date.

 

Revenue recognition

 

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, VAT and other sales taxes or duty. The following criteria must also be met before revenue is recognised:

 

Sale of property

 

Revenue arising from the sale of property is recognised on legal completion of the sale. Where revenue is earned for development of property assets not owned, this is recognised when the Group has substantially fulfilled its obligations in respect of the transaction.

 

Construction contracts

 

Revenue arising from construction contracts is recognised in accordance with the Group's accounting policy on construction contracts (see below).

 

Rental income

 

Rental income arising from investment properties is accounted for on a straight-line basis over the lease term.

 

Interest income

 

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts over the expected life of the financial asset to that asset's net carrying amount.

 

Dividend income

 

Dividend income from joint ventures is recognised when the shareholders' rights to receive payment have been established.

 

Construction contracts

 

Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date. The extent to which the contract is complete is determined by the total costs incurred to date as a percentage of the total anticipated costs for the entire contract. Variations in contract work, claims and incentive payments are included only to the extent they have been agreed with the purchaser.

 

Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred where it is probable they will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.

 

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

 

Government grants

 

Government grants relating to property are treated as deferred income and released to profit or loss over the expected useful life of the assets concerned.


Share-based payments

 

When employee share options are exercised the employee has the choice whether to have the liability settled by way of cash or the retention of shares. As it has been the Company's experience to satisfy the majority of share options in cash, and new shares are not issued to satisfy employee share option plans, the Group accounts for its share option schemes as cash-settled. The cost of cash-settled transactions is measured at fair value using an appropriate option pricing model and amortised through the income statement over the vesting period. The liability is remeasured at each balance sheet date. Revisions to the fair value of the accrued liability after the end of the vesting period are recorded in the income statement of the year in which they occur.

 

Financial instruments

 

Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for any amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled, or they expire.

 

Trade and other receivables

 

Trade receivables are recognised and carried at the lower of their original invoiced value and recoverable amount. Provision is made when there is evidence that the Group will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as being remote.

 

Cash and cash equivalents

 

Cash and cash equivalents comprises cash balances and short-term deposits with banks.

 

Trade and other payables

 

Trade and other payables on deferred payment terms are initially recorded by discounting the nominal amount payable to net present value. The discount to nominal value is amortised over the period of the deferred arrangement and charged to finance costs.

 

Interest bearing loans and borrowings

 

All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, loans and borrowings are measured at amortised cost.

 

Gains and losses arising on the repurchase, settlement or otherwise cancellation of liabilities are recognised in finance income or finance expense as appropriate.

 

The effective interest rate method is used to charge interest to the income statement.


Derivative financial instruments and hedging

 

The Group uses derivative financial instruments such as interest rate swaps to hedge its risks associated with interest rate fluctuations. Such instruments are initially recognised at fair value on the date on which a contract is entered into and are subsequently remeasured at fair value. The Group has determined that the derivative financial instruments in use do not qualify for hedge accounting and, consequently, any gains or losses arising from changes in the fair value of derivatives are taken to the income statement.

 

Equity instruments

 

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all its liabilities. Equity instruments issued by the Group are recorded at the proceeds received less direct issue costs.

 

Use of estimates and judgements

 

To be able to prepare accounts according to generally accepted accounting principles, management must make estimates and assumptions that affect the asset and liability items and revenue and expense amounts recorded in the financial accounts. These estimates are based on the Group's systems of internal control, historical experience and the advice of external experts (including qualified professional valuers and actuaries) together with various other assumptions that management and the Board of directors believe are reasonable under the circumstances. The results of these considerations form the basis for making judgements about the carrying value of assets and liabilities that are not readily available from other sources.

 

The areas requiring the use of estimates and critical judgements that may significantly impact the Group's earnings and financial position are:

 

Going concern The financial statements have been prepared on a going concern basis.

 

Valuation of investment properties Management has used the valuation performed by its independent valuers as the fair value of its investment properties. The valuation is performed according to RICS rules, using appropriate levels of professional judgement for the prevailing market conditions.

 

Net realisable value of inventories The Group has ongoing procedures for assessing the carrying value of inventories and identifying where this is in excess of net realisable value. Management's assessment of any resulting provision requirement, is where applicable, supported by independent information supplied by the external valuers. The estimates and judgements used were based on information available at, and pertaining to, 30th November 2010. Any subsequent adverse changes in market conditions may result in additional provisions being required.

 

Estimation of remediation and other costs to complete for both development and investment properties. In making an assessment of these costs there is inherent uncertainty and the Group has developed systems of internal control to assess and review carrying values and the appropriateness of estimates made. Any changes to these estimates may impact the carrying values of investment properties and/or inventories.

 

The calculation of deferred tax assets and liabilities together with assessment of the recoverability of future tax losses. The recoverability of tax losses has been assessed and the accounts reflect the extent to which management believe recovery is likely against latent gains and future profits anticipated to be realised on the Group's property portfolio.

 

Calculation of the net present value of pension scheme liabilities In calculating this liability it is necessary for actuarial assumptions to be made, including discount and mortality rates and the long-term rate of return upon scheme assets. The Group engages a qualified actuary to assist with determining the assumptions to be made and evaluating these liabilities.

 

KEY RISKS AND UNCERTAINTIES

 

St.Modwen recognises that the identification, assessment, monitoring and response to business risks is essential to the delivery of the Group's objectives.  St.Modwen has policies and procedures in place that are designed to enable the business to manage and mitigate its corporate, operational and financial risks.  This is reinforced by a management structure that seeks to reduce risks in the business.

 

Risk Area

Description of Risk

Risk Mitigation

Assessment

Economic and Property

Lack of demand for space from occupiers or land from housebuilders restricts business development.

Declining rental yields reduce profitability and cash flow.

Reduced availability of well funded property purchasers reduces profits and restricts cash flow.

Market investment yield movements reduce profitability and affect property portfolio valuations.

Regional spread and portfolio diversity mitigates sector or location specific risks.

Active portfolio management achieves a better than market utilisation of assets. Professionally conducted conservative property valuations.

 

 

We have chosen to operate only in one geographical area, the UK, which is subject to relatively low-risk, low-returns from a stable and mature, albeit cyclical economy and property market. By involvement with all sectors of that economy and that property market, we are as diversified as possible, without venturing overseas.

Financial

Funding constraints restrict growth and development of the business.

Unforeseen significant changes to cash flow requirements limit the ability of the business to meet its ongoing commitments.

Interest rate changes cause unforeseen financial loss.

Recurring income from rental provides funding for ongoing overhead and interest funding.

Regular and detailed cash flow forecasting enables monitoring or performance and management of future cash flows.  Headroom is maintained in high quality banking facilities.

Performance against budget is assessed monthly

Hedging policy contains interest rate risk

Our cautious approach to forward commitments, speculative development and asset disposals has enabled us to optimize operational cash flows, and to offset the impact of fluctuating market conditions. Furthermore, we have once again recorded a trading profit in the year, demonstrating our ability to succeed in varying markets.

Our banking facilities have been extended, our gearing reduced and interest rate risk hedged.

Business Organisation and People

Shortage of skilled and experienced people.

Poor succession planning.

IT failure prevents business operation

Targeted recruitment with competitive performance driven remuneration packages. 

Succession planning reviewed at Board level.

Dedicated IS team monitor performance of all information systems

Vacancies are few, and are generally filled promptly, perhaps indicating the attractiveness of the company and remuneration packages. To support the long term financial objectives, we will need to continue to improve the skills of our employees.

With improving economic conditions, steps have been taken to reintroducing pension contributions, payment of bonuses and modest salary increases.

Failure to Secure Appropriate Schemes

Poor market intelligence on schemes or competitors prevents successful bids or causes the selection of inappropriate schemes.

Lack of availability of finance limits potential scheme development.

Inaccurate reputation with clients reduces ability to secure schemes.

Regional offices in touch with their local market.

Dedicated central resource to support regional teams

Flexible and innovative approach to acquisitions and schemes in order to adapt as market conditions change.

Financial headroom maintained to provide flexibility.

Projects, acquisitions and disposals are reviewed (and financially appraised) within clearly defined authority limits.

Business wide PR programme in place.

The excellent reputation and restored financial capacity of the company have enabled us to win a number of schemes and to grow the hopper to record levels, even in the current financially-constrained climate. We anticipate that the number of opportunities will increase as vendor expectations become more realistic and lenders begin to address the issues in their loan books. In this environment, with a reduced number of active competitors, we expect to be able to continue to source attractive acquisitions

Construction

Financial or reputational damage from inappropriate quality or timeliness.

Inaccurate initial project assessments of contamination, development cost or contractor status prevent effective delivery causing financial loss.

Lack of trusted contractor and sub-contractor resources available for increased post recession activity.

Strong internal construction management team.

Use and close supervision of a preferred supply chain of high quality trusted suppliers and professionals, including assessment of their financial viability.

Clearly defined formal tender process that evaluates qualitative and quantitative factors in bid assessment.

Proven experience of completing schemes successfully despite contractor failure.

The company is willing to accept a degree of environmental / contamination risk, enabling higher returns to be made for the perceived higher risks undertaken. These risks are passed on or minimised where possible, but cannot be eliminated. In our recent experience, the residual risks have been acceptably low.

In current markets there is an increased risk of contractor failure. Our panel of contractors is assessed for stability and suitability but is not immune to wider economic risks. Using a sufficiently broad mix of contractors, for whom our work is important, mitigates the impact of a single failure.

Reputational

Difficulty in securing appropriate partnerships and schemes if reputation with influential 3rd parties negatively affected.

Investor perception damaged.

Recruitment and retention of key staff impacted

Monthly review of performance and identification if senior management intervention is required.

Regular feedback obtained from clients, advisers and investors.

The company enjoys an excellent reputation with its stakeholders (including investors, business partners and employees). This is based on, and reinforced by, a strong set of principles and consistent delivery of promises. The very nature of our business, however, means that there will always be an element of local controversy, thus exposing us to reputational damage.

Regulatory

Planning regime changes limit ability to secure viable permissions.

Lack of compliance with complex tax regulations causes financial loss.

Use of high quality professional advisers.

Compliance training programmes in place.

Programme of regular high level meetings with influential public bodies.

Our daily exposure to all aspects of the planning process, and internal procedures for spreading best practice ensure we remain abreast of most developments. We have become more active in attempting to influence public policy debate, although meaningful and beneficial changes are very difficult to bring about, notwithstanding the formalities of extensive public consultation.

Social, Ethical and Environmental

Serious injury or death of an employee, a client or a member of the public.

Environmental pollution leading to financial penalties or loss of reputation.

Inappropriate ethical or business behaviour causing legal risks or loss of reputation.

Performance indicators are reviewed monthly.

Defined business processes and authority levels to manage transactions.

Any issues dealt with openly and promptly.

We continue to remain vigilant on health and safety issues.  The initial assessment of environmental costs (and the subsequent optimising of remediation solutions) is an integral part of our acquisition and post-acquisition procedures. We seek to minimise or pass on any such environmental risks, and believe that the residual risk in this respect is acceptably low. In other social and ethical areas, the company has benefited from the underpinning of a simple but rigorous set of operating commitments.

 

 

 



1.  Revenue and gross profit

 


2010


 Rental

 Development

 Other

 Total


 £m

 £m

 £m

 £m






 Revenue

35.1

79.9

6.4

121.4






 Cost of sales

(8.7)

 (67.4)

 (3.3)

 (79.4)






 Gross profit

26.4

12.5

3.1

42.0







2009


 Rental

 Development

 Other

 Total


 £m

 £m

 £m

 £m






 Revenue

34.3

74.5

4.9

113.7






 Cost of sales

(8.2)

 (83.8)

 (3.1)

 (95.1)






 Gross profit/(loss)

26.1

(9.3)

1.8

18.6

 

The Group operates exclusively in the UK and all of its revenues derive from its portfolio of properties which the Group manages as one business.  Therefore, the financial statements and related notes represent the results and financial position of the Group's sole business segment.

 

The Group's total revenue for 2010 was £129.1m (2009: £122.7m) and in addition to the amounts above included service charge income of £6.9m (2009: £6.1m), for which there was an equivalent expense, and interest income of £0.8m (2009: £2.9m).

 

Cost of sales in respect of rental income as disclosed above comprise direct operating expenses (including repairs and maintenance) related to the investment property portfolio and include £0.2m (2009: £0.2m) in respect of properties that did not generate any rental income.

 

During the year the following amounts were recognised (as part of development revenue and cost of sales) in respect of activity accounted for as construction contracts:

 


2010

 2009


 £m

 £m




 Revenue

63.8

27.7




 Cost of sales

 (50.8)

 (25.3)




 Gross profit

13.0

2.4

 

Amounts recoverable on contracts as disclosed in note 9 comprise £11.6m (2009: £0.9m) of contract revenue recognised and £1.2m (2009: £1.4m) of retentions.

 

Amounts due to customers of £nil (2009: £nil) were included in trade and other payables in respect of contracts in progress at the balance sheet date.

 

2. Non-statutory information

(a) Trading profit

The non-statutory measure of trading profit, which includes the Group's share of joint ventures and associates, has been calculated as set out below:

 



2010

2009


Notes

Group

Joint ventures and associates

Total

Group

Joint ventures and associates

Total



£m

£m

£m

£m

£m

£m









Net rental income


26.4

7.3

33.7

26.1

7.4

33.5









Development profit

1

18.6

0.3

18.9

4.9

0.6

5.5









Gains/(losses) on disposal of

investments/investment properties


2.5

0.5

3.0

2.2

(0.1)

2.1









Other income


3.1

-

3.1

1.8

-

1.8









Administrative expenses


(16.8)

(0.3)

(17.1)

(13.9)

(0.2)

(14.1)









Finance costs

3

(20.0)

(4.8)

(24.8)

(17.5)

(3.4)

(20.9)









Finance income

3

0.6

-

0.6

0.3

0.2

0.5









Trading profit


14.4

3.0

17.4

3.9

4.5

8.4









 

 

(1) Stated before the deduction of net realisable value provisions of: Group £6.1m (2009: £14.2m); Joint ventures and associates £0.3m (2009: £1.6m).

(2) Stated before mark-to-market of derivatives and other non-cash items of: Group £4.0m (2009: £8.5m); Joint ventures and associates £0.8m (2009: £1.8m).

(3) Stated before mark-to-market of derivatives and other non-cash items of: Group £2.6m (2009: £4.0m); Joint ventures and associates £nil (2009: £nil).

 

 

(b) Property valuation gains/(losses)

Property valuations, including the Group's share of joint ventures and associates, have been calculated as set out below:

 


2010

2009


Group

Joint ventures and associates

Total

Group

Joint ventures and associates

Total


£m

£m

£m

£m

£m

£m








Investment property revaluation gains/(losses)

23.2

6.2

29.4

(81.7)

(24.8)

(106.5)








Net realisable value provisions

(6.1)

(0.3)

(6.4)

(14.2)

(1.6)

(15.8)








Property valuation gains/(losses)

17.1

5.9

23.0

(95.9)

(26.4)

(122.3)








2. Non-statutory information continued

 

(c) Movement in net debt

 

 



2010

2009



£m

£m





Movement in cash and cash equivalents


6.5

(7.9)





Borrowings drawn


(33.1)

(44.2)





Repayment of borrowings


30.5

154.8





Movement in net debt    


3.9

102.7





 

 

 

2. Non-statutory information continued

 

(d) Trading cash flow

Trading cash flows are derived from the Group cash flow statement as set out below:

 


2010


Operating activities

Investing activities

Financing activities

Total


£m

£m

£m

£m






Net rent

26.4

-

-

26.4






Property disposals

65.4

27.5

-

92.9






Property acquisitions

(6.4)

(24.1)

-

(30.5)






Property expenditure

(54.9)

(25.2)

-

(80.1)






Working capital and other movements

33.9

-

-

33.9






Overheads, interest and tax

(16.0)

0.6

(21.1)

(36.5)






Trading cash flow

48.4

(21.2)

(21.1)

6.1






Non-trading cash flows

-

-

0.4

0.4






Movement in cash and cash equivalents

48.4

(21.2)

(20.7)

6.5






 

 


2009


Operating activities

Investing activities

Financing activities

Total


£m

£m

£m

£m






Net rent

26.1

-

-

26.1






Property disposals

69.6

31.3

-

100.9






Property acquisitions

-

(12.9)

-

(12.9)






Property expenditure

(63.1)

(16.6)

-

(79.7)






Working capital and other movements

(6.5)

0.2

-

(6.3)






Overheads, interest and tax

(10.5)

1.4

(17.9)

(27.0)






Trading cash flow

15.6

3.4

(17.9)

1.1






Non-trading cash flows

-

0.2

(9.2)

(9.0)






Movement in cash and cash equivalents

15.6

3.6

(27.1)

(7.9)






2. Non-statutory information continued

 

(e) Net assets per share

 


Total equity

Shareholders' Equity


2010

2009

2010

2009






Net assets (£m)

436.8

401.0

427.2

392.3






Shares in issue (number)

200,360,931

200,360,931

200,360,961

200,360,931






Net assets per share (pence)

218.0

200.1

213.2

195.8






Percentage increase

8.9%


8.9%


 

 

3.  Finance cost and finance income





2010


2009


£m


£m





Interest payable on borrowings

19.8


 17.3





Amortisation of loan arrangement fees

 1.0


0.7





Amortisation of discount on deferred payment arrangements

 1.6


 1.7





Head rents treated as finance leases

 0.2


 0.2





Movement in fair value of interest rate derivatives

 -


 4.7





Interest on pension scheme liabilities

 1.4


 1.4





Total finance cost

24.0


 26.0

 

The finance cost on interest rate derivatives derives from financial liabilities held at fair value through profit or loss. All other finance costs derive from financial liabilities measured at amortised cost.

 


2010


2009


£m


£m





Interest receivable on cash deposits

0.6


1.4





Credit in respect of discount on deferred receivables

0.2


1.5





Movement in fair value of interest rate derivatives

0.9


-





Expected return on pension scheme assets

1.5


1.4





Total finance income

3.2


4.3

 


4.  Taxation

 

a.  Tax on profit on ordinary activities







2010

2009


£m

£m

Tax (credit)/charge in the income statement






Corporation tax






Current year tax

-

-




Adjustments in respect of previous years

 (0.1)

 (1.2)





(0.1)

(1.2)




Deferred tax






Reversal of temporary differences

 (1.0)

 4.1




Impact of current year revaluations and indexation

(1.9)

(17.9)




Carry forward of tax losses

1.7

(2.1)




Adjustments in respect of previous years

 0.5

 (0.6)





 (0.7)

 (16.5)




Total tax credit in the income statement

(0.8)

(17.7)







Tax relating to items credited to equity






Deferred tax






Actuarial losses on pension schemes

 -

 (0.2)

Tax credit in the statement of comprehensive income

-

 (0.2)

 



4.  Taxation continued

 

b. Reconciliation of effective tax rate

 


2010


2009


£m


£m





Profit/(loss) before tax

37.5


(119.4)





Less: Joint ventures and associates

 (7.4)


 22.9





Pre-tax profit/(loss) attributable to the group

30.1


(96.5)





Corporation tax at 28% (2009: 28%)

8.4


(27.0)





Permanent differences

(0.6)


(0.3)





Short term timing differences

(0.9)


-





Impact of current year revaluations and indexation

 (9.1)


 5.0





Difference between chargeable gains and accounting profit

6.9


(1.2)





Utilisation of tax losses not previously recognised

(5.9)


-





Deferred tax asset not recognised

-


7.6









Current year credit

(1.2)


(15.9)





Adjustments in respect of previous years

 0.4


 (1.8)






(0.8)


(17.7)





Effective rate of tax

(3%)


18%

 

 

The post tax results of joint ventures and associates are stated after a tax charge of £0.7m (2009: £0.8m credit). The effective tax rate for the Group including joint ventures and associates is a credit of 0.5% (2009: 15.4%).

 

 

 

4.  Taxation continued

 

c. Balance sheet

 


2010

2009


Corporation

Deferred

Corporation

Deferred


Tax

tax

tax

tax


£m

£m

£m

£m






Balance at start of the year

7.7

1.4

5.7

18.1






Credit to the income statement

(0.1)

 (0.7)

(1.2)

 (16.5)






Credit directly to equity

-

 -

-

 (0.2)






Net refund

1.7

-

3.2

-






Balance at end of the year

9.3

0.7

7.7

1.4

 

 

An analysis of the deferred tax provided by the Group is given below:

 

 


2010

2009


Asset

Liability

Net

Asset

Liability

Net


£m

£m

£m

£m

£m

£m








Property revaluations

-

4.1

4.1

-

13.3

13.3








Capital allowances

-

4.7

4.7

-

4.7

4.7








Appropriations to trading stock

-

0.6

0.6

-

0.8

0.8








Unutilised tax losses

(5.3)

-

(5.3)

(13.2)

-

(13.2)








Other temporary differences

(3.4)

-

(3.4)

(4.2)

-

(4.2)









(8.7)

9.4

      0.7

(17.4)

18.8

1.4

 

At the balance sheet date, the Group has:

 

-     unused tax losses in relation to 2010 and prior years of £6.6m (2009: £17.5m), of which £5.3m (2009: £9.9m) has been recognised as a deferred tax asset; and

 

-    deductions of £nil (2009: £3.3m) that will be available in subsidiary companies in future periods and have been recognised in full as a deferred tax asset.

 

A deferred tax asset has been recognised on the basis that the losses or deductions will shelter the latent gains anticipated to be realised on the Group's property portfolio including those reflected in the deferred tax liability for property revaluations and future trading losses.

 

A deferred tax asset of £1.3m (2009: £7.6m) has not been recognised in respect of current and prior year tax losses as it is not considered certain that there will be taxable profits available in the short term against which these can be offset.

 

4.  Taxation continued

 

d. Factors that may affect future tax charges

 

Based on current capital investment plans, the group expects to be able to continue to claim capital allowances in excess of depreciation in future years.

 

The benefits of any tax planning are not recognised by the group until the outcome is reasonably certain.

  

5.  Earnings per share

 

The calculation of basic and diluted earnings per share is set out below:

 


2010


2009


Number of


Number of



Shares*

Weighted number of shares in issue

200,098,045


169,276,058





Weighted number of dilutive shares

346,115


-


200,444,160


169,276,058






2010


2009



£m





Profit/(loss) attributable to equity shareholders (basic and diluted)


(101.1)






2010


2009



Pence

Basic and diluted profit/(loss) per share


(59.7)

 

 

Shares held by the Employee Benefit Trust are excluded from the above calculation.

 

The Group's share options are accounted for as cash-settled share-based payments. In calculating diluted earnings per share, earnings have been adjusted for changes which would have resulted from share options being classified as equity settled.  Where applicable, the number of shares included in the calculation has also been adjusted accordingly.

 

*In 2009 the Group undertook a Firm Placing and Placing and Open Offer resulting in the issue of 79,586,977 shares on 8th June 2009. The number of shares in issue used in the above calculation for 2009 reflects the lower number of shares in issue through to the date of the Firm Placing and Placing and Open Offer.



6.  Investment property


Freehold


Leasehold




investment


investment




properties


properties


Total


£m


£m


£m

Fair value












 At 30th November 2008

467.1


347.2


814.3







 Additions - new properties

15.2


-


15.2







 Other additions

13.8


6.0


19.8







 Net transfers from/(to)  inventories

15.4


(0.7)


14.7







 Disposals

(10.0)


(9.4)


(19.4)







 Deficit on revaluation

(45.6)


(36.1)


(81.7)







 At 30th November 2009

455.9


307.0


762.9







 Additions - new properties

23.8


-


23.8







 Other additions

9.8


15.4


25.2







Net transfers from inventories

13.0


0.8


13.8







Transfer on acquisition of residual freehold

3.3


(3.3)


-







 Disposals

(8.9)


(12.0)


(20.9)







 Gain on revaluation

10.4


12.8


23.2







 At 30th November 2010

507.3


320.7


828.0

 

Investment properties were valued at 30th November 2010 and 2009 by King Sturge LLP, Chartered Surveyors, in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors, on the basis of market value. King Sturge LLP are professionally qualified independent external valuers and have recent experience in the relevant location and category of the properties being valued.

 

The historical cost of investment properties at 30th November 2010 was £754.9m (2009: £717.7m).

 

As at 30th November 2010 £709.4m (2009: £669.2m) of investment property was pledged as security for the Group's loan facilities.

 

Included within leasehold investment properties are £3.9m (2009: £3.9m) of assets held under finance leases.



7. Operating property, plant and equipment



Operating


Operating plant





Properties


and equipment


Total



£m


£m


£m

Cost














At 30th November 2008


 2.6


5.0


7.6








Additions


4.4


0.4


4.8








Disposals


(0.1)


(0.6)


(0.7)








At 30th November 2009


 6.9


4.8


11.7








Additions


-


0.3


0.3








Disposals


-


(0.3)


(0.3)








At 30th November 2010


6.9


4.8


11.7








Depreciation














At 30th November 2008


0.4


2.9


3.3








Charge for the year


0.1


0.9


1.0








Disposals


-


(0.5)


(0.5)








At 30th November 2009


0.5


3.3


3.8








Charge for the year


0.1


0.6


0.7








Disposals


-


(0.2)


(0.2)








At 30th November 2010


0.6


3.7


4.3








Net book value














At 30th November 2008


2.2


2.1


4.3








At 30th November 2009


6.4


1.5


7.9








At 30th November 2010


6.3


1.1


 7.4

 

 

Tenure of operating properties:







2010


2009



£m


£m

Freehold


3.6


3.6






Leasehold


2.7


2.8








6.3


6.4

 

8. Joint ventures and associates

 

 The Group's share of the trading results for the year of its joint ventures and associates is:


2010

2009


Key Property Investments Limited

Other joint ventures and associates

Total

Key Property Investments Limited

Other joint ventures and associates

Total









 £m

 £m

 £m

 £m

 £m

 £m

Income statements














 Revenue

14.4

4.4

18.8

25.9

1.2

27.1








Net rental income

6.6

0.7

 

7.3

7.2

0.2

 

7.4








Development profit/(loss)

                       -

                   -

                   -

                       (1.0)

                   -

                   (1.0)








Gains/(losses) on disposals of investment properties

                       0.4

0.1 

                   0.5

                       (0.1)

-                       

                   (0.1)








Investment property revaluation gains/(losses)

                       6.2

                   -

                   6.2

                       (24.4)

                   (0.4)

                   (24.8)








Administrative expenses

                      (0.2)

(0.1) 

                 (0.3)

                      (0.1)

(0.1) 

                 (0.2)








Profit/(loss) before interest and tax

                     13.0

                   0.7

                 13.7

                     (18.4)

                   (0.3)

                 (18.7)








Finance  cost

                      (4.4)

                 (1.2)

                 (5.6)

                      (4.5)

                 (0.7)

                 (5.2)








Finance income

                       -

-

                   -

                       0.2

-

                   0.2








Profit/(loss) before tax

                     8.6

                   (0.5)

                 8.1

                     (22.7)

                   (1.0)

                 (23.7)








Taxation

(0.3)

                 (0.4)

                 (0.7)

0.6

                 0.2

                 0.8








Profit/(loss) for the year

                     8.3

                   (0.9)

                 7.4

                     (22.1)

                   (0.8)

                 (22.9)

 

Included in other joint ventures and associates above are profits from associated companies of £0.3m (2009: £0.2m losses).

  

8. Joint ventures and associates continued

 

The Group's share of the balance sheet of its joint ventures and associates is:

 


2010

2009


Key Property Investments Limited

Other joint ventures and associates

Total

Key Property Investments Limited

Other joint ventures and associates

Total


 £m

 £m

 £m

 £m

 £m

 £m

Balance Sheets














Non-current assets

119.5

20.8

140.3

116.7

15.9

132.6








Current assets

11.7

14.5

26.2

13.6

18.9

32.5








Current liabilities

(11.9)

(10.1)

(22.0)

(12.0)

(6.4)

(18.4)








Non-current liabilities

(74.9)

(20.2)

(95.1)

(82.2)

(23.2)

(105.4)








Net assets

44.4

5.0

49.4

36.1

5.2

41.3








Equity at start of year

36.1

5.2

41.3

58.2

6.0

64.2








Transfer from joint venture to subsidiary undertaking

-

0.7

0.7

-

-

-








Profit/(loss) for the year

8.3

(0.9)

7.4

(22.1)

(0.8)

(22.9)








Equity at end of year

44.4

5.0

49.4

36.1

5.2

41.3








 

Included in other joint ventures and associates above are net assets of £2.7m (2009: £2.4m) in relation to associated companies. These net assets comprise total assets of £3.9m (2009: £3.6m) and total liabilities of £1.2m (2009: £1.2m).



8. Joint ventures and associates continued

 

Joint venture companies and associates comprise:

 

Name

Status

Interest

Activity





Key Property Investments Limited

Joint venture

50%

Property investment and development





Barton Business Park Limited

Joint venture

50%

Property development





Sowcrest Limited

Joint venture

50%

Property investment and development





Holaw (462) Limited

Joint venture

50%

Property investment





Skypark Development Partnership LLP

Joint venture

50%

Property development





Chertsey Road Properties Limited

Joint venture

50%

Property investment





St Modwen Hungerford Limited

Joint venture

50%

Property development





Coed Darcy Limited

Associate

49%

Property investment and development





Baglan Bay Company Limited

Associate

25%

Property management

 

Many of the joint ventures contain change of control provisions, as is common for such arrangements.

 

On 1st June 2010 the Group increased its shareholding in Shaw Park Developments Limited to 100%. No goodwill arose on increasing the Group's stake in the equity, which is now accounted for as a subsidiary.

 


9.  Trade and other receivables


2010

2009


£m

£m

Non-current






Other Debtors

8.2

5.2




Current






Trade receivables

2.3

6.7




Prepayments and accrued income

7.3

7.9




Other debtors

10.2

24.4




Amounts recoverable on contracts

12.8

2.3




Amounts due from joint ventures

12.7

5.7





45.3

47.0

 

10.  Inventories


2010

2009


£m

£m




Properties held for sale

37.6

55.2




Properties under construction

112.6

115.3




Land under option

21.4

22.2





171.6

192.7

 

The movement in inventories during the two years ended 30th November 2010 is as follows:

 


£m

At 30th November 2008

228.1



Additions

63.1



Net transfers to investment property

(14.7)



Disposals (transferred to development cost of sales)

(83.8)



At 30th November 2009

192.7



Additions

60.1



Net transfers to investment property

(13.8)



Disposals (transferred to development cost of sales)

(67.4)



At 30th November 2010

171.6



 

10.  Inventories continued

 

The directors consider all inventories to be current in nature. The operational cycle is such that a proportion of inventories will not be realised within 12 months. It is not possible to determine with accuracy when specific inventory will be realised as this will be subject to a number of issues including the strength of the property market.

 

Included within disposals of inventories are net realisable value provisions made during the year of £6.1m (2009: £14.2m).

 

As at 30th November 2010 £48.3m (2009: £67.8m) of inventory was pledged as security for the Group's loan facilities.

 

11. Trade and other payables

 


2010


2009


£m


£m

Current








Trade payables

15.7


15.0





Amounts due to joint ventures

4.1


3.5





Other payables and accrued expenses

76.4


70.1





Provision for share options

0.2


0.9





Other payables on deferred terms

18.4


30.4





Derivative financial instruments

18.3


19.3






133.1


139.2









Non-current








Other payables and accrued expenses

46.4


21.5





Provision for share options

1.6


0.9





Other payables on deferred terms

163.2


162.6





Finance lease liabilities (head rents)

3.9


3.9






215.1


188.9





 

The payment terms of the other payables on deferred terms are subject to contractual commitments. In the normal course of events the payments will be made in line with either the disposal of investment properties held on the balance sheet, or the commencement of development. Net cash outflows on the settlement of the deferred consideration will therefore be limited.



12. Borrowings

 


2010

2009


£m

£m

Current






Floating rate unsecured loan notes

-

0.4





-

0.4




Non-current






Bank loans repayable between one and two years

107.9

55.9




Bank loans repayable between two and five years

218.3

267.3





326.2

323.2

 

Each bank has their borrowings secured by a fixed charge over a discrete portfolio of certain of the Group's property assets.

 

  

12. Borrowings continued

 

Maturity profile of committed bank facilities

 


2010


Floating rate borrowings

Interest rate swaps


Drawn

Undrawn

Total

Earliest termination

Latest termination


£m

£m

£m

£m

%

£m

%









Less than one year

-

5.0

 5.0

80.0

4.79

60.0

4.83









One to two years

107.9

56.1

164.0

90.0

5.43

80.0

5.54









Two to three years

30.0

40.0

70.0

10.0

4.81

20.0

4.65









Three to four years

89.7

35.3

125.0

10.0

4.80

-

-









Four to five years

98.6

56.4

155.0

40.0

2.69

40.0

2.69









More than five years

-

-

-

30.0

4.32

60.0

4.51









Total

326.2

192.8

519.0

260.0

4.63

260.0

4.63

 

 


2009


Floating rate borrowings

Interest rate swaps


Drawn

Undrawn

Total

Earliest termination

Latest termination


£m

£m

£m

£m

%

£m

%









Less than one year

0.4

5.0

 5.4

110.0

5.36

-

-









One to two years

55.9

34.1

90.0

130.0

4.67

80.0

4.70









Two to three years

162.4

91.6

254.0

-

-

80.0

5.54









Three to four years

28.0

42.0

70.0

-

-

40.0

4.56









Four to five years

76.9

23.1

100.0

-

-

-

-









More than five years

-

-

-

-

-

40.0

4.87









Total

323.6

195.8

519.4

240.0

4.99

240.0

4.99

 

 

 

 

13.  Related Party Transactions

 

Transactions between the Group and its non-wholly owned subsidiaries, joint ventures and associates are all undertaken on an arms length basis and are detailed as follows:

 

KEY PROPERTY INVESTMENTS LIMITED ('KPI')

During the year the Group provided management and construction services to KPI for which it received fees totalling £10.9m (2009: £6.5m). The balance due to the Group and the year end was £0.6m (2009: £0.3m). No interest is charged on this balance.

 

HOLAW (462) LIMITED ('HOLAW')

During the year Holaw repaid £nil of its loan (2009: £0.2m). The balance due to the Group at the year end was £0.3m (2009: £0.3m). No interest is charged on this balance.

 

BARTON BUSINESS PARK LIMITED ('BARTON')

During the year the Group borrowed an additional £0.5m from Barton (2009: £nil). The balance due to Barton at the year end was £3.9m (2009: £3.4m). No interest is charged on this balance.

 

SOWCREST LIMITED ('SOWCREST')

During the year the Group provided management services to Sowcrest for which it received fees totalling £nil (2009: £0.2m).

 

In addition, during the year £7.3m (2009: £3.6m) was paid to Sowcrest leaving an amount due from Sowcrest at the year end of £11.3m (2009: £4.0m). Interest is chargeable on £8.5m (2009: £1.4m) of the amount outstanding at a fixed rate of 10% (2009: 10%).

 

SKYPARK DEVELOPMENT PARTNERSHIP LLP ('SKYPARK')

The balance due to the Group from Skypark at the year end was £0.6m (2009: £0.3m), of which £0.2m (2009: £0.2m) relates to loan notes issued to the Group in the year. The remaining £0.4m (2009: £0.1m) relates to purchase ledger funding provided by the Group. No interest is charged on these balances.

 

CHERTSEY ROAD PROPERTIES LIMITED ('CRP')

During the year CRP repaid £0.2m of its loan (2009: borrowed £0.3m). The balance due to the Group at the year end was £0.1m (2009: £0.3m). No interest is charged on this balance.

 

ST MODWEN HUNGERFORD LIMITED ('HUNGERFORD')

During the year the Group loaned £nil to Hungerford (2009: £0.6m). The balance due to the Group at the year end was £0.6m (2009: £0.6m). No interest is charged on this balance.

 

COED DARCY LIMITED ('CDL')

During the year CDL repaid £0.2m of its loan. The balance due to the Group at the year end was £nil (2009: £0.2m). No interest is charged on this balance.

 

BRANSTON PROPERTIES LIMITED ('BRANSTON')

During the year the Group entered into an option to acquire the entire issued share capital of Branston,a company in which the family of Simon Clarke has a financial interest, at market value. The price paid for the option was £0.1m and exercise of this is contingent on certain planning milestones being achieved.

 

ST. MODWEN PENSION SCHEME

The Group occupies offices owned by the pension scheme with a value of £0.5m (2009: £0.5m) with an annual rent payable of £0.1m (2009: £0.1m). The balance due to the Group at the year end was £nil (2009: £0.5m).

 

13.  Related Party Transactions continued

 

NON-WHOLLY OWNED SUBSIDIARIES

The company provides administrative and management services and provides a central purchase ledger system to subsidiary companies. In addition the Company also operates a central treasury function which lends to and borrows from subsidiary undertakings as appropriate. Management fees and interest charged/(credited) during the year and net balances due (to)/from subsidiaries in which the Company has a less than 90% interest were as follows:

 


Management fees

Interest

Balance


 2010

 2009

 2010

 2009

 2010

 2009


 £m

 £m

 £m

 £m

 £m

 £m

Stoke-on-Trent Regeneration Limited

-

-

(0.1)

(0.1)

(3.9)

(7.4)








Stoke-on-Trent Regeneration (Investments) Limited

-

-

-

-

(0.5)

(0.3)








Uttoxeter Estates Limited

-

-

-

-

(0.6)

(0.2)








Widnes Regeneration Limited

-

-

-

0.1

2.3

3.0








Trentham Leisure Limited

-

0.2

1.9

1.2

23.8

22.4








Norton & Profitt Developments Limited

-

-

-

-

(0.2)

(0.3)








VSM Estates (Holdings) Limited

0.2

0.2

-

-

(9.9)

(8.5)









0.2

0.4

1.8

1.2

11.0

8.7

 

 

All amounts due to the Group are unsecured and will be settled in cash. All amounts above are stated before provisions for doubtful debts of £nil (2009: £0.7m). No guarantees have been given or received from related parties.

 

KEY MANAGEMENT PERSONNEL

The directors are considered to be the Group's key management personnel and their remuneration is disclosed in the directors' remuneration report contained within the full Annual Report.

 

 

 

 

 

 

 

                      

 


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