Standard Motor Products
Annual Report 2003

Plain-text annual report

S t . M O D W E N P R O P E R T I E S P L C A n n u a l R e p o r t 2 0 0 3 St. MODWEN PROPERTIES PLC Head Office and Midlands Regional Office: Lyndon House, Hagley Road, Edgbaston, Birmingham B16 8PE Telephone: (0121) 456 2800 Facsimile: (0121) 456 1829 www: stmodwen.co.uk e-mail: info@stmodwen.co.uk Regional Offices: London and South East: Telephone: (020) 7499 5666 Facsimile: (020) 7629 4262 North Staffordshire: Telephone: (01782) 281844 Facsimile: (01782) 283670 Northern: Telephone: (01925) 825950 Facsimile: (01925) 284808 St. MODWEN PROPERTIES PLC Annual Report 2003 Access 18, Avonmouth, Bristol — a 212-acre former smelting plant acquired May 2003 for regeneration as a major employment park. Phase I (4 acres) — completed. Phase II (34 acres) — planning application submitted. Phase III (174 acres) — site clearance and demolition under way. Castle Hill, Dudley — a 148-acre leisure and heritage scheme to be developed in partnership with Dudley Metropolitan Borough Council. Contents Financial Highlights Chairman’s Statement The Chairmanship of Sir Stanley Clarke Chief Executive’s Operational Review Review of Major Projects Environmental Impact Financial Review Analysis of the Portfolio Directors and Advisers Shareholder Information Directors’ Report Directors’ Responsibilities 1 3 4 6 15 18 20 23 24 25 26 27 Corporate Governance Directors’ Remuneration Report Group Profit and Loss Account Balance Sheets Group Cash Flow Statement Supplementary Statements Accounting Policies Notes to the Accounts Five Year Record Auditors’ Report to the Members Annual General Meeting Notice of Meeting 28 31 36 37 38 39 40 41 56 57 58 59 Visit our website on www.stmodwen.co.uk “The key to the strategy is to maintain a growing hopper of well-located future opportunities.” Financial Highlights Profit before tax up 17% to £35m Earnings per share up 18% to 20.1p “Eleventh successive year of record results.” Net assets per share up 16% to 186.0p Dividend per share up 16% to 6.6p . m 0 5 3 £ . m 0 0 3 £ . m 5 5 2 £ . m 7 1 2 £ . m 5 8 1 £ 99 00 01 02 03 p 1 . 0 2 p 1 . 7 1 p 2 . 5 1 p 6 . 2 1 p 1 . 1 1 99 00 01 02 03 p 0 . 6 8 1 p 9 . 0 6 1 p 9 . 6 3 1 p 7 . 5 1 1 p 1 . 0 0 1 99 00 01 02 03 p 6 . 6 p 7 . 5 p 9 . 4 p 3 . 4 p 8 3 . 99 00 01 02 03 1 St. MODWEN PROPERTIES PLC Longbridge, Birmingham: 228 acres (edged red) — acquired and leased back to MG Rover in December 2003. 40 acres (edged yellow) — appointed as developer by Advantage West Midlands. “The hopper of land and property opportunities is at its highest level ever.” 2 Chairman’s Statement to pass RESULTS After 18 years as Executive Chairman of your company, I intend to retire from that position at the Annual General Meeting and the chairmanship on to Anthony Glossop with great confidence for the company’s future. I am delighted to report on an eleventh successive year of record results and confirm to you that the company is in good heart and in its strongest position ever. Profits before tax increased by 17% to £35.0m (2002: £30.0m), earnings per share grew by 18% to 20.1p (2002: 17.1p) and net assets per share increased by 16% to 186.0p (2002: 160.9p). The results include a 38% growth in net rental income, a 5% growth in property profits and a £14.5m (4%) revaluation uplift on the investment property portfolio. We have worked hard to bring forward the latent value in two of our associated operations. We exchanged our 35% holding in Northern Racing for a 27.2% holding in The Chepstow Racecourse PLC, an AIM listed company, thus giving greater financing flexibility for our racecourse operations in the future, establishing a value for our interest and creating a cleaner exit opportunity if ever that was appropriate. Immediately after the year end, we sold our investment in the Pubmaster operation to Punch Taverns realising a profit of £4.9m which will be recognised in the 2004 accounts. Our key performance measurement of total pre-tax return on average shareholder funds was 24.1% (2002: 25.2%). DIVIDEND Your board is recommending a final dividend of 4.4p (2002: 3.8p) per ordinary share, making a total distribution for the year of 6.6p (2002: 5.7p), an increase of 16%. This final dividend will be paid on 30 April 2004 to shareholders on the register on 13 April 2004. STRATEGY Your board continues to have total confidence in the company’s strategy of adding value through active management and regeneration in our specialised areas of property expertise via a network of regional offices. The key to the strategy is to maintain a growing land and property bank of well-located future opportunities. We were again successful in adding to the hopper including major acquisitions at Avonmouth, Kirkby, Longbridge and Llanwern. Additionally, we have been successful in being selected as preferred developer by several more local authorities and regional development agencies. The total estate continues to expand, which underpins the company’s long-term future profitability. throughout DIRECTORS AND EMPLOYEES These results, and indeed the repeated success of the company the period of my chairmanship, could not have been achieved without an exceptional team of people at all levels. My personal appreciation goes to my board colleagues, all the employees and to you, our shareholders, for your continued support over my time as Chairman of your company. It has been a source of great encouragement to me. The succession plans have been considered carefully and have been implemented over recent years. When I step down as chairman following the Annual General Meeting, it is intended that Anthony Glossop, currently Deputy Chairman and Chief Executive, will become Executive Chairman and Bill Oliver will succeed him as Chief Executive. I will remain on the board as a non- executive director and am very pleased to have been invited to become Life President. Going forward, your company will continue to be led by a strong, well-balanced team, committed to the continuation of the company’s successful strategy, in which I intend to play my part. At the Annual General Meeting, Sir David Trippier will step down as non-executive director, having completed 12 years’ service. I would like to thank him for his valued contribution to the success of the company. PROSPECTS The company’s hopper of land and property opportunities is at its highest level ever, and the current financial year has started exceptionally well. Including the surplus arising from the Pubmaster transaction, we have already exchanged or completed on transactions that will give rise to profits in excess of £20m. Once again, I am delighted to be looking forward with confidence to your company achieving another record year. Sir Stanley W. Clarke CBE, DL, Hon. D.Univ. Chairman 16 February 2004 3 St. MODWEN PROPERTIES PLC The Chairmanship of Sir Stanley Clarke (1986–2004) St. Modwen originated in 1966 with the creation by Sir Stanley Clarke and his brother-in-law, Jim Leavesley of a development company to undertake the redevelopment of a large maltings complex in Burton upon Trent, Staffordshire. The company prospered and was later absorbed into Sir Stanley Clarke’s private group of construction and house-building operations, Clarke Securities. By the mid 1980s St. Modwen was a well respected developer of industrial and distribution sheds from Devon and Kent to the North West, operating through a network of regional offices often in partnership with local authorities. In 1986, St. Modwen came to the market with its reverse into Redman Heenan International plc, a former engineering group, whose chief executive was Anthony Glossop, which had been restructured into a property investment operation. The company at that time had net assets of 10p per share and was projecting a pre-tax profit of £1m. In its early quoted years, St. Modwen may have looked like a conventional property developer/ trader of the period with profits growing rapidly from £1m to £10m in 1989. However, the seeds of its future shape were already being sown with its selection in 1987 as the developer of the Stoke National Garden Festival site, the acquisition of Uttoxeter Racecourse in 1988 and the development of the Octagon shopping centre, Burton upon Trent in 1989. St. Modwen was not unaffected by the property collapse in 1990 but it always remained profitable and never ceased active development. As a result, with a revised strategy based on regeneration and rental income, it came out of that period stronger than before. From 1992 onwards, with the acquisition of Leegate shopping centre in South London, it established a strong position in regenerating tired town centres. It is now involved in more than a dozen such projects. It took advantage of the decline in the country’s heavy industries to develop, either outright or in joint venture, numerous former collieries and steelworks, reclaiming hundreds of acres of brownfield land for residential and commercial use. Elsewhere, it has worked in close partnership with many of the leading manufacturers to restructure for their regeneration. releasing surplus businesses, land Throughout this period the principles established by Sir Stanley Clarke in those early years, have stood the company in good stead – a network of regional offices, partnerships with local authorities and landowners, a reputation for delivery and integrity and the building up of a team of committed executives and surveyors capable of taking the business forward into the future. In all this, the company has benefited immeasurably from the vision and leadership of its Chairman, Sir Stanley Clarke, who also contributed significantly to the community during this time, being awarded the CBE in 1990 and receiving a knighthood in 2001 for services to the community in Staffordshire. 1986 –2004 Eighteen years of vision and leadership 4 Highlights from the Annual Reports Festival Park, Stoke-on-Trent, 1988 Uttoxeter Racecourse, 1989 Total Shareholder Return 18.5% p.a. Ex Marconi Ex Alstom Rugby, 2002 Octagon Shopping Centre, Burton upon Trent, 1990 Trentham Gardens, 2001 Trentham Lakes, 1996 Festival Park, Stoke-on-Trent, 1995 Leegate Shopping Centre, 1992 5 St. MODWEN PROPERTIES PLC St. MODWEN PROPERTIES PLC Chief Executive’s Operational Review Left to right: Anthony Glossop Deputy Chairman and Chief Executive, Richard Froggatt Executive Director, Bill Oliver Managing Director HIGHLIGHTS OF THE YEAR 3 distribution facilities: 152,000 sq. ft. constructed for Another year of record property profits has been Pets at Home, 317,000 sq. ft. for Screwfix and achieved from a broad-based development and 37,135 sq. ft. for Littlewoods. disposal programme. Over 50 transactions contributed to total property profits of £25.2m with no single scheme dominating and eight schemes earning in excess of £1m. We continued to concentrate on the distribution, retail and residential land sectors, where demand for our development products remained strong. Stoke-on-Trent continued to emerge as a major In retail development, we were particularly active with the sale of the second phase of our 121,500 sq. ft. town centre scheme at Castle Walk, Newcastle under Lyme and the sale of our retail schemes at Belle Vale, Tipton, Connahs Quay and Mold, following the completion of their programmes of redevelopment or refurbishment. In Widnes, through our joint venture company with Halton Borough Council, we completed an extremely distribution hub, based upon the A50 link between the complex site assembly process for the provision of M6 and M1 motorways. Our 400-acre Trentham an 87,000 sq. ft. store for Asda, and the Lakes development is well positioned to take construction and sale of a 50,000 sq. ft. leisure and advantage of this demand and during the year we sold retail complex for JJB Sports. 6 A 317,000 sq. ft. warehouse and office facility, constructed and fitted out for Screwfix at Trentham Lakes, Stoke-on-Trent. “Over 50 transactions contributed to total property profits of £25.2m.” 77 A 50,000 sq. ft. leisure and retail complex developed in joint venture with Halton Borough Council and pre-let to JJB Sports at Widnes. St. MODWEN PROPERTIES PLC Chief Executive’s Operational Review A 70,000 sq. ft. industrial building constructed for Mapei at Coombs Wood, Halesowen on a 43-acre former steelworks site developed through a joint venture with Corus plc. The Government’s requirement that 60% of new ft. phase of the Etruria Valley Trade Park, Stoke-on- housing be built on previously used land has further Trent, of which three of the four units were sold to strengthened the commitment to our brownfield occupiers in the year. At the Orbital Centre, residential land programme. During the year we Cannock, we completed the sale of the 80,000 sq. completed the ground reclamation and site ft. factory and headquarters building, let to Finning modelling at Norton Colliery, Stoke-on-Trent, which UK which we constructed in 2002. enabled two residential land sales totalling 18 acres to be completed. At Newton-le-Willows, St Helens, on a site purchased from Alstom in December 2002, we have entered into a joint venture agreement with At Avonmouth, Bristol on the 212-acre former Britannia Zinc site, the first phase of development comprising two industrial buildings totalling 62,000 sq. ft. was completed and the first building was let an adjoining landowner and have submitted a to Travis Perkins and sold to an investor during planning application for 40 acres of residential the year. development. We anticipate carrying out demolition and site infrastructure during 2004. At Coombs Wood, Halesowen, two units were constructed and sold during the year: a 70,000 sq. Our 2003 development programme also included ft. industrial unit for Mapei and a 10,000 sq. ft. office the speculative construction of a further 57,000 sq. for Accessible Hire. 8 New retail units constructed at Edmonton Green Shopping Centre, Enfield, where a major £60m mixed-use redevelopment scheme will commence in 2004. A 121,500 sq. ft. shopping centre development at Castle Walk, Newcastle-under-Lyme, completed and sold in 2003. “Adding value through active management and regeneration.” Development was also carried out at Watling Street Business Park, Cannock with the speculative construction of six small business units totalling 11,118 sq. ft.; at Edmonton Green Shopping Centre, Enfield where three new retail units totalling 12,000 sq. ft. were constructed, two of which have been let to Bon Marche and Ethel Austin; and at Kirkby Shopping Centre, Liverpool, where the Market Hall was redeveloped to provide three additional retail units and eight kiosks were constructed in the malls. Construction commenced on a speculative 18,000 sq. ft. hi-tech building at Woodingdean Business Park, Brighton and upon a 270,000 sq. ft. manufacturing, distribution and head office complex for Duraflex at Tewkesbury. Both projects are due for completion in 2004. 9 St. MODWEN PROPERTIES PLC Chief Executive’s Operational Review As reported in the Chairman’s Statement, significant large mixed-use schemes, continues to become progress was also made during the year with our more complex and protracted, but the range and property-related investments in Northern Racing and extent of the hopper gives us the ability to operate Pubmaster. successfully within these constraints. The revaluation of our investment properties by During the year, we were successful in progressing £14.5m equates to an increase of 3.7%. This arose planning permissions at Trentham Gardens, Stoke­ partly from an improvement in yields on our on-Trent; at Friars Terrace, Stafford for an 86,000 shopping centres of around 0.5% in the period, but sq. ft. Tesco supermarket; and for a 95,000 sq. ft. also by adding value through new construction, new expansion of the industrial space at the Wigan lettings and rent reviews at Cranfield, Edmonton, Enterprise Park. Thurleigh and Wythenshawe. Planning permission was also obtained, in principle, One of the indicators within our business of the for the redevelopment of the Brighton West Pier. potential for future property profits is that year-on­ However, uncertainty on future costs and delays year we continue to make progress in obtaining caused the Heritage Lottery Fund to withdraw their planning consents. This process, particularly for the support in January 2004. Without this support, the A 270,000 sq. ft. manufacturing, distribution and head office complex under construction for Duraflex at Tewkesbury, Gloucestershire. Completion due in 2004. 1010 Cranfield Technology Park, a joint venture with Cranfield University, where we manage 77,000 sq. ft. of high tech/office space on flexible leases. project is not viable. Although we still intend to see whether there is any possibility of resuscitating the scheme, we have made full provision in these accounts for all costs incurred. On our larger schemes, extensive master planning, ground investigation and environmental and transport assessments are often required prior to the submission of specific planning applications. Significant progress was made during 2003 at Rugby, upon the sites acquired from Marconi and Alstom; at Longbridge where an outline planning permission over 40 acres has now been submitted; and at Dursley, where we are intending to create an exemplar urban village. THE HOPPER We continued to fill the hopper throughout the year. The acquisition of a £113m portfolio of nineteen sites on 500 acres from Alstom through our KPI joint venture; 73 acres from Corus at Darlington and 212 acres at Avonmouth, Bristol from Britannia Zinc, boosted the hopper to record levels. 11 Chepstow, one of nine racecourses owned by The Chepstow Racecourse PLC, in which the company has a 27.2% shareholding. St. MODWEN PROPERTIES PLC Chief Executive’s Operational Review Equally importantly during 2003 we continued to form additional development relationships with government bodies and local authorities. These joint ventures, often structured via development agreements and hence not as capital intensive as direct acquisition, are becoming an increasingly important part of our bank of future development opportunities. A development agreement was signed during the year for an urban village on 92 acres at Dursley, Gloucestershire with South West Regional Development Agency (SWRDA) and heads of terms agreed for the regeneration of Hatfield Town Centre with Welwyn Hatfield District Council and English Partnerships. At Harpurhey, Manchester, we acquired an existing Asda store and in partnership with Asda and Manchester City Council, we have commenced redevelopment of this District Centre to provide 120,000 sq. ft. of new retail space together with a new leisure centre and market for the Council. After the year end, the hopper was boosted further with the completion of three major acquisitions and we are pursuing a number of smaller sites. At Longbridge, Birmingham, we purchased 228 acres from MG Rover on a sale and leaseback basis for £42.5m. MG Rover have been granted a 35-year lease at an initial rent of £3.6m with 2.5% fixed annual uplifts. The lease allows MG Rover flexibility to surrender land surplus to its operational requirements. A 92-acre former manufacturing site being redeveloped as an urban village at Dursley, Gloucestershire, in joint venture with SWRDA. 12 A mixed-use regeneration of Hatfield town centre in joint venture with English Partnerships and Welwyn Hatfield District Council. The company has also acquired the remaining 50% share of the Kirkby Shopping Centre, Merseyside from our joint venture partner Mars Pension Trustees, with whom we have jointly owned the centre since 2001. The consideration was £11.25m with an initial yield of 7.6%. Master plans are being prepared for a redevelopment of the centre and surrounding area for discussion with Knowsley Borough Council. At Llanwern, South Wales, we have acquired 600 acres of non-operational land from Corus for £17.5m. We are also extremely pleased to confirm that we have been selected as the preferred development partner by Bedford Borough Council for a comprehensive renewal and redevelopment of Bedford’s bus station area comprising a new food supermarket, a department store, additional retail, leisure and residential uses; and by SWRDA for a 33­ acre industrial development at Ludgershall, Wiltshire. “We continued to form additional development relationships with government bodies and local authorities.” 13 St. MODWEN PROPERTIES PLC Chief Executive’s Operational Review The Mead — an initial phase of redevelopment, completed and let during the year at Farnborough, Hampshire. FUTURE YEARS heritage and leisure development at Trentham We have made our strongest-ever start to a new Gardens, Stoke-on-Trent. These and numerous financial year, with the sales completed after the other schemes currently being worked on will form year end of our Pubmaster investment, the first the backbone of our development programme for phase of our Worcester retail park development and 2005 and onwards. 8 acres of residential land at Springfields, Stoke-on- Trent, contributing to a total of over £20m of profits already completed or under contract. Beyond 2004, we are marshalling the progress of the major schemes in the hopper to meet the growth required. Significant progress is expected to be made during 2004 on our town centre schemes at Anthony Glossop Edmonton, Farnborough and Wembley; a factory Deputy Chairman and Chief Executive outlet scheme and superstore at Walsall; and our 16 February 2004 14 Review of Major Projects CASTLE HILL, DUDLEY, WEST MIDLANDS 148-acre mixed heritage, leisure and residential scheme which will comprise: ■ A state-of-the-art zoo, a separate attraction based on the medieval castle, and a new dinosaur attraction ■ 60,000 sq. ft. of heritage craft and tourism merchandising ■ 40,000 sq. ft. of restaurants ■ 80,000 sq. ft. of garden centre ■ 281 dwellings ■ Additional leisure opportunities PARTNER: Dudley Metropolitan Borough Council COMPLETED VALUE: £100m TIMESCALE: Planning application submitted for potential start on site in phases from 2005. Completion of main phases by 2010. CRANFIELD UNIVERSITY TECHNOLOGY PARK, CRANFIELD, BEDFORDSHIRE 100-acre technology park adjoining university campus and airfield Managed complex of 77,000 sq. ft. comprising: ■ Cranfield Innovation Centre — 37,000 sq. ft. in suites from 250 to 1,750 sq. ft. on extremely flexible lease terms ■ Derwent House & Trent House — accommodation in suites from 2,000 to 6,000 sq. ft. on medium term leases ■ Buildings from 5,000 sq. ft. to 200,000 sq. ft. to meet the individual needs of businesses and further speculative phases PARTNER: Cranfield University TIMESCALE: Further speculative phase in 2004. Completion over next decade. EDMONTON GREEN SHOPPING CENTRE London N19 Mixed use extension of existing shopping centre, comprising: ■ 65,000 sq. ft. foodstore ■ 150,000 sq. ft. of additional retail/leisure and restaurants ■ 55,000 sq. ft. leisure centre with 25 m. swimming pool ■ Primary health care centre ■ 177 residential apartments ■ Bus terminal ■ 1,000 car parking spaces ■ Refurbishment of existing mall PARTNER: London Borough of Enfield COMPLETED VALUE: £65m TIMESCALE: Initial phases and enabling works completed. Start on site in phases from 2004. Completion of main phases by 2006. ELEPHANT & CASTLE SHOPPING CENTRE London SE1 Mixed use shopping centre comprising: ■ 135,000 sq. ft. retail ■ 90,000 sq. ft. leisure ■ 95,000 sq. ft. offices ■ 125 car parking spaces PARTNER: A Key Property Investments development TIMESCALE: The shopping centre lies at the heart of a major regeneration initiative being promoted by the London Borough of Southwark for implementation over the next decade. 15 St. MODWEN PROPERTIES PLC Review of Major Projects ETRURIA VALLEY, FESTIVAL PARK, STOKE-ON-TRENT A major extension of the company’s flagship Festival Park development. Opened in 1999 after £5m of reclamation and infrastructure work. Over 200,000 sq. ft. of offices and business space has been completed. Further speculative phases are planned in 2004. Planning on the final 90 acres is being discussed. PARTNERS: Stoke-on-Trent City Council and Corus plc COMPLETED VALUE: £150m TIMESCALE: Completion over the next decade. FARNBOROUGH TOWN CENTRE, HAMPSHIRE Mixed use extension/redevelopment of existing shopping area, comprising: ■ 65,000 sq. ft. foodstore ■ 150,000 sq. ft. of additional retail/leisure and restaurants ■ Hotel ■ 130 residential apartments ■ Leisure complex PARTNERS: A Key Property Investments development in collaboration with Rushmoor Borough Council COMPLETED VALUE: £75m TIMESCALE: Early enabling phases completed in 2003. Detailed planning submitted for main development with potential commencement in late 2004 and completion in 2006. HATFIELD TOWN CENTRE, HERTFORDSHIRE Mixed use regeneration comprising: ■ 165,000 sq. ft. of retail/leisure and restaurants ■ 25,000 sq. ft. healthy living centre ■ 162 residential apartments ■ 543 multi-storey car parking spaces ■ 10,000 sq. ft. market hall PARTNERS: Welwyn Hatfield District Council and English Partnerships COMPLETED VALUE: £65m TIMESCALE: Detailed planning submitted with potential commencement in 2006 and completion in 2007. LEICESTER ROAD AND MILL ROAD, RUGBY 70-acre employment sites adjoining Rugby railway station. ■ Existing buildings in excess of 1m sq. ft. for short/medium term income. Medium term strategy to: ■ Develop master plan for site in conjunction with planning authority and rail authority ■ Bring forward site for mixed-use development including: — Housing — Retained and new employment — Retail and local amenities — Community facilities PARTNERS: A Key Property Investments development in collaboration with Alstom and Marconi COMPLETED VALUE: £60m TIMESCALE: Master planning to commence in early 2004. Scheme has 6–8 year delivery programme. 16 For further details of the above projects, QUINTON BUSINESS PARK, BIRMINGHAM Business Park at western gateway to Birmingham city. Immediately adjacent to J3, M5. ■ 260,000 sq. ft. high quality space with generous car parking ■ Proceeding in phases ■ Phase I — 55,000 sq. ft. completed and let ■ Phase II — 50,000 sq. ft. planned for 2004 PARTNER: Birmingham City Council COMPLETED VALUE: £65m TIMESCALE: Next phase from late 2004. Overall completion by 2007. SHANNONS MILL, WALSALL, WEST MIDLANDS The West Midlands Factory Outlet Centre. ■ 250,000 sq. ft. of outlet shopping incorporating character 4 storey Victorian clothing mill ■ 100,000 sq. ft. superstore ■ 1,500 car park spaces ■ Local highway improvement to speed access to J9 and J10 of the M6. PARTNER: Domalex Properties Limited COMPLETED VALUE: £75m TIMESCALE: Start mid-2004. Trading October 2005. TRENTHAM LAKES, STOKE-ON-TRENT Mixed use development of 400-acre former collery site for a wide range of leisure, office, industrial and warehouse development. Developments to date include distribution centres for Screwfix Direct (317,000 sq. ft.), HW Plastics (178,000 sq.ft) and Pets at Home (152,000 sq. ft.) as well as an Express Holiday Inn Hotel, Harvester Restaurant, Greens Health & Fitness Club and car showrooms. Over one million sq. ft. has been developed on this site. PARTNER: Stoke-on-Trent City Council COMPLETED VALUE: £200m TIMESCALE: Further speculative phase in 2004. Completion over next decade. VULCAN INDUSTRIAL ESTATE, NEWTON-LE-WILLOWS Regeneration of redundant employment complex to provide: ■ 630 dwellings ■ A local centre comprising: convenience foodstore, public house, health centre, pharmacy, nursery, veterinary surgery ■ Sports and recreational facilities PARTNERS: A Key Property Investments development in collaboration with Alstom and Ashtenne PLC COMPLETED VALUE: £75m TIMESCALE: Start on site from 2004. Completion by 2008. see our website www.stmodwen.co.uk 17 St. MODWEN PROPERTIES PLC Environmental Impact St. Modwen is committed to improving the built environment of the country. The company’s projects seek to transform areas of dereliction and decay into sustainable communities. The company’s commitment to the environment is demonstrated in many ways: REGENERATION The company acquires opportunities in tired town centres and brownfield industrial sites, often with significant contamination issues. The company uses its expertise to remediate sites by seeking wherever possible to treat or recycle materials on site, removing them to landfill only as a last resort. Infrastructure will be provided or upgraded to alleviate traffic problems. Public transport and alternative transport solutions will be adopted wherever practicable. New developments are built with good quality landscaping and provision of public open spaces. The company enters into long-term land recycling projects, such as the 165-acre former British Steel site at Festival Park, Stoke-on-Trent, the home of the 1986 National Garden Festival. This was acquired in 1988 and has since been developed to provide around one million square feet of retail warehouse, office and industrial accommodation. It has been extended by a further 145 acres of derelict land, the remediation and development of which will continue over the next decade. Similarly, the 400­ acre site at Trentham Lakes which was acquired from British Coal in 1996 and 1999 has been substantially reclaimed to transform a colliery into a business, leisure and distribution park, and a residential area. In the period under review, the acquisition of a heavily contaminated 212-acre site from Britannia Zinc offers significant opportunities for regeneration of the site of a former zinc smelter. The company uses its remediation skills to create good quality residential land from land previously used by heavy industry. This is of significant benefit in avoiding the use of greenfield sites for development, and is strongly supported by current government policy. The company has brought into development approximately 150 acres of this type of land over the past five years and potentially has a further 800 acres in the Hopper. All property developed by the company has a fully traceable audit trail resulting in a Land Quality Statement for the end user which identifies ground conditions, gas and other monitoring, remediation work done, and test results. Remediation activity is based on a thorough assessment of the sources, pathways and targets of risk factors. Wherever possible, the company uses on-site containment or treatment techniques, and avoids merely moving waste to landfill sites. 18 LOCAL COMMUNITIES The company seeks to build and develop sustainable communities from its regeneration projects. This is achieved by putting in place a robust infrastructure, including transport links, and community facilities including schools, medical and leisure centres, social clubs, libraries, and local shops. Some of these are provided through planning agreements, others on a voluntary basis. Recent examples include: ● The provision of land for the Donna Louise Trust Children’s Hospice at Trentham Lakes, Stoke­ on-Trent for a consideration of 50% of the market value. ● The provision of rent-free accommodation for a credit union and arts workshops in Edmonton Green Shopping Centre. ● The construction of community and recreation facilities at Hilton Business Park, value £500,000, part of a £7.5m package of community and infrastructure benefits funded by this scheme. Demolition in progress at Britannia Zinc, Avonmouth. SUSTAINABILITY BY DESIGN The company embraces the philosophy that “sustainable development is about creating a better life for everyone, now and for generations to come. It means that our economy, environment and social well-being are interdependent. It means protecting, and where possible, enhancing the environment; ensuring we satisfy people’s basic needs, such as providing warm homes and safe streets, and giving the opportunity to achieve their potential through education, good health and employment” (The joint Government/Local Government report “Local Quality of Life Count — in a Nutshell”) The company seeks to use sustainable designs in its developments, to minimise the impact of new buildings on the environment. Recent examples include: ● Improving the flow characteristics of the Barton Brook and flood storage to the River Trent at Barton Business Park, by the construction of three lakes and 2.4 kilometres of ditches (all designed to encourage native flora and fauna). ● Improving the water quality at Barton Business Park by the use of reed beds. ● Recycling over 100,000 tonnes of foundations and slab roadway materials at Hem Heath Colliery, for re-use on site. The Dursley Urban Village Project (under a development agreement with the South West Regional Development Agency for the former Lister Petter site) has been designed as an exemplar scheme of sustainability, involving: ● Reclaiming the site, including tips and foundry sand deposits. ● Harnessing the river Cam for hydroelectricity, and opening up the river to provide an ecological corridor through the site. ● Installing photovoltaic cells and water conservation measures in at least 50% of the houses. ● Recovering energy from the Lister Petter engine test beds. ● Building a sustainable urban drainage system incorporating swales and a balancing lake. ● Providing live/work units within the residential element, and small units for start-up businesses and training facilities. MANAGEMENT RESPONSIBILITY Because of the importance to the company of environmental and social issues, these areas are the responsibility of the Chief Executive. 19 Master plan of the heritage leisure project at Trentham Gardens, Stoke-on-Trent. Community involvement in the company’s projects is essential for their ultimate success. Consequently, extensive consultation is undertaken via public and individual meetings with tenants’ associations, residents’ groups and local councillors. Local press are kept informed of all developments, and planning issues are freely and openly debated with interested parties. The company has built strong and enduring relationships over many years in those areas in which it operates, and is proud to be seen as a key member of these communities. HERITAGE The company’s heritage activities enable buildings and facilities of national significance, such as Trentham Gardens, to be restored for the future enjoyment of the nation. Working in partnership with local authorities and national organisations, including English Heritage and English Nature, the company aims to deliver sensitive restoration underpinned by a sustainable, commercial rationale. St. MODWEN PROPERTIES PLC Financial Review PROFIT AND LOSS ACCOUNT Net rental income received in the year, including our share of rent from joint ventures, increased by 38% (£10.1m) to £36.5m. The portfolio of 19 industrial properties, acquired from Alstom in December 2002, accounted for £5.3m. Other properties acquired or constructed during the year accounted for £1.1m of this increase, while the full-year impact of acquisitions made in 2002 was £3.0m. On an annualised basis, the gross portfolio rent receivable as at 30 November 2003, including our share of rent from joint ventures, increased by 13% (£4.4m) to £38.9m. Acquisitions net of disposals added £4.1m, with new lettings and rent reviews net of vacations and surrenders increasing the portfolio rent by £0.3m. Property profits (which comprise profits on sale of both development and investment properties, whether classified as work in progress or fixed assets) increased by 5% in the year to £25.2m (2002: £24.0m). These profits were achieved from a broad range of more than 50 projects, of which 8 contributed more than £1m. The large number of transactions reflects both the company’s proactive approach to selling any assets to which value can no longer be added, and the strong market conditions into which we were able to sell. In accordance with our prudent accounting policies we have made full provision against our exposure to the Brighton West Pier project, from which the Heritage Lottery Fund withdrew support in January 2004. Overheads increased significantly during the year by £4.5m to £13.3m, principally as a result of accounting for share options and pensions costs, and the impact of increased employee numbers. As reported last year, the board has adopted the policy of satisfying employee share options, when exercised, by purchasing the required number of shares in the market, rather than issuing new share capital, which would dilute returns for existing shareholders. With 6.2m shares under option (held by 110 employees), and a significant share price increase in the year, the impact has been a charge to the profit and loss account of £4.2m (2002: £1.8m). The triennial valuation of the company’s final salary pension scheme was undertaken as at 5 April 2003. This showed a deficit of £3.9m. In common with most other similar schemes, the deficit arose from a combination of poor equity investment returns and increasing liabilities. The company has therefore provided £1.2m in the accounts for the year ended 30 November 2003, a sum which includes the Tim Haywood Finance Director RESULTS SUMMARY 2003 was our eleventh consecutive year of profits growth. The pre-tax profit for the year to 30 November 2003 increased by 17% to £35.0m (2002: £30.0m). Earnings per share increased by 18% to 20.1p (2002: 17.1p), and total dividends increased by 16% to 6.6p per share (2002: 5.7p). Retained profits of £16.2m combined with £15.4m of total revaluation surpluses to produce a 16% increase in net assets per share to 186.0p (2002: 160.9p). Our corporate objective remains to double net asset value per share every five years. In the five years ended 30 November 2003 we have exceeded this target, with net asset value per share increasing by 127%, pre-tax profit by 124% and dividends per share by 100%. “Our corporate objective remains to double net asset value per share every five years.” 20 Comparison of Actual Investment Portfolio Returns with the Investment Property Databank (IPD) Periods to 30 November 2003 Capital Returns (%) Income Returns (%) Total Returns (%) 10 8 6 4 2 0 11 10 9 8 7 6 5 20 15 10 5 1 Yrs 3 Yrs 5 Yrs 10 Yrs 1 Yrs 3 Yrs 5 Yrs 10 Yrs 1 Yrs 3 Yrs 5 Yrs 10 Yrs regular cost of current service, and the amortisation of the past service deficit, as required under SSAP 24. Previously the company and its employees had enjoyed many years’ contribution holiday, as the scheme had been in surplus. Finance Costs have increased to £15.9m (2002: £13.2m). Average group borrowings increased by £9m to £165m in the year, and average joint venture borrowings increased by £92m to £160m as a result of the Alstom acquisition. The cost of this increase in total debt was partially offset by falling interest rates. The weighted average rate of interest payable as at 30 November 2003 remains at 6.4% for company borrowings (2002: 6.4%) and has fallen to 5.3% for joint ventures (2002: 6.2%). The group’s borrowings are at variable rates of interest. However we actively manage our interest rate exposure, primarily by way of interest rate swaps, and have been able to lock in to the recent favourably low rates for a three to five year period. At the year end, 96% of company net borrowings were hedged in this way (2002: 62%), and 58% of joint venture borrowings (2002: 75%) The Group does not capitalise interest on its developments or its investments. All interest is written off as it arises. Taxation — the effective rate of tax charge for the year, including provision for deferred taxation, was 28.4% (2002: 28.1%). It is anticipated that, with the continued utilisation of capital allowances, the effective rate will remain below the standard rate of Corporation Tax. BALANCE SHEET Investment Properties — the total value of investment properties, including 100% of joint ventures, increased by £109m during the year to £475m. Expenditure on the portfolio totalled £128m, of which £113m was in our 50% joint venture company Key Property Investments Limited, in respect of the acquisition of the Alstom portfolio. revaluation (£14.5m). This The independent valuation at 30 November 2003 resulted in an uplift on our share of this portfolio of 3.7% increase represents real added value from the management and development of specific assets within the portfolio, and includes £6m as a result of yield shifts on the retail properties. Although many of our sites are situated in disadvantaged areas that currently qualify for relief from Stamp Duty Land Tax, this temporary benefit has not been recognised within the valuation. The Group measures the ungeared returns from its investment portfolio against the Investment Property Data Bank (IPD) all property total return index. St. Modwen continues strongly to out-perform this index, as shown by the chart above. Investments — during Other the year we exchanged our 35% investment in Northern Racing Limited in exchange for a 27.2% stake in The Chepstow Racecourse PLC, an AIM-listed company. This transaction has been accounted for in accordance with UITF 31 (Exchanges of businesses). As a result, the Statement of Total Recognised Gains and Losses includes a gain of 21 St. MODWEN PROPERTIES PLC Financial Review £0.9m relating to the profit made on the notionally realised proportion of the sale. The carrying value of our investment in The Chepstow Racecourse PLC at 30 November 2003 is £8.6m. This represents the fair value of the assets acquired, plus post- acquisition profits. Under UITF 31, we are not permitted to recognise the AIM market value of our 27.2% stake, which, at the share price of 203.5p on 30 November 2003, was £19.5m. Our investment in Pubmaster was sold in December 2003, realising a surplus of £4.9m. Current assets — the value of work in progress fell to £77.5m (2002: £101.1m). This reduction reflects the active programme of development completions in the year. GEARING AND FINANCING As a result of the strong programme of sales towards the end of the year, group net borrowings have decreased (2002: £174m), to £135m representing a gearing ratio of 60% (2002: 89%). This was lower than our preferred gearing range of 75% to 125%, but gave us ample headroom and flexibility to move swiftly to undertake the post-year end programme of acquisitions. Following the Longbridge, Kirkby and Llanwern acquisitions, which have been partly financed by further disposals in December, group borrowings stand at £170m and gearing at 71%. At this level, we still have uncommitted existing facilities in excess of £90m, which provides significant resources for current developments and further acquisitions. In addition, the group’s share of debt within joint ventures, which is secured solely upon the assets within the relevant joint venture, was £97.2m (2002: £42.1m). The group is financed by shareholders’ funds and bank debt of varying maturity profiles, appropriate to the needs of the group and reflecting the type of assets in which it invests. At 30 November 2003, the weighted average debt maturity was 5 years (2002: 6 years). Bank facilities, excluding joint ventures, totalled £219m at the year end (2002: £228m), with a further facility of £32m having been provided post year-end by Royal Bank of Scotland for the Edmonton Green Shopping Centre development. 22 Net Asset Value per share In calculating the net assets per share of 186.0p, a provision has been made for the deferred tax that would become payable should all the capital allowances claimed to date be clawed back. The company actively manages its tax affairs to ensure that this situation will not arise, and accordingly has calculated an adjusted net asset value without such an adjustment. This provides a notional uplift of £3.9m or 3.2p per share (2002: £3.6m or 3.0p per share). The effect of the fair value adjustment (FRS13) of marking the group’s interest rate derivatives to current market value would be to produce a notional liability after tax of £0.3m or 0.2p per share (2002: £2.0m or 1.7p per share). The effect of providing deferred tax on future disposals of investment properties would be to produce a notional liability of £18.3m or 15.1p per share (2002: £17.1m or 14.2p per share). The calculation of adjusted net asset value also contains an adjustment to restate the company’s investment in The Chepstow Racecourse PLC to market value, which provides a notional uplift after tax of £7.6m or 6.3p per share. The adjusted net asset value after these adjustments has increased by 22% to 180.2p (2002: 148.0p) (see Note 22). Triple net asset value has increased by 18% to 170.7p (2002: 145.0p). SHAREHOLDER RETURNS Over the five year period ended 31 December 2003, the total shareholder return was 34.7% per annum compared with 0.4%% from the FTSE Real Estate index, and –3.4% from the All-Share index. (source: HSBC/Datastream). The increase in the share price during the year, to 258.5p at 30 November 2003, lifted the company into the FTSE 250. Tim Haywood Finance Director 16 February 2004 Analysis of the Portfolio as at 30 November 2003 Portfolio Book Value South £m Midlands £m Retail 147.1 30.1 Industrial Office 64.1 30.2 147.3 8.3 North £m 27.7 82.6 1.0 Held by Group Total Companies* £m £m Held by Joint Ventures £m 204.9 118.0 86.9 294.0 154.8 139.2 39.5 28.6 10.9 Rent- Roll £m 17.9 28.4 3.0 Square Feet ’000 2,634 18,340 430 241.4 185.7 111.3 538.4 301.4 237.0 49.3 21,404 * includes £34.8m of properties included in development stock Portfolio Analysis ■ Retail ■ Industrial ■ Office 38% 7% 55% 36% 6% 58% Capital Value by Sector Rental Income by Sector ■ South ■ Midlands ■ North 45% 34% 21% Capital Value by Region “The 3.7% revaluation increase represents real added value from the management and development of specific assets.” 23 St. MODWEN PROPERTIES PLC Directors and Advisers Auditors Ernst & Young LLP Registrars Lloyds TSB Registrars Stockbrokers HSBC Non-Executive Directors Left to right Christopher Roshier*† MA, FCA Aged 57. Appointed a Director in 1987. He is a Chartered Accountant with over 20 years’ experience in Corporate Finance. Chairman of the company’s Audit and Remuneration Committees and Senior Independent Director. Currently he is a director of Gibbs & Dowdy PLC, Cypresstree International Fund PCC Limited, Equity Holdings Limited and chairman of Global Computer Holdings Limited. Sir David Trippier* RD, JP, DL, MSI Aged 57. Appointed a Director in 1992. Minister for Construction and Urban Affairs 1987–1989. He is currently Chairman of W. H. Ireland Group PLC, stockbrokers, and Murray V.C.T. Plc. He is also a director of a number of other listed and private companies, including Granada Television Limited. He is retiring from the board in 2004. Ian Menzies-Gow* MA Aged 61. Appointed a Director in 2002. Formerly Chairman of Geest PLC and prior to that held senior executive positions within the Hanson Group. Currently Chairman of Derbyshire Building Society. James Shaw* FRICS Aged 59. Appointed a Director in 2001. Previously Property Director of Associated British Ports Holdings plc, Managing Director of Thorn High Street Properties and Property Director of Courage. Executive Directors Sir Stanley Clarke*† CBE, DL, Hon. D.Univ. Chairman Aged 70. Appointed a Director in 1986. Formed St. Modwen Developments Limited in 1966. He will retire as Chairman at the conclusion of the Annual General Meeting, but it is intended that he will remain on the board as a non-executive director and Life President. He is also chairman of The Chepstow Racecourse PLC. Anthony Glossop† MA Deputy Chairman, Chief Executive Aged 62. Appointed a Director in 1976. Previously Chief Executive of Redman Heenan International plc. It is intended that he will be appointed Executive Chairman to succeed Sir Stanley Clarke. He is also a non-executive director of The Chepstow Racecourse PLC, and of Robinson & Sons Limited. Bill Oliver BSc, FCA Managing Director Aged 47. Appointed a Director in 2000. Previously Finance Director of Dwyer Estates plc. It is intended that he will succeed Anthony Glossop as Chief Executive. Richard Froggatt FRICS Executive Director Aged 54. Appointed a Director in 1995. Previously a director of Savills and Managing Director of Wilson Bowden Properties Limited. Tim Haywood MA, FCA Finance Director Aged 40. Appointed a Director in 2003. Previously Chief Financial Officer of Hagemeyer (UK) Limited. 24 * Member of Audit and Remuneration Committees † Member of Nomination Committee Shareholder Information Financial Calendar Record date for 2003 final dividend Annual General Meeting Payment of 2003 final dividend Announcement of 2004 interim results Payment of 2004 interim ordinary dividend Announcement of 2004 final results Ordinary Shareholdings at 30 November 2003 By shareholder Directors and connected persons Individuals Insurance companies, nominees and pension funds Other limited companies and corporate bodies Shareholders No. % 20 4,305 512 96 4,933 0.4 87.3 10.4 1.9 100.0 Shareholders No. % 25.4 18.4 37.1 8.5 7.4 1.1 1.2 0.5 0.4 By shareholding Up to 500 1,000 501 to 5,000 1,001 to 10,000 5,001 to 50,000 10,001 to 100,000 50,001 to 100,001 to 500,000 500,001 to 1,000,000 1,000,001 and above 1,250 909 1,832 421 366 55 57 22 21 4,933 Principal institutional shareholders at 30 November 2003 Henderson Global Investors Legal & General Investment Management Limited Co-operative Insurance Society Limited M & G Investment Management Limited ING Investment Management Barclays Global Investors Limited Threadneedle Asset Management Limited Framlington Investment Management Limited Baring Asset Management Limited Merrill Lynch Investment Managers 13 April 2004 23 April 2004 30 April 2004 July 2004 September 2004 February 2005 Shares No. % 52,601,385 17,032,848 49,240,507 1,899,214 43.5 14.1 40.8 1.6 120,773,954 100.0 Shares No. % 315,961 706,191 4,355,484 3,082,917 7,584,289 3,892,281 11,813,932 16,650,307 72,372,592 0.3 0.6 3.6 2.5 6.3 3.2 9.8 13.8 59.9 100.0 120,773,954 100.0 Shares No. 8,437,358 3,748,059 3,211,000 2,928,440 2,351,343 2,214,929 1,670,100 1,670,000 1,551,032 1,467,838 % 7.0 3.1 2.7 2.4 2.0 1.8 1.4 1.4 1.3 1.2 25 St. MODWEN PROPERTIES PLC Directors’ Report The directors present their report together with the audited Richard Froggatt and Tim Haywood will retire from the board in accounts for the year ended 30 November 2003. accordance with the provisions of the company’s Articles of Association and offer themselves for re-election. REVIEW OF RESULTS, ACTIVITIES AND FUTURE PROSPECTS Sir David Trippier will retire as a director of the company at the The pre-tax profit for the year was £35.0m. The retained profit of Annual General Meeting, and will not seek re-election. £16.2m is to be transferred to revenue reserves. None of the directors had any material interest in contracts with The company acts as the holding company of a group of property the group, except as disclosed below: investment and development companies. During the year, the company disposed of its shareholding in A review of activities is given in the Operational and Financial Northern Racing Limited in exchange for shares in The Reviews on pages 6 to 23. The Chairman comments on future Chepstow Racecourse PLC. The company’s Chairman, Sir prospects in his statement on page 3. DIVIDEND The directors recommend the payment of a final dividend of 4.4p (2002: 3.8p) per ordinary share to be paid on 30 April 2004 to shareholders on the register on 13 April 2004. An interim dividend of 2.2p (2002: 1.9p) was paid on 12 September 2003. GOING CONCERN The directors are of the opinion that, having regard to the bank and loan facilities available to the group, there is a reasonable expectation that the group has sufficient working capital to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts. DIRECTORS AND THEIR INTERESTS The names of the directors of the company are set out on page 24. Sir Stanley Clarke, who is aged 70, will retire as Chairman of the company at the conclusion of the Annual General Meeting but will continue as a non-executive director, subject to re-election in accordance with Companies Act requirements. The board proposes to appoint Sir Stanley as Life President of the company, In accordance with the provisions set out in Section 1 of the Combined Code on Corporate Governance issued by the Financial Reporting Council in July 2003 (“the Code”), Christopher Roshier and Anthony Glossop offer themselves for Stanley Clarke, had a material interest in this transaction as a result of his 65% shareholding in Northern Racing and his 29.9% shareholding in The Chepstow Racecourse PLC. Although this transaction did not fall within the definition of a transaction with a related party within the meaning of the Listing Rules of the UKLA, the board nevertheless, as a matter of good governance, sought and obtained approval to the transaction from shareholders at an Extraordinary General Meeting held on 6 October 2003. DIRECTORS’ INTERESTS IN ORDINARY SHARES The interests of the directors, and their families, in the issued share capital of the company are shown below: Beneficial Sir Stanley Clarke C. C. A. Glossop R. L. Froggatt C. E. Roshier J. N. Shaw Sir David Trippier Non-beneficial Sir Stanley Clarke C. C. A. Glossop 30 November 30 November 2003 2002 27,043,854 27,043,854 1,130,299 1,130,299 92,000 10,417 10,000 18,400 90,000 10,417 10,000 18,400 849,567 849,567 30,000 30,000 The above interests do not include shares held under the share option schemes described in the Directors’ Remuneration Report on pages 31 to 35. re-election to the board. The reasons for this are set out on There has been no change in these interests since 30 November page 28. 26 2003. SUBSTANTIAL INTERESTS EMPLOYEES As at 16 February 2004 in addition to those noted above, the The group encourages employee involvement and places company had been notified of the following interests in more than emphasis on keeping its employees informed of the group’s 3% of its issued share capital: Shareholder Percentage of Ordinary Share Capital J. D. Leavesley and connected parties Henderson Global Investors 14.3% 7.0% CREDITOR PAYMENT POLICY activities and performance. A performance related annual bonus scheme and share option arrangements are designed to encourage employee involvement in the success of the group. The group operates a non-discriminatory employment policy under which full and fair consideration is given to disabled applicants and to the continued employment of staff who become disabled. The group operates a pension scheme which is open to all employees — see page 44. It is the group’s policy to agree terms and conditions for its Approved by the board of directors and signed on behalf of business transactions with its suppliers. The group seeks to abide the board by the payment terms agreed with suppliers whenever it is satisfied that the supplier has provided the goods and services in accordance with the agreed terms and conditions. During the year ended 30 November 2003 trade creditors represented an average of 32 days’ purchases (2002: 26 days). Tim Haywood Secretary 16 February 2004 Registered Office: Lyndon House Hagley Road Birmingham B16 8PE Company number 349201 Directors’ Responsibilities in Relation to Financial Statements The following statement, which should be read in conjunction with the Auditors’ Report to the Members set out on page 57, is made with a view to distinguishing for shareholders the respective responsibilities of the directors and of the auditors in relation to the financial statements. Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and the group as at the end of the financial year and of the profit or loss of the group for that period. In preparing these financial statements, the directors have — selected suitable accounting policies and then applied them consistently; — made judgements and estimates that are reasonable and prudent; — followed applicable accounting standards. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the group and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 27 St. MODWEN PROPERTIES PLC Corporate Governance St. Modwen is committed to good corporate governance. The board of directors exercises effective control over the group and its activities while recognising its responsibility to shareholders and other interested parties. The procedures for applying these principles within the group are set out below. This should be read in conjunction with the Directors’ Remuneration Report on pages 31 to 35. Throughout the year ended 30 November 2003 the company has been in compliance with the Code, except for the following matters: ● The Code recommends that at least half the board, excluding the Chairman, should comprise non-executive directors determined by the board to be independent. The board of St. Modwen, excluding the Chairman, comprises four executive and four non-executive directors. Neither Christopher Roshier nor Sir David Trippier would qualify under the Code to be considered independent as each has served as a director for more than nine years. However, all non-executive directors are considered by the board to be independent of management and free from any business or other relationship which could interfere with the exercise of their independent judgement. The length of service of Christopher Roshier (16 years) is not considered to impair his independence, but rather to provide a depth of knowledge, insight into the business and commitment to the company which enables him more fully to carry out his duties. In accordance with the Code, he is standing for re­ election at the forthcoming Annual General Meeting. Sir David Trippier is not seeking re-election this year, and will be replaced in due course by a suitably qualified independent individual. ● The Code recommends that a chief executive should not go on to be chairman of the same company. The business model which the company has adopted since 1986 has required two experienced individuals active in the business in the roles of Executive Chairman and Chief Executive. The latter is wholly responsible for the profitability of the company and its internal operations. The Executive Chairman, in addition to his normal role as Chairman, supports the Chief Executive in key external business relationships, on major projects, and in matters affecting the company’s reputation and integrity. Taking into account his detailed knowledge of the business, and his reputation in the wider business community, the board believes that the current Chief Executive and Deputy Chairman, Anthony Glossop, is the best candidate for the position of Chairman. The board has consulted with major shareholders who fully support this view. In order to endorse this decision, an ordinary resolution to reappoint Anthony Glossop as a director will be placed before shareholders at the Annual General Meeting. BOARD COMPOSITION AND COMMITTEES The board currently comprises five executive directors (including the Chairman) and four non-executive directors. This composition provides an appropriate blend of experience and qualifications, and the number of non-executives provides a strong base for ensuring appropriate corporate governance of the company. The board meets formally 11 times a year and its decisions are implemented by the executive directors. Every director attended all 11 meetings in the year, except for Sir Stanley Clarke and James Shaw (10), and Tim Haywood (appointed in April 2003) (8). The board has agreed that in view of his chairmanship of both the Remuneration and Audit Committees, Christopher Roshier is identified as the senior independent director. He is available for consultation by shareholders, whenever appropriate. The reappointment of non-executive directors is not automatic. It is intended that appointments will be for an initial term of three years, which may be extended by mutual agreement. Prior to each non-executive offering himself to the members for re-election his reappointment must be confirmed by the Chairman in consultation with the remainder of the board. The terms and conditions of appointment of non-executive directors are available for inspection at the company’s registered office during normal business hours, and at the AGM. The board is supplied with timely and relevant information regarding the business, by monthly and ad hoc reports, by site visits and presentations from members of the management team and by meetings with key partners. Where appropriate, the company provides the resources to enable directors to update and upgrade their knowledge. Through the company secretary, the board is informed of all corporate governance issues. The criteria used for evaluating individual executive directors’ performance are included in the Directors’ Remuneration Report. Individual non-executive directors’ performance is reviewed by the Chairman and Chief Executive. The performance of the board as a whole is continuously assessed in the context of the company’s achievement of its strategic objectives and total shareholder return targets. Feedback is sought through external surveys from shareholders, analysts and other professionals within the investment community following the regular briefings, presentations and site visits undertaken by the company. In support of the principles of good corporate governance, the board has appointed the following committees, all of which have formal terms of reference which are available for inspection by shareholders. a) Remuneration Committee The composition and function of the Remuneration Committee are set out in the Directors’ Remuneration Report on pages 31 to 35. 28 The Remuneration Committee met formally once during the year, the meeting being attended by all members. b) Audit Committee The Audit Committee is chaired by the senior independent director and comprises all of the non-executive directors. Two meetings were held during the year and additional meetings may be requested by either the auditors or the non-executive directors. Both meetings were attended by all members of the Committee. The Finance Director attends part of these meetings but the Committee does meet without executive directors being present. The Committee has direct access to the auditors. The Audit Committee’s functions include: ● Ensuring that appropriate accounting systems and financial controls are in operation and that the company’s financial statements comply with statutory and other requirements ● Receiving reports from and consulting with the external auditors ● Reviewing the interim and annual results and considering any matters raised by the auditors ● Monitoring the scope, cost-effectiveness and objectivity of the audit ● Monitoring the nature, scope and cost-effectiveness of non- audit services provided by the external auditors and ensuring that, where such services are provided, the objectivity and independence of the external auditors is safeguarded ● Securing development and investment opportunities ● Prior identification of macroeconomic and property market trends ● Changes in planning policy ● Structuring the financing of the company in an innovative and competitive manner ● Recruitment and retention of key executives with the skills necessary to implement the company strategy successfully ● Maintaining the company’s high reputation. The board believes that, although some of these issues are outside its control, it has clear strategies for identifying, dealing with, and mitigating the impact of each of these risks. The main strategies deployed include: ● Having a devolved management structure with regional offices covering local markets, whilst maintaining strong central control ● Marshalling its bank of development opportunities (the Hopper) to ensure a steady programme of activity ● Working in close partnership with local authorities and development agencies ● Committed financing arrangements with key banks ● Ensuring that excellent performance is rewarded with top quartile remuneration ● Aligning individual and corporate objectives via long-term and ● Making an annual assessment of the external auditors and share-based incentive schemes recommending, or not, their reappointment ● Ensuring a culture, led from the board, of honesty, fairness ● Considering the need for an internal audit function. and integrity throughout the company. c) Nominations Committee The Nominations Committee comprises the Chairman, the Chief Executive and the senior independent director. The board’s policy is for the Chairman to agree selection criteria for new members with all existing board members. The final decision on appointments rests with the full board, acting on the recommendations of the Nominations Committee. RISK MANAGEMENT AND INTERNAL CONTROL The board recognises that it has overall responsibility for the identification and mitigation of risks and the development and maintenance of an appropriate system of internal control. Accordingly, as part of the annual strategic review process, a top-down risk assessment is undertaken, which has identified the following principal risks faced by the company: During the period under review the directors have reviewed the effectiveness of the system of internal control in accordance with the Turnbull guidance, through the production of a detailed report which covered: the group’s control environment; the manner in which key business risks are identified; the adequacy of information systems and control procedures; and the manner in which any required corrective action is to be taken. The group’s key internal controls are centred on comprehensive monthly reporting from all activities which includes a detailed portfolio analysis, development progress reviews, a cash flow report and a comparison of committed expenditure against available facilities. These matters are reported to the board monthly, with reasons for any significant variances from budget. Detailed annual budgets are reviewed by the board and revised forecasts for the year are prepared on a regular basis. 29 St. MODWEN PROPERTIES PLC Corporate Governance There are clearly defined procedures for the authorisation of capital expenditure, purchases and sales of development and investment properties, contracts and commitments and there is a formal schedule of matters, including major investment and development decisions and strategic matters, that are reserved for board approval. Formal policies and procedures are in place covering all elements of health and safety and IT. The company’s IT policies have been developed in co-operation with The Federation Against Software Theft. Internal control, by its nature, provides only reasonable and not absolute assurance against material misstatement or loss. The directors continue, however, to strive to ensure that internal control and risk management are further embedded into the operations of the business by dealing with areas for improvement as they are identified. In accordance with the Code, the board has reviewed the need to establish an internal audit function, but continues to believe that in a company of its size, where close control over operations is exercised by the executive directors, the benefits likely to be gained would be outweighed by the costs of establishing such a function. SHAREHOLDER RELATIONS The executive directors have a programme of meetings with institutional shareholders and analysts at which the company’s strategy and most recently reported performance are explained and questions and comments made are relayed to the whole board. Annual visits are also arranged to sites of particular interest or significance to assist investors’ understanding of the company’s business. The company’s Annual General Meeting is also used as an opportunity to communicate with private investors. In addition to the usual period for questions which is made available for shareholders at the Annual General Meeting, Christopher Roshier, the chairman of the Audit and Remuneration Committees, will be available to answer appropriate questions. Copies of all press releases, investor presentations and Annual company’s website Reports (www.stmodwen.co.uk), together with additional details of major projects, key financial information and company background. posted the are on During the year the company was delighted to win the European Public Real Estate Best Performer 2002 award, in recognition of its outstanding performance, good active management and transparency for investors. 30 BUSINESS STANDARDS The company demands the highest standards of integrity and professionalism, does not condone any form of corrupt behaviour in business dealings and has disciplinary procedures in place to deal with any illegal or inappropriate activities by employees. HEALTH AND SAFETY The company aims to safeguard the health and safety of the public and its employees by pursuing a policy which ensures that: ● Its business is conducted in accordance with standards that are in compliance with relevant statutory provisions for health and safety of staff and any other persons on company premises ● A safe and healthy working environment is established and maintained at all of the company’s locations ● Managers at all levels regard health and safety matters as a prime management responsibility ● Sufficient financial resources are provided to ensure that policies can be carried out effectively ● Good standards of training and instruction in matters of health and safety are provided and maintained at all levels of employment ● Risk assessments are carried out where appropriate ● Co-operation of staff in promoting safe and healthy conditions and systems of work is required ● An adequate advisory service in matters of health and safety is provided and maintained Detailed policies and procedures are documented and made available to all staff. The Health and Safety Forum, chaired by the Assistant Company Secretary, and reporting to the Chief Executive, meets regularly to discuss and resolve implementation issues. These procedures are reviewed by the board annually. Directors’ Remuneration Report This report has been drawn up in accordance with the Code and has been approved by both the Remuneration Committee and the board. Shareholders will be invited to approve this report at the AGM. The Remuneration Committee’s terms of reference are available for inspection on request. The Companies Act requires certain parts of the Directors’ Remuneration Report to be audited. The audited sections are highlighted. COMPOSITION AND FUNCTION OF THE REMUNERATION COMMITTEE The Remuneration Committee comprises Christopher Roshier, Ian Menzies-Gow, James Shaw and Sir David Trippier, who are all independent non-executive directors of the company, although Christopher Roshier and Sir David Trippier are not recognised as such by the Code due to their length of service. The Committee considers all aspects of the executive directors’ remuneration and administers the company’s share option schemes. The remuneration of the non-executive directors is considered by the board following recommendations by the executive directors. No director participates in setting his own remuneration. The Committee is also aware of the remuneration paid to executives below board level. COMPLIANCE With the exceptions noted on page 28, the company has complied throughout the period with the Code, and with the Directors’ Remuneration Report Regulations 2002. REMUNERATION POLICY The objective of St. Modwen’s remuneration policy is to attract, retain and motivate high calibre senior executives through competitive pay arrangements which are also in the best interests of shareholders. These include performance-related elements to align the interests of directors and shareholders and to motivate the highest performance. The policy requires the highest level of performance from executives, based on individual performance assessments and by reference to pay levels in similar companies. Independent professional advice is sought from time to time to ensure that the policy remains appropriate. Such advice was last sought in January 2003. BASE SALARIES Each executive director receives a salary which reflects his responsibilities, experience and performance. Base salaries are reviewed annually and are established by reference to the median base salary for similar positions in comparable companies. SERVICE CONTRACTS All of the executive directors have notice periods of twelve months. No director has any rights to compensation (apart from payment in lieu of notice, where appropriate). The non-executive directors do not have service contracts. Unless specifically approved by the board, executive directors are not permitted to hold external non-executive directorships. 31 St. MODWEN PROPERTIES PLC Directors’ Remuneration Report PERFORMANCE-RELATED REMUNERATION The Remuneration Committee has approved all performance-related remuneration in respect of the year to 30 November 2003, and the targets for achievement of such remuneration which were set at the beginning of the financial year. Annual Bonus Executive directors, with the exception of the Chairman, participate in a performance linked annual bonus scheme. The levels of bonus are determined by the Remuneration Committee, taking into account both the level of profit and other personal targets. Executive directors were eligible to receive a maximum bonus of 70% of salary in 2003, payable on the achievement by the company of a demanding budget for profit for the year to 30 November 2003, and on the achievement of a number of personal targets, set individually for each executive director. These include the achievement of a target net asset value per share, creation of a development programme for future years, support for the regional offices, and replacement of land used. The Chief Executive makes recommendations to the Remuneration Committee for the levels of bonus payable to executive directors (other than himself) for the achievement of these personal targets, and the levels of bonus payable are set by the the Remuneration Committee. Annual bonuses do not form part of pensionable pay. For the year to 30 November 2003, the annual bonuses paid to directors as a percentage of annual salary were as follows: Anthony Glossop 70%; Bill Oliver 70%; Richard Froggatt 64%; Tim Haywood 61%. Total Shareholder Return 1998 – 2003 St Modwen Properties vs FTSE Real Estate vs FTSE 250 St Modwen Properties FTSE Real Estate FTSE MID 250 4000 3500 3000 2500 2000 1500 1000 500 1999 2000 2001 2002 2003 Source: DATASTREAM Deferred Bonus In order to continue to attract and retain key executives, and to align their interests with those of shareholders, the board believes that long-term incentives should form an important part of a competitive benefits package. Consequently, a resolution will be put before the Annual General Meeting, seeking shareholders’ approval for the introduction of a performance-related bonus scheme for Mr Oliver, Mr Froggatt and Mr Haywood. Under the terms of the scheme, the annual performance bonus paid under the existing scheme will be matched and this amount held for payment at the end of three years. Payment of this deferred amount will be subject to the company’s net asset value growth over the relevant three year period exceeding RPI plus 5% per annum and the continued employment by the company of the director concerned (except in certain circumstances, such as death during the deferral period). This scheme replicates arrangements already in place for senior management of the company below board level, under which a maximum of 100% of annual salary can be earned as bonus, of which 50% is deferred for three years. The board has consulted on this scheme with major shareholders. 32 Share Options The Remuneration Committee is responsible for supervising the company’s Executive Share Option and Savings Related Share Option schemes in accordance with rules previously approved by shareholders. Executive directors (as well as other senior employees) are granted options over the company’s shares. For options granted in 2003 under the company’s Executive Share Option Scheme (as in other recent awards), the performance target set was 5% per annum real growth in net asset value per share over the three year period from the date of grant. Executive directors may also participate in the company’s savings-related share schemes on the same terms as all other employees. Executive Share Option Schemes Date of Grant C. C. A. Glossop W. A. Oliver R. L. Froggatt T. P. Haywood Exercise Price Exercise Period March 1999* August 1994 September 1995 November 1999 March 2000 September 2001 September 2002 132,878 150,000 300,000 500,000 — — — — — — — 200,000 160,000 172,000 — — — 200,000 100,000 110,000 159,000 As at 30 November 2002 1,082,878 August 2003 — 532,000 112,000 569,000 90,000 — 50.5p 51.5p 99.0p 106.0p 113.5p 134.0p Mar 2002–Mar 2005 Aug 1997–Aug 2004 Sept 1998–Sept 2005 Nov 2003–Nov 2009 Mar 2004–Mar 2010 Sept 2004–Sept 2011 Sept 2005–Sept 2012 — — — — — — — — 70,000 200.0p Aug 2006–Aug 2013 As at 30 November 2003 1,082,878 644,000 659,000 70,000 * Granted under a long-term incentive plan which was discontinued in 1999. Savings Related Schemes Balance at Balance at 30 Nov 2002 Exercised Granted 30 Nov 2003 Exercise Price Exercise Period C. C. A. Glossop W. A. Oliver R. L. Froggatt T. P. Haywood 19,236 16,304 13,240 — — — — — — — — 3,500 19,236 84.5p/103.5p Oct 2004–Oct 2006 16,304 13,240 3,500 103.5p May 2006–Oct 2006 125.0p 182.0p Oct 2007–Mar 2008 Oct 2008–Mar 2009 The share price as at 30 November 2003 was 258.5p. The highest price during the year was 258.5p and the lowest price was 148p. 33 St. MODWEN PROPERTIES PLC Directors’ Remuneration Report DIRECTORS’ REMUNERATION The remuneration of the directors for the year ended 30 November 2003 was as follows: Salary/Fees £’000 Annual bonus £’000 Gains on contributions Benefits share options £’000 £’000 2003 £’000 2002 £’000 Total emoluments excluding pensions and pension Executive Sir Stanley Clarke C. C. A. Glossop W. A. Oliver R. L. Froggatt T. P. Haywood Non-Executive R. I. Menzies-Gow C. E. Roshier J. N. Shaw Sir David Trippier* J. D. Leavesley C. H. Lewis I. J. G. Napier 221 255 217 180 89 25 35 25 25 — — — — 178 157 115 50 — — — — — — — 80 21 22 22 12 — — — — — — — 1,072 500 157 — — — — — — — — — — — — — 301 454 396 317 151 25 35 25 25 — — — 293 418 294 344 — 8 30 22 22 9 9 2 1,729 1,451 All benefits arise from employment with the company, and do not form part of directors’ final pensionable pay. The figures above represent emoluments earned during the relevant financial year. Such emoluments are paid in the same financial year with the exception of performance related bonuses, which are paid in the year following that in which they are earned. * Payments in respect of the services of Sir David Trippier as a director include amounts paid to Sir David Trippier & Associates Limited, a company which he controls. During the year, payments of £3,000 each in respect of consultancy services provided were made to former directors J. D. Leavesley and C. H. Lewis Total non-executive directors’ fees have been set at a maximum of £100,000 (adjusted for RPI) since 1998. With the increasing complexity of the role, and the requirements of the Combined Code for additional numbers of non-executives, such a limit is no longer appropriate if the company is to attract and retain individuals of sufficient calibre. Consequently, a resolution will be put before the Annual General Meeting to increase this limit to £250,000. The salaries of the executive directors have been increased with effect from 1 December 2003 to: C. C. A. Glossop W. A. Oliver £267,500 £250,000 R. L. Froggatt T. P. Haywood £189,000 £155,000 34 PENSIONS The company operates a pension scheme with both a defined benefits and defined contribution section, covering the majority of employees, including executive directors. In relation to the defined benefits section, benefits are based on years of credited service and final pensionable pay. The maximum pension generally payable under the scheme is two-thirds of final pensionable pay. It is not anticipated that there will be any further entrants to the defined benefits section of the scheme. Membership of the defined contribution section is available to all permanent employees including directors joining the company after 6 April 1999. Contributions are invested by an independent investment manager. Pension benefits earned by the director who is a member of the defined benefits scheme: Increase in Accrued pension Age at accrued pension at 30 November 2003 30 November 2003 54 £ p.a. 3,116 £ p.a. 31,075 R. L. Froggatt Notes relating to the defined benefits scheme: 1. No contributions are paid by members. 2. The increase in accrued pension during the year excludes any increase for inflation. 3. Accrued pension is that which would be paid annually at retirement age based on service to 30 November 2003. 4. Members have the option to pay Additional Voluntary Contributions; neither the contributions nor the resulting benefits are included above. 5. Normal retirement age is 60. 6. Death in service benefits amount to a lump sum equal to the greater of four times basic salary at death and four times the average of gross earnings in the last four years. In addition, a spouse’s pension would be payable, equivalent to 50% of the full pension the member would have been entitled to had he worked to normal retirement age. 7. A spouse’s pension of 50% of the full pension is payable after the death in retirement of a member. 8. Pension payments increase annually by the lower of the RPI increase and 5%. W. A Oliver and T. P. Haywood are members of the defined contribution section of the Pension Scheme and contributions of £32,500 and £13,381 were made in respect of each of them during the period. Sir Stanley Clarke is receiving a pension from the scheme equal to the maximum permitted by the Inland Revenue from an approved scheme based on his earnings and length of service. C. C. A. Glossop, having attained the age of 60, has ceased to accrue rights to further pensionable service and he is deferring his entitlement to receive his pension. Further information on the company’s pension scheme is shown in note 10 on page 44. Approved by the board and signed on its behalf by Christopher Roshier Chairman, Remuneration Committee 16 February 2004 35 St. MODWEN PROPERTIES PLC Group Profit and Loss Account For the year ended 30 November Turnover Group and share of joint ventures Less: share of joint ventures turnover Operating profit Group operating profit Share of operating profit in joint ventures Share of operating profit in associates Profit on sale of investment properties Net interest payable Profit on ordinary activities before taxation Taxation on profit on ordinary activities Profit on ordinary activities after taxation Equity minority interest Profit attributable to shareholders Dividends Transferred to reserves Basic earnings per ordinary share Dividend per ordinary share All activities derive from continuing operations. A statement of the movement in reserves is shown in note 20 on page 54. 36 Notes 1 1 1 2 3 6 7 8 7 2003 £’000 136,081 (13,304) 122,777 34,538 9,486 1,550 45,574 5,389 2002 £’000 136,893 (28,728) 108,165 28,561 12,687 1,093 42,341 832 (15,937) (13,161) 35,026 30,012 (9,954) (8,448) 25,072 21,564 (989) (1,016) 24,083 (7,914) 16,169 20,548 (6,846) 13,702 20.1p 6.6p 17.1p 5.7p Balance Sheets At 30 November Fixed assets Tangible assets Investments Joint ventures Share of gross assets Share of gross liabilities Share of net assets Associated companies Other investments Current assets Stocks Debtors Cash at bank and in hand Current liabilities Notes GROUP COMPANY 2003 £’000 2002 £’000 2003 £’000 2002 £’000 11 269,023 270,007 1,399 1,517 12 12 12 13 14 123,795 (100,480) 23,315 9,198 6,436 77,348 (53,650) 23,698 7,514 6,615 307,972 307,834 77,510 23,801 92 101,403 101,179 10,072 2,927 114,178 23,315 8,598 237,424 270,736 — 77,395 34 77,429 23,698 6,914 200,024 232,153 — 62,921 38 62,959 Creditors: amounts falling due within one year 15 (50,881) (53,091) (115,148) (66,023) Net current assets/(liabilities) 50,522 61,087 (37,719) (3,064) Total assets less current liabilities Creditors: amounts falling due after more than one year Provisions for liabilities and charges Equity minority interests Net assets Capital and reserves Called up share capital Share premium account Merger reserve Capital redemption reserve Revaluation reserve Profit and loss account Equity shareholders’ funds Net assets per ordinary share Fair value net assets per ordinary share Gearing 16 18 19 20 20 20 20 20 22 358,494 368,921 233,017 229,089 (127,941) (2,970) (2,981) (168,020) (3,979) (2,605) (8,500) 85 — (34,500) (272) — 224,602 194,317 224,602 194,317 12,077 9,167 9 356 89,974 113,019 224,602 186.0p 180.2p 60% 12,077 9,167 9 356 80,191 92,517 194,317 160.9p 148.0p 89% 12,077 9,167 9 356 188,234 14,759 224,602 12,077 9,167 9 356 148,485 24,223 194,317 The Report and Accounts were approved by the board of directors on 16 February 2004. Signed on behalf of the board of directors by Sir Stanley Clarke T. P. Haywood 37 St. MODWEN PROPERTIES PLC Group Cash Flow Statement For the year ended 30 November Notes £’000 £’000 £’000 £’000 2003 2002 Net cash inflow from operating activities 21(a) Dividends received from joint ventures 31,327 6,000 Returns on investments and servicing of finance Interest received Interest paid Net cash outflow from returns on investments and servicing of finance Taxation Capital expenditure and financial investment Additions to investment properties Additions to operating properties and other tangible assets Sale of investment properties Sale of operating properties and other tangible assets Acquisitions and disposals Investment in joint ventures and associates Equity dividends paid Dividends paid to minority shareholders Cash inflow/(outflow) before use of liquid resources and financing Financing Redemption of loan notes (Decrease)/increase in debt Net cash (outflow)/inflow from financing (Decrease)/increase in cash in the year 21(b) 21(b) Reconciliation of net cash flow to movement in net debt (Decrease)/increase in cash Cash flow from change in debt Loan notes redeemed Change in net debt resulting from cash flows Net debt at 1 December Net debt at 30 November 38 176 (11,124) 72 (10,312) (13,177) (165) 38,347 10 (48,848) (112) 5,612 36 (10,948) (4,571) 25,015 (217) (7,187) (613) 38,806 (19) (44,839) (48) 36,046 (44,858) (6,052) (6,052) 44,839 19 38,806 (173,774) (134,968) 38,793 — (10,240) (7,170) (43,312) (4,861) (6,266) — (33,056) 35,998 2,942 2,942 (36,046) 48 (33,056) (140,718) (173,774) Supplementary Statements For the year ended 30 November Group Statement of Total Recognised Gains and Losses Profit for the year Taxation on realisation of prior years’ revaluation surpluses Unrealised surplus on revaluation of group investment properties Unrealised surplus on revaluation of properties held by joint ventures Unrealised surplus arising on acquisition by associate Total recognised gains and losses since last annual report Note of Historical Cost Profits and Losses Reported profit on ordinary activities before taxation Realisation of property revaluation gains/(losses) of earlier years 2003 £’000 24,083 (1,231) 12,272 2,189 886 38,199 2003 £’000 35,026 5,564 40,590 2002 £’000 20,548 — 13,837 1,417 — 35,802 2002 £’000 30,012 (1,657) 28,355 Historical cost profit for the year after taxation, minority interests and dividends 21,733 12,045 Group Reconciliation of Movements in Shareholders’ Funds Profit attributable to shareholders Dividends Unrealised surplus on revaluation of group investment properties Unrealised surplus on revaluation of properties held by joint ventures Unrealised surplus arising on acquisition by associate Taxation on realisation of prior years’ revaluation surpluses Net addition to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 2003 £’000 24,083 (7,914) 16,169 12,272 2,189 886 (1,231) 30,285 194,317 224,602 2002 £’000 20,548 (6,846) 13,702 13,837 1,417 — — 28,956 165,361 194,317 39 St. MODWEN PROPERTIES PLC Accounting Policies The accounts and notes have been prepared in accordance with applicable accounting standards. Compliance with SSAP19 “Accounting for Investment Properties” requires departure from the Companies Act 1985 relating to depreciation and an explanation of the departure is given below. The Companies Act 1985 requires all properties to be depreciated. However, this requirement conflicts with the generally accepted accounting principle set out in SSAP19. The directors consider that, because these properties are not held for consumption but for their investment potential, to depreciate them would not give a true and fair view, and that it is necessary Accounting Convention The accounts have been prepared under the historical cost convention, modified by the revaluation of investment properties and shares in subsidiary and associated companies. Basis of Consolidation The group accounts consolidate the accounts of the company and its subsidiaries for the financial period ended 30 November 2003. Newly acquired subsidiaries are consolidated from the date control passes. Associated companies are consolidated using the equity accounting method and joint ventures are consolidated using the gross equity accounting method as required by FRS9. Turnover and Profit Recognition Turnover represents sales of development properties, rental income receivable in accordance with UITF28, other recoveries and income from leisure activities. Profit on development properties is recognised on legal completion of sale. Tangible Fixed Assets Depreciation is not provided on investment properties which are subject to annual revaluations. Other tangible fixed assets are depreciated by equal instalments over their expected useful lives at annual rates varying between 2% and 50%. Investment in Subsidiary and Associated Companies The investments in subsidiary and associated companies are included in the company’s balance sheet at the company’s share of net asset value. The valuation recognises the cost of acquisition, together with any unamortised goodwill and changes in the book values of the underlying net assets. The surplus or deficit arising on revaluation is transferred to reserves. Acquisitions On the acquisition of a business, including an interest in an associated undertaking, fair values are attributed to the group’s share of the separable net assets. Any goodwill arising is amortised over its expected useful life, not exceeding 20 years. The results and cash flows relating to a business are included in the consolidated profit and loss account and the consolidated cash flow statement from the date control passes. Investment Properties In accordance with SSAP19, investment properties are revalued annually and the aggregate surplus or temporary deficit is transferred to the revaluation reserve. No depreciation is provided in respect of investment properties. to adopt SSAP19 in order to give a true and fair view. If this departure from the Act had not been made, the profit for the financial year would have been reduced by depreciation. However, the amount of depreciation cannot reasonably be quantified because depreciation is only one of many factors reflected in the annual valuation and the amount which might otherwise have been shown cannot be separately identified or quantified. Stocks Stocks and work in progress are stated at the lower of cost and net realisable value, less amounts invoiced on account. Transfers from investment properties to stock are made at value not cost. Deferred Taxation In accordance with FRS19, deferred taxation is provided at the rate ruling at the balance sheet date on timing differences which arise from the recognition of income and expenditure in differing periods for taxation and accounting purposes. Under this policy no provision has been made for the potential further liability to taxation which would arise in the event of the realisation of investment properties included at valuation in the accounts at the values attributed to them. Interest Interest incurred on properties in the course of development, whether for sale or retention as investments, is charged to the profit and loss account. Pension Costs Retirement benefits to employees in the group are provided by a scheme comprising both defined benefit and defined contribution sections which is funded by contributions from group companies and employees. Payments to pension funds are made in accordance with periodic calculations by professionally qualified actuaries in the case of the defined benefit section, and regularly as defined by the rules in the case of the defined contribution section. The costs are charged to the profit and loss account, so as to spread the cost over the service lives of employees in the scheme in such a way that the pension cost is a substantially level percentage of current and expected future pensionable payroll. Financial Instruments Derivative instruments utilised by the group are interest rate caps, floors and swaps. The group does not enter into speculative derivative contracts. All such instruments are used for hedging purposes to alter the interest rate risk profile of underlying borrowings. Amounts payable or receivable in respect of such derivatives are recognised as adjustments to interest expense over the period of the contracts. 40 Notes to the Accounts 1. Turnover and Profit Analysis Rental income Group Share of joint ventures Property development Group Share of joint ventures Other activities 2003 Cost of sales £’000 Profit £’000 Turnover £’000 (4,644) (1,370) 26,964 9,482 (68,792) (2,347) (1,533) 19,703 105 1,141 25,835 4,852 79,777 23,876 2,553 2002 Cost of sales £’000 (3,532) (799) (65,351) (15,135) (1,920) Turnover £’000 31,608 10,852 88,495 2,452 2,674 Profit £’000 22,303 4,053 14,426 8,741 633 136,081 (78,686) 57,395 136,893 (86,737) 50,156 1,550 (13,270) (101) 45,574 5,213 176 50,963 Share of operating profit in associates Administrative and other operating expenses Group Share of joint ventures Operating profit Profit on sale of investment properties — group — joint ventures 2. Net Interest Payable Interest payable on bank and other loans and overdrafts Interest receivable Group interest charge Share of joint ventures’ net interest Share of associated companies’ net interest 3. Profit on Ordinary Activities before Taxation The profit on ordinary activities before taxation is stated after charging: Depreciation of tangible fixed assets Amortisation of investment in own shares Amortisation of goodwill arising on acquisition of associate Auditors’ remuneration — audit services — taxation advice — advice on Chepstow transaction 1,093 (8,801) (107) 42,341 832 — 43,173 2002 £’000 10,742 (72) 10,670 2,320 171 13,161 2003 £’000 11,065 (176) 10,889 4,746 302 15,937 2003 £’000 2002 £’000 194 330 12 49 41 20 221 651 — 55 27 — Remuneration for audit services for the company was £4,300 (2002: £4,200). For taxation advice the charge was £1,350 (2002: £27,000). As disclosed in last year’s Annual Report, Ernst & Young LLP, the auditors to the company, were paid an introductory fee of £500,000 and fees associated with the bank finance of £12,000 by our joint venture company Key Property Investments Limited, in connection with the acquisition in December 2002 of a group of property investment companies from the Alstom Group. 41 St. MODWEN PROPERTIES PLC Notes to the Accounts 4. Directors’ Remuneration Directors’ emoluments Non-executive directors’ fees Executive directors’ salaries and benefits Executive directors’ performance related payments Gains on the exercise of share options Value of shares transferred in respect of long-term share incentive scheme Pension to former directors Consultancy payments to former directors Disclosure of individual directors’ remuneration, is shown in the Directors’ Remuneration Report on pages 31 to 35. 5. Employees The average number of full-time employees (including directors) employed by the group during the year was as follows: Administration Property Other activities The total payroll costs of these employees were: Wages and salaries Social security costs Pension costs The total payroll costs were dealt with in the accounts as follows: Property recoveries Cost of sales Overheads 42 2003 £’000 110 1,119 500 1,729 — — 1 6 1,736 2002 £’000 102 907 442 1,451 — 246 1 — 1,698 2003 Number 2002 Number 18 151 43 212 £’000 7,261 757 1,269 9,287 1,673 310 7,304 9,287 18 178 35 231 £’000 5,644 538 15 6,197 1,106 309 4,782 6,197 6. Taxation on Profit on Ordinary Activities 2003 2002 £’000 £’000 £’000 £’000 (a) Analysis of Charge in Period Current tax UK corporation tax on profits of the period Adjustments in respect of previous periods Share of joint ventures’ taxation Adjustments in respect of previous periods Share of associates’ taxation Adjustments in respect of previous periods Total current tax (note (b)) Deferred tax Origination and reversal of timing differences (note 18) Share of joint ventures’ origination and reversal of timing differences Taxation on profits on ordinary activities (b) Factors Affecting Tax Charge For Period 9,124 (165) 1,214 34 312 204 8,959 1,248 516 10,723 (1,009) 240 9,954 4,513 (192) 3,122 20 — — 2003 £’000 4,321 3,142 — 7,463 985 — 8,448 2002 £’000 Profit on ordinary activities before tax 35,026 30,012 Profit on ordinary activities at the standard rate of UK Corporation Tax Disallowed expenses and non-taxable income Capital allowances for period in excess of depreciation Short-term timing differences Net capital gains on disposal of investment properties Other Adjustments to tax charge in respect of previous periods (including joint ventures) 10,508 (142) (496) 1,265 (375) (110) 73 10,723 9,004 (207) (443) (636) (115) 32 (172) 7,463 (c) Factors That May Affect Future Tax Charges Based on current capital investment plans, the group expects to continue to be able to claim capital allowances in excess of depreciation in future years. No provision has been made for deferred tax on gains recognised on revaluing investment properties to market value. Such tax would become payable only if the properties were sold. The total amount unprovided is £18.3m including share of joint ventures (2002: £17.1m). 7. Dividends Ordinary 10p shares — proposed final dividend of 4.4p (2002: 3.8p) — interim dividend of 2.2p (2002: 1.9p) 2003 £’000 5,274 2,640 7,914 2002 £’000 4,547 2,299 6,846 43 St. MODWEN PROPERTIES PLC Notes to the Accounts 8. Earnings per Share Earnings per ordinary share are calculated as follows: (a) Basic earnings per ordinary share are calculated by dividing the profit attributable to ordinary shareholders of £24,083,000 (2002: £20,548,000) by the weighted average number of shares in issue during the year (excluding the shares held for share incentive schemes which are owned by the company) of 119,820,493 (2002: 120,310,795). (b) As the group does not currently intend to issue shares to satisfy outstanding share options, there will be no dilution of earnings arising from the exercise of employee share options. 9. Profit of Parent Company As permitted by Section 230 of the Companies Act 1985, the profit and loss account of the parent company is not presented as part of these accounts. The loss for the financial year of the parent company was £485,000 (2002: £26,728,000 profit). 10. Pensions The group operates a pension scheme in the UK with both defined benefit and defined contribution sections. The defined benefit section is closed to new members. The pension cost figures used in these accounts comply with the current pension cost accounting standard SSAP24. The last formal actuarial valuation of the scheme was as at 5 April 2003, when the market value of the net assets of the scheme was £18,864,000. The valuation was performed using the projected unit method. The main actuarial assumptions were: Investment rate of return: pre-retirement post-retirement Investment rate of return: Increase in earnings Increase in pensions The valuation showed a funding level of 82%. 6.2% p.a. 4.7% p.a. 5.6% p.a. 2.6% p.a. Under transitional arrangements the group is required to disclose the following information about the scheme and the figures that would have been shown under FRS17 in the current balance sheet and profit & loss account. A full actuarial valuation of the defined benefit section was carried out at 5 April 2003 and updated to 30 November 2003 by a qualified independent actuary. The major assumptions used by the actuary for FRS17 purposes were: At 30 November 2003 At 30 November 2002 At 30 November 2001 Rate of increase in salaries Rate of increase in deferred pensions Rate of increase in pensions in payment Discount rate Inflation assumption 5.77% 2.77% 2.77% 5.59% 2.77% 5.34% 2.34% 2.34% 5.72% 2.34% The fair values of assets in the defined benefit section of the scheme and the expected rate of return were: 2003 2002 2001 Equities Bonds Property Cash and other assets Actuarial value of liabilities (Deficit)/surplus in the scheme Related deferred tax asset/(liability) Fair value pension (liability)/asset % 6.12 4.62 6.12 4.62 % 6.52 5.42 6.52 5.02 £’000 12,002 308 7,327 637 20,274 (21,625) (1,351) 405 (946) % 6.26 4.76 6.26 4.76 £’000 10,327 819 6,854 633 18,633 (17,154) 1,479 (444) 1,035 5.30% 2.30% 2.30% 5.54% 2.30% £’000 13,288 662 7,161 389 21,500 (17,133) 4,367 (1,310) 3,057 44 10. Pensions continued If the above pension liability/asset was recognised in the financial statements, the group’s net assets and profit and loss reserve would be as follows: Net assets excluding pension liability/asset Pension (liability)/asset Net assets including pension liability/asset At 30 November 2003 At 30 November 2002 224,602 (946) 223,656 194,317 1,035 195,352 At 30 November 2003 At 30 November 2002 Profit and loss reserve excluding pension liability/asset Pension (liability)/asset Profit and loss reserve including pension liability/asset 113,019 (946) 112,073 Had FRS 17 been fully implemented, the amount which would be charged to operating profit is as follows: Current service cost Employee contributions Total operating charge The amount which would be credited to other finance income is as follows: Expected return on pension scheme assets Interest on pension scheme liabilities Net return The amounts which would be included within the statement of total recognised gains and losses are as follows: Difference between expected and actual return on assets (6.3%) Experience gains and losses arising on the present value of scheme liabilities (6.9%) Effects of changes in the demographic and financial assumptions underlying the present value of the scheme liabilities (9.8%) Total actuarial loss (10.9% of present value of scheme liabilities) The movement in the scheme surplus during the year is as follows: Surplus in scheme at beginning of the year Movement in year: Current service cost Employee contributions Employer contributions Other finance income Actuarial loss (Deficit)/surplus in scheme at the year end 2003 £’000 (704) 13 (691) 2003 £’000 1,118 (978) 140 2003 £’000 1,270 (1,496) (2,124) (2,350) 2003 £’000 1,479 (704) 13 71 140 (2,350) (1,351) 92,517 1,035 93,552 2002 £’000 (543) 9 (534) 2002 £’000 1,266 (937) 329 2002 £’000 (3,052) (48) 403 (2,697) 2002 £’000 4,367 (543) 9 14 329 (2,697) 1,479 45 St. MODWEN PROPERTIES PLC Notes to the Accounts 10. Pensions continued Reconciliation of fall in value of scheme’s assets to FRS 17 disclosures: Value of scheme’s assets: (Deficit)/surplus in scheme at the end of year Surplus in scheme at the start of year Total fall in value during year FRS 17 disclosure: Profit and Loss Account — operating charge — other finance income Statement of Total Recognised Gains and Losses Employer contributions Gross £’000 (1,351) 1,479 (2,830) (691) 140 (2,350) 71 (2,830) Tax £’000 405 (444) 849 207 (42) 705 (21) 849 Freehold investment properties £’000 167,315 8,195 6,740 (19,729) 5,592 168,113 — — — — Long leasehold investment properties £’000 100,165 4,982 — (13,405) 6,680 98,422 — — — — 168,113 167,315 98,422 100,165 Operating properties £’000 Plant, machinery and equipment £’000 1,026 165 — (36) — 1,155 781 152 (26) 907 248 245 2,380 — — — — 2,380 98 42 — 140 2,240 2,282 482 1,758 2,240 11. Tangible Fixed Assets (a) Group Cost or valuation At 30 November 2002 Additions Transfers from work in progress Disposals Surplus on revaluation At 30 November 2003 Depreciation At 30 November 2002 Charge for the year Disposals At 30 November 2003 Net book value At 30 November 2003 At 30 November 2002 Tenure of operating properties: Freehold Long leasehold 46 Net £’000 (946) 1,035 (1,981) (484) 98 (1,645) 50 (1,981) Total £’000 270,886 13,342 6,740 (33,170) 12,272 270,070 879 194 (26) 1,047 269,023 270,007 11. Tangible Fixed Assets continued (b) Company Cost or valuation At 30 November 2002 Additions Deficit on revaluation At 30 November 2003 Depreciation At 30 November 2002 Charge for the year At 30 November 2003 Net book value At 30 November 2003 At 30 November 2002 Long leasehold investment properties £’000 Plant, machinery and equipment £’000 1,380 — (130) 1,250 — — — 1,250 1,380 733 107 — 840 596 95 691 149 137 Total £’000 2,113 107 (130) 2,090 596 95 691 1,399 1,517 (c) Freehold and long leasehold investment properties were valued as at 30 November 2003 by King Sturge & Co., Chartered Surveyors in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors, on the basis of open market value. (d) Historical cost of investment properties Group Company Freehold investment properties Long leasehold investment properties 12. Investments held as Fixed Assets 2003 £’000 116,203 70,375 2002 £’000 116,145 77,021 186,578 193,166 2003 £’000 — 2,770 2,770 2002 £’000 — 2,770 2,770 (a) Group At 30 November 2002 Investments in year Share of revaluation of ass Share of post-tax profits les Dividends receivable Amortisation and appropriat ion ets s losses At 30 November 2003 Investment in joint ventures £’000 Investment in associated companies £’000 Investment in own shares £’000 Other investments £’000 23,698 — 2,189 3,428 (6,000) — 23,315 7,514 66 886 744 — (12) 9,198 615 151 — — — (330) 436 6,000 — — — — — 6,000 (b) Company Investment in subsidiary companies £’000 Investment in joint ventures £’000 Investment in associated companies £’000 Investment in own shares £’000 Other investments £’000 At 30 November 2002 Investments in year Revaluation of investments Amortisation and appropriation 193,409 — 37,579 — 23,698 — (383) — At 30 November 2003 230,988 23,315 6,914 66 1,618 — 8,598 615 151 — (330) 436 6,000 — — — 6,000 Total £’000 37,827 217 3,075 4,172 (6,000) (342) 38,949 Total £’000 230,636 217 38,814 (330) 269,337 47 St. MODWEN PROPERTIES PLC Notes to the Accounts 12. Investments held as Fixed Assets continued (c) Joint Ventures Key Properties Investments Limited £’000 100,732 14,112 (2,613) Holaw (462) Limited £’000 3,850 102 (116) (89,961) (3,310) 22,270 526 Fixed assets Current assets Current liabilities Non-current liabilities Barton Business Park Limited £’000 — 1,918 (503) (932) 483 Clarke London Limited £’000 — 20 — — 20 Sowcrest Limited £’000 — 2,004 (83) (1,758) 163 Great British Kitchen Shaw Park Company Developments Limited £’000 Limited £’000 Total £’000 104,655 19,140 (3,315) — 984 — (984) (97,165) — 23,315 73 — — (220) (147) (d) Associated Companies At 30 November 2003, the associated companies, which were registered and operated in England and Wales, were as follows: Percentage shareholding Nature of principal business The Chepstow Racecourse PLC Stoke-on-Trent Community Stadium Development Company Limited 27% 15% Racecourse operator Stadium operator The majority shareholder in The Chepstow Racecourse PLC is Sir Stanley Clarke. The other shareholders in Stoke-on-Trent Community Stadium Development Company Limited are Stoke City Football Club Limited (49%) and the Council of the City of Stoke-on-Trent (36%). Stoke-on-Trent Regeneration Limited holds the remaining 15% of the equity in this company. The accounts of The Chepstow Racecourse PLC are drawn up to 31 December each year. The accounts of Stoke-on-Trent Community Stadium Development Company Limited are drawn up to 31 May each year, and management accounts to 30 November 2003 have been used for consolidation purposes. (e) Own Shares Investment in own shares represents shares acquired by Mourant & Co. Trustees Limited in respect of share incentive schemes. These shares are held at the lower of market value and residual value (being the lowest exercise price of any outstanding options). 908,689 shares with a market value of 258.5p per share were held at 30 November 2003 (2002: 1,128,858). Dividends have been waived on these shares. 132,878 of the shares are held under option to employees in the long-term share incentive scheme (2002: 132,878). 48 12. Investments held as Fixed Assets continued (f) Subsidiary companies At 30 November 2003, the principal subsidiaries, all of whom, with the exception of St. Modwen Enterprises Limited, were registered and operated in England and Wales, were as follows: Proportion of ordinary shares held Nature of principal business Blackpole Trading Estate (1978) Limited Boltro Properties Limited Chaucer Estates Limited Lawnmark Limited Leisure Living Limited Redman Heenan Properties Limited St. Modwen Developments Limited St. Modwen Developments (Belle Vale) Limited St. Modwen Developments (Edmonton) Limited St. Modwen Developments (Kirkby) Limited St. Modwen Developments (Quinton) Limited St. Modwen Enterprises Limited St. Modwen Investments Limited St. Modwen Securities Limited St. Modwen Ventures Limited Walton Securities Limited Worcester Retail Park (One) Limited Worcester Retail Park (Two) Limited Stoke-on-Trent Regeneration Limited Stoke-on-Trent Regeneration (Investments) Limited Uttoxeter Estates Limited Widnes Regeneration Limited Trentham Leisure Limited Norton & Profit Developments Limited 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 81% 81% 81% 81% 80% 75% Property investors Property investors Property investors Investment company Leisure operator Property investors Property developers Property investors Property investors Property investors Property developers Property investors Property investors Property developers Property investors Property investors Property investors Property investors Property developers Property investors Property developers Property developers Property and leisure operator Property developers St. Modwen Enterprises Limited was registered and operated in the Isle of Man. The company is also the beneficial owner of the entire issued share capital of a number of non-trading companies. 13. Stocks Work in progress: Developments in progress Income-producing development property Goods for resale Group Company 2003 £’000 2002 £’000 2003 £’000 2002 £’000 42,643 34,833 77,476 34 81,339 19,803 101,142 37 77,510 101,179 — — — — — — — — — — 49 St. MODWEN PROPERTIES PLC Notes to the Accounts 14. Debtors: Amounts falling due within one year Trade debtors Amounts due from subsidiaries Amounts due from joint venture and associated companies Other debtors Prepayments and accrued income 15. Creditors: Amounts falling due within one year Bank overdraft (secured on specific property assets) Bank loan (secured on specific property assets) Floating Rate Guaranteed Unsecured Loan Notes 2009 Floating Rate Unsecured Loan Notes 2005 Payments on account Trade creditors Amounts due to subsidiaries Amounts due to joint venture and associated companies Corporation tax Other taxation and social security Other creditors Accruals and deferred income Proposed dividend Group Company 2003 £’000 2,822 — 17,948 2,553 478 2002 £’000 1,022 — 4,086 2,454 2,510 2003 £’000 1,072 53,247 14,849 4,983 3,244 2002 £’000 19 53,274 3,206 4,361 2,061 23,801 10,072 77,395 62,921 2003 £’000 3,664 3,000 55 400 11,564 1,721 — — 8,918 2,164 766 13,355 5,274 Group Company 2002 £’000 447 7,760 74 400 8,886 5,861 — 9,456 3,299 3,481 232 8,648 4,547 2003 £’000 17,107 — — — — — 83,752 — — — 486 8,529 5,274 2002 £’000 12,902 — — — — — 35,514 9,456 — 26 13 3,565 4,547 50,881 53,091 115,148 66,023 16. Creditors: Amounts falling due after more than one year Bank and other loans Group Company 2003 £’000 2002 £’000 127,941 168,020 2003 £’000 8,500 2002 £’000 34,500 50 17. Financial Instruments The group’s policies on derivatives and financial instruments are set out in the Financial Review on pages 20 to 22 and the accounting policies on page 40. The group does not trade in financial instruments. All financial instruments are denominated in sterling. Short-term debtors and creditors have been omitted from all disclosures. (a) Maturity Profile of Committed Financial Liabilities One year One to two years Two to five years More than five years Drawn £’000 7,119 14,244 68,744 44,953 Group 2003 Undrawn £’000 3,633 9,339 69,194 1,714 Total £’000 10,752 23,583 137,938 46,667 Group 2002 Drawn £’000 Undrawn £’000 8,681 2,963 115,057 50,000 5,053 1,797 44,228 — Total £’000 13,734 4,760 159,285 50,000 Gross financial liabilities 135,060 83,880 218,940 176,701 51,078 227,779 Interest payable on the loans repayable in more than five years is 1.425% above LIBOR. The weighted average period to maturity of borrowings was 5 years (2002: 6 years). (b) Interest Rate Profile The following interest rate profiles of the group’s financial liabilities are after taking into account interest rate swaps entered into by the group. Floating rate financial liabilities* £’000 Fixed rate financial liabilities £’000 Total £’000 At 30 November 2003 135,060 15,060 120,000 At 30 November 2002 176,701 96,701 80,000 * Of which £8,860,000 was hedged by interest rate options (2002: £28,100,000). (c) Fair Values of Financial Assets and Liabilities Fixed Rate Borrowings Weighted Weighted average time for which the rate is fixed (years) average interest rate % 5.11 5.64 2 3 Primary financial instruments: Fixed asset investments Loans to joint ventures and associates Income due from other investments Cash Loans from joint ventures and associates Short-term loans Long-term loans Derivative financial instruments: Interest rate swaps and options 2003 2002 Book Value £’000 6,000 17,948 1,187 92 — (7,119) (127,941) Fair Value £’000 6,000 17,948 1,187 92 — (7,119) (127,941 Book Value £’000 6,000 4,086 1,032 2,927 (9,456) (8,681) (168,020) Fair Value £’000 6,000 4,086 1,032 2,927 (9,456) (8,681) (168,020) — (328) — (2,863) Market rates have been used to determine the fair value of derivative financial instruments. 51 St. MODWEN PROPERTIES PLC Notes to the Accounts 17. Financial Instruments continued (d) Hedging As explained in the financial review on pages 20 to 22, the group’s policy is to hedge interest rate exposure by using derivative financial instruments. Gains and losses on instruments used for hedging are not recognised until the exposure that is being hedged is itself recognised. Unrecognised gains and losses on instruments used for hedging, and the movements therein, are as follows: 2003 Losses £’000 Net £’000 Gains £’000 2002 Losses £’000 Net £’000 Unrecognised gains and losses at 1 December Gains and losses from previous years that were recognised in the year Gains and losses arising before 1 December that were not recognised in the year Gains and losses arising in the year which were not recognised in the year Unrecognised gains and losses on hedges at 30 November Gains and losses expected to be recognised in the next financial year Gains and losses expected to be recognised after the next financial year 18. Deferred taxation Gains £’000 — — (2,863) (2,863) 1,027 1,027 — (1,836) (1,836) 1,374 134 1,508 1,374 (1,702) (328) 441 933 (647) (206) (1,055) (122) — — — — — — — (2,585) (2,585) 801 801 (1,784) (1,784) (1,079) (1,079) (2,863) (2,863) (1,027) (1,027) (1,836) (1,836) Provided Unprovided 2003 £’000 2002 £’000 2003 £’000 2002 £’000 3,911 (941) 2,970 — 2,970 3,655 324 3,979 — 3,979 — — — 18,295 18,295 — — — 17,091 17,091 The amounts of deferred taxation provided and unprovided in the accounts are: Group Capital allowances in excess of depreciation Other timing differences Revaluation of properties and gains rolled over (including share of joint ventures) 52 18. Deferred taxation continued Company Capital allowances in excess of depreciation Other timing differences Revaluation of properties Reconciliation of movement on deferred tax liability Balance as at 30 November 2002 Profit and loss account Balance as at 30 November 2003 19. Called up share capital Authorised: Equity share capital 150,000,000 Ordinary 10p shares Allotted and fully paid: Equity share capital 120,773,954 Ordinary 10p shares: Provided Unprovided 2003 £’000 2002 £’000 2003 £’000 2002 £’000 275 (360) — (85) 272 — — 272 — — (348) (348) — — (522) (522) Group £’000 Company £’000 3,979 (1,009) 2,970 272 (357) (85) 2003 £’000 2002 £’000 15,000 15,000 12,077 12,077 Details of options, outstanding at 30 November 2003, to acquire ordinary shares in the company under the option schemes were as follows: Executive share option schemes Price per share Options outstanding Exercisable between Savings related schemes 50.5p 51.5p 81.5p 103.5p 99.0p 106.0p 113.5p 134.0p 200.0p 84.5p 103.5p 125.0p 182.0p 150,000 500,000 235,000 500,000 700,000 575,000 1,022,500 955,000 862,000 112,621 179,325 218,445 146,125 6,156,016 August 1997 – August 2004 August 1998 – August 2005 March 2002 – March 2008 September 2003 – September 2009 November 2003 – November 2009 March 2004 – March 2010 September 2004 – September 2011 September 2005 – September 2012 August 2008 – August 2015 October 2004 – April 2005 May 2006 – November 2006 October 2007 – April 2008 August 2008 – February 2009 53 St. MODWEN PROPERTIES PLC Notes to the Accounts 20. Reserves Group At 30 November 2002 Revaluation of investment properties Realisation of prior years’ revaluations Share of joint ventures’ revaluation of investment properties Revaluation of associate Retained profit for the year Taxation on realisation of prior years’ revaluations At 30 November 2003 Company At 30 November 2002 Revaluation of investment properties Realisation of prior years’ revaluations Revaluation of investments Retained loss for the year At 30 November 2003 21. Group Cash Flow Statement (a) Reconciliation of operating profit to operating cash flows Operating profit Depreciation and amortisation charges (Increase)/decrease in debtors Decrease/(increase) in stocks (Decrease)/increase in creditors Net cash inflow from operating activities (b) Analysis of net debt Cash Cash at bank and in hand Bank overdraft Debt Debt due within one year Debt due after one year 54 Share premium account £’000 Merger reserve £’000 Capital redemption reserve £’000 Revaluation reserve £’000 Profit & loss account £’000 9,167 — — — — — — 9,167 9,167 — — — — 9,167 9 — — — — — — 9 9 — — — — 9 356 — — — — — — 356 356 — — — — 356 80,191 12,272 (5,564) 2,189 886 — — 92,517 — 5,564 — — 16,169 (1,231) 89,974 113,019 148,485 (130) 1,065 38,814 — 24,223 — (1,065) — (8,399) 188,234 14,759 2003 £’000 34,538 536 (13,729) 16,929 (6,947) 31,327 2002 £’000 28,561 872 345 (7,139) 16,154 38,793 At 30 November 2002 £’000 Cash Flows £’000 At 30 November 2003 £’000 2,927 (447) 2,480 (2,835) (3,217) (6,052) 92 (3,664) (3,572) (8,234) (168,020) 4,779 40,079 (3,455) (127,941) (176,254) 44,858 (131,396) (173,774) 38,806 (134,968) 22. Net asset value Net assets per share FRS 19 deferred tax provision for disposal of investment properties Fair value of interest rate derivatives (post-tax) Fair value of investment in The Chepstow Racecourse PLC (post-tax) FRS 19 deferred tax provision on potential clawback of capital allowances Adjusted net assets per share 2003 p 186.0 (15.1) (0.2) 170.7 6.3 3.2 180.2 2002 p 160.9 (14.2) (1.7) 145.0 — 3.0 148.0 23. Commitments and contingencies The company has guaranteed the loans and overdrafts of subsidiary companies, which at 30 November 2003 amounted to £122,441,000 (2002: £143,435,000), and has granted a fixed charge over its investment properties as security. At 30 November 2003 the group had no contracted capital expenditure (2002: £2,200,000). 24. Related party transactions Key Property Investments Limited (‘KPI’) During the year the group lent a further £9,568,000 to KPI and the balance due from KPI at the year end was £11,448,000 (2002: £1,880,000). Holaw (462) Limited (‘Holaw’) The balance due from Holaw at the year end was £365,000 (2002: £365,000). Barton Business Park Limited (‘BBP’) During the year the group repaid its £9,438,000 loan and lent £10,370,000 to BBP. This balance was outstanding at the year end. Sowcrest Limited (‘Sowcrest’) During the year the group repaid its £18,000 loan and lent £80,000 to Sowcrest. This balance was outstanding at the year end. Great British Kitchen Company Limited (‘GBK’) During the year the group advanced a further £95,000 to GBK leaving a balance outstanding at the year end of £443,000 (2002: £348,000). The Chepstow Racecourse PLC (‘Chepstow’) The loan of £612,000 made in previous years was outstanding at the year end (2002: £612,000). Shaw Park Developments Limited (‘SPD’) During the year the group lent £975,000 to SPD. The balance was outstanding at the year end (2002: £nil). 25. Post-balance sheet events Following the year end, the company completed three acquisitions: a 228-acre site at Longbridge from MG Rover on a sale and leaseback basis; 600 acres of non-operational land at Llanwern, bought from Corus; and the remaining 50% share of the Kirkby Shopping Centre from Mars Pension Fund. The total consideration for these transactions, which were funded within existing facilities, was £71.25m. 55 St. MODWEN PROPERTIES PLC Five Year Record Rental income Property Profits Pre-tax profit Net Assets Employed Investment properties Investments Work in progress Other net liabilities Net borrowings Financed by Share capital Revaluation reserve Profit and loss account Other reserves Shareholders’ Funds Earnings per share (pence) Dividends per share (pence) Dividend cover (times) Normal basis On recurring income Net assets per share (pence) Increase on prior year 56 1999 £m 23.2 11.1 18.5 158.7 14.2 55.8 (20.4) (87.4) 120.9 12.1 39.7 59.6 9.5 2000 £m 26.9 13.7 21.7 187.2 14.6 63.4 (24.2) (101.3) 139.7 12.1 50.6 67.5 9.5 2001 £m 27.3 16.1 25.5 209.7 24.1 94.0 (21.7) (140.7) 165.4 12.1 63.3 80.5 9.5 2002 £m 30.7 24.0 30.0 267.5 37.8 101.2 (38.4) (173.8) 194.3 12.1 80.2 92.5 9.5 120.9 139.7 165.4 194.3 11.1 3.8 2.9 1.1 100.1 22% 12.6 4.3 2.9 1.1 115.7 16% 15.2 4.9 3.1 1.2 136.9 18% 17.1 5.7 3.0 0.6 160.9 18% 2003 £m 42.5 25.2 35.0 266.5 38.9 77.5 (23.3) (135.0) 224.6 12.1 90.0 113.0 9.5 224.6 20.1 6.6 3.0 0.9 186.0 16% Independent Auditors’ Report to the Members of St. Modwen Properties PLC We have audited the group’s financial statements for the year ended 30 November 2003 which comprise Group Profit and Loss Account, Group Balance Sheet, Company Balance Sheet, Group Cash Flow Statement, Group Statement of Total Recognised Gains and Losses, and the related notes 1 to 25. These financial statements have been prepared on the basis of the accounting policies set out therein. We have also audited the information in the Directors’ Remuneration Report that is identified as having been audited. This report is made solely to the company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable United Kingdom law and accounting standards are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the financial statements and the part of the Directors’ Remuneration Report to be audited in accordance with relevant legal and regulatory requirements, United Kingdom Auditing Standards and the Listing Rules of the Financial Services Authority. We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors’ Report is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law or the Listing Rules regarding directors’ remuneration and transactions with the group is not disclosed. We review whether the Corporate Governance Statement reflects the company’s compliance with the seven provisions of the Combined Code specified for our review by the Listing Rules, and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. This other information comprises the Directors’ Report, unaudited part of the Directors’ Remuneration Report, Chairman’s Statement, Chief Executive’s Operating Review, Financial Review and Corporate Governance Statement. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. BASIS OF AUDIT OPINION We conducted our audit in accordance with the United Kingdom Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors’ Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors’ Remuneration Report to be audited. OPINION In our opinion the financial statements give a true and fair view of the state of affairs of the company and of the group as at 30 November 2003 and of the profit of the group for the year then ended and the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. Ernst & Young LLP Registered Auditor Birmingham 16 February 2004 57 St. MODWEN PROPERTIES PLC Annual General Meeting In accordance with the Directors’ Remuneration Report The board has no intention at present to exercise the Regulations 2002, shareholders will be asked to approve the authority to allot shares. Directors’ Remuneration Report (set out on pages 31 to 35) for the year ended 30 November 2003. Resolution 8, which will be proposed as an Ordinary Resolution, provides for the Section 80 amount to be Shareholders will be asked to approve at the Annual General £2,922,605 (being an amount equal to the authorised but Meeting the following Resolutions as special business: unissued share capital of the company at the date of this — Approval of the increased limit for total non-executive directors’ fees, as described on page 34 (resolution 6). — Approval of the deferred bonus scheme for the executive directors (excluding the chairman), as described on page 32 (resolution 7). The following resolutions have become routine business at the Annual General Meetings of most public companies, including St. Modwen Properties PLC, and relate to: — Renewal of the authority for the directors to allot relevant report and representing 24% of the company’s issued share capital at that date). Resolution 9, which will be proposed as a Special Resolution, provides for the Section 89 amount to be £603,870 (representing 5% of the company’s issued share capital). The prescribed period for which these powers and authorities are granted will expire at the conclusion of the Annual General Meeting to be held next year (or on 11 July 2005 if earlier) when the directors intend to seek renewal of securities and the renewal of the powers for the directors to the authorities. allot equity securities for cash (Resolutions 8 and 9). The existing general authority of the directors to allot shares and the current disapplication of the statutory pre-emption rights expire at the conclusion of the forthcoming Annual General Meeting. Article 8.2 of the company’s Articles of Association contains a general authority for the directors to allot shares in the company for a period (not exceeding five years) (“the — Renewal of the authority for the company to purchase certain of its own shares (Resolution 10). This resolution renews an existing authority for a further year. The directors believe it is advantageous to have such authority but would only exercise it if it was believed to be in the best interests of shareholders. At present, the board has no intention to exercise the authority. prescribed period”) and up to a maximum aggregate nominal AUDITORS amount (“the Section 80 amount”) approved by a Special or Ernst & Young LLP have expressed their willingness to remain in Ordinary Resolution of the company. Article 8.2 also office and a resolution to reappoint them as auditors of the empowers the directors during the prescribed period to allot company will be proposed at the forthcoming Annual General shares for cash in connection with a rights issue and also to Meeting. allot shares for cash in any other circumstances up to a maximum aggregate nominal amount approved by a Special Resolution of the company (“the Section 89 amount”). 58 Notice of Meeting Notice is hereby given that the sixty-third Annual General Meeting the sum of £250,000 exclusive of value added tax (if of St. Modwen Properties PLC will be held at noon on 23 April applicable) and such maximum shall be increased on each 2004 at the Ironmongers’ Hall, Barbican, London EC2Y 8AA. anniversary of the date of adoption of this resolution by the movement in the Index of Retail Prices. Ordinary Business 1. To receive and adopt the report of the directors and the accounts for the year ended 30 November 2003. 7. Ordinary Resolution That a deferred bonus scheme be introduced, in addition to the existing annual bonus scheme, with effect from the year 2. To declare a final ordinary dividend of 4.4p per share. commencing 1 December 2003, for the executive directors 3. To re-elect as directors: (excluding the Chairman), under the terms of which a maximum of 70% of salary could be earned per annum, i. Sir Stanley Clarke (aged 70), payable after three years. ii. Anthony Glossop, iii. Christopher Roshier, iv. Richard Froggatt, and v. Tim Haywood. 4. To reappoint Ernst & Young LLP as auditors and to authorise the directors to determine their remuneration. 5. To approve the Directors’ Remuneration Report contained on pages 31 to 35. Special Business 8. Ordinary Resolution That the authority to allot relevant securities and equity securities conferred on the directors by Article 8.2 of the company’s Articles of Association be and is hereby granted for the period ending on 21 July 2005 or at the conclusion of the next Annual General Meeting of the company to be held after the date of the passing of this Resolution (whichever is the earlier) and for such period the Section 80 amount shall be £2,922,605. 9. Special Resolution That the power to allot relevant securities and equity To consider and, if thought fit, pass the following resolutions: securities conferred on the directors by Article 8.2 of the 6. Ordinary Resolution company’s Articles of Association be and is hereby granted for the period ending on 21 July 2005 or at the conclusion of That the authority to pay directors’ fees in accordance with the next Annual General Meeting of the company to be held Article 112.1 of the company’s Articles of Association be after the date of the passing of this Resolution (whichever is and is hereby increased so that such fees paid in the the earlier) and for such period the Section 89 amount shall aggregate to all such directors shall not in any year exceed be £603,870. 59 St. MODWEN PROPERTIES PLC Notice of Meeting 10. Special Resolution case exclusive of advance corporation tax (if any) and That, in accordance with Article 10 of its Articles of expenses payable by the company); and Association and Section 166 of the Companies Act 1985, the company be and is hereby granted general and unconditional authority to make market purchases (as defined in Section 163 of the Companies Act 1985) of any of its own ordinary shares on such terms and in such manner as the board of directors may from time to time determine PROVIDED THAT the general authority conferred by this Resolution shall: (c) expire on 21 July 2005 or at the conclusion of the next Annual General Meeting of the company to be held after the date of the passing of this Resolution (whichever is the earlier), save that if the company should before such expiry enter into a contract of purchase then the purchase may be completed or executed wholly or partly after such expiry. (a) be limited to 12,077,395 ordinary shares of 10p each; Tim Haywood (b) not permit the payment per share of more than 105% Secretary of the average middle market price quotation on the 16 February 2004 London Stock Exchange for the ordinary shares on the five previous dealing days or less than 10p (in each Registered Office: Lyndon House Hagley Road Birmingham B16 8PE Company number 349201 Notes 3. In accordance with Regulation 41 of the Uncertificated 1. A member entitled to attend and vote at this meeting may Securities Regulations 2001, the company gives notice that appoint another person (whether a member or not) as only those shareholders entered on the relevant register of his/her proxy, to attend and, on a poll, vote for him/her. members (the “Register”) for certificated or uncertificated Forms of proxy, one of which is enclosed, must be signed by shares of the company (as the case may be) at 6 p.m. on the appointer and must be lodged at the registrar’s office at Wednesday 21 April 2004 (the “Specified Time”) will be least 48 hours before the meeting. A proxy need not be a entitled to attend or vote at the meeting in respect of the member of the company. number of shares registered in their name at the time. Changes to entries on the Register after the Specified Time will be 2. Copies of the contracts of service between the company and disregarded in determining the rights of any person to attend or Sir Stanley Clarke, Mr C. C. A. Glossop, Mr W. A. Oliver, Mr vote at that meeting. Should the meeting be adjourned to a time R. L. Froggatt and Mr T. P. Haywood and the terms and not more than 48 hours after the Specified Time, that time will conditions of appointment of the non-executive directors are also apply for the purpose of determining the entitlement of available for inspection at the registered office of the members to attend and vote (and for the purpose of company on each business day during normal business determining the number of votes they may cast) at the hours and will be available on the day of the meeting, at the adjourned meeting. Should the meeting be adjourned for a place of the meeting, from at least 15 minutes prior to the longer period, then to be so entitled, members must be entered meeting until its conclusion. A register of directors’ interests on the Register at the time which is 48 hours before the time will also be available for inspection from the commencement fixed for the adjourned meeting or, if the company gives notice of the meeting until its conclusion. of the adjourned meeting, at the time specified in the notice. 60 Access 18, Avonmouth, Bristol — a 212-acre former smelting plant acquired May 2003 for regeneration as a major employment park. Phase I (4 acres) — completed. Phase II (34 acres) — planning application submitted. Phase III (174 acres) — site clearance and demolition under way. Castle Hill, Dudley — a 148-acre leisure and heritage scheme to be developed in partnership with Dudley Metropolitan Borough Council. Contents Financial Highlights Chairman’s Statement The Chairmanship of Sir Stanley Clarke Chief Executive’s Operational Review Review of Major Projects Environmental Impact Financial Review Analysis of the Portfolio Directors and Advisers Shareholder Information Directors’ Report Directors’ Responsibilities 1 3 4 6 15 18 20 23 24 25 26 27 Corporate Governance Directors’ Remuneration Report Group Profit and Loss Account Balance Sheets Group Cash Flow Statement Supplementary Statements Accounting Policies Notes to the Accounts Five Year Record Auditors’ Report to the Members Annual General Meeting Notice of Meeting 28 31 36 37 38 39 40 41 56 57 58 59 Visit our website on www.stmodwen.co.uk “The key to the strategy is to maintain a growing hopper of well-located future opportunities.” S t . M O D W E N P R O P E R T I E S P L C A n n u a l R e p o r t 2 0 0 3 St. MODWEN PROPERTIES PLC Head Office and Midlands Regional Office: Lyndon House, Hagley Road, Edgbaston, Birmingham B16 8PE Telephone: (0121) 456 2800 Facsimile: (0121) 456 1829 www: stmodwen.co.uk e-mail: info@stmodwen.co.uk Regional Offices: London and South East: Telephone: (020) 7499 5666 Facsimile: (020) 7629 4262 North Staffordshire: Telephone: (01782) 281844 Facsimile: (01782) 283670 Northern: Telephone: (01925) 825950 Facsimile: (01925) 284808 St. MODWEN PROPERTIES PLC Annual Report 2003 

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